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INVESTEC BANK LTD - Annual Financial Statements for Financial Year End 2015 - TOPCLI

Release Date: 23/09/2015 10:59
Code(s): TOPCLI     PDF:  
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Annual Financial Statements for Financial Year End 2015 - TOPCLI

Investec Bank Limited
Incorporated in the Republic of South Africa
Company Registration Number 1969/004763/06
JSE Share Code: TOPCLI
ISIN codes: All applicable ISIN codes for Investec Bank Limited


Annual report
2015
Investec Bank Limited group and company
annual financial statements
About this report
Cross referencing tools:




Audited information                       Reporting standard

Denotes information in the risk,          Denotes our consideration of a
remuneration and directors’ reports       reporting standard.
that forms part of the group’s audited
annual financial statements.




Page references                           Sustainability

Refers readers to information elsewhere   Refers readers to further information in
in this report                            our sustainability report available on our
                                          website: www.investec.com.




Website

Indicates that additional information
is available on our website:
www.investec.com.
Contents

1   Investec Bank Limited in perspective
    Our organisational structure                                             3
    Overview of the activities of Investec Bank Limited                      4
    Our operational footprint                                                5
    Highlights                                                               6


2   Financial review
    Financial review                                                        11



3   Risk management and corporate governance
    Risk management                                                        20
    Credit ratings                                                         80
    Internal Audit                                                         81
    Compliance                                                             82
    Corporate governance                                                   83
    Directorate                                                            88


4   Remuneration report
    Remuneration report                                                     90



5   Annual financial statements
    Directors’ responsibility statement                                    101
    Declaration by the company secretary                                   101
    Independent auditors’ report to the members of Investec Bank Limited   102
    Directors’ report                                                      103
    Income statements                                                      105
    Statements of comprehensive income                                     106
    Balance sheets                                                         107
    Statements of changes in equity                                        108
    Cash flow statements                                                   112
    Accounting policies                                                    113
    Notes to the financial statements                                      122
    Contact details                                                        192
    Corporate information                                                  IBC
1
Investec Bank
Limited in
perspective
Overview of Investec’s and Investec Bank Limited’s
organisational structure

                                                            Operating structure
Investec Limited,
which houses our                                            During July 2002 Investec Group Limited (since renamed Investec Limited) implemented
                                                            a dual listed companies (DLC) structure and listed its offshore business on the London
Southern African                                            Stock Exchange.
and Mauritius                                                       A circular on the establishment of our DLC structure was issued on 20 June 2002
operations, has been                                                and is available on our website.
listed in South Africa                                      In terms of the DLC structure, Investec Limited is the controlling company of our businesses
since 1986                                                  in Southern Africa and Mauritius, and Investec plc is the controlling company of our
                                                            non-Southern African businesses. Investec Limited is listed on the JSE Limited South Africa
                                                            and Investec plc is listed on the London Stock Exchange. Investec Bank Limited (referred to
                                                            in this report as the bank) is a subsidiary of Investec Limited.




Our DLC structure and main operating subsidiaries at 31 March 2015


                                                                                                               Investec Limited
                     Investec plc
                                                                                                              JSE primary listing
                  LSE primary listing                                      Sharing agreement
                                                                                                             NSX secondary listing
                 JSE secondary listing
                                                                                                             BSE secondary listing




                       Non-Southern African                                                                          Southern African




                                                                                                                                                           Investec Bank Limited in perspective
                           operations                                                                                  operations




                                                                                                      Investec Asset
                                      Investec Asset                                                                                       Investec
                                                                                                       Management           Investec
                   Investec            Management                                    Investec Bank                                      Property Group
                                                                                                         Holdings          Securities
                   Bank plc               Limited                                       Limited                                            Holdings
                                                                                                         (Pty) Ltd          (Pty) Ltd
                                           85%*                                                                                            (Pty) Ltd
                                                                                                           85%*




                                         Investec                                       Investec
               Investec Wealth                                                                          Reichmans
                                         Holdings                                         Bank
                 & Investment                                                                            Holdings
                                        (Australia)                                    (Mauritius)
                    Limited                                                                              (Pty) Ltd
                                          Limited                                        Limited



              Kensington Group plc was sold on                                        All shareholdings in the ordinary share capital of the
                                                                                      subsidiaries are 100%, unless otherwise stated.
                                                                                                                                                                            1
              30 January 2015. Investec Bank (Australia)
              Limited was sold on 31 July 2014.
                                                                                      * 15% is held by senior management in the company.



Salient features of the DLC structure
• Investec plc and Investec Limited are separate legal entities and listings, but are bound
  together by contractual agreements and mechanisms

• Investec operates as if it is a single unified economic enterprise

• Shareholders have common economic and voting interests as if Investec plc and
  Investec Limited were a single company

• Creditors, however, are ring-fenced to either Investec plc or Investec Limited as there are
  no cross guarantees between the companies.




Investec Bank Limited group and company annual financial statements 2015                                                                               3
                                       Overview of the activities of Investec Bank Limited




                                           What we do

                                       Specialist Banking...
                                           Investec Bank Limited operates as a specialist bank within Southern Africa. The bank is operationally managed as a single
                                           banking entity within Investec Limited.




                                                                                                                                              High-income and high net
                                           Corporates/government/institutional clients
                                                                                                                                              worth private clients


                                           Corporate Advisory and                        Corporate and                                        Private Banking activities
                                           Investment activities                         Institutional Banking
                                                                                         activities

                                           Advisory                                     Treasury and trading services                       Transactional banking and
                                           Principal investments                        Specialised lending, funds and                      foreign exchange
                                                                                        debt capital markets                                Lending
                                                                                                                                            Deposits
                                                                                                                                            Investments
Investec Bank Limited in perspective




                                           Corporate Advisory and Investment            Corporate and Institutional Banking                 Private Banking Activities positions
                                           Activities engages in a range of             Activities provides a wide range                    itself as the ‘investment bank for
                                           investment banking activities and            of specialist products, services                    private clients’, offering both credit
                                           positions itself as an integrated            and solutions to select corporate                   and investment services to our
                                           business focused on local client             clients, public sector bodies and                   select clientele.
                                           delivery with international access.          institutions. The division undertakes
                                           We target clients seeking a highly           the bulk of Investec’s wholesale                    Through strong partnerships,
                                           customised service, which we offer           debt, structuring, proprietary                      we have created a community
                                           through a combination of domestic            trading, capital markets and                        of clients who thrive on being
                                           depth and expertise within each              derivatives business.                               part of an entrepreneurial and
                                           geography and a client-centric                                                                   innovative environment. Our target
                                           approach.                                    Our institutional stockbroking                      market includes ultra high net
                                                                                        activities are conducted outside                    worth individuals, active wealthy
                                           Our activities include advisory and
                                                                                        of the bank in Investec Securities                  entrepreneurs, high-income
                                           principal investments.
                                                                                        Limited.                                            professionals, self-employed
                                           Our target market includes                                                                       entrepreneurs, owner managers

1                                          corporates, government and
                                           institutional clients.
                                                                                                                                            in mid-market companies and
                                                                                                                                            sophisticated investors.




                                                                                  Integrated systems and infrastructure




                                       4                                                                                Investec Bank Limited group and company annual financial statements 2015
Our operational footprint


Specialist expertise delivered with                                                                             The specialist teams are well
                                                                                                                positioned to provide services

dedication and energy                                                                                           for both personal and business
                                                                                                                needs right across Private Banking,
                                                                                                                Corporate and Institutional Banking
                                                                                                                and Corporate Advisory and
Business leaders                                                                                                Investment Banking.
Stephen Koseff
Bernard Kantor
Glynn Burger


        Further information on the Specialist Banking management structure is available
        on our website.




     Our value                                              • High-quality specialist banking solution to corporate, institutional, government and
                                                              private clients with leading positions in selected areas
     proposition                                            • Provide high touch personalised service
                                                            • Ability to leverage international, cross-border platforms
                                                            • Well positioned to capture opportunities between the developed and the emerging world
                                                            • Balanced business model with good business depth and breadth.




                                                                                                                                                          Investec Bank Limited in perspective
     Where we
     operate




                                                                                                                                                                           1


                                                                                                             Mauritius

                                                                    South Africa
                                                                                                      Established 1997
                                                                                                      One of the leading
                                                            Strong brand and positioning              international banks in
                                                                                                      Mauritius
                                                            Fifth largest bank
                                                            Leading in corporate
                                                            institutional and private client
                                                            banking activities




Investec Bank Limited group and company annual financial statements 2015                                                                              5
                                       Highlights



                                       A diversified business model
                                                                                                Financial
                                       continues to support a large                             performance
                                       recurring revenue base, totalling
                                       70.4% of operating income                           Investec Bank Limited
                                                                                           recorded a 49.0% increase in
                                                                                           profit before taxation

                                                                                             2015                          2014

                                       We have a strong franchise                            R3 673mn R2 465mn
                                       that supports a solid
                                       revenue base                                        Cost to income ratios

                                                                                             2015                          2014
                                                                                             53.9%                         57.0%

                                       Total operating income                              Improving credit loss ratio
                                       increased 24.0% to
                                       R8 946 million                                        2015                          2014
Investec Bank Limited in perspective




                                       (2014: R7 216 million)                                0.29%                         0.44%

                                                                                           Cash and near cash balances
                                                                                           up 5.0%

                                                                                             2015                          2014
                                                                                             R88.7bn                       R84.5bn



1




                                       6                                   Investec Bank Limited group and company annual financial statements 2015
Highlights (continued)




                                                            Other financial features

                                                                                                                          31 March       31 March
                                                             R’million                                                        2015           2014      % change

Core loans and advances                                      Headline earnings                                                  3 014          2 086        44.5%
increased 17.3%                                              Total capital resources
                                                             (including subordinated liabilities)                           39 348            36 099        9.0%
  2015                          2014                         Total equity                                                   28 899            25 601        12.9%
  R177.5bn                      R151.4bn                     Total assets                                                  332 706        303 218           9.7%




Customer deposits increased
8.0%

  2015                          2014                        Total operating and annuity income^

  R221.4bn                      R204.9bn                    R’million                                                                                   Percentage
                                                            9 000                                                                                              90
                                                            8 000                                                                                              80
                                                            7 000                                                                                              70
Ratio of loans and advances                                 6 000                                                                                              60
to deposits remains strong                                  5 000                                                                                              50




                                                                                                                                                                         Investec Bank Limited in perspective
                                                            4 000                                                                                              40
  2015                          2014                        3 000                                                                                              30

  78.1%                         72.5%                       2 000
                                                            1 000
                                                                                                                                                               20
                                                                                                                                                               10
                                                                 0                                                                                             0
                                                                           06       07        08        09           10    11       12   13       14   15

                                                                            Trading income
Low gearing ratios                                                          Investment income
                                                                            Other fees and other operating income
  2015                          2014                                        Annuity fees and commissions

  11.4 times 11.8 times
                                                                            Net interest income
                                                                            Annuity incomeˆ as a % of total income


                                                             ^       Where annuity income is net interest income and annuity fees.




                                                                                                                                                                                          1




Investec Bank Limited group and company annual financial statements 2015                                                                                             7
                                       Highlights (continued)



                                             Credit quality                                Core loans and advances increased by 17.3% to R177.5 billion
                                             on core loans                                 Default loans (net of impairments) as a percentage of core loans and advances decreased
                                             and advances                                  from 1.50% to 1.46%

                                             has improved                                  The credit loss ratio improved from 0.44% to 0.29%

                                                                                           Net defaults (after impairments) remain adequately collateralised.




                                       Impairment levels have normalised

                                       Impairments/(recoveries)                                                    Default and core loans

                                       R‘million                                                                       Percentage                                                                     R’billion
                                       1 000                                                                           5                                                                                  200


                                           800
                                                                                                                       4
                                                                                                                                                                                                          150
                                           600
                                                                                                                       3
                                                                                                        455
Investec Bank Limited in perspective




                                           400                                                                                                                                                            100

                                                                                                                       2
                                           200
                                                                                                                                                                                                          50
                                                                                                                       1
                                            0


                                        -200                                                                           0                                                                                  0
                                                   06   07   08   09   10   11   12   13      14   15                         06       07     08     09     10     11     12     13     14    15
                                                                                                                                    Net core loans (RHS)
                                                                                                                                    Net defaults (before collateral) as a % of core loans and advances (LHS)
                                                                                                                                    Credit loss ratio (income statement impairment charge as a % of
                                                                                                                                    average core advances) (LHS)




1




                                       8                                                                                       Investec Bank Limited group and company annual financial statements 2015
Highlights (continued)



     Sound capital                                           The intimate involvement of senior management ensures stringent management of risk
     and liquidity                                           and liquidity

     principles                                              Our policy has always been to hold capital in excess of regulatory requirements and we
                                                             intend to perpetuate this philosophy
     maintained                                              Investec has maintained a stable capital base

                                                             A well-established liquidity management philosophy remains in place
Continue to focus on:                                        Benefited from a growing retail deposit franchise and recorded an increase in customer
• Maintaining a high level of readily                        deposits
  available, high-quality liquid assets –                    Advances as a percentage of customer deposits is at 78.1% (2014: 72.5%)
  approximately 34.1% of the bank’s
  liability base                                             We ended the year with the three-month average of Investec Bank Limited’s (solo basis)
                                                             liquidity coverage ratio at 100.3% which is well ahead of the minimum level required.
• Diversifying funding sources

• Limiting concentration risk

• Reduced reliance on wholesale funding.



Capital adequacy and tier 1 ratios
                                                                   31 March 2015 (Basel III)                                 31 March 2014 (Basel III)
                                                                                                     Common                                                 Common
                                                         Capital                                         equity        Capital                                  equity




                                                                                                                                                                              Investec Bank Limited in perspective
                                                    adequacy ratio            Tier 1 ratio          tier 1 ratio adequacy ratio        Tier 1 ratio        tier 1 ratio

 Investec Bank Limited                                         15.4%                 11.4%               11.0%           15.3%              10.8%                10.3%
 Investec Limited                                              14.7%                 11.3%                9.6%           14.9%              11.0%                9.4%




Benefiting from a growing retail deposit franchise
Cash and near cash trend                                                                     Customer accounts (deposits)

R’million                                                                                    R’billion
120 000                                                                                      250
                                                                                                                                                                 221.4
100 000
                                                                                             200                                                                                               1
 80 000

                                                                                             150
 60 000


                                                                                             100
 40 000


 20 000                                                                                       50


       0
                                                                                                0
            Apr 14                                                            Mar 15                     06   07   08   09   10   11      12   13     14    15
              Near cash (other ‘monetisable’ assets)
              Central Bank cash replacements and cash guaranteed central bank liquidity
              Cash




Investec Bank Limited group and company annual financial statements 2015                                                                                                  9
2
Financial
review
Financial review


An overview of the operating environment impacting our business




South Africa

                                                            The World Bank                                       South Africa increased its interest rates
     Our views                                              evidences that South
                                                                                                                 by 75bp over 2014 and further hikes are
                                                                                                                 expected from current, still low, levels.
                                                                                                                 Electricity supply constraints have proved
                                                            Africa has established                               an inhibitor to economic performance, while

                                                            a more equitable                                     higher interest rates and indebtedness
                                                                                                                 impacted household consumption
South Africa faced a difficult
year in 2014, with strike action                            society over the                                     expenditure in 2014.

in the platinum belt persisting                             past 20 years via                                    2014/15 has seen a more conservative
                                                                                                                 budget released than in recent years,
for close to two quarters and
GDP growth consequently                                     social assistance                                    detailing reduced projections on
                                                                                                                 government net debt as a percentage
slipping to 1.5% year-on-year as                            programmes,                                          of GDP, and projected consolidation of
consumer spending, domestic
fixed investment and production                             particularly spend                                   the fiscal deficit, with some reduction in
                                                                                                                 government expenditure. If achieved, this
were all negatively affected.                               on education and                                     should assist South Africa to maintain its
Nevertheless, gains were still                                                                                   credit rating of BBB- from Standard and
made as GDP per capita rose                                 healthcare                                           Poor’s on its long-term foreign currency
to R56 122 in real terms from                                                                                    sovereign debt.
R56 044, and real disposable
income per capita also lifted.                              Upward social mobility persisted, largely
                                                            on the ongoing roll-out of social services,
                                                            which accounted for 68% of government




                                                                                                                                                                   Financial review
                                                            revenue. Redistribution between the rich
                                                            and poor via direct (personal income)
  1.5%                           2.2%                       taxation is progressive, and the World
                                                            Bank shows South Africa achieved the
                                 2013/14                    largest reduction in poverty and inequality
  2014/15
  Economic growth                Economic growth            compared to the other middle income
                                                            economies studied on the provision of
                                                            free basic services and direct monetary
                                                            transfers to households. South Africa’s
GDP per capita has risen                                    Gini coefficient on income is measured at
                                                            0.77 before taxes and social spending and
                                                                                                                                                                      2
                                                            0.59 after. It is still high, but the fiscal space
 2015                           2014                        to spend more to achieve even greater
                                                            redistribution is extremely limited, with
 R56 122                        R56 044                     South Africa already receiving a number of
                                                            credit rating downgrades over the past few
                                                            years. More needs to be done to reduce
                                                            inequality, in particular South Africa needs
                                                            substantially faster economic growth via a
                                                            tripling in the size of the private corporate
                                                            sector in order to achieve single digit
                                                            unemployment, an eradication of poverty
                                                            and a further reduction in inequality.




Investec Bank Limited group and company annual financial statements 2015                                                                                      11
                   Financial review (continued)


                   Operating environment
                   The table below provides an overview of some key statistics that should be considered when reviewing our operational performance.

                                                                                                                                                                Average
                                                                                                                                                                over the
                                                                                                      Period              Period                           period 1 April
                                                                                                      ended               ended                                  2014 to
                                                                                                   31 March            31 March                                31 March
                                                                                                       2015                2014           % change                 2015

                   Market indicators
                   FTSE All share                                                                      3 664                3 556                3.0%                3 591
                   JSE All share                                                                      52 182              47 771                 9.2%              50 611
                   Australia All ords                                                                  5 862                5 403                8.5%                5 494
                   S&P                                                                                 2 068                1 872              10.5%                 1 988
                   Nikkei                                                                             19 207              14 828               29.5%               16 256
                   Dow Jones                                                                          17 776              16 458                 8.0%              17 180


                   Rates
                   SA R186                                                                            7.80%                8.40%                                    8.00%
                   Rand overnight                                                                     5.53%                5.33%                                    5.46%
                   SA prime overdraft rate                                                            9.25%                9.00%                                    9.16%
                   JIBAR – three-month                                                                6.11%                5.73%                                    6.00%
                   Reserve Bank of Australia cash target rate                                         2.25%                2.50%                                    2.46%
                   UK overnight                                                                       0.42%                0.33%                                    0.43%
                   UK 10-year                                                                         1.58%                2.74%                                    2.25%
                   UK clearing banks base rate                                                        0.50%                0.50%                                    0.50%
                   LIBOR – three-month                                                                0.57%                0.52%                                    0.55%
                   US 10-year                                                                         1.93%                2.73%                                    2.34%


                   Commodities
Financial review




                   Gold                                                                        US$1 188/oz        US$1 289/oz                   (7.8%)      US$1 248/oz
                   Gas Oil                                                                       US$526/mt           US$904/mt                 (41.8%)        US$746/mt
                   Platinum                                                                    US$1 129/oz        US$1 418/oz                  (20.4%)      US$1 236/oz


                   Macro-economic
                   South Africa GDP (% real growth over the calendar year in Rands,
                   historical revised)                                                                 1.5%                  2.2%
                   South Africa per capita GDP (real value in Rands, historical revised)              56 122              56 044                 0.1%

2                  Sources: Datastream, Bloomberg, Office for National Statistics, SARB Quarterly Bulletin, Australian Bureau of Statistics.




                   12                                                                                  Investec Bank Limited group and company annual financial statements 2015
Financial review (continued)


Key income drivers

The bank operates as a specialist bank providing a wide range of financial
products and services to a niche client base in South Africa and Mauritius.


     Key income drivers                                          Income impacted                           Income statement –
                                                                 primarily by                              primarily reflected as


     • Lending activities                                        • Size of portfolios                      • Net interest income
                                                                 • Clients’ capital and                    • Fees and commission.
                                                                   infrastructural investments
                                                                 • Client activity
                                                                 • Credit spreads
                                                                 • Shape of yield curve.


     • Cash and near cash balances                               • Capital employed in the business        • Net interest income
                                                                   and capital adequacy targets            • Trading income arising from
                                                                 • Asset and liability management            balance sheet management
                                                                   policies and risk appetite                activities.
                                                                 • Regulatory requirements
                                                                 • Credit spreads.


     • Deposit and product structuring                           • Distribution channels                   • Net interest income
       and distribution                                          • Ability to create innovative            • Fees and commissions.
                                                                   products
                                                                 • Regulatory requirements
                                                                 • Credit spreads.


     • Investments made (including                               • Macro- and micro-economic               • Net interest income
       listed and unlisted equities and                            market conditions                       • Investment income.
       debt securities                                           • Availability of profitable




                                                                                                                                                Financial review
     • Gains or losses on investments                              exit routes
     • Dividends received                                        • Whether appropriate market
                                                                   conditions exist to maximise
                                                                   gains on sale
                                                                 • Attractive investment
                                                                   opportunities.




                                                                                                                                                   2
     • Advisory services                                         • The demand for our specialised          • Fees and commissions.
                                                                   advisory services, which, in
                                                                   turn, is affected by applicable
                                                                   tax, regulatory and other
                                                                   macro- and micro-economic
                                                                   fundamentals.


     • Derivative sales, trading                                 •   Client activity                       • Fees and commissions
       and hedging                                               •   Market conditions/volatility          • Trading income arising from
                                                                 •   Asset and liability creation            customer flow.
                                                                 •   Product innovation
                                                                 •   Market risk factors, primarily
                                                                     volatility and liquidity.


     • Transactional banking services                            • Levels of activity                      • Net interest income
                                                                 • Ability to create innovative products   • Fees and commissions.
                                                                 • Appropriate systems infrastructure.




Investec Bank Limited group and company annual financial statements 2015                                                                   13
                   Financial review (continued)


                                     Risks relating to our operations



                   In our ordinary course of business                                                             These risks are summarised briefly
                                                                                                                  in the table below with further detail

                   we face a number of risks that                                                                 provided in the risk management
                                                                                                                  section of this report.

                   could affect our business                                                                      For additional information pertaining
                                                                                                                  to the management and monitoring
                   operations                                                                                     of these risks, see the references
                                                                                                                  provided.



                          25 – 48                                    69 – 73                                                  73

                        Credit and counterparty risk               Operational risk may disrupt our                   Legal and regulatory risks are
                        exposes us to losses caused                business or result in regulatory                   substantial in our businesses.
                        by financial or other problems             action.
                        experienced by our clients.




                          61 – 68                                  72 and 73                                             59 – 61

                        Liquidity risk may impair our ability       Reputational, strategic and                        Our net interest earnings and net
                        to fund our operations.                     business risk.                                     asset value may be adversely
                                                                                                                       affected by interest rate risk.




                          69 – 73                                    54 – 57                                             73 – 79
Financial review




                        We may be vulnerable to the                 Market, business and general                        We may have insufficient capital
                        failure of our systems and                  economic conditions and                             in the future and may be unable to
                        breaches of our security systems.           fluctuations could adversely affect                 secure additional financing when it
                                                                    our businesses in a number of ways.                 is required.




2                         69 – 73                                                                                      11 and 12

                        Employee misconduct could                   We may be unable to recruit, retain                 The financial services industry
                        cause harm that is difficult to             and motivate key personnel.                         in which we operate is intensely
                        detect.                                                                                         competitive.
                                                                          See Investec's 2015
                                                                          integrated annual report on
                                                                          our website.


                             73
                                                                Additional risks and uncertainties not presently known to us or that we currently deem
                        Retail conduct risk is the risk that
                                                                immaterial may in the future also negatively impact our business operations.
                        we treat our customers unfairly and
                        deliver inappropriate outcomes.
                        Wholesale conduct risk is the risk
                        of conducting ourselves negatively
                        in the market.




                   14                                                                             Investec Bank Limited group and company annual financial statements 2015
Financial review (continued)


Overview
The bank posted an increase in headline earnings attributable to ordinary shareholders of 44.5% to R3 014 million (2014: R2 086 million).
The balance sheet remains strong with a capital adequacy ratio of 15.4% as calculated in terms of Basel III (2014: 15.3%).

Unless the context indicates otherwise, all income statement comparatives in the review below relate to the results for the year ended
31 March 2014.



Income statement analysis
The overview that follows will highlight the main reasons for the variance in the major category line items on the face of the income statement
during the year under review.

Total operating income
Total operating income before impairment losses on loans and advances increased by 24.0% to R8 946 million (2014: R7 216 million).
The various components of total operating income are analysed below.

                                                                               31 March   % of total            31 March               % of total
 R’million                                                                         2015    income                   2014                income       % change

 Net interest income                                                              5 521        61.7%                  4 916                 68.1%       12.3%
 Net fee and commission income                                                    1 454        16.3%                  1 393                 19.3%        4.4%
 Investment income                                                                1 420        15.9%                     334                 4.6%    > 100.0%
 Trading income arising from
 – customer flow                                                                   290           3.2%                    343                 4.8%      (15.5%)
 – balance sheet management and other
   trading activities                                                              260           2.9%                    235                 3.2%       10.6%
 Other operating income/(loss)                                                       1                –                     (5)                  –   > 100.0%
 Total operating income before impairment
 losses on loans and advances                                                     8 946      100.0%                   7 216                100.0%      24.0%



% of total operating income before impairment losses on loans and advances




                                                                                                                                                                 Financial review



                     31 March 2015
                     R8 946 million total operating income before
                                                                                          31 March 2014
                                                                                          R7 216 million total operating income before
                                                                                                                                                                    2
                     impairment losses on loans and advances                              impairment losses on loans and advances


                           Net interest income                         61.7%                   Net interest income                           68.1%
                           Net fee and commission income               16.3%                   Net fee and commission income                 19.3%
                           Investment income                           15.9%                   Investment income                              4.6%
                           Trading income arising from customer ow      3.2%                   Trading income arising from customer ow        4.8%
                           Trading income arising from balance sheet                           Trading income arising from balance sheet
                           management and other trading activities     2.9%                    management and other trading activities       3.2%




Investec Bank Limited group and company annual financial statements 2015                                                                                    15
                   Financial review (continued)


                   Net interest income
                   Net interest income increased by 12.3% to R5 521 million (2014: R4 916 million) with the bank benefiting from an increase in its loan
                   portfolio and a positive endowment impact.

                          For a further analysis of interest received and interest paid refer to page 122.


                   Net fee and commission income
                   Net fee and commission income increased 4.4% to R1 454 million (2014: R1 393 million) as a result of a good performance from the private
                   banking professional finance business, with corporate fees remaining largely in line with the prior year.

                          For a further analysis of net fee and commission income refer to page 123.


                   Investment income
                   Investment income increased to R1 420 million (2014: R334 million) with the bank’s unlisted investments portfolio continuing to perform well.

                          For a further analysis of investment income refer to pages 123 and 124.


                   Trading income
                   Trading income arising from customer flow and other trading activities decreased to R550 million (2014: R578 million) largely reflecting less
                   activity in respect of balance sheet management.

                   Impairment losses on loans and advances
                   Impairments on loans and advances decreased from R638 million to R455 million. The credit loss charge as a percentage of average gross
                   core loans and advances has improved from 0.44% at 31 March 2014 to 0.29%. The percentage of default loans (net of impairments but
                   before taking collateral into account) to core loans and advances amounts to 1.46% (2014: 1.50%). The ratio of collateral to default loans
                   (net of impairments) remains satisfactory at 1.44 times (2014: 1.55 times).

                          For further information on asset quality refer to pages 40 to 48.




                   Operating costs
                   The ratio of total operating costs to total operating income amounts to 53.9% (2014: 57.0%). Total operating expenses at R4 818 million
Financial review




                   were 17.1% higher than the prior year (2014: R4 113 million), largely as a result of increased variable remuneration given improved profitability.

                   The various components of total expenses are analysed below.

                                                                                    31 March         % of total          31 March            % of total
                   R’million                                                            2015         expenses                2014            expenses            % change

                   Staff costs (including directors’ remuneration)                      3 510            72.9%                2 724               66.2%               28.9%
                   Business expenses                                                      329             6.8%                   393               9.6%               (16.3%)
                   Equipment expenses (excluding depreciation)                            161             3.3%                   222               5.4%               (27.5%)

2                  Premises expenses (excluding depreciation)
                   Marketing expenses
                                                                                          376
                                                                                          304
                                                                                                          7.8%
                                                                                                          6.3%
                                                                                                                                 380
                                                                                                                                 247
                                                                                                                                                   9.2%
                                                                                                                                                   6.0%
                                                                                                                                                                       (1.1%)
                                                                                                                                                                      23.1%
                   Depreciation                                                           138             2.9%                   147               3.6%                (6.1%)
                   Total operating costs                                                4 818          100.0%                 4 113             100.0%                17.1%




                   16                                                                                    Investec Bank Limited group and company annual financial statements 2015
Financial review (continued)


% of total operating costs




                     31 March 2015                                               31 March 2014
                      R4 818 million total operating costs                       R4 113 million total operating costs


                           Staff costs                               72.9%            Staff costs                       66.2%
                           Business expenses                          6.8%            Business expenses                  9.6%
                           Equipment expenses                         3.3%            Equipment expenses                 5.4%
                           Premises expenses                          7.8%            Premises expenses                  9.2%
                           Marketing expenses                         6.3%            Marketing expenses                 6.0%
                           Depreciation                               2.9%            Depreciation                       3.6%




Balance sheet analysis
Since 31 March 2014:

• Total shareholders’ equity (including non-controlling interests) increased by 12.9% to R28.9 billion, largely as a result of retained earnings

• Total assets increased by 9.7% to R332.7 billion, largely as a result of an increase in core loans and advances and cash and near
  cash balances.




                                                                                                                                                   Financial review



                                                                                                                                                      2




Investec Bank Limited group and company annual financial statements 2015                                                                      17
                   Financial review (continued)



                   Questions and answers                                                                                   What is your outlook for the
                                                                                                                           coming year?

                   Stephen Koseff Glynn Burger
                   Bernard Kantor                                                                                                     The South African business has
                                                                                                                                      had a particularly good year and
                   Business leaders                                                                                                   this may be hard to sustain going
                                                                                                                         forward. There are structural challenges in
                                                                    We continued to be recognised for this               the economy and we are cautious about
                    Can you give us an overview of                  focus and performance. From a corporate              the political uncertainty which can create
                                                                    perspective, the Aviation Finance team won           a difficult environment for our business.
                    the environment in which you
                                                                    the Corporate Jet Investor Award again               However, the recent national budget
                    operated over the past year?                    this past year and our Corporate Finance             proposed is more conservative than in
                                                                    team came out top in both value and                  recent years and, if achieved, should assist
                                                                    volume of transactions in the DealMakers             South Africa in maintaining its investment
                                                                    awards. In the private client space, the             grade rating. Furthermore, South African
                                The South African operating         Retail Funding business has increased its            corporates tend to be more resilient in
                                environment has been mixed.         profile and we were once again recognised            a disrupted environment and there are
                                On the one hand, the economic       as the Best Private Bank in South Africa by          potential opportunities to support them
                   and political environments have been fragile.    Financial Times and Euromoney.                       both domestically, on the continent and
                   There has been slow economic growth                                                                   internationally.
                   which impacted spending, domestic fixed          It has been particularly rewarding to
                   investment and production. The Rand              see how the collaboration between the
                   continues to weaken against major currencies.    Private Bank and Wealth & Investment                   How do you incorporate
                   Furthermore, strike action persisted and         businesses (housed outside of the bank)
                                                                    has benefited the overall South African
                                                                                                                           environmental and
                   electricity supply constraints have proved an
                                                                    business. Furthermore, good progress has               sustainability considerations
                   inhibitor to economic performance, while high
                   indebtedness impacted consumer spending.         been made with rolling out our digitisation            into your business?
                                                                    strategy as we continually look to enhance
                   On the other hand, we have had very positive     this offering to ensure it’s the best solution
                                                                    for our clients.
                   growth in the equity markets with the JSE All
                   Share Index up 9.2% for the period and overall                                                                    Developing the communities and
                   good activity in corporate South Africa.                                                                          environment in which we operate
                                                                     What are your key strategic
Financial review




                                                                                                                                     is critical to the upliftment of our
                                                                     objectives for the coming year?                       economy. During the year, we received
                    What have been the key                                                                                 the Mail & Guardian’s 2014 Investing
                    developments in the business                                                                           in the Future Award for our Promaths
                                                                                                                           programme which commended Investec
                    over the past financial year?
                                                                                                                           for taking a long-term view to social
                                                                               We will continue with the
                                                                                                                           development by improving skills in Maths
                                                                               existing strategy of building and
                                                                                                                           and Science for the past 10 years. We
                                                                               developing our client franchises
                                                                                                                           also experienced good momentum in the
                                                                    which remain integral to the growth and
                               Notwithstanding the economic                                                                Enterprise Development programme which
                                                                    development of our business. This is
2                              environment, it has been a
                               particularly good year for the
                                                                    focused on delivering integrated solutions
                                                                                                                           was launched in the previous financial year
                                                                                                                           and which continues to share valuable
                                                                    to both our private and corporate clients,
                   bank with operating profit up 49.0%.                                                                    strategic, financial and marketing skills
                                                                    extending the quality of our service and
                   All businesses have done well largely as a                                                              to selected entrepreneurs. Our staff
                                                                    products to attract new clients and ensuring
                   result of reasonable activity levels across                                                             remain vital in delivering on our promise
                                                                    we deepen our existing client relationships.
                   both corporates and private clients. We                                                                 to provide exceptional client experiences
                   have experienced strong growth in our key        In the private client space, we will continue          and hence we continue to focus on
                   drivers with underlying lending up some          to organically grow the existing businesses            attracting, retaining and developing talent.
                   17% over the past year and a positive            of transactional banking, property and                 In this regard, Investec was voted one
                   endowment impact.                                private capital. Our strategy of cross-selling         of the most attractive employers in the
                                                                    products across different client bases,                2015 Universum Most Attractive Employer
                                                                    providing services between Private Bank                awards where Investec was voted Best
                                                                    and the Wealth & Investment businesses                 Bank by both professionals and graduates
                                                                    has proved successful and we will continue
                                                                    to leverage these relationships.




                   18                                                                                    Investec Bank Limited group and company annual financial statements 2015
             3
Risk management
    and corporate
      governance
                                           Risk management


                                                                                     Overview of disclosure                              Group Risk Management operates within
                                                Group Risk                                                                               an integrated geographical and divisional
                                                                                     requirements                                        structure, in line with our management
                                                Management                                                                               approach, ensuring that the appropriate
                                                objectives are to:                   Risk disclosures provided in line with the          processes are used to address all risks
                                                                                     requirements of International Financial             across the group.
                                                                                     Reporting Standard 7 Financial Instruments:
                                                                                     Disclosures (IFRS 7) and disclosures on             Risk Management units are locally
                                                                                     capital required by International Accounting        responsive yet globally aware. This helps
                                                • Be the custodian of adherence      Standard 1 Presentation of Financial                to ensure that all initiatives and businesses
                                                  to our risk management culture     Statements (IAS 1) are included within this         operate within our defined risk parameters
                                                                                     section of the integrated annual report.            and objectives, continually seeking new
                                                • Ensure the business operates                                                           ways to enhance techniques.
                                                  within the board stated risk               On pages 21 to 80 with further
                                                  appetite                                   disclosures provided within the             We believe that the risk management
                                                                                             annual financial statements                 systems and processes that we have in
                                                • Support the long-term
                                                                                             section on pages 105 to 109.                place are adequate to support our strategy
                                                  sustainability of the group
                                                                                                                                         and allow us to operate within our risk
                                                  by providing an established,       All sections, paragraphs, tables and graphs         appetite tolerance.
                                                  independent framework              on which an audit opinion is expressed on
                                                  for identifying, evaluating,       are marked as audited.
                                                  monitoring and mitigating risk
                                                                                     The risk disclosures comprise the majority          Overall summary of the
                                                • Set, approve and monitor
                                                  adherence to risk parameters
                                                                                     of the bank’s Pillar III risk disclosures as        year in review from a
                                                                                     required in terms of Regulation 43 of the
                                                  and limits across the group and    regulations relating to banks in South Africa.      risk perspective
                                                  ensure they are implemented
Risk management and corporate governance




                                                  and adhered to consistently        Information provided in this section of the         Executive management is intimately
                                                                                     integrated annual report is prepared on an          involved in ensuring stringent management
                                                • Aggregate and monitor our          Investec Bank Limited consolidated basis            of risk, liquidity, capital and conduct. The
                                                  exposure across risk classes       unless otherwise stated.                            group predominantly remained within
                                                                                                                                         its risk appetite limits/targets across the
                                                • Coordinate risk management
                                                                                                                                         various risk disciplines. Our risk appetite
                                                  activities across the
                                                  organisation, covering all legal   Philosophy and                                      framework as set out on page 23 continues
                                                                                                                                         to be assessed in light of prevailing market
                                                  entities and jurisdictions         approach to risk                                    conditions and group strategy.
                                                • Give the boards reasonable         management                                          Credit risk
                                                  assurance that the risks we are
                                                  exposed to are identified and                                                          Credit and counterparty exposures are to
                                                                                     Our comprehensive risk management
                                                  appropriately managed and                                                              a select target market and our risk appetite
                                                                                     process involves identifying, quantifying,
                                                  controlled                                                                             continues to favour lower risk, income-
                                                                                     managing and mitigating the risks
                                                                                                                                         based lending, with credit risk taken over a
                                                                                     associated with each of our businesses.
                                                • Run appropriate risk                                                                   short to medium term. We expect our target
                                                  committees, as mandated by         Risk awareness, control and compliance are          clients to demonstrate sound financial
                                                  the board.                         embedded in all our day-to-day activities.          strength and integrity, a core competency
                                                                                     We seek to achieve an appropriate                   and an established track record.
                                                                                     balance between risk and reward, taking             Our focus over the past few years to
3                                                                                    cognisance of all stakeholders’ interests. A
                                                                                     strong risk and capital management culture
                                                                                                                                         realign and rebalance our portfolios in
                                                                                                                                         line with our risk appetite framework is
                                                                                     is embedded into our values.                        reflected in the relative changes in asset
                                                                                                                                         classes on our balance sheet showing an
                                                                                     Group Risk Management monitors,
                                                                                                                                         increase in private client and corporate and
                                                                                     manages and reports on our risks to ensure
                                                                                                                                         other lending, and a reduction in lending
                                                                                     that they are within the stated risk appetite       collateralised by property as a proportion of
                                                                                     mandated by the board of directors through          the book.
                                                                                     the board risk and capital committee.
                                                                                                                                         Our core loan book remains well diversified
                                                                                     We monitor and control risk exposure                with commercial rent producing property
                                                                                     through independent Credit, Market,                 loans comprising approximately 17.4% of
                                                                                     Liquidity, Operational, Legal Risk, Internal        the book, other lending collateralised by
                                                                                     Audit and Compliance teams. This                    property 3.9%, HNW and private client
                                                                                     approach is core to assuming a tolerable            lending 44.2% and corporate lending 34.5%
                                                                                     risk and reward profile, helping us to pursue       (with most industry concentrations well
                                                                                     controlled growth across our business.              below 5%). We anticipate that future growth




                                           20                                                                            Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


in our core loan portfolios will largely come               Capital Management                               Conduct, operational and
from professional mortgages, and across                     We continued to maintain a sound balance         reputational risk
most of our corporate categories.                           sheet with a low gearing ratio of 11.4 times     We continue to spend much time and
                                                            and a core loans to equity ratio of 6.1 times.   effort focusing on operational, reputational,
Net core loans and advances grew by
                                                            We have always held capital in excess of         conduct, recovery and resolution risks.
17.3% to R177.5 billion with residential
                                                            regulatory requirements and we intend to
owner-occupied, private client lending and                                                                   The bank has a stress testing process
                                                            perpetuate this philosophy. All our banking
corporate portfolios representing the majority                                                               which also informs the risk appetite
                                                            subsidiaries meet current internal targets.
of the growth for the financial year in review.                                                              review process and the management
                                                            We are comfortable with our common
                                                                                                             of risk appetite limits, and is a key risk
Default loans (net of impairments) as a                     equity tier 1 ratio target at a 10% level, as
                                                                                                             management tool of the bank. This process
percentage of core loans and advances                       our fully loaded leverage ratios for Investec
                                                                                                             allows the bank to identify underlying risks
reduced from 1.50% to 1.46%.                                Bank Limited are above 8%. We believe
                                                                                                             and manage them accordingly.
                                                            that we have sufficient capital to support
The credit loss ratio improved to 0.29%                     our growth initiatives.
from 0.44% as we saw stability in the
number of new defaulted loans and                           Balance sheet and liquidity risk
sufficient collateral available for these                   Holding a high level of readily available,
transactions.                                               high-quality liquid assets remains
                                                            paramount in the management of our
Our legacy default portfolio which                          balance sheet. We continue to maintain
largely relates to lending collateralised                   a low reliance on interbank wholesale
by property, notably residential land                       funding to fund core lending asset growth.
transactions earmarked for developments,                    Cash and near cash balances amounted
continues to be managed down.                               to R88.7 billion at year end, representing
                                                            34.1% of our liability base.
Traded market risk
Market risk within our trading portfolio                    We continued to build our structural




                                                                                                                                                             Risk management and corporate governance
remains modest with value at risk and                       liquidity cash resources over the course of
stress testing scenarios remaining at                       the year as part of our drive to improve the
prudent levels. Potential losses that could                 Basel III Liquidity Coverage Ratio (LCR)
arise in our trading book portfolio when                    in order to adhere to regulations which
stress tested under extreme market                          were implemented from 1 January 2015.
conditions (i.e. per extreme value theory)                  We ended the year with the three-month
amount to approximately 0.1% of total                       average of Investec Bank Limited’s (solo
operating income.                                           basis) LCR at 100.3% which is well ahead
                                                            of the minimum level required.
Trading conditions have remained difficult.
Traders have had to contend with very                       The cost of funding continued to increase
uncertain markets as well as declining                      for local banks, including Investec, as
market liquidity. While client flow has                     competition for ‘Basel III friendly’ deposits
been under pressure, Investec remains                       increased.
committed to trading on client flow and not
proprietary trading. The equity derivatives                 Total customer deposits increased by
business has continued to grow both                         8% from 1 April 2014 to R221.4 billion
their product offering and the diversity                    at 31 March 2015 (Private Bank
of their client base. Currency markets                      deposits amounted to R89.8 billion and
have generally been illiquid and volatile.                  other external deposits amounted to
Corporate foreign exchange volumes are
up leading to increased revenue; however,
                                                            R131.6 billion).
                                                                                                                                                                     3
                                                            Investment risk
profit margins have tightened. The trend of
low discretionary risk taking in local rates                Our Investment portfolio continued
continued in the past year. Little uncertainty              to perform well. Overall, we remain
and stable interest rates in the local rate                 comfortable with the performance of
environment has not encouraged corporate                    our equity investment portfolios which
hedging activity.                                           comprise 3.39% of total assets.




Investec Bank Limited group and company annual financial statements 2015                                                                                21
                                           Risk management (continued)


                                           Salient features
                                           A summary of key risk indicators is provided in the table below.

                                                                                                                                                                        2015                 2014
                                            Year to 31 March                                                                                                               R                    R

                                            Total assets (million)                                                                                                  332 706              303 218
                                            Total risk-weighted assets (million)                                                                                    257 931              238 396
                                            Total equity (million)                                                                                                    28 899               25 601
                                            Net core loans and advances (million)                                                                                   177 528              151 384
                                            Cash and near cash (million)                                                                                              88 691               84 476
                                            Customer accounts (deposits) (million)                                                                                  221 377              204 903
                                            Gross defaults as a % of gross core loans and advances                                                                    2.09%                 2.31%
                                            Defaults (net of impairments) as a % of net core loans and advances                                                       1.46%                 1.50%
                                            Net defaults (after collateral and impairments) as a % of net core loans and advances                                            –                    –
                                            Credit loss ratio*                                                                                                        0.29%                 0.44%
                                            Structured credit as a % of total assets                                                                                  1.33%                 1.60%
                                            Banking book investment and equity risk exposures as a % of total assets                                                  3.39%                 3.41%
                                            Level 3 (fair value assets) as a % of total assets                                                                        1 96%                 1.96%
                                            Traded market risk: one-day value at risk (million)                                                                            3.4                  2.1
                                            Core loans to equity ratio                                                                                                     6.1                  5.9
                                            Total gearing ratio**                                                                                                        11.4                 11.8
Risk management and corporate governance




                                            Loans and advances to customers to customer deposits                                                                      78.1%                 72.5%
                                            Capital adequacy ratio                                                                                                    15.4%                 15.3%
                                            Tier 1 ratio                                                                                                              11.4%                 10.8%
                                            Common equity tier 1 ratio                                                                                                11.0%                 10.3%
                                            Leverage ratio                                                                                                              8.3%                 7.9%
                                            Return on average assets     #
                                                                                                                                                                      0.95%                 0.70%
                                            Return on average risk-weighted assets#                                                                                   1.21%                 0.90%

                                           *    Income statement impairment change on core loans as a percentage of average gross core loans and advances.
                                           **   Total assets excluding intergroup loans to total equity.
                                           #
                                                Where return represents headline earnings. Average balances are calculated on a straight-line average.




3




                                           22                                                                                 Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Overall group risk appetite
The group has a number of board-approved risk appetite statements and policy documents covering our risk tolerance and approach
to all aspects of risk. In addition, a number of committees and forums identify and manage risk at a group level. The group risk appetite
statement and framework sets out the board’s mandated risk appetite. The group risk appetite framework acts as a guide to determine
the acceptable risk profile of the group by the owners of the group’s capital. The group risk appetite statement ensures that limits/targets
are applied and monitored across all key operating jurisdictions and legal entities. The group risk appetite statement is a high level,
strategic framework that supplements and does not replace the detailed risk policy documents at each entity and geographic level. The
group risk appetite framework is a function of business strategy, budget process and the regulatory and economic environment in which
the group is operating. The group risk appetite framework is reviewed (in light of the above aspects) and approved at least annually or as
business needs dictate. A documented process exists where our risk profile is measured against our risk appetite and this positioning is
presented to the group risk and capital committee and the board risk and capital committee.
The table below provides a high-level summary of the group’s overall risk tolerance framework.
  Risk appetite and tolerance metrics                                                 Positioning at 31 March 2015
  • We seek to maintain an appropriate balance between revenue earned from            Capital light activities for Investec Limited contributed
    capital light and capital intensive activities at an Investec Limited group       44% to total operating income and capital intensive
    level. Ideally the split in revenue should be 50:50, dependent on prevailing      activities contributed 56%
    market conditions
  • We have a solid recurring income base supported by diversified revenue            Recurring income amounted to 70.4% of total
    streams, and target a recurring income ratio in excess of 65%                     operating income. Refer to page 7 for further
                                                                                      information
  • We seek to maintain strict control over fixed costs and target a group cost       The cost to income ratio amounted to 53.9%. Refer
    to income ratio of below 55%                                                      to page 6
  • We aim to build a sustainable business generating sufficient return to            The return on equity for the Investec group amounted
    shareholders for the Investec group over the longer-term, and target a            to 10.6% and our return on risk-weighted assets




                                                                                                                                                    Risk management and corporate governance
    long-term return on equity ratio range of between 12% and 16%, and a              amounted to 1.25%
    return on risk-weighted assets in excess of 1.2%
  • We are a lowly leveraged firm and target a leverage ratio in all our banking      We achieved this internal target, refer to page 78 for
    subsidiaries in excess of 6%                                                      further information
  • We intend to maintain a sufficient level of capital to satisfy regulatory         We meet current capital targets, refer to page 78 for
    requirements and our internal target ratios. We target a capital adequacy         further information
    ratio range of between 14% and 17% and we target a minimum tier 1 ratio
    of 10.5% (11.0% by March 2016) and a common equity tier 1 ratio above
    10.0% (by March 2016)
  • We target a diversified loan portfolio, lending to clients we know and            We maintained this risk tolerance level in place
    understand. We limit our exposure to a single/connected individual or             throughout the year
    company to 5% of tier 1 capital (up to 10% if approved by the relevant
    board committee). We also have a number of risk tolerance limits and
    targets for specific asset classes
  • There is a preference for primary exposure in the group’s main operating
    geographies (i.e. South Africa and Mauritius). The group will accept
    exposures where we have a branch/banking business. The group will also
    tolerate exposures to other countries where it has core capabilities
  • The level of defaults and impairments continues to improve and we target          The credit loss charge on core loans amounted to
    a credit loss charge on core loans of less than 0.5% of average core              0.29% and defaults net of impairments amounted
    advances (less than 1.25% under a weak economic environment/stressed              to 1.46% of total core loans. Refer to page 40 for
    scenario), and we target defaults net of impairments less than 1.5% of
    total core loans (less than 4% under a weak economic environment/
                                                                                      further information                                                   3
    stressed scenario)
  • We carry a high level of liquidity in all our banking subsidiaries in order to    Total cash and near cash balances amounted to
    be able to cope with shocks to the system, targeting a minimum cash to            R88.7 billion, representing 34.1% of our liability base.
    customer deposit ratio of 25%                                                     Refer to page 63 for further information
  • We have modest market risk as our trading activities primarily focus              We meet these internal limits, refer to page 55 for
    on supporting client activity and our appetite for proprietary trading is         further information
    limited. We set an overall tolerance level of a 1 day 95% VaR of less than
    R15 million
  • We have moderate appetite for investment risk, and set a risk tolerance of        Our unlisted investment portfolio is, representing
    less than 30% of tier 1 capital for our unlisted principal investment portfolio   26.5% of total tier 1 capital. Refer to page 50 for
                                                                                      further information
  • Our Operational Risk Management team focuses on improving business                Refer to pages 69 to 71 for further information
    performance and compliance with regulatory requirements through review,
    challenge and escalation
  • We have a number of policies and practices in place to mitigate                   Refer to pages 72 and 73 for further information
    reputational, legal and conduct risks



Investec Bank Limited group and company annual financial statements 2015                                                                       23
                                           Risk management (continued)


                                           An overview of key risks
                                           In our ordinary course of business we face a number of risks that could affect our business operations or financial performance.

                                                  These risks have been highlighted on page 14.

                                           The sections that follow provide information on a number of these risk areas.

                                           Additional risks and uncertainties not presently identified by us or that we currently deem immaterial may in the future also negatively impact
                                           our business operations.



                                           Risk management framework, committees and forums
                                           A number of committees and forums identify and manage risk at group level, as shown in the diagram below. These committees and forums
                                           operate together with Group Risk Management and are mandated by the board.



                                           Governance framework

                                                                         Investec plc (PLC) and Investec Limited (INL) board of directors
Risk management and corporate governance




                                                                           DLC nominations
                                                     DLC remuneration                                 DLC audit          DLC board risk and         DLC social and           Group investment
                                                                          and directors’ affairs
                                                        committee                                     committee          capital committee         ethics committee             committee
                                                                              committee




                                                           PLC                     PLC                    INL
                                                                                                                                                                            Executive        Group risk
                                                           Audit                                        Audit                        DLC capital       Group legal
                                                                                  PACC                                                                                     risk review       and capital
                                                      sub-committees                               sub-committees                    committee         risk forums
                                                                                                                                                                              forum          committee



                                                                                                                                                                    Global          Deal forum/
                                                                                                                                                                   forums/          new product
                                                                           Audit and compliance                                                                  committees           forum
                                                                          implementation forums



                                                                                                                               Global credit committee
                                                      Internal                                                                 Global market risk forum
                                                       Audit                                                              Group asset and liability committees
                                                                                                                           Group operational risk committees
                                                                                                                             Global IT steering committee
                                                    Compliance                                                               Global IT strategy committee

3                                                                                                                              Global compliance forum



                                                                                                             Stakeholders
                                                                           (employees, shareholders, government, regulatory bodies, clients, suppliers, communities)




                                           In the sections that follow the following abbreviations are used on numerous occasions:

                                           ALCO      Asset and liability committee                                     ERRF       Executive risk review forum
                                           BCBS      Basel Committee of Banking Supervision                            FCA        Financial Conduct Authority
                                           BIS       Bank for International Settlements                                FSB        Financial Services Board
                                           BoE       Bank of England                                                   GRCC       Group risk and capital committee
                                           BOM       Bank of Mauritius                                                 PACC       Prudential audit and conduct committee
                                           BRCC      Board risk and capital committee                                  PRA        Prudential Regulation Authority
                                           ECB       European Central Bank                                             SARB       South African Reserve Bank




                                           24                                                                                        Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Credit and counterparty                                     and assess the appropriate limits to be             in arrears that require additional
                                                            recorded when required, to assume                   attention and supervision
risk management                                             exposure to foreign jurisdictions. The local
                                                            group credit committee has the authority         • Corporate watch forum, which reviews
Credit and counterparty                                     to approve country limits within mandate.          and manages exposures that may
risk description                                            The global credit committee is responsible         potentially become distressed as a result
                                                            for approving country limits not within the        of changes in the economic environment
Credit and counterparty risk is defined as                                                                     or adverse share price movements, or
                                                            mandate of local group credit committees.
the risk arising from an obligor’s (typically                                                                  that are vulnerable to volatile exchange
a client or counterparty) failure to meet                   The relevant credit committees within              rate or interest rate movements
the terms of any agreement. Credit and                      Investec will also consider wrong-way
counterparty risk arises when funds                         risk at the time of granting credit limits to    • Arrears, default and recoveries forum
are extended, committed, invested, or                       each counterparty. In the banking book             which specifically reviews and manages
otherwise exposed through contractual                       environment, wrong-way risk occurs                 distressed loans and potentially
agreements, whether reflected on- or off-                   where the value of collateral to secure            distressed loans for private clients.
balance sheet.                                              a transaction, or guarantor, is positively         This forum also reviews and monitors
                                                            correlated with the probability of default         counterparties who have been granted
Credit and counterparty risk arises primarily                                                                  forbearance measures.
                                                            of the borrower or counterparty. For
from three types of transactions:
                                                            counterparty credit risk resulting from          Credit and counterparty risk
• Lending transactions through loans and                    transactions in traded products (such as         appetite
  advances to clients and counterparties                    OTC derivatives), wrong-way risk is defined
  creates the risk that an obligor will be                  as exposure to a counterparty that is            There is a preference for primary exposure
  unable or unwilling to repay capital                      adversely correlated with the credit quality     in the group’s main operating geographies
  and/or interest on loans and advances                     of that counterparty. It arises when default     (i.e. South Africa and the UK). The group
  granted to them. This category                            risk and credit exposure increase together.      will accept exposures where we have a
  includes bank placements, where we                                                                         branch or local banking subsidiary, and
                                                            Credit and counterparty risk may also arise      tolerate exposures to other countries where




                                                                                                                                                                Risk management and corporate governance
  have placed funds with other financial
                                                            in other ways and it is the role of the Global   we have developed a local understanding
  institutions
                                                            Risk Management functions and the various        and capability or we are facilitating a
• Issuer risk on financial instruments                      independent credit committees to identify        transaction for a client who requires facilities
  where payments due from the issuer                        risks falling outside these definitions.         in a foreign geography.
  of a financial instrument will not be
  received
                                                            Credit and counterparty                          Our assessment of our clients and
                                                            risk governance structure                        counterparties includes consideration
• Trading transactions, giving rise to                      To manage, measure, monitor and                  of their character and integrity, core
  settlement and replacement risk                           mitigate credit and counterparty risk,           competencies, track record and financial
  (collectively counterparty risk):                         independent credit committees exist in           strength. A strong emphasis is placed on
                                                            each geography where we assume credit            the historic and ongoing stability of income
    – Settlement risk is the risk that                                                                       and cash flow streams generated by the
      the settlement of a transaction                       risk. These committees operate under
                                                            board-approved delegated limits, policies        clients. Our primary assessment method
      does not take place as expected.                                                                       is therefore the ability of the client to meet
      Our definition of a settlement debtor                 and procedures. There is a high level of
                                                            executive involvement and non-executive          their payment obligations.
      is a short-term receivable (i.e. less
      than five days) which is excluded                     review and oversight in the credit decision-            We have little appetite for
      from credit and counterparty risk due                 making forums. It is our policy that all                unsecured debt and require that
      to market guaranteed settlement                       centralised credit committees comprise                  good quality collateral is provided
      mechanisms                                            voting members who are independent of                   in support of obligations (refer to

    – Replacement risk is the financial cost
                                                            the originating business unit. All decisions
                                                            to enter into a transaction are based on
                                                                                                                    page 48 for further information).
                                                                                                                                                                        3
      of having to enter into a replacement                 unanimous consent.                               Target clients include high net worth and/
      contract with an alternative market                                                                    or high-income individuals, professionally
      counterparty, following default by the                In addition to the group credit committee,       qualified individuals, established corporates,
      original counterparty.                                the following processes assist in managing,      small and medium enterprises, financial
                                                            measuring and monitoring credit and              institutions and sovereigns. Corporates
Credit and counterparty risks can be                        counterparty risk:                               must have scale and relevance in their
impacted by country risk where cross-                                                                        market, an experienced management team,
border transactions are undertaken. This                    • Day-to-day arrears management and
                                                              regular arrears forecast reporting             able board members, strong earnings and
can include geopolitical risks, transfer                                                                     cash flow.
and convertibility risks, and the impact on                   ensure that individual positions and any
the borrower’s credit profile due to local                    potential trends are dealt with in a timely    We are client-centric in our approach and
economic and political conditions.                            manner                                         originate loans with the intent of holding
                                                            • Watchlist committees, which review             these assets to maturity, thereby developing
While we do not have a separate country                                                                      a ‘hands-on’ and longstanding relationship.
risk committee, the local and global                          the management of distressed loans,
credit committees will consider, analyse                      potential problem loans and exposures




Investec Bank Limited group and company annual financial statements 2015                                                                                  25
                                           Risk management (continued)


                                           Interbank lending is largely reserved for       might be approved or declined based                 of counterparties and borrowers, and use
                                           those banks and institutions in the group’s     on the outcome of the sustainability                ratings prepared externally where available
                                           core geographies of activity which are          considerations:                                     as support in our decision-making process.
                                           systemic and highly rated. Direct exposures                                                         Within the credit approval process, internal
                                           to cyclical industries and start-up ventures    • Environmental considerations                      and external ratings are included in the
                                           are generally avoided.                            (including animal welfare)                        assessment of the client quality.
                                                                                           • Social considerations                             Internal credit rating models are
                                           Concentration risk                                                                                  being developed to cover all material
                                                                                           • Economic considerations.
                                           Concentration risk is when large exposures                                                          asset classes. The internal ratings are
                                           exist to a single client or counterparty,             Refer to our sustainability report on         incorporated in the risk management and
                                           group of connected counterparties, or                 our website.                                  decision-making process and are used in
                                           to a particular geography, asset class or                                                           credit assessment, monitoring and approval
                                                                                           Management and                                      as well as pricing.
                                           industry. An example of this would be where
                                                                                           measurement of credit
                                           a number of counterparties are affected by
                                                                                           and counterparty risk                               Exposures are classified to reflect the
                                           similar economic, legal, regulatory or other
                                                                                                                                               bank’s risk appetite and strategy. At a high
                                           factors that could mean their ability to meet   Fundamental principles employed in
                                                                                                                                               level the exposures are classified according
                                           contractual obligations are correlated.         the management of credit and counterparty
                                                                                                                                               to the Basel asset classes which include
                                                                                           risk are:
                                           Concentration risk can also exist where                                                             sovereign, bank, corporate, retail, equity,
                                           portfolio loan maturities are clustered to      • A clear definition of our target market           securitisation and specialised lending
                                           single periods in time. Loan maturities are                                                         (which is further categorised into project
                                                                                           • A quantitative and qualitative                    finance; commodities finance; high volatility
                                           monitored on a portfolio and a transaction
                                                                                             assessment of the creditworthiness of             commercial real estate; and income-
                                           level by Group Risk Management, Group
                                                                                             our counterparties                                producing commercial real estate).
                                           Lending Operations as well as the
                                           originating business units.                     • Analysis of risks, including concentration        Fitch, S&P and Moody’s have been
                                                                                             risk (concentration risk considerations
Risk management and corporate governance




                                           Credit and counterparty risk is always                                                              approved as eligible external credit
                                                                                             include asset class, industry,                    assessment institutions (ECAIs) for the
                                           assessed with reference to the aggregate
                                                                                             counterparty and geographical                     purposes of determining external credit
                                           exposure to a single counterparty or
                                                                                             concentration)                                    ratings with the following elections:
                                           group of related parties to manage
                                           concentration risk.                             • Decisions are made with reference to              • In relation to sovereigns and
                                                                                             risk appetite limits                                securitisations, Fitch, Moody’s and
                                           Risk appetite
                                                                                           • Prudential limits                                   S&P have been selected by Investec as
                                           The board has set a group risk appetite limit                                                         eligible ECAIs
                                           framework which regulates the maximum           • Regular monitoring and review of
                                           exposures we would be comfortable to              existing and potential exposures once             • In relation to banks, corporates and
                                           tolerate in order to diversify and mitigate       facilities have been approved                       debt securities, Fitch, Moody’s and
                                           risk. This limit framework is monitored                                                               S&P are recognised as eligible ECAIs
                                           on an ongoing basis and reported to the         • A high level of executive involvement
                                           GRCC and BRCC on a regular basis.                 in decision-making with non-executive             • If two assessments are available, the
                                           Should there be any breaches to limits or         review and oversight.                               more conservative will apply
                                           where exposures are nearing limits, these
                                                                                           Regular reporting of credit and counterparty        • Where there are three or more credit
                                           exceptions are specifically highlighted for
                                                                                           risk exposures within our operating units             ratings with different risk weightings, the
                                           attention, and any remedial actions agreed.
                                                                                           is made to management, the executives                 credit ratings corresponding to the two
                                                                                           and the board at the GRCC and BRCC.                   lowest ratings should be referred to and
3                                          Sustainability considerations
                                           Investec has a holistic approach to
                                                                                           The board regularly reviews and approves
                                                                                           the appetite for credit and counterparty
                                                                                                                                                 the higher of those two ratings should
                                                                                                                                                 be applied.
                                           sustainability, which runs beyond               risk, which is documented in risk appetite          The group applies the standardised
                                           recognising our own footprint on the            statements and policy documents.                    approach for capital requirements in the
                                           environment and includes our many CSI           This is implemented and reviewed by                 assessment of its credit and counterparty
                                           activities and our funding and investing        Group Credit.                                       exposures. The group’s banking
                                           activities. This is not merely for business
                                                                                           Despite strict adherence to the above               subsidiaries conduct their mapping of credit
                                           reasons, but based on a broader
                                                                                           principles, increased default risk may arise        and counterparty exposures in accordance
                                           responsibility to our environment and
                                                                                           from unforeseen circumstances particularly          with the mapping procedures specified by
                                           society. Accordingly, sustainability risk
                                                                                           in times of extreme market volatility and           the Central Bank Registrar, in the respective
                                           considerations are considered by the credit
                                                                                           weak economic conditions.                           geographies in which the group operates.
                                           committee and investment committee when
                                           making lending or investment decisions.
                                                                                           A large proportion of the bank’s portfolio is
                                           In particular the following factors are
                                                                                           not rated by external rating agencies. We
                                           taken into account when a transaction
                                                                                           place reliance upon internal consideration




                                           26                                                                                  Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Credit and counterparty risk –                              Credit risk arises from the following              A summary of the nature of the lending
nature of lending activities                                activities:                                        and/or credit risk assumed within some of
                                                                                                               the key areas within our corporate lending
Credit and counterparty risk is assumed                     • Personal Banking delivers products
                                                                                                               business is provided below:
through a range of client-driven lending                      to enable target clients to create and
activities to private and corporate clients                   manage their wealth. This includes               • Corporate Loans: provides senior
and other counterparties, such as financial                   private client mortgages, transactional            secured loans to mid-to-large cap
institutions and sovereigns. These                            banking, high net worth lending, trust             companies. Credit risk is assessed
activities are diversified across a number of                 and fiduciary, offshore banking and                against debt service coverage from
business activities.                                          foreign exchange                                   the robustness of the cash generation
                                                                                                                 for the business based on historic and
Lending collateralised by property                          • Residential Mortgages provides
                                                                                                                 forecast information. We typically act as
Client quality and expertise are at the core                  mortgage loan facilities for high-income
                                                                                                                 transaction lead or arranger, and have a
of our credit philosophy. Our exposure to                     professionals and high net worth
                                                                                                                 close relationship with management and
the property market is well diversified with                  individuals tailored to their individual
                                                                                                                 the sponsor.
strong bias towards prime locations for                       needs as well as vanilla mortgage
residential exposure and focus on tenant                      products for professional target                 • Corporate Debt Securities: these are
quality for commercial assets. Debt service                   market clients                                     tradable corporate debt instruments,
cover ratios are a key consideration in the                                                                      purchased based on acceptable
                                                            • Specialised Lending provides tailored
lending process supported by reasonable                                                                          credit fundamentals typically with a
                                                              credit facilities to high net worth
loan to security value ratios.                                                                                   medium-term hold strategy where the
                                                              individuals and their controlled entities.
                                                                                                                 underlying risk is largely to South African
We provide senior debt and other funding                                                                         corporates. This is a highly diversified,
                                                                      An analysis of the private client
for property transactions, with a strong                                                                         granular portfolio that is robust and
                                                                      loan portfolio and asset quality
preference for income producing assets                                                                           spread across a variety of industries.
                                                                      information is provided on
supported by an experienced sponsor
                                                                      pages 46 and 47.
providing a material level of cash equity                                                                      • Acquisition Finance: provides debt




                                                                                                                                                                Risk management and corporate governance
investment into the asset.                                  Corporate client activities                          funding to proven management
                                                                                                                 teams, running small to mid-cap sized
         An analysis of the lending                         We focus on traditional client-driven
                                                                                                                 companies. Credit risk is assessed
         collateralised by property portfolio               corporate lending activities, in addition to
                                                                                                                 against debt service coverage from the
         and asset quality information is                   customer flow-related treasury and trading
                                                                                                                 robustness of the cash generation of the
         provided on pages 46 to 47.                        execution services.
                                                                                                                 business. This will be based on historic
                                                            Within the corporate lending businesses,             and forecast information. We typically
Private client activities
                                                            credit risk can arise from corporate loans,          lend on a bilateral basis and benefit from
Our private banking activities target high                                                                       a close relationship with management.
                                                            acquisition finance, asset finance, power
net worth individuals, active wealthy
                                                            and infrastructure finance, asset-based
entrepreneurs, high-income professionals,                                                                      • Asset-based Lending: provides working
                                                            lending, fund finance and resource finance.
newly qualified professionals with high-                                                                         capital and corporate loans secured to
                                                            We also undertake debt origination activities
income earning potential, self-employed                                                                          mid-caps. These loans are secured by
                                                            for corporate clients.
entrepreneurs, owner managers in small                                                                           the assets of the business, for example,
to mid-cap corporates and sophisticated                     The Credit Risk Management functions                 the accounts receivable, inventory, plant
investors.                                                  approve specific credit and counterparty             and machinery.
                                                            limits that govern the maximum credit
Lending products are tailored to meet the                                                                      • Small Ticket Asset Finance: provides
                                                            exposure to each individual counterparty.
requirements of our clients. Central to our                                                                      highly diversified lending to small and
                                                            In addition, further risk management limits
credit philosophy is ensuring the sustainability                                                                 medium sized corporates to support
                                                            exist through industry and country limits
of cash flow and income throughout the
cycle. As such, the client base has been
                                                            to manage concentration risk. The credit
                                                            appetite for each counterparty is based
                                                                                                                 asset purchases and other business
                                                                                                                 requirements. These facilities are                     3
grouped and defined to include high net                                                                          secured against the asset being
                                                            on the financial strength of the principal
worth clients (who, through diversification of                                                                   financed and are a direct obligation of
                                                            borrower, the underlying cash flow to
income streams, will reduce income volatility)                                                                   the company.
                                                            the transaction, the substance and track
and individuals with a profession which has
                                                            record of management, and the security             • Large Ticket Asset Finance: provides
historically supported a high and sustainable
                                                            package. Political risk insurance, and               the finance and structuring expertise
income stream irrespective of the stage in the
                                                            other insurance is taken where they are              for aircraft and larger lease assets, the
economic cycle.
                                                            deemed appropriate.                                  majority of which are senior secured
                                                                                                                 loans with a combination of corporate,
                                                            Investec has limited appetite for unsecured
                                                                                                                 cash flow and asset-backed collateral
                                                            credit risk and facilities are typically secured
                                                                                                                 against the exposure.
                                                            on the assets of the underlying borrower.




Investec Bank Limited group and company annual financial statements 2015                                                                                   27
                                           Risk management (continued)


                                           • Power and Infrastructure Finance:            • Treasury Placements: The treasury               • Customer trading activities to facilitate
                                             arranges and provides typically long-term      function, as part of the daily                    client lending: Our customer trading
                                             financing for infrastructure assets, in        management of the bank’s liquidity,               portfolio consists of derivative contracts
                                             particular renewable power projects and        places funds with central banks and               in interest rates, foreign exchange,
                                             transport, against contracted future cash      other commercial banks and financial              commodities and equities that are
                                             flows of the project(s) from recognised        institutions. These transactions are              entered to facilitate a client’s hedging
                                             utilities and power companies as well as       typically short-term (less than one               requirements. The counterparties to such
                                             the balance sheet of the corporate. There      month) money market placements                    transactions are typically corporates, in
                                             is a strong equity contribution from an        or secured repurchase agreements.                 particular where they have a sizeable
                                             experienced sponsor.                           These market counterparties are                   exposure to foreign exchange due to
                                                                                            high investment grade rated entities              operating in sectors that include imports
                                           • Resource Finance: debt arranging and           that occupy dominant and systemic                 and exports of goods and services. These
                                             underwriting together with structured          positions in their domestic banking               positions are marked to market with daily
                                             hedging solutions mainly within                markets.                                          margin calls to mitigate credit exposure in
                                             the mining sectors. The underlying                                                               the event of counterparty default.
                                             commodities are mainly precious and          • Corporate advisory and investment
                                             base metals and coal. Our clients in           banking activities: Counterparty risk                    An analysis of the corporate client
                                             this sector are established mining             in this area is modest. The business                     loan portfolio and asset quality
                                             companies which are typically domiciled        also trades approved shares on an                        information is provided on
                                             and publicly listed in South Africa. All       approved basis and makes markets                         pages 46 and 47.
                                             facilities are secured by the borrower’s       in shares where we are appointed
                                             assets and repaid from mining                  corporate broker under pre-agreed
                                             cash flows.                                    market risk limits. Settlement trades are
                                                                                            largely on a delivery versus payment
                                           • Structured Credit: these are bonds             basis, through major stock exchanges.
                                             secured against a pool of assets.              Credit risk only occurs in the event of
                                             The bonds are mainly investment grade          counterparty failure and would be linked
Risk management and corporate governance




                                             rated, which benefit from a high level of      to any fair value losses on the underlying
                                             credit subordination and can withstand         security.
                                             a significant level of portfolio defaults.




3




                                           28                                                                               Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Asset quality analysis – credit risk classification and provisioning policy
It is a policy requirement overseen by Central Credit Management that each operating division makes provision for specific impairments and
calculates the appropriate level of portfolio impairments. This is in accordance with established group guidelines and in conjunction with the
watchlist committee process. In the annual financial statements, credit losses and impairments are reported in accordance with International
Financial Reporting Standards (IFRS).


  Regulatory and                      IFRS impairment treatment            Arrears, default and recoveries   Description
  economic capital                                                         classification category
  classification

  Performing assets                   For assets which form part of        Past due                          An account is considered to be
                                      a homogeneous portfolio, a                                             past due when it is greater than
                                      portfolio impairment is required                                       zero and less than or equal to
                                      which recognises asset                                                 60 days past due the contractual/
                                      impairments that have not been                                         credit agreed payment due
                                      individually identified.                                               date. Management, however,
                                                                                                             is not concerned and there is
                                      The portfolio impairment takes                                         confidence in the counterparty’s
                                      into account past events and                                           ability to repay the past due
                                      does not cover impairments to                                          obligations.
                                      exposures arising out of uncertain
                                      future events.                       Special mention                   The counterparty is placed
                                                                                                             in special mention when that
                                      By definition, this impairment                                         counterparty is considered to be
                                      is only calculated for credit                                          experiencing difficulties that may
                                      exposures which are managed




                                                                                                                                                      Risk management and corporate governance
                                                                                                             threaten the counterparty’s ability
                                      on a portfolio basis and only for                                      to fulfil its credit obligation to the
                                      assets where a loss trigger event                                      group (i.e. watchlist committee
                                      has occurred.                                                          is concerned) for the following
                                                                                                             reasons:
                                                                                                             • Covenant breaches
                                                                                                             • There is a slowdown in the
                                                                                                                 counterparty’s business
                                                                                                                 activity
                                                                                                             • An adverse trend in operations
                                                                                                                 that signals a potential
                                                                                                                 weakness in the financial
                                                                                                                 strength of the counterparty
                                                                                                             • Any restructured credit
                                                                                                                 exposures until appropriate
                                                                                                                 watchlist committee decides
                                                                                                                 otherwise.

                                                                                                             Ultimate loss is not expected, but
                                                                                                             may occur if adverse conditions
                                                                                                             persist.
                                                                                                                                                              3
                                                                                                             Reporting categories:
                                                                                                             • Credit exposures overdue
                                                                                                               1 – 60 days
                                                                                                             • Credit exposures overdue
                                                                                                               61 – 90 days.




Investec Bank Limited group and company annual financial statements 2015                                                                         29
                                           Risk management (continued)


                                            Regulatory and            IFRS impairment treatment            Arrears, default and recoveries           Description
                                            economic capital                                               classification category
                                            classification

                                            Assets in default         Specific impairments are             Sub-standard                              The counterparty is placed in
                                            (non-performing assets)   evaluated on a case-by-case                                                    sub-standard when the credit
                                                                      basis where objective evidence                                                 exposure reflects an underlying,
                                                                      of impairment has arisen. In                                                   well-defined weakness that
                                                                      determining specific impairments,                                              may lead to probable loss if not
                                                                      the following factors are                                                      corrected.
                                                                      considered:                                                                    • The risk that such credit
                                                                      • Capability of the client to                                                     exposure may become an
                                                                        generate sufficient cash flow                                                   impaired asset is probable
                                                                        to service debt obligations                                                  • The bank is relying, to a
                                                                        and the ongoing viability of the                                                large extent, on available
                                                                        client’s business                                                               collateral, or
                                                                      • Likely dividend or amount                                                    • The primary sources of
                                                                        recoverable on liquidation,                                                     repayment are insufficient
                                                                        or bankruptcy or business                                                       to service the remaining
                                                                        rescue                                                                          contractual principal and
                                                                      • Nature and extent of claims by                                                  interest amounts, and the
                                                                        other creditors                                                                 bank has to rely on secondary
                                                                      • Amount and timing of                                                            sources for repayment. These
                                                                        expected cash flows                                                             secondary sources may
                                                                      • Realisable value of security                                                    include collateral, the sale of
                                                                        held (or other credit mitigants)                                                a fixed asset, refinancing and
Risk management and corporate governance




                                                                      • Ability of the client to make                                                   further capital.
                                                                        payments in the foreign
                                                                                                                                                     Credit exposures overdue
                                                                        currency, for foreign currency-
                                                                                                                                                     for more than 90 days will
                                                                        denominated accounts.
                                                                                                                                                     at a minimum be included in
                                                                                                                                                     sub-standard (or a lower quality
                                                                                                                                                     category).

                                                                                                           Doubtful                                  The counterparty is placed
                                                                                                                                                     in doubtful when the credit
                                                                                                                                                     exposure is considered to be
                                                                                                                                                     impaired but not yet considered
                                                                                                                                                     a final loss due to some pending
                                                                                                                                                     factors such as a merger, new
                                                                                                                                                     financing or capital injection
                                                                                                                                                     which may strengthen the quality
                                                                                                                                                     of the relevant exposure.

                                                                                                           Loss                                      A counterparty is placed in the
                                                                                                                                                     loss category when
                                                                                                                                                     • the credit exposure is
3                                                                                                                                                       considered to be uncollectible
                                                                                                                                                        once all efforts, such as
                                                                                                                                                        realisation of collateral
                                                                                                                                                        and institution of legal
                                                                                                                                                        proceedings, have been
                                                                                                                                                        exhausted, or
                                                                                                                                                     • Assets in this category are
                                                                                                                                                        expected to be written off
                                                                                                                                                        in the short term since the
                                                                                                                                                        likelihood of future economic
                                                                                                                                                        benefits resulting from such
                                                                                                                                                        assets are remote.




                                           30                                                                             Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Credit risk mitigation                                      a suretyship or guarantee in support of a

Credit risk mitigation techniques can be
                                                            transaction in our private client business.         Investec has
defined as all methods by which Investec                    The second primary collateral in private            limited appetite
seeks to decrease the credit risk associated                client lending transactions is over a
                                                            high-net-worth individual’s investment
                                                                                                                for unsecured
with an exposure. Investec considers credit
risk mitigation techniques as part of the                   portfolio. This is typically in the form of a       debt, preferring
credit assessment of a potential client or                  diversified pool of equity, fixed income,           to mitigate risk
business proposal and not as a separate                     managed funds and cash. Often these
consideration of mitigation of risk. Credit                 portfolios are managed by Investec                  through good
risk mitigants can include any collateral                   Wealth & Investments. Lending against               quality tangible
item over which the bank has a pledge of                    investment portfolios is typically geared at
security, netting and margining agreements,                 very conservative loan-to-value ratios after        collateral
covenants, or terms and conditions                          considering the quality, diversification, risk
imposed on a borrower with the aim of                       profile and liquidity of the portfolio.
reducing the credit risk inherent to that                   Our corporate, government and institutional
transaction.                                                clients provide a range of collateral
                                                            including cash, corporate assets, debtors
As Investec has a limited appetite for
                                                            (accounts receivable), trading stock, debt
unsecured debt, the credit risk mitigation
                                                            securities (bonds), listed and unlisted shares
technique most commonly used is the
                                                            and guarantees.
taking of collateral, with a strong preference
for tangible assets. Collateral is assessed                 The majority of credit mitigation techniques
with reference to the sustainability of value               linked to trading activity is in the form of
and the likelihood of realisation. Acceptable               netting agreements and daily margining.
collateral generally exhibits characteristics               The primary market standard legal
that allow for it to be easily identified and               documents that govern this include the




                                                                                                                                        Risk management and corporate governance
appropriately valued.                                       International Swaps and Derivatives
                                                            Association Master Agreements (ISDA),
         An analysis of collateral is provided              Global Master Securities Lending
         on page 48.                                        Agreement (GMSLA) and Global Master
                                                            Repurchase Agreement (GMRA). In addition
Where a transaction is supported by a                       to having ISDA documentation in place with
mortgage or charge over property, the                       all market and trading counterparties in
primary credit risk is still taken on the                   over-the-counter (OTC) derivatives, a Credit
borrower. For property backed lending                       Support Annex (CSA) ensures that all mark-
such as residential mortgages, the                          to-market credit exposure is mitigated daily
following characteristics of the property                   through the calculation and placement/
are considered: the type of property; its                   receiving of cash collateral. Where netting
location; and the ease with which the                       agreements have been signed, the
property could be re-let and/or re-sold.                    enforceability is supported by external
Where the property is secured by lease                      legal opinion within the legal jurisdiction of
agreements, the credit committee prefers                    the agreement.
not to lend for a term beyond the maximum
of the lease. Commercial real estate                        Set-off has been applied between assets
generally takes the form of good quality                    subject to credit risk and related liabilities in
property often underpinned by strong                        the annual financial statements where:
third party leases. Residential property
is also generally of a high quality and
                                                            • A legally enforceable right to set-off                                            3
                                                              exists
based in desirable locations. Residential
and commercial property valuations will                     • There is the intention to settle the
continue to form part of our ongoing                          asset and liability on a net basis, or to
focus on collateral assessment. It is our                     realise the asset and settle the liability
policy to obtain a formal valuation of every                  simultaneously.
commercial property offered as collateral
for a lending facility before advancing funds.              In addition to the above accounting set-off
Residential properties are valued by desktop                criteria, banking regulators impose the
valuation and/or approved valuers, where                    following additional criteria:
appropriate.
                                                            • Debit and credit balances relate to the
Other common forms of collateral in the                       same obligor/counterparty
retail asset class are motor vehicles,
                                                            • Debit and credit balances are
cash and share portfolios. In addition, the
                                                              denominated in the same currency and
relevant credit committee normally requires
                                                              have identical maturities




Investec Bank Limited group and company annual financial statements 2015                                                           31
                                           Risk management (continued)


                                           • Exposures subject to set-off are               protection in the form of financial collateral,       Defaults in the private client and corporate
                                             risk-managed on a net basis                    the value of collateral is adjusted using the         client portfolios increased slightly.
                                                                                            financial collateral comprehensive method.
                                           • Market practice considerations.                This method applies supervisory volatility            The credit loss ratio improved to 0.29% from
                                                                                            adjustments to the value of the collateral,           0.44% as we saw stability in the number of
                                           For this reason there will be instances                                                                new defaulted loans and sufficient collateral
                                           where credit and counterparty exposures          and includes the currency and/maturity
                                                                                            haircuts discussed above.                             available for these transactions.
                                           are displayed on a net basis in these annual
                                           financial statements but reported on a                                                                 Lending collateralised by property
                                                                                            Credit and counterparty risk
                                           gross basis to regulators.                                                                             The majority of the property assets are
                                                                                            year in review
                                                                                                                                                  commercial investment properties and are
                                           Investec places minimal reliance on credit       The financial year in review has seen                 located in South Africa. This investment
                                           derivatives in its credit risk mitigation        a combination of trends and factors                   portfolio grew by 7.1% during the year,
                                           techniques.                                      impacting on the credit quality and                   in line with our risk appetite framework.
                                                  Further information on credit             assessment of credit and counterparty risk.           LTVs remain conservative and transactions
                                                  derivatives is provided on                                                                      are supported by strong cash flows. We
                                                                                                   Further information is provided
                                                  page 57.                                                                                        follow a client-centric approach, backing
                                                                                                   in the financial review on
                                                                                                                                                  counterparties with strong balance sheets
                                           Investec endeavours to implement robust                 pages 11 to 18.
                                                                                                                                                  and requisite expertise.
                                           processes to minimise the possibility            Against this backdrop, core loans and
                                           of legal and/or operational risk through                                                               Private client activities
                                                                                            advances grew by 17.3% to R177.5 billion
                                           good quality tangible collateral. The legal      with residential owner-occupied, private              We have seen continued growth in our
                                           risk function in Investec ensures the            client lending, corporate and public sector           private client portfolio and client base as we
                                           enforceability of credit risk mitigants within   portfolios representing the majority of the           actively focus on increasing our positioning
                                           the laws applicable to the jurisdictions in      growth for the financial year in review.              in this space.
                                           which Investec operates. When assessing
                                           the potential concentration risk in its credit   Where we have been facing greater                     Our high net worth client portfolio and
Risk management and corporate governance




                                           portfolio, consideration is given to the types   competitive pressure on margins,                      residential mortgage book grew by 20.1%
                                           of collateral and credit protection that form    particularly in the corporate market, we              over the year.
                                           part of the portfolio.                           have maintained a conservative lending
                                                                                                                                                  Growth in both of these areas has been
                                                                                            approach. Our lending appetite is based
                                           For regulatory reporting purposes,                                                                     achieved with strong adherence to our
                                                                                            on a client-centric approach with a strong
                                           exposures may be reduced by eligible                                                                   conservative lending appetite.
                                                                                            focus on client cash flows underpinned by
                                           collateral. Under the standardised approach      tangible collateral.                                  Corporate client activities
                                           credit risk mitigation can be achieved
                                           through either funded or unfunded                Default loans (net of impairments) as a               The overall portfolio continues to perform
                                           credit protection. Where unfunded credit         percentage of core loans and advances                 well and higher levels of activity by mid
                                           protection is relied upon for mitigation         improved slightly from 1.50% to 1.46%.                to large corporates have contributed to
                                           purposes, the exposure to the borrower                                                                 growth of 19.9% over the year. Major
                                                                                            Defaults for the lending collateralised
                                           will be substituted with an exposure to                                                                contributors to growth were renewable
                                                                                            by property portfolio improved. These
                                           the protection provider, after applying a                                                              energy transactions, corporate facilities and
                                                                                            defaults are mostly related to historical
                                           ‘haircut’ to the value of the collateral due                                                           public sector lending.
                                                                                            residential land transactions earmarked for
                                           to currency and/or maturity mismatches           developments and continue to be managed
                                           between the original exposure and the            down. However, this process does take
                                           collateral provided. Unfunded credit             time as we continue to focus on maximising
                                           protection includes eligible guarantees and      recoveries.
                                           credit derivatives. Where we rely on funded
3




                                           32                                                                                     Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Credit and counterparty risk information
          Pages 20 to 32 describe where and how credit risk is assumed in our operations.

The tables that follow provide an analysis of the credit and counterparty exposures.

An analysis of gross credit and counterparty exposures
Credit and counterparty exposures increased by 10.8% to R374.9 billion largely as a result of an increase in core loans and advances and
cash and near cash balances. Cash and near cash balances increased by 5% to R88.7 billon and are largely reflected in the following line
items in the table below: cash and balances at central banks, loans and advances to banks, non-sovereign and non-bank cash placements
and sovereign debt securities.



                                                                                31 March       31 March
 R’million                                                                          2015           2014      % change          Average*

 Cash and balances at central banks                                                 6 261         5 927           5.6%           6 094
 Loans and advances to banks                                                       33 422        32 672           2.3%          33 047
 Non-sovereign and non-bank cash placements                                        10 540         9 045          16.5%           9 793
 Reverse repurchase agreements and cash collateral on
 securities borrowed                                                               10 095         6 442          56.7%           8 269
 Sovereign debt securities                                                         31 378        34 815          (9.9%)         33 097
 Bank debt securities                                                              17 332        21 538         (19.5%)         19 435
 Other debt securities                                                             12 749        11 933           6.8%          12 341




                                                                                                                                           Risk management and corporate governance
 Derivative financial instruments                                                  14 879        11 882          25.2%          13 381
 Securities arising from trading activities                                            1 018        994           2.4%           1 006
 Loans and advances to customers (gross)                                         174 132        149 810          16.2%         161 971
 Own originated loans and advances to customers securitised (gross)                    4 537      2 824          60.7%           3 681
 Other loans and advances (gross)                                                       490         597         (17.9%)            544
 Other securitised assets (gross)                                                          –        231        (100.0%)            116
 Other assets                                                                            13          48         (72.9%)              31
 Total on-balance sheet exposures                                                316 846        288 758           9.7%         302 803
 Guarantees^                                                                       14 551        12 507          16.3%          13 529
 Contingent liabilities, committed facilities and other                            43 480        37 158          17.0%          40 319
 Total off-balance sheet exposures                                                 58 031        49 665         16.8%           53 848
 Total gross credit and counterparty exposures pre-collateral or other
 credit enhancements                                                             374 877        338 423         10.8%          356 650
*    Where the average is based on a straight-line average for period 1 April 2014 to 31 March 2015.
^    Excludes guarantees provided to clients which are backed/secured by cash on deposit with the bank.



                                                                                                                                                   3




Investec Bank Limited group and company annual financial statements 2015                                                              33
                                           Risk management (continued)


                                           A further analysis of our on-balance sheet credit and counterparty exposures
                                           The table below indicates in which class of asset (on the face of the consolidated balance sheet) our on-balance sheet credit and
                                           counterparty exposures are reflected. Not all assets included in the balance sheet bear credit and counterparty risk.

                                                                                                                                                        Assets that
                                                                                                                                   Total credit            we deem
                                                                                                                                           and           to have no        Note               Total
                                                                                                                                  counterparty          legal credit      refer-           balance
                                           R’million                                                                                 exposure             exposure         ence              sheet

                                           At 31 March 2015
                                           Cash and balances at central banks                                                             6 261                      –                        6 261
                                           Loans and advances to banks                                                                   33 422                      –                      33 422
                                           Non-sovereign and non-bank cash placements                                                    10 540                      –                      10 540
                                           Reverse repurchase agreements and cash collateral on securities borrowed                      10 095                      –                       10 095
                                           Sovereign debt securities                                                                     31 378                      –                       31 378
                                           Bank debt securities                                                                          17 332                      –                       17 332
                                           Other debt securities                                                                         12 749                      –                       12 749
                                           Derivative financial instruments                                                              14 879                   299          1             15 178
                                           Securities arising from trading activities                                                     1 018                   271                         1 289
                                           Investment portfolio                                                                                 –              9 972           1              9 972
                                           Loans and advances to customers                                                             174 132                (1 139)          2           172 993
                                           Own originated loans and advances to customers securitised                                     4 537                    ( 2)        2              4 535
                                           Other loans and advances                                                                          490                   (18)        2                 472
Risk management and corporate governance




                                           Other securitised assets                                                                             –                 618          3                 618
                                           Interest in associated undertakings                                                                  –                  60                             60
                                           Deferred taxation assets                                                                             –                  88                             88
                                           Other assets                                                                                        13              1 249           4              1 262
                                           Property and equipment                                                                               –                 192                            192
                                           Investment properties                                                                                –                  80                             80
                                           Intangible assets                                                                                    –                 190                            190
                                           Loans to group companies                                                                             –              3 268                          3 268
                                           Non-current assets classified as held for sale                                                       –                 732                            732
                                           Total on-balance sheet exposures                                                            316 846                15 860                       332 706

                                           1.   Largely relates to exposures that are classified as equity risk in the banking book. Further information is provided on pages 49 to 51.
                                           2.   Largely relates to impairments.
                                           3.   Largely includes cash in the securitised vehicles.
                                           4.   Other assets include settlement debtors which we deem to have no credit risk exposure as they are settled on a delivery against
                                                payment basis.


3




                                           34                                                                                   Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


A further analysis of our on-balance sheet credit and counterparty exposures (continued)
                                                                                                        Assets that
                                                                                       Total credit        we deem
                                                                                               and       to have no      Note           Total
                                                                                      counterparty      legal credit    refer-       balance
 R’million                                                                               exposure         exposure       ence          sheet

 At 31 March 2014
 Cash and balances at central banks                                                          5 927                 –                   5 927
 Loans and advances to banks                                                                32 672                 –                  32 672
 Non-sovereign and non-bank cash placements                                                  9 045                 –                   9 045
 Reverse repurchase agreements and cash collateral on securities borrowed                    6 442                 –                   6 442
 Sovereign debt securities                                                                  34 815                 –                  34 815
 Bank debt securities                                                                       21 538                 –                  21 538
 Other debt securities                                                                      11 933                 –                  11 933
 Derivative financial instruments                                                           11 882              417                   12 299
 Securities arising from trading activities                                                    994              322                    1 316
 Investment portfolio                                                                             –           8 834         1          8 834
 Loans and advances to customers                                                           149 810            (1 248)       2        148 562
 Own originated loans and advances to customers securitised                                  2 824                (2)       2          2 822
 Other loans and advances                                                                      597               (45)       2            552
 Other securitised assets                                                                      231            1 272         3          1 503
 Interest in associated undertakings                                                              –              52                        52




                                                                                                                                                  Risk management and corporate governance
 Deferred taxation assets                                                                         –              75                        75
 Other assets                                                                                    48           1 723         4          1 771
 Property and equipment                                                                           –             219                      219
 Investment properties                                                                            –              84                        84
 Intangible assets                                                                                –             102                      102
 Loans to group companies                                                                         –           1 924                    1 924
 Non-current assets classified as held for sale                                                   –             731                      731
 Total on-balance sheet exposures                                                          288 758           14 460                  303 218
1. Largely relates to exposures that are classified as equity risk in the banking book. Further information is provided on pages 49 to 51.
2. Largely relates to impairments.
3. While the group manages all risks (including credit risk) from a day-to-day operational perspective, certain of these assets are within
   special purpose vehicles that ring-fence the assets to specific credit providers and limit security to the assets in the vehicle. The table
   above reflects the net credit exposure in the vehicles that the group has reflected in the ‘total credit and counterparty exposure’ with the
   maximum credit exposure referenced to credit providers external to the group in the column headed ‘assets that we deem to have no
   legal credit exposure’.
4. Other assets include settlement debtors which we deem to have no credit risk exposure as they are settled on a delivery against
   payment basis.


                                                                                                                                                          3




Investec Bank Limited group and company annual financial statements 2015                                                                    35
                                           Risk management (continued)


                                           Detailed analysis of gross credit and counterparty exposures by industry
                                                                                                                      Lending
                                                                                                                 collateralised
                                                                                                                  by property                  Electricity,               Public
                                                                                                      HNW and – largely to                       gas and               and non-
                                                                                                    professional       private                water (utility           business         Business
                                           R’million                                                 individuals        clients   Agriculture    services)              services         services

                                           At 31 March 2015
                                           Cash and balances at central banks                                  –             –                –                –           6 261                   –
                                           Loans and advances to banks                                         –             –                –                –                 –                 –
                                           Non-sovereign and non-bank cash placements                          –             –                –                –                 –             544
                                           Reverse repurchase agreements and cash
                                           collateral on securities borrowed                                579              –                –             971                  –               71
                                           Sovereign debt securities                                           –             –                –                –         31 378                    –
                                           Bank debt securities                                                –             –                –                –                 –                 –
                                           Other debt securities                                               –             –                –           1 097                  –                 –
                                           Derivative financial instruments                                   90             –              10              368                  –             178
                                           Securities arising from trading activities                          –             –                –                6              270              165
                                           Loans and advances to customers (gross)                       74 466        38 031             869             4 794            1 004             6 777
                                           Own originated loans and advances to
                                           customers securitised (gross)                                  4 537              –                –                –                 –                 –
                                           Other loans and advances (gross)                                    –             –                –                –                 –                 –
Risk management and corporate governance




                                           Other assets                                                        –             –                –                –                 –                 –
                                           Total on-balance sheet exposures                              79 672        38 031             879             7 236          38 913              7 735
                                           Guarantees^                                                    3 805          1 501                –             565            1 333               109
                                           Contingent liabilities, committed facilities and other        25 594          5 388            464             2 243               213              656
                                           Total off-balance sheet exposures                             29 399          6 889            464             2 808            1 546               765
                                           Total gross credit and counterparty exposures
                                           pre-collateral or other credit enhancements                  109 071        44 920           1 343           10 044           40 459              8 500


                                           At 31 March 2014
                                           Cash and balances at central banks                                  –             –                –                –           5 927                   –
                                           Loans and advances to banks                                         –             –                –                –                 –                 –
                                           Non-sovereign and non-bank cash placements                          –             –                –               24               17              484
                                           Reverse repurchase agreements and cash
                                           collateral on securities borrowed                                485              –                –               20                 –                 –
                                           Sovereign debt securities                                           –             –                –                –         34 815                    –
                                           Bank debt securities                                                –             –                –                –                 –                 –
                                           Other debt securities                                               –             –                –             304                  –                 –

3                                          Derivative financial instruments
                                           Securities arising from trading activities
                                                                                                              61
                                                                                                               –
                                                                                                                             –
                                                                                                                             –
                                                                                                                                              9
                                                                                                                                              –
                                                                                                                                                              85
                                                                                                                                                               4              654
                                                                                                                                                                                 –               52
                                                                                                                                                                                                   –
                                           Loans and advances to customers (gross)                       62 932        35 515             823             3 119               918            5 173
                                           Own originated loans and advances to
                                           customers securitised (gross)                                  2 824              –                –                –                 –                 –
                                           Other loans and advances (gross)                                    –             –                –                –                 –                 –
                                           Other securitised assets                                            –             –                –                –              157                  –
                                           Other assets                                                        –             –                –                1                 –                 –
                                           Total on-balance sheet exposures                              66 302        35 515             832             3 557          42 488              5 709
                                           Guarantees^                                                    2 354         1 518                 –             158               843                33
                                           Contingent liabilities, committed facilities and other        21 783         5 946             588             2 868                  7             613
                                           Total off-balance sheet exposures                             24 137          7 464            588             3 026               850              646
                                           Total gross credit and counterparty exposures
                                           pre-collateral or other credit enhancements                   90 439        42 979           1 420             6 583          43 338              6 355

                                           ^    Excludes guarantees provided to clients which are booked/secured by cash on deposits with the bank.




                                           36                                                                                 Investec Bank Limited group and company annual financial statements 2015
  Risk management (continued)




                                                                                                    Leisure,
  Finance  Retailers Manufac-                             Corporate      Other            Mining   entertain-
      and       and turing and                 Construc- commercial residential              and   ment and                 Communi-
insurance wholesalers commerce                      tion real estate mortgages         resources     tourism    Transport      cation     Total



         –                –               –                –                 –     –           –           –            –           –     6 261
  33 422                  –               –                –                 –     –           –           –            –           –    33 422
   3 527            1 769           2 189              350                   –     –        479            –       1 209         473     10 540

   7 521                  –            865                 –                 –     –           –           –          88            –    10 095
         –                –               –                –                 –     –           –           –            –           –    31 378
  17 332                  –               –                –                 –     –           –           –            –           –    17 332
   6 212                 1                –                –                 –     –      2 268            –         956        2 215    12 749
  12 470              126              575                2             711        –        276           15          40          18     14 879
      299                 –            165                 –                 –     –         26            –          87            –     1 018
   8 602            2 140           9 505            2 749           6 441         –      4 010        1 605       7 088        6 051   174 132

         –                –               –                –                 –     –           –           –            –           –     4 537
         –                –               –                –                 –   490           –           –            –           –      490




                                                                                                                                                  Risk management and corporate governance
       13                 –               –                –                 –     –           –           –            –           –       13
  89 398            4 036          13 299            3 101           7 152       490      7 059        1 620       9 468        8 757   316 846
   3 906              800              843                 –                 1     –      1 640            –          16          32     14 551
   3 569              364              392             170              263        –      1 800           65       1 553         746     43 480
   7 475            1 164           1 235              170              264        –      3 440           65       1 569         778     58 031

  96 873            5 200          14 534            3 271           7 416       490     10 499        1 685      11 037        9 535   374 877



         –                –               –                –                 –     –           –           –            –           –     5 927
  32 672                  –               –                –                 –     –           –           –            –           –    32 672
   2 000            1 682           2 063              240                   –     –        541            –       1 803         191      9 045

   4 850                  –         1 008                  –                 –     –           –           –          79            –     6 442
         –                –               –                –                 –     –           –           –            –           –    34 815
  21 538                  –               –                –                 –     –                       –            –           –    21 538
   6 662                  –               –                –                 –     –      2 226            –       1 547        1 194    11 933
  10 114
      148
                      247
                          –
                                       469
                                       149
                                                          5
                                                           –
                                                                        607
                                                                             –
                                                                                   –
                                                                                   –
                                                                                            138
                                                                                               –
                                                                                                          11
                                                                                                           –
                                                                                                                      84
                                                                                                                      39
                                                                                                                                    –
                                                                                                                                    –
                                                                                                                                         11 882
                                                                                                                                           994
                                                                                                                                                          3
   4 977            2 921           8 468            2 443           6 756         –      5 123          799       4 801        5 042   149 810

         –                –               –                –                 –     –           –           –            –           –     2 824
         –                –               –                –                 –   597           –           –            –           –      597
       74                 –               –                –                 –     –           –           –            –           –      231
       47                 –               –                –                 –     –           –           –            –           –       48
  83 082            4 850          12 157            2 688           7 363       597      8 028          810       8 353        6 427   288 758
   4 226            1 325              110                 –                 1     –      1 713          197          20            9    12 507
      548             772              628               31             112        –      1 816          685         634         127     37 158
   4 774            2 097              738               31             113        –      3 529          882         654         136     49 665

  87 856            6 947          12 895            2 719           7 476       597     11 557        1 692       9 007        6 563   338 423




  Investec Bank Limited group and company annual financial statements 2015                                                                   37
                                           Risk management (continued)


                                                                                           Summary analysis of gross credit and                banks, thus the large balance reflected in
                                                Private client                             counterparty exposures by industry                  the ‘public and non-business services’ and
                                                                                                                                               ‘finance and insurance’ sectors. These
                                                loans account                                      A description of the type of private
                                                                                                                                               exposures also include off-balance sheet
                                                                                                   client lending we undertake is
                                                for 65.5% of total                                 provided on page 27, and a more             items such as guarantees, committed
                                                gross core loans                                   detailed analysis of the private            facilities and contingent liabilities, largely to
                                                                                                                                               our HNW and professional individual clients.
                                                                                                   client loan portfolio is provided
                                                and advances,                                      on pages 46 and 47.
                                                                                                                                                          A description of the type of
                                                as represented                                                                                            corporate client lending we
                                                by the industry                            The remainder of core loans and advances                       undertake is provided on
                                                                                           largely relate to corporate client lending and
                                                classification ‘HNW                        are evenly spread across industry sectors.
                                                                                                                                                          pages 27 and 28 and a more
                                                                                                                                                          detailed analysis of the corporate
                                                and professional                                                                                          client loan portfolio is provided
                                                                                           Other credit and counterparty exposures
                                                individuals’                               are largely reflective of cash and near cash
                                                                                                                                                          on pages 46 and 47.
                                                                                           balances held with institutions and central




                                                                                                    Gross core loans               Other credit and
                                           At 31 March                                               and advances               counterparty exposures                           Total
                                           R’million                                                  2015            2014            2015               2014              2015               2014
Risk management and corporate governance




                                           HNW and professional individuals                         79 003          65 756          30 068             24 683          109 071              90 439
                                           Lending collateralised by property –
                                           largely to private clients                               38 031          35 515           6 889              7 464            44 920             42 979
                                           Agriculture                                                  869            823              474                597            1 343              1 420
                                           Electricity, gas and water (utility services)             4 794           3 119           5 250              3 464            10 044              6 583
                                           Public and non-business services                          1 004             918          39 455             42 420            40 459             43 338
                                           Business services                                         6 777           5 173           1 723              1 182             8 500              6 355
                                           Finance and insurance                                     8 602           4 977          88 271             82 879            96 873             87 856
                                           Retailers and wholesalers                                 2 140           2 921           3 060              4 026             5 200              6 947
                                           Manufacturing and commerce                                9 505           8 468           5 029              4 427            14 534             12 895
                                           Construction                                              2 749           2 443              522                276            3 271              2 719
                                           Corporate commercial real estate                          6 441           6 756              975                720            7 416              7 476
                                           Other residential mortgages                                    –               –             490                597               490                597
                                           Mining and resources                                      4 010           5 123           6 489              6 434            10 499             11 557
                                           Leisure, entertainment and tourism                        1 605             799                80               893            1 685              1 692
                                           Transport                                                 7 088           4 801           3 949              4 206            11 037              9 007
                                           Communication                                             6 051           5 042           3 484              1 521             9 535              6 563
3                                          Total                                                   178 669         152 634        196 208            185 789           374 877            338 423




                                           38                                                                                  Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Gross credit and counterparty exposures by residual contractual maturity at 31 March 2015
                                                                                         Six
                                                               Up           Three    months       One
                                                          to three          to six    to one    to five    Five to
 R’million                                                months           months       year     years    10 years   > 10 years     Total

 Cash and balances at central banks                          6 261               –         –         –           –            –     6 261
 Loans and advances to banks                               31 759             545       182       851          85             –    33 422
 Non-sovereign and non-bank
 cash placements                                           10 540                –         –         –           –            –    10 540
 Reverse repurchase agreements and
 cash collateral on securities borrowed                      5 570             17     1 020      2 134      1 354             –    10 095
 Sovereign debt securities                                   8 724          7 583     4 171      3 043      5 579        2 278     31 378
 Bank debt securities                                        4 109          1 841     1 589      8 342      1 451             –    17 332
 Other debt securities                                         137            201       177      5 874      6 072          288     12 749
 Derivative financial instruments                            2 009          1 186     1 382      6 789      3 111          402     14 879
 Securities arising from trading activities                    491              7          –      255          50          215      1 018
 Loans and advances to customers
 (gross)                                                   21 567           5 584    12 010     77 736     19 420       37 815    174 132
 Own originated loans and advances
 to customers securitised (gross)                              177               –        5      1 292        195        2 868      4 537
 Other loans and advances (gross)                                  –             –         –      490            –            –      490
 Other assets                                                    13              –         –         –           –            –       13




                                                                                                                                             Risk management and corporate governance
 Total on-balance sheet exposures                          91 357          16 964    20 536    106 806     37 317       43 866    316 846
 Guarantees^                                                 6 845            205       407      4 895      1 930          269     14 551
 Contingent liabilities, committed
 facilities and other                                      13 272           1 175     3 347     11 674      2 140       11 872     43 480
 Total off-balance sheet exposures                         20 117           1 380     3 754     16 569      4 070       12 141     58 031
 Total gross credit and counterparty
 exposures pre-collateral or other
 credit enhancements                                     111 474           18 344    24 290    123 375     41 387       56 007    374 877

^ Excludes guarantees provided to clients which are backed/secured by cash on deposit with the bank.




                                                                                                                                                     3




Investec Bank Limited group and company annual financial statements 2015                                                                39
                                           Risk management (continued)


                                           An analysis of our core loans and advances, asset quality and impairments
                                           Core loans and advances comprise:
                                           • Loans and advances to customers as per the balance sheet

                                           • Own originated loans and advances to customers securitised as per the balance sheet.




                                           At 31 March
                                           R’million                                                                                                                    2015                 2014

                                           Loans and advances to customers as per the balance sheet                                                                 172 993              148 562
                                           Add: own originated loans and advances securitised as per the balance sheet                                                 4 535                2 822
                                           Net core loans and advances to customers                                                                                 177 528              151 384

                                           The tables that follow provide information with respect to the asset quality of our core loans and advances to customers.

                                                   An overview of developments during the financial year is provided on page 32.

                                                                                                                                                                  31 March             31 March
                                           R’million                                                                                                                  2015                 2014

                                           Gross core loans and advances to customers                                                                               178 669               152 634
Risk management and corporate governance




                                           Total impairments                                                                                                          (1 141)               (1 250)
                                              Specific impairments                                                                                                      (971)               (1 077)
                                              Portfolio impairments                                                                                                     (170)                 (173)
                                           Net core loans and advances to customers                                                                                 177 528               151 384

                                           Average gross core loans and advances to customers                                                                       165 652               146 047

                                           Current loans and advances to customers                                                                                  173 775               147 724
                                           Past due loans and advances to customers (1 – 60 days)                                                                       505                   729
                                           Special mention loans and advances to customers                                                                              660                   658
                                           Default loans and advances to customers                                                                                    3 729                 3 523
                                           Gross core loans and advances to customers                                                                               178 669               152 634

                                           Current loans and advances to customers                                                                                  173 775               147 724
                                           Default loans that are current and not impaired                                                                              787                   162
                                           Gross core loans and advances to customers that are past due but not impaired                                              1 720                 2 171
                                           Gross core loans and advances to customers that are impaired                                                               2 387                 2 577
                                           Gross core loans and advances to customers                                                                               178 669               152 634

                                           Total income statement charge for impairments on core loans and advances                                                      (482)                 (638)

3                                          Gross default loans and advances to customers                                                                               3 729                 3 523
                                           Specific impairments                                                                                                         (971)               (1 077)
                                           Portfolio impairments                                                                                                        (170)                 (173)
                                           Defaults net of impairments                                                                                                 2 588                 2 273
                                           Aggregate collateral and other credit enhancements on defaults                                                              3 717                 3 520
                                           Net default loans and advances to customers (limited to zero)                                                                   –                     –

                                           Ratios
                                           Total impairments as a % of gross core loans and advances to customers                                                     0.64%                0.82%
                                           Total impairments as a % of gross default loans                                                                           30.60%               35.48%
                                           Gross defaults as a % of gross core loans and advances to customers                                                        2.09%                2.31%
                                           Defaults (net of impairments) as a % of net core loans and advances to customers                                           1.46%                1.50%
                                           Net defaults as a % of net core loans and advances to customers                                                                –                    –
                                           Credit loss ratio (i.e. income statement impairment charge on core loans as a % of average gross core
                                           loans and advances)                                                                                                         0.29%                0.44%




                                           40                                                                                 Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


An age analysis of past due and default core loans and advances to customers




 At 31 March
 R’million                                                                                                      2015    2014

 Default loans that are current                                                                                 1 533     785
 1 – 60 days                                                                                                    1 448   1 140
 61 – 90 days                                                                                                     144     235
 91 – 180 days                                                                                                    253     453
 181 – 365 days                                                                                                   194     584
 > 365 days                                                                                                     1 322   1 713
 Past due and default core loans and advances to customers (actual capital exposure)                            4 894   4 910

 1 – 60 days                                                                                                      543     231
 61 – 90 days                                                                                                      36      29
 91 – 180 days                                                                                                    130     106
 181 – 365 days                                                                                                   147     470
 > 365 days                                                                                                       962   1 425
 Past due and default core loans and advances to customers (actual amount in arrears)                           1 818   2 261


A further age analysis of past due and default core loans and advances to customers


                                             Current




                                                                                                                                 Risk management and corporate governance
                                            watchlist              1 – 60      61 – 90   91 – 180   181 – 365   > 365
 R’million                                     loans                days         days        days        days    days   Total

 At 31 March 2015
 Watchlist loans neither
 past due nor impaired
    Total capital exposure                        787                      –        –           –           –       –    787
 Gross core loans and
 advances to customers
 that are past due but
 not impaired
    Total capital exposure                            –             1 030         104        173         128      285   1 720
    Amount in arrears                                 –               389          32        108          94      172     795
 Gross core loans and
 advances to customers
 that are impaired
    Total capital exposure                        746                 418          40         80          66    1 037   2 387
    Amount in arrears                               –                 154           4         22          53      790   1 023

At 31 March 2014                                                                                                                         3
Watchlist loans neither
past due nor impaired
   Total capital exposure                         162                      –        –          –            –       –    162
Gross core loans and
advances to customers
that are past due but
not impaired
   Total capital exposure                             –               993         168        275         326      409   2 171
   Amount in arrears                                  –               188          18         39         246      296     787
Gross core loans and
advances to customers
that are impaired
   Total capital exposure                         623                 147          67        178         258    1 304   2 577
   Amount in arrears                                –                  43          11         67         224    1 129   1 474




Investec Bank Limited group and company annual financial statements 2015                                                    41
                                           Risk management (continued)


                                           An age analysis of past due and default core loans and advances to customers at 31 March 2015 (based on total
                                           capital exposure)


                                                                                  Current
                                                                                 watchlist         1 – 60         61 – 90       91 – 180          181 – 365                > 365
                                               R’million                            loans           days            days            days               days                 days                Total

                                               Past due (1 – 60 days)                    –           505                 –                –                   –                  –                505
                                               Special mention                           –           490               76               19                  34                  41                660
                                                  Special mention
                                                  (1 – 90 days)                          –           490                2               19*                 34*                 41*               586
                                                  Special mention
                                                  (61 – 90 days and item
                                                  well secured)                          –              –              74                 –                   –                  –                 74
                                               Default                              1 533            453               68              234                160               1 281              3 729
                                                  Sub-standard                        787              36              28              155                  94                244              1 344
                                                  Doubtful                            746            417               40               79                  66              1 037              2 385
                                               Total                                1 533          1 448              144              253                194               1 322              4 894


                                           An age analysis of past due and default core loans and advances to customers at 31 March 2015 (based on actual amount
                                           in arrears)


                                                                                  Current
Risk management and corporate governance




                                                                                 watchlist         1 – 60         61 – 90       91 – 180          181 – 365                > 365
                                               R’million                            loans           days            days            days               days                 days                Total

                                               Past due (1 – 60 days)                    –             49                –                –                   –                  –                 49
                                               Special mention                           –            340              19                 6                 26                  26                417
                                                  Special mention
                                                  (1 – 90 days)                          –            340                –                6*                26*                 26*               398
                                                  Special mention
                                                  (61 – 90 days and item
                                                  well secured)                          –               –             19                 –                   –                  –                 19
                                               Default                                   –            154              17              124                121                 936              1 352
                                                  Sub-standard                           –               1             12              102                  68                146                 329
                                                  Doubtful                               –            153               5               22                  53                790              1 023
                                               Total                                     –            543              36              130                147                 962              1 818

                                           *      Largely relates to solvent deceased estates and bonds under registration at the deeds office. Due to the lengthy external process with
                                                  respect to these exposures, which are out of the control of Investec, these exposures have been classified as special mention and
                                                  will remain there until settled or their credit quality deteriorates.


3




                                           42                                                                                    Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


An age analysis of past due and default core loans and advances to customers at 31 March 2014 (based on total
capital exposure)


                                             Current
                                            watchlist             1 – 60        61 – 90   91 – 180   181 – 365          > 365
    R’million                                  loans               days           days        days        days           days           Total

    Past due (1 – 60 days)                            –               729            –           –           –               –            729
    Special mention                                   –               241          145          3         214              55             658
       Special mention
       (1 – 90 days)                                  –               241           23          3*        214*             55*            536
       Special mention
       (61 – 90 days and item
       well secured)                                  –                     –      122           –           –               –            122
    Default                                        785                170           90        450         370           1 658           3 523
       Sub-standard                                162                     26       25        272         112             355             952
       Doubtful                                    623                144           65        178         258           1 303           2 571
    Total                                          785              1 140          235        453         584           1 713           4 910


An age analysis of past due and default core loans and advances to customers at 31 March 2014 (based on actual amount in
arrears)


                                             Current




                                                                                                                                                     Risk management and corporate governance
                                            watchlist              1 – 60       61 – 90   91 – 180   181 – 365          > 365
    R’million                                  loans                days          days        days        days           days           Total

    Past due (1 – 60 days)                            –                    77        –           –           –               –             77
    Special mention                                   –               111           17          1         187              10             326
       Special mention
       (1 – 90 days)                                  –               111            3          1*        187*             10*            312
       Special mention
       (61 – 90 days and
       item well secured)                             –                     –       14           –           –               –             14
    Default                                           –                    43       12        105         283           1 415           1 858
       Sub-standard                                   –                     1        1         38           59            286             385
       Doubtful                                       –                    42       11         67         224           1 129           1 473
    Total                                             –               231           29        106         470           1 425           2 261

*      Largely relates to solvent deceased estates and bonds under registration at the deeds office. Due to the lengthy external process with
       respect to these exposures, which are out of the control of Investec, these exposures have been classified as special mention and
       will remain there until settled or their credit quality deteriorates.


                                                                                                                                                             3




Investec Bank Limited group and company annual financial statements 2015                                                                        43
                                           Risk management (continued)


                                           An analysis of core loans and advances to customers
                                                                         Gross core Gross core             Total gross                                  Total net
                                                                          loans and loans and               core loans                                core loans
                                                                          advances advances Gross core             and                                       and
                                                                             that are  that are loans and advances                                     advances
                                                                         neither past past due advances        (actual      Specific        Portfolio     (actual    Actual
                                                                             due nor    but not   that are     capital       impair-         impair-      capital amount in
                                           R’million                        impaired  impaired   impaired exposure)           ments           ments exposure)       arrears

                                           At 31 March 2015
                                           Current core loans and
                                           advances                         173 775          –          –     173 775                –            (159)      173 616                   –
                                           Past due (1 – 60 days)                 –        505          –         505                –               (3)           502               49
                                           Special mention                        –        660          –         660                –               (8)           652              417
                                                Special mention
                                                (1 – 90 days)                     –        586          –         586                –               (7)           579              398
                                                Special mention
                                                (61 – 90 days and item
                                                well secured)                     –         74          –          74                –               (1)            73               19
                                           Default                              787        555      2 387       3 729            (971)                –         2 758            1 352
                                                Sub-standard                    787        555          2       1 344                –                –         1 344               329
                                                Doubtful                          –          –      2 385       2 385            (971)                –         1 414            1 023
                                           Total                            174 562      1 720      2 387     178 669            (971)            (170)      177 528             1 818
Risk management and corporate governance




                                           At 31 March 2014
                                           Current core loans and
                                           advances                        147 724           –          –    147 724                 –           (159)       147 565                   –
                                           Past due (1 – 60 days)                –         729          –        729                 –              (4)           725                77
                                           Special mention                       –         658          –        658                 –             (10)           648              326
                                                Special mention
                                                (1 – 90 days)                    –         536          –        536                 –              (9)           527              312
                                                Special mention
                                                (61 – 90 days and item
                                                well secured)                    –         122          –        122                 –              (1)           121                14
                                           Default                             162         784      2 577       3 523         (1 077)                –          2 446            1 858
                                                Sub-standard                   162         784          6        952                 –               –            952              385
                                                Doubtful                         –           –      2 571       2 571         (1 077)                –          1 494            1 473
                                           Total                           147 886       2 171      2 577    152 634          (1 077)            (173)       151 384             2 261



3




                                           44                                                                     Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


An analysis of core loans and advances to customers and impairments by counterparty type
                                                                                         Insurance,    Public and
                                                    Private client,                        financial  government                     Total core
                                                     professional                          services          sector       Trade      loans and
                                                        and HNW            Corporate     (excluding     (including      finance    advances to
 R’million                                             individuals            sector      sovereign) central banks)   and other     customers

 At 31 March 2015
 Current core loans and advances                           113 153           47 598          8 602            933        3 489         173 775
 Past due (1 – 60 days)                                        453                –              –              –           52             505
 Special mention                                               633               24              –              –            3             660
    Special mention (1 – 90 days)                              562               24              –              –            –             586
    Special mention (61 – 90 days
    and item well secured)                                        71              –               –              –           3              74
 Default                                                       2 795            692               –             71         171           3 729
    Sub-standard                                               1 277             64               –              –           3           1 344
    Doubtful                                                   1 518            628               –             71         168           2 385
 Total gross core loans and
 advances to customers                                     117 034           48 314          8 602           1 004       3 715         178 669

 Total impairments                                              (652)           (363)            (4)            (7)        (115)         (1 141)
 Specific impairments                                           (519)           (331)             –             (6)        (115)          (971)
 Portfolio impairments                                          (133)             (32)           (4)            (1)           –           (170)
 Net core loans and
 advances to customers                                     116 382           47 951          8 598            997        3 600         177 528




                                                                                                                                                   Risk management and corporate governance
 At 31 March 2014
 Current core loans and advances                             97 307           41 825         4 794            918        2 880         147 724
 Past due (1 – 60 days)                                         468              200             –              –           61             729
 Special mention                                                652                –             –              –            6             658
    Special mention (1 – 90 days)                               535                –             –              –            1             536
    Special mention (61 – 90 days
    and item well secured)                                       117              –              –               –           5             122
 Default                                                       2 844            390            183               –         106           3 523
    Sub-standard                                                 761              3            183               –           5             952
    Doubtful                                                   2 083            387              –               –         101           2 571
 Total gross core loans and
 advances to customers                                      101 271           42 415         4 977            918        3 053         152 634

 Total impairments                                              (987)           (180)            (2)            (1)         (80)         (1 250)
 Specific impairments                                           (869)           (128)             –              –          (80)         (1 077)
 Portfolio impairments                                          (118)             (52)           (2)            (1)           –            (173)
 Net core loans and advances
 to customers                                               100 284           42 235         4 975            917        2 973         151 384
                                                                                                                                                           3




Investec Bank Limited group and company annual financial statements 2015                                                                      45
                                           Risk management (continued)


                                           An analysis of core loans and advances by risk category at 31 March 2015
                                                                                                                                Aggregate
                                                                                                                             collateral and
                                                                                                                               other credit              Balance                Income
                                                                                                 Gross core     Gross       enhancements                    sheet            statement
                                           R’million                                                  loans   defaults         on defaults            impairments          impairments^

                                           Lending collateralised by property                       38 031       1 311                  1 303                   (430)                 (179)

                                           Commercial real estate                                   34 924        651                      741                  (251)                 (144)
                                                Commercial real estate – investment                 31 030        276                      443                    (93)                 (38)
                                                Commercial real estate – development                 2 372            72                    76                      (7)                  (4)
                                                Commercial vacant land and planning                  1 522        303                      222                  (151)                 (102)

                                           Residential real estate                                   3 107        660                      562                  (179)                  (35)
                                                Residential real estate – development                1 590        346                      333                    (52)                   (1)
                                                Residential vacant land and planning                 1 517        314                      229                  (127)                  (34)

                                           High net worth and other private client lending          79 003       1 484                  1 897                   (222)                  (29)
                                                Mortgages                                           46 155        448                      739                    (71)                   (6)
                                                High net worth and specialised lending              32 848       1 036                  1 158                   (151)                  (23)

                                           Corporate and other lending                              61 635        934                      517                  (489)                 (274)
                                           Acquisition finance                                      16 303        481                      313                  (198)                 (186)
                                           Asset-based lending                                       3 717        170                      117                  (115)                  (36)
Risk management and corporate governance




                                           Other corporate and financial institutions
                                           and governments                                          31 067        265                       86                  (127)                  (56)
                                           Asset finance                                             4 434             –                      1                   (31)                 (21)
                                                Small ticket asset finance                           1 228             –                      1                     1                  (16)
                                                Large ticket asset finance                           3 206             –                      –                   (32)                   (5)
                                           Project finance                                           5 597            18                      –                   (18)                  25
                                           Resource finance                                            517             –                      –                      –                    –
                                           Total                                                   178 669       3 729                  3 717                 (1 141)                 (482)

                                           ^    Where a positive number represents a recovery.




3




                                           46                                                                         Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


An analysis of core loans and advances by risk category at 31 March 2014
                                                                                                           Aggregate
                                                                                                            collateral
                                                                                                            and other
                                                                                                                credit              Balance                     Income
                                                                           Gross core            Gross enhancements                    sheet                 statement
 R’million                                                                      loans          defaults   on defaults            impairments               impairments^

 Lending collateralised by property                                              35 515          1 844               1 716                   (695)                     (197)

 Commercial real estate                                                          32 571            749                899                    (237)                       (67)
      Commercial real estate – investment                                        28 949            516                636                    (168)                       (32)
      Commercial real estate – development                                        1 846              –                   –                       (3)                     (16)
      Commercial vacant land and planning                                         1 776            233                263                      (66)                      (19)

 Residential real estate                                                          2 944          1 095                817                    (458)                     (130)
      Residential real estate – development                                       1 231            328                324                      (50)                      (46)
      Residential vacant land and planning                                        1 713            767                493                    (408)                       (84)

 High net worth and other private client lending                                 65 756          1 000               1 179                   (292)                     (357)
      Mortgages                                                                  38 412            601                789                    (116)                       (92)
      High net worth and specialised lending                                     27 344            399                390                    (176)                     (265)

 Corporate and other lending                                                     51 363            679                625                    (263)                       (84)
 Acquisition finance                                                             12 188            527                557                    (100)                            8




                                                                                                                                                                                    Risk management and corporate governance
 Asset-based lending                                                              3 050            106                 55                      (80)                      (35)
 Other corporate and financial institutions
 and governments                                                                 28 738             46                 13                      (75)                       38
 Asset finance                                                                    3 519              –                   –                       (8)                          (9)
      Small ticket asset finance                                                  1 007              –                   –                        –                           –
      Large ticket asset finance                                                  2 512              –                   –                       (8)                          (9)
 Project finance                                                                  3 220              –                   –                        –                      (86)
 Resource finance                                                                  648               –                   –                        –                           –
 Total                                                                          152 634          3 523               3 520                 (1 250)                     (638)

 ^    Where a positive number represents a recovery.




Asset quality trends

  Percentage                                                                                             R’billion
  5                                                                                                          180

                                                                                                             160                                                                            3
  4                                                                                                          140

                                                                                                             120
  3
                                                                                                             100

                                                                                                             80
  2
                                                                                                             60

                                                                                                             40
  1                                                                                                                          Net core loans (RHS)
                                                                                                             20              Net defaults (before collateral) as a % of net
                                                                                                                             core loans and advances (LHS)
  0                                                                                                          0               Credit loss ratio (income statement
                                                                                                                             impairment charge as a % of average gross
            06        07         08        09         10        11         12       13    14        15                       core loans and advances) (LHS)




Investec Bank Limited group and company annual financial statements 2015                                                                                                      47
                                           Risk management (continued)


                                           Collateral
                                           A summary of total collateral is provided in the table below
                                                                                                                                                  Collateral held against
                                                                                                                                                                        Other
                                                                                                                                                      Core          credit and
                                                                                                                                                 loans and        counterparty
                                               R’million                                                                                         advances           exposures*                   Total

                                               At 31 March 2015
                                               Eligible financial collateral                                                                         28 458               24 925              53 383
                                                  Listed shares                                                                                      25 567               12 288              37 855
                                                  Cash                                                                                                   713               8 242                8 955
                                                  Debt securities issued by sovereigns                                                                 2 178               4 395                6 573

                                               Property charge                                                                                      218 022                   760            218 782
                                                  Residential property                                                                              106 774                   666            107 440
                                                  Commercial property developments                                                                     7 245                    94              7 339
                                                  Commercial property investments                                                                   104 003                      –           104 003

                                               Other collateral                                                                                      51 727                   494             52 221
                                                  Unlisted shares                                                                                      8 155                     –              8 155
                                                  Charges other than property                                                                          9 464                     –              9 464
                                                  Debtors, stock and other corporate assets                                                            3 796                     –              3 796
Risk management and corporate governance




                                                  Guarantees                                                                                         13 355                     15            13 370
                                                  Other                                                                                              16 957                   479             17 436

                                               Total collateral                                                                                     298 207               26 179             324 386

                                               At 31 March 2014
                                               Eligible financial collateral                                                                         22 118                6 922              29 040
                                                  Listed shares                                                                                      20 894                6 920              27 814
                                                  Cash                                                                                                 1 224                     2              1 226

                                               Property charge                                                                                      211 125                   631            211 756
                                                  Residential property                                                                              105 588                   552            106 140
                                                  Commercial property developments                                                                     6 323                    79              6 402
                                                  Commercial property investments                                                                    99 214                      –            99 214

                                               Other collateral                                                                                      75 252                1 497              76 749
                                                  Unlisted shares                                                                                    29 784                   782             30 566
                                                  Charges other than property                                                                          8 622                     –              8 622
                                                  Debtors, stock and other corporate assets                                                            9 922                     –              9 922
3                                                 Guarantees                                                                                         12 136                   157             12 293
                                                  Other                                                                                              14 788                   558             15 346

                                               Total collateral                                                                                     308 495                9 050             317 545

                                           *      A large percentage of these exposures (for example bank placements) are to highly rated financial institutions where limited collateral
                                                  would be required due to the nature of the exposure.




                                           48                                                                                     Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Equity and investment                                           that the market is mispricing the
                                                                value of the underlying portfolio with the   Equity and
risk in the banking book                                        intention to stimulate corporate activity.
                                                                In South Africa, we also continue to
                                                                                                             investment risk
Equity and investment risk                                      pursue opportunities to help create          in the banking
description                                                     and grow black-owned and controlled
                                                                                                             book represents
                                                                companies
Equity and investment risk in the banking
book arises primarily from the following
                                                                                                             a moderate
                                                            • Lending transactions: the manner in
activities conducted within the group:                        which we structure certain transactions        percentage of our
• Principal Investments (Private Equity
                                                              results in equity, warrant and profit          total assets and
                                                              shares being held, predominantly within
  and Direct Investments): investments
                                                              unlisted companies
                                                                                                             is managed within
  are selected based on the track
  record of management, the
                                                                                                             appropriate risk
                                                            • Property Activities: we source
  attractiveness of the industry and the                      development, investment and trading            limits
  ability to build value for the existing                     opportunities to create value and trade
  business by implementing an agreed                          for profit within agreed risk parameters
  strategy. In addition, as a result of
  our local market knowledge and                            • Central Funding: Central Funding is the
  investment banking expertise, we are                        custodian of certain equity and property
  well positioned to take direct positions in                 investments, which have largely arisen
  listed shares where we believe                              from corporate acquisitions made.



Management of equity and investment risk




                                                                                                                                      Risk management and corporate governance
As equity and investment risk arises from a variety of activities conducted by us, the
monitoring and measurement thereof varies across transactions and/or type of activity.

 Nature of equity and investment risk                     Management of risk

 Listed equities                                          Investment committee, market risk
                                                          management and ERRF

 Investment Banking Principal Finance                     Investment committee, the Investec
 investments                                              Bank Limited Direct Investments division
                                                          investment committee and ERRF

 Embedded derivatives, profit shares                      Credit risk management committees
 and investments arising from lending                     and ERRF
 transactions

 Investment and trading properties                        Investment committee and ERRF

 Central Funding investments                              Investment committee and ERRF

Risk appetite targets are set to limit our exposure to equity and investment risk. An
assessment of exposures against targets as well as stress testing scenario analysis
are performed and reported to GRCC, BRCC and the board. As a matter of course,                                                                3
concentration risk is avoided and investments are well spread across and industries.

Valuation and accounting methodologies
          For a description of our valuation principles and methodologies refer to
          pages 142 to 155 for factors taken into consideration in determining fair value.


We have a low level of assets exposed to the volatility of IFRS fair value accounting with
level 3 assets amounting to 2.0% of total assets.

          Refer to page 142 for further information.




Investec Bank Limited group and company annual financial statements 2015                                                         49
                                           Risk management (continued)


                                           The table below provides an analysis of income and revaluations recorded with respect to these investments.

                                                                                                                          Income (pre-funding costs)
                                                                                                                                                                                         Fair value
                                           For the year to 31 March                                                                                                                        through
                                           R’million                                                      Unrealised         Realised          Dividends                  Total              equity

                                           2015
                                           Unlisted investments                                                   451              456                 308               1 215                     –
                                           Listed equities                                                         50             (105)                203                 148                  (176)
                                           Investment and trading properties                                        4               27                   –                  31                     –
                                           Warrants, profit shares and other embedded derivatives                (107)             318                   –                 211                     –
                                           Total                                                                  398              696                 511               1 605                  (176)

                                           2014
                                           Unlisted investments                                                  (245)              93                 629                  477                     –
                                           Listed equities                                                         26                (6)                 17                  37                 (210)
                                           Investments and trading properties                                      59               14                     –                 73                     –
                                           Warrants, profit shares and other embedded derivatives                 (21)             129                     –                108                     –
                                           Total                                                                 (181)             230                 646                  695                 (210)

                                           Unrealised revaluation gains through profit and loss are included in tier 1 capital. The bank excludes revaluation gains posted directly to
                                           equity from its capital position.
Risk management and corporate governance




                                           Summary of investments held and stress testing analyses
                                           The balance sheet value of investments is indicated in the table below.

                                                                                                                          On-balance                              On-balance
                                                                                                                               sheet           Valuation               sheet             Valuation
                                                                                                                             value of            change              value of              change
                                                                                                                         investments          stress test        investments            stress test
                                           R’million                                                                            2015                2015*               2014                 2014*

                                           Unlisted investments^                                                                7 791                1 169                7 184               1 078
                                           Listed equities                                                                      2 913                  728                2 381                 595
                                           Investment and trading properties                                                      289                    50                 348                   61
                                           Warrants, profit shares and other embedded derivatives                                 299                  105                  417                 146
                                           Total                                                                               11 292                2 052              10 330                1 880

                                           ^    Includes the investment portfolio and non-current assets classified as held for sale as per the balance sheet.
                                           *    In order to assess our earnings sensitivity to a movement in the valuation of these investments the following stress testing parameters
                                                are applied:

                                                                                            Additional information
3                                           Stress test values applied
                                            Unlisted investments               15%          An analysis of the investment portfolio warrants, pro t shares
                                            Listed equities                    25%
                                                                                            and other embedded derivatives by industry of exposure
                                            Trading properties                 20%
                                            Investment properties              10%                                                              31 March 2015 (R11.0 billion)

                                            Warrants, profit shares and
                                                                                                                                                      Manufacturing and commerce                34.8%
                                            other embedded derivatives         35%                                                                    Finance and insurance                     28.6%
                                                                                                                                                      Mining and resources                      11.7%
                                                                                                                                                      Retailer and wholesalers                   7.4%
                                                                                                                                                      Communication                              4.7%
                                                                                                                                                      Real estate                                4.4%
                                                                                                                                                      Business services                          4.4%
                                                                                                                                                      Other                                      4.0%




                                           50                                                                                   Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Stress testing summary                                      past few years, albeit that some of these        securitised by the Private Client division
                                                            business lines have been curtailed given         amount to R4.5 billion at 31 March 2015
Based on the information at
                                                            the current economic climate.                    (31 March 2014: R2.8 billion) and consist
31 March 2015, as reflected above we
                                                                                                             of residential mortgages (R4.5 billion).
could have a R2.1 billion reversal in revenue               Our securitisation business was established      Within these securitisation vehicles loans
(which assumes a year in which there is                     over 15 years ago. Over this time, we            greater than 90 days in arrears amounted to
a ‘severe stress scenario’ simultaneously                   have arranged a number of residential            R24.1 million.
across all asset classes). This would not                   and commercial mortgage-backed
cause the group to report a loss but could                  programmes, asset-backed commercial              Private Residential Mortgages (PRM)
have a significantly negative impact on                     paper conduits (ABCP), and third party           Limited – Series 2 (PRM2) was refinanced
earnings for that period.                                   securitisations.                                 internally for R3.46 billion in June 2014.
                                                                                                             During the year we arranged two new
Capital requirements                                        Historically, we have also assisted in           Investec Private Client originated residential
                                                            the development of select securitisation         mortgage securitisation transactions,
In terms of Basel III capital requirements
                                                            platforms with external third party              namely, Fox Street 3 (RF) Limited (FS3
for Investec Bank Limited, unlisted and
                                                            originating intermediaries. Our exposure to      for R1.95 billion), and Fox Street 4 (RF)
listed equities within the banking book
                                                            these platforms has reduced and been sold        Limited (FS4 for R3.73 billion). These two
are represented under the category of
                                                            down over the last few years and at present      RMBS transactions were structured as
‘equity risk’ and investment properties,
                                                            we have a single limited warehouse funding       amortising transactions and the notes are
profit shares and embedded derivatives
                                                            line to one platform.                            held internally by Investec in order to make
are considered in the calculation of capital
required for credit risk.                                   Furthermore, we are sponsor to and               use of the SARB’s committed liquidity
                                                            provide a standby liquidity facility to          facility (CLF). FS1 to FS4 are rated by Fitch.
          Refer to page 77 for further detail.                                                               The bank has acted as sole originator and
                                                            Private Mortgages 1. This facility, which
                                                            totalled R0.2 billion at 31 March 2015           sponsor in these securitisation transactions,
                                                            (31 March 2014: R1.3 billion), has not been      which are considered to be traditional
Securitisation/structured                                   drawn on and is reflected as off-balance         securitisations and in which a complete
                                                                                                             transfer of risk has deemed to have
credit activities




                                                                                                                                                                Risk management and corporate governance
                                                            sheet contingent exposures in terms of our
                                                            credit analysis.                                 occurred for regulatory capital purposes.
exposures                                                                                                    The bank has retained an investment in all
                                                                                                             of these transactions. In terms of current
                                                                     Refer to pages 52 and 53.
Overview                                                                                                     securitisation rules, the bank cannot act
                                                                                                             as liquidity provider to these transactions,
The bank’s definition of securitisation/
                                                            This exposure is risk-weighted for               and thus for these Fox Street structures,
structured credit activities (as explained
                                                            regulatory capital purposes. The liquidity       the special purpose entity has an internal
below) is wider than the definition as
                                                            risk associated with this facility is included   liquidity reserve that has been funded.
applied for regulatory capital purposes,
                                                            in the stress testing for the group and is       Credit mitigants have not been used in
which largely focuses on those
                                                            managed in accordance with our overall           these transactions. An exemption notice
securitisations in which the group has
                                                            liquidity position.                              in terms of securitisation rules has been
achieved significant risk transfer. We,
                                                                                                             applied for in relation to all the transactions.
however, believe that the information                       We have also sought out select
provided below is meaningful in that it                     opportunities in the credit/debt markets         For regulatory capital purposes, the majority
groups all these related activities in order                and traded and purchased in structured           of these transactions are treated as
for a reviewer to obtain a fuller picture of                credit. These have largely been rated            deductions against capital. The group has
the activities that we have conducted in this               instruments within the UK and Europe,            no resecuritisation exposures in
space. Some of the information provided                     totalling R1.4 billion at 31 March 2015          South Africa.
below overlaps with the bank’s credit and                   (31 March 2014: R4.8 billion). We sold a
counterparty exposure information.                                                                           Accounting policies
          Refer to page 34 for the balance
                                                            number of these investments during the
                                                            year. These investments are risk-weighted
                                                                                                                    Refer to page 116.
                                                                                                                                                                        3
                                                            for regulatory capital purposes.
          sheet and credit risk classification.
                                                            In addition, we have own originated,
The bank applies the standardised
                                                            securitised assets in our Private Client
approach in the assessment of regulatory
                                                            business in South Africa. The primary
capital for securitisation exposures
                                                            motivations for the securitisation of assets
within its banking book and trading book.
                                                            within our Private Client division are to:
The trading book exposures at
31 March 2015 are not regarded as                           • Provide an alternative source of funding
material, and therefore no further
                                                            • Act as a mechanism to transfer risk
information is disclosed for
these exposures.                                            • Leverage returns through the retention
                                                              of equity tranches in low default rate
The information below sets out the
                                                              portfolios.
initiatives we have focused on over the
                                                            Total assets that have been originated and




Investec Bank Limited group and company annual financial statements 2015                                                                                  51
                                           Risk management (continued)


                                           Risk management                                     the group’s appetite for such exposures,             Credit analysis
                                                                                               and each exposure is considered relative
                                           All existing or proposed exposures to                                                                    In terms of our analysis of our credit and
                                                                                               to the group’s overall risk appetite. We can
                                           a securitisation or a resecuritisation are                                                               counterparty risk, exposures arising from
                                                                                               use explicit credit risk mitigation techniques
                                           analysed on a case-by-case basis, with final                                                             securitisation/structured credit activities
                                                                                               where required; however, the group prefers
                                           approval typically required from the group’s                                                             reflect only those exposures to which we
                                                                                               to address and manage these risks by only
                                           global credit committee. The analysis looks                                                              consider ourselves to be at risk.
                                                                                               approving exposures to which the group
                                           through to the historical and expected                                                                   In addition, assets that have been
                                                                                               has explicit appetite through the constant
                                           future performance of the underlying assets,                                                             securitised by our Private Client division
                                                                                               and consistent application of the risk
                                           the position of the relevant tranche in the                                                              are reflected as part of our core lending
                                                                                               appetite policy.
                                           capital structure as well as analysis of the                                                             exposures and not our securitisation/credit
                                           cash flow waterfall under a variety of stress              In addition, securitisations of               investment and trading exposures as we
                                           scenarios. External ratings are presented,                 Investec own originated assets are            believe this reflects the true nature and
                                           but only for information purposes, since                   assessed in terms of the credit risk          intent of these exposures and activities.
                                           the bank principally relies on its own                     management philosophies and
                                           internal risk assessment. Overarching these                principles as set out on page 20.
                                           transaction level principles is the board-
                                           approved risk appetite policy, which details



                                                                                                     Exposure          Exposure
                                               At 31 March                                               2015              2014     Balance sheet and                   Asset quality – relevant
                                               Nature of exposure/activity                            R’million         R’million   credit risk classification          comments

                                               Structured credit (gross exposure)*                        4 419            4 852    Other debt securities and
                                                 Rated                                                    1 420            3 447    other loans and advances
Risk management and corporate governance




                                                 Unrated                                                     36                94
                                                 Other (internally held)                                  2 963            1 311
                                               Loans and advances to customers and third                    472              552    Other loans and advances
                                               party intermediary platforms (mortgage loans)
                                               (with the potential to be securitised) (net
                                               exposure)

                                               Private Banking division assets                            4 535            2 822    Own originated loans and             Analysed as part of the
                                                                                                                                    advances to customers                group’s overall asset
                                                                                                                                    securitised                          quality on core loans and
                                                                                                                                                                         advances as reflected on
                                                                                                                                                                         page 40.

                                               Liquidity facilities provided to third party                 200            1 305    Off-balance sheet credit
                                               corporate securitisation vehicles                                                    exposure as these
                                                                                                                                    facilities have remained
                                                                                                                                    undrawn and reflect
                                                                                                                                    a contingent liability on
                                                                                                                                    the bank

3                                          *      Analysed further on page 53.




                                           52                                                                                       Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


*Analysis of rated and unrated structured credit
                                                                           2015                                     2014
                                                                                    Other
                                                                               (internally                                  Other
At 31 March                                                                          held,                             (internally
R’million                                         Rated**       Unrated           unrated)   Total    Rated   Unrated held, rated)   Total

 US corporate loans                                  35                    –            –       35       32        11           –       43
 UK and European RMBS                             1 251                    –            –    1 251    2 892         –           –    2 892
 UK and European CMBS                                 –                    –            –        –        1         –           –        1
 UK and European corporate
                                                        –              36               –      36         –        83           –       83
 loans
 Australian RMBS                                    134                 –             –        134      365         –           –      365
 South African CMBS                                   –                 –             –          –      157         –           –      157
 South African RMBS                                   –                 –         2 963      2 963^       –         –       1 311    1 311^
 Total                                            1 420                36         2 963      4 419    3 447        94       1 311    4 852

^    Investments held in own-originated vehicles.

**Further analysis of rated structured credit at 31 March 2015
                                                                                                                           C and
 R’million                                          AAA               AA               A     BBB        BB          B      below     Total

 US corporate loans                                     –              –               –       35        –          –           –       35




                                                                                                                                              Risk management and corporate governance
 UK and European RMBS                                   –            323             482      268      178          –           –    1 251
 Australian RMBS                                        –            134               –        –        –          –           –      134
 Total at 31 March 2015                                 –            457             482      303      178          –           –    1 420

Total at 31 March 2014                                  –            915             869     1 395     268          –           –    3 447




                                                                                                                                                      3




Investec Bank Limited group and company annual financial statements 2015                                                                 53
                                           Risk management (continued)


                                           Market risk in the                             Management and measurement                           (Black Monday), 11 September 2001,
                                                                                          of traded market risk                                the December Rand crisis in 2001 and
                                           trading book                                                                                        the Lehmans crisis. We also consider the
                                                                                          Market Risk Management teams review the              impact of extreme yet plausible future
                                                                                          market risks on our books. Detailed risk             economic events on the trading portfolio as
                                           Traded market risk                             reports are produced daily for each trading          well as possible worst case (not necessarily
                                           description                                    desk and for the aggregate risk of the               plausible) scenarios. Scenario analysis is
                                                                                          trading book.                                        done once a week and is included in the
                                           Traded market risk is a measure of
                                           potential change in the value of a portfolio   These reports are distributed to                     data presented to ERRF.
                                           of instruments as a result of changes in       management and traders. There is                     All VaR models, while forward-looking,
                                           the financial environment (resulting from      a formal process for management                      are based on past events and depend
                                           changes in underlying market risk factors      recognition and authorisation for any risk           on the quality of available market data.
                                           such as interest rates, equity markets,        excesses incurred. The production of risk            The accuracy of the VaR model as a
                                           bond markets, commodity markets,               reports allows for the monitoring of every           predictor of potential loss is continuously
                                           exchange rates and volatilities) between       instrument traded against prescribed limits.         monitored through backtesting. This
                                           now and a future point in time. The Market     Valuation models for new instruments                 involves comparing the hypothetical (clean)
                                           Risk Management team identifies, quantifies    or products are independently validated              trading revenues arising from the previous
                                           and manages the effects of these potential     by Market Risk Management before                     day’s closing positions with the one-day
                                           changes in accordance with Basel and           trading can commence. Each traded                    VaR calculated for the previous day on
                                           policies determined by the board.              instrument undergoes various stresses                these same positions. If the revenue is
                                                                                          to assess potential losses. Each trading             negative and exceeds the one-day VaR, a
                                           Within our trading activities, we act as
                                                                                          desk is monitored on an overall basis as             ‘backtesting breach’ is considered to have
                                           principal with clients or the market. Market
                                                                                          an additional control. Trading limits are            occurred. Over time we expect the average
                                           risk, therefore, exists where we have
                                                                                          generally tiered with the most liquid and            rate of observed backtesting breaches to
                                           taken on principal positions, resulting
                                                                                          least ‘risky’ instruments being assigned the         be consistent with the percentile of the VaR
                                           from proprietary trading, market making,
                                                                                          largest limits.                                      statistic being tested.
Risk management and corporate governance




                                           arbitrage, underwriting and investments in
                                           the foreign exchange, capital and money        The Market Risk Management teams                     In South Africa, we have internal model
                                           markets. The focus of these businesses         perform a profit attribution, where our daily        approval from the SARB and so trading
                                           is primarily on supporting client activity.    traded revenue is attributed to the various          capital is calculated as a function of the
                                           Our strategic intent is that proprietary       underlying risk factors on a day-to-day              99% 10-day VaR as well as the 99%
                                           trading should be limited and that trading     basis. An understanding of the sources of            10-day sVaR. Backtesting results and a
                                           should be conducted largely to facilitate      profit and loss is essential to understanding        detailed stress-testing pack are submitted
                                           clients in deal execution.                     the risks of the business.                           to the regulator on a monthly basis.
                                                                                          Measurement techniques used to quantify              The graph that follows show the result of
                                           Traded market risk                             market risk arising from our trading activities      backtesting total daily VaR against profit
                                           governance structure                           include sensitivity analysis, value at risk          and loss figures for our trading activities
                                           To manage, measure and mitigate market         (VaR), stressed VaR (sVaR), expected tail            over the reporting period. The values
                                           risk, we have independent Market Risk          loss (ETL) and extreme value theory (EVT).           shown are for the 99% one-day VaR, i.e.
                                           Management teams in each geography             Stress testing and scenario analysis are             99% of the time, the total trading activities
                                           where we assume market risk. Local limits      used to simulate extreme conditions to               will not be expected to lose more than the
                                           have been set to keep potential losses         supplement these core measures.                      values depicted below. Based on these
                                           within acceptable risk tolerance levels.                                                            graphs, we can gauge the accuracy of the
                                                                                          VaR numbers are monitored daily at the
                                                                                          95%, 99% and 100% (maximum loss)                     VaR figures.
                                           A global market risk forum (mandated by

3                                          the various boards of directors) manages
                                           the market risks in accordance with pre-
                                                                                          confidence intervals, with limits set at the
                                                                                          95% confidence interval. ETLs are also
                                           approved principles and policies. Risk         monitored daily at the 95% and 99% levels.
                                           limits are reviewed and set at the global      Scenario analysis considers the impact of
                                           market risk forum and ratified at the ERRF     a significant market event on our current
                                           in accordance with the risk appetite defined   trading portfolios. We consider the impact
                                           by the board. Limits are reviewed at least     for the 10 days after the event, not merely
                                           annually or in the event of a significant      the instantaneous shock to the markets.
                                           market event (e.g. 11 September 2001) or       Included in our scenario analysis are for
                                           at the discretion of senior management.        example the following: October 1987




                                           54                                                                                  Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


VaR

                                                                                          31 March 2015                                                                                       31 March 2014

    R’million                                          Year end                          Average                         High                Low            Year end                         Average           High              Low

    95% (one-day)
    Commodities                                                         –                    0.1                          0.5                  –                          0.5                    0.1             0.5               –
    Equities                                                          1.8                    2.7                          6.4                1.0                          1.6                    4.5             9.0             0.9
    Foreign exchange                                                  3.0                    3.1                          5.9                1.1                          1.9                    2.5             7.2             1.1
    Interest rates                                                    2.7                    1.6                          3.5                0.9                          1.3                    2.2             6.0             0.7
    Consolidated*                                                     3.4                    4.3                          7.6                2.0                          2.1                    5.5             9.9             2.0

*      The consolidated VaR for each desk is lower than the sum of the individual VaRs. This arises from the consolidation offset between
       various asset classes (diversification).

VaR for 2015 in the South African trading book was marginally higher than 2014. Using hypothetical (clean) profit and loss data for
backtesting resulted in two exceptions (as shown in the graph below), which is in line with the two to three exceptions that a 99%
VaR implies. The exceptions were due to normal trading losses.




99% one-day VaR backtesting

    Rand




                                                                                                                                                                                                                                        Risk management and corporate governance
 20 000 000
 18 000 000
 16 000 000
 14 000 000
 12 000 000
 10 000 000
  8 000 000
  6 000 000
  4 000 000
  2 000 000
          0
 -2 000 000
 -4 000 000
 -6 000 000
 -8 000 000
-10 000 000
-12 000 000
-14 000 000
                1 Apr 2014



                             6 May 2014



                                          3 Jun 2014



                                                         1 Jul 2014



                                                                            8 Aug 2014



                                                                                              9 Sep 2014



                                                                                                           14 Oct 2014



                                                                                                                                4 Nov 2014



                                                                                                                                              12 Dec 2014



                                                                                                                                                             6 Jan 2015



                                                                                                                                                                                2 Feb 2015



                                                                                                                                                                                                 31 Mar 2015




                                                                                                                                                                                                               P/L
                                                                                                                                                                                                               99% one-day VaR




                                                                                                                                                                                                                                                3




Investec Bank Limited group and company annual financial statements 2015                                                                                                                                                           55
                                           Risk management (continued)


                                           ETL 95% (one-day)



                                           For the year to 31 March
                                           R’million                                                                                                                                            2015                   2014

                                           Commodities                                                                                                                                                –                 0.5
                                           Equities                                                                                                                                                  2.5                2.5
                                           Foreign exchange                                                                                                                                          4.4                2.7
                                               Interest rates                                                                                                                                        3.8                1.9
                                               Consolidated*                                                                                                                                         5.0                3.1

                                           *      The consolidated ETL for each desk is lower than the sum of the individual ETLs. This arises from the correlation offset between various
                                                  asset classes.


                                           Stress testing
                                           The table below indicates the potential losses that could arise if the portfolio is stress tested under extreme market conditions. The method
                                           used is known as extreme value theory (EVT), the reported stress scenario below calculates the 99% EVT which is a 1-in-8 year possible
                                           loss event. These numbers do not assume normality but rather rely on fitting a distribution to the tails of the distribution.


                                                                                                                                                                                                                 31 March
                                                                                                                                                      31 March 2015
                                                                                                                                                                                                                     2014
Risk management and corporate governance




                                           R’million                                                                      Year end                Average                     High                 Low            Year end

                                           99% (using 99% EVT)
                                           Commodities                                                                           0.1                    0.4                    4.0                    –                 1.6
                                           Equities                                                                              9.7                   11.5                   22.2                 4.6                  6.4
                                               Foreign exchange                                                                16.2                    10.7                   26.6                 4.7                 12.9
                                               Interest rates                                                                    7.7                    9.7                   19.4                 4.0                  6.6
                                               Consolidated                                                                    13.4                    14.6                   26.0                 8.5                 12.1



                                           Profit and loss histograms
                                           The histogram below illustrates the distribution of daily revenue during the financial year for our trading businesses. The distribution is
                                           skewed to the profit side and the graph shows that positive trading revenue was realised on 189 days out of a total of 250 days in the
                                           trading business. The average daily trading revenue generated for the year to 31 March 2015 was R1.5 million (2014: R1.4 million).


                                           Pro t and loss

3                                               Frequency: Days in a year
                                                60
                                                                                                                                         57

                                                                                                                                                 51
                                                50


                                                40

                                                                                                                                 33
                                                30

                                                                                                                                                          22     23
                                                20

                                                                                                                                                                         13
                                                                                                                 11      10                                                      10
                                                10
                                                                                                                                                                                               6
                                                                                                           3                                                                            3                        4
                                                                                      2      1      1
                                                 0

                                                                -9.0   -8.0   -7.0   -6.0   -5.0   -4.0   -3.0   -2.0    -1.0     0      1.4     2.0      3.0    4.0    5.0      6.0   7.0     8.0        9.0   >9.0
                                                                                                                    Pro t/loss earned per day (R’million)




                                           56                                                                                                         Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Traded market risk                                          Market risk – derivatives                         The size, materiality, complexity, maturity
mitigation                                                                                                    and depth of the market as well as access
                                                            We enter into various derivatives contracts,
                                                                                                              to stable funds are all inputs considered
The Market Risk Management team                             largely on the back of customer flow for
                                                                                                              when establishing the liquidity and non-
has a reporting line that is separate                       hedging foreign exchange, commodity,
                                                                                                              trading interest rate risk appetite for each
from the trading function, thereby                          equity and interest rate exposures and
                                                                                                              geographic region. Specific statutory
ensuring independent oversight. The risk                    to a small extent as principal for trading
                                                                                                              requirements may further dictate special
management software runs independently                      purposes. These include financial
                                                                                                              policies to be adopted in a region.
from source trading systems and values all                  futures, options, swaps and forward rate
trades separately. The values from the two                  agreements. The risks associated with             Detailed policies cover both domestic and
systems are reconciled daily. The values                    derivative instruments are monitored in           foreign currency funds and set out sources
from the risk system are also used for profit               the same manner as for the underlying             and amounts of funds necessary to ensure
attribution, another risk management tool.                  instruments. Risks are also measured              the continuation of our operations without
                                                            across the product range to take into             undue interruption. We aim to match-fund
Risk limits are set according to guidelines                 account possible correlations.                    in currencies, other than the domestic
set out in our risk appetite policy and are
calculated on a statistical and non-statistical                      Information showing our derivative       currency, where it is practical and efficient
basis. Statistical limits include VaR and ETL                        trading portfolio over the reporting     to do so and hedge any residual currency
analyses at various confidence intervals.                            period on the basis of the notional      exchange risk arising from deposit and loan
Historical VaR is used (over 510 days                                principal and the fair value of all      banking activities.
of unweighted data), where every ‘risk                               derivatives can be found on              The group’s liquidity policy requires each
factor’ is exposed to daily moves over a                             pages 161 and 162.                       geography to be self-funding so that there
sample period. With the equity markets for
                                                            The notional principal indicates our activity     is no reliance on intergroup lines either from
example, the price history for every share
                                                            in the derivatives market and represents the      or to other group entities.
and index is taken into account as opposed
to techniques where a reduced set of                        aggregate size of total outstanding contracts
                                                                                                              Geographic entities have no responsibility
proxies are used.                                           at year end. The fair value of a derivative




                                                                                                                                                               Risk management and corporate governance
                                                                                                              for contributing to group liquidity.
                                                            financial instrument represents the present
Non-statistical limits include limits on risk               value of the future positive or negative cash     The ALCOs typically comprise of the group
exposure to individual products, transaction                flows which would have occurred had we            risk and finance director, the head of risk,
tenors, notionals, liquidity, buckets and                   closed out the rights and obligations arising     the head of Corporate and Institutional
option sensitivities (greeks). When setting                 from that instrument in an orderly market         Banking activities and Private banking,
and reviewing these limits, current market                  transaction at year end. Both these amounts       economists, divisional heads, the Balance
conditions are taken into account. Bucket                   reflect only derivatives exposure and exclude     Sheet Risk Management team, the
limits are set on time buckets, generally at                the value of the physical financial instruments   treasurer and business heads. The ALCOs
three-month intervals out to two years                      used to hedge these positions.                    formally meet on a monthly basis to review
and then, on a less granular basis, out to
                                                                                                              the exposures that lie within the balance
30 years.
                                                                                                              sheet together with market conditions,
It is risk policy that any significant open                 Balance sheet risk                                and decide on strategies to mitigate any
                                                                                                              undesirable liquidity and interest rate risk.
position in a foreign currency is held in the               management                                        The Central Treasury function within each
trading book. These positions are managed
within approved limits and monitored within                 Balance sheet risk description                    region is mandated to holistically manage
VaR models.                                                                                                   the liquidity mismatch and non-trading
                                                            Balance sheet risk encompasses the                interest rate risk arising from our asset and
Traded market risk year                                     financial risks relating to our asset and         liability portfolios on a day-to-day basis.
in review                                                   liability portfolios, comprising market           The treasurers are required to exercise tight
Trading conditions have remained difficult.
Traders have had to contend with very
                                                            liquidity, funding, concentration, non-trading
                                                            interest rate and foreign exchange risks on
                                                                                                              control of funding, liquidity, concentration
                                                                                                              and non-trading interest rate risk within
                                                                                                                                                                       3
uncertain markets as well as declining                      balance sheet, encumbrance and leverage.          parameters defined by the board-approved
market liquidity. While client flow has been                                                                  risk appetite policy. Non-trading interest
                                                            Balance sheet risk governance
under pressure, Investec remains committed                                                                    rate risk and asset funding requirements are
to trading on client flow and not proprietary               structure and risk mitigation                     transferred from the originating business to
trading. The equity derivatives business                    Under delegated authority of the board, the       the treasury function.
has continued to grow both their product                    group has established asset and liability
offering and the diversity of their client base.            management committees (ALCOs) within              The Central Treasury, by core geography,
Currency markets have generally been illiquid               each core geography in which it operates,         directs pricing for all deposit products
and volatile. Corporate foreign exchange                    using regional expertise and local market         (including deposit products offered to
volumes are up leading to increased                         access as appropriate. The ALCOs are              the private clients), establishes and
revenue, however, profit margins have                       mandated to ensure independent supervision        maintains access to stable wholesale
tightened. The trend of low discretionary risk              of liquidity risk and non-trading interest rate   funds with the appropriate tenor and
taking in local rates continued in the past                 risk within a board-approved risk appetite.       pricing characteristics, and manages liquid
year. Little uncertainty and stable interest                                                                  securities and collateral, thus providing
rates in the local rate environment has not                                                                   prudential management and a flexible
encouraged corporate hedging activity.



Investec Bank Limited group and company annual financial statements 2015                                                                                 57
                                           Risk management (continued)


                                           response to volatile market conditions.             and input from business units. The                    against thresholds and limits and are
                                           The Central Treasury functions are the sole         objective is to analyse the possible impact           distributed to management, ALCO, the
                                           interface to the wholesale market for both          of economic event risk on cash flows,                 Central Treasury function, ERRF, GRCC,
                                           cash and derivative transactions.                   liquidity, profitability and solvency position,       BRCC and the board.
                                                                                               so as to maintain sufficient liquidity, in an
                                           We maintain an internal funds transfer              acute stress, to continue to operate for a            Statutory reports are submitted to the
                                           pricing system based on prevailing market           minimum period as detailed in the board-              relevant regulators in each jurisdiction within
                                           rates. Our funds transfer pricing system            approved risk appetite.                               which we operate.
                                           charges the businesses the price of
                                           short-term and long-term liquidity taking           The integrated balance sheet risk                     Non-trading interest rate
                                           into account the behavioural duration of            management framework is based on similar              risk description
                                           the asset. The costs and risks of liquidity         methodologies to those contemplated                   Non-trading interest rate risk, otherwise
                                           are clearly and transparently attributed            under the Basel Committee on Banking                  known as interest rate risk in the banking
                                           to business lines and are understood                Supervision’s (BCBS) ‘liquidity risk                  book, is the impact on net interest earnings
                                           by business line management, thereby                measurement standards and monitoring’.                and sensitivity to economic value, as a
                                           ensuring that price of liquidity is integrated                                                            result of unexpected adverse movements
                                                                                               It is compliant with the ‘principles of sound
                                           into business level decision-making and                                                                   in interest rates arising from the execution
                                                                                               liquidity risk management and supervision’
                                           drives the appropriate mix of sources and                                                                 of our core business strategies and the
                                                                                               as well as ‘guidelines for the management
                                           uses of funds.                                                                                            delivery of products and services to
                                                                                               of interest rate risk in the banking book’.
                                                                                               The BCBS announced that they propose                  our customers.
                                           The Balance Sheet Risk Management
                                           team, in their respective geographies               to both strengthen and harmonise                      Sources of interest rate risk include:
                                           based within Group Risk Management,                 global liquidity standards and plan to
                                           independently identify, quantify and                introduce two new liquidity standards.                • Repricing risk: arises from the timing
                                           monitor risks, providing daily independent          The Liquidity Coverage Ratio (LCR) and                  differences in the fixed rate maturity and
                                           governance and oversight of the treasury            Net Stable Funding Ratio (NSFR) are due                 floating rate repricing of bank assets,
Risk management and corporate governance




                                           activities and the execution of the bank’s          to be implemented by 2015 and 2018,                     liabilities and off-balance sheet derivative
                                           policy, continuously assessing the risks            respectively. The BCBS published the final              positions. This affects the interest rate
                                           while taking changes in market conditions           calibration of the LCR in January 2013                  margin realised between lending income
                                           into account. In carrying out its duties the        to be phased in from 2015 and the final                 and borrowing costs, when applied to
                                           Balance Sheet Risk Management teams                 consultation paper for the NSFR was                     our rate sensitive portfolios
                                           monitor historical liquidity trends, track          published in October 2014.
                                                                                                                                                     • Yield curve risk: repricing mismatches
                                           prospective on- and off-balance sheet
                                                                                               Each banking entity within the group                    also expose the bank to changes in the
                                           liquidity obligations, identify and measure
                                                                                               maintains a contingency funding plan                    slope and shape of the yield curve
                                           internal and external liquidity warning
                                                                                               designed to protect depositors, creditors
                                           signals which permit early detection of                                                                   • Basis risk: arises from imperfect
                                                                                               and shareholders and maintain market
                                           liquidity issues through daily liquidity                                                                    correlation in the adjustments of the
                                                                                               confidence during adverse liquidity
                                           reporting, and further perform scenario                                                                     rates earned and paid on different
                                                                                               conditions and pave the way for the group
                                           analysis which quantifies our exposure, thus                                                                instruments with otherwise similar
                                                                                               to emerge from a potential funding crisis
                                           providing a comprehensive and consistent                                                                    repricing characteristics
                                                                                               with the best possible reputation and
                                           governance framework. The Balance Sheet             financial condition for continuing operations.
                                           Risk Management team proactively identify                                                                 • Embedded option risk: we are not
                                                                                               The liquidity contingency plans outline                 materially exposed to embedded option
                                           proposed regulatory developments, best              extensive early warning indicators, clear
                                           risk practice, and measures adopted in the                                                                  risk, as contract breakage penalties on
                                                                                               lines of communication, and decisive crisis             fixed-rate advances specifically cover
                                           broader market, and implements changes              response strategies.                                    this risk, while prepayment optionality is
3                                          to the bank’s risk management and
                                           governance framework where relevant.                There is a regular internal audit of the                restricted to variable rate contracts and
                                                                                               balance sheet risk management function,                 has no impact on interest rate risk
                                           Scenario modelling and rigorous daily               the frequency of which is determined by the
                                           liquidity stress tests are designed to                                                                    • Endowment risk: refers to the
                                                                                               independent audit committees.                           interest rate risk exposure arising from
                                           measure and manage the liquidity position
                                           such that payment obligations can be met            The group operates an industry-recognised               the net differential between interest
                                           under a wide range of normal, company-              third party risk modelling system in addition to        rate insensitive assets, interest rate
                                           specific and market-driven stress scenarios.        custom-built MIS systems designed to identify,          insensitive liabilities and capital.
                                           These assume the rate and timing of                 measure, manage and monitor liquidity risk            The above sources of interest rate risk
                                           deposit withdrawals and drawdowns on                on both a current and forward looking basis.          affect the interest rate margin realised
                                           lending facilities are varied, and the ability to   The system is reconciled to the bank’s general        between lending income and borrowing
                                           access funding and to generate funds from           ledger and audited by Internal Audit thereby          costs, when applied to our rate sensitive
                                           asset portfolios is restricted.                     ensuring integrity of the process.                    asset and liability portfolios, which has a
                                           The parameters used in the scenarios are            Daily, weekly and monthly reports are                 direct effect on future net interest income
                                           reviewed regularly, taking into account             independently produced highlighting bank              and the economic value of equity.
                                           changes in the business environments                activity, exposures and key measures




                                           58                                                                                        Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Management and measurement                                      liquidity, interest rate and concentration    interest rate risk in the banking book (non-
of non-trading interest rate risk                               characteristics of all new products and       trading interest rate risk).
                                                                approve their issuance, ensuring that
Non-trading interest rate risk in the                           both standard and non-standard deposit        The aim is to protect and enhance net
banking book is an inherent consequence                         products, particularly those designed         interest income and economic value in
of conducting banking activities, and                                                                         accordance with the board-approved risk
                                                                for the Private Banking customers,
arises from the provision of retail and                                                                       appetite and ensure a high degree of net
                                                                both match market curves and can be
wholesale (non-trading) banking products                                                                      interest margin stability over an interest rate
                                                                hedged if necessary
and services. The group considers the                                                                         cycle. Economic value measures have the
management of banking margin of vital                       • Pricing for all deposit products (including     advantage that all future cash flows are
importance, and our core non-trading                          deposit products offered to the private         considered and therefore can highlight risk
interest rate risk philosophy is reflected in                 clients) is set centrally, in so doing we       beyond the earnings horizon. The repricing
day-to-day practices which encompass                          manage access to funding at cost-               gap provides a basic representation of
the following:                                                effective levels, considering also the          the balance sheet, with the sensitivity
                                                              stressed liquidity value of the liabilities     of earnings to changes to interest rates
• The group complies with the BCBS
                                                                                                              calculated off the repricing gap. This allows
  framework for assessing banking book                      • Balance Sheet Risk Management                   for the detection of interest rate risk by
  (non-trading) interest rate risk                            independently measures and analyses             concentration of repricing buckets. Net
                                                              both traditional interest rate repricing        interest income sensitivity measures the
• The management of interest rate risk
                                                              mismatch and net present value (NPV)            change in accruals expected over the
  in the banking book is centralised
                                                              sensitivity to changes in interest rate risk    specified horizon in response to a shift
  within the Central Treasury function and
                                                              factors, detailing the sources of interest      in the yield curve, while economic value
  treasury is mandated by the board to
                                                              rate exposure                                   sensitivity and stress testing to macro-
  actively manage the liquidity mismatch
  and non-trading interest rate risk arising                • The bank maintains an internal funds            economic movement or changes to the
  from our asset and liability portfolios                     transfer pricing system based on                yield curve measures the interest risk
                                                              prevailing market rates which charges           implicit change in net worth as a result of




                                                                                                                                                                 Risk management and corporate governance
• The treasurer is required to exercise                                                                       a change in interest rates on the current
                                                              out the price of long- and short-term
  tight control of funding, liquidity,                                                                        values of financial assets and liabilities.
                                                              funding to consumers of liquidity and
  concentration and non-trading interest
                                                              provides long-term stable funding for           Technical interest rate analysis and
  rate risk within parameters defined by
                                                              our asset creation activity                     economic review of fundamental
  the risk appetite policy
                                                            • Daily management of interest rate risk          developments are used to estimate a set
• The non-trading interest rate risk                                                                          of forward-looking interest rate scenarios
                                                              is centralised within Treasury and is
  appetite has been set based on the                                                                          incorporating movements in the yield curve
                                                              subject to independent ALCO review
  loss under a worst-case 200bp parallel                                                                      level and shape, after taking global trends
  shock as a percentage of capital. This                    • Treasury is the primary interface to the        into account.
  level applies to both earnings risk and                     wholesale market
  economic value risk                                                                                         These combinations of measures provide
                                                            • We carry out technical interest                 senior management (and the ALCOs) with
• Internal capital is allocated for non-                      rate analysis and economic review               an assessment of the financial impact of
  trading interest rate risk                                  of fundamental developments by                  identified rate changes on potential future
                                                              geography and global trends.                    net interest income and sensitivity to
• The non-trading interest rate risk policy
                                                                                                              changes in economic value.
  dictates that long-term non-trading                       Non-trading interest rate risk is measured
  interest rate risk is materially eliminated.              and analysed by utilising standard tools          Our risk appetite policy requires that interest
  In accordance with the policy the bank                    of traditional interest rate repricing            rate risk arising from fixed interest loans is
  swaps its fixed deposits and loans into
  variable rate in the wholesale market via
                                                            mismatch and NPV sensitivity to changes
                                                            in interest rate risk factors. We detail the
                                                                                                              transferred from the originating business
                                                                                                              to the Central Treasury function by match-                 3
  interest rate swaps                                       sources of interest rate exposure, whether        funding. In turn, Treasury hedges material
                                                            repricing risk, yield curve risk, basis risk or   fixed rate assets with a term of more than
• Together with the business, the treasurer
                                                            embedded option risk. This is performed for       one year on a deal-by-deal basis with the
  develops strategies regarding changes
                                                            a variety of interest rate scenarios, covering:   use of variable versus fixed interest rate
  in the volume, composition, pricing and
                                                                                                              swaps. The market for these vanilla swaps
  interest rate characteristics of assets                   • Interest rate expectations and perceived        is deep, with the result that such hedging is
  and liabilities to mitigate the interest                    risks to the central view                       efficient. Likewise, Treasury also hedges all
  rate risk and ensure a high degree of
                                                            • Standard shocks to levels and shapes of         fixed rate deposits with a term of more than
  net interest margin stability over an
                                                              interest rates and yield curves                 one year to variable rate. These derivative
  interest rate cycle. These are presented,
                                                                                                              hedging trades are executed with the bank’s
  debated and challenged in the liability
                                                            • Historically based yield curve changes.         Interest Rate Trading desk. Limits exist to
  product and pricing forum and ALCO
                                                                                                              ensure there is no undesired risk retained
                                                            This is consistent with the standardised
• It is the responsibility of the liability                                                                   within any business or product area.
                                                            interest rate measurement recommended
  product and pricing forum, a sub-
                                                            by the Basel framework for assessing
  committee of ALCO, to review the




Investec Bank Limited group and company annual financial statements 2015                                                                                    59
                                           Risk management (continued)


                                           Operationally, non-trading interest rate risk      tactical response to market opportunities          The Basel Financial Market Committee
                                           is transferred within pre-defined guidelines       which may arise during changing interest           has indicated that after completing and
                                           from the originating business to the               rate cycles. Any resultant interest rate           embedding the current reforms (covering
                                           Central Treasury function and aggregated           position is managed under the market risk          capital, leverage and liquidity), the capital
                                           or netted providing Central Treasury with          limits.                                            framework for interest rate risk on the
                                           a holistic view of the exposure. Treasury                                                             banking book will be revisited. In part this is
                                           then implements appropriate balance                Investec has a relatively small endowment          due to the increase in the quantum of high-
                                           sheet strategies to achieve a cost-effective       risk due to paying market rates on all             quality liquid assets (HQLA) banks will need
                                           source of funding and mitigates any                deposits, compared to banks with                   to hold in meeting the new liquidity ratios
                                           residual undesirable risk where possible,          significant low or non-interest-bearing            and the potential increase in interest rate
                                           by changing the duration of the banking            current and cheque accounts. Endowment             risk thereon.
                                           group’s discretionary liquid asset portfolio,      risk due to free funding, comprising mainly
                                           or through derivative transactions which           ordinary share capital and reserves, is            The expectation is that Basel will produce
                                           transfer the risk into the trading books within    managed passively, with the focus on               additional consultation documents in the
                                           the Corporate and Institutional Banking            measuring and monitoring. The endowment            next year on minimum standards for interest
                                           division to be traded with the external            risk is included within our non-trading            rate risk measurement in the banking book.
                                           market. The treasury mandate allows for a          interest rate risk measures.


                                           Interest rate sensitivity gap
                                           The table below shows our non-trading interest rate mismatch at 31 March 2015. These exposures affect the interest rate margin realised
                                           between lending income and borrowing costs assuming no management intervention.

                                                                                                      > Three         > Six         > One
                                                                                           Not        months        months            year
                                                                                       > three       but < six    but < one      but < five             > Five                         Total
Risk management and corporate governance




                                           R’million                                   months         months           year          years               years         Non-rate non-trading

                                             Cash and short-term funds –
                                             banks                                      30 048             42              –                33                 –            6 189           36 312
                                             Cash and short-term funds –
                                             non-banks                                  10 535              5              –                 –                 –                 –          10 540
                                             Investment/trading assets
                                             and statutory liquids                      24 234         11 532          5 497         10 731            10 858             12 588            75 440
                                             Securitised assets                          5 017               –             –                 –                 –              136             5 153
                                             Advances                                  153 164          6 092            798          8 596              3 755              1 060          173 465
                                             Other assets                                    15              –             –                 –                 –            1 441             1 456
                                           Assets                                      223 013         17 671          6 295         19 360            14 613             21 414           302 366
                                             Deposits – banks                          (29 766)              –           (14)                –                 –               (12)         (29 792)
                                             Deposits – non-banks                     (184 534)       (11 197)       (11 363)       (10 572)            (2 195)            (1 215)        (221 076)
                                             Negotiable paper                            (1 350)             –          (540)         (3 627)                  –                 –           (5 517)
                                             Securitised liabilities                         (53)            –             –                 –             (625)             (411)           (1 089)
                                             Investment/trading liabilities              (9 579)         (678)        (3 194)         (1 076)              (233)           (1 194)          (15 954)
                                             Subordinated liabilities                    (7 659)             –             –            (200)           (2 590)                  –          (10 449)
3                                            Other liabilities                                (3)            –             –                 –                 –           (3 959)           (3 962)
                                           Liabilities                                (232 944)       (11 875)       (15 111)       (15 475)            (5 643)            (6 791)        (287 839)
                                           Intercompany loans                           13 791            707           (953)         3 738                323              1 560           19 166
                                           Shareholders’ funds                           (1 163)             –             –                 –              (11)         (27 725)           (28 899)
                                           Balance sheet                                 2 697          6 503         (9 769)         7 623              9 282           (11 542)             4 794
                                           Off-balance sheet                            10 810         (2 828)         2 150          (7 647)           (7 155)              (124)           (4 794)
                                           Repricing gap                                13 507          3 675         (7 619)             (24)           2 127           (11 666)                   –
                                           Cumulative repricing gap                     13 507         17 182          9 563          9 539            11 666                    –




                                           60                                                                                   Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Economic value sensitivity at 31 March 2015
For the reasons outlined above, our preference for monitoring and measuring non-trading interest rate risk is economic value sensitivity.
The table below reflects our economic value sensitivity to a 2% parallel shift in interest rates assuming no management intervention.
The numbers represent the change to the value of the interest rate sensitive portfolios should such a hypothetical scenario arise.
This sensitivity effect does not have a significant direct impact on our equity.

                                                                   Sensitivity to the following interest rates
                                                                      (expressed in original currencies)
                                                                                                                                      Other
 ’million                                   ZAR                 GBP              USD               EUR               AUD              (ZAR)         All (ZAR)

 200bps down                                 6.6                  9.2              9.4              (0.8)             (2.2)              2.8           258.9
 200bps up                                  26.8                 (8.2)            (6.1)             0.7                0.6              (2.5)          (182.6)

Liquidity risk
                                                            Management and measurement of                        • Each geographic entity must be
                                                            liquidity risk                                         self-sufficient from a funding and liquidity
Liquidity risk description                                  Maturity transformation performed by banks             standpoint so that there is no reliance on
Liquidity risk is the risk that, despite being              is a crucial part of financial intermediation          intergroup lines either from or to other
solvent, we have insufficient capacity to                   that contributes to efficient resource                 group entities
fund increases in assets, or are unable                     allocation and credit creation.
                                                                                                                 • Geographic entities have no responsibility
to meet our payment obligations as they
                                                            Cohesive liquidity management is vital                 for contributing to group liquidity
fall due, without incurring unacceptable
losses. This includes repaying depositors                   for protecting our depositors, preserving
                                                                                                                 • We maintain a liquidity buffer in the form
or maturing wholesale debt. This risk is                    market confidence, safeguarding our
                                                                                                                   of unencumbered, cash, government




                                                                                                                                                                  Risk management and corporate governance
inherent in all banking operations and can                  reputation and ensuring sustainable growth
                                                                                                                   or rated securities (typically eligible for
be impacted by a range of institution-                      with established funding sources. Through
                                                                                                                   repurchase with the central bank), and
specific and market-wide events.                            active liquidity management, we seek to
                                                                                                                   near cash well in excess of the statutory
                                                            preserve stable, reliable and cost-effective
                                                                                                                   requirements as protection against
Liquidity risk is further broken down into:                 sources of funding. Inadequate liquidity
                                                                                                                   unexpected disruptions in cash flows
                                                            can bring about the untimely demise
• Funding liquidity: which relates to the                   of any financial institution. As such, the           • Funding is diversified with respect to
  risk that the bank will be unable to                      group considers ongoing access to                      currency, term, product, client type and
  meet current and/or future cash flow                      appropriate liquidity for all its operations           counterparty to ensure a satisfactory
  or collateral requirements in the normal                  to be of paramount importance, and our                 overall funding mix
  course of business, without adversely                     core liquidity philosophy is reflected in
  affecting its financial position or its                   day-to-day practices which encompass the             • We monitor and evaluate each banking
  reputation                                                following robust and comprehensive set                 entity’s maturity ladder and funding
                                                            of policies and procedures for assessing,              gap (cash flow maturity mismatch) on a
• Market liquidity: which relates to the
                                                            measuring and controlling the liquidity risk:          ‘liquidation’, ‘going concern’ and ‘stress’
  risk that the bank may be unable to
                                                                                                                   basis
  trade in specific markets or that it may                  • Our liquidity management processes
  only be able to do so with difficulty due                   encompass principles set out by the                • Daily liquidity stress tests are carried out
  to market disruptions or a lack of market                   regulatory authorities in each jurisdiction,         to measure and manage the liquidity
  liquidity.                                                  namely the SARB, and the Bank of                     position such that payment obligations
                                                              Mauritius                                            can be met under a wide range of
Sources of liquidity risk include:

• Unforeseen withdrawals of deposits
                                                            • The group complies with the BCBS
                                                                                                                   normal and unlikely but plausible
                                                                                                                   stressed scenarios, in which the rate                  3
                                                              Principles for Sound Liquidity Risk                  and timing of deposit withdrawals and
• Restricted access to new funding with                       Management and Supervision                           drawdowns on lending facilities are
  appropriate maturity and interest rate                                                                           varied, and the ability to access funding
                                                            • The group has committed itself to
  characteristics                                                                                                  and to generate funds from asset
                                                              implementation of the updated BCBS
                                                                                                                   portfolios is restricted. The objective is
• Inability to liquidate a marketable asset                   guidelines for liquidity risk measurement,
                                                                                                                   to have sufficient liquidity, in an acute
  in a timely manner with minimal risk of                     standards and monitoring to be phased
                                                                                                                   stress, to continue to operate for a
  capital loss                                                in from 2015
                                                                                                                   minimum period as detailed in the
                                                            • The risk appetite is clearly defined by              board-approved risk appetite
• Unpredicted customer non-payment of
  loan obligations                                            the board and each geographic entity
                                                                                                                 • Our liquidity risk parameters reflect a
                                                              must have its own board-approved
                                                                                                                   collection of liquidity stress assumptions
• A sudden increased demand for loans                         policies with respect to liquidity risk
                                                                                                                   which are reviewed regularly and
  in the absence of corresponding funding                     management
                                                                                                                   updated as needed. These stress factors
  inflows of appropriate maturity.
                                                                                                                   go well beyond our experience during
                                                                                                                   the height of the recent financial crisis




Investec Bank Limited group and company annual financial statements 2015                                                                                    61
                                           Risk management (continued)


                                           • The Balance Sheet Risk Management               • Local regulatory requirements                      despite competitive pressures with total
                                             team independently monitors key daily                                                                deposits increasing by 8% to R221.4 billion
                                             funding metrics and liquidity ratios to         • Contractual run-off based actual cash              at 31 March 2015. The growth in retail
                                             assess potential risks to the liquidity           flows with no modelling adjustment                 deposits benefited from the wider macro-
                                             position, which further act as early                                                                 economic trend of expanded money supply,
                                                                                             • 'Business as usual' normal environment
                                             warning indicators to potential normal                                                               customer deleveraging and loan growth.
                                                                                               where we apply rollover and
                                             market disruption                                                                                    We also have a number of innovative retail
                                                                                               reinvestment assumptions under benign
                                                                                                                                                  deposit initiatives within our Private Banking
                                                                                               market conditions
                                           • The group centrally manages access                                                                   division and these continued to experience
                                             to funds in both domestic and offshore          • Stress conditions based on statistical             strong inflows during the financial year.
                                             markets through the Corporate and                 historical analysis, documented                    On average our fixed and notice customer
                                             Institutional Banking division                    experience and prudent judgement                   deposits have amounted to approximately
                                                                                                                                                  70% of total deposits since April 2006
                                           • The maintenance of sustainable prudent          • Basel standards for liquidity                      for Investec Limited, thereby displaying
                                             liquidity resources takes precedence              measurement:                                       a strong ‘stickiness’ and willingness to
                                             over profitability                                                                                   reinvest by our retail customers.
                                                                                                – Liquidity Coverage Ratio (LCR)
                                           • Each major banking entity maintains an             – Net Stable Funding Ratio (NSFR)                 Entities within the group actively participate
                                             internal funds transfer pricing system                                                               in global financial markets and our
                                             based on prevailing market rates. The           • Quantification of a ‘survival horizon’             relationship is continuously enhanced
                                             treasury function charges out the price           under stress conditions. The survival              through regular investor presentations
                                                                                               horizon is the number of business days             internationally. Entities are only allowed
                                             of funding to internal consumers of
                                                                                               it takes before the bank’s cash position           to have funding exposure to wholesale
                                             liquidity, which ensures that the costs,
                                                                                               turns negative based on statistical                markets where they can demonstrate
                                             benefits, and risks of liquidity are clearly
                                                                                               historical analysis, documented                    that the market is sufficiently deep and
                                             and transparently attributed to business
                                                                                               experience and prudent judgement                   liquid, and then only relative to the size
                                             lines and are understood by business
                                                                                                                                                  and complexity of their business. We have
                                             line management. The funds transfer             • Other key funding and balance sheet                instituted various offshore syndicated loan
                                             pricing methodology is designed to                ratios
Risk management and corporate governance




                                                                                                                                                  programmes to broaden and diversify term
                                             signal the right incentive to our lending                                                            funding in supplementary markets and
                                             business                                        • Monitoring and analysing market trends
                                                                                                                                                  currencies, enhancing the proven capacity
                                                                                               and the external environment.
                                                                                                                                                  to borrow in the money markets. The group
                                           • The group maintains adequate
                                                                                             This ensures the smooth management                   remains committed to increasing its core
                                             contingency funding plans designed
                                                                                             of the day-to-day liquidity position within          deposits and accessing domestic and
                                             to protect depositors, creditors and                                                                 foreign capital markets when appropriate.
                                             shareholders and maintain market                conservative parameters and further
                                                                                             validates that we are able to generate               Decisions on the timing and tenor of
                                             confidence during adverse liquidity                                                                  accessing these markets are based on
                                                                                             sufficient liquidity to withstand short-term
                                             conditions.                                                                                          relative costs, general market conditions,
                                                                                             liquidity stress or market disruptions in the
                                                                                                                                                  prospective views of balance sheet growth
                                           Our liquidity risk management reflects            event of either a firm-specific or general
                                                                                                                                                  and a targeted liquidity profile.
                                           evolving best practice standards in light of      market contingent event.
                                           the challenging environment. Liquidity risk                                                            The group’s ability to access funding
                                                                                             We maintain a funding structure with stable
                                           management encompasses the ongoing                                                                     at cost-effective levels is influenced by
                                                                                             private client deposits and long-term
                                           management of structural, tactical day-to-                                                             maintaining or improving the entity’s credit
                                                                                             wholesale funding well in excess of illiquid
                                           day and contingent stress liquidity.                                                                   rating. A reduction in these ratings could
                                                                                             assets. We target a diversified funding
                                                                                                                                                  have an adverse effect on the group’s
                                           Management uses assumptions-based                 base, avoiding undue concentrations by
                                                                                                                                                  funding costs, and access to wholesale
                                           planning and scenario modelling that              investor type, maturity, market source,
                                                                                                                                                  term funding. Credit ratings are dependent
                                           considers market conditions, prevailing           instrument and currency. This validates our
                                                                                                                                                  on multiple factors including, business
                                                                                             ability to generate funding from a broad
3
                                           interest rates and projected balance sheet                                                             model, strategy, capital adequacy levels,
                                                                                             range of sources in a variety of geographic          quality of earnings, risk appetite and
                                           growth, to estimate future funding and
                                                                                             locations, which enhances financial flexibility      exposure, and control framework.
                                           liquidity needs while taking the desired
                                                                                             and limits dependence on any one source
                                           nature and profile of liabilities into account.
                                                                                             so as to ensure a satisfactory overall               As mentioned above, we hold a liquidity
                                           These metrics are used to develop our
                                                                                             funding mix to support loan growth.                  buffer in the form of unencumbered
                                           funding strategy and measure and manage
                                                                                                                                                  readily available, high quality liquid assets,
                                           the execution thereof. The funding plan           We acknowledge the importance of our                 typically in the form of government or rated
                                           details the proportion of our external assets     private client base as the principal source          securities eligible for repurchase with the
                                           which are funded by customer liabilities,         of stable and well diversified funding for           central bank, and near cash well in excess
                                           unsecured wholesale debt, equity and loan         Investec’s risk assets. We continue to               of the statutory requirements as protection
                                           capital, thus maintaining an appropriate mix      develop products to attract and service              against unexpected disruptions in cash
                                           of structural and term funding, resulting in      the investment needs of our Private Bank             flows. This puts us in a favourable position
                                           strong balance sheet liquidity ratios.            client base. Although the contractual                to meet the Basel III liquidity requirements.
                                                                                             repayments of many Private Bank customer             These portfolios are managed within
                                           We measure liquidity risk by quantifying          accounts are on demand or at short                   board-approved targets, and apart from
                                           and calculating various liquidity risk metrics    notice, in practice such accounts remain             acting as a buffer under going concern
                                           and ratios to assess potential risks to the       a stable source of funds. We continued to            conditions, also form an integral part of
                                           liquidity position. Metrics and ratios include:   successfully raise private client deposits           the broader liquidity generation strategy.




                                           62                                                                                     Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Investec remains a net liquidity provider to                are currently unaware of any circumstances                     internal and external communications
the interbank market, placing significantly                 that could significantly detract from our ability              including public relations, sources of
more funds with other banks than our                        to raise funding appropriate to our needs.                     liquidity, avenues available to access
short-term interbank borrowings. We                                                                                        additional liquidity, as well as supplementary
do not rely on interbank deposits to                        The liquidity contingency plans outline                        information requirements required to
fund term lending. From 1 April 2014 to                     extensive early warning indicators, clear                      manage liquidity during such an event.
31 March 2015 average cash and near                         lines of communication and decisive                            This plan helps to ensure that cash
cash balances over the period amounted                      crisis response strategies. Early warning                      flow estimates and commitments can
to R86.3 billion.                                           indicators span bank-specific and systemic                     be met in the event of general market
                                                            crises. Rapid response strategies address                      disruption or adverse bank-specific events,
The group does not rely on committed                        action plans, roles and responsibilities,                      while minimising detrimental long-term
funding lines for protection against                        composition of decision-making bodies                          implications for the business.
unforeseen interruptions to cash flow. We                   involved in liquidity crisis management,



Cash and near cash trend

  R’million

    120 000


    100 000


     80 000


     60 000




                                                                                                                                                                              Risk management and corporate governance
     40 000
                                                                                                                                                 Near cash (other
                                                                                                                                                 ‘monetisable’ assets)
     20 000
                                                                                                                                                 Central Bank cash
                                                                                                                                                 placements and
              0                                                                                                                                  guaranteed liquidity
                  Apr 14   May 14        Jun 14   Jul 14   Aug 14      Sep 14    Oct 14       Nov 14   Dec 14     Jan 15   Feb 15   Mar 15       Cash




An analysis of cash and                                     Bank and non-bank depositor concentration
near cash at 31 March 2015                                  by type at 31 March 2015




                                                                                                                                                                                      3

R88 691 million                                             R251 169 million


     Cash                                         39.5%             Other nancials                              43.2%
     Central Bank cash placements and                               Non- nancial corporates                     18.8%
     guaranteed central bank liquidity            40.8%             Individuals                                 15.9%
     Near cash (other ‘monetisable’                                 Banks                                       11.9%
     assets)                                      19.7%
                                                                    Public sector                                6.1%
                                                                    Small business                               4.1%




Investec Bank Limited group and company annual financial statements 2015                                                                                                 63
                                           Risk management (continued)


                                                                       Asset encumbrance                                     With respect to the contractual liquidity
                                                The liquidity          An asset is defined as encumbered if it               mismatch:

                                                position of the bank   has been pledged as collateral against
                                                                       an existing liability and, as a result, is no
                                                                                                                             • No assumptions are made except as
                                                remained sound         longer available to the group to secure
                                                                                                                               mentioned below, and we record all
                                                                                                                               assets and liabilities with the underlying
                                                with total cash and    funding, satisfy collateral needs or be sold
                                                                       to reduce the funding requirement. An asset
                                                                                                                               contractual maturity as determined by
                                                near cash balances     is therefore categorised as unencumbered if
                                                                                                                               the cash flow profile for each deal

                                                amounting to           it has not been pledged against an existing
                                                                       liability. Risk Management monitors and
                                                                                                                             • As an integral part of the broader
                                                                                                                               liquidity generation strategy, we
                                                R88.7 billion          manages total balance sheet encumbrance                 maintain a liquidity buffer in the form of
                                                                       via a board-approved risk appetite                      unencumbered cash, government, or
                                                                       framework. The group holds a liquidity                  rated securities and near cash against
                                                                       buffer in the form of unencumbered,                     both expected and unexpected cash
                                                                       readily available, high-quality liquid assets,          flows
                                                                       typically in the form of government or rated
                                                                       securities eligible for repurchase with the           • The actual contractual profile of this
                                                                       central banks in the respective jurisdictions.          asset class is of little consequence, as
                                                                                                                               practically Investec would meet any
                                                                       The group utilises securitisation in order              unexpected net cash outflows by repo’ing
                                                                       to raise external term funding as part of its           or selling these securities. We have:
                                                                       diversified liability base. Securitisation notes
                                                                       issued are also retained by the group which               – set the time horizon to ‘on
                                                                       are available to provide a pool of collateral               demand’ to monetise our statutory
                                                                       eligible to support central bank liquidity                  liquid assets for which liquidity is
                                                                       facilities. During the year the group issued                guaranteed by the central bank;
                                                                       R5.7 billion of notes through securitisations
                                                                                                                                 – set the time horizon to one month
                                                                       in South Africa.
Risk management and corporate governance




                                                                                                                                   to monetise our cash and near
                                                                       The group uses secured transactions to                      cash portfolio of ‘available-for-sale’
                                                                       manage short-term cash and collateral                       discretionary treasury assets, where
                                                                       needs. Details of assets pledged through                    there are deep secondary markets
                                                                       repurchase activity and collateral pledges                  for this elective asset class; and
                                                                       are reported by line item of the balance
                                                                                                                                 – reported the ‘contractual’ profile by
                                                                       sheet on which they are reflected on page
                                                                                                                                   way of a note to the tables.
                                                                       107. Related liabilities are also reported.
                                                                                                                             With respect to the behavioural liquidity
                                                                       On page 158 we disclose further details of
                                                                                                                             mismatch:
                                                                       assets that have been received as collateral
                                                                       under reserve repurchase agreements and               • Behavioural liquidity mismatch tends
                                                                       securities borrowing transactions where the             to display a fairly high probability, low
                                                                       assets are allowed to be resold or pledged.             severity liquidity position. Many retail
                                                                                                                               deposits, which are included within
                                                                       Liquidity mismatch
                                                                                                                               customer accounts, are repayable
                                                                       The tables that follow show our contractual             on demand or at short notice on a
                                                                       liquidity mismatch.                                     contractual basis. In practice, these
                                                                                                                               instruments form a stable base for
                                                                       The tables will not agree directly to the
                                                                                                                               the group’s operations and liquidity
                                                                       balances disclosed in the respective
3                                                                      balance sheets since the tables incorporate
                                                                       cash flows on a contractual, undiscounted
                                                                                                                               needs because of the broad base of
                                                                                                                               customers. To this end, behavioural
                                                                                                                               profiling is applied to liabilities with
                                                                       basis based on the earliest date on which
                                                                                                                               an indeterminable maturity, as the
                                                                       the group can be required to pay.
                                                                                                                               contractual repayments of many
                                                                       The liquidity position of the bank remained             customer accounts are on demand
                                                                       sound with total cash and near cash                     or at short notice but expected cash
                                                                       balances amounting to R88.7 billion.                    flows vary significantly from contractual
                                                                       We continued to enjoy strong inflows of                 maturity. An internal analysis model
                                                                       customer deposits while maintaining good                is used, based on statistical research
                                                                       access to wholesale markets despite the                 of the historical series of products.
                                                                       underlying market environment. Our liquidity            This is used to identify significant
                                                                       and funding profile reflects our strategy, risk         additional sources of structural liquidity
                                                                       appetite and business activities.                       in the form of core deposits that
                                                                                                                               exhibit stable behaviour. In addition,
                                                                       The tables reflect that loans and advances              reinvestment behaviour, with profile and
                                                                       to customers are largely financed by stable             attrition based on history, is applied
                                                                       funding sources.                                        to term deposits in the normal course
                                                                                                                               of business.



                                           64                                                                Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Contractual liquidity at 31 March 2015
                                                                                                           Six
                                                                      Up             One     Three     months        One
                                                                  to one         to three    to six     to one     to five    > Five
 R’million                                    Demand              month          months     months        year      years      years       Total

 Cash and short-term funds –
 banks*                                         29 036             7 492           1 912       168        182        893           –     39 683
 Cash and short-term funds –
 non-banks                                      10 465                 32             38          5          –          –          –     10 540
 Investment/trading assets
 and statutory liquids**                        34 409             6 425           1 893     2 107      4 006     16 938     33 087      98 865
 Securitised assets                                 976                    9          35         63       103        348      3 619        5 153
 Advances                                         5 628            5 393         10 353     11 725     14 359     79 976     46 031     173 465
 Other assets                                          2                   –         182          –       115      1 580      3 121        5 000
Assets                                          80 516           19 351          14 413     14 068     18 765     99 735     85 858     332 706
Deposits – banks                                 (3 253)             (440)          (717)         –    (12 031)   (13 351)         –     (29 792)
Deposits – non-banks                           (87 975)^        (27 947)         (38 728)   (15 532)   (19 546)   (28 785)    (2 864)   (221 377)
Negotiable paper                                        –                  (3)       (72)       (75)    (1 059)    (4 308)         –      (5 517)
Securitised liabilities                                 –                  –           –          –          –        (28)    (1 061)     (1 089)
Investment/trading liabilities                   (5 507)          (3 279)         (2 669)    (2 974)    (7 087)    (7 813)    (1 251)    (30 580)
Subordinated liabilities                                –                  –        (125)         –       (781)      (400)    (9 143)    (10 449)
Other liabilities                                  (211)             (247)           (62)      (102)      (169)        (3)    (4 209)     (5 003)




                                                                                                                                                    Risk management and corporate governance
Liabilities                                    (96 946)         (31 916)         (42 373)   (18 683)   (40 673)   (54 688)   (18 528)   (303 807)
Shareholders’ funds                                     –                  –           –          –          –          –    (28 899)    (28 899)
Contractual liquidity gap                      (16 430)         (12 565)         (27 960)    (4 615)   (21 908)   45 047     38 431            –
Cumulative liquidity gap                       (16 430)         (28 995)         (56 955)   (61 570)   (83 478)   (38 431)         –

^    Includes call deposits of R59 billion and the balance reflects term deposits which have finally reached/are reaching contractual maturity.

Note: Contractual profile of ‘cash and near cash’ asset class.

          As discussed on page 64.

                                                                                                           Six
                                                                      Up             One     Three     months        One
                                                                  to one         to three    to six     to one     to five    > Five
 R’million                                    Demand              month          months     months        year      years      years       Total

 *Cash and short-term funds –
 banks                                           22 888            7 492           1 912       168        182        893      6 148      39 683
 **Investment/trading assets
 and statutory liquids                              (707)          7 613         11 461     12 176      8 816     18 386     41 120      98 865
                                                                                                                                                            3
Behavioural liquidity

          As discussed on page 64.

                                                                                                           Six
                                                                      Up             One     Three     months        One
                                                                  to one         to three    to six     to one     to five    > Five
 R’million                                    Demand              month          months     months        year      years      years       Total

 Behavioural liquidity gap                       32 137            1 068          (1 258)    (1 531)   (24 194)   (82 665)   76 443            –
 Cumulative                                      32 137          33 205          31 947     30 416      6 222     (76 443)         –




Investec Bank Limited group and company annual financial statements 2015                                                                       65
                                           Risk management (continued)


                                           Balance sheet risk year in                        plentiful liquidity and quantitative easing we       South Africa is a member of the G20 and
                                           review                                            expect this trend to continue.                       is committed to implementing the BCBS
                                                                                                                                                  guidelines for ‘liquidity risk measurement
                                           • Investec maintained and improved its            Cash and near cash balances grew                     standards and monitoring’ published in
                                             strong liquidity position ahead of Basel III    by R4.2 billion to R88.7 billion at
                                                                                                                                                  December 2010 and January 2013, by the
                                             and continued to hold high levels of            31 March 2015. The bank’s overall liquidity
                                                                                                                                                  due dates of 2015 to 2019.
                                             surplus liquid assets                           position is sound going into 2016.
                                                                                                                                                  Investec is involved in the process in the
                                           • We sustained strong term funding in             Regulatory considerations –                          following ways:
                                             demanding market conditions while               balance sheet risk
                                             focusing on lowering the weighted                                                                    • Collectively via the Banking Association
                                             average cost of funding                         The banking industry continued to
                                                                                                                                                    of South Africa (BASA) and their task
                                                                                             experience elevated levels of prospective              groups
                                           • Our liquidity risk management process           changes to laws and regulations from
                                             remains robust and comprehensive.               national and supranational regulators.               • Direct bilateral consultation with SARB
                                                                                                                                                    and SARB task teams
                                           The past financial year was marked by a           Regulators propose to both strengthen
                                           continual increase in the cost of funds to        and harmonise global liquidity standards             • As part of the Quantitative Impact Study
                                           local banks including Investec. The banking       and to ensure a strong financial sector and            by BCBS via SARB
                                           industry as a result witnessed some               global economy. We believe that we are
                                           compression in interest rate margins.             well positioned for the proposed regulatory          • As part of National Treasury Structural
                                           The rise in the cost of funds was driven by       reform as we have maintained strong                    Funding and Liquidity Risk task team.
                                           increased competition for deposits ahead          capital, funding and liquidity positions.            South Africa is a region with insufficient
                                           of the implementation of new liquidity
                                                                                             The BCBS published the final calibration             liquid assets. To address this systemic
                                           regulations introduced by the Bank of
                                                                                             of the LCR in January 2013. The main                 challenge, the SARB announced the
                                           International Settlements. The LCR had to
                                                                                             changes to the LCR were to introduce                 introduction of a committed liquidity facility
                                           be met by banks from 1 January 2015 at
                                                                                             level 2b qualifying assets and recalibrate           (CLF) whereby South African banks can
Risk management and corporate governance




                                           minimum compliance rate of 60% moving
                                                                                             run-off factors for non-financial commercial         apply to the Reserve Bank for the CLF
                                           to 100% by 2019. This has led to increased
                                                                                             depositors and committed facilities. The LCR         against eligible collateral for a prescribed
                                           demand for so-called Basel III friendly
                                                                                             ratio will be phased in from 2015 to 2019.           commitment fee. The CLF will be limited to
                                           deposits (retail and longer dated wholesale
                                                                                                                                                  40% of Net Outflows under the LCR.
                                           deposits) by South African banks. This            The BCBS published the final consultation
                                           adjustment in the liability structure of the      document on the NSFR in October 2014                 Investec Bank Limited (solo) already
                                           banking system could raise the cost of            with a number of changes. The main                   exceeds the minimum requirement for the
                                           borrowing which may ultimately be passed          changes to the NSFR were to introduce                LCR in 2015.
                                           on to borrowers.                                  a bucket to recognise financial deposits
                                                                                                                                                  The South African banking industry,
                                           Investec grew its total customer deposits         greater than six months in sources of
                                                                                                                                                  however, will find it difficult to meet the
                                           by 8% from R204.9 billion to R221.4 billion       available stable funding, recalibrate run-off
                                                                                             factors for performing loans less than one           NSFR ratio, as currently defined, as a result
                                           at 31 March 2015. Our Private Bank’s                                                                   of the shortcomings and constraints in the
                                                                                             year, and revise treatment of both derivative
                                           deposit raising channels grew by 17.5%                                                                 South African environment. The banking
                                                                                             and repo transactions. The NSFR ratio will
                                           to R89.8 billion over the financial year;                                                              sector in South Africa is characterised
                                                                                             be introduced in 2018.
                                           whereas wholesale deposit growth was                                                                   by certain structural features such as
                                           muted. The bankruptcy of African Bank             The strategic impact of Basel III                    a low discretionary savings rate and a
                                           resulted in a loss of some cash from Money        internationally is significant, and has              higher degree of contractual savings
                                           Market Funds as they met requests for             the potential to change the business                 that are captured by institutions such
                                           redemptions. This was countered by both           model of non-compliant banks while the               as pension funds, provident funds and
3                                          private individuals and corporates entering
                                           the banking system directly. Our liquidity
                                                                                             regulatory developments could result in
                                                                                             additional costs.
                                                                                                                                                  providers of asset management services.
                                                                                                                                                  The proposed liquidity measures have
                                           was further boosted by several successful                                                              the potential to impact growth and job
                                           medium-term senior unsecured bonds                The group has committed itself to
                                                                                                                                                  creation in the economy. In recognition
                                           issued totalling R4 billion. Investec Bank        implementation of the BCBS guidelines for
                                                                                                                                                  thereof, the Finance Minister instituted a
                                           Limited (solo) basis ended the financial          liquidity risk measurement standards and
                                                                                                                                                  Structural Funding and Liquidity task team
                                           year with the three-month average of its          the enhanced regulatory framework to be
                                                                                                                                                  to investigate the constraints in the South
                                           LCR at 100.3%, which is well ahead of the         established. Investec has been proactively
                                                                                                                                                  African market and make recommendations
                                           minimum levels required.                          reporting on these ratios internally
                                                                                                                                                  to address these limitations.
                                                                                             according to the emerging Basel definitions
                                           Three and five year dollars amounting to          since February 2010. Investec already                Notwithstanding the above constraints,
                                           USD532 million were raised in several club,       exceeds minimum requirements of these                Investec in South Africa is committed to
                                           bilateral and structured loan deals over          standards. We continue to reshape our                meet the NSFR.
                                           the course of the year as the cost of term        liquidity and funding profile where necessary
                                           dollars fell to levels last witnessed over five   as we approach the compliance timeline.
                                           years ago. In a world of negative rates,




                                           66                                                                                     Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Liquidity coverage ratio                                    Investec Bank Limited bank solo:                 Investec Bank Limited consolidated
National and supranational regulators                       The main drivers of the LCR results and the      group:
have set standards designed to promote                      evolution of the contribution of inputs to the   Our two banks, Investec Bank Limited
resiliency and harmonise liquidity risk                     LCR’s calculation over time:                     and Investec Bank (Mauritius) Limited
supervision to ensure a strong financial                                                                     (IBM), contributed over 98% of the group’s
sector within the global economy.                           • The structure and nature of deposits           combined HQLA and stressed cash inflows
                                                              inside the 30-day window is the key            and outflows. IBM’s average stressed
Two key liquidity measures were defined:                      driver of the LCR. This weighted               cash outflows of R3.1 billion are primarily
                                                              outflow is determined by the customer          to non-financial corporates, while their
Liquidity coverage ratio (LCR)                                type of liabilities falling into the 30-day    stressed inflows of R2.1 billion are largely
• This ratio is designed to promote                           contractual bucket. In turn these deposit      from banks. IBM bank solo currently has
  short-term resilience of the one-month                      characteristics determine the targeted         no LCR requirement. There is no restriction
  liquidity profile by ensuring that banks                    level of high-quality liquid assets (HQLA)     on the contribution of IBM’s cash inflows to
  have sufficient high-quality liquid assets                  required to be held as a counterbalance        the group.
  to meet potential outflows in a stressed                    to the modelled stressed outflows
  environment.                                              • In order to manage the deposit mix in
Net stable funding ratio (NSFR)                               relation to tenor and client type, we
                                                              establish targets for deposits to be
• This ratio is designed to capture                           raised by market, channel, product,
  structural issues over a longer time                        tenor band and client type designed to
  horizon by requiring banks to have a                        limit the weighted outflows falling into
  sustainable maturity structure of assets                    the 30-day window.
  and liabilities.
                                                            The composition of HQLA:
In terms of South African Reserve Bank
Regulations, banks are expected to                          • The HQLA comprises primarily South




                                                                                                                                                            Risk management and corporate governance
commence reporting on the LCR in 2015                         African sovereign and central bank
and the NSFR in 2018.                                         Rand-denominated securities and debt
                                                              instruments, all of which are eligible to
The values in the table are calculated as                     be repo’ed to the SARB or any other
the simple average of daily observations                      external market participants
over the period 1 January 2015 to
31 March 2015 for Investec Bank Limited                     • Some foreign-denominated government
bank solo. Sixty business day observations                    securities are included in the HQLA,
were used. Investec Bank Limited                              subject to regulatory limitations
consolidated group values use daily values                  • At the end of March the CLF contributed
for Investec Bank Limited bank solo, while                    4% to the HQLA.
those for other group entities use the
average of January, February and March
2015 month-end values.

The minimum requirement for the LCR over
the quarter, as specified by both the Basel
Committee of Banking Supervision and
the South African Reserve Bank, is 60%.
This applies to both Investec Bank Limited
bank solo and Investec Bank Limited
consolidated group.
                                                                                                                                                                    3




Investec Bank Limited group and company annual financial statements 2015                                                                               67
                                           Risk management (continued)




                                                                                                                     Investec Bank Limited                   Investec Bank Limited
                                                                                                                           Bank Solo                          Consolidated Group
                                                                                                                         Total               Total              Total                 Total
                                                                                                                   unweighted            weighted         unweighted              weighted
                                           R’million                                                                    value               value              value                 value

                                           High-quality liquid assets
                                           Total high-quality liquid assets                                                                41 206                                    41 318
                                           Cash outflows
                                           Retail deposits and deposits from small business customers, of which:       36 475                3 647              38 697                3 870
                                            Stable deposits                                                                   –                    –                   –                    –
                                            Less stable deposits                                                       36 475                3 647              38 697                3 870
                                           Unsecured wholesale funding, of which:                                      82 246              58 190               87 567               60 622
                                            Operational deposits (all counterparties) and deposits
                                            in institutional networks of cooperative banks                                    –                    –                   –                    –
                                            Non-operational deposits (all counterparties)                              81 242              57 186               85 173               58 228
                                            Unsecured debt                                                              1 004                1 004                2 394               2 394
                                           Secured wholesale funding                                                                           202                                       182
                                           Additional requirements, of which:                                          49 408                6 121              51 734                5 819
                                            Outflows related to derivatives exposures and other
                                            collateral requirements                                                    11 164                1 813              11 097                1 747
Risk management and corporate governance




                                            Outflows related to loss of funding on debt products                           726                 726                  200                  200
                                            (Undrawn committed) credit and liquidity facilities                        37 518                3 582              40 437                3 872
                                           Other contractual funding obligations                                           557                 557                  546                  546
                                           Other contingent funding obligations                                       105 972                5 487            104 734                 5 439
                                           Total cash outflows                                                                             74 206                                    76 477
                                           Cash inflows
                                           Secured lending (e.g. reverse repos)                                         1 193                  139                1 193                  139
                                           Inflows from fully performing exposures                                     33 163              30 179               35 171               31 281
                                           Other cash inflows                                                           2 486                2 486                4 068               2 549
                                           Total cash inflows                                                          36 842              32 804               40 432               33 969

                                                                                                                                   Total adjusted                           Total adjusted
                                                                                                                                            value                                    value

                                           Total high-quality liquid assets                                                                41 206                                    41 318
                                           Total net cash outflows                                                                         41 402                                    42 508
                                           Liquidity coverage ratio (%)                                                                      100.3                                      98.7


3




                                           68                                                                           Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Operational risk                                            During the year under review, enhancement            Governance
                                                            of all the components of the operational
                                                                                                                 The governance structure adopted to
Operational risk definition                                 risk management framework remained an
                                                                                                                 manage operational risk is enforced
                                                            area of focus.
Operational risk is the risk of loss arising                                                                     in terms of a levels of defence model
from inadequate or failed internal processes,               The process of advancing practices and               and supports the principle of combined
people or systems, or external events.                      understanding regulatory requirements is             assurance in the following manner:
Operational risk has both financial and                     supported by regular interaction with the
non-financial impacts.                                      regulator and with industry counterparts at
                                                            formal industry forums.                                          Board and board
We recognise that there is significant
                                                                                                                             committees
operational risk inherent in the operations                 An independent group operational risk
                                                                                                                             • Review and approval of the
of a bank. Our objective is therefore to                    management function, mandated by                                   overall risk management strategy,
manage and mitigate risk exposures and                      the board risk and capital committee,                              including determination of the
events by adopting sound operational risk                                                                                      risk appetite and tolerance for the
                                                            ensures that operational risk policies and                         bank
management practises.                                       procedures are developed and applied                             • Monitor and review the
                                                                                                                               operational risk exposures and
                                                            consistently and effectively throughout
Operational risk management                                                                                                    metrics.
                                                            the bank. Business unit management,
framework
                                                            supported by operational risk managers
The bank continues to operate under                         (ORMs) who operate at a business unit
the Standardised Approach (TSA) to                          level, are responsible for embedding and                         External assurance and
operational risk which forms the basis of the               implementing operational risk practices and                      supervision
operational risk management framework.                      policies. All personnel are adequately skilled                   • External assessment of
The framework is embedded at all levels of                  at both a business unit and a group level.                         operational risk environment
the organisation and is continually reviewed                                                                                 • Onsite reviews by the SARB, FCA,
                                                                                                                               PRA and other regulators.
to ensure appropriate and effective
management of operational risk.




                                                                                                                                                                                Risk management and corporate governance
                                                                                                                                                                     Reliance
                                                                                                                             Internal assurance
The diagram below depicts how the components of operational risk are integrated.
                                                                                                                 Assurance
                                                                                                                             • Independent review of framework
                                                                                                                               and its effectiveness
                                                                                                                             • Audit findings integrated into
                           Governance risk, appetite and tolerance                                                             operational risk management
                                                                                                                               process.


                                       Policies and procedures

                                                                                                                             Group operational risk
                 Identification                                   Measurement                                                management
 Monitoring




                                                                                                     Reporting




                                                                                                                             • Challenge and review business
                                                                                                                               unit operational risk practices
                                                                                                                               and data
                 • Risk and control                               • Scenarios                                                • Maintain operational risk
                                                                                                                               framework and policy
                   assessment
                                                                                                                             • Report to board and board
                                                                  • Capital calculation                                        committees on operational risk
                 • Internal risk events                                                                                        exposures, events and emerging
                                                                                                                               issues.
                 • External risk events

                 • Key risk indicators
                                                                                                                             Business unit                                              3
                                                                                                                             management
                                                                                                                             • Identify, own and mitigate
                                                 Technology                                                                    operational risk
                                                                                                                             • Establish and maintain an
                                                                                                                               appropriate operational risk
                                                                                                                               and control environment
                                                                                                                             • Maintain an embedded
                                                                                                                               operational risk management
                                                                                                                               capability.




Investec Bank Limited group and company annual financial statements 2015                                                                                               69
                                           Risk management (continued)


                                                                                           Risk appetite and tolerance                          Operational risk practices
                                                Enhancement of                             The operational risk tolerance policy defines        The following practices are used for
                                                all the components                         the amount of operational risk exposure, or          the management of operational risk as
                                                                                           potential adverse impact from a risk event,          illustrated in the diagram below:
                                                of the operational                         that the bank is willing to accept or retain.
                                                risk management                            The objective of the policy is to encourage
                                                framework remained                         action and mitigation of risk exposures and
                                                                                           provides management guidance to respond
                                                an area of focus                           appropriately. Additionally, the policy defines
                                                                                           capturing and reporting thresholds for risk
                                                                                           events and guidance to respond to key risk
                                                                                           indicators appropriately.




                                            Risk and            Internal risk        External            Key risk              Scenarios               Reporting                Technology
                                            control             events               risk events         indicators            and capital             and
                                            assessment                                                                         calculation             monitoring

                                            Qualitative         Incidents            Access to data      Metrics are           Extreme,                A reporting              An operational
                                            assessments         resulting from       from an external    used to monitor       yet plausible           process is               risk system is in
                                            that identify key   failed systems,      data consortium     risk exposures        scenarios are           in place to              place to support
                                            operational risks   processes,                               against identified    evaluated for           ensure that risk         operational risk
                                            and controls        people or            Events are          thresholds            financial and           exposures are            practices and
                                                                external events      analysed to                               non-financial           identified and           processes
Risk management and corporate governance




                                            Identifies                               inform potential    Assists in            impacts                 that key risks
                                            ineffective         A causal             control failures    predictive                                    are appropriately
                                            controls and        analysis is          within the bank     capability            Used to                 escalated and
                                            improves            performed                                                      measure                 managed
                                            decision-making                          The output of                             exposure
                                            through an          Enables              this analysis                             arising from key        Monitoring
                                            understanding       business to          is used as                                risks, which is         compliance with
                                            of the              identify trends in   input into the                            considered in           operational risk
                                            operational         risk events and      operational risk                          determining             policies and
                                            risk profile        address control      assessment                                internal                practices ensure
                                                                weaknesses           process                                   operational             the framework
                                                                                                                               risk capital            is embedded in
                                                                                                                               requirements            day-to-day
                                                                                                                                                       business
                                                                                                                                                       activities




3




                                           70                                                                                   Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Key operational risk considerations
The following key risks may result in loss of value should they materialise.

 Definition of risk                     Approach to mitigation                                              Priority for 2015/16

 Financial crime
 Risk associated with money • Proactive strategy which includes business wide and                           • Financial crime awareness training
 laundering, terrorist financing,   customer risk assessments                                                 internally including the use of e-learning
 bribery, fraud, and tax          • Development of policies which comply with regulations                     platforms
 evasion.                           and industry guidance                                                   • Development of a money laundering,
                                  • Monitoring the adequacy and effectiveness of financial                    counter terrorist financing, bribery and
                                    crime controls and reporting to governance bodies                         sanctions compliance risk appetite
                                  • Training all staff with enhanced bespoke training delivered               statement
                                    to staff in higher risk functions                                       • Enhance money laundering transaction
                                  • Frequent delivery of management information focused on                    monitoring capabilities and bespoke
                                    key risk indicators                                                       training for staff in key risk functions.
                                  • Review external and industry events by engaging with
                                    external partners such as South African Banking Risk
                                    Information Centre (SABRIC), SAPS and agency banks
                                  • Understanding and proactively managing the emerging
                                    threat of cybercrime across the industry.

 Information security
 Risks associated with the              • Identification of threats and associated risks to our             • Ensure appropriate controls are in place
 confidentiality, availability or         information assets including legal and regulatory                   to manage cyber threats, including the
 integrity of our information             requirements                                                        sharing of information with peers, law
 assets, irrespective                   • Development and monitoring of policies, processes and               enforcement and industry bodies
 of location or media.                    technical controls designed to mitigate the risks to our          • Raising awareness with internal




                                                                                                                                                                 Risk management and corporate governance
                                          information                                                         and external stakeholders of the
                                        • Evaluation of risks introduced by our information supply            threats, controls and policies
                                          chain                                                               relating to information security and
                                        • Maintenance and testing of our security incident and                their responsibility in protecting our
                                          breach response processes.                                          information.

 Process failure
 Risk associated with                   • Weaknesses in controls are identified through the causal          • Enhancement of processes to identify
 inadequate internal                      analysis process following the occurrence of risk events            risks related to new products and
 processes, including human             • Thematic reviews are performed to monitor the                       projects.
 errors and control failures              effectiveness of controls across business units
 within the business. This              • Effective management of change remains a focus area for
 includes process origination,            the year ahead.
 execution and operations.

 Regulatory and compliance
 Risk associated with           • Group Compliance and Group Legal Risk assist in the                       • Alignment of regulatory and compliance
 identification, implementation   management of regulatory and compliance risk                                approach to reflect new regulatory
 and monitoring of compliance • Identification and adherence to legal and regulatory                          landscapes (particularly change of
 with regulations.                requirements                                                                regulatory structures in UK and SA)
                                • Review practices and policies as regulatory requirements                  • Managing business impact and
                                  change.                                                                     implementation challenges as a result
                                                                                                              of significant volumes of statutory and                    3
                                                                                                              regulatory changes and developments
                                                                                                            • Ensuring existing monitoring remains
                                                                                                              focused appropriately as areas of
                                                                                                              conduct and regulatory risk develop.

 Technology
 Risk associated with the               • Establishment and maintenance of an IT risk assessment            • Enhancing resilience of our technical
 reliance on technology to                framework to consistently and effectively assess IT                 infrastructure and our process to IT
 support business processes               exposures across the business                                       failures or service interruptions
 and client services.                   • Monitoring risk exposures related to adoption of new              • Identifying, monitoring and reducing
 This relates to the operations,          technologies                                                        risks in our digital channel, following the
 usage, ownership and                   • Identification and remediation of vulnerabilities identified in     introduction of mobile applications and
 responsibility of IT systems             IT systems, applications, and processes                             our increased online presence.
 across the business.                   • Establishing appropriate IT recovery capabilities to
                                          safeguard against business disruptions resulting from
                                          systems failures and IT service outages.




Investec Bank Limited group and company annual financial statements 2015                                                                                    71
                                           Risk management (continued)


                                                                     Insurance                                            It is expected that the SARB will issue
                                                We have              The group maintains adequate insurance
                                                                                                                          guidance on resolution planning in the
                                                                                                                          near future. We will then look to integrate
                                                various policies     to cover key insurable risks. The insurance
                                                                                                                          our existing recovery plan into the SARB’s
                                                                     process and requirements are managed by
                                                and practices        the group insurance risk manager. Regular            resolution planning.
                                                to mitigate          interaction between Group Operational
                                                                                                                          The purpose of the recovery plan is to
                                                                     Risk Management and Group Insurance
                                                reputational         Risk Management ensures that there is
                                                                                                                          document how the board and management
                                                                                                                          will recover from extreme financial stress to
                                                risk, including      an exchange of information in order to
                                                                                                                          avoid liquidity and capital difficulties. The
                                                                     enhance the mitigation of operational risks.
                                                strong values                                                             plan is reviewed and approved by the board
                                                that are regularly                                                        on an annual basis.

                                                and proactively      Business continuity                                  The recovery plan for Investec Limited:

                                                reinforced           management                                           • Integrates with existing contingency
                                                                                                                            planning
                                                                     The group maintains a global business
                                                                     continuity management capability which               • Analyses the potential for severe stress
                                                                     incorporates an appropriate level of                   in the group
                                                                     resilience into the bank’s operations to
                                                                     minimise the risk of severe operational              • Identifies roles and responsibilities
                                                                     disruptions occurring.
                                                                                                                          • Identifies early warning indicators and
                                                                     In the event of a major disruption, an                 trigger levels
                                                                     incident management framework will
                                                                     be used to manage the disruption.                    • Analyses how the group could be
                                                                     Continuity will be achieved through a                  affected by the stresses under various
                                                                     flexible and adaptable response, which                 scenarios
Risk management and corporate governance




                                                                     includes relocating impacted business to             • Includes potential recovery actions
                                                                     the designated recovery site. Dedicated
                                                                                                                            available to the board and management
                                                                     resources ensure all governance processes
                                                                                                                            to respond to the situation including
                                                                     are in place with business and technology
                                                                     teams responsible for activating and                   immediate, intermediate and strategic
                                                                     managing the recovery process.                         actions

                                                                     The group conducts regular exercises and             • Assesses how the group might recover
                                                                     testing of recovery procedures to ensure that          as a result of these actions to avoid
                                                                     its recovery capability remains appropriate.           resolution.

                                                                     We continue to build and enhance our
                                                                     infrastructure to manage the electricity
                                                                     supply crisis in South Africa. We remain
                                                                                                                          Reputational risk
                                                                     active participants with all industry bodies         Reputational risk is damage to our
                                                                     to ensure we are abreast of industry views           reputation, name or brand. Reputational risk
                                                                     and concerns.                                        arises as a result of other risks manifesting
                                                                                                                          and not being mitigated.

                                                                     Recovery and resolution                              We have various policies and practices to
                                                                                                                          mitigate reputational risk, including strong
                                                                     planning
3                                                                                                                         values that are regularly and proactively
                                                                                                                          reinforced. We also subscribe to sound
                                                                     Financial Stability Board member countries           corporate governance practices, which
                                                                     are required to have recovery and                    require that activities, processes and
                                                                     resolution plans in place for all systemically       decisions are based on carefully considered
                                                                     significant financial institutions. The SARB         principles.
                                                                     has adopted this requirement and has to              We are aware of the impact of practices
                                                                     date required South African domestically             that may result in a breakdown of trust and
                                                                     significant banking institutions to develop          confidence in the organisation. The group’s
                                                                     recovery plans.                                      policies and practices are regularly reinforced
                                                                                                                          through transparent communication,
                                                                     Guidance issued by the Financial                     accurate reporting, continuous group culture
                                                                     Stability Board and the SARB has been                and values assessment, internal audit and
                                                                     incorporated into Investec’s recovery plan.          regulatory compliance review, and risk
                                                                                                                          management practices.
                                                                     The SARB has focused on finalising
                                                                     the recovery plans for the local banks.




                                           72                                                             Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Legal risk management                                       • Establishing legal risk forums (bringing          Market Conduct Authority, incorporating
                                                              together the various legal risk                   portions of the Reserve Bank and the entire
Legal risk is the risk of loss resulting from                 managers) to ensure we keep abreast               FSB structure. Financial institutions will be
any of our rights not being fully enforceable                 of developments and changes in the                mono or dual regulated, depending on the
or from our obligations not being properly                    nature and extent of our activities, and          activities they engage in.
performed. This includes our rights and                       to benchmark our processes against
obligations under contracts entered into
                                                              best practice.
with counterparties. Such risk is especially
applicable where the counterparty defaults
                                                                                                                Capital management
                                                            Overall responsibility for this policy rests
and the relevant documentation may not give                 with the board. The board delegates                 and allocation
rise to the rights and remedies anticipated
                                                            responsibility for implementation of the
when the transaction was entered into.                                                                          Regulatory capital
                                                            policy to the global head of legal risk.
Our objective is to identify, manage,                       The global head assigns responsibility for          – Investec Bank Limited
monitor and mitigate legal risks throughout                 controlling these risks to the managers of          Current regulatory framework
the group. We seek to actively mitigate                     appropriate departments and focused units
these risks by identifying them, setting                                                                        Investec Bank Limited is supervised for
                                                            throughout the group.
minimum standards for their management                                                                          capital purposes by the SARB, on a
and allocating clear responsibility for such                A legal risk forum is constituted in each           consolidated basis.
management to legal risk managers, as well                  significant legal entity within the group.
as ensuring compliance through proactive                                                                        Since 1 January 2013, Investec Bank
                                                            Each forum meets at least half-yearly and           Limited has been calculating capital
monitoring.
                                                            more frequently where business needs                resources and requirements at a group
The scope of our activities is continuously                 dictate, and is chaired by the global head          level using the Basel III framework, as
reviewed and includes the following areas:                  of legal risk or an appointed deputy.               implemented in South Africa by the SARB
• Relationship contracts                                                                                        in accordance with the Bank’s Act and all
                                                                                                                related regulations.
• Legislation/governance                                    Conduct risk
                                                                                                                Investec Bank Limited uses the




                                                                                                                                                                Risk management and corporate governance
• Litigation                                                The South African financial sector regulatory       Standardised approach to calculate its
• Corporate events                                          landscape has been under review for the             credit and counterparty credit risk and
                                                            last few years. A new regulatory structure is       operational risk capital requirements.
• Incident or crisis management                             developing, and existing legislation is also        Equity risk capital is calculated using the
                                                            being amended. The conduct of financial             IRB approach by applying the simple
• Ongoing quality control.                                                                                      risk-weight method. The market risk capital
                                                            institutions is currently regulated under various
The legal risk policy is implemented                                                                            requirement is measured using an internal
                                                            pieces of legislation, and by various regulators.
through:                                                                                                        risk management model, approved by
                                                            The National Credit Act (NCA) regulates             the SARB.
• Identification and ongoing review of
  areas where legal risk is found to be                     the credit industry, ensuring that credit           Various subsidiaries of Investec Bank
  present                                                   providers guard against reckless                    Limited are subject to additional regulation
                                                            lending and over-indebting customers.               covering various activities or implemented
• Allocation of responsibility for                          Amendments to the NCA will grant greater            by local regulators in other jurisdictions.
  the development of procedures                             enforcement and rule-making powers to               For capital management purposes, it is the
  for management and mitigation
                                                            the National Credit regulator. The Financial        prevailing rules applied to the consolidated
  of these risks
                                                            Advisory and Intermediary Services Act              Investec Limited group that are monitored
• Installation of appropriate segregation                   (FAIS) regulates advice and intermediary            most closely. Nevertheless, where capital
  of duties, so that legal documentation                    services in relation to specific financial          is a relevant consideration, management
  is reviewed and executed with the                         products. Risk and controls have been               within each regulated entity pays close
  appropriate level of independence from
                                                                                                                                                                        3
                                                            identified across the business, and these           attention to prevailing local regulatory
  the persons involved in proposing or                                                                          rules as determined by their respective
                                                            are reviewed and monitored regularly.
  promoting the transaction                                                                                     regulators. Management of each regulated
                                                            Annual reports are also submitted to the
                                                                                                                entity, with the support of the group’s
• Ongoing examination of the inter-                         regulators. FAIS is also being amended to
                                                                                                                capital management functions, ensures that
  relationship between legal risk and other                 include regulation of activities in relation
  areas of risk management, so as to                                                                            capital remains prudently above minimum
                                                            to professional clients. The FSB has also
  ensure that there are no ‘gaps’ in the                                                                        requirements at all times.
                                                            introduced the Treating Customers Fairly
  risk management process
                                                            (TCF) framework, which considers fairness           Capital targets
• Establishing minimum standards for                        outcomes for customers throughout the               Over recent years, capital adequacy
  mitigating and controlling each risk. This                product lifecycle. A gap analysis is under          standards for banks have been raised as
  is the nature and extent of work to be                    way to assess the level of compliance               part of attempts to increase the stability
  undertaken by our internal and external                   with TCF, and to guide business on                  and resilience of the global banking sector.
  legal resources                                           implementation and management reporting.            Investec Limited and Investec plc have
• Establishing procedures to monitor                                                                            always held capital in excess of regulatory
                                                            The draft Financial Sector Regulation Bill          requirements and the individual groups
  compliance, taking into account the                       (Twin Peaks) proposes two new regulatory            continue to remain well capitalised.
  required minimum standards                                structures, the Prudential Authority and the        Accordingly, we are targeting a minimum




Investec Bank Limited group and company annual financial statements 2015                                                                                  73
                                           Risk management (continued)


                                           common equity tier 1 capital ratio of above            ratio in South Africa has been mandatory             At the most fundamental level, we seek to
                                           10% by March 2016, a tier 1 capital ratio              since 1 January 2013 as part of an exercise          balance our capital consumption between
                                           of above 11% by March 2016 (current                    to monitor South African banks’ readiness            prudent capitalisation in the context of
                                           10.5% target) and a total capital adequacy             to comply with the minimum standard of 4%            the group’s risk profile and optimisation of
                                           ratio target in the range of 14% to 17%.               from 1 January 2018. Following guidance              shareholder returns.
                                           These targets are continuously assessed for            from the SARB, Investec applies the rules
                                                                                                                                                       Our internal capital framework is designed
                                           appropriateness.                                       as outlined in the most recent BCBS
                                                                                                  publication.                                         to manage and achieve this balance.
                                           The DLC capital committee is responsible
                                                                                                                                                       The internal capital framework is based
                                           for ensuring that the impact of any                    Leverage ratio target                                on the group’s risk identification, review
                                           regulatory change is analysed, understood,
                                           prepared and planned for. To allow the                 Investec is currently targeting a leverage           and assessment processes and is used to
                                           committee to carry out this function,                  ratio above 6%, but will continue to                 provide a risk-based approach to capital
                                           the group’s Regulatory and Capital                     reassess this target for appropriateness             allocation, performance and structuring of
                                           Management teams closely monitor                       pending the outcome of the EBA’s report              our balance sheet. The objectives of the
                                           regulatory developments and regularly                  in 2016.                                             internal capital framework are to quantify
                                           present to the committee on the latest                                                                      the minimum capital required to:
                                                                                                  Capital management
                                           developments and proposals. As part of
                                                                                                                                                       • Maintain sufficient capital to satisfy the
                                           any assessment the committee is provided               Philosophy and approach
                                                                                                                                                         board’s risk appetite across all risks
                                           with analysis setting out the group’s capital          Both the Investec Limited and Investec                 faced by the group
                                           adequacy position, taking into account the             plc groups operate an approach to
                                           most up-to-date interpretation of the rule             capital management that utilises both                • Provide protection to depositors against
                                           changes. In addition, regular sessions with            regulatory capital, as appropriate to that             losses arising from risks inherent in the
                                           the board are held to ensure that members              jurisdiction, and internal capital, which is an        business
                                           are kept up to date with the most salient              internal risk-based assessment of capital
                                           changes to ensure the impact on the                    requirements. Capital management primarily           • Provide sufficient capital surplus to
                                           group and its subsidiaries is monitored and            relates to management of the interaction               ensure that the group is able to retain
                                           understood.                                            of both, with the emphasis on regulatory               its going concern basis under relatively
Risk management and corporate governance




                                                                                                  capital for managing portfolio level capital           severe operating conditions
                                           Management of leverage                                 sufficiency and on internal capital for
                                           At present Investec Bank Limited calculates            ensuring that returns are appropriate                • Inform the setting of minimum regulatory
                                           and reports its leverage ratio based on                for the level of risk taken at an individual           capital through the Supervisory Review
                                           the latest SARB regulations. The leverage              transaction or business unit level.                    and Evaluation Process (SREP).
                                           ratio is a non-risk-based measure intended
                                                                                                  The determination of target capital is               The DLC capital committee seeks to
                                           to prevent excessive build up of leverage
                                                                                                  driven by our risk profile, strategy and risk        optimise the balance sheet such that capital
                                           and mitigate the risks associated with
                                                                                                  appetite, taking into account regulatory             held is in excess of internal capital. Internal
                                           deleveraging during periods of market
                                                                                                  and market factors applicable to the group.          capital performs a critical role in:
                                           uncertainty. The reporting of the leverage



                                           Risk management framework
                                           The (simplified) integration of risk and capital management



                                                                                                                            Risk modelling                                                   Pricing and
3                                                                              Risk               Risk
                                                                                                                                 and
                                                                                                                                                           Internal
                                                                                                                                                                                            performance
                                                Ongoing risk management




                                                                           identification      assessment                                                   capital
                                                                                                                            quantification                                                  measurement




                                                                                             Managed by each                 Managed by
                                                                           Risk reporting      business unit                 group Capital
                                                                                                                                                          Capital
                                                                          and ‘business as    and group Risk                 Management                                                         Group
                                                                                                                                                        management
                                                                             usual’ risk       departments                 with oversight by                                                   strategy
                                                                                                                                                        and planning
                                                                            management       with oversight by                DLC capital
                                                                                               ERRF/BRCC                   committee/BRCC




                                                                                                                                                          Scenario
                                                                                                                                                           testing




                                           74                                                                                          Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


• Investment decision-making and pricing                    • Legal risk (considered within operational     input into strategy and the setting of risk
  that is commensurate with the risk being                    risk for capital purposes).                   appetite by considering business risks and
  taken                                                                                                     potential vulnerabilities, capital usage and
                                                            Each of these risk categories may consist       funding requirements given constraints
• Allocating capital according to the                       of a number of specific risks, each of          where these exist.
  greatest expected marginal risk-based                     which are analysed in detail and managed
  return, and tracking performance on this                  by ERRF, GRCC and BRCC.                         Capital planning is performed regularly,
  basis                                                                                                     with regulatory capital being the key driver
                                                            Risk modelling and                              of decision-making. The goal of capital
• Determining transactional risk-based                      quantification (internal capital)               planning is to provide insight into potential
  returns on capital                                                                                        sources of vulnerability of capital adequacy
                                                            Internal capital requirements are quantified
• Rewarding performance, taking into                                                                        by way of market, economic or internal
                                                            by analysis of the potential impact of key
  account the relative levels of risk                                                                       events. As such, we stress the capital plans
                                                            risks to a degree consistent with our risk
  adopted by forming a basis for the                                                                        based on conditions most likely to place us
                                                            appetite. Internal capital requirements are
  determination of economic value added                                                                     under duress. The conditions themselves
                                                            supported by the board-approved risk
  at a transactional level, and hence                                                                       are agreed by the DLC capital committee
                                                            assessment process described above.
  the basis for discretionary variable                                                                      after research and consultation with
                                                            Quantification of all risks is based on
  remuneration                                                                                              relevant internal experts. Such plans are
                                                            analysis of internal data, management
                                                                                                            used by management to formulate balance
                                                            expertise and judgement, and external
• Comparing risk-based performance                                                                          sheet strategy and agree management
                                                            benchmarking.
  across business areas.                                                                                    actions, trigger points and influence the
                                                            The following risks are included within the     determination of our risk appetite.
The framework has been approved by
                                                            internal capital framework and quantified for
the board and is managed by the DLC                                                                         The output of capital planning allows senior
                                                            capital allocation purposes:
capital committee, which is responsible for                                                                 management to make decisions to ensure
oversight of the management of capital on                   • Credit and counterparty risk, including:      that the group continues to hold sufficient
a regulatory and an internal basis.                                                                         capital to meet its regulatory and internal
                                                                 – Underlying counterparty risk             capital targets. On certain occasions,




                                                                                                                                                            Risk management and corporate governance
In order to achieve these objectives,
                                                                 – Concentration risk                       especially under stressed scenarios,
the internal capital framework describes
                                                                                                            management may plan to undertake a
the following approach to the integration
                                                                 – Securitisation risk                      number of actions. Assessment of the
of risk and capital management.
                                                                                                            relative merits of undertaking various
                                                            • Market risk                                   actions is then considered using an internal
Risk assessment and reporting                               • Equity and investment risk held in the
                                                                                                            view of relative returns across portfolios
                                                                                                            which are themselves based on internal
We review the business continuously to                        banking book
                                                                                                            assessments of risk and capital.
maintain a close understanding of our
universe of risks, which are analysed                       • Balance sheet risk, including:
                                                                                                            Our capital plans are designed to allow
through the risk management governance                           – Liquidity                                senior management and the board to review:
framework under stewardship of BRCC.
                                                                 – Banking book interest rate risk          • Changes to capital demand caused
Key risks are reviewed and debated by
senior management on a continuous basis.                                                                      by implementation of agreed strategic
                                                            • Strategic and reputational risks
Assessment of the materiality of risks is                                                                     objectives, including the creation or
directly linked to the board’s stated risk                  • Operational risk, which is considered as        acquisition of new businesses, or as
appetite and approved risk management                         an umbrella term and covers a range             a result of the manifestation of one
policies covering all key risks.                              of independent risks including, but not         or more of the risks to which we are
                                                              limited to fraud, litigation, business          potentially susceptible
Key identified risks are monitored by Group                   continuity, outsourcing and out of policy
Risk Management and by Internal Audit                                                                       • The impact on profitability of current and
to ensure that each risk is managed to an
acceptable level. Detailed performance
                                                              trading. The specific risks covered are
                                                              assessed dynamically through constant
                                                                                                              future strategies
                                                                                                                                                                    3
                                                              review of the underlying business             • Required changes to the capital
and control metrics of these risks are
                                                              environment.                                    structure
reported to each ERRF and BRCC meeting
including, where appropriate, the results                   Capital planning and stress/                    • The impact of implementing a proposed
of scenario testing. Key risk types that are                                                                  dividend strategy
                                                            scenario testing
considered fall within the following:
                                                            A group capital plan is prepared and            • The impact of alternate market or
• Credit and counterparty risk                              maintained to facilitate discussion of the        operating conditions on any of the
                                                            impact of business strategy and market            above.
• Market risk
                                                            conditions on capital adequacy. This plan is
                                                            designed to assess capital adequacy under       At a minimum level, each capital plan
• Equity and investment risk in the
                                                            a range of economic and internal conditions     assesses the impact on our capital
  banking book
                                                            over the medium term (three years), with        adequacy over expected case, upturn
• Balance sheet liquidity and non-trading                   the impact on earnings, asset growth, risk      and downturn scenarios. On the basis
  interest rate risk                                        appetite and liquidity considered. The plan     of the results of this analysis, the DLC
                                                            provides the board (via the BRCC) with an       capital committee and the BRCC are
• Operational, conduct and
  reputational risk



Investec Bank Limited group and company annual financial statements 2015                                                                               75
                                           Risk management (continued)


                                           presented with the potential variability in         • Tier 2 capital comprises qualifying                Capital management and
                                           capital adequacy and are responsible,                 subordinated debt and related eligible             allocation
                                           in consultation with the board, for                   non-controlling interests and other tier 2
                                           consideration of the appropriate response.            instruments, which no longer qualify               Capital structure and capital adequacy
                                                                                                 as tier 2 capital and are subject to                          Summary information on the
                                           Pricing and performance                               grandfathering provisions.                                    terms and conditions of the main
                                           measurement                                                                                                         features of all capital instruments
                                           The use of internal capital as an allocation tool
                                                                                               Capital disclosures                                             is provided on pages 73 to 76.
                                           means that all transactions are considered          The composition of our regulatory capital
                                           in the context of their contribution to return      under a Basel III basis is provided in the
                                           on risk-adjusted capital. This ensures that         table below.
                                           expected returns are sufficient after taking
                                           recognition of the inherent risk generated for
                                           a given transaction. This approach allows us
                                           to embed risk and capital discipline at the
                                           level of deal initiation. Using expectations of     At 31 March
                                           risk-based returns as the basis for pricing         R’million                                                                      2015                 2014
                                           and deal acceptance ensures that risk
                                                                                               Tier 1 capital
                                           management retains a key role in ensuring
                                           that the portfolio is appropriately managed for         Shareholders’ equity                                                     27 365               24 067
                                           that risk.                                              Shareholders’ equity per balance sheet                                   28 899               25 601
                                                                                                   Perpetual preference share capital and
                                           In addition to pricing, returns on internal
                                                                                                   share premium                                                             (1 534)              (1 534)
                                           capital are monitored and relative
                                           performance is assessed on this basis.              Regulatory adjustments to the accounting basis                                1 140                   522
                                           Assessment of performance in this way is a              Cash flow hedging reserve                                                 1 140                   522
Risk management and corporate governance




                                           fundamental consideration used in setting           Deductions                                                                      (190)                (102)
                                           strategy and risk appetite as well as rewarding         Goodwill and intangible assets net of deferred tax                          (190)                (102)
                                           performance.
                                                                                               Common equity tier 1 capital                                                 28 315               24 487
                                           These processes have been embedded
                                           across the business with the process                Additional tier 1 capital before deductions                                   1 073                1 227
                                           designed to ensure that risk and capital                Additional tier 1 instruments                                             1 534                1 534
                                           management form the basis for key decisions
                                                                                                   Phase out of non-qualifying additional
                                           at both a group and at a transactional level.
                                           Responsibility for oversight for each of these          tier 1 instruments                                                          (461)                (307)
                                           processes ultimately falls to the BRCC.             Total tier 1 capital                                                         29 388               25 714

                                           Regulatory capital and                              Tier 2 capital                                                               10 319               10 670
                                           requirements                                           Collective impairment allowances                                             169                  172
                                                                                                  Tier 2 instruments                                                        10 449               10 498
                                           For regulatory capital purposes, our regulatory        Phase out of non-qualifying tier 2 instruments                              (299)                   –
                                           capital is divided into three main categories,
                                           namely common equity tier 1, tier 1 and tier 2      Total regulatory capital                                                     39 707               36 384
                                           capital as follows:
                                                                                               Risk-weighted assets                                                       257 931              238 396
                                           • Common equity tier 1 capital comprises
                                                                                               Capital ratios
3                                            shareholders’ equity and related eligible
                                             non-controlling interests after giving effect     Common equity tier 1 ratio                                                   11.0%                10.3%
                                             to deductions for disallowed items (for           Tier 1 ratio                                                                 11.4%                10.8%
                                             example, goodwill and intangible assets)          Total capital adequacy ratio                                                 15.4%                15.3%
                                             and other adjustments

                                           • Additional tier 1 capital includes qualifying
                                             capital instrument, that are capable
                                             of being fully and permanently written
                                             down or converted into common equity
                                             tier 1 capital at the point of non-viability
                                             of the firm and other additional tier 1
                                             instruments, which no longer qualify as
                                             additional tier 1 capital and are subject
                                             to grandfathering provisions and related
                                             eligible non-controlling interests




                                           76                                                                                       Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Capital management and allocation (continued)
Capital requirements

 At 31 March
 R’million                                                                   2015      2014

 Capital requirements                                                       25 794    23 840
 Credit risk – prescribed standardised exposure classes                     19 073    17 611
     Corporates                                                             11 505    10 418
     Secured on real estate property                                         1 923     1 601
     Short-term claims on institutions and corporates                        3 242     2 722
     Retail                                                                   549       544
     Institutions                                                             872      1 064
     Other exposure classes                                                   277       176
     Securitisation exposures                                                 705      1 086
 Equity risk                                                                 4 297     3 865
     Listed equities                                                          847       757
     Unlisted equities                                                       3 450     3 108
 Counterparty credit risk                                                     576       550
 Credit valuation adjustment risk                                              32        98
 Market risk                                                                  324       395




                                                                                               Risk management and corporate governance
     Interest rate                                                             88       117
     Foreign exchange                                                         113        98
     Commodities                                                               10         5
     Equities                                                                 113       175
 Operational risk – standardised approach                                    1 492     1 321

Risk-weighted assets

 At 31 March
 R’million                                                                   2015      2014

 Risk-weighted assets                                                      257 931   238 396
 Credit risk – prescribed standardised exposure classes                    190 717   176 112
     Corporates                                                            115 047   104 181
     Secured on real estate property                                        19 230    16 011
     Short-term claims on institutions and corporates                       32 420    27 215
     Retail                                                                  5 488     5 441
     Institutions
     Other exposure classes
                                                                             8 717
                                                                             2 770
                                                                                      10 644
                                                                                       1 759
                                                                                                       3
     Securitisation exposures                                                7 045    10 861
 Equity risk                                                                42 967    38 653
     Listed equities                                                         8 472     7 570
     Unlisted equities                                                      34 495    31 083
 Counterparty credit risk                                                    5 762     5 503
 Credit valuation adjustment risk                                             324       976
 Market risk                                                                 3 240     3 947
     Interest rate                                                            878      1 174
     Foreign exchange                                                        1 134      978
     Commodities                                                               96        50
     Equities                                                                1 132     1 745
 Operational risk – standardised approach                                   14 921    13 205




Investec Bank Limited group and company annual financial statements 2015                  77
                                           Risk management (continued)


                                           Movement in total regulatory capital
                                           The table below analyses the movement in common equity tier 1, additional tier 1 and tier 2 capital during the year.


                                           Total regulatory capital flow statement


                                           As at 31 March
                                           R’million                                                                                                                     2015                 2014


                                           Opening common equity tier 1 capital                                                                                        24 487               22 331
                                           Dividends                                                                                                                      (135)                (183)
                                           Profit after taxation                                                                                                         3 128                2 150
                                           Movement in other comprehensive income                                                                                          305                  125
                                           Goodwill and intangible assets (deduction net of related tax liability)                                                          (88)                 (12)
                                           Other, including regulatory adjustments and transitional arrangements                                                           618                    76
                                           Closing common equity tier 1 capital                                                                                        28 315               24 487

                                           Opening additional tier 1 capital                                                                                             1 227                1 381
                                           Other, including regulatory adjustments and transitional arrangements                                                          (154)                (154)
                                           Closing additional tier 1 capital                                                                                             1 073                1 227

                                           Closing tier 1 capital                                                                                                      29 388               25 714

                                           Opening tier 2 capital                                                                                                      10 670               11 493
Risk management and corporate governance




                                           New tier 2 capital issues                                                                                                           –              1 005
                                           Redeemed capital                                                                                                               (250)              (3 003)
                                           Collective impairment allowances                                                                                                   (2)                 50
                                           Other, including regulatory adjustments and transitional arrangements                                                            (99)              1 125
                                           Closing tier 2 capital                                                                                                      10 319               10 670

                                           Closing total regulatory capital                                                                                            39 707               36 384



                                           A summary of capital adequacy and leverage ratios
                                           As at 31 March                                                                                                                2015                 2014

                                           Common equity tier 1 (as reported)                                                                                          11.0%                 10.3%
                                           Common equity tier 1 (fully loaded)^^                                                                                       10.9%                 10.2%
                                           Tier 1 (as reported)                                                                                                        11.4%                 10.8%
                                           Total capital adequacy ratio (as reported)                                                                                  15.4%                 15.3%
                                           Leverage ratio* – permanent capital                                                                                           8.5%#                7.9%#
                                           Leverage ratio* – current                                                                                                     8.3%   #
                                                                                                                                                                                              7.9%#
3                                          Leverage ratio* – ‘fully loaded’^^                                                                                            8.0%#                7.5%#

                                           * Based on revised BIS rules.
                                           ^^ Based on the group’s understanding of current and draft regulations ‘Fully loaded’ is based on Basel III capital requirements as fully
                                              phased in by 2022.
                                           #
                                              The leverage ratios are calculated on an end-quarter basis.




                                           78                                                                                  Investec Bank Limited group and company annual financial statements 2015
Risk management (continued)


Summary comparison of accounting assets versus leverage ratio exposure measure
 Line #      At 31 March 2015                                                                                             R’million

 1           Total consolidated assets as per published financial statements                                              332 706
             Adjustments for:
 2           Investments in banking, financial, insurance or commercial entities that are consolidated for accounting
             purposes but outside the scope of regulatory consolidation                                                          –
 3           Fiduciary assets recognised on the balance sheet pursuant to the operative accounting framework
             but excluded from the leverage ratio exposure measure                                                               –
 4           Derivative financial instruments                                                                               (1 989)
 5           Securities financing transactions (i.e. repos and similar secured lending)                                     (2 756)
 6           Off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures)          24 960
 7           Other adjustments                                                                                                (190)
 8           Leverage ratio exposure                                                                                      352 731


Leverage ratio common disclosure template
 Line #      At 31 March 2015                                                                                             R’million

             Leverage ratio framework
 1           On-balance sheet items (excluding derivatives and SFTs, but including collateral)                            307 433
 2           Asset amounts deducted in determining Basel III Tier 1 capital                                                   (190)
 3           Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of lines 1 and 2)                     307 243




                                                                                                                                       Risk management and corporate governance
 4           Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin)      8 081
 5           Add-on amounts for PFE associated with all derivatives transactions                                             5 108
 6           Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant
             to the operative accounting framework                                                                               –
 7           Deductions of receivables assets for cash variation margin provided in derivatives transactions                     –
 8           Exempted CCP leg of client-cleared trade exposures                                                                  –
 9           Adjusted effective notional amount of written credit derivatives                                                    –
 10          Adjusted effective notional offsets and add-on deductions for written credit derivatives                            –
 11          Total derivative exposures (sum of lines 4 to 10)                                                              13 189
 12          Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions            6 672
 13          Netted amounts of cash payables and cash receivables of gross SFT assets                                            –
 14          Counterparty Credit Risk (CCR) exposures for SFT assets                                                           667
 15          Agent transaction exposures                                                                                         –
 16          Total securities financing transaction exposures (sum line 12 to 15)                                            7 339
 17          Off-balance sheet exposure at gross notional amount                                                            80 821
 18          Adjustments for conversion to credit equivalent amounts                                                       (55 861)
 19          Off-balance sheet items (sum line 17 and 18)                                                                   24 960
 20          Tier 1 capital                                                                                                 29 388             3
 21          Total exposures (sum of lines 3, 11, 16 and 19)                                                              352 731

 22          Basel III leverage ratio                                                                                        8.3%




Investec Bank Limited group and company annual financial statements 2015                                                          79
                                           Risk management (continued)


                                           Credit ratings
                                           In terms of our dual listed companies structure, Investec plc and Investec Limited are treated separately from a credit point of view. As a
                                           result, the rating agencies have assigned ratings to the significant banking entities within the group, namely Investec Bank plc and Investec
                                           Bank Limited. Certain rating agencies have assigned ratings to the holding companies, namely Investec plc and Investec Limited. Our
                                           ratings at 10 June 2015 are as follows:

                                                                                                                                                                                    Investec
                                                                                                                                                                                    Bank Limited
                                                                                                                                                                                    – a subsidiary
                                                                                                                                                               Investec             of Investec
                                            Rating agency                                                                                                      Limited              Limited

                                            Fitch
                                            Long-term ratings
                                                Foreign currency                                                                                                    BBB-                 BBB-
                                                National                                                                                                                                A+(zaf)
                                            Short-term ratings
                                                Foreign currency                                                                                                      F3                   F3
                                                National                                                                                                                                F1 (zaf)
                                            Viability rating                                                                                                        bbb-                 bbb-
                                            Support rating                                                                                                             5                   3

                                            Moody’s
Risk management and corporate governance




                                            Long-term ratings
                                                Foreign currency                                                                                                    BBB-                 Baa2
                                                National                                                                                                                                A1(za)
                                            Short-term ratings
                                                Foreign currency                                                                                                                       Prime-2
                                                National                                                                                                                                P1 (za)
                                            Baseline credit assessment                                                                                                                   baa2

                                            S&P
                                            Long-term ratings
                                                Foreign currency                                                                                                                         BBB-
                                                National                                                                                                                                 za.AA
                                            Short-term ratings
                                                Foreign currency                                                                                                                          A-3
                                                National                                                                                                                                za.A-1

                                            Global Credit Ratings
3                                           Local currency
                                                Short-term rating                                                                                                                      A1+(za)
                                                Long-term rating                                                                                                                        AA-(za)




                                           80                                                                                  Investec Bank Limited group and company annual financial statements 2015
Internal Audit


The head of internal audit reports at each                  Significant control weaknesses are
audit committee meeting and has a direct                    reported, in terms of an escalation             Internal Audit
reporting line to the chairman of the audit                 protocol, to the local assurance forums,
committee as well as the appropriate chief                  where remediation procedures and
                                                                                                            activity is governed
executive officers. The head of internal                    progress are considered and monitored           by an internal audit
audit operates independently of executive
management but has regular access to
                                                            in detail by management. The audit
                                                            committee receives a report on significant
                                                                                                            charter which
their chief executive officer and to BU                     issues and actions taken by management          is approved by
executives. The head of internal audit                      to enhance related controls. An update          the group audit
is responsible for coordinating internal                    on the status of previously raised issues
audit efforts to ensure departmental skills                 is provided by Internal Audit to each audit     committees and is
are leveraged to maximise efficiency. For                   committee. If there are concerns in relation    reviewed annually.
administrative purposes the head of internal                to overdue issues, these will be escalated
audit also reports to the global head of                    to the executive risk review forum to
                                                                                                            The charter defines
corporate governance and compliance.                        expedite resolution.                            the purpose,
The function complies with the International
Standards for the Professional Practice                     Internal Audit proactively reviews its          authority and
of Internal Auditing, and is subject to an                  practices and resources for adequacy and        responsibilities of
                                                            appropriateness to meet an increasingly
independent Quality Assurance Review
                                                            demanding corporate governance and              the function
(QAR) at appropriate intervals. The most
recent independent QAR benchmarked the                      regulatory environment, including the
function against the July 2013 publication                  requirements of King III in South Africa.
by the Chartered Institute for Internal                     The audit teams comprise well-qualified,
Auditors entitled ‘Effective Internal Audit                 experienced staff to ensure that the function
in the Financial Services Sector’. The                      has the competence to match Investec’s
results were communicated to the audit                      diverse requirements. Where specific
                                                            specialist skills or additional resources




                                                                                                                                        Risk management and corporate governance
committees in March 2014 and to the
respective regulators. A QAR follow-up                      are required, these are obtained from
review was completed and results issued                     third parties. Internal Audit resources
to the audit committees in January 2015 as                  are subject to review by the respective
well as to the respective regulators.                       audit committees.

Annually, Internal Audit conducts a formal
risk assessment of the entire business
from which a comprehensive risk-based
audit plan is derived. The assessment
and programme are validated by
executive management and approved
by the responsible audit committee. Very
high-risk businesses and processes are
audited at least every 12 months, with
other areas covered at regular intervals
based on their risk profile. There is an
ongoing focus on identifying fraud risk as
well as auditing technology risks given
Investec’s dependence on IT systems.
Internal Audit also liaises with the external
auditors and other assurance providers to
                                                                                                                                                3
enhance efficiencies in terms of integrated
assurance. The annual plan is reviewed
regularly to ensure it remains relevant and
responsive, given changes in the operating
environment. The audit committee approves
any changes to the plan.




Investec Bank Limited group and company annual financial statements 2015                                                           81
                                           Compliance


                                           Over the last year the pace of regulatory       the financial sector regulators and other              for Authorised Financial Services Providers
                                           change in the financial sector has shown        regulators that have an impact on and                  to prohibit sign-on bonuses. The affected
                                           little signs of abating and the pressure the    oversight of activities of financial institutions,     businesses continue to assess the impact
                                           industry has faced to implement various         e.g. the National Credit Regulator.                    of the regulatory requirements, and
                                           regulatory initiatives has continued to                                                                implement changes where necessary.
                                           be resource intensive. In addition, the         The Financial Sector Regulatory Bill
                                                                                           also proposes to amend the existing                    Although the effective date for the
                                           scale and frequency of regulatory fines
                                                                                           market conduct-related legislation into                Protection of Personal Information Act
                                           and redress orders continues to impact
                                                                                           an overarching Conduct of Financial                    (POPI) has not yet been published,
                                           firms’ balance sheets with the regulators’
                                                                                           Institutions Act within the next two years.            work continues on data protection and
                                           intensive and intrusive approach to
                                                                                           This will supersede existing industry specific         information management.
                                           supervision expected to continue for the
                                           foreseeable future.                             legislation in terms of the Banks Act, Long
                                                                                           Term Insurance Act, Short Term Insurance               Financial crime
                                           Global regulators have continued to focus       Act and the Financial Advisory and                     Financial crime continues to be a regulatory
                                           on promoting stability and resilience in        Intermediary Services (FAIS).                          focus with amendments to governing
                                           financial markets, with increasing emphasis                                                            legislation proposed for later this year.
                                           on recovery and resolution plans and            Simultaneously National Treasury (NT)
                                                                                                                                                  All accountable institutions are further
                                           structural reforms to the banking sector        published the Market Conduct Policy
                                                                                                                                                  effected by the Financial Intelligence
                                           as well as customer and market conduct-         Framework for comment. This document
                                                                                                                                                  Centre’s intended move to a new
                                           related reforms.                                outlined NT’s policy approach to market
                                                                                                                                                  automated solution for registration and
                                                                                           conduct, and will form the basis for their             reporting, also scheduled for later this year.
                                           Investec remains focused on complying           development of the market conduct
                                           with the highest levels of compliance           regulatory framework and legislation.                  Tax reporting
                                           professional standards and integrity in each    The Treating Customers Fairly regime will
                                                                                                                                                  The intergovernmental agreement for South
                                           of our jurisdictions. Our culture is a major    form part of this new framework.
                                                                                                                                                  Africa has been ratified in parliament and is
                                           component of our compliance framework
                                                                                           The FSB released the Retail Distribution               effective as of 28 October 2014. This allows
                                           and is supported by robust policies,
Risk management and corporate governance




                                                                                           Review paper for comment in                            South Africa to be treated as a participating
                                           processes and talented professionals who
                                                                                           November 2014. The paper proposes                      country and thus avoid withholding tax on
                                           ensure that the interests of our customers
                                                                                           a more proactive and interventionist                   South African financial institutions. Investec
                                           and shareholders remain at the forefront of
                                                                                           regulatory framework for distributing retail           is engaged in projects to ensure that
                                           everything we do.
                                                                                           financial products to customers.                       operationally, we are able to identify our US
                                                                                                                                                  clients and that we comply with FATCA.
                                                                                           The amendments to the National Credit
                                           Year in review                                  Act and the regulations came into effect on            In addition to FATCA, there is also an OECD
                                                                                           13 March 2015. The amendments include                  Common Reporting Standard proposal,
                                           Changes to regulatory                           the introduction of affordability assessment           aiming for an internationally accepted single
                                           landscape in South Africa                       regulations.                                           global tax reporting standard and automatic
                                                                                                                                                  exchange of information.
                                           The rapid pace of regulatory developments       Draft regulations in respect of over-the-
                                           has continued from last year.                   counter derivatives were published for                 Mauritius has signed a Tax Information
                                                                                           comment in the course of 2014.                         Exchange Agreement as well as an inter-
                                           A second draft of the Financial Sector
                                                                                                                                                  governmental agreement with the IRS
                                           Regulation Bill, which was vastly different
                                                                                           Conduct risk (consumer                                 and therefore will also be treated as a
                                           from the first draft, was released for
                                                                                           protection)                                            participating country.
                                           comments in December 2014. The Bill
                                           creates the two new regulatory peaks            Conduct risk remains a key area of
                                           within the financial services sector, i.e.      concern for the regulators. While the
3                                          the Bank Supervision Department of the          regulatory framework is changing to
                                           SARB will transform into the Prudential         create a dedicated regulator to supervise
                                           Authority (PA), and the Financial Services      the conduct of financial institutions, the
                                           Board (FSB) will transform into the Financial   existing regulatory and legislative framework
                                           Sector Conduct Authority (FSCA). Both new       continues to be utilised to ensure that
                                           authorities will have wider jurisdiction than   financial institutions take heed of conduct
                                           the existing regulatory authorities, e.g. the   risk and that they have measures in place
                                           PA’s jurisdiction will extend beyond banks      to mitigate or avoid such risks. Some
                                           (to insurance companies for instance), and      examples include the SARB incorporating
                                           the FSCA’s jurisdiction will also extend to     market conduct as a flavour of the year
                                           the market conduct activities of banks;         topic in 2014, the NCR amending the
                                           and both authorities will have wider law-       National Credit Act to include affordability
                                           making powers. The Bill also introduces         assessment regulations, and the FSB
                                           consultation and coordination between           amending the General Code of Conduct




                                           82                                                                                     Investec Bank Limited group and company annual financial statements 2015
Corporate governance


Introduction                                                respectively. Karl Socikwa indicated that
                                                            he will not be seeking re-election at the
                                                                                                           Issues specific to Investec Bank Limited
                                                                                                           are considered at each meeting of the
It is pleasing to present the 2015 annual                   August 2015 annual general meeting.            various committees and the Investec Bank
corporate governance report which sets                                                                     Limited board receives a report on the
out Investec Bank Limited’s approach to                     Governance framework                           proceedings of the committees at each of
corporate governance.                                       The group has adopted a risk and               their meetings. The board of Investec Bank
                                                            governance structure which allows for          Limited takes comfort from the group’s
Investec Limited and Investec plc, together                 the operation of the various committees        corporate governance processes as well
with their subsidiaries, are managed as a                   and forums at group level. This avoids the     as the fact that the board of Investec Bank
single economic enterprise as a result of                   necessity of having to duplicate various       Limited includes common membership with
the dual listed companies (DLC) structure.                  committees and forums at group subsidiary      the boards of Investec Limited and Investec
Investec Bank Limited is a major subsidiary                 levels. There are, however, sub-committees     plc. In addition, certain members, who are
of Investec Limited and due to the DLC                      that specifically oversee the governance       only appointed to the board of Investec
operational structure, compliance with                      and control processes of Investec Bank         Bank Limited, represent the company at
many of the specific corporate governance                   Limited’s operations.                          the audit committee, NOMDAC as well as
requirements are at a group level.                                                                         the DLC board risk and capital committee
                                                            A diagram of the group’s governance            (BRCC) of the group.
This section provides a summary of our                      framework as well as reports on the various
corporate governance philosophy and                         board committees can be found in the           Our culture and values
practices.                                                  corporate governance report of Investec
                                                            group’s 2015 integrated annual report.         Underpinning legislative, regulatory and
         A more detailed review is provided in                                                             best practice requirements are Investec’s
         the corporate governance report of                                                                values and philosophies which provide
                                                            Board committees
         Investec’s 2015 integrated annual                                                                 the framework against which we measure
         report and can be found on our                     The DLC (combined) board committees of         behaviour and practices so as to assess
         website.                                           Investec Limited and Investec plc act as the   the characteristics of good governance.
                                                            board committees of Investec Bank Limited      Our values require that directors and
The board encourages all stakeholders                       as well. The reports by the chairmen of        employees act with integrity, displaying




                                                                                                                                                         Risk management and corporate governance
to read the corporate governance report                     these committees can be found in the           consistent and uncompromising moral
as the detailed reports from the various                    corporate governance report of Investec        strength and conduct in order to promote
board committee chairmen included in that                   group’s 2015 integrated annual report.         and maintain trust. Sound corporate
report provide an explanation of how each
                                                            • Audit committee:                             governance is therefore implicit in our
committee discharges its duties in respect of
                                                              In terms of the King Code of                 values, culture, processes, functions and
both the group and its major subsidiaries.
                                                              Governance Principles for South Africa       organisational structure. Structures are
                                                                                                           designed to ensure that our values remain
Board composition                                             (King III) and the Companies Act, No 71
                                                              of 2008, as amended (the Companies           embedded in all businesses and processes.
The nomination and directors’ affairs                                                                      We continually refine these structures and
                                                              Act), the chairman of the audit
committee (NOMDAC) continued to                                                                            a written statement of values serves as our
                                                              committee should report to shareholders
focus on ensuring that the board has the                                                                   code of ethics.
                                                              on its statutory duties. The Investec
appropriate balance of skills, experience,                    Limited audit committee performs the
independence and knowledge.                                                                                As noted, we operate under a DLC
                                                              necessary functions required on behalf
                                                                                                           structure, and consider the corporate
A structured refreshment programme                            of Investec Bank Limited.
                                                                                                           governance principles and regulations
has been implemented by the boards of                       • Social and ethics committee:                 of both the UK and South Africa before
Investec plc and Investec Limited, and in                     In terms of the Companies Act, the           adopting the appropriate approach for
this regard, Peter Malungani and Busi Tshili                  chairman of the social and ethics            the group.
did not offer themselves for re-election at                   committee should report to shareholders
the August 2014 annual general meeting                        on the matters within its mandate.
                                                                                                           Conclusion
and accordingly, stepped down from the                        The DLC social and ethics committee          We acknowledge that the environment in
board. Sir David Prosser decided in 2014
that it would be appropriate for him to retire
                                                              performs the necessary functions
                                                              required on behalf of Investec Bank
                                                                                                           which we operate provides challenges from
                                                                                                           a governance and regulatory perspective;
                                                                                                                                                                 3
and therefore stepped down following the                      Limited.                                     however, we are confident that our culture
annual general meeting on 7 August 2014.                                                                   and values will continue to provide the
                                                            • The DLC NOMDAC acts as the NOMDAC            group with a strong foundation that will
While non-executive appointments are                          for the group (including Investec Bank       enable the board and group to meet these
based on merit and overall suitability for                    Limited).                                    challenges going forward.
the role, the NOMDAC will be mindful of
the value of diversity as it considers any                  • The DLC remuneration committee acts
recommendations for the board.                                as the remuneration committee for the
                                                              group (including Investec Bank Limited)
The board of Investec Bank Limited, on                        and the report from the remuneration         Fani Titi
the recommendation of the NOMDAC and                          committee, explaining the group’s            Chairman
following regulatory approval, appointed                      policies and processes, as well as           10 June 2015
Khumo Shuenyane and Zarina Bassa as                           required disclosures can be found on
independent non-executive directors on                        pages 90 to 99.
8 August 2014 and 1 November 2014




Investec Bank Limited group and company annual financial statements 2015                                                                            83
                                           Corporate governance (continued)


                                           Board statement                                Furthermore, the board is of the opinion            Risk management
                                                                                          that the bank’s risk management processes
                                           The board, management and employees            and the systems of internal control                 The board is responsible for the total
                                           of Investec Bank Limited are in full support   are effective.                                      process of risk management and the
                                           of and are committed to complying                                                                  systems of internal control. A number of
                                                                                          In addition, the directors are responsible
                                           with applicable regulatory requirements                                                            group committees and forums assist in this
                                                                                          for monitoring and reviewing the                    regard. Senior management is responsible
                                           and King III. As a result of our listed
                                                                                          preparation, integrity and reliability of           for identifying risks and implementing
                                           non-redeemable, non-cumulative, non-
                                                                                          the bank’s annual financial statements,             appropriate mitigation processes and
                                           participating preference shares, we are
                                                                                          accounting policies and the information             controls within their businesses. The
                                           also committed to complying with the
                                                                                          contained in the integrated annual report.          independent group risk management
                                           JSE Limited (JSE) Listings Requirements.
                                                                                          In undertaking this responsibility, the             functions, accountable to group boards,
                                           Stakeholders are therefore assured that        directors are supported by an ongoing               are responsible for establishing, reviewing
                                           we are being managed ethically and in          process for identifying, evaluating and             and monitoring the process of risk
                                           compliance with the latest legislation,        managing the significant risks Investec             management. Group Risk Management
                                           regulations and best practice.                 faces in preparing the financial and other          reports regularly to the BRCC, the group
                                                                                          information contained in this integrated            risk and capital committee (GRCC) and the
                                           King III                                       annual report. This process was in place            executive risk review forum (ERRF).
                                           The board is of the opinion that, based on     for the year under review and up to the
                                                                                          date of approval of the integrated annual                     More information on risk
                                           the practices disclosed throughout this
                                                                                          report and financial statements. The                          management can be found on
                                           report, which were in operation during the
                                                                                          process is implemented by management                          pages 20 to 80.
                                           year under review, Investec has applied the
                                           King III principles.                           and independently monitored for
                                                                                          effectiveness by the audit, risk and other
                                                  For a complete list of all principles   sub-committees of the board.                        Internal control
                                                  and a reference to demonstrate
Risk management and corporate governance




                                                  how Investec has applied these                                                              Risks and controls are reviewed and
                                                  principles, please refer to             Management and                                      monitored regularly for relevance and
                                                                                                                                              effectiveness. The GRCC, BRCC and
                                                  our website.
                                                                                          succession planning                                 audit committees assist the board in
                                                                                                                                              this regard. Sound risk management
                                                                                          Global business unit heads, geographic              practices are promoted by the group
                                           Financial reporting and                        management and the heads of central                 risk management function, which is
                                           going concern                                  and group service functions are appointed           independent of operational management.
                                                                                          by executive management and endorsed                The board recognises its responsibility for
                                           The directors are required to confirm          by the board, based on the skills and               the overall risk and control framework and
                                           that they are satisfied that the bank has      experience deemed necessary to perform              for reviewing its effectiveness.
                                           adequate resources to continue in business     the required function. In general, managers
                                           for the foreseeable future. The assumptions                                                        Internal control is designed to mitigate,
                                                                                          do not have fixed-term employment
                                           underlying the going concern statement                                                             not eliminate, significant risks faced.
                                                                                          contracts and there are no employment
                                           are discussed at the time of the approval                                                          It is recognised that such a system
                                                                                          contracts with managers for a term of more
                                           of the financial results by the board and                                                          provides reasonable, but not absolute,
                                                                                          than three years.
                                           these include:                                                                                     assurance against material error, omission,
                                                                                          Our management structure, reporting                 misstatement or loss. This is achieved
                                           • Budgeting and forecasts                      lines and the division of responsibilities are      within the group through a combination
                                                                                          built around a geographic, divisional and           of risk identification, evaluation and

3
                                           • Profitability                                                                                    monitoring processes, appropriate decision
                                                                                          functional network. Each strategic business
                                                                                          unit has a management committee and is              and oversight forums, and assurance
                                           • Capital
                                                                                          responsible for implementing operational            and control functions such as group
                                           • Liquidity.                                   decisions, managing risk and aligning               Risk Management, Internal Audit and
                                                                                                                                              Compliance. These ongoing processes
                                                                                          divisional objectives with the group strategy
                                           The board is of the opinion, based on its                                                          were in place throughout the year under
                                                                                          and vision.
                                           knowledge of the bank, key processes                                                               review and up to the date of approval of the
                                           in operation and specific enquiries, that      The NOMDAC received a detailed                      integrated annual report and accounts.
                                           there are adequate resources to support        presentation from the executive regarding
                                           the bank as a going concern for the                                                                Internal Audit reports any control
                                                                                          senior management succession and the
                                           foreseeable future.                                                                                recommendations to senior management,
                                                                                          NOMDAC is satisfied that there is a formal
                                                                                                                                              group risk management and the audit
                                                                                          management succession plan in place.
                                                   Further information on the bank’s                                                          committee. Appropriate processes,
                                                                                          The NOMDAC will continue to focus on
                                                   liquidity and capital position is                                                          including review by the audit and
                                                   provided on pages 61 to 68 of          ensuring that the management succession             compliance implementation forums, ensure
                                                   this report.                           plan remains up to date.                            that timely corrective action is taken on
                                                                                                                                              matters raised by Internal Audit. Significant




                                           84                                                                                 Investec Bank Limited group and company annual financial statements 2015
Corporate governance (continued)


risks are regularly considered by ERRF,                     The board has defined the limits of             and seven non-executive directors.
GRCC and by the BRCC. Material incidents                    delegated authority within Investec Bank        As set out below, the board concluded
and losses and significant breaches of                      Limited. Together with the boards of            that all of the non-executive directors are
systems and controls are reported to the                    Investec Limited and Investec plc, and          independent in terms of King III.
BRCC and the audit committee. Reports                       through the group’s board committees, it
from the audit committee, BRCC and risk                     is responsible for assessing and managing       During the year under review we appointed
and control functions are reviewed at each                  risk policies and philosophies, ensuring        Zarina Bassa and Khumo Shuenyane as
board meeting.                                              appropriate internal controls, overseeing       independent non-executive directors.
                                                            major capital expenditure, acquisitions and     All directors are subject to election at
                                                            disposals, approving the establishment of       the first annual general meeting following
Conflict of interests                                       businesses and approving the introduction       their appointment. Thereafter and in
                                                                                                            accordance with King III, a third of the
                                                            of new products and services. In fulfilling
Certain statutory duties with respect to                    its responsibilities, the board together with   non-executive directors should retire by
directors’ conflicts of interest are in force               management implements the plans and             rotation and accordingly, Sam Abrahams,
under the Companies Act. In accordance                      strategies.                                     David Friedland and Peter Thomas will
with the Companies Act and the                                                                              offer themselves for re-election at the
Memorandum of Incorporation (MOI) of                        For further detail of the functions of the      2015 annual general meeting.
Investec Bank Limited, the board may                        board of Investec Bank Limited, as included
                                                            with the functions of the boards of Investec    Karl Socikwa will not offer himself for
authorise any matter that otherwise may
                                                            Limited and Investec plc, performed             re-election at the August 2015 annual
involve the directors breaching their duty to
                                                            directly or through board committees,           general meeting.
avoid conflicts of interest. The board has
adopted a procedure, as set out in the MOI,                 refer to Investec group’s 2015 integrated       The names of the directors at the date of
that includes a requirement for directors to                annual report.                                  this report, the year of their appointment
submit, in writing, disclosures detailing any                                                               and their independence status, are set out
actual or potential conflict for consideration
                                                            Membership
                                                                                                            in the table below.
and, if considered appropriate, approval.                   At the end of the year under review, the




                                                                                                                                                               Risk management and corporate governance
                                                            board comprised five executive directors

Internal financial controls                                                                                     Date of
                                                                                                                appointment          Independent
Internal financial controls are based on
established policies and procedures.                         Executive directors
Management is responsible for
implementing internal financial controls,                    S Koseff (chief executive officer)                 30 June 1990
ensuring that personnel are suitably                         B Kantor (managing director)                       30 June 1990
qualified, that appropriate segregation                      DM Lawrence (deputy chairman)                      1 July 1997
exists between duties, and that there is                     GR Burger (group risk and finance director)        30 June 1990
suitable independent review. These areas
                                                             B Tapnack                                          1 July 1997
are monitored by the board through the
audit committees and are independently                       Non-executive directors
assessed by Internal Audit and Compliance.
                                                             F Titi (chairman)                                  3 July 2002                   Yes
Processes are in place to monitor internal                   SE Abrahams                                        1 July 1997                   Yes
control effectiveness, identify and report
                                                             ZBM Bassa                                          1 November 2014               Yes
material breakdowns, and ensure that
                                                             D Friedland                                        1 March 2013                  Yes
timely and appropriate corrective action

                                                                                                                                                                       3
is taken. Group Finance and Investor                         KL Shuenyane                                       8 August 2014                 Yes
Relations coordinate, review and comment                     KXT Socikwa                                        18 July 2006                  Yes
on the monthly financial and regulatory                      PRS Thomas                                         1 July 1997                   Yes
reports, and facilitate the interim and annual
financial reporting process, including the
independent external audit process.

                                                            Peter Malungani and Busi Tshili did not         Independence
Board of directors                                          offer themselves for re-election at the
                                                                                                            At 31 March 2015, the board is compliant
                                                            August 2014 annual general meetings
                                                                                                            with Chapter 2, Principle 2.18 of King III in
The board operates within the group’s                       of Investec plc and Investec Limited and
                                                                                                            that the majority of non-executive directors
governance framework and is accountable                     accordingly, stepped down from the board
                                                                                                            are independent.
for the performance and affairs of Investec                 of Investec Bank Limited at the same time.
Bank Limited. The board meets its                           Sir David Prosser decided in 2014 that          A summary of the factors the board uses
objectives by reviewing and following the                   it would be appropriate for him to retire       to determine the independence of non-
corporate strategy as determined by the                     and therefore stepped down following the        executive directors is detailed below.
boards of Investec Limited and Investec plc.                annual general meeting on 7 August 2014.




Investec Bank Limited group and company annual financial statements 2015                                                                                  85
                                           Corporate governance (continued)


                                           Tenure                                            processes or have unfettered powers of             Skills, knowledge, experience
                                           The board follows a thorough process of           decision-making. The board believes that           and attributes of directors
                                           assessing independence on an annual               it functions effectively and evaluates its
                                                                                             performance annually.                              The board considers that the skills,
                                           basis for each director whose tenure
                                                                                                                                                knowledge, experience and attributes of
                                           exceeds nine years.
                                                                                             Attendance at credit meetings                      the directors as a whole are appropriate for
                                           The board does not believe that tenure of         David Friedland and Peter Thomas                   their responsibilities and our activities. The
                                           any of the current non-executive directors        regularly attend, by invitation, certain           directors bring a range of skills to the board
                                           interferes with their independence of             credit committees of the group. The                including:
                                           judgement and ability to act in Investec’s        board considers their attendance at these
                                           best interests. Accordingly, the board has        committees to be desirable in terms of             • International business and operational
                                           concluded that Fani Titi, Peter Thomas,           developing an understanding of the day-to-           experience
                                           Sam Abrahams and Karl Socikwa, despite            day issues facing the business. The board
                                           having been directors of Investec Bank            concluded that David and Peter retain              • Understanding of the economics of the
                                           Limited for nine years or more, retain both       independence of character and judgement.             sectors in which we operate
                                           financial independence and independence
                                                                                                                                                • Knowledge of the regulatory
                                           of character and judgement.                       Board meetings
                                                                                                                                                  environments in which we operate
                                           Notwithstanding the guidelines set out in         The board of Investec Bank Limited met
                                                                                             six times during the financial year. The           • Financial, accounting, legal and banking
                                           King III, the board is of the view that these
                                                                                             chairman is responsible for setting the              experience and knowledge.
                                           non-executive directors are independent
                                           of management and promote the interests           agenda for each meeting, in consultation
                                                                                             with the chief executive officer and the           The skills and experience profile of the
                                           of stakeholders. The balance of executive
                                                                                             company secretary. Comprehensive                   board and its committees are regularly
                                           and non-executive directors is such that
                                                                                             information packs on matters to be                 reviewed by the NOMDAC to ensure an
                                           there is a clear division of responsibility to
                                                                                             considered by the board are provided to            appropriate and relevant composition
                                           ensure a balance of power, such that no
                                                                                             directors in advance.                              from a governance, succession and
                                           one individual or group can dominate board
                                                                                                                                                effectiveness perspective.
Risk management and corporate governance




                                           Details of directors’ attendance at board meetings during the financial year ended                   Board and directors’
                                           31 March 2015:
                                                                                                                                                performance evaluation
                                                                                                                       Number of                The board and individual directors’
                                                                                                                       meetings                 performance is formally evaluated annually
                                                                                                                       attended of the          based on recognised codes of corporate
                                                                                                                       six held during          governance and covers areas of the board’s
                                                                                                                       the year                 processes and responsibilities, according to
                                                                                                                                                leading practice.
                                               Executive directors
                                               S Koseff (chief executive officer)                                               6               The performance evaluation process takes
                                                                                                                                                place both informally, through personal
                                               B Kantor (managing director)                                                     5
                                                                                                                                                observations and discussions, and in the
                                               DM Lawrence (deputy chairman)                                                    6
                                                                                                                                                form of evaluation questionnaires. The
                                               GR Burger (group risk and finance director)                                      6               results are considered and discussed by
                                               B Tapnack                                                                        6               the board.
                                               Non-executive directors                                                                          The chairman holds regular one-on-one
                                                                                                                                                meetings with each director to discuss
                                               F Titi (chairman)                                                                6
                                                                                                                                                the results of the formal and informal
3                                              SE Abrahams
                                               ZBM Bassa*
                                                                                                                                5
                                                                                                                                3
                                                                                                                                                evaluations and, in particular, to seek
                                                                                                                                                comments on strengths and developmental
                                               D Friedland                                                                      6               areas of the members, the chairman and
                                               MP Malungani**                                                                   1               the board as a whole. Individual training
                                               Sir David Prosser**                                                              1               and development needs are discussed with
                                               KXT Socikwa                                                                      3               each board member and any requests for
                                                                                                                                                training are communicated to the company
                                               KL Shuenyane***                                                                  5
                                                                                                                                                secretary for implementation. Performance
                                               PRS Thomas                                                                       6
                                                                                                                                                evaluation of the board and directors
                                               CB Tshili**                                                                      1               as well as training and development are
                                                                                                                                                matters that are standing agenda items of
                                           *   ZBM Bassa was appointed to the board with effect from 1 November 2014, and was
                                                                                                                                                the NOMDAC.
                                               therefore only eligible to attend meetings held after 1 November 2014.
                                           ** MP Malungani and CB Tshili did not offer themselves for re-election at the annual general
                                               meeting held on 7 August 2014, and were therefore only eligible to attend meetings held
                                               prior to 7 August 2014, Sir David Prosser stepped down from the board on 8 August 2014
                                               and was therefore only eligible to attend meetings held prior to 8 August 2014
                                           *** KL Shuenyane was appointed to the board with effect from 8 August 2014, and was
                                               therefore only eligible to attend meetings held after 8 August 2014



                                           86                                                                                   Investec Bank Limited group and company annual financial statements 2015
Corporate governance (continued)


Terms of appointment                                        Independent advice                             In addition, the board confirms that for
                                                                                                           the period 1 April 2014 to 31 March 2015
On appointment, non-executive directors                     Through the chairman or deputy chairman
                                                                                                           neither Niki nor Benita served as a director
are provided with a letter of appointment.                  or the company secretary, individual
                                                                                                           on the board of Investec Bank Limited, nor
The letter sets out, among other things,                    directors are entitled to seek professional
                                                                                                           did they take part in board deliberations
duties, responsibilities and expected                       independent advice on matters related
                                                                                                           and only advised on matters of governance,
time commitments, details of our policy                     to the exercise of their duties and
                                                                                                           form or procedure.
on obtaining independent advice and,                        responsibilities at the expense of Investec.
where appropriate, details of the board
                                                            No such advice was sought during the
committees of which the non-executive
director is a member. We have an insurance
                                                            2015 financial year.                           Further disclosures
policy that insures directors against liabilities           Chairman and chief executive                   Refer to Investec group’s 2015 integrated
they may incur in carrying out their duties.                officer                                        annual report for more information
On the recommendation of the NOMDAC,                                                                       regarding:
non-executive directors will be appointed                   The roles of the chairman and chief
for an expected term of nine years (three                   executive officer are distinct and separate.   • Remuneration
                                                            The chairman leads the board and is
times three-year terms) from the date of
                                                            responsible for ensuring that the board        • Directors’ dealings
their first appointment to the board.
                                                            receives accurate, timely and clear
                                                            information to ensure that the directors       • Internal audit
Ongoing training and
development                                                 can perform their duties effectively. The      • Compliance
                                                            board does not consider the chairman’s
On appointment, directors are provided                      external commitments to interfere with         • Regulation and supervision
with an induction pack and participate                      his performance and responsibilities to
in an induction programme tailored to                       Investec. The board is satisfied that the      • Values and code of conduct
their needs. This includes meeting with                     chairman makes sufficient time available to    • Sustainability
the business unit and central services                      serve Investec effectively.




                                                                                                                                                            Risk management and corporate governance
heads to ensure they become familiar with                                                                  • IT governance.
business operations, senior management,                     The deputy chairman is David Lawrence.
our business environment and internal
controls, policies, processes and systems
for managing risk.                                          Company secretary
Directors’ ongoing training and                             Benita Coetsee was the company secretary
development is a standing board agenda                      of Investec Bank Limited until she stepped
item, including updates on various                          down on 30 June 2014. From 1 July 2014
training and development initiatives.                       Niki van Wyk assumed the role of company
Board members receive regular formal                        secretary of Investec Bank Limited. Niki is
presentations on regulatory and governance                  professionally qualified and has experience,
matters as well as on the business and                      gained over a number of years. The
support functions. Regular interactive                      company secretary’s services are evaluated
workshops are arranged between directors                    by board members during the annual
and the heads of risk management, control                   board evaluation process. The company
functions and business units.                               secretary is responsible for the flow of
                                                            information to the board and its committees
The company secretary liaises with
                                                            and for ensuring compliance with board
directors to source relevant seminars and
                                                            procedures. All directors have access to
conferences which directors could attend,
funded by Investec.
                                                            the advice and services of the company
                                                            secretary, whose appointment and removal
                                                                                                                                                                    3
Following the board’s and directors’                        are a board matter.
performance evaluation process, any
                                                            The board has considered and is satisfied
training needs are communicated to the
                                                            that the company secretary is competent,
company secretary who ensures these
                                                            has the relevant qualifications and
needs are addressed.
                                                            experience and maintains an arm’s length
During the period under review there                        relationship with the board. In evaluating
were a number of director workshops                         these qualities, the board has considered
arranged outside of board meetings and                      the prescribed role and duties pursuant to
some topics covered during the past year                    the requirements codified in the Companies
included recovery and resolution planning,                  Act and the listings and governance
cybercrime, twin peaks legislation and                      requirements as applicable.
advanced internal risk-based modelling.




Investec Bank Limited group and company annual financial statements 2015                                                                               87
                                           Directorate


                                           Investec Bank Limited
                                           (details as at 30 June 2015)

                                           A subsidiary of Investec Limited

                                           Fani Titi (53)
                                           Non-executive chairman
                                           BSc (Hons), MA, MBA

                                           David M Lawrence (64)
                                           Deputy chairman
                                           BA (Econ) (Hons), MCom

                                           Samuel E Abrahams (76)
                                           FCA, CA(SA)

                                           Zarina BM Bassa (51)
                                           BAcc, DipAcc, CA(SA)

                                           Glynn R Burger (58)
                                           BAcc, CA(SA), H Dip BDP, MBL

                                           David Friedland (62)
                                           BCom, CA(SA)
Risk management and corporate governance




                                           Bernard Kantor (65)
                                           CTA

                                           Stephen Koseff (63)
                                           BCom, CA(SA), H Dip BDP, MBA

                                           Khumo L Shuenyane (44)
                                           BEcon, CA(England & Wales)

                                           Karl-Bart XT Socikwa (46)
                                           BCom, LLB, MAP, IPBM (IMD)

                                           Bradley Tapnack (68)
                                           BCom, CA(SA)

                                           Peter RS Thomas (70)
                                           CA(SA)

3




                                           88                                 Investec Bank Limited group and company annual financial statements 2015
         4
Remuneration
      report
                      Remuneration report


                                                 The remuneration committee of the bank’s             The type of people the organisation
                           We have a strong      parent, Investec Limited, comprises non-             attracts, and the culture and environment
                                                 executive directors and is responsible for           within which they work, remain crucial
                           entrepreneurial,      determining the overall reward packages              in determining our success and long-
                           merit- and values-    of executive directors. The policy on                term progress. Our reward programmes
                           based culture,        remuneration packages for non-executive
                                                 directors is agreed and determined by
                                                                                                      are clear and transparent, designed
                                                                                                      and administered to align directors’ and
                           characterised by      the board.                                           employees’ interests with those of all
                           passion, energy and                                                        stakeholders and ensure the bank’s
                                                                                                      short-, medium- and long-term success.
                           stamina               Remuneration policy
                                                                                                      In summary, we recognise that financial
                                                 Remuneration philosophy                              institutions have to distribute the return
                                                                                                      from their enterprises between the suppliers
                                                 Our philosophy, which remains unchanged
                                                                                                      of capital and labour and the societies
                                                 from prior years, is to employ the highest
                                                                                                      in which they do business, the latter
                                                 calibre individuals who are characterised
                                                                                                      through taxation and corporate social
                                                 by integrity, intellect and innovation and
                                                                                                      responsibility activities. Our remuneration
                                                 who adhere and subscribe to our culture,
                                                                                                      philosophy seeks to maintain an
                                                 values and philosophies. We strive to
                                                                                                      appropriate balance between the interests
                                                 inspire entrepreneurship by providing
                                                                                                      of these stakeholders, and is closely
                                                 a working environment that stimulates
                                                                                                      aligned to our culture and values which
                                                 extraordinary performance, so that
                                                                                                      include risk consciousness, meritocracy,
                                                 executive directors and employees may
                                                                                                      material employee ownership and an
                                                 be positive contributors to our clients, their
                                                                                                      unselfish contribution to colleagues, clients
                                                 communities and the bank.
                                                                                                      and society.
                                                 We reward employees generally for their
                                                 contribution through:                                Remuneration principles
                                                                                                      Remuneration policies, procedures and
                                                 • An annual gross remuneration package
                                                                                                      practices, collectively referred to as the
                                                   (base salary and benefits) providing an
                                                                                                      ‘remuneration policy’ are designed, in
                                                   industry competitive package
                                                                                                      normal market conditions, to:
                                                 • A variable short-term incentive related to
                                                                                                      • Be in line with the business strategy,
                                                   performance (annual bonus)
                                                                                                        objectives, values and long-term
Remuneration report




                                                 • A long-term incentive plan (share                    interests of the bank
                                                   awards) providing long-term equity
                                                                                                      • Be consistent with, and promote, sound
                                                   participation.
                                                                                                        and effective risk management, and not
                                                 We consider the aggregate of the above                 encourage risk taking that exceeds the
                                                 as the overall remuneration package                    level of tolerated risk of the bank
                                                 designed to attract, retain, incentivise and
                                                                                                      • Ensure that payment of variable
                                                 drive the behaviour of our employees over
                                                                                                        remuneration does not limit the bank’s
                                                 the short, medium and longer term in a
                                                                                                        ability to maintain or strengthen its
                                                 risk-conscious manner. Overall, rewards are
                                                                                                        capital base
                                                 considered as important as our core values

4                                                of work content (greater responsibility,
                                                 variety of work and high level of challenge)
                                                                                                      • Target gross fixed remuneration (base
                                                                                                        salary and benefits including pension)
                                                 and work affiliation (entrepreneurial feel             at median market levels to contain
                                                 to the company and unique culture) in                  fixed costs
                                                 the attraction, retention and motivation
                                                 of employees.                                        • Ensure that variable remuneration
                                                                                                        is largely economic value added
                                                 We have a strong entrepreneurial, merit-               (EVA)-based and underpinned by
                                                 and values-based culture, characterised                our predetermined risk appetite and
                                                 by passion, energy and stamina. The                    capital allocation
                                                 ability to live and perpetuate our culture
                                                 and values in the pursuit of excellence              • Facilitate alignment with shareholders
                                                 in a regulated industry and within an                  through deferral of a portion of short-
                                                 effective risk management environment                  term incentives into shares and long-
                                                 is considered paramount in determining                 term incentive share awards
                                                 overall reward levels.




                      90                                                              Investec Bank Limited group and company annual financial statements 2015
Remuneration report (continued)


• Target total compensation (base salary,                   Qualitative and quantitative considerations        on the scope of responsibility and
  benefits and incentives) to the relevant                  form an integral part of the determination         individual contributions made
  competitive market at upper quartile                      of overall levels of remuneration and total
  levels for superior performance.                          compensation for each individual.               • The committee recognises that we
                                                                                                              operate an international business
Given our stance on maintaining a low                       Factors considered for overall levels of          and compete with both local and
fixed-cost component of remuneration, our                   remuneration at the level of the Investec         international competitors in each of
commitment to inspiring an entrepreneurial                  group include:                                    our markets
culture, and our risk-adjusted return on
capital approach to EVA, we do not apply                    • Financial measures of performance             • Appropriate benchmark, industry and
an upper limit on variable rewards.                             –     Risk-adjusted EVA model                 comparable organisations’ remuneration
                                                                                                              practices are reviewed regularly
                                                                –     Affordability.
The fixed-cost component of remuneration
is, however, designed to be sufficient so                                                                   • For employees generally, the JSE
                                                            • Non-financial measures of
that employees do not become dependent                                                                        Financial 15 has offered the most
                                                              performance:
on their variable compensation as we are                                                                      appropriate benchmark
                                                                –     Market context
not contractually (and do not consider                                                                      • In order to avoid disproportionate
ourselves morally) bound to make variable                       –     Specific input from the risk and
                                                                                                              packages across areas of the bank and
remuneration awards. Investec has the                                 compliance functions.
                                                                                                              between executives, adjustments may
ability to pay no annual bonuses and make                                                                     be made at any extremes to ensure
                                                            Factors considered to determine total
no long-term incentive awards should                                                                          broad internal consistency. Adjustments
                                                            compensation for each individual include:
the performance of the bank or individual                                                                     may also be made to the competitive
employees require this.                                     • Financial measures of performance               positioning of pay components for
We do not pay remuneration through                              –     Achievement of individual targets       individuals in cases where a higher level
vehicles that facilitate avoidance of                                 and objectives                          of investment is needed in order to build
applicable laws and regulations.                                –     Scope of responsibility and             or grow or sustain either a business unit
                                                                      individual contributions.               or our capability in a geography.
Furthermore, employees must undertake
not to use any personal hedging strategies                  • Non-financial measures of                     The following section outlines our
or remuneration or liability-related                          performance                                   remuneration policy in more detail for
contracts of insurance to undermine the                                                                     each element of total compensation
                                                                –     Alignment and adherence to our        as it applies to employees. Our
risk alignment effects embedded in their                              culture and values
remuneration arrangements. Compliance                                                                       remuneration arrangements for S Koseff,
                                                                –     The level of cooperation and          B Kantor and GR Burger can be found in
maintains arrangements designed to ensure
                                                                      collaboration fostered                Investec’s 2015 integrated annual report.
that employees comply with this policy.




                                                                                                                                                             Remuneration report
                                                                –     Development of self and others
No individual is involved in the                                                                            Gross remuneration: base
                                                                –     Attitude displayed towards risk
determination of his/her own remuneration
                                                                      consciousness and effective risk
                                                                                                            salary and benefits
rewards and specific internal controls and                                                                  Salaries and benefits are reviewed annually
                                                                      management
processes are in place to prevent conflicts                                                                 and reflect the relative skills and experience
of interest between Investec and its clients                    –     Adherence to internal controls
                                                                      procedures                            of, and contribution made by, the individual.
from occurring and posing a risk to the                                                                     It is the bank’s policy to seek to set base
bank on prudential grounds.                                     –     Compliance with the bank’s
                                                                                                            salaries and benefits (together known as
                                                                      regulatory requirements and
                                                                                                            gross remuneration) at median market
                                                                      relevant policies and procedures,
                                                                                                            levels when compared like-for-like with
Determination of                                                      including treating customers fairly
                                                                                                            peer group companies.
remuneration levels for                                         –     The ability to grow and develop
                                                                      markets and client relationships      The Human Resources division                         4
employees                                                       –     Multi-year contribution to
                                                                                                            provides guidelines to business units on
                                                                                                            recommended salary levels for all employees
                                                                      performance and brand building
All remuneration payable (salary, benefits                                                                  within the organisation to facilitate the
and incentives) is assessed at an Investec                      –     Long-term sustained performance       review. These guidelines include a strategic
group, business unit and individual level.                      –     Specific input from the risk and      message on how to set salary levels that
This framework seeks to balance both                                  compliance functions                  will aid Investec in meeting its objectives
financial and non-financial measures of                                                                     while remaining true to corporate values
                                                                –     Attitude and contribution to
performance to ensure that the appropriate                                                                  and incorporate guidance on increasing
                                                                      sustainability principles and
factors are considered prior to making                                                                      levels to take account of the change in
                                                                      initiatives.
awards, and that the appropriate mix of                                                                     the cost of living over the year to ensure
cash and share-based awards are made.                       Remuneration levels are targeted to be          that salary levels always allow employees
                                                            commercially competitive, on the following      to afford a reasonable standard of living
Our policy with respect to remuneration of                  bases:                                          and do not encourage a reliance on
employees has remained unchanged during                                                                     variable remuneration.
the 2015 financial year.                                    • The most relevant competitive reference
                                                              points for remuneration levels are based




Investec Bank Limited group and company annual financial statements 2015                                                                               91
                      Remuneration report (continued)


                      Advisers are often engaged by either              The capital committee is a sub-committee            review by the internal audit and compliance
                      the Human Resources division or the               of the BRCC and provides detailed input             monitoring teams. The risk and compliance
                      business units to obtain general benchmark        into the bank’s identification, quantification      functions also provide, on an exception-only
                      information or to benchmark specific              and measurement of its capital                      basis, information relating to the behaviour
                      positions to ensure that gross remuneration       requirements taking into account the capital        of individuals and business areas if there
                      levels are market-driven and competitive          requirements of the banking regulators.             has been evidence of non-compliance or
                      so that levels of remuneration do not inhibit     It determines the amount of internal capital        behaviour which gives rise to concerns
                      our ability to recruit the people we need to      that the bank should hold and its minimum           regarding the riskiness of business
                      develop our business.                             liquidity requirements taking into account          undertaken.
                      Benefits are targeted at competitive levels       all the associated risks plus a buffer for any
                                                                        future or unidentified risks. This measure of       EVA model: allocation of performance-
                      and are delivered through flexible and
                                                                        internal capital forms part of the basis for        related bonus pool
                      tailored packages. Benefits include pension
                      schemes; life, disability and personal            determining the variable remuneration pools         Our business strategy and associated risk
                      accident insurance; medical cover; and            of the various operating business units             appetite, together with effective capital
                      other benefits, as dictated by competitive        (as discussed above).                               utilisation, underpin the EVA annual bonus
                      local market practices. Only salaries, not                                                            allocation model.
                                                                        The executive risk review forum (ERRF),
                      annual bonuses, are pensionable.
                                                                        comprising members of the executive and             Business units share in the annual bonus
                      Variable short-term incentive:                    the heads of the various risk functions,            pool to the extent that they have generated
                                                                        meets weekly. Its responsibilities include          a realised return on their allocated risk-
                      annual bonus
                                                                        approving limits and mandates, ensuring             adjusted capital base in excess of their
                      All employees are eligible to be considered       these are adhered to and that agreed                target return on equity. Many of the
                      for a discretionary annual bonus subject,         recommendations to mitigate risk are                potential future risks that the firm may face
                      inter alia, to the factors set out above in the   implemented.                                        are avoided by ensuring that the bonus
                      section dealing with the determination of
                                                                                                                            pools are based on actual realised risk-
                      remuneration levels.                              The bank’s central credit and risk forums
                                                                                                                            adjusted profits.
                                                                        provide transaction approval independent
                      Risk-weighted returns form basis for              of the business unit on a deal-by-deal basis        The bonus pools for non-operating
                      variable remuneration levels                      and the riskiness of business undertaken            business units (central services and head
                              In our ordinary course of business        is therefore evaluated and approved at              office functions) are generated by a levy
                              we face a number of risks that            initiation of the business through deal             payable by each operating business on
                              could affect our business                 forum, investment committee and ERRF                its operating profit. This bonus pool may,
                              operations, as highlighted on             and is reviewed and ratified at ERRF on a           in some years, be supplemented by a
                              page 14.                                  regular basis. These central forums provide         discretionary allocation as determined
                                                                        a level of risk management by ensuring that         by the chief executive officer and
Remuneration report




                      Risk Management is independent from the
                                                                        risk appetite and various limits are being          managing director, and agreed by the
                      business units and monitors, manages and
                                                                        adhered to and that an appropriate interest         remuneration committee.
                      reports on the bank’s risk to ensure it is
                                                                        rate and, by implication, risk premium
                      within the stated risk appetite as mandated
                                                                        is built into every approved transaction.           Our EVA model has been consistently
                      by the board of directors through the board
                                                                        The approval of transactions by these               applied for a period of about 16 years and
                      risk and capital committee (BRCC). The
                                                                        independent central forums thus ensures             encompasses the following elements:
                      bank monitors and controls risk exposure
                      through credit, market, liquidity, operational    that every transaction undertaken by the
                                                                                                                            • The profitability of each operating
                      and legal risk divisions/forums/committees.       bank results in a contribution to profit
                                                                                                                              business unit is determined as if they are
                                                                        that has already been subject to some
                      Risk consciousness and management is                                                                    a stand-alone business. Gross revenue
                                                                        risk adjustment.
                      embedded in the organisational culture                                                                  is determined based on the activity of

4                     from the initiation of transactional activity     Our EVA model as described in detail below            the business, with arm’s length pricing
                      through to the monitoring of adherence            is principally applied to realised profits            applicable to intersegment activity.
                      to mandates and limits and throughout             against predetermined targets above risk              Profits are determined as follows:
                      everything we do.                                 and capital weighted returns. In terms of               –      Realised gross revenue (net margin
                                                                        the EVA structure, capital is allocated based                  and other income)
                      The BRCC (comprising both executive and           on risk and therefore the higher the risk, the
                      non-executive directors) sets the overall                                                                 –      Less: funding costs
                                                                        higher the capital allocation and the higher
                      risk appetite for the bank and determines         the hurdle return rate required. This model             –      Less: impairments for bad debts
                      the categories of risk, the specific types        ensures that risk and capital management                –      Add back: debt coupon or
                      of risks and the extent of such risks which       are embedded in key processes at both a                        preference share dividends paid out
                      the bank should undertake, as well as             bank and transaction level which form the                      of the business (where applicable)
                      the mitigation of risks and overall capital       basis of the bank's performance-related                 –      Less: direct operating costs
                      management and allocation process. Senior         variable remuneration model thus balancing                     (personnel, systems, etc)
                      members of the bank’s risk management             the interests of all stakeholders.
                      teams who provide information for the                                                                     –      Less: allocated costs and residual
                      meeting packs and present and contribute          Further, both the risk and compliance                          charges (certain independent
                      to the committee’s discussions, attend            functions are also embedded in the                             bank functions are provided on a
                      these meetings.                                   operating business units and are subject to                    centralised basis, with an allocation




                      92                                                                                    Investec Bank Limited group and company annual financial statements 2015
Remuneration report (continued)


          model applied to charge out costs                     and shareholder expectation for the           responsible for risk, internal audit and
          incurred to business units. Costs                     specific area of the business, and are        compliance are not based on a formulaic
          allocated are based on the full                       set with reference to the degree of risk      approach and are independent of any
          operational costs for the particular                  and the competitive benchmarks for            revenues or profits generated by the
          central service area, inclusive of                    each product line                             business units where they work. The level of
          the variable remuneration cost                                                                      rewards for these employees are assessed
          of the central service. Allocation                • In essence varying levels of return are         against the overall financial performance
          methodologies generally use cost                    required for each business unit reflecting      of the bank; objectives based on their
          drivers as the basis of allocation)                 the state of market maturity, country of        function; and compliance with the various
                                                              operation, risk, capital invested (capital      non-financial aspects referred to above.
    –     Less: profits earned on retained
                                                              intensive businesses) or expected
          earnings and statutory held capital                                                                 Key elements of the bonus allocation
                                                              expense base (fee-based businesses)
    –     Add: notional profit paid by centre                                                                 process are set out below:
          on internal allocated capital                     • Growth in profitability over time will result
                                                              in an increasing bonus pool, as long as it      • A fixed predetermined percentage of
    –     Equals: net profits.
                                                              is not achieved at the expense of capital         any return in excess of the EVA hurdle
• Capital allocated is a function of                          efficiency                                        accrues to the business units’ EVA pool
  both regulatory and internal capital
                                                            • Target returns must be reflective of the        • A portion of the total EVA pool is
  requirements, the risk assumed within
                                                              inherent risk assumed in the business.            allocated towards the bonus pool
  the business and our overall business
                                                              Thus, an increase in absolute profitability       for central service and head office
  strategy
                                                              does not automatically result in an               employees
• The bank has always held capital                            increase in the annual bonus pool.
                                                              This approach allows us to embed risk           • These bonus pools are reviewed
  in excess of minimum regulatory
                                                              and capital discipline in our business            regularly by the appropriate
  requirements, and this principle is
                                                              processes. These targets are subject to           management and non-executive
  perpetuated in our internal capital
                                                              annual review                                     committees to ensure that awards are
  allocation process. This process
                                                                                                                only paid when it is appropriate to do
  ensures that risk and capital discipline
                                                            • The bank’s credit and risk forums                 so, considering firm-wide performance
  is embedded at the level of deal
                                                              provide transaction approval                      against non-financial risk (both current
  initiation and incorporates independent
                                                              independent of the business unit on a             and future) and compliance-based
  approval (outside of the business unit)
                                                              deal-by-deal basis adding a level of risk         objectives and in order to ensure that
  of transactions by the various risk and
                                                              consciousness to the predetermined                the payment of such discretionary
  credit committees.
                                                              (and risk-adjusted) capital allocation            bonuses does not inhibit the bank’s
         A detailed explanation of our                        and required hurdle rates and thus                ability to maintain/raise its capital levels.
         capital management and allocation                    ensure that each transaction generates            All users of capital operate within a strict




                                                                                                                                                                Remuneration report
         process is provided on pages 73                      a return that is commensurate with its            philosophical framework that requires a
         to 76.                                               associated risk profile.                          balancing of risk and reward and that is
                                                                                                                designed to encourage behaviour in the
• Internal capital comprises the regulatory                 In terms of our EVA process, if business            interests of all stakeholders as opposed
  capital requirement taking into account                   and individual performance goals are                to just employees
  a number of specified risks plus a                        exceeded, the variable element of the
  capital buffer which caters, inter alia,                  total remuneration package is likely to           • The EVA pools are calculated centrally
  for any unspecified or future risks not                   be substantially higher than the relevant           by the group’s finance function and
  specifically identified in the capital                    target benchmark. This ensures that overall         subject to audit as part of the year-end
  planning process. The bank then                           remuneration levels have the potential to           audit process
  ensures that it actually holds capital in                 be positioned at the upper quartile level
                                                                                                              • Once the annual audit is complete,
  excess of this level of internal capital                  for superior performance, in line with our
                                                            overarching remuneration policy.                    line managers in each business
                                                                                                                unit will make discretionary bonus
                                                                                                                                                                    4
• Internal capital is allocated to each
  business unit via a comprehensive                         In circumstances where an operating                 recommendations for each team
  analysis of the risks inherent within that                business unit does not have an EVA                  member taking into consideration
  business and an assessment of the                         pool (e.g. when it incurs a loss or when            qualitative and quantitative criteria
  costs of those risks                                      it is a start-up), the chief executive officer      (as mentioned above)
                                                            and managing director may consider
• Hurdle rates or targeted returns are                      a discretionary allocation to allow for a         • Bonus recommendations are then
  determined for each business unit based                   modest bonus for those staff who were               subject to an extensive geographic
  on the weighted average cost of capital                   expected to contribute to the longer-term           review involving human resources,
  (plus a buffer for trading businesses                     interests of that business unit or the bank,        local management and local
  to take into account additional risks                     despite the lack of EVA profits in the short        remuneration committees
  not identified in the capital allocation                  term, e.g. control functions, support staff       • Thereafter, these recommendations are
  process) applied to internal capital                      and key business staff.                             subject to a global review by executive
• Targeted returns differ by business unit                  It should be noted the salaries and                 management, before the remuneration
  reflecting the competitive economics                      proposed bonuses for employees                      committee review and approval
                                                                                                                process.




Investec Bank Limited group and company annual financial statements 2015                                                                                  93
                      Remuneration report (continued)


                      The group remuneration committee               Awards are made in the form of nil cost                      For further information on the share
                      specifically reviews and approves the          options other than for countries where the                   option and long-term share
                      individual remuneration packages of            taxation of such awards is penal. In these                   incentive plans in operation and
                      the executive directors and persons            cases awards are made in the form of                         in which the directors are eligible to
                      discharging managerial responsibilities.       forfeitable shares, conditional awards or                    participate refer to Investec's 2015
                      The committee also reviews the salaries        market strike options.                                       integrated annual report.
                      and performance bonuses awarded to a
                      number of other senior and higher-paid         In principle all employees are eligible
                                                                     for long-term incentives. Awards are
                      employees across the bank. In addition,
                                                                     considered by the remuneration committee            Non-executive directors’
                      the committee specifically reviews and
                      approves the salaries and performance
                                                                     and made only in the 42-day period
                                                                     following the release of our interim or
                                                                                                                         remuneration
                      bonuses awarded to each employee
                                                                     final financial results in accordance with          Non-executive directors receive fees for
                      within the internal audit, compliance and
                                                                     the Association of British Insurers (ABI)           being a member of the Investec Bank
                      risk functions, both in the business units
                                                                     guidelines. These awards comprise three             Limited board and fees are also payable for
                      and in the central functions, ensuring that
                                                                     elements, namely:                                   any additional time committed to the bank
                      such packages are competitive and are
                      determined independently of the other                                                              including attendance at certain meetings.
                                                                     • ‘New starter’ awards are made based
                      business areas. In making these decisions                                                          Furthermore, non-executive directors
                                                                       on a de facto non-discretionary basis
                      the committee relies on a combination of                                                           may not participate in our share option
                                                                       using an allocation table linked to
                      external advice and supporting information                                                         plans or our long-term share incentive
                                                                       salary levels
                      prepared internally by the bank.                                                                   and pension plans.
                                                                     • ‘General allocation’ awards are also
                      Deferral of annual bonus awards                  de facto non-discretionary awards of the
                      All annual bonus awards exceeding a              same quantum as new starter awards                Governance
                      predetermined hurdle level are subject           and are made to employees who have
                      to 60% deferral in respect of that portion       not had any other share award in a                Compliance and governance
                      that exceeds the hurdle level. The entire        three-year period                                 statement
                      deferred amount is awarded in the form of
                                                                     • ‘Top up’ awards are made at the                   The remuneration report complies with
                      forfeitable share awards vesting in three
                                                                       discretion of line management primarily           the provisions of the South African King III
                      equal tranches at the end of 12 months,
                                                                       to ensure multi-year performance and              Code of Corporate Practice and Conduct,
                      24 months and 36 months. Where shares
                                                                       long-term value generation.                       the South African Companies Act 2008
                      are being awarded to employees as part of
                                                                                                                         and the JSE Listings Requirements and the
                      the deferral of performance bonus awards,      All proposed long-term incentive awards             South African Notice on the Governance
                      these are referred to as EVA shares. These     (LTIPs) are recommended by business                 and Risk Management Framework for
                      awards are made in terms of our existing
Remuneration report




                                                                     unit management, approved by the staff              Insurers, 2014.
                      long-term incentive plans (refer below). The   share executive committee and then the
                      entire amount of the annual bonus that is      remuneration committee before being                 Scope of our remuneration
                      not deferred is payable up front in cash.      awarded.                                            policy
                      Long-term incentive: share                     LTIP awards are subject to 75% vesting at           The bank aims to apply remuneration
                      awards                                         the end of four years and the final 25% at          policies to executive directors and
                                                                     the end of the fifth year, which we believe is      employees that are largely consistent
                      We have a number of share option and
                                                                     appropriate for our business requirements.          across the bank, but recognises that certain
                      long-term share incentive plans that are
                                                                     The awards are forfeited on termination,            parts of the bank are governed by local
                      designed to align the interests of employees
                                                                     but ‘good leaver’ discretion is applied in          regulations that may contain more onerous
                      with those of shareholders and long-term
                                                                     exceptional circumstances.                          requirements in certain respects. In those
4
                      organisational interests, and to build
                                                                                                                         cases, the higher requirements are applied
                      material share ownership over the long         Retention is addressed through the                  to that part of the bank. Additionally,
                      term through share awards. These share         long-term nature of awards granted                  where any aspect of our remuneration
                      option and incentive plans are also used in    which provides an element of ‘lock-in’ for          policy contravenes local laws or regulations,
                      appropriate circumstances as a mechanism       employees throughout the vesting period             the local laws or regulations shall prevail.
                      for retaining the skills of key talent.        and allows for multi-year contribution to
                                                                     performance and brand building.




                      94                                                                                 Investec Bank Limited group and company annual financial statements 2015
Remuneration report (continued)


Audited information
Directors’ annual remuneration
                                                                  Salaries,                                    Salaries,
                                                                 directors’                        Total      directors’
                                                            fees and other        Annual    remuneration fees and other       Annual           Total
                                                             remuneration         bonus         expense remuneration          bonus     remuneration
                                                                      2015         2015*           2015            2014        2014*           2014
                                                                         R            R                R              R           R                R

Executive directors
S Koseff (chief executive officer)                               2 493 828      4 064 000       6 557 828      2 158 109    3 200 000       5 358 109
B Kantor (managing director)                                     1 648 741      4 064 000       5 712 741      1 426 849    3 200 000       4 626 849
DM Lawrence (deputy chairman)                                    1 462 500      2 880 000       4 342 500      1 445 625    3 600 000       5 045 625
GR Burger (group risk and finance director)                      2 100 000     10 021 199      12 121 199      1 979 167    7 133 273       9 112 440
B Tapnack                                                        1 950 000      2 700 000       4 650 000      1 780 000    2 400 000       4 180 000
Total in Rands                                                   9 655 069     23 729 199      33 384 268      8 789 750   19 533 273      28 323 023

Non-executive directors
F Titi (chairman)                                                2 912 829              –      2 912 829       1 841 393            –       1 841 393
SE Abrahams                                                      1 260 000              –      1 260 000        674 723             –        674 723
ZBM Bassa^^                                                        114 583              –        114 583              –             –               –
D Friedland                                                      2 145 991              –       2 145 991      2 014 066            –       2 014 066
MP Malungani^                                                              –            –               –       904 290             –        904 290
Sir DJ Prosser^                                                    114 583              –         114 583       260 000             –        260 000
KL Shuenyane^^                                                     183 333              –        183 333              –             –               –
KXT Socikwa                                                        483 500              –         483 500       460 000             –        460 000
PRS Thomas                                                       1 446 578              –      1 446 578       1 331 928            –       1 331 928
B Tshili^                                                                  –            –               –       385 000             –        385 000
Total in Rands                                                   8 661 397              –       8 661 397      7 871 400            –       7 871 400




                                                                                                                                                         Remuneration report
Total in Rands                                                 18 316 466      23 729 199      42 045 665    16 661 150    19 533 273      36 194 423

*    As discussed on page 94, a portion of the bonus is received in cash and a portion is deferred with reference to the value of
     a predetermined number of Investec Limited shares over a three-year period.
^
     MP Malungani, Sir DJ Prosser and B Tshili resigned from the board on 8 August 2014.
^^
     KL Shuenyane was appointed to the board on 8 August 2014 and ZBM Bassa was appointed to the board on 1 November 2014.




                                                                                                                                                             4




Investec Bank Limited group and company annual financial statements 2015                                                                            95
                      Remuneration report (continued)


                      Directors’ shareholdings in Investec plc and Investec Limited shares at 31 March 2015
                                                                                                          % of                                                        % of
                                                                        Beneficial and                   shares                Beneficial and                        shares
                                                                     non-beneficial interest            in issue1           non-beneficial interest                 in issue1
                                                                                                                                                                    Investec
                                                                          Investec plc2             Investec plc               Investec Limited3                     Limited
                                                                        1 April      31 March            31 March               1 April         31 March             31 March
                                                                         2014            2015                2015                2014               2015                 2015

                      Executive directors
                      S Koseff (chief executive officer)            4 589 355        4 773 200                0.8%         1 809 399            1 534 399                  0.5%
                      B Kantor (managing director)                     57 980          488 918                0.1%         4 301 000            3 600 500                  1.3%
                      DM Lawrence (deputy chairman)                   799 410          749 410                0.1%           100 590              200 590                  0.1%
                      GR Burger (group risk and
                      finance director)                             2 402 135        2 848 944               0.5%            737 076              627 076                  0.2%
                      B Tapnack                                        75 595           75 595                   –            40 000               40 000                      –
                      Total number                                  7 924 475        8 936 067               1.5%          6 988 065            6 002 565                  2.1%

                      Non-executive directors
                      F Titi (chairman)                                       –                –                    –                –                    –                     –
                      ZBM Bassa                                               –                –                    –                –                    –                     –
                      D Friedland                                             –                –                    –                –                    –                     –
                      KL Shuenyane                                            –           19 900                    –                –                    –                     –
                      KXT Socikwa                                             –                –                    –              250                  250                     –
                      PRS Thomas                                              –                –                    –                –                    –                     –
                      Total number                                            –           19 900                    –              250                  250                     –

                      Total number                                  7 924 475        8 955 967               1.5%          6 988 315            6 002 815                  2.1%

                      The table above reflects holdings of shares by current directors.
                      1
                          The issued share capital of Investec plc and Investec Limited at 31 March 2015 was 613.6 million and 285.7 million shares, respectively.
                      2
                          The market price of an Investec plc share at 31 March 2015 was £5.61 (2014: £4.85), ranging from a low of £4.91 to a high of £6.06
                          during the financial year.
Remuneration report




                      3
                          The market price of an Investec Limited share as at 31 March 2015 was R100.51 (2014: R84.84), ranging from a low of R86.02 to
                          a high of R107.35 during the financial year.

                      Directors’ interest in preference shares at 31 March 2015
                                                                     Investec Bank Limited                  Investec Limited                           Investec plc

                                                                        1 April      31 March               1 April         31 March                1 April          31 March
                                                                         2014            2015                2014               2015                 2014                2015

                      Executive directors
                          S Koseff                                       4 000             4 000             3 000               3 000             101 198             101 198

4                         DM Lawrence
                          B Tapnack
                                                                         4 000
                                                                         2 000
                                                                                           4 000
                                                                                           2 000
                                                                                                             5 400
                                                                                                             8 620
                                                                                                                                 5 400
                                                                                                                                 8 620                9 058
                                                                                                                                                            –
                                                                                                                                                                          9 058
                                                                                                                                                                                –


                      •      The market price of an Investec plc preference share at 31 March 2015 was R73.50 (2014: R87.99).
                      •      The market price of an Investec Limited preference share at 31 March 2015 was R83.45 (2014: R84.01).
                      •      The market price of an Investec Bank Limited preference share at 31 March 2015 was R90.21 (2014: R90.00).

                      Directors’ interest in options at 31 March 2015
                      Investec plc shares
                      The directors do not have any interest in options over Investec plc shares.

                      Investec Limited shares
                      The directors do not have any interest in options over Investec Limited shares.




                      96                                                                                    Investec Bank Limited group and company annual financial statements 2015
Remuneration report (continued)


Directors’ interest in long-term incentive plans at 31 March 2015
Investec Limited shares
                                              Number of
                                                Investec                           Options                                 Gross
                                                 Limited                           granted/ Balance          Market        gains
                                               shares at Exercised                   lapsed        at        price at    made on
                  Date               Exercise     1 April   during                    during 31 March        date of      date of Period
 Name             of grant             price        2014  the year                 the year      2015       exercise     exercise exercisable

 DM Lawrence 25 June 2009                    Nil      25 000          (25 000)           –           –       R95.14 R2 378 500 –
             1 July 2010                     Nil     100 000          (75 000)           –      25 000       R97.03 R7 277 250 Exercisable on
                                                                                                                               1 July 2015
 B Tapnack        23 December                Nil     100 000                   –         –     100 000                         75% is exercisable on
                  2011                                                                                                         23 December 2015
                                                                                                                               and 25% on
                                                                                                                               23 December 2016
                  13 June 2013               Nil       50 000                  –         –      50 000                         75% is exercisable on
                                                                                                                               13 June 2017 and 25%
                                                                                                                               on 13 June 2018

These options are not subject to any performance conditions.

DM Lawrence exercised his options and sold 25 000 Investec Limited shares on 26 June 2014, at a share price of R95.14 per share.
DM Lawrence exercised his options and sold 75 000 Investec Limited shares on 4 July 2014, at a share price of R97.03 per share.



Directors’ interests in the Investec plc Executive Incentive Plan 2013 at 31 March 2015
                                                 Number of                  Conditional
                                               Investec plc                awards made Balance at
                           Date       Exercise    shares at                     during  31 March Performance            Period               Retention
 Name                   of grant         price 1 April 2014                   the year      2015       period           exercisable          period

 S Koseff       16 September                  Nil        600 000                     –       600 000     1 April 2013   75% is               16 September




                                                                                                                                                                 Remuneration report
                        2013                                                                                       to   exercisable          2017
                                                                                                           31 March     on 16 September      to 16 March
                                                                                                                 2016   2017; and            2018
                                                                                                                        25% on               16 September
                                                                                                                        16 September         2018
                                                                                                                        2018, subject to     to 16 March
                                                                                                                        performance          2019
                                                                                                                        criteria being met
 B Kantor       16 September                  Nil        600 000                     –       600 000     1 April 2013   75% is               16 September
                        2013                                                                                       to   exercisable on       2017
                                                                                                           31 March     16 September         to 16 March
                                                                                                                 2016   2017; and            2018                    4
                                                                                                                        25% on               16 September
                                                                                                                        16 September         2018
                                                                                                                        2018, subject to     to 16 March
                                                                                                                        performance          2019
                                                                                                                        criteria being met
 GR Burger 16 September                       Nil        600 000                     –       600 000     1 April 2013   75% is               16 September
                   2013                                                                                            to   exercisable on       2017
                                                                                                           31 March     16 September         to 16 March
                                                                                                                 2016   2017; and            2018
                                                                                                                        25% on               16 September
                                                                                                                        16 September         2018
                                                                                                                        2018, subject to     to 16 March
                                                                                                                        performance          2019
                                                                                                                        criteria being met




Investec Bank Limited group and company annual financial statements 2015                                                                                    97
                      Remuneration report (continued)


                      The Executive Incentive Plan and the awards made on 16 September 2013 were approved at the 2013 annual general meeting in terms of
                      which 600 000 nil cost options each were awarded to S Koseff, B Kantor and GR Burger.

                              The performance criteria in respect of these awards are detailed in Investec’s 2015 integrated annual report. None of these
                              awards have as yet vested.

                      South African Companies Act 2008 disclosures
                      Subsequent to regulatory developments in South Africa, Investec Bank Limited is required to disclose the remuneration of those individuals
                      that are defined by the South African Companies Act, No 71 of 2008, as amended, read together with the Companies Regulations 2011
                      (together the Act), as prescribed officers.

                      The bank operates as a specialist bank within Southern Africa and in keeping with the integrated management structure, the prescribed
                      officers for Investec Bank Limited, as per the Act, are the following three executive directors:
                      – Stephen Koseff
                      – Bernard Kantor
                      – Glynn Burger

                      For disclosure of their remuneration, refer to page 95 of the remuneration report.



                      Additional remuneration disclosures (unaudited)
                      Pillar lll remuneration disclosures
                      The bank is required to make certain quantitative and qualitative remuneration disclosures on an annual basis in terms of the South African
                      Reserve Bank’s Basel Pillar III disclosure requirements.


                               The bank’s qualitative remuneration disclosures are provided on pages 90 to 94 and further information is provided in Investec’s
                               2015 integrated annual report.

                      The information contained in the tables below sets out the bank’s quantitative disclosures for the year ended 31 March 2015.

                      Aggregate remuneration by remuneration type
                                                                                                                                         Financial and
                                                                                                       Senior                   Risk       risk control
                      R’million                                                                   management^                 takers^             staff^                 Total
Remuneration report




                      Fixed remuneration                                                                    47.4                47.6               143.5                238.5

                      Variable remuneration*
                      – Cash                                                                               100.1                88.5                 57.9               246.5
                      – Deferred shares                                                                     43.5                72.0                  3.1               118.6
                       – Deferred cash                                                                      59.4                    –                    –               59.4
                       – Deferred shares – long-term incentive awards**                                    124.9                91.0                 87.5               303.4

                       Total aggregate remuneration and deferred incentives                                375.3              299.1                292.0                966.4


4                     ^    Senior management: all members of our South African general management forum, excluding executive directors.
                           Risk takers: includes anyone (not categorised above) who is deemed to be responsible for a division/function (e.g. lending, balance
                           sheet management, advisory and transactional banking activities) which could be incurring risk on behalf of the bank.
                           Financial and risk control staff: includes everyone in central group finance and central group risk as well as employees responsible for
                           risk and finance functions within the operating business units.
                      *    Total number of employees receiving variable remuneration was 265.
                      **   Value represents the number of shares awarded multiplied by the applicable share price. These awards were made during the period
                           but have not yet vested. These awards are subject to 75% vesting at the end of four years and the final 25% at the end of five years.




                      98                                                                                   Investec Bank Limited group and company annual financial statements 2015
Remuneration report (continued)


Additional disclosure on deferred remuneration
                                                                                                               Financial and
                                                                                 Senior               Risk       risk control
R’million                                                                   management^             takers^             staff^         Total

Deferred unvested remuneration outstanding at the beginning of the year             377.1            186.1              76.4          639.6
Deferred unvested remuneration adjustment – employees that are no
longer employed by the bank and reclassifications                                        –            39.2                3.5           42.7
Deferred remuneration awarded in year                                               227.8            163.0              90.6          481.4
Deferred remuneration reduced in year through performance adjustments                    –                –                 –              –
Deferred remuneration vested in year                                                 (39.4)           (20.0)             (0.9)         (60.3)
Deferred unvested remuneration outstanding at the end of the year                   565.5            368.3             169.6        1 103.4

                                                                                                               Financial and
                                                                                 Senior               Risk       risk control
R’million                                                                   management^             takers^             staff^         Total

Deferred unvested remuneration outstanding at the end of the year
– Equity                                                                             506.1          368.3             169.6          1 044.0
– Cash                                                                                 59.4              –                 –             59.4
– Other                                                                                      –           –                 –                   –
                                                                                    565.5           368.3             169.6          1 103.4

                                                                                                                Financial and
                                                                                  Senior               Risk       risk control
R’million                                                                    management^             takers^             staff^        Total

Deferred remuneration vested in year
– For awards made in 2014 financial year                                                 –                –                 –                  –
– For awards made in 2013 financial year                                              16.4              9.7               0.3            26.4
– For awards made in 2012 financial year                                              23.0            10.3                0.6            33.9
                                                                                      39.4            20.0                0.9            60.3




                                                                                                                                                    Remuneration report
Other remuneration disclosures
                                                                                                               Financial and
                                                                                  Senior               Risk      risk control
R’million                                                                    management^             takers^             staff^        Total

Sign-on payments
Made during the year (R’million)                                                         –               –                  –                  –
Number of beneficiaries                                                                  –               –                  –                  –

Severance payments
Made during the year (R’million)                                                         –               –                  –                  –
Number of beneficiaries                                                                  –               –                  –                  –
                                                                                                                                                        4
Guaranteed bonuses
Made during the year (R’million)                                                         –               –                  –                  –
Number of beneficiaries                                                                  –               –                  –                  –

^    Senior management: all members of our South African general management forum, excluding executive directors.
     Risk takers: includes anyone (not categorised above) who is deemed to be responsible for a division/function (e.g. lending, balance
     sheet management, advisory and transactional banking activities) which could be incurring risk on behalf of the bank.
     Financial and risk control staff: includes everyone in central group finance and central group risk as well as employees responsible for
     risk and finance functions within the operating business units.




Investec Bank Limited group and company annual financial statements 2015                                                                       99
5
Annual financial
statements
Directors’ responsibility statement


The directors are responsible for the                       In addition, the board considers that
preparation and fair presentation of                        this integrated annual report and annual
the group annual financial statements                       financial statements, taken as a whole,
and the annual financial statements of                      is fair, balanced and understandable
Investec Bank Limited, comprising the                       and provides the information necessary
balance sheets at 31 March 2015, and                        to assess the company’s performance,
the income statements and statements                        business model and strategy.
of comprehensive income, changes in
equity and cash flows for the year then                     The auditors are responsible for
ended, and the notes to the annual financial                reporting on whether the group annual
statements, accounting policies, and                        financial statements and annual financial
the directors’ report, in accordance with                   statements of Investec Bank Limited are
International Financial Reporting Standards,                fairly presented in accordance with the
SAICA Financial Reporting Guides as                         applicable financial reporting framework.
issued by the Accounting Practices
Committee and Financial Reporting
Standards Council, and in the manner                        Approval of Investec
required by the Companies Act, No 71 of
2008, as amended.
                                                            Bank Limited’s group
                                                            and company annual
The directors are also responsible for such
internal control as the directors determine                 financial statements
is necessary to enable the preparation
of financial statements that are free from                  The Investec Bank Limited group and
material misstatement, whether due to                       company annual financial statements,
fraud or error, and for maintaining adequate                as identified in the first paragraph, were
accounting records and an effective                         approved by the board of directors on
system of risk management as well as                        10 June 2015 and signed on its behalf by:
the preparation of the supplementary
schedules included in these annual financial
statements.

The directors have made an assessment                       Fani Titi            Stephen Koseff




                                                                                                                                              Annual financial statements
of the ability of the company and its                       Chairman             Chief executive officer
subsidiaries to continue as going concerns
and have no reason to believe that the                      10 June 2015
businesses will not be a going concern in
the year ahead.




Declaration by the company secretary

In terms of section 88(2)(e) of the South African Companies Act, No 71 of 2008, as amended (the Act), I hereby certify that, to the best of
my knowledge and belief, Investec Bank Limited has lodged with the Companies and Intellectual Property Commission, for the financial year        5
ended 31 March 2015, all such returns as are required in terms of the Act and that all such returns are true, correct and up to date.




Niki van Wyk
Company secretary, Investec Bank Limited

10 June 2015




Investec Bank Limited group and company annual financial statements 2015                                                               101
                              Independent auditors’ report to the members of
                              Investec Bank Limited

                              To the Shareholders of                          assessment of the risks of material                we have not audited these reports and
                                                                              misstatement of the consolidated and               accordingly do not express an opinion
                              Investec Bank Limited                           separate financial statements, whether             thereon.
                                                                              due to fraud or error. In making those
                              We have audited the consolidated and            risk assessments, the auditors consider
                              separate financial statements of Investec       internal control relevant to the entity’s
                              Bank Limited, which comprise balance            preparation and fair presentation of the           KPMG Inc.
                              sheets of Investec Bank Limited at              financial statements in order to design            Registered Auditor
                              31 March 2015, and its income statements,       audit procedures that are appropriate
                              statements of comprehensive income,                                                                Per Gavin de Lange
                                                                              in the circumstances, but not for the
                              statements of changes in equity and cash                                                           Chartered Accountant (SA)
                                                                              purpose of expressing an opinion on
                              flow statements for the year then ended,                                                           Registered Auditor
                                                                              the effectiveness of the entity’s internal
                              accounting policies and notes to financial                                                         Director
                                                                              control. An audit also includes evaluating
                              statements, as set out on pages 105 to 191      the appropriateness of accounting policies         KPMG Crescent
                              and the specified disclosures within the risk   used and the reasonableness of accounting          85 Empire Road
                              management, remuneration and directors’         estimates made by management, as well              Parktown 2193
                              report that are marked as audited.              as evaluating the overall presentation of          Johannesburg
                                                                              the consolidated and separate financial
                                                                              statements.                                        10 June 2015
                              Directors’ responsibility
                                                                              We believe that the audit evidence we have
                              for the financial                               obtained is sufficient and appropriate to
                                                                              provide a basis for our audit opinion.
                              statements
                              The company’s directors are responsible                                                            Ernst & Young Inc.
                              for the preparation and fair presentation of    Opinion                                            Registered Auditor
                              these consolidated and separate financial
                              statements in accordance with International     In our opinion, these consolidated and             Per Ernest van Rooyen
                              Financial Reporting Standards and the           separate financial statements present fairly,      Chartered Accountant (SA)
                              requirements of the Companies Act of            in all material respects, the consolidated         Registered Auditor
                              South Africa, and for such internal control     and separate financial position of Investec        Director
                              as the directors determine is necessary to      Bank Limited at 31 March 2015, and
                                                                              its consolidated and separate financial            102 Rivonia Road
Annual financial statements




                              enable the preparation of consolidated and                                                         Sandton
                              separate financial statements that are free     performance and consolidated and
                                                                              separate cash flows for the year then ended        Private Bag X14
                              from material misstatement, whether due to                                                         Sandton 2146
                              fraud or error.                                 in accordance with International Financial
                                                                              Reporting Standards and the requirements           Johannesburg
                                                                              of the Companies Act of South Africa.              10 June 2015
                              Auditor’s responsibility
                              Our responsibility is to express an opinion     Other reports required
                              on these consolidated and separate
                              financial statements based on our audit.
                                                                              by the Companies Act
                              We conducted our audit in accordance with       As part of our audit of the consolidated
                              International Standards on Auditing. Those      and separate financial statements for the
                              standards require that we comply with           year ended 31 March 2015, we have read
5                             ethical requirements and plan and perform
                              the audit to obtain reasonable assurance
                                                                              the declaration by the company secretary
                                                                              and the directors’ report for the purpose
                              about whether the consolidated and              of identifying whether there are material
                              separate financial statements are free from     inconsistencies between these reports
                              material misstatement.                          and the audited financial statements.
                                                                              These reports are the responsibility of the
                              An audit involves performing procedures to
                                                                              respective preparers. Based on reading
                              obtain audit evidence about the amounts
                                                                              these reports we have not identified material
                              and disclosures in the consolidated
                                                                              inconsistencies between these reports and
                              and separate financial statements.
                                                                              the audited financial statements. However,
                              The procedures selected depend on
                              the auditors’ judgement, including the




                              102                                                                                Investec Bank Limited group and company annual financial statements 2015
Directors’ report


Nature of business                                          Directors                                       the necessary functions required on behalf
                                                                                                            of Investec Bank Limited. Further details
Investec Bank Limited is a specialist bank                            Details of the directors are          on the role and responsibilities of the
providing a diverse range of financial                               reflected on pages 85 to 88.           social and ethics committee are set out in
products and services to a niche client base                                                                Investec’s 2015 integrated annual report.
in South Africa and Mauritius.
                                                            Directors’ shareholdings
                                                                                                            Auditors
Financial results                                           No director holds any ordinary shares in
                                                            Investec Bank Limited.                          KPMG Inc. and Ernst & Young Inc. have
The group and company financial results                                                                     expressed their willingness to continue
                                                                      Directors’ shareholdings in           in office as joint auditors. A resolution to
of Investec Bank Limited are set out
                                                                      Investec Limited and Investec plc     reappoint KPMG Inc. and Ernst & Young
in the annual financial statements and
                                                                      and in Investec Bank Limited’s        Inc. as joint auditors will be proposed at
accompanying notes for the year ended
                                                                      preference shares are set out on
31 March 2015.                                                                                              the annual general meeting taking place on
                                                                      pages 96 and 97.
                                                                                                            6 August 2015.
          A review of the operations for the
          year can be found on pages 11 to
          18.                                               Directors’ remuneration                         Holding company
The preparation of the group and company                              Directors’ remuneration is
                                                                                                            The bank’s holding company is Investec
annual financial statements was supervised                            disclosed on pages 90 to 99.
                                                                                                            Limited.
by the group risk and finance director,
Glynn Burger.
                                                            Company secretary and                           Major shareholders
Authorised and issued                                       registered office
                                                                                                            Investec Limited owns 100% of the issued
share capital                                               As from 1 July 2014 the company secretary       ordinary shares.
                                                            is Niki van Wyk. Benita Coetsee resigned
Details of the share capital are set                        with effect from 30 June 2014.
out in notes 38 and 39 to the annual
                                                            The registered office is c/o Company
                                                                                                            Subsidiary and
financial statements.
                                                            Secretarial, Investec Limited, 100 Grayston     associated companies




                                                                                                                                                            Annual financial statements
                                                            Drive, Sandown, Sandton 2196.
                                                                                                                    Details of principal subsidiary
Ordinary dividends                                                                                                  companies are reflected on

The following dividends were declared and
                                                            Audit committee                                         page 170 and the associate
                                                                                                                    companies on page 166.
paid during the year:
                                                            As allowed under the Companies Act,
                                                            No 71 of 2008, as amended, and the              The interest of the company in the
•   R21 000 000 was declared and paid on
                                                                                                            aggregate profits after taxation of its
    20 June 2014.                                           Banks Act No 96 of 1990, as amended,
                                                            the audit committee of Investec Limited         subsidiary companies is R488.0 million
                                                            performs the necessary functions required       (2014: R634.9 million) and its share in
                                                            on behalf of Investec Bank Limited.             aggregate losses is R3.0 million
Preference dividends                                                                                        (2014: R48.4 million).
                                                            An audit committee comprising non-
Non-redeemable, non-                                        executive directors meets regularly with
cumulative, non-participating
preference shares
                                                            senior management, the external auditors,
                                                            Operational Risk, the Internal Audit,
                                                                                                            Special resolutions                                5
                                                            Compliance and the Finance division, to         At the annual general meeting of members
Preference dividend number 23 for the                       consider the nature and scope of the audit      held on 7 August 2014, the following
six months ended 30 September 2014,                         reviews and the effectiveness of the group’s    special resolutions were passed in terms
amounting to 380.29301 cents per                            risk and control systems. Further details       of which:
share, was declared to members                              on the role and responsibilities of the audit
holding preference shares registered                        committee are set out in Investec’s 2015        •   The board of directors of Investec Bank
on 5 December 2014 and was paid on                          integrated annual report.                           Limited may authorise Investec Bank
15 December 2014.                                                                                               Limited to provide direct or indirect
                                                                                                                financial assistance by way of loan,
Preference dividend number 24 for the six
months ended 31 March 2015, amounting                       Social and ethics                                   guarantee, the provision of security or
                                                                                                                otherwise, not in the ordinary course
to 384.34536 cents per share, was                           committee                                           of business
declared to members holding preference
shares registered on 12 June 2015 and will                  As allowed under the Companies Act,
be paid on 22 June 2015.                                    No 71 of 2008, as amended, the social and
                                                            ethics committee of the group performs




Investec Bank Limited group and company annual financial statements 2015                                                                              103
                              Directors’ report (continued)


                              •   The remuneration of the non-executive         Empowerment and
                                  directors was approved for a period of
                                  24 months from the date of passing the        transformation
                                  special resolution
                                                                                In South Africa, transformation and black
                                                                                economic empowerment remain high
                              Accounting policies                               on the corporate agenda. Our approach
                                                                                is to utilise our own entrepreneurial
                              and disclosure                                    expertise to foster the creation of new
                                                                                black entrepreneurial platforms, and
                              Accounting policies are set having regard to      continue to be one of the prime sources of
                              commercial practice and are in accordance         empowerment financing. We also recognise
                              with International Financial Reporting            the need for our own internal transformation
                              Standards, SAICA Financial Reporting              and are bringing about greater representivity
                              Guides as issued by the Accounting                within our workplace by creating black
                              Practices Committee and Financial                 entrepreneurs within the organisation.
                              Reporting Standards Council, as well as
                              the requirements of the Companies Act,
                              No 71 of 2008, as amended.                        Environment
                                      These policies are set out on
                                                                                Investec Bank Limited is committed
                                      pages 113 to 121.
                                                                                to pursuing sound environmental
                                                                                policies in all aspects of its business,
                                                                                and seeks to encourage and promote
                              Employees                                         good environmental practice among its
                                                                                employees and within the communities
                              The group’s policy is to recruit and promote
                                                                                in which it operates.
                              on the basis of aptitude and ability, without
                              discrimination of any kind. Applications          Further information is provided in Investec
                              for employment by disabled people are             group’s 2015 integrated annual report.
                              always considered, bearing in mind the
                              qualifications and abilities of the applicants.
                              In the event of employees becoming                Subsequent events
Annual financial statements




                              disabled, every effort is made to ensure
                              their continued employment. The group’s           There are no material facts or
                              policy is to adopt an open management             circumstances which occurred between
                              style, thereby encouraging informal               the balance sheet date and the date of
                              consultation at all levels about aspects of       this report that would require adjustment
                              the group’s operations, and motivating staff      or disclosure in the annual financial
                              involvement in the group’s performance by         statements.
                              means of employee share schemes.

                              Further information is provided in Investec
                              group’s 2015 integrated annual report.
                                                                                Going concern
                                                                                The directors have made an assessment
                                                                                of the ability of the company and its
                              Political donations and
5
                                                                                subsidiaries to continue as going concerns
                              expenditure                                       and have no reason to believe that the
                                                                                businesses will not be a going concern in
                                                                                the year ahead.
                              Invested Bank Limited made political
                              donations totalling R1 million in 2015
                              (2014: R2.5 million).



                                                                                Fani Titi            Stephen Koseff
                                                                                Chairman             Chief executive officer

                                                                                10 June 2015




                              104                                                                                  Investec Bank Limited group and company annual financial statements 2015
Income statements


 For the year to 31 March                                                               Group                   Company
 R’million                                                                 Notes     2015         2014       2015           2014

 Interest income                                                              1    19 587       17 063     18 750         16 117
 Interest expense                                                             1    (14 066)     (12 147)   (14 118)       (11 982)
 Net interest income                                                                5 521        4 916      4 632          4 135


 Fee and commission income                                                    2     1 661        1 567      1 521          1 458
 Fee and commission expense                                                   2       (207)        (174)      (159)          (145)
 Investment income                                                            3     1 420          334      1 531            248
 Trading income arising from
 – customer flow                                                                      290          343        317            325
 – balance sheet management and other trading activities                              260          235        269            234
 Other operating income/(loss)                                                4          1           (5)         –             (7)
 Total operating income before impairment losses
 on loans and advances                                                              8 946        7 216      8 111          6 248
 Impairment losses on loans and advances                                     24       (455)        (638)      (468)          (579)
 Operating income                                                                   8 491        6 578      7 643          5 669
 Operating costs                                                              5     (4 818)      (4 113)    (4 553)        (3 838)
 Profit before taxation                                                             3 673        2 465      3 090          1 831
 Taxation                                                                     7       (545)        (315)      (447)          (269)
 Profit after taxation                                                              3 128        2 150      2 643          1 562




                                                                                                                                     Annual financial statements



                                                                                                                                        5




Investec Bank Limited group and company annual financial statements 2015                                                       105
                              Statements of comprehensive income


                              For the year to 31 March                                                       Group                                     Company
                              R’million                                                          Notes    2015                2014                 2015                 2014

                              Profit after taxation                                                      3 128                2 150               2 643                1 562
                              Other comprehensive income:
                              Items that may be reclassified to the income statement
                              Fair value movements on cash flow hedges taken directly
                              to other comprehensive income                                         7      (619)                 (75)               (612)                  (75)
                              Fair value movements on available-for-sale assets taken
                              directly to other comprehensive income                                7      322                  (212)                328                 (216)
                              Gain on realisation of available-for-sale assets recycled
                              through the income statement                                          7          –                   (2)                  –                   (2)
                              Foreign currency adjustments on translating foreign operations               602                  414                     –                    –
                              Total comprehensive income                                                 3 433                2 275               2 359                1 269

                              Total comprehensive income attributable to ordinary shareholders           3 319                2 167               2 245                1 161
                              Total comprehensive income attributable to perpetual
                              preference shareholders                                                      114                  108                  114                  108
                              Total comprehensive income                                                 3 433                2 275               2 359                1 269
Annual financial statements




5




                              106                                                                        Investec Bank Limited group and company annual financial statements 2015
Balance sheets


At 31 March                                                                             Group                  Company
R’million                                                                  Notes     2015         2014      2015           2014

 Assets
 Cash and balances at central banks                                          15      6 261        5 927     6 148          5 751
 Loans and advances to banks                                                 16     33 422       32 672    30 284         29 672
 Non-sovereign and non-bank cash placements                                         10 540        9 045    10 540          9 045
 Reverse repurchase agreements and cash collateral
 on securities borrowed                                                      17     10 095        6 442     9 926          6 442
 Sovereign debt securities                                                   18     31 378       34 815    31 358         34 815
 Bank debt securities                                                        19     17 332       21 538    15 981         20 233
 Other debt securities                                                       20     12 749       11 933    13 390         13 019
 Derivative financial instruments                                            21     15 178       12 299    14 969         11 957
 Securities arising from trading activities                                  22      1 289        1 316     1 289          1 316
 Investment portfolio                                                        23      9 972        8 834     9 581          8 657
 Loans and advances to customers                                             24    172 993      148 562   159 028        134 611
 Own originated loans and advances to customers securitised                  25      4 535        2 822         –              –
 Other loans and advances                                                    24       472          552       476               –
 Other securitised assets                                                    25       618         1 503      137            527
 Interest in associated undertakings                                         26        60           52          –              –
 Deferred taxation assets                                                    27        88           75          –              –
 Other assets                                                                28      1 262        1 771      994           1 492
 Property and equipment                                                      29       192          219       187            215
 Investment properties                                                       30        80           84        80             84
 Intangible assets                                                           31       190          102       177             96
 Loans to group companies                                                    32      3 268        1 924     2 825          2 797
 Investment in subsidiaries                                                  33          –            –     6 430          4 766




                                                                                                                                    Annual financial statements
 Non-current assets classified as held for sale                              11       732          731       732            731
                                                                                   332 706      303 218   314 532        286 226
 Liabilities
 Deposits by banks                                                                  29 792       22 407    29 652         22 266
 Derivative financial instruments                                            21     12 401        9 259    12 401          9 259
 Other trading liabilities                                                   34      1 623        1 431     1 623          1 431
 Repurchase agreements and cash collateral on securities lent                17     16 556       17 686    15 225         16 407
 Customer accounts (deposits)                                                      221 377      204 903   211 914        196 177
 Debt securities in issue                                                    35      5 517        5 366     4 522          4 386
 Liabilities arising on securitisation of own originated loans
 and advances                                                                25      1 089        1 369         –              –
 Liabilities arising on securitisation of other assets                       25          –         156          –              –
 Current taxation liabilities                                                        1 186        1 288     1 369          1 450       5
 Deferred taxation liabilities                                               27        76           61        36             54
 Other liabilities                                                           36      3 741        3 193     3 492          2 673
                                                                                   293 358      267 119   280 234        254 103
 Subordinated liabilities                                                    37     10 449       10 498    10 449         10 498
                                                                                   303 807      277 617   290 683        264 601
 Equity
 Ordinary share capital                                                      38        32           32        32             32
 Share premium                                                               40     14 885       14 885    14 885         14 885
 Other reserves                                                                       764          364       (909)          (625)
 Retained income                                                                    13 218       10 320     9 841          7 333
 Total equity                                                                       28 899       25 601    23 849         21 625

 Total liabilities and equity                                                      332 706      303 218   314 532        286 226




Investec Bank Limited group and company annual financial statements 2015                                                      107
                              Statements of changes in equity




                                                                                                                                                      Ordinary
                                                                                                                                                        share                Share
                              R’million                                                                                                                capital            premium

                              Group
                              At 1 April 2013                                                                                                                32             14 885
                              Movement in reserves 1 April 2013 – 31 March 2014
                              Profit after taxation                                                                                                            –                    –
                              Fair value movements on cash flow hedges taken directly to other comprehensive income                                            –                    –
                              Fair value movements on available-for-sale assets taken directly to other comprehensive income                                   –                    –
                              Gain on realisation of available-for-sale assets recycled through the income statement                                           –                    –
                              Foreign currency adjustments on translating foreign operations                                                                   –                    –
                              Total comprehensive income for the year                                                                                          –                    –
                              Dividends paid to ordinary shareholders                                                                                          –                    –
                              Dividends paid to perpetual preference shareholders                                                                              –                    –
                              Transfer to regulatory general risk reserve                                                                                      –                    –
                              At 31 March 2014                                                                                                               32             14 885

                              Movement in reserves 1 April 2014 – 31 March 2015
                              Profit after taxation                                                                                                            –                    –
                              Fair value movements on cash flow hedges taken directly to other comprehensive income                                            –                    –
                              Fair value movements on available-for sale assets taken directly to other comprehensive income                                   –                    –
                              Foreign currency adjustments on translating foreign operations                                                                   –                    –
                              Total comprehensive income for the year                                                                                          –                    –
                              Dividends paid to ordinary shareholders                                                                                          –                    –
                              Dividends paid to perpetual preference shareholders                                                                              –                    –
Annual financial statements




                              Transfer to regulatory general risk reserve                                                                                      –                    –
                              At 31 March 2015                                                                                                               32             14 885




5




                              108                                                                               Investec Bank Limited group and company annual financial statements 2015
                               Other reserves
                         Regulatory
      Available             general            Cash flow              Foreign
       for-sale                 risk              hedge              currency      Retained     Total
       reserve              reserve              reserve              reserve       income     equity


             110                  323                 (446)                 188      8 417     23 509


                 –                   –                    –                    –     2 150      2 150
                 –                   –                  (75)                   –          –       (75)
             (212)                   –                    –                    –          –      (212)
                (2)                  –                    –                    –          –        (2)
                 –                   –                    –                 414           –      414
             (214)                   –                  (75)                414      2 150      2 275
                 –                   –                    –                    –        (75)      (75)
                 –                   –                    –                    –       (108)     (108)
                 –                  64                    –                    –        (64)        –
             (104)                387                 (521)                 602     10 320     25 601


                 –                   –                    –                    –     3 128      3 128
                 –                   –                (619)                    –          –      (619)
             322                     –                    –                    –          –      322
                 –                   –                    –                 602           –      602
             322                     –                (619)                 602      3 128      3 433
                 –                   –                    –                    –        (21)      (21)
                 –                   –                    –                    –       (114)     (114)




                                                                                                               Annual financial statements
                 –                  95                    –                    –        (95)        –
             218                  482               (1 140)                1 204    13 218     28 899




                                                                                                                  5




Investec Bank Limited group and company annual financial statements 2015                                 109
                              Statements of changes in equity (continued)



                                                                                                                                                      Ordinary
                                                                                                                                                        share                Share
                              R’million                                                                                                                capital            premium

                              Company
                              At 1 April 2013                                                                                                                32             14 885
                              Movement in reserves 1 April 2013 – 31 March 2014
                              Profit after taxation                                                                                                            –                    –
                              Fair value movements on cash flow hedges taken directly to other comprehensive income                                            –                    –
                              Fair value movements on available-for-sale assets taken directly to other comprehensive income                                   –                    –
                              Gain on realisation of available-for-sale assets recycled through the income statement                                           –                    –
                              Total comprehensive income for the year                                                                                          –                    –
                              Dividends paid to ordinary shareholders                                                                                          –                    –
                              Dividends paid to perpetual preference shareholders                                                                              –                    –
                              At 31 March 2014                                                                                                               32             14 885

                              Movement in reserves 1 April 2014 – 31 March 2015
                              Profit after taxation                                                                                                            –                    –
                              Fair value movements on cash flow hedges taken directly to other comprehensive income                                            –                    –
                              Fair value movements on available-for-sale assets taken directly to other comprehensive income                                   –                    –
                              Total comprehensive income for the year                                                                                          –                    –
                              Dividends paid to ordinary shareholders                                                                                          –                    –
                              Dividends paid to perpetual preference shareholders                                                                              –                    –
                              At 31 March 2015                                                                                                               32             14 885
Annual financial statements




5




                              110                                                                               Investec Bank Limited group and company annual financial statements 2015
                      Other reserves
     Available-           Cash flow              Foreign
       for-sale              hedge              currency             Retained        Total
       reserve              reserve              reserve              income        equity


             111                 (446)                    3                5 954    20 539


                 –                   –                    –                1 562     1 562
                 –                 (75)                   –                    –       (75)
             (216)                   –                    –                    –      (216)
                (2)                  –                    –                    –        (2)
             (218)                 (75)                   –                1 562     1 269
                 –                   –                    –                  (75)      (75)
                 –                   –                    –                 (108)     (108)
             (107)               (521)                    3                7 333    21 625


                 –                   –                    –                2 643     2 643
                 –               (612)                    –                    –      (612)
             328                     –                    –                    –      328
             328                 (612)                    –                2 643     2 359
                 –                   –                    –                  (21)      (21)
                 –                   –                    –                 (114)     (114)
             221               (1 133)                    3                9 841    23 849




                                                                                                    Annual financial statements



                                                                                                       5




Investec Bank Limited group and company annual financial statements 2015                      111
                              Cash flow statements


                              For the year to 31 March                                                            Group                                     Company
                              R’million                                                         Notes          2015                2014                 2015                 2014

                              Cash flows from operating activities
                              Profit before taxation adjusted for non-cash items                   42         4 266                3 253               3 692                2 560
                              Taxation paid                                                                     (546)                 (71)               (445)                  (34)
                              Increase in operating assets                                         42        (25 117)            (18 330)            (23 992)             (17 660)
                              Increase in operating liabilities                                    42        24 864              22 565               26 230               21 527
                              Net cash inflow from operating activities                                       3 467                7 417               5 485                6 393

                              Cash flow on acquisition of property, equipment
                              and intangible assets                                                             (224)                (218)               (210)                (211)
                              Cash flow on disposal of property, equipment
                              and intangible assets                                                               26                   59                  23                   57
                              (Increase)/decrease in investment in subsidiaries                                     –                    –             (1 664)                 989
                              Net cash (outflow)/inflow from investing activities                               (198)                (159)            (1 851)                  835

                              Dividends paid to ordinary shareholders                                            (21)                 (75)                 (21)                 (75)
                              Dividends paid to perpetual preference shareholders                               (114)                (108)               (114)                (108)
                              Repayment of subordinated debt                                                    (250)             (1 998)                (250)              (1 998)
                              Net cash outflow from financing activities                                        (385)             (2 181)                (385)              (2 181)

                              Effects of exchange rates on cash and cash equivalents                            439                  410                     –                    –

                              Net increase in cash and cash equivalents                                       3 323                5 487               3 249                5 047

                              Cash and cash equivalents at the beginning of the year                         20 460              14 973               17 284               12 237
                              Cash and cash equivalents at the end of the year                               23 783              20 460               20 533               17 284

                              Cash and cash equivalents is defined as including:
                              Cash and balances at central banks                                              6 261                5 927               6 148                5 751
Annual financial statements




                              On demand loans and advances to banks                                           6 982                5 488               3 845                2 488
                              Non-sovereign and non-bank cash placements                                     10 540                9 045              10 540                9 045
                              Cash and cash equivalents at the end of the year                               23 783              20 460               20 533               17 284

                              Cash and cash equivalents have a maturity profile of less than three months.




5




                              112                                                                             Investec Bank Limited group and company annual financial statements 2015
Accounting policies


Basis of presentation                                       in the substance of the relationship between     and expenses that relate to transactions
                                                            Investec and an entity. A change in the          with any of the group’s other components,
The group and company financial                             ownership interest of a subsidiary, without      whose operating results are reviewed
statements are prepared in accordance                       a loss of control, is accounted for as an        regularly by chief operating decision-makers
with the International Financial Reporting                  equity transaction. Investec also holds          which include members of the board and
Standards, SAICA Financial Reporting                        investments for example, private equity          for which discrete financial information
Guides as issued by the Accounting                          investments which give rise to significant,      is available.
Practices Committee and Financial                           but not majority, voting rights. Assessing
                                                            these voting rights and whether Investec         No additional disclosures have been
Reporting Standards Council, as well as
                                                            controls these entities requires judgement       provided regarding the segmental results as
the requirements of the Companies Act.
                                                            that affects the date at which subsidiaries      the bank has one segment.
The group and company financial                             are consolidated or deconsolidated.
statements have been prepared on a
historical cost basis, except for investment                Entities, other than subsidiary undertakings,    Business combinations
properties, available-for-sale investments,                 in which the group exercises significant
derivative financial instruments and financial              influence over operating and financial           and goodwill
assets and liabilities held at fair value                   policies, are treated as interests in
                                                                                                             Business combinations are accounted
through profit or loss or subject to hedge                  associated undertakings. Interests in
                                                                                                             for using the acquisition method. The
accounting, that have been measured at                      associated undertakings are accounted
                                                                                                             cost of an acquisition is measured as the
fair value.                                                 for using the equity method from the date
                                                                                                             aggregate of the consideration transferred
                                                            that significant influence commences
Accounting policies applied are consistent                                                                   measured at the acquisition date fair value
                                                            until the date that significant influence
with those of the prior year. ‘Group’ refers                                                                 and the amount of any prior non-controlling
                                                            ceases. In circumstances where interests
to group and company in the accounting                                                                       interest in the acquiree. For each business
                                                            in associated undertakings or joint venture
policies that follow.                                                                                        combination, the group measures the non-
                                                            holdings arise in which the group has no
                                                                                                             controlling interest in the acquiree either
                                                            strategic intention, these investments are
                                                                                                             at fair value or at the proportionate share
                                                            classified as ‘venture capital’ holdings and
Presentation of                                             are designated as held at fair value through
                                                                                                             of the acquiree’s identifiable net assets.
                                                                                                             Acquisition costs incurred are expensed
                                                            profit or loss.
information                                                                                                  immediately in the income statement.
                                                            For equity accounted associates, the
Disclosure under IFRS 7 Financial                                                                            When the group acquires a business, it
                                                            financial statements include the attributable
Instruments: Disclosures and IAS 1                                                                           assesses the financial assets and liabilities
                                                            share of the results and reserves of




                                                                                                                                                              Annual financial statements
Presentation of Financial Statements:                                                                        assumed for appropriate classification and
                                                            associated undertakings. The group’s
Capital Disclosures relating to the nature                                                                   the designation in accordance with the
                                                            interests in associated undertakings are
and extent of risks have been included                                                                       contractual terms, economic circumstances
                                                            included in the consolidated balance sheet
in sections marked as audited in the risk                                                                    and pertinent conditions at the acquisition
                                                            at cost plus the post-acquisition changes
management report on pages 20 to 80.                                                                         date. This includes the separation of
                                                            in the group’s share of the net assets of
                                                                                                             embedded derivatives in host contracts by
Certain disclosures required under IAS 24                   the associate.
                                                                                                             the acquiree.
Related Party Disclosures have been                         The group balance sheet reflects
included in the section marked as audited                                                                    If the business combination is achieved in
                                                            the associated undertakings net of
in the remuneration report in Investec's                                                                     stages, the acquisition date fair value of
                                                            accumulated impairment losses.
2015 integrated annual report.                                                                               the group’s previously held equity interest
                                                            Investments in subsidiaries (including           in the acquiree is remeasured to fair value
                                                            loan advances to subsidiaries) are carried       at each acquisition date through the
Basis of consolidation                                      at their cost less any accumulated               income statement.

All subsidiaries or structured entities are
                                                            impairment losses in the company financial
                                                            statements.
                                                                                                             Any contingent consideration to be                  5
                                                                                                             transferred by the group will be recognised
consolidated when the group controls
                                                            All intergroup balances, transactions and        at fair value at the acquisition date.
an investee. The group controls an
                                                            unrealised gains and losses within the           Subsequent changes to the fair value of
investee if it is exposed to, or has rights
                                                            group that do not reflect an impairment to       the contingent consideration, which is
to variable returns from its involvement
                                                            the asset, are eliminated in full regarding      deemed to be an asset or liability, will be
with the investee and has the ability to
                                                            subsidiaries and to the extent of the interest   recognised in accordance with IAS 39 in
affect those returns through its power
                                                            in an associate.                                 the income statement. If the contingent
over the investee. The financial results
                                                                                                             consideration is classified as equity, it will
of subsidiaries are included in the
                                                                                                             not be remeasured until it is finally settled
consolidated annual financial statements
of the group from the date on which                         Segmental reporting                              within equity.
control is obtained until the date the group                                                                 Goodwill is initially measured at cost,
can no longer demonstrate control.                          An operating segment is a component
                                                                                                             being the excess of the aggregate of the
                                                            of the group that engages in business
                                                                                                             consideration transferred and the amount
Investec performs a reassessment of                         activities from which it may earn revenues
                                                                                                             recognised for non-controlling interest over
consolidation whenever there is a change                    and incur expenses, including revenues
                                                                                                             the net identifiable assets acquired and




Investec Bank Limited group and company annual financial statements 2015                                                                                113
                              Accounting policies (continued)


                              liabilities assumed. If this consideration      The increase in equity is offset by a                     translated using closing rates, with
                              and amount recognised for non-controlling       payment made to the holding company                       gains and losses recognised in the
                              interest is less than the fair values of        of Investec Bank Limited for the provision                income statement
                              the identifiable net assets acquired, the       of the equity-settled shares. In addition,
                              discount on acquisition is recognised           all entities of the group account for any             •   Exchange differences arising on
                              directly in the income statement as a gain      share-based recharge costs allocated                      monetary items that form part of the
                              in the year of acquisition.                     to equity in the period during which it is                net investment in a foreign operation
                                                                              levied in their separate annual financial                 are determined using closing rates and
                              After initial recognition, goodwill is          statements. Any excess over and above                     recognised as a separate component
                              measured at cost less any accumulated           the recognised share-based payment                        of equity (foreign currency translation
                              impairment losses. The group tests goodwill     expense is accounted for as an expense                    reserve) upon consolidation and is
                              acquired in a business combination for          within profit and loss. This cost is                      recognised in the income statement
                              impairment annually, irrespective of whether    presented with the share-based payment                    upon disposal of the net investment
                              an indication of impairment exists and in       expense in note 6.
                              accordance with IAS 36.                                                                               •   Non-monetary items that are measured
                                                                              Fair value measurements are based on                      at historical costs are translated using
                              For the purpose of impairment testing,          option pricing models, taking into account                the exchange rates ruling at the date of
                              goodwill acquired in a business                 the risk-free interest rate, volatility of the            the transaction.
                              combination is, from the acquisition date,      underlying equity instrument, expected
                              allocated to each of the group’s cash-                                                                On consolidation, the results and financial
                                                                              dividends and current share prices.                   position of foreign operations are translated
                              generating units that are expected to
                              benefit from the combination.                   Where the terms of an equity-settled                  into the presentation currency of the group
                                                                              award are modified, the minimum expense               as follows:
                              Where goodwill forms part of a cash-            recognised in staff costs is the expense
                              generating unit and part of the operation                                                             •   Assets and liabilities for each balance
                                                                              as if the terms had not been modified.                    sheet presented are translated at the
                              within that unit is disposed of, the goodwill   An additional expense is recognised for
                              associated with the operation disposed of                                                                 closing rate at the date of the balance
                                                                              any modification which increases the total                sheet
                              is included in the carrying amount of the       fair value of the share-based payment
                              operation when determining the gain or          arrangement, or is otherwise beneficial to            •   Income and expense items are
                              loss on disposal of the operation.              the employee as measured at the date                      translated at exchange rates ruling at
                              Goodwill disposed of in this circumstance       of modification.                                          the date of the transaction
                              is measured based on the relative values of                                                           •   All resulting exchange differences are
                              the operation disposed of and the portion
Annual financial statements




                              of the cash-generating units retained.          Foreign currency                                          recognised in other comprehensive
                                                                                                                                        income (foreign currency translation
                                                                              transactions and foreign                                  reserve), which is recognised in the
                                                                                                                                        income statement on disposal of the
                              Share-based payments                            operations                                                foreign operation
                              to employees                                    The presentation currency of the group is             •   Cash flow items are translated at the
                                                                              South African Rand, being the functional                  exchange rates ruling at the date of
                              The group engages in equity-settled share-      currency of the company and the currency                  the transaction.
                              based payments in respect of services           in which the company mainly operates,
                              received from employees.                        except Mauritius which is in US Dollars.
                              The fair value of the services received         Foreign operations are subsidiaries,                  Revenue recognition
                              in respect of equity-settled share-based        interests in associated undertakings or
                              payments is determined by reference                                                                   Revenue consists of interest income,

5
                                                                              branches of the group, the activities of
                              to the fair value of the shares or share                                                              fee and commission income, investment
                                                                              which are based in a functional currency
                              options on the date of grant to the                                                                   income, trading income arising from
                                                                              other than that of the reporting entity.
                              employee. The cost of the share-based                                                                 customer flow, trading income arising
                                                                              The functional currency of group entities is
                              payment, together with a corresponding                                                                from balance sheet management
                                                                              determined based on the primary economic
                              increase in equity, is recognised in the                                                              and other trading activities and other
                                                                              environment in which the entity operates.
                              income statement over the period the                                                                  operating income.
                              service conditions of the grant are met         Foreign currency transactions are translated
                                                                                                                                    Revenue is recognised when it can be
                              with the amount changing according to           into the functional currency of the entity
                                                                                                                                    reliably measured and it is probable that
                              the number of awards expected to vest.          in which the transaction arises based on
                                                                                                                                    the economic benefits will flow to the entity.
                              The cumulative expense recognised               rates of exchange ruling at the date of
                                                                                                                                    Revenue related to provision of services
                              for equity-settled transactions at each         the transaction. At each balance sheet
                                                                                                                                    is recognised when the related services
                              reporting date until the vesting date           date foreign currency items are translated
                                                                                                                                    are performed. Revenue is measured at
                              reflects the extent to which the vesting        as follows:
                                                                                                                                    the fair value of the consideration received
                              period has expired and the group’s
                                                                              •   Monetary items (other than monetary               or receivable.
                              best estimate of the number of equity
                              instruments that will ultimately vest.              items that form part of the net
                                                                                                                                    Interest income is recognised in the
                                                                                  investment in a foreign operation) are
                                                                                                                                    income statement using the effective




                              114                                                                                   Investec Bank Limited group and company annual financial statements 2015
Accounting policies (continued)


interest method. Fees charged on lending                    Fair value measurement                                established by market convention are
transactions are included in the effective                                                                        recorded at settlement date.
yield calculation to the extent that they                   Fair value is the price that would be
form an integral part of the effective interest             received to sell an asset or paid to transfer         Financial assets and liabilities
rate yield, but excludes those fees earned                  a liability in an orderly transaction between         held at fair value through profit
for a separately identifiable significant act,              market participants at the measurement                or loss
which are recognised upon completion of                     date in the principal or, in its absence,             Financial instruments held at fair value
the act. Fees and commissions charged                       the most advantageous market to which                 through profit or loss include all instruments
in lieu of interest are recognised as income                the group has access at that date.                    classified as held-for-trading and those
as part of the effective interest rate on the               The fair value of a liability reflects its            instruments designated as held at fair value
underlying loan.                                            non-performance risk.                                 through profit or loss.
The effective interest method is based                      When available, the group measures the                Financial instruments classified as held-for-
on the estimated life of the underlying                     fair value of an instrument using the quoted          trading or designated as held at fair value
instrument and where this estimate is not                   price in an active market for that instrument.        through profit or loss are recorded at fair value
readily available, the contractual life.                                                                          on the balance sheet with changes in fair
                                                            A market is regarded as active if transactions        value recognised in the income statement.
Fee and commission income includes fees                     for the asset or liability takes place with           Financial instruments are classified as
earned from providing advisory services as                  sufficient frequency and volume to provide            trading when they are held with the intention
well as portfolio management and includes                   pricing information on an ongoing basis.              of short-term disposal, held with intention
rental income from investment properties.
                                                                                                                  of generating short-term profits, or are
Investment advisory and management                          If there is no quoted price in an active
                                                                                                                  derivatives which are not designated as part
fees are accrued over the period to which                   market, then the group uses valuation
                                                                                                                  of effective hedges. Financial instruments
the income relates. Performance fees are                    techniques that maximise the use of
                                                                                                                  designated as held at fair value through
recognised when they become receivable.                     relevant observable inputs and minimise the
                                                                                                                  profit or loss are designated as such on initial
No revenue is recognised if there are                       use of unobservable inputs. The chosen
                                                                                                                  recognition of the instrument and remain in
significant uncertainties regarding recovery                valuation technique incorporates all of the
                                                                                                                  this classification until derecognition.
of the consideration due.                                   factors that market participants would take
                                                            into account in pricing a transaction.                Financial assets and liabilities are
Investment income includes income,                                                                                designated as held at fair value through
other than margin from securities held for                  If an asset or a liability measured at fair           profit or loss only if:
the purpose of generating interest yield,                   value has a bid price and an ask price,
dividends and capital appreciation.                         then the group measures assets and long               •   It eliminates or significantly reduces an




                                                                                                                                                                      Annual financial statements
                                                            positions at a bid price and liabilities and              inconsistent measurement or recognition
Customer flow trading income includes                                                                                 inconsistency that would otherwise
                                                            short positions at an ask price.
income from trading activities arising from                                                                           arise from measuring assets or liabilities
making and facilitating client activities.                  The group classifies disclosed fair values                or recognising the gains and losses on
                                                            according to a hierarchy that reflects the                them on different bases; or
Trading income arising from balance sheet
                                                            significance of observable market inputs.
management and other trading activities                                                                           •   A group of financial assets, financial
                                                            A transfer is made between the hierarchy
consists of proprietary trading income and                                                                            liabilities or both is managed and its
                                                            when the inputs have changed or there has
other gains and losses arising from balance                                                                           performance is evaluated on a fair value
                                                            been a change in the valuation method.
sheet management.                                                                                                     basis in accordance with a documented
                                                            Transfers are deemed to occur at the end of
                                                            each semi-annual reporting period.                        risk management or investment strategy
Trading profit is shown net of the funding
                                                                                                                      and information about the group is
costs of the underlying positions and
                                                                                                                      provided internally on that basis to the
includes the unrealised profits on trading
                                                                                                                                                                         5
                                                                                                                      group’s key management personnel; and
portfolios, which are marked to market                      Financial instruments
daily. Equity investments received                                                                                •   If a contract contains one or more
in lieu of corporate finance fees are                       Financial instruments are initially recognised
                                                                                                                      embedded derivatives (which
included in investment portfolio and                        at their fair value. For financial assets or              significantly modifies the cash flows that
valued accordingly.                                         financial liabilities not held at fair value              would be required by the contract and
                                                            through profit or loss, transaction costs that            is not clearly prohibited from separation
Dividend income is recognised when                          are directly attributable to the acquisition              from the host contract) and the group
the group’s right to receive payment                        or issue of the financial assets or financial             has designated the entire hybrid
is established.                                             liabilities are included in the initial fair value.       contract as a financial instrument at fair
                                                            All other transaction costs are recorded in               value through profit or loss.
Included in other operating income
                                                            the income statement immediately.
is incidental rental income, gains on
                                                                                                                  Held-to-maturity financial
realisation of properties (other than                       Regular way purchase and sales
                                                                                                                  assets
investment properties which is included                     transactions in respect of financial
in investment income), operating lease                      assets that require delivery of a financial           Held-to-maturity financial assets are non-
income and income from interests in                         instrument within the timeframe                       derivative financial instruments with fixed
associated undertakings.                                                                                          or determinable payments and maturity




Investec Bank Limited group and company annual financial statements 2015                                                                                      115
                              Accounting policies (continued)


                              dates which the group has the intention          of risk transfer and to leverage returns             If an available-for-sale instrument is
                              and ability to hold to maturity. Subsequent      through the retention of equity tranches             determined to be impaired, the respective
                              to initial recognition, held-to-maturity         in low default rate portfolios. The group            cumulative unrealised losses previously
                              assets are measured at amortised cost            predominately focuses on the securitisation          recognised in other comprehensive income
                              using the effective interest method, less        of residential and commercial mortgages.             are included in the income statement in the
                              impairment losses.                               The group also trades in structured                  period in which the impairment is identified.
                                                                               credit investments.
                              Amortised cost is calculated by taking                                                                Impairments on available-for-sale equity
                              into account any discount or premium             The structured entities are consolidated             instruments are not reversed once
                              on acquisition and fees that are an integral     under IFRS 10 Consolidated Financial                 recognised in the income statement.
                              part of the effective interest rate. The         Statements when the group has exposure
                              amortisation is included in interest income      to or rights to, variable returns from its           If, in a subsequent period, the fair value of
                              in the income statement. The losses arising      involvement with the investee and has the            a debt instrument classified as available-
                              from impairment of such investments are          ability to affect those returns through its          for-sale increases and the increase can be
                              recognised in the income statement.              power over the investee.                             objectively related to an event occurring
                                                                                                                                    after the impairment loss was recognised
                              Loans and receivables                            Loans and advances that are originated               in the income statement, the impairment
                              Loans and receivables are non-derivative         are transferred to structured entities, and          loss is reversed, limited to the impairment
                              financial assets with fixed or determinable      the structured entities issue debt securities        value previously recognised in the income
                              payments that are not quoted in an active        to external investors to fund the purchase           statement.
                              market and exclude the following:                of the securitised assets. When the group
                                                                               consolidates the structured entity, the              Financial liabilities
                              •   Those that the group intends to trade in,    group recognises the assets and liabilities
                                                                                                                                    Financial liabilities are classified as non-
                                  which are classified as held-for-trading     on a gross basis. When the group does
                                                                                                                                    trading, held-for-trading or designated as
                                  and those that the group designates as       not consolidate the structured entity the
                                                                                                                                    held at fair value through profit or loss.
                                  at fair value through profit or loss         impact is that the securitised assets are
                                                                               derecognised and only any position still             Non-trading liabilities are recorded at
                              •   Those that the group designates as
                                                                               held by the group in the structured entity           amortised cost applying the effective
                                  available-for-sale
                                                                               is reflected.                                        interest rate method.
                              •   Those for which the holder may not
                                  recover substantially all of its initial     Available-for-sale financial                         Held-for-trading liabilities or liabilities
                                  investment, other than because of credit     assets                                               designated as held at fair value through
                                  deterioration, which is accounted for as                                                          profit or loss are measured at fair value.
                                                                               Available-for-sale financial assets are those
Annual financial statements




                                  available-for-sale instruments.              which are designated as such or do not               All changes in fair value of financial liabilities
                              Subsequent to initial recognition, loans and     qualify to be classified as designated at            are recognised in the income statement.
                              receivables are measured at amortised            fair value through profit or loss, held-
                              cost, using the effective interest rate          to-maturity, or loans and receivables.               Day 1 profit or loss
                              method, less impairment losses. The              They include strategically held equity
                                                                                                                                    When the transaction price differs from
                              effective interest rate represents the rate      instruments that are not interests in
                                                                                                                                    the fair value of other observable current
                              that exactly discounts future projected          associated undertakings, joint ventures or
                                                                                                                                    market transactions in the same instrument
                              cash flows through the expected life             subsidiaries of the group. Further, certain
                                                                                                                                    or based on the valuation technique
                              of the financial instrument, to the net          debt instruments that are held at fair value
                                                                                                                                    whose variables include only data from
                              carrying amount of the financial instrument.     due to being quoted on an active market,
                                                                                                                                    observable markets, the difference
                              Included in the calculation of the effective     which are neither actively traded nor held-
                                                                                                                                    between the transaction price and fair
                              interest rate is any discount or premium on      to-maturity instruments, are classified as
                                                                                                                                    value is recognised immediately in the
                              acquisition and fees that are an integral part   available-for-sale financial assets.
5
                                                                                                                                    income statement.
                              of the effective interest rate.
                                                                               Financial assets classified as available-
                                                                                                                                    In cases where fair value is determined
                              Losses arising from impairment of such           for-sale are measured at fair value, with
                                                                                                                                    using data which is not observable, the
                              investments are recognised in the income         unrealised gains and losses recognised
                                                                                                                                    difference between the transaction price
                              statement line ‘impairment losses on loans       directly in other comprehensive income
                                                                               in the available-for-sale reserve. When              and model value is only recognised in the
                              and advances’.
                                                                               the asset is disposed of, the cumulative             income statement when the inputs become
                              Interest on impaired financial assets is         gain or loss previously recognised in other          observable, or when the instrument
                              recognised using the rate of interest used       comprehensive income is recognised in the            is derecognised or over the life of the
                              to discount the future cash flows for the        income statement. Interest earned while              transaction.
                              purpose of measuring the impairment loss.        holding available-for-sale financial assets
                                                                                                                                    Impairments of financial assets
                                                                               is reported as interest income using the
                              Securitisation/credit                                                                                 held at amortised cost
                                                                               effective interest rate. Dividends earned while
                              investment and trading                           holding available-for-sale financial assets are      Financial assets carried at amortised cost
                              activities exposures                             recognised in the income statement when              are impaired if there is objective evidence
                              The group makes use of securitisation            the right of payment has been established.           that the group would not receive cash
                              vehicles as a source of finance, as a means                                                           flows according to the original contractual




                              116                                                                                   Investec Bank Limited group and company annual financial statements 2015
Accounting policies (continued)


terms. Financial assets are assessed for                    has transferred its rights to cash flows         Credit derivatives are entered into largely
impairment at each balance sheet date                       relating to the financial assets and either      for trading purposes. Credit derivatives
and when an indicator of impairment                         (a) the group has transferred substantially      are initially recognised at their fair values,
is identified.                                              all the risk and rewards associated with the     being the transaction price of the derivative.
                                                            financial assets or (b) the group has neither    Subsequently the derivatives are carried
The test for impairment is based either
                                                            transferred nor retained substantially all       at fair value, with movements in fair value
on specific financial assets or collectively
                                                            the risks and rewards associated with the        through profit and loss, based on the
on a portfolio of similar, homogeneous
                                                            financial assets but has transferred control     remeasured price. The counterparty risk
assets. Over and above individual collective
                                                            of the asset.                                    from derivative transactions is taken into
impairments raised at specific portfolio
                                                                                                             account when reporting the fair value of
levels, the group recognises a collective                   A financial liability is derecognised when it    derivative positions. The adjustment to
impairment allowance at a central level                     is extinguished, i.e. when the obligation is
that takes into account macro-economic                                                                       the fair value is known as the credit value
                                                            discharged, cancelled or expired. When           adjustment (CVA).
factors, mainly driven by data related to the               an existing financial liability is replaced or
prevailing credit markets and which indicate                modified with substantially different terms,     Hedge accounting
incurred but not specifically identified losses
                                                            such a replacement or modification is
across the loan portfolios (i.e. exposures in                                                                The group applies either fair value or cash
                                                            treated as a derecognition of the original
all business segments). Assets specifically                                                                  flow hedge or hedge of net investments in
                                                            liability and the recognition of a new
identified as impaired are excluded from the                                                                 foreign operations accounting when the
                                                            liability. The difference in the respective
collective assessment.                                                                                       transactions meet the specified hedge
                                                            carrying amounts is recognised in the
                                                                                                             accounting criteria. To qualify for hedge
Impairments are credited to an allowance                    income statement.
                                                                                                             accounting treatment, the group ensures
account which is carried against the
                                                            Reclassification of financial                    that all of the following conditions are met:
carrying value of financial assets. Interest
continues to be accrued on the reduced                      instruments                                      •   At inception of the hedge, the group
carrying amount based on the original                       The group may reclassify, in rare                    formally documents the relationship
effective interest rate of the asset. Loans                 circumstances, non-derivative financial              between the hedging instrument(s)
together with the associated allowance                      assets out of the held-for-trading category          and hedged item(s) including the
are written off when there is no realistic                  and into the available-for-sale, loans               risk management objectives and the
prospect of future recovery and all collateral                                                                   strategy in undertaking the hedge
                                                            and receivables or held-to-maturity
has been realised or transferred to                                                                              transaction. Also at the inception of the
                                                            categories. It may also reclassify, in certain
the group.                                                                                                       hedge relationship, a formal assessment
                                                            circumstances, financial instruments out
                                                                                                                 is undertaken to ensure the hedging




                                                                                                                                                                Annual financial statements
An allowance for impairment is only                         of the available-for-sale category and
reversed when there is objective evidence                   into the loans and receivables category.             instrument is expected to be highly
that the credit quality has improved to the                 Reclassifications are recorded at fair               effective in offsetting the designated risk
extent that there is reasonable assurance of                value at the date of reclassification, which         in the hedged item. A hedge is expected
timely collection of principal and interest in              becomes the new amortised cost.                      to be highly effective if the changes
terms of the original contractual agreement.                                                                     in fair value or cash flows attributable
                                                            Derivative instruments                               to the hedged risk during the period
The impairment is calculated as the                                                                              for which the hedge is designated are
                                                            All derivative instruments of the group
difference between the carrying value of                                                                         expected to offset in a range of 80%
                                                            are recorded on the balance sheet at
the asset and the expected cash flows                                                                            to 125%
                                                            fair value. Positive and negative fair
(including net expected proceeds on
                                                            values are reported as assets and
realisation of collateral) discounted at                                                                     •   For cash flow hedges, a forecasted
                                                            liabilities, respectively.
the original effective rate. Impairments of                                                                      transaction that is the subject of the
financial assets held at amortised cost are                 Derivative positions are entered into either         hedge must be highly probable and
recognised in the income statement.                         for trading purposes or as part of the
                                                            group’s asset and liability management
                                                                                                                 must present an exposure to variations
                                                                                                                 in cash flows that could ultimately affect
                                                                                                                                                                   5
To cater for any shortfall between regulatory
                                                            activities to manage exposures to interest           profit and loss
provision requirements (in the respective
                                                            rate and foreign currency risks. Both
jurisdictions) and impairments based on the                                                                  •   The effectiveness of the hedge can be
principles above, a transfer is made from                   realised and unrealised profits and losses
                                                                                                                 reliably measured, i.e. the fair value or
distributable to non-distributable reserves,                arising on derivatives are recognised in the
                                                                                                                 cash flows of the hedged item that are
being the regulatory general risk reserve.                  income statement as part of trading income
                                                                                                                 attributable to the hedged risk and the
The non-distributable regulatory risk                       (other than circumstances in which cash
                                                                                                                 fair value of the hedging instrument can
reserve ensures that minimum regulatory                     flow hedging is applied as detailed below).
                                                                                                                 be reliably measured
provisioning requirements are maintained.
                                                            Derivative instruments transacted as
                                                                                                             •   The hedge effectiveness is assessed
Derecognition of financial                                  economic hedges which do not qualify
                                                                                                                 on an ongoing basis and determined
assets and liabilities                                      for hedge accounting and derivatives that
                                                                                                                 actually to have been highly effective
                                                            are entered into for trading purposes are
A financial asset, or a portion thereof, is                                                                      throughout the financial reporting
                                                            treated in the same way as instruments that
derecognised when the group’s rights to                                                                          periods for which the hedge was
                                                            are held-for-trading.
cash flows have expired or when the group                                                                        designated.




Investec Bank Limited group and company annual financial statements 2015                                                                                  117
                              Accounting policies (continued)


                              For qualifying fair value hedges, the change        probable, or when the designation as a                 Proceeds received are recorded as
                              in fair value of the hedging instrument             hedge is revoked.                                      a liability on balance sheet under
                              is recognised in the income statement.                                                                     ‘repurchase agreements and cash
                              Changes in fair value of the hedged item            Embedded derivatives                                   collateral on securities lent’. Securities
                              that is attributable to the hedged risk are         To the extent that a derivative may be                 that are purchased under a commitment
                              also recognised in the income statement.            embedded in a hybrid contract and the                  to resell the securities at a future date
                                                                                                                                         are not recognised on the balance sheet.
                              For qualifying cash flow hedges in respect          hybrid contract is not carried at fair value
                                                                                                                                         The consideration paid is recognised
                              of non-financial assets and liabilities,            with changes in fair value recorded in the
                                                                                                                                         as an asset under ‘reverse repurchase
                              the change in fair value of the hedging             income statement, the embedded derivative
                                                                                                                                         agreements and cash collateral on
                              instrument, relating to the effective portion       is separated from the host contract and
                                                                                                                                         securities borrowed’.
                              is initially recognised directly in other           accounted for as a standalone derivative if
                              comprehensive income in the cash flow               and only if:                                           The difference between the sale and
                              hedge reserve and is included in the                                                                       repurchase prices is treated as interest
                                                                                  •   The economic characteristics and                   expense and is accrued over the life of
                              initial cost of any asset/liability recognised
                                                                                      risks of the embedded derivative are               the agreement using the effective interest
                              or in all other cases released to the
                                                                                      not closely related to the economic                rate method.
                              income statement when the hedged firm
                                                                                      characteristics and risks of the host
                              commitment or forecasted transaction
                                                                                      contract                                           Securities borrowing transactions that are
                              affects net profit. If the forecast transaction                                                            not cash collateralised are not included in
                              or firm commitment is no longer expected            •   A separate instrument with the same                the balance sheet. Securities lending and
                              to occur, the balance included in other                 terms as the embedded derivative would             borrowing transactions which are cash
                              comprehensive income is reclassified                    meet the definition of a derivative.               collateralised are accounted for in the same
                              to the income statement immediately                                                                        manner as securities sold or purchased
                              and recognised in trading income from               Offsetting of financial assets                         subject to repurchase commitments.
                              balance sheet management and other                  and liabilities
                              trading activities.                                                                                        The cash collateral from agency-based
                                                                                  Financial assets and liabilities are offset            scrip lending transactions are disclosed
                              For qualifying cash flow hedges in respect          when there is both an intention to settle              on a net basis, in accordance with master
                              of financial assets and liabilities, the change     on a net basis (or simultaneously) and                 netting agreements and the group’s
                              in fair value of the hedging instrument,            a currently enforceable legal right to                 intention to settle net.
                              which represents an effective hedge are             offset exists.
                              initially recognised in other comprehensive                                                                Financial guarantees
                              income and is released to the income                Issued debt and equity financial                       Financial guarantee contracts issued by
Annual financial statements




                              statement in the same period during which           instruments                                            the group are those contracts that require
                              the relevant financial asset or liability affects                                                          a payment to be made to reimburse the
                                                                                  Financial instruments issued by the group
                              the income statement. Any ineffective                                                                      holder for a loss it incurs because the
                              portion of the hedge is immediately                 are classified as liabilities if they contain a
                                                                                  contractual obligation to deliver cash or              specified debtor fails to make a payment
                              recognised in the income statement.                                                                        when due, in accordance with the terms
                                                                                  another financial asset.
                              Qualifying hedges of a net investment in                                                                   of a debt instrument. Financial guarantees
                              a foreign operation including a hedge of a          Financial instruments issued by the group              are initially recognised at fair value,
                              monetary item that is accounted for as part         are classified as equity where they confer             adjusted for the transaction costs that
                              of the net investment are accounted for in a        on the holder a residual interest in the               are directly attributable to the issuance
                                                                                  group, and the group has no obligation                 of the guarantee.
                              way similar to cash flow hedges. Changes
                              in the fair value of the hedging instrument         to deliver either cash or another financial
                                                                                                                                         Subsequent to initial recognition, the
                              relating to the effective portion of the hedge      asset to the holder. The components of
                                                                                                                                         liability under each guarantee is measured
                              are recognised in the foreign currency              compound issued financial instruments are
5
                                                                                                                                         at the higher of the amount recognised,
                              translation reserve in other comprehensive          accounted for separately with the liability            less cumulative amortisation and the best
                              income while any gains or losses relating           component separated first and any residual             estimate of expenditure required to settle
                              to the ineffective portion are recognised in        amount being allocated to the equity                   any financial obligation arising as a result
                              the income statement. On disposal of the            component.                                             of the guarantee. Subsequent to initial
                              foreign operation, the cumulative value of                                                                 measurement all changes in the balance
                              any such gain or loss recorded in other             Equity instruments are initially measured net
                                                                                                                                         sheet carrying value are recognised in the
                              comprehensive income is reclassified to             of directly attributable issue costs.
                                                                                                                                         income statement.
                              the income statement.
                                                                                  Sale and repurchase                                    Instalment credit, leases and
                              Hedge accounting is discontinued when it            agreements (including                                  rental agreements
                              is determined that the instrument ceases            securities borrowing and
                              to be highly effective as a hedge; when the                                                                A finance lease is a lease that transfers
                                                                                  lending)
                              derivative expires or is sold, terminated or                                                               substantially all of the risks and rewards
                              exercised; when the hedge item matures              Where securities are sold subject to a                 incidental to ownership of an asset.
                              or is sold or repaid; when a forecasted             commitment to repurchase them, at a fixed              An operating lease is a lease other than
                              transaction is no longer deemed highly              price or a selling price plus a lender’s return,       a financial lease.
                                                                                  they remain on balance sheet.




                              118                                                                                        Investec Bank Limited group and company annual financial statements 2015
Accounting policies (continued)


Where classified as a finance lease,                        Routine maintenance and service costs of            Impairment losses are recognised as an
amounts outstanding on these contracts,                     assets are expensed as incurred. Subsequent         expense in the income statement in the
net of unearned finance charges, are                        expenditure is only capitalised if it is probable   period in which they are identified. Reversal
included in loans and advances where the                    that future economic benefits associated with       of impairment losses are recognised in
group is the lessor and included in liabilities             the item will flow to the group.                    income in the period in which the reversal
where the group is the lessee. Finance                                                                          is identified. To the extent that the carrying
charges on finance leases and instalment                                                                        value of the asset does not exceed the
credit transactions are credited or debited
to income in proportion to the capital
                                                            Investment property                                 amount that would have been calculated
                                                                                                                without impairment.
balances outstanding at the rate implicit
                                                            Properties held by the group which are
in the agreement.
                                                            held for capital appreciation or rental yield
Where classified as operating leases,                       are classified as investment properties.            Trust and fiduciary
rentals payable/receivable are charged/
credited in the income statement on a
                                                            Investment properties are carried at fair
                                                            value, with fair value gains and losses
                                                                                                                activities
straight-line basis over the lease term.                    recognised in the income statement in               The group acts as a trustee or in other
Contingent rentals (if any) are accrued to                  ‘investment income’.                                fiduciary capacities that result in the
the income statement when incurred.                                                                             holding, placing or managing of assets for
                                                            Fair value of investment property is
                                                                                                                the account of and at the risk of clients.
                                                            calculated by taking into account the
Property and equipment                                      expected rental stream associated with              As these are not assets of the group, they
                                                            the property, and is supported by market            are not recognised on the balance sheet
Property and equipment are recorded at                      evidence.                                           but are included at market value as part of
cost less accumulated depreciation and                                                                          assets under administration.
impairments.

Cost is the cash equivalent paid or the fair
                                                            Trading property
value of the consideration given to acquire
                                                                                                                Taxation and deferred
                                                            Trading properties are carried at the lower
an asset and includes other expenditures
                                                            of cost and net realisable value.                   taxation
that are directly attributable to the
acquisition of the asset.                                                                                       Current tax payable is provided on the
                                                                                                                amount expected to be payable on
Depreciation is provided on the depreciable                 Intangible assets                                   taxable profits at rates that are enacted or
amount of each component on a straight-
                                                                                                                substantively enacted and applicable to the




                                                                                                                                                                 Annual financial statements
line basis over the expected useful life of the             Intangible assets are recorded at cost less
                                                                                                                relevant period.
asset. The depreciable amount related to                    accumulated amortisation and impairments.
each asset is determined as the difference                                                                      Deferred taxation is provided using the
between the cost and the residual value                     For intangible assets with a finite life,
                                                                                                                balance sheet method on temporary
of the asset. The residual value is the                     amortisation is provided on the depreciable
                                                                                                                differences between the carrying amount of
estimated amount, net of disposal costs,                    amount of each intangible asset on a straight-
                                                                                                                an asset or liability in the balance sheet and
that the group would currently obtain from                  line basis over the expected useful life of the
                                                                                                                its tax base, except where such temporary
the disposal of an asset in similar age and                 asset (currently three to eight years). The         differences arise from:
condition as expected at the end of its                     depreciable amount related to each intangible
useful life.                                                asset is determined as the difference between       •   The initial recognition of goodwill
                                                            the cost and the residual value of the asset.
The current and comparative annual                                                                              •   The initial recognition of an asset or
depreciation rates for each class of property                                                                       liability in a transaction which is not a
and equipment is as follows:                                                                                        business combination and at the time
                                                            Impairment of non-
•   Computer and related equipment
    20% – 33%                                               financial assets
                                                                                                                    of the transaction has no effect on the
                                                                                                                    income statement                                5
•   Motor vehicles 20% – 25%                                At each balance sheet date the group                •   In respect of temporary differences
                                                            reviews the carrying value of non-financial             associated with the investments in
•   Furniture and fittings 10% – 20%                        assets, other than investment property for              subsidiaries and interests in associated
                                                            indication of impairment. The recoverable               undertakings, where the timing of the
•   Leasehold improvements*.
                                                            amount, being the higher of fair value                  reversal of the temporary differences can
                                                            less cost of disposal and value in use, is              be controlled and it is probable that the
* Leasehold improvements depreciation
                                                            determined for any assets for which an                  temporary differences will not reverse in
  rates are determined by reference to
                                                            indication of impairment is identified. If the          the foreseeable future.
  the appropriate useful life of its separate
                                                            recoverable amount of an asset is less than
  components, limited to the period of
                                                            its carrying value, the carrying value of the
  the lease.
                                                            asset is reduced to its recoverable value.
The useful lives, depreciation methods and
residual values are assessed annually.




Investec Bank Limited group and company annual financial statements 2015                                                                                   119
                              Accounting policies (continued)


                              Deferred tax assets or liabilities are           Standards and                                             credit losses (ECL) resulting from default
                              measured using the tax rates that have                                                                     events that are possible within the next
                              been enacted or substantively enacted at         interpretations issued,                                   12 months (12 month ECL). In the event
                              the balance sheet date.                                                                                    of a significant increase in credit risk,
                                                                               but not yet effective                                     allowance (or provision) is required for
                              Deferred tax assets are recognised to the
                                                                                                                                         ECL resulting from all possible default
                              extent that it is probable that future taxable   The following significant standards and
                                                                                                                                         events over the expected life of the
                              profit will be available against which the       interpretations, which have been issued but
                                                                                                                                         financial instrument (lifetime ECL).
                              deferred tax asset can be utilised.              are not yet effective, are applicable to the
                                                                               group. These standards and interpretations            IFRS 9 also includes guidance on hedge
                              Items recognised directly in other               have not been applied in these annual                 accounting. The general hedge accounting
                              comprehensive income are net of related          financial statements. The group intends               requirements aim to simplify hedge
                              current and deferred taxation.                   to comply with these standards from the               accounting, creating a stronger link with
                                                                               effective dates.                                      risk management strategy and permitting
                                                                                                                                     hedge accounting to be applied to a
                              Employee benefits                                IFRS 9 Financial Instruments                          greater variety of hedging instruments and
                                                                               IFRS 9 Financial Instruments was issued               risks. The standard does not address
                              The group operates various defined
                                                                               in July 2014 will replace certain key                 macro hedge accounting strategies,
                              contribution schemes.
                                                                               elements of IAS 39. The mandatory                     which are being considered in a separate
                              In respect of the defined contribution           effective date for IFRS 9 is from                     project. To remove the risk of any conflict
                              scheme, all employer contributions               1 January 2018 with early adoption                    between existing macro hedge accounting
                              are charged to income as incurred, in            permitted. However, IFRS 9 has not yet                practice and the new general hedge
                              accordance with the rules of the scheme,         been endorsed by the European Union.                  accounting requirements, IFRS 9 includes
                              and included under staff costs.                  The two key elements that would impact                an accounting policy choice to remain with
                                                                               the group’s accounting policies include:              IAS 39 hedge accounting.
                              The group has no liabilities for other
                              post-retirement benefits.                        •   Classification and measurement of                 There are additional disclosures and
                                                                                   financial assets and financial liabilities        consequential amendments in IFRS 7
                                                                                   – the standard requires that all financial        resulting from the introduction of the hedge
                              Borrowing costs                                      assets be classified as either held at fair       accounting chapter in IFRS 9; these will
                                                                                   value or amortised cost. The amortised            become effective when IFRS 9 is applied.
                              Borrowing costs that are directly                    cost classification is only permitted
                              attributable to property developments                where it is held within a business model          IFRS 15 Revenue from
Annual financial statements




                              which take a substantial period of time to           where the underlying cash flows are               Contracts with Customers
                              develop are capitalised.                             held in order to collect contractual cash
                                                                                                                                     In May 2014, the IASB issued IFRS 15
                                                                                   flows and that the cash flows arise solely
                                                                                                                                     Revenue from Contracts with Customers.
                                                                                   from payment of principal and interest.
                                                                                                                                     The standard is effective for annual periods
                              Provisions, contingent                               The standard further provides that
                                                                                                                                     beginning on or after 1 January 2017
                                                                                   gains and losses on assets held at fair
                              liabilities and contingent                           value are measured through the income
                                                                                                                                     with early application permitted. IFRS 15
                                                                                                                                     provides a principles-based approach
                              assets                                               statement unless the entity has elected
                                                                                                                                     for revenue recognition, and introduces
                                                                                   to present gains and losses on non-
                                                                                                                                     the concept of recognising revenue for
                              Provisions are recognised when the                   trading equity investments (individually
                                                                                                                                     obligations as they are satisfied. The
                              group has a present obligation (legal or             elected) directly through comprehensive
                                                                                                                                     standard should be applied retrospectively,
                              constructive) as a result of a past event,           income. With reference to financial
                                                                                                                                     with certain practical expedients available.
                              it is probable that an outflow of resources          liabilities held at fair value, the standard
                                                                                                                                     The group does not anticipate a material
5                             embodying economic benefits will be                  proposes that changes to fair value
                                                                                                                                     impact on adoption of this standard.
                              required to settle the obligation and a              attributable to credit risk is taken directly
                              reliable estimate can be made of the                 to other comprehensive income without             All other standards and interpretations
                              amount of the obligation. The expense                recycling.                                        issued but not yet effective are not
                              relating to a provision is presented                                                                   expected to have an impact on the group.
                              in the income statement net of any
                                                                               •   Impairment methodology – the key
                                                                                   change is related to a shift from an
                              reimbursement. Contingent assets and
                                                                                   incurred loss to an expected loss
                              contingent liabilities are not recognised
                                                                                   impairment methodology. At initial
                              on balance sheet.
                                                                                   recognition, allowance (or provision
                                                                                   in the case of commitments and
                                                                                   guarantees) is required for expected




                              120                                                                                    Investec Bank Limited group and company annual financial statements 2015
Accounting policies (continued)


Key management                                                  different amounts of cash flows to those
                                                                initially provided and any necessary
assumptions                                                     adjustments are taken into consideration
                                                                in the period in which they are identified
In preparation of the annual financial
statements the group makes estimations                      •   Determination of interest income and
and applies judgement that could affect the                     interest expense using the effective
reported amount of assets and liabilities                       interest method involves judgement in
within the next financial year. Key areas in                    determining the timing and extent of
which judgement is applied include:                             future cash flows

•   Valuation of unlisted investments                       •   In order to meet the objectives of
    primarily in the private equity and direct                  IFRS 12, management performs an
    investments portfolios and embedded                         assessment of the value of each
    derivatives. Key valuation inputs are                       associate in relation to the value of
    based on the most relevant observable                       total assets, as well as any qualitative
    market inputs, adjusted where                               consideration that may exist, in order
    necessary for factors that specifically                     to determine materiality to the reporting
    apply to the individual investments and                     entity for disclosure purposes.
    recognising market volatility.

             Details of unlisted investments
             can be found in note 23 with
             further analysis contained in the
             risk management section on
             page 49 to 51.

•   Valuation of investment properties is
    performed twice annually by directors
    who are qualified valuators.

             Refer to note 30 for the
             carrying value of investment
             property with further analysis




                                                                                                                   Annual financial statements
             contained in the risk
             management section on
             pages 49 to 51.

•   The determination of impairments
    against assets that are carried at
    amortised cost and impairments relating
    to available-for-sale financial assets
    involves the assessment of future cash
    flows which is judgemental in nature.

             Refer to pages 40 to 48 in the
             risk management section for
             further analysis on impairments.

•   The group’s income tax charge and                                                                                 5
    balance sheet provision are judgemental
    in nature. This arises from certain
    transactions for which the ultimate tax
    treatment can only be determined by
    final resolution with the relevant local
    tax authorities. The group recognises
    liabilities for taxation based on estimates
    of levels of taxation expected to be
    payable, taking into consideration expert
    external advice where appropriate.
    The final resolution may result in




Investec Bank Limited group and company annual financial statements 2015                                     121
                              Notes to the financial statements


                                                                                                                       Group                         Company
                                                                                                               Balance                        Balance
                              For the year to 31 March 2015                                                      sheet          Interest        sheet          Interest
                              R’million                                                            Notes         value          income          value          income


                              1.     Net interest income
                                     Cash, near cash and bank debt and sovereign debt securities       1       109 028            4 768        104 237           4 709
                                     Core loans and advances                                           2       177 528           14 091        159 028          12 574
                                       Private client                                                          116 382            9 071        106 252           8 592
                                       Corporate, institutional and other clients                               61 146            5 020         52 776           3 982
                                     Other debt securities and other loans and advances                         13 221              411         13 866             365
                                     Other interest-earning assets                                     3         3 886              317          8 487           1 102
                                     Total interest-earning assets                                             303 663           19 587        285 618          18 750



                                                                                                                       Group                         Company
                                                                                                               Balance                        Balance
                                     For the year to 31 March 2015                                               sheet         Interest         sheet         Interest
                                     R’million                                                     Notes         value        expense           value        expense

                                     Deposits by banks and other debt-related securities               4        51 865             (642)        49 399            (569)
                                     Customer accounts                                                         221 377          (12 613)       211 914         (12 563)
                                     Other interest-bearing liabilities                                5         1 089               (35)            –            (210)
                                     Subordinated liabilities                                                   10 449             (776)        10 449            (776)
                                     Total interest-bearing liabilities                                        284 780          (14 066)       271 762         (14 118)

                                     Net interest income                                                                          5 521                          4 632



                                                                                                                       Group                         Company
Annual financial statements




                                                                                                               Balance                        Balance
                                     For the year to 31 March 2014                                               sheet          Interest        sheet          Interest
                                     R’million                                                     Notes         value          income          value          income

                                     Cash, near cash and bank debt and sovereign debt securities        1      110 439           4 617         105 958           5 019
                                     Core loans and advances                                            2      151 384          11 775         134 611          10 602
                                       Private client                                                           93 720           7 456          91 924           7 086
                                       Corporate, institutional and other clients                               57 664           4 319          42 687           3 516
                                     Other debt securities and other loans and advances                         12 485             504          13 019             378
                                     Other interest-earning assets                                      3        3 427             167           3 324             118
                                     Total interest-earning assets                                             277 735          17 063         256 912          16 117


5                                                                                                                      Group                         Company
                                                                                                               Balance                        Balance
                                     For the year to 31 March 2014                                               sheet         Interest         sheet         Interest
                                     R’million                                                     Notes         value        expense           value        expense

                                     Deposits by banks and other debt-related securities               4        45 459             (825)        43 059            (804)
                                     Customer accounts                                                         204 903          (10 313)       196 177         (10 250)
                                     Other interest-bearing liabilities                                5         1 525             (308)             –            (226)
                                     Subordinated liabilities                                                   10 498             (701)        10 498            (702)
                                     Total interest-bearing liabilities                                        262 385          (12 147)       249 734         (11 982)

                                     Net interest income                                                                          4 916                          4 135

                                     See notes on next page.




                              122                                                                  Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


Notes:
1. Comprises (as per the balance sheet) cash and balances at central banks; loans and advances to banks; non-sovereign and non-bank
   cash placements; reverse repurchase agreements and collateral on securities borrowed; sovereign debt securities; bank debt securities.
2. Comprises (as per the balance sheet) loans and advances to customers; own originated loans and advances to customers securitised.
3. Comprises (as per the balance sheet) other securitised assets; loans to group companies.
4. Comprises (as per the balance sheet) deposits by banks; debt securities in issue; repurchase agreements and cash collateral on
   securities lent.
5. Comprises (as per the balance sheet) liabilities arising on securitisation of own originated assets; liabilities arising on securitisation.


For the year to 31 March                                                                             Group                        Company
R’million                                                                                         2015            2014          2015        2014


2.       Net fee and commission income
          Corporate and institutional transactional and advisory services                         1 076           1 123          986        1 070
          Private client transactional fees                                                         585             444          535         388
          Fee and commission income                                                               1 661           1 567        1 521        1 458
          Fee and commission expense                                                               (207)           (174)        (159)        (145)
             Net fee and commission income                                                        1 454           1 393        1 362        1 313

               Annuity fees (net of fees payable)                                                   772             622          740         574
               Deal fees                                                                            682             771          622         739

         Trust and fiduciary fees amounted to Rnil (2014: R18.4 million) for the group and Rnil (2014: Rnil) for the company and were included
         in private client transactional fees.

                                                                           Investment              Debt
                                                                               portfolio       securities
                                                                            (listed and      (sovereign,                       Other
For the year to 31 March                                                        unlisted       bank and      Investment         asset
R’million                                                                       equities)*         other)     properties   categories       Total




                                                                                                                                                     Annual financial statements
3.        Investment income
          The following table analyses investment
          income generated by the asset portfolio
          shown on the balance sheet:
          Group
          2015
          Investment income comprises:
          Realised                                                                 669               68               –           34         771
          Unrealised                                                               394                (8)             –            6         392
          Dividend income                                                          511                 –              –            –         511
          Funding cost and other net related costs                                 (253)               –              –            (1)       (254)
                                                                                 1 321               60               –           39        1 420       5
          2014
          Investment income comprises:
          Realised                                                                 216                 –              –           14         230
          Unrealised                                                               (240)           (175)             63            (6)       (358)
             Dividend income                                                       646                 –              –            –         646
             Funding cost and other net related costs                              (181)               –              –            (3)       (184)
                                                                                   441             (175)             63            5         334

         *     Including embedded derivatives (warrants and profit shares).




Investec Bank Limited group and company annual financial statements 2015                                                                       123
                              Notes to the financial statements (continued)


                                                                                            Investment              Debt
                                                                                                portfolio       securities
                                                                                             (listed and      (sovereign,                                 Other
                              For the year to 31 March                                           unlisted       bank and         Investment                asset
                              R’million                                                          equities)*         other)        properties          categories                  Total


                              3.     Investment income (continued)
                                     The following table analyses investment
                                     income generated by the asset portfolio
                                     shown on the balance sheet:
                                     Company
                                     2015
                                     Investment income comprises:
                                     Realised                                                       470                67                     –                  (3)                534
                                     Unrealised                                                     456                  –                    –                   6                 462
                                     Dividend income                                                511                  –                    –                278                  789
                                     Funding cost and other net related costs                       (253)                –                    –                  (1)               (254)
                                                                                                  1 184                67                     –                280               1 531

                                     2014
                                     Investment income comprises:
                                     Realised                                                       212                  –                    –                  (8)                204
                                     Unrealised                                                     (351)            (117)                  63                   (4)               (409)
                                        Dividend income                                             633                  –                    –                   4                 637
                                        Funding cost and other net related costs                    (181)                –                    –                   (3)              (184)
                                                                                                    313              (117)                  63                  (11)                248

                                    *     Including embedded derivatives (warrants and profit shares).
Annual financial statements




                              For the year to 31 March                                                                 Group                                    Company
                              R’million                                                                             2015                2014                 2015                 2014


                              4.     Other operating income/(loss)
                                     Rental income from properties                                                      1                     –                   –                    –
                                     Losses on realisation of trading properties                                         –                   (5)                  –                   (7)
                                                                                                                        1                    (5)                  –                   (7)




5




                              124                                                                                  Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


For the year to 31 March                                                               Group                            Company
R’million                                                                            2015            2014            2015             2014


5.        Operating costs
          Staff costs                                                               3 510            2 724           3 366           2 585
          – Salaries and wages (including directors’ remuneration)*                 2 745            2 134           2 630           2 014
          – Training and other costs                                                   80               87              78                  84
          – Share-based payments expense                                              510             367              493             354
          – Social security costs                                                      34               18              33                  18
          – Pensions and provident fund contributions                                 141              118             132             115
          Premises expenses (excluding depreciation)                                  376              380             344             342
          Equipment expenses (excluding depreciation)                                 161              222             125             182
          Business expenses**                                                         329              393             292             344
          Marketing expenses                                                          304              247             292             240
          Depreciation, amortisation and impairment of property,
          equipment and intangibles                                                   138              147             134             145
                                                                                    4 818            4 113           4 553           3 838

          The following amounts were paid by the group to the
          auditors in respect of the audit of the financial statements
          and for other services provided to the group:
          Ernst & Young fees:
          Fees payable to the company’s auditors for the audit
          of the company’s accounts                                                     7                7               7                   7
          Fees payable to the company’s auditors and its associates
          for other services:
          – Audit of the company’s subsidiaries pursuant to legislation                 8                6               –                   –
          – Other services                                                               –               2               –                   –




                                                                                                                                                  Annual financial statements
                                                                                       15               15               7                   7
          KPMG fees:
          Fees payable to the company’s auditors for the audit
          of the company’s accounts                                                    15               14              13                  12
          Fees payable to the company’s auditors and its associates
          for other services:
          – Audit of the company’s subsidiaries pursuant to legislation                 9                9               3                   2
          – Other services                                                              2                –               2                   –
                                                                                       26               23              18                  14

          Total                                                                        41               38              25                  21

          Operating lease expenses
          Minimum lease payments^                                                     314              327             314             327           5
         * Details of the directors’ emoluments, pensions and their interests are disclosed in the remuneration report on pages 90 to 99.
         ** Business expenses mainly comprise insurance costs, consulting and professional fees, travel expenses and subscriptions.
         ^ In the prior year, minimum lease payments was incorrectly reflected as R380 million. This has been corrected in the note with
            impact on the income statement.




Investec Bank Limited group and company annual financial statements 2015                                                                    125
                              Notes to the financial statements (continued)


                              For the year to 31 March                                                                       Group                                     Company
                              R’million                                                                                   2015                 2014                2015                 2014


                              6.        Share-based payments
                                        The group operates share option and long-term share incentive
                                        plans for employees the majority of which are on an equity-
                                        settled basis. The purpose of the staff share schemes is to
                                        promote an esprit de corps within the organisation, create an
                                        awareness of the Investec group's performance and provide
                                        an incentive to maximise individual and group performance by
                                        allowing all staff to share in the risks and rewards of the group.

                                        Further information on the group share options and long-term
                                        incentive plans are provided in the remuneration report and on
                                        our website.
                                        Equity-settled share-based payment expense charged
                                        to the income statement                                                            510                  367                  493                  354

                                        Fair value of options at grant date                                                609                  503                  589                  485

                                        Details of options outstanding during the year
                                        Outstanding at the beginning of the year                                    32 113 711         30 993 741          30 854 481           29 867 875
                                        Relocation of employees during the year                                         245 965             (90 182)           244 527               (90 182)
                                        Granted during the year                                                       8 755 401          9 724 953           8 477 151            9 362 503
                                        Exercised during the year^                                                   (8 658 071)        (7 095 346)         (8 314 349)          (6 882 973)
                                        Lapsed during the year                                                        (905 252)         (1 419 455)           (899 002)          (1 402 742)

                                        Outstanding at the end of the year                                          31 551 754         32 113 711          30 362 808           30 854 481

                                        Exercisable at the end of the year                                              84 188                5 250              84 188                2 750
                                    ^
                                        The weighted average exercise price for all options is Rnil (2014: Rnil) for the group and company.
Annual financial statements




                                                                                                               Group                                            Company
                                    For the year to 31 March                                                 2015                   2014                      2015                      2014

                                    The exercise price range and weighted average
                                    remaining contractual life for the options
                                    outstanding were as follows:

                                    Long-term incentive options with no strike price
                                    Weighted average remaining contractual life                     2.22 years                2.79 years               2.23 years                 2.79 years
                                    Weighted average fair value of options granted
                                    at measurement date                                                R69.58                      R51.77                  R69.51                     R51.78

                                    The fair values of options granted were

5                                   calculated using a Black-Scholes option pricing
                                    model. For options granted during the year, the
                                    inputs into the model were as follows:
                                    – Share price at date of grants                 R90.00 – R100.57                  R66.84 – R71.20 R90.00 – R100.57                   R66.84 – R71.20
                                    – Exercise price                                               Rnil                             Rnil              Rnil                             Rnil
                                    – Expected volatility                              25.24% – 30%                                30%    25.24% – 30%                                30%
                                    – Option life                                      4.5 – 5.0 years                  3.0 – 5.0 years   4.5 – 5.0 years                  3.0 – 5.0 years
                                    – Expected dividend yields                        4.45% – 4.62%                    3.89% – 5.08%     4.45% – 4.62%                    3.89% – 5.08%
                                    – Risk-free rate                                  6.78% – 7.18%                    6.04% – 7.08%     6.78% – 7.18%                    6.04% – 7.08%

                                    Expected volatility was determined based on the implied volatility levels quoted by the derivatives’ trading desk. The expected volatility
                                    is based on the respective share price movement over the last six months, but also includes an element of forward expectation.
                                    The expected attrition rates used were determined based on historical group data with an adjustment to actual attrition on final vesting.

                                        For information on the share options granted to directors, refer to the remuneration report on pages 96 and 97.




                              126                                                                                        Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


For the year to 31 March                                                                  Group                               Company
R’million                                                                              2015             2014             2015            2014


7.        Taxation
          Income statement tax charge
          Taxation on income
          South Africa                                                                  520               300             447             269
          – Current taxation                                                            661               318             597             269
                 in respect of current year                                             661               416             597             367
                 in respect of prior year adjustments                                      –              (98)                –           (98)
          – Deferred taxation                                                           (141)             (18)            (150)             –

          Foreign taxation – Mauritius                                                    25               15                 –             –
          Total taxation charge as per income statement                                 545               315             447             269

          Tax rate reconciliation:
          Profit before taxation as per income statement                              3 673             2 465           3 090           1 831
          Total taxation charge as per income statement                                 545               315             447             269

          Effective rate of taxation                                                 14.8%             12.8%           14.5%            14.7%
          The standard rate of South African normal taxation
          has been affected by:
          Dividend income                                                             10.3%            13.0%           15.1%            16.0%
          Foreign earnings*                                                            4.1%             4.7%                  –             –
          Prior year taxation adjustments                                                  –            3.6%                  –          5.4%
          Profits of capital nature                                                    1.6%             0.2%             1.9%            0.2%
          Other permanent differences                                                 (2.8%)            (6.3%)          (3.5%)          (8.3%)
                                                                                     28.0%             28.0%           28.0%            28.0%




                                                                                                                                                 Annual financial statements
         *   Includes the effect of cumulative tax losses and other permanent differences relating to foreign subsidiaries.




                                                                                                                                                    5




Investec Bank Limited group and company annual financial statements 2015                                                                   127
                              Notes to the financial statements (continued)


                              For the year to 31 March                                                                 Group                                    Company
                              R’million                                                                             2015                2014                 2015                 2014


                              7.     Taxation (continued)
                                     Other comprehensive income taxation effects
                                     Fair value movements on cash flow hedges taken
                                     directly to other comprehensive income                                          (619)                 (75)               (612)                  (75)
                                     – Pre-taxation                                                                  (576)                (175)               (569)                (175)
                                     – Current tax                                                                     31                 119                   31                  100
                                     – Deferred tax                                                                    (74)                (19)                 (74)                   –
                                     Fair value movements on available-for-sale assets
                                     taken directly to other comprehensive income                                     322                 (212)                328                 (216)
                                     – Pre-taxation                                                                   380                 (230)                386                 (235)
                                     – Deferred tax                                                                    (58)                 18                  (58)                 19

                                     Gain on realisation of available-for-sale assets recycled
                                     through the income statement                                                        –                   (2)                  –                   (2)
                                     – Pre-taxation                                                                      –                   (3)                  –                   (3)
                                     – Deferred tax                                                                      –                    1                   –                    1




                              For the year to 31 March                                                                 Group                                    Company
                              R’million                                                                             2015                2014                 2015                 2014


                              8.     Headline earnings
                                     Profit after taxation                                                          3 128               2 150               2 643                1 562
                                     Preference dividends paid                                                       (114)                (108)               (114)                (108)
Annual financial statements




                                     Earnings attributable to ordinary shareholders                                 3 014               2 042               2 529                1 454
                                     Headline adjustments, net of taxation                                               –                  44                    –                  44
                                     Revaluation of investment properties*                                               –                  46                                       46
                                     Gain on realisation of available-for-sale assets recycled
                                     through the income statement*                                                       –                   (2)                  –                   (2)

                                        Headline earnings attributable to ordinary shareholders                     3 014               2 086               2 529                1 498

                                    *     Amount is net of taxation of Rnil (2014: R18.2 million) for both group and company.




5




                              128                                                                                  Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


                                                                           Group                                             Company
                                                        2015                           2014                      2015                      2014
                                                Cents                              Cents                     Cents                     Cents
For the year to 31 March                     per share         R’million        per share     R’million   per share     R’million   per share     R’million


9.        Dividends
          Perpetual preference
          dividend
          Final dividend in
          prior year                             360.15                    55      353.18           53      360.15            55       353.18           53
          Interim dividend for
          current year                           380.29                    59      355.12           55      380.29            59       355.12           55
          Total dividend
          attributable to perpetual
          preference shareholders
          recognised in current
          financial year                         740.44               114          708.30          108      740.44           114       708.30          108

         The directors have declared a final dividend in respect of the financial year ended 31 March 2015 of 384.34536 cents per perpetual
         preference share.




                                                                                                                                                              Annual financial statements



                                                                                                                                                                 5




Investec Bank Limited group and company annual financial statements 2015                                                                                129
                              Notes to the financial statements (continued)


                                                                                                                                             At fair value through
                                                                                                                                                 profit or loss
                              For the year to 31 March                                                                                                         Designated
                              R’million                                                                                                        Trading         at inception


                              10. Analysis of income and impairments by category
                                  of financial instrument
                                     Group
                                     2015
                                     Net interest income                                                                                            468                   781
                                     Fee and commission income                                                                                         –                     8
                                     Fee and commission expense                                                                                        –                  (14)
                                     Investment income                                                                                                 –               1 246
                                     Trading income arising from
                                     – customer flow                                                                                                288                      2
                                     – balance sheet management and other trading activities                                                        461                  (212)
                                     Other operating income                                                                                            –                     –
                                     Total operating income before impairment losses on loans and advances                                       1 217                 1 811
                                     Impairment losses on loans and advances                                                                           –                     –
                                     Operating income                                                                                            1 217                 1 811

                                     2014
                                     Net interest income                                                                                            469                1 507
                                     Fee and commission income                                                                                         –                   25
                                     Fee and commission expense                                                                                        –                  (30)
                                     Investment income                                                                                                 –                  264
                                     Trading income arising from
Annual financial statements




                                     – customer flow                                                                                                346                     (3)
                                     – balance sheet management and other trading activities                                                        138                      4
                                     Other operating income                                                                                            –                     –
                                     Total operating income before impairment losses on loans and advances                                          953                1 767
                                     Impairment losses on loans and advances                                                                           –                     –
                                     Operating income                                                                                               953                1 767




5




                              130                                                                        Investec Bank Limited group and company annual financial statements 2015
                                                                         Financial
                                                                         liabilities
         Held-to-           Loans and              Available-        at amortised      Non-financial          Other
         maturity          receivables               for-sale                 cost      instruments     fee income    Total




               831               15 476                    641             (12 676)                –             –    5 521
                  –                  458                      –                  36                1         1 158    1 661
                  –                   (76)                    –                 (64)              (2)          (51)    (207)
                (17)                  45                   116                    –              30              –    1 420


                  –                     –                     –                   –                –             –     290
                  –                   11                      –                   –                –             –     260
                  –                     –                     –                   –                1             –        1
               814               15 914                    757             (12 704)              30          1 107    8 946
                  –                 (455)                     –                   –                –             –     (455)
               814               15 459                    757             (12 704)              30          1 107    8 491


               639               12 275                    571             (10 535)              (10)            –    4 916
                  –                  503                      –                  27              20            992    1 567
                  –                   (69)                    –                 (11)             (18)          (46)    (174)
                  –                     –                   16                    –              54              –     334




                                                                                                                                     Annual financial statements
                  –                     –                     –                   –                –             –     343
                  –                   93                      –                   –                –             –     235
                  –                     –                     –                   –               (5)            –       (5)
               639               12 802                    587             (10 519)              41            946    7 216
                  –                 (638)                     –                   –                –             –     (638)
               639               12 164                    587             (10 519)              41            946    6 578




                                                                                                                                        5




Investec Bank Limited group and company annual financial statements 2015                                                       131
                              Notes to the financial statements (continued)


                                                                                                                                             At fair value through
                                                                                                                                                 profit or loss
                              For the year to 31 March                                                                                                         Designated
                              R’million                                                                                                        Trading         at inception


                              10. Analysis of income and impairments by category
                                  of financial instrument (continued)
                                     Company
                                     2015
                                     Net interest income                                                                                            557                   775
                                     Fee and commission income                                                                                         –                     8
                                     Fee and commission expense                                                                                        –                  (14)
                                     Investment income                                                                                                 –               1 116
                                     Trading income arising from
                                     – customer flow                                                                                                317                      –
                                     – balance sheet management and other trading activities                                                        466                  (212)
                                     Total operating income before impairment losses on loans and advances                                       1 340                 1 673
                                     Impairment losses on loans and advances                                                                           –                     –
                                     Operating income                                                                                            1 340                 1 673

                                     2014
                                     Net interest income                                                                                            471                1 547
                                     Fee and commission income                                                                                         –                   25
                                     Fee and commission expense                                                                                        –                  (30)
                                     Investment income                                                                                                 –                  179
                                     Trading income arising from
                                     – customer flow                                                                                                326                     (1)
Annual financial statements




                                     – balance sheet management and other trading activities                                                        144                      3
                                     Other operating income                                                                                            –                     –
                                     Total operating income before impairment losses on loans and advances                                          941                1 723
                                     Impairment losses on loans and advances                                                                           –                     –
                                     Operating income                                                                                               941                1 723




5




                              132                                                                        Investec Bank Limited group and company annual financial statements 2015
                                                                         Financial
                                                                         liabilities
         Held-to-           Loans and              Available-        at amortised      Non-financial          Other
         maturity          receivables               for-sale                 cost      instruments     fee income    Total




               773               14 395                    605             (12 473)                –             –    4 632
                  –                  367                      –                  (1)               1         1 146    1 521
                  –                   (31)                    –                 (64)               –           (50)    (159)
                (17)                  40                   113                    –             279              –    1 531


                  –                     –                     –                   –                –             –     317
                  –                   15                      –                   –                –             –     269
               756               14 786                    718             (12 538)             280          1 096    8 111
                  –                 (468)                     –                   –                –             –     (468)
               756               14 318                    718             (12 538)             280          1 096    7 643


               584               11 471                    544             (10 475)               (7)            –    4 135
                  –                  443                      –                   1              20            969    1 458
                  –                   (47)                    –                 (11)             (11)          (46)    (145)
                  –                     –                   16                    –              53              –     248


                  –                     –                     –                   –                –             –     325




                                                                                                                                     Annual financial statements
                  –                   87                      –                   –                –             –     234
                  –                     –                     –                   –               (7)            –       (7)
               584               11 954                    560             (10 485)              48            923    6 248
                  –                 (579)                     –                   –                –             –     (579)
               584               11 375                    560             (10 485)              48            923    5 669




                                                                                                                                        5




Investec Bank Limited group and company annual financial statements 2015                                                       133
                              Notes to the financial statements (continued)



                                                                                                                                                      At fair value through
                                                                                                                                                          profit or loss
                              At 31 March                                                                                                                               Designated
                              R’million                                                                                                                 Trading         at inception


                              11. Analysis of financial assets and liabilities
                                  by measurement basis
                                     Group
                                     2015
                                     Assets
                                     Cash and balances at central banks                                                                                      –                     –
                                     Loans and advances to banks                                                                                             –                     –
                                     Non-sovereign and non-bank cash placements                                                                              3                     –
                                     Reverse repurchase agreements and cash collateral on securities borrowed                                           10 095                     –
                                     Sovereign debt securities                                                                                               –                23 337
                                     Bank debt securities                                                                                                    –                 4 485
                                     Other debt securities                                                                                                   –                    36
                                     Derivative financial instruments*                                                                                  15 178                     –
                                     Securities arising from trading activities                                                                          1 289                     –
                                     Investment portfolio                                                                                                    –                 7 811
                                     Loans and advances to customers                                                                                         –                12 034
                                     Own originated loans and advances to customers securitised                                                              –                     –
                                     Other loans and advances                                                                                                –                     –
                                     Other securitised assets                                                                                                –                     –
                                     Interests in associated undertakings                                                                                    –                     –
                                     Deferred taxation assets                                                                                                –                     –
                                     Other assets                                                                                                            2                     –
Annual financial statements




                                     Property and equipment                                                                                                  –                     –
                                     Investment properties                                                                                                   –                     –
                                     Intangible assets                                                                                                       –                     –
                                     Loans to group companies                                                                                                –                     –
                                     Non-current assets classified as held for sale**                                                                        –                     –
                                                                                                                                                        26 567                47 703

                                     Liabilities
                                     Deposits by banks                                                                                                       –                     –
                                     Derivative financial instruments*                                                                                  12 401                     –
                                     Other trading liabilities                                                                                           1 623                     –
                                     Repurchase agreements and cash collateral on securities lent                                                        1 148                     –

5
                                     Customer accounts (deposits)                                                                                            –                16 609
                                     Debt securities in issue                                                                                                –                 3 366
                                     Liabilities arising on securitisation of own originated loans and advances                                              –                     –
                                     Current taxation liabilities                                                                                            –                     –
                                     Deferred taxation liabilities                                                                                           –                     –
                                     Other liabilities                                                                                                     690                     –
                                                                                                                                                        15 862                19 975
                                     Subordinated liabilities                                                                                                –                     –
                                                                                                                                                        15 862                19 975

                                     *    Derivative financial instruments have been classified as held-for-trading and include derivatives held as hedges.
                                     **   Non-current assets held for sale relates to an acquisition of a 100% interest in an entity. Management have entered into
                                          negotiations to dispose of a controlling interest in the entity.

                                          For more information refer to note 47.




                              134                                                                                 Investec Bank Limited group and company annual financial statements 2015
                               Total                                               Financial           Total
     Available-        instruments               Held-to-          Loans and    liabilities at instruments at Non-financial
       for-sale        at fair value             maturity         receivables amortised cost amortised cost instruments         Total




              –                    –                    –               6 261              –         6 261               –      6 261
              –                    –                    –              33 422              –        33 422               –     33 422
              –                    3                    –              10 537              –        10 537               –     10 540
              –               10 095                    –                   –              –             –               –     10 095
          4 487               27 824                3 554                   –              –         3 554               –     31 378
          3 132                7 617                8 426               1 289              –         9 715               –     17 332
          6 787                6 823                1 468               4 458              –         5 926               –     12 749
              –               15 178                    –                   –              –             –               –     15 178
              –                1 289                    –                   –              –             –               –      1 289
          2 161                9 972                    –                   –              –             –               –      9 972
              –               12 034                    –             160 959              –       160 959               –    172 993
              –                    –                    –               4 535              –         4 535               –      4 535
              –                    –                    –                 472              –           472               –        472
              –                    –                    –                 618              –           618               –        618
              –                    –                    –                   –              –             –              60         60
              –                    –                    –                   –              –             –              88         88
              –                    2                    –                 875              –           875             385      1 262




                                                                                                                                              Annual financial statements
              –                    –                    –                   –              –             –             192        192
              –                    –                    –                   –              –             –              80         80
              –                    –                    –                   –              –             –             190        190
              –                    –                    –               3 268              –         3 268               –      3 268
              –                    –                    –                   –              –             –             732        732
         16 567               90 837               13 448             226 694              –       240 142           1 727    332 706


                 –                 –                       –                –        29 792         29 792                –    29 792
                 –            12 401                       –                –             –              –                –    12 401
                 –             1 623                       –                –             –              –                –     1 623
                 –             1 148                       –                –        15 408         15 408                –    16 556

                                                                                                                                                 5
                 –            16 609                       –                –       204 768        204 768                –   221 377
                 –             3 366                       –                –         2 151          2 151               –      5 517
                 –                 –                       –                –         1 089          1 089               –      1 089
                 –                 –                       –                –             –              –           1 186      1 186
                 –                 –                       –                –             –              –              76         76
                 –               690                       –                –           835            835           2 216      3 741
                 –            35 837                       –                –       254 043        254 043           3 478    293 358
                 –                 –                       –                –        10 449         10 449               –     10 449
                 –            35 837                       –                –       264 492        264 492           3 478    303 807




Investec Bank Limited group and company annual financial statements 2015                                                                135
                              Notes to the financial statements (continued)



                                                                                                                                                      At fair value through
                                                                                                                                                          profit or loss
                              At 31 March                                                                                                                               Designated
                              R’million                                                                                                                 Trading         at inception


                              11. Analysis of financial assets and liabilities
                                  by measurement basis (continued)
                                     Group
                                     2014
                                     Assets
                                     Cash and balances at central banks                                                                                         –                     –
                                     Loans and advances to banks                                                                                                –                   26
                                     Non-sovereign and non-bank cash placements                                                                               27                      –
                                     Reverse repurchase agreements and cash collateral on securities borrowed                                             6 442                       –
                                     Sovereign debt securities                                                                                                  –             26 802
                                     Bank debt securities                                                                                                       –               6 085
                                     Other debt securities                                                                                                      –                   59
                                     Derivative financial instruments*                                                                                  12 299                        –
                                     Securities arising from trading activities                                                                           1 316                       –
                                     Investment portfolio                                                                                                       –               6 781
                                     Loans and advances to customers                                                                                            –             13 008
                                     Own originated loans and advances to customers securitised                                                                 –                     –
                                     Other loans and advances                                                                                                   –                     –
                                     Other securitised assets                                                                                                   –                     –
                                     Interests in associated undertakings                                                                                       –                     –
                                     Deferred taxation assets                                                                                                   –                     –
Annual financial statements




                                     Other assets                                                                                                               2                     –
                                     Property and equipment                                                                                                     –                     –
                                     Investment properties                                                                                                      –                     –
                                     Intangible assets                                                                                                          –                     –
                                     Loans to group companies                                                                                            (1 341)                      –
                                     Non-current assets classified as held for sale**                                                                           –                     –
                                                                                                                                                        18 745                52 761

                                     Liabilities
                                     Deposits by banks                                                                                                          –                     1
                                     Derivative financial instruments*                                                                                    9 259                       –
                                     Other trading liabilities                                                                                            1 431                       –

5                                    Repurchase agreements and cash collateral on securities lent
                                     Customer accounts (deposits)
                                                                                                                                                          3 320
                                                                                                                                                                –             19 473
                                                                                                                                                                                      –


                                     Debt securities in issue                                                                                                   –               3 135
                                     Liabilities arising on securitisation of own originated loans and advances                                                 –                     –
                                     Liabilities arising on securitisation of other assets                                                                      –                     –
                                     Current taxation liabilities                                                                                               –                     –
                                     Deferred taxation liabilities                                                                                              –                     –
                                     Other liabilities                                                                                                       517                      –
                                                                                                                                                        14 527                22 609
                                     Subordinated liabilities                                                                                                  –                     –
                                                                                                                                                        14 527                22 609

                                     *    Derivative financial instruments have been classified as held-for-trading and include derivatives held as hedges.
                                     **   Non-current assets held for sale relates to an acquisition of a 100% interest in an entity. Management have entered
                                          into negotiations to dispose of a controlling interest in the entity.

                                          For more information refer to note 47.


                              136                                                                                 Investec Bank Limited group and company annual financial statements 2015
                               Total                                               Financial           Total
      Available-       instruments               Held-to-          Loans and    liabilities at instruments at Non-financial
        for-sale       at fair value             maturity         receivables amortised cost amortised cost instruments         Total




                 –                    –                    –                5 927          –          5 927               –     5 927
                 –                  26                     –               32 646          –        32 646                –    32 672
                 –                  27                     –                9 018          –          9 018               –     9 045
                 –              6 442                      –                    –          –              –               –     6 442
           4 616              31 418                 3 397                      –          –          3 397               –    34 815
           2 227                8 312              11 906                   1 320          –        13 226                –    21 538
           5 278                5 337                2 077                  4 519          –          6 596               –    11 933
                 –            12 299                       –                    –          –              –               –    12 299
                 –              1 316                      –                    –          –              –               –     1 316
           2 053                8 834                      –                    –          –              –               –     8 834
                 –            13 008                       –          135 554              –       135 554                –   148 562
                 –                    –                    –                2 822          –          2 822               –     2 822
                 –                    –                    –                 552           –           552                –      552
                 –                    –                    –                1 503          –          1 503               –     1 503
                 –                    –                    –                    –          –              –             52        52
                 –                    –                    –                    –          –              –             75        75




                                                                                                                                              Annual financial statements
                 –                    2                    –                1 288          –          1 288            481      1 771
                 –                    –                    –                    –          –              –            219       219
                 –                    –                    –                    –          –              –             84        84
                 –                    –                    –                    –          –              –            102       102
                 –             (1 341)                     –                3 265          –          3 265               –     1 924
                 –                    –                    –                    –          –              –            731       731
          14 174              85 680               17 380             198 414              –       215 794           1 744    303 218


                 –                    1                    –                    –    22 406         22 406                –    22 407
                 –              9 259                      –                    –          –              –               –     9 259
                 –              1 431                      –                    –          –              –               –     1 431
                 –
                 –
                                3 320
                              19 473
                                                           –
                                                           –
                                                                                –
                                                                                –
                                                                                     14 366
                                                                                    185 430
                                                                                                    14 366
                                                                                                   185 430
                                                                                                                          –
                                                                                                                          –
                                                                                                                               17 686
                                                                                                                              204 903
                                                                                                                                                 5
                 –              3 135                      –                    –     2 231           2 231               –     5 366
                 –                    –                    –                    –     1 369           1 369               –     1 369
                 –                    –                    –                    –       156            156                –      156
                 –                    –                    –                    –          –              –          1 288      1 288
                 –                    –                    –                    –          –              –             61        61
                 –                517                      –                    –       989            989           1 687      3 193
                 –            37 136                       –                    –   226 947        226 947           3 036    267 119
                 –                    –                    –                    –    10 498         10 498                –    10 498
                 –            37 136                       –                    –   237 445        237 445           3 036    277 617




Investec Bank Limited group and company annual financial statements 2015                                                                137
                              Notes to the financial statements (continued)



                                                                                                                                                     At fair value through
                                                                                                                                                         profit or loss
                              At 31 March                                                                                                                              Designated
                              R’million                                                                                                                Trading         at inception


                              11. Analysis of financial assets and liabilities
                                  by measurement basis (continued)
                                     Company
                                     2015
                                     Assets
                                     Cash and balances at central banks                                                                                       –                     –
                                     Loans and advances to banks                                                                                              –                     –
                                     Non-sovereign and non-bank cash placements                                                                              3                      –
                                     Reverse repurchase agreements and cash collateral on securities borrowed                                           9 926                       –
                                     Sovereign debt securities                                                                                                –             23 337
                                     Bank debt securities                                                                                                     –               4 485
                                     Other debt securities                                                                                                    –                     –
                                     Derivative financial instruments*                                                                                14 969                        –
                                     Securities arising from trading activities                                                                         1 289                       –
                                     Investment portfolio                                                                                                     –               7 420
                                     Loans and advances to customers                                                                                          –             12 034
                                     Other loans and advances                                                                                                 –                     –
                                     Other securitised assets                                                                                                 –                     –
                                     Other assets                                                                                                            2                      –
                                     Property and equipment                                                                                                   –                     –
                                     Investment properties                                                                                                    –                     –
Annual financial statements




                                     Intangible assets                                                                                                        –                     –
                                     Loans to group companies                                                                                                 –                     –
                                     Investment in subsidiaries                                                                                               –                     –
                                     Non-current assets classified as held for sale**                                                                         –                     –
                                                                                                                                                      26 189                47 276

                                     Liabilities
                                     Deposits by banks                                                                                                        –                     –
                                     Derivative financial instruments*                                                                                12 401                        –
                                     Other trading liabilities                                                                                          1 623                       –
                                     Repurchase agreements and cash collateral on securities lent                                                       1 149                       –
                                     Customer accounts (deposits)                                                                                             –             16 609

5                                    Debt securities in issue
                                     Current taxation liabilities
                                                                                                                                                              –
                                                                                                                                                              –
                                                                                                                                                                              3 366
                                                                                                                                                                                    –
                                     Deferred taxation liabilities                                                                                            –                     –
                                     Other liabilities                                                                                                    691                       –
                                                                                                                                                      15 864                19 975
                                     Subordinated liabilities                                                                                                 –                     –
                                                                                                                                                      15 864                19 975

                                     *    Derivative financial instruments have been classified as held-for-trading and include derivatives held as hedges.
                                     **   Non-current assets held for sale relates to an acquisition of a 100% interest in an entity. Management have entered into
                                          negotiations to dispose of a controlling interest in the entity.

                                          For more information refer to note 47.




                              138                                                                                Investec Bank Limited group and company annual financial statements 2015
                               Total                                               Financial           Total
      Available-       instruments               Held-to-          Loans and    liabilities at instruments at Non-financial
        for-sale       at fair value             maturity         receivables amortised cost amortised cost instruments         Total




                 –                    –                    –                6 148          –          6 148               –     6 148
                 –                    –                    –               30 284          –        30 284                –    30 284
                 –                    3                    –               10 537          –        10 537                –    10 540
                 –              9 926                      –                    –          –              –               –     9 926
           4 467              27 804                 3 554                      –          –          3 554               –    31 358
           3 132                7 617                7 075                  1 289          –          8 364               –    15 981
           6 132                6 132                1 290                  5 968          –          7 258               –    13 390
                 –            14 969                       –                    –          –              –               –    14 969
                 –              1 289                      –                    –          –              –               –     1 289
           2 161                9 581                      –                    –          –              –               –     9 581
                 –            12 034                       –          146 994              –       146 994                –   159 028
                 –                    –                    –                 476           –           476                –      476
                 –                    –                    –                 137           –           137                –      137
                 –                    2                    –                 780           –           780             212       994
                 –                    –                    –                    –          –              –            187       187
                 –                    –                    –                    –          –              –             80        80




                                                                                                                                              Annual financial statements
                 –                    –                    –                    –          –              –            177       177
                 –                    –                    –                2 825          –          2 825               –     2 825
                 –                    –                    –                    –          –              –          6 430      6 430
                 –                    –                    –                    –          –              –            732       732
          15 892              89 357               11 919             205 438              –       217 357           7 818    314 532


                 –                    –                    –                    –    29 652         29 652                –    29 652
                 –            12 401                       –                    –          –              –               –    12 401
                 –              1 623                      –                    –          –              –               –     1 623
                 –              1 149                      –                    –    14 076         14 076                –    15 225
                 –            16 609                       –                    –   195 305        195 305                –   211 914
                 –
                 –
                                3 366
                                      –
                                                           –
                                                           –
                                                                                –
                                                                                –
                                                                                      1 156
                                                                                           –
                                                                                                      1 156
                                                                                                          –          1 369
                                                                                                                          –     4 522
                                                                                                                                1 369
                                                                                                                                                 5
                 –                    –                    –                    –          –              –             36        36
                 –                691                      –                    –       681            681           2 120      3 492
                 –            35 839                       –                    –   240 870        240 870           3 525    280 234
                 –                    –                    –                    –    10 449         10 449                –    10 449
                 –            35 839                       –                    –   251 319        251 319           3 525    290 683




Investec Bank Limited group and company annual financial statements 2015                                                                139
                              Notes to the financial statements (continued)



                                                                                                                                                     At fair value through
                                                                                                                                                         profit or loss
                              At 31 March                                                                                                                              Designated
                              R’million                                                                                                                Trading         at inception


                              11. Analysis of financial assets and liabilities
                                  by measurement basis (continued)
                                     Company
                                     2014
                                     Assets
                                     Cash and balances at central banks                                                                                       –                     –
                                     Loans and advances to banks                                                                                              –                   26
                                     Non-sovereign and non-bank cash placements                                                                             27                      –
                                     Reverse repurchase agreements and cash collateral on securities borrowed                                           6 442                       –
                                     Sovereign debt securities                                                                                                –             26 802
                                     Bank debt securities                                                                                                     –               6 085
                                     Other debt securities                                                                                                    –                     –
                                     Derivative financial instruments*                                                                                11 957                        –
                                     Securities arising from trading activities                                                                         1 316                       –
                                     Investment portfolio                                                                                                     –               6 605
                                     Loans and advances to customers                                                                                          –             13 008
                                     Other securitised assets                                                                                                 –                     –
                                     Other assets                                                                                                            2                      –
                                     Property and equipment                                                                                                   –                     –
                                     Investment properties                                                                                                    –                     –
                                     Intangible assets                                                                                                        –                     –
Annual financial statements




                                     Loans to group companies                                                                                          (1 347)                      –
                                     Investment in subsidiaries                                                                                               –                     –
                                     Non-current assets classified as held for sale**                                                                         –                     –
                                                                                                                                                      18 397                52 526


                                     Liabilities
                                     Deposits by banks                                                                                                        –                    1
                                     Derivative financial instruments*                                                                                  9 259                       –
                                     Other trading liabilities                                                                                          1 431                       –
                                     Repurchase agreements and cash collateral on securities lent                                                       3 320                       –
                                     Customer accounts (deposits)                                                                                             –             19 473

5
                                     Debt securities in issue                                                                                                 –               3 135
                                     Current taxation liabilities                                                                                             –                     –
                                     Deferred taxation liabilities                                                                                            –                     –
                                     Other liabilities                                                                                                    517                       –
                                                                                                                                                      14 527                22 609
                                     Subordinated liabilities                                                                                                 –                     –
                                                                                                                                                      14 527                22 609

                                     *    Derivative financial instruments have been classified as held-for-trading and include derivatives held as hedges.
                                     **   Non-current assets held for sale relates to an acquisition of a 100% interest in an entity. Management have entered into
                                          negotiations to dispose of a controlling interest in the entity.

                                          For more information refer to note 47.




                              140                                                                                Investec Bank Limited group and company annual financial statements 2015
                               Total                                               Financial           Total
      Available-       instruments               Held-to-          Loans and    liabilities at instruments at Non-financial
        for-sale       at fair value             maturity         receivables amortised cost amortised cost instruments         Total




                 –                    –                    –                5 751          –          5 751               –     5 751
                 –                  26                     –               29 646          –        29 646                –    29 672
                 –                  27                     –                9 018          –          9 018               –     9 045
                 –              6 442                      –                    –          –              –               –     6 442
           4 616              31 418                 3 397                      –          –          3 397               –    34 815
           2 227                8 312              10 601                   1 320          –        11 921                –    20 233
           4 686                4 686                4 643                  3 690          –          8 333               –    13 019
                 –            11 957                       –                    –          –              –               –    11 957
                 –              1 316                      –                    –          –              –               –     1 316
           2 052                8 657                      –                    –          –              –               –     8 657
                 –            13 008                       –          121 603              –       121 603                –   134 611
                 –                    –                    –                 527           –           527                –      527
                 –                    2                    –                1 216          –          1 216            274      1 492
                 –                    –                    –                    –          –              –            215       215
                 –                    –                    –                    –          –              –             84        84
                 –                    –                    –                    –          –              –             96        96




                                                                                                                                              Annual financial statements
                 –             (1 347)                     –                4 144          –          4 144               –     2 797
                 –                    –                    –                    –          –              –          4 766      4 766
                 –                    –                    –                    –          –              –            731       731
          13 581              84 504               18 641             176 915              –       195 556           6 166    286 226



                 –                    1                    –                    –    22 265         22 265                –    22 266
                 –              9 259                      –                    –          –              –               –     9 259
                 –              1 431                      –                    –          –              –               –     1 431
                 –              3 320                      –                    –    13 087         13 087                –    16 407
                 –            19 473                       –                    –   176 704        176 704                –   196 177

                                                                                                                                                 5
                 –              3 135                      –                    –     1 251           1 251               –     4 386
                 –                    –                    –                    –          –              –          1 450      1 450
                 –                    –                    –                    –          –              –             54        54
                 –                517                      –                    –       568            568           1 588      2 673
                 –            37 136                       –                    –   213 875        213 875           3 092    254 103
                 –                    –                    –                    –    10 498         10 498                –    10 498
                 –            37 136                       –                    –   224 373        224 373           3 092    264 601




Investec Bank Limited group and company annual financial statements 2015                                                                141
                              Notes to the financial statements (continued)


                              12. Fair value hierarchy
                                    The table below analyses recurring fair value measurements for financial assets and financial liabilities. These fair value
                                    measurements are categorised into different levels in the fair value hierarchy based on the inputs to the valuation technique used.
                                    The different levels are identified as follows:

                                    Level 1 – quoted (unadjusted) prices in active markets for identical assets or liabilities

                                    Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
                                              (i.e. as prices) or indirectly (i.e. derived from prices)

                                    Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).

                                                                                                                Financial                       Fair value category
                                    For the year to 31 March                                                 instruments
                                    R’million                                                                at fair value            Level 1              Level 2             Level 3

                                    Group
                                    2015
                                    Assets
                                    Non-sovereign and non-bank cash placements                                           3                    –                   3                    –
                                    Reverse repurchase agreements and cash collateral
                                    on securities borrowed                                                         10 095                     –            10 095                      –
                                    Sovereign debt securities                                                      27 824              27 804                    20                    –
                                    Bank debt securities                                                            7 617               3 233                4 384                     –
                                    Other debt securities                                                           6 823               6 787                      –                  36
                                    Derivative financial instruments                                               15 178                     –            15 423                  (245)
                                    Securities arising from trading activities                                      1 289               1 289                      –                   –
                                    Investment portfolio                                                            9 972               2 640                  614               6 718
                                    Loans and advances to customers                                                12 034                     –            12 034                      –
                                    Other assets                                                                         2                    2                    –                   –
Annual financial statements




                                                                                                                   90 837              41 755              42 573                6 509
                                    Liabilities
                                    Derivative financial instruments                                               12 401                     –            12 401                      –
                                    Other trading liabilities                                                       1 623                  826                 797                     –
                                    Repurchase agreements and cash collateral on securities lent                    1 148                     –              1 148                     –
                                    Customer accounts (deposits)                                                   16 609                     –            16 609                      –
                                    Debt securities in issue                                                        3 366                     –              3 366                     –
                                    Other liabilities                                                                 690                     –                690                     –
                                                                                                                   35 837                  826             35 011                      –

                                    Net assets                                                                     55 000              40 929                7 562                6 509


5




                              142                                                                                  Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


                                                                              Financial          Fair value category
For the year to 31 March                                                   instruments
R’million                                                                  at fair value   Level 1       Level 2       Level 3


12. Fair value hierarchy (continued)
         Group
         2014
         Assets
         Loans and advances to banks                                                 26          –            26            –
         Non-sovereign and non-bank cash placements                                  27          –            27            –
         Reverse repurchase agreements and cash collateral
         on securities borrowed                                                  6 442           –         6 442            –
         Sovereign debt securities                                              31 418     31 418              –            –
         Bank debt securities                                                    8 312      2 227          6 085            –
         Other debt securities                                                   5 337      5 278              –           59
         Derivative financial instruments                                       12 299           –        12 545         (246)
         Securities arising from trading activities                              1 316      1 316              –            –
         Investment portfolio                                                    8 834      2 357            362        6 115
         Loans and advances to customers                                        13 008           –        13 008            –
         Other assets                                                                 2          2             –            –
         Loans to group companies                                                (1 341)         –        (1 341)           –
                                                                                85 680     42 598         37 154        5 928
         Liabilities
         Deposits by banks                                                            1          –             1            –
         Derivative financial instruments                                        9 259           –         9 259            –
         Other trading liabilities                                               1 431        763            668            –
         Repurchase agreements and cash collateral on securities lent            3 320           –         3 320            –




                                                                                                                                 Annual financial statements
         Customer accounts (deposits)                                           19 473           –        19 473            –
         Debt securities in issue                                                3 135           –         3 135            –
         Other liabilities                                                         517           –           517            –
                                                                                37 136        763         36 373            –

         Net assets                                                             48 544     41 835            781        5 928




                                                                                                                                    5




Investec Bank Limited group and company annual financial statements 2015                                                   143
                              Notes to the financial statements (continued)


                                                                                                            Total                      Fair value category
                              For the year to 31 March                                              instruments
                              R’million                                                             at fair value            Level 1              Level 2              Level 3


                              12. Fair value hierarchy (continued)
                                     Company
                                     2015
                                     Assets
                                     Non-sovereign and non-bank cash placements                                 3                    –                    3                    –
                                     Reverse repurchase agreements and cash collateral
                                     on securities borrowed                                               9 926                      –              9 926                      –
                                     Sovereign debt securities                                           27 804               27 804                      –                    –
                                     Bank debt securities                                                 7 617                 3 233               4 384                      –
                                     Other debt securities                                                6 132                 6 132                     –                    –
                                     Derivative financial instruments                                    14 969                      –            15 214                  (245)
                                     Securities arising from trading activities                           1 289                 1 289                     –                    –
                                     Investment portfolio                                                 9 581                 2 639                 366                6 576
                                     Loans and advances to customers                                     12 034                      –            12 034                       –
                                     Other assets                                                               2                    2                    –                    –
                                                                                                         89 357               41 099              41 927                 6 331

                                     Liabilities
                                     Derivative financial instruments                                    12 401                      –            12 401                       –
                                     Other trading liabilities                                            1 623                   826                 797                      –
                                     Repurchase agreements and cash collateral on securities lent         1 149                      –              1 149                      –
                                     Customer accounts (deposits)                                        16 609                      –            16 609                       –
                                     Debt securities in issue                                             3 366                      –              3 366                      –
                                     Other liabilities                                                       691                     –                691                      –
Annual financial statements




                                                                                                         35 839                   826             35 013                       –

                                    Net assets                                                           53 518               40 273                6 914                6 331




5




                              144                                                                          Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


                                                                                   Total             Fair value category
For the year to 31 March                                                   instruments
R’million                                                                  at fair value   Level 1           Level 2       Level 3


12. Fair value hierarchy (continued)
          Company
          2014
          Loans and advances to banks                                                26          –                26            –
          Non-sovereign and non-bank cash placements                                 27          –                27            –
          Reverse repurchase agreements and cash collateral
          on securities borrowed                                                 6 442           –             6 442            –
          Sovereign debt securities                                             31 418     31 418                  –            –
          Bank debt securities                                                   8 312      2 227              6 085            –
          Other debt securities                                                  4 686      4 686                  –            –
          Derivative financial instruments                                      11 957           –            12 203         (246)
          Securities arising from trading activities                             1 316      1 316                  –            –
          Investment portfolio                                                   8 657      2 354                188        6 115
          Loans and advances to customers                                       13 008           –            13 008            –
          Other assets                                                                2          2                 –            –
          Loans to group companies                                               (1 347)         –            (1 347)           –
                                                                                84 504     42 003             36 632        5 869

          Liabilities
          Deposits by banks                                                           1          –                 1            –
          Derivative financial instruments                                       9 259           –             9 259            –
          Other trading liabilities                                              1 431        763                668            –
          Repurchase agreements and cash collateral on securities lent           3 320           –             3 320            –
          Customer accounts (deposits)                                          19 473           –            19 473            –




                                                                                                                                      Annual financial statements
          Debt securities in issue                                               3 135           –             3 135            –
          Other liabilities                                                        517           –               517            –
                                                                                37 136        763             36 373            –

         Net assets                                                             47 368     41 240                259        5 869




                                                                                                                                         5




Investec Bank Limited group and company annual financial statements 2015                                                        145
                              Notes to the financial statements (continued)


                              12. Fair value hierarchy (continued)
                                    Transfers between level 1 and level 2
                                    There were no transfers between level 1 and level 2 in the current and prior year.

                                    Level 3 instruments
                                    The following table is a reconciliation of the opening balances to the closing balances for financial instruments in level 3 of the fair
                                    value category. All instruments are at fair value through profit and loss.

                                    For the year to 31 March
                                    R’million                                                                                                                 Group           Company

                                    Balance as at 1 April 2013                                                                                                    83                  (36)
                                    Transfers due to application of IFRS 13^                                                                                 6 230                6 230
                                    Total gains or losses recognised in the income statement                                                                     (78)                 (26)
                                    Purchases                                                                                                                   832                  832
                                    Sales                                                                                                                      (363)                (338)
                                    Issues                                                                                                                     (175)                (175)
                                    Transfers into level 3                                                                                                      239                  239
                                    Transfers out of level 3                                                                                                   (126)                (126)
                                    Transfers into non-current assets held for sale                                                                            (731)                (731)
                                    Foreign exchange adjustments                                                                                                  17                    –
                                    Balance as at 31 March 2014                                                                                              5 928                5 869

                                    Total gains or losses recognised in the income statement                                                                    693                  700
                                    Purchases                                                                                                                   677                  535
                                    Sales                                                                                                                      (532)                (520)
                                    Issues                                                                                                                     (110)                (110)
                                    Settlements                                                                                                                (161)                (161)
                                    Transfers into level 3                                                                                                        15                  15
Annual financial statements




                                    Transfers out of level 3                                                                                                     (32)                 (32)
                                    Foreign exchange adjustments                                                                                                  31                  35
                                    Balance as at 31 March 2015                                                                                              6 509                6 331

                                    ^ All reclassifications into level 3 at 1 April 2013 occurred as a result of inputs to the valuation model being regarded as unobservable
                                      as a result of applying the principles in IFRS 13. Observable inputs are defined as inputs that are developed using market data, such
                                      as publicly available information about actual events or transactions, and that reflect the assumptions that market participants would
                                      use when pricing the asset or liability. All other inputs have been considered to be unobservable.

                                    For the year ended 31 March 2014, investments to the value of R239 million were transferred into level 3 due to inputs into the
                                    valuation model becoming unobservable. R126 million was transferred out of level 3 due to inputs becoming observable.

                                    For the remaining transfers, the group transfers between levels within the fair value hierarchy when the observability of inputs change
5                                   or if the valuation methods change.




                              146                                                                                   Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


12. Fair value hierarchy (continued)
         The following table quantifies the gains or (losses) included in the income statement recognised on level 3 financial instruments:

         For the year to 31 March
         R’million                                                                                      Total        Realised       Unrealised

         Group
         2015
         Total gains or (losses) recognised in the income statement for the year
         Investment income                                                                               614               267                347
         Trading income arising from customer flow                                                         97                –                 97
         Trading loss arising from balance sheet management and other
         trading activities                                                                               (18)               –                 (18)
                                                                                                         693               267                426
         2014
         Total gains or (losses) recognised in the income statement for the year
         Net interest expense                                                                              (2)               –                  (2)
         Investment income                                                                               (133)              73                (206)
         Trading income arising from customer flow                                                         57                –                 57
                                                                                                          (78)              73                (151)




                                                                                                                                                      Annual financial statements



                                                                                                                                                         5




Investec Bank Limited group and company annual financial statements 2015                                                                        147
                              Notes to the financial statements (continued)


                              For the year to 31 March
                              R’million                                                                                             Total           Realised          Unrealised

                              12. Fair value hierarchy (continued)
                                    Company
                                    2015
                                    Total gains or (losses) recognised in the income statement for the year
                                    Investment income                                                                                621                  267                  354
                                    Trading income arising from customer flow                                                          97                     –                 97
                                    Trading loss arising from balance sheet management and other
                                    trading activities                                                                                (18)                    –                 (18)
                                                                                                                                     700                  267                  433

                                    2014
                                    Total gains or (losses) recognised in the income statement for the year
                                    Net interest expense                                                                                (2)                   –                  (2)
                                    Investment income                                                                                 (81)                  81                (162)
                                    Trading income arising from customer flow                                                          57                     –                 57
                                                                                                                                      (26)                  81                (107)
Annual financial statements




5




                              148                                                                             Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


12. Fair value hierarchy (continued)
         Measurement of financial assets and liabilities at level 2
         The table below sets out information about the valuation techniques used at the end of the reporting period in measuring financial
         instruments categorised as level 2 in the fair value hierarchy:

                                                                           Valuation basis/techniques   Main inputs

         Assets
         Loans and advances to banks                                       Discounted cash flow model   Discount rates
         Non-sovereign and non-bank cash placements                        Discounted cash flow model   Discount rates
         Reverse repurchase agreements and cash
         collateral on securities borrowed                                 Discounted cash flow model   Yield curve
                                                                           Black-Scholes                Volatilities
         Sovereign debt securities                                         Discounted cash flow model   Discount rates
         Bank debt securities                                              Discounted cash flow model   Swap curves and NCD curves
         Other debt securities                                             Discounted cash flow model   Swap curves and NCD curves
         Derivative financial instruments                                  Discounted cash flow model   Yield curve
                                                                           Black-Scholes                Volatilities
         Investment portfolio                                              Comparable quoted inputs     Net assets
         Loans and advances to customers                                   Discounted cash flow model   Swap curves and discount rates
         Loans to group companies                                          Discounted cash flow model   Discount rates

         Liabilities
         Derivative financial instruments                                  Discounted cash flow model   Yield curve
                                                                           Black-Scholes                Volatilities
         Other trading liabilities                                         Discounted cash flow model   Discount rates
         Repurchase agreements and cash                                    Discounted cash flow model   Discount rates
         collateral on securities lent




                                                                                                                                                Annual financial statements
         Customer accounts (deposits)                                      Discounted cash flow model   Swap curves
         Debt securities in issue                                          Discounted cash flow model   Swap curves
         Other liabilities                                                 Discounted cash flow model   Discount rates




                                                                                                                                                   5




Investec Bank Limited group and company annual financial statements 2015                                                                  149
                              Notes to the financial statements (continued)


                              12. Fair value hierarchy (continued)
                                    Sensitivity of fair values to reasonably possible alternative assumptions by level 3
                                    instrument type (continued)
                                                                                                                                                        Reflected in the
                                                                                                                                                      income statement
                                                                                                                        Range which
                                                                 Level 3                            Significant         unobservable
                                                                balance                             unobservable        input has been          Favourable Unfavourable
                                    At 31 March 2015         sheet value    Valuation method        input changed       stressed                  changes      changes

                                    Group
                                    Assets
                                    Other debt securities             36                                                                                     5                  (4)
                                                                            Discounted cash flows Discount rates        (3%)/3%                              5                  (4)

                                    Derivative financial
                                    instruments                     (245)                                                                                 195               (118)
                                                                            Black-Scholes         Volatilities          (25%)/40%                          58                 (25)
                                                                            Discounted cash flows Credit spreads        (50bps)/50bps                      23                 (12)
                                                                                                  Change in PE
                                                                            Price earnings        multiple              *                                   69                (73)
                                                                            Other                 Various               **                                  45                  (8)

                                    Investment portfolio           6 718    Price earnings          Change in PE                                        1 639             (1 111)
                                                                                                    multiple            *                               1 357               (893)
                                                                            Other                   Various             **                                282               (218)

                                    Total                          6 509                                                                                1 839             (1 233)


                                                                                                                                                        Reflected in the
                                                                                                                                                      income statement
                                                                                                                        Range which
Annual financial statements




                                                                 Level 3                             Significant        unobservable
                                                                balance                             unobservable        input has been          Favourable Unfavourable
                                    At 31 March 2015         sheet value    Valuation method        input changed       stressed                  changes      changes

                                    Company
                                    Assets
                                    Derivative financial
                                    instruments                     (245)                                                                                 195                (118)
                                                                            Black-Scholes         Volatilities          (25%)/40%                          58                  (25)
                                                                            Discounted cash flows Credit spreads        (50bps)/50bps                      23                  (12)
                                                                            Price earnings        Change in PE          *                                  69                  (73)
                                                                                                  multiple
                                                                            Other                 Various               **                                  45                   (8)

5                                   Investment portfolio           6 576    Price earnings          Change in PE
                                                                                                    multiple            *
                                                                                                                                                        1 632
                                                                                                                                                        1 357
                                                                                                                                                                           (1 111)
                                                                                                                                                                             (893)
                                                                            Other                   Various             **                                275                (218)

                                    Total                          6 331                                                                                1 827              (1 229)
                                    *  The price-earnings multiple has been stressed on an investment by investment basis in order to obtain aggressive and
                                       conservative valuations.
                                    ** These valuation sensitivities have been stressed individually using varying scenario based techniques to obtain the aggressive and
                                       conservative valuations.




                              150                                                                              Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


12. Fair value hierarchy (continued)
         Sensitivity of fair values to reasonably possible alternative assumptions by level 3
         instrument type (continued)
                                                                                                                          Reflected in the income
                                                                                                                                 statement
                                                                                                    Range which
                                                 Level                              Significant     unobservable
                                              balance                              unobservable     input has been     Favourable        Unfavourable
         At 31 March 2014                  sheet value       Valuation method      input changed    stressed             changes            changes

         Group
         Assets
         Other debt securities                        59     Discounted cash flows Discount rates   (3%)/2%                          8               (7)

         Derivative financial
         instruments                                (246)                                                                       134                 (77)
                                                             Black-Scholes         Volatilities     25%/40%                      74                 (41)
                                                             Discounted cash flows Credit spreads   (50bps)/50bps                 4                 (12)
                                                             Other^                Various^         ^                            56                 (24)

         Investment portfolio                     6 115      Other^                Various^         ^                         1 260                (702)

         Total                                    5 928                                                                       1 402                (786)


                                                                                                                          Reflected in the income
                                                                                                                                 statement
                                                                                                    Range which
                                                 Level                              Significant     unobservable
                                              balance                              unobservable     input has been     Favourable        Unfavourable
         At 31 March 2014                  sheet value       Valuation method      input changed    stressed             changes            changes

         Company




                                                                                                                                                           Annual financial statements
         Assets
         Derivative financial
         instruments                                (246)                                                                       134                 (77)
                                                             Black-Scholes         Volatilities     25%/40%                      74                 (41)
                                                             Discounted cash flows Credit spreads   (50bps)/50bps                 4                 (12)
                                                             Other^                Various^         ^                            56                 (24)

         Investment portfolio                     6 115      Other^                Various^         ^                         1 260                (702)

         Total                                    5 869                                                                       1 394                (779)
         ^ Other – The valuation sensitivity for the private equity and embedded derivatives (profit share portfolios) has been assessed
           by adjusting various inputs such as expected cash flows, discount rates and earnings multiples. It is deemed appropriate
           to reflect the outcome on a portfolio basis for the purposes of this analysis as the sensitivity of the investments cannot be
           determined through the adjustment of a single input.
         In determining the value of level 3 financial instruments, the following are the principal inputs that can require judgement:
                                                                                                                                                              5
         Credit spreads
         Credit spreads reflect the additional yield that a market participant would demand for taking exposure to the credit risk a
         counter party. The credit spread for an instrument forms part of the yield used in a discounted cash flow calculation. In general
         a significant increase in a credit spread in isolation will result in a movement in fair value that is unfavourable for the holder of a
         financial instrument.

         Discount rates
         Discount rates are the interest rates used to discount future cash flows in the discounted cash flow valuation method. The discount
         rate takes into account time value of money and uncertainty of cash flows.

         Volatilities
         Volatility is a key input in the valuation of derivative products containing optionality. Volatility is a measure of the variability or
         uncertainty in returns for a given derivative underlying. It represents an estimate of how much a particular underlying instrument,
         parameter or index will change in value over time.

         Price-earnings multiple
         The price-to-earnings ratio is an equity valuation multiple. It is a key driver in the valuation of unlisted investments.


Investec Bank Limited group and company annual financial statements 2015                                                                             151
                              Notes to the financial statements (continued)


                                                                                                                                                 Fair value category
                              At 31 March                                                       Carrying
                              R’million                                                          amount         Fair value             Level 1             Level 2              Level 3

                              13. Fair value of financial
                                  instruments at amortised cost
                                    Group
                                    2015
                                    Assets
                                    Cash and balances at central banks                             6 261             6 261                     ^                   ^                    ^
                                    Loans and advances to banks                                   33 422            33 422                     ^                   ^                    ^
                                    Non-sovereign and non-bank cash placements                    10 537            10 543             10 543                      –                    –
                                    Sovereign debt securities                                      3 554             3 648               3 648                     –                    –
                                    Bank debt securities                                           9 715             9 993               8 704                1 289                     –
                                    Other debt securities                                          5 926             6 020                  606               5 414                     –
                                    Loans and advances to customers*                            160 959           161 072                2 365            139 526                19 181
                                    Own originated loans and advances
                                    to customers securitised                                       4 535             4 535                     ^                   ^                    ^
                                    Other loans and advances                                         472               472                     ^                   ^                    ^
                                    Other securitised assets                                         618               618                     ^                   ^                    ^
                                    Other assets                                                     875               875                     ^                   ^                    ^
                                    Loans to group companies                                       3 268             3 268                     ^                   ^                    ^
                                                                                                240 142           240 727

                                    Liabilities
                                    Deposits by banks                                             29 792            30 005                  569             29 436                      –
                                    Repurchase agreements and cash
                                    collateral on securities lent                                 15 408            15 395                     –            15 395                      –
Annual financial statements




                                    Customer accounts (deposits)                                204 768           206 029              22 727             183 302                       –
                                    Debt securities in issue                                       2 151             2 166                     –              2 166                     –
                                    Liabilities arising on securitisation of
                                    own originated loans and advances                              1 089             1 089                     ^                   ^                    ^
                                    Other liabilities                                                835               835                     ^                   ^                    ^
                                    Subordinated liabilities                                      10 449            10 593             10 593                      –                    –
                                                                                                264 492           266 112

                                    *   Management has re-evaluated the significance of the unobservable inputs for certain loans and advances and have concluded
                                        that it is appropriate to transfer these instruments to a level 2 valuation.

                                    ^ Financial instruments for which fair value approximates carrying value

5                                       For financial assets and financial liabilities that are liquid or have a short-term maturity (less than three months) it is assumed that
                                        the carrying amounts approximate their fair value and have been reflected in level 1. This assumption also applies to demand
                                        deposits and savings accounts without a specific maturity included in customer accounts (deposits) and variable rate financial
                                        instruments.




                              152                                                                                   Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


                                                                                                                   Fair value category
At 31 March                                                                Carrying
R’million                                                                   amount    Fair value         Level 1           Level 2           Level 3

13. Fair value of financial
    instruments at amortised
    cost (continued)
         Group
         2014
         Assets
         Cash and balances at central banks                                  5 927        5 927                 ^                 ^                ^
         Loans and advances to banks                                        32 646       32 646                 ^                 ^                ^
         Non-sovereign and non-bank cash placements                          9 018        9 018                 ^                 ^                ^
         Sovereign debt securities                                           3 397        3 476            3 476                  –                –
         Bank debt securities                                               13 226       13 790           11 105             2 685                 –
         Other debt securities                                               6 596        6 780             1 212            5 568                 –
         Loans and advances to customers                                   135 554      135 958                 –                 –         135 958
         Own originated loans and advances
         to customers securitised                                            2 822        2 822                 ^                 ^                ^
         Other loans and advances                                              552          552                 ^                 ^                ^
         Other securitised assets                                            1 503        1 503                 ^                 ^                ^
         Other assets                                                        1 288        1 288                 ^                 ^                ^
         Loans to group companies                                            3 265        3 265                 ^                 ^                ^
                                                                           215 794      217 025

         Liabilities
         Deposits by banks                                                  22 406       22 718               776           21 942                 –
         Repurchase agreements and cash




                                                                                                                                                        Annual financial statements
         collateral on securities lent                                      14 366       14 419                 –           14 419                 –
         Customer accounts (deposits)                                      185 430      185 657           13 135          172 522                  –
         Debt securities in issue                                            2 231        2 231                 ^                 ^                ^
         Liabilities arising on securitisation of
         own originated loans and advances                                   1 369        1 369                 ^                 ^                ^
         Liabilities arising on securitisation of other assets                 156          156                 ^                 ^                ^
         Other liabilities                                                     989          989                 ^                 ^                ^
         Subordinated liabilities                                           10 498       10 575           10 575                  –                –
                                                                           237 445      238 114

         ^ Financial instruments for which fair value approximates carrying value

                                                                                                                                                           5
             For financial assets and financial liabilities that are liquid or have a short-term maturity (less than three months) it is assumed that
             the carrying amounts approximate their fair value and have been reflected in level 1. This assumption also applies to demand
             deposits and savings accounts without a specific maturity included in customer accounts (deposits) and variable rate financial
             instruments.




Investec Bank Limited group and company annual financial statements 2015                                                                          153
                              Notes to the financial statements (continued)


                                                                                                                                                 Fair value category
                              At 31 March                                                       Carrying
                              R’million                                                          amount         Fair value             Level 1             Level 2              Level 3

                              13. Fair value of financial
                                  instruments at amortised
                                  cost (continued)
                                    Company
                                    2015
                                    Assets
                                    Cash and balances at central banks                             6 148             6 148                     ^                   ^                    ^
                                    Loans and advances to banks                                   30 284            30 284                     ^                   ^                    ^
                                    Non-sovereign and non-bank cash placements                    10 537            10 543             10 543                      –                    –
                                    Sovereign debt securities                                      3 554             3 648               3 648                     –                    –
                                    Bank debt securities                                           8 364             8 468               7 179                1 289                     –
                                    Other debt securities                                          7 258             7 336                  606               6 730                     –
                                    Loans and advances to customers                             146 994           147 011                2 365            140 409                 4 237
                                    Other loans and advances                                         476               476                     ^                   ^                    ^
                                    Other securitised assets                                         137               137                     ^                   ^                    ^
                                    Other assets                                                     780               780                     ^                   ^                    ^
                                    Loans to group companies                                       2 825             2 825                     ^                   ^                    ^
                                                                                                217 357           217 656

                                    Liabilities
                                    Deposits by banks                                             29 652            29 864                  569             29 295                      –
                                    Repurchase agreements and cash
                                    collateral on securities lent                                 14 076            14 063                     –            14 063                      –
                                    Customer accounts (deposits)                                195 305           196 565              22 727             173 838                       –
Annual financial statements




                                    Debt securities in issue                                       1 156             1 171                     –              1 171                     –
                                    Other liabilities                                                681               681                     ^                   ^                    ^
                                    Subordinated liabilities                                      10 449            10 593             10 593                      –                    –
                                                                                                251 319           252 937

                                    *   Management has re-evaluated the significance of the unobservable inputs for certain loans and advances and have concluded
                                        that it is appropriate to transfer these instruments to a level 2 valuation.

                                    ^ Financial instruments for which fair value approximates carrying value
                                        For financial assets and financial liabilities that are liquid or have a short-term maturity (less than three months) it is assumed that
                                        the carrying amounts approximate their fair value and have been reflected in level 1. This assumption also applies to demand
                                        deposits and savings accounts without a specific maturity included in customer accounts (deposits) and variable rate financial

5                                       instruments.




                              154                                                                                   Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


                                                                                                                    Fair value category
At 31 March                                                                Carrying
R’million                                                                   amount      Fair value        Level 1           Level 2           Level 3

13. Fair value of financial
    instruments at amortised
    cost (continued)
         Company
         2014
         Assets
         Cash and balances at central banks                                  5 751           5 751                ^                ^                   ^
         Loans and advances to banks                                        29 646         29 646                 ^                ^                   ^
         Non-sovereign and non-bank cash placements                          9 018           9 018                ^                ^                   ^
         Sovereign debt securities                                           3 397           3 476             3 476               –                   –
         Bank debt securities                                               11 921         12 325              9 641          2 684                    –
         Other debt securities                                               8 333           8 396             1 470          6 926                    –
         Loans and advances to customers                                   121 603        121 603                 ^                ^                   ^
         Other securitised assets                                              527            527                 ^                ^                   ^
         Other assets                                                        1 216           1 216                ^                ^                   ^
         Loans to group companies                                            4 144           4 144                ^                ^                   ^
                                                                           195 556        196 102

         Liabilities
         Deposits by banks                                                  22 265         22 577               776          21 801                    –
         Repurchase agreements and cash
         collateral on securities lent                                      13 087         13 141                  –         13 141                    –
         Customer accounts (deposits)                                      176 704        176 931             13 135       163 796                     –
         Debt securities in issue                                            1 251           1 251                ^                ^                   ^




                                                                                                                                                             Annual financial statements
         Other liabilities                                                     568            568                 ^                ^                   ^
         Subordinated liabilities                                           10 498         10 575             10 575               –                   –
                                                                           224 373        225 043

         ^ Financial instruments for which fair value approximates carrying value
             For financial assets and financial liabilities that are liquid or have a short-term maturity (less than three months) it is assumed that
             the carrying amounts approximate their fair value and have been reflected in level 1. This assumption also applies to demand
             deposits and savings accounts without a specific maturity included in customer accounts (deposits) and variable rate financial
             instruments.

          The table below sets out information about the valuation techniques used at the end of the reporting period in measuring level 2 and
          level 3 financial instruments not held at fair value:

                                                                                  Valuation basis/technique                Main inputs                          5
          Assets
          Bank debt securities                                                    Discounted cash flow model               Discount rates
          Other debt securities                                                   Discounted cash flow model               Discount rates
          Loans and advances to customers                                         Discounted cash flow model               Discount rates

          Liabilities
          Deposits by banks                                                       Discounted cash flow model               Interest rate yield curve
          Customer accounts (deposits)                                            Discounted cash flow model               Interest rate yield curve
          Debt securities in issue                                                Discounted cash flow model               Discount rates




Investec Bank Limited group and company annual financial statements 2015                                                                               155
                              Notes to the financial statements (continued)


                                                                                                                                     Fair value adjustment
                                                                                                                                                                             Maximum
                              At 31 March                                                                         Carrying                                                 exposure to
                              R’million                                                                             value         Year to date         Cumulative            credit risk

                              14. Designated at fair value: loans and
                                  receivables and financial liabilities
                                    Group
                                    Loans and receivables
                                    2015
                                    Loans and advances to customers                                                 12 034                   112                 267              11 883
                                                                                                                    12 034                   112                 267              11 883
                                    2014
                                    Loans and advances to banks                                                          26                  (88)                 (88)                  26
                                    Other debt securities                                                                59                   58                 (166)                  59
                                    Loans and advances to customers                                                 13 008                  (771)                177              13 008
                                                                                                                    13 093                  (801)                 (77)            13 093

                                                                                                                                                          Fair value adjustment

                                                                                                                                   Remaining
                                                                                                                                  contractual
                                                                                                                                   amount to
                                    At 31 March                                                                   Carrying          be repaid
                                    R’million                                                                       value         at maturity         Year to date          Cumulative

                                    Group
                                    Financial liabilities
                                    2015
Annual financial statements




                                    Customer accounts (deposits)                                                    16 609              16 503                  (228)                 106
                                    Debt securities in issue                                                         3 366                3 382                   (19)                 (15)
                                                                                                                    19 975              19 885                  (247)                  91
                                    2014
                                    Deposits by banks                                                                      1                   1                   (4)                   –
                                    Customer accounts (deposits)                                                    19 473              19 595                  (402)                (122)
                                    Debt securities in issue                                                         3 135                3 171                   (39)                 (36)
                                                                                                                    22 609              22 767                  (445)                (158)

                                    Changes in fair value due to credit risk are determined as the change in the fair value of the financial instrument that is not attributable
                                    to changes in other market inputs.

                                    Year-to-date and cumulative changes in fair value of financial liabilities attributable to credit risk were both Rnil (2014: Rnil).
5




                              156                                                                                    Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


                                                                                                        Fair value adjustment
                                                                                                                                           Maximum
At 31 March                                                                            Carrying                                          exposure to
R’million                                                                                value       Year to date       Cumulative         credit risk

14. Designated at fair value: loans and
    receivables and financial liabilities
         (continued)
         Company
         Loans and receivables
         2015
         Loans and advances to customers                                                 12 034               112               267            11 883
                                                                                         12 034               112               267            11 883
         2014
         Loans and advances to banks                                                          26               (88)              (88)              26
         Loans and advances to customers                                                 13 008               (771)             177            13 008
                                                                                         13 034               (859)              89            13 034

                                                                                                                          Fair value adjustment

                                                                                                       Remaining
                                                                                                      contractual
                                                                                                       amount to
         At 31 March                                                                   Carrying         be repaid
         R’million                                                                       value        at maturity      Year to date      Cumulative

         Company
         Financial liabilities
         2015




                                                                                                                                                         Annual financial statements
         Customer accounts (deposits)                                                    16 609            16 503              (228)             106
         Debt securities in issue                                                         3 366             3 382                (19)             (15)
                                                                                         19 975            19 885              (247)               91
         2014
         Deposits by banks                                                                     1                 1                (4)               –
         Customer accounts (deposits)                                                    19 473            19 595              (402)             (122)
         Debt securities in issue                                                         3 135             3 171                (39)             (36)
                                                                                         22 609            22 767              (445)             (158)

         Changes in fair value due to credit risk are determined as the change in the fair value of the financial instrument that is not attributable
         to changes in other market inputs.


                                                                                                                                                            5
         Year-to-date and cumulative changes in fair value of financial liabilities attributable to credit risk were both Rnil (2014: Rnil).

                                                                                                                          Group and company

         At 31 March
         R’million                                                                                                             2015             2014

         Fair value adjustments to loans and receivables attributable to credit risk

         Year to date                                                                                                              –               48
         Cumulative                                                                                                                –              (46)




Investec Bank Limited group and company annual financial statements 2015                                                                           157
                              Notes to the financial statements (continued)


                              At 31 March                                                                   Group                                     Company
                              R’million                                                                  2015                2014                 2015                 2014


                              15. Cash and balances at central banks
                                     The country risk of cash and balances at central banks
                                     lies in the following geographies:
                                     South Africa                                                        6 148               5 751               6 148                5 751
                                     Other                                                                 113                 176                   –                    –
                                                                                                         6 261               5 927               6 148                5 751


                              At 31 March                                                                   Group                                     Company
                              R’million                                                                  2015                2014                 2015                 2014


                              16. Loans and advances to banks
                                     The country risk of loans and advances to banks
                                     lies in the following geographies
                                     South Africa                                                       12 355             14 305               12 325               14 297
                                     United Kingdom                                                      6 204              4 490                6 085                3 870
                                     Europe (excluding UK)                                               8 224              7 208                8 090                6 302
                                     Australia                                                             129                 89                  116                   63
                                     United States of America                                            5 301              2 923                3 015                1 862
                                     Other                                                               1 209              3 657                  653                3 278
                                                                                                        33 422             32 672               30 284               29 672



                                                                                                            Group                                     Company
                              At 31 March
                              R’million                                                                  2015                 2014                2015                 2014
Annual financial statements




                              17. Reverse repurchase agreements
                                  and cash collateral on securities
                                  borrowed and repurchase
                                  agreements and cash collateral
                                  on securities lent
                                     Assets
                                     Reverse repurchase agreements                                       6 221               3 389               6 052                3 389
                                     Cash collateral on securities borrowed                              3 874               3 053               3 874                3 053
                                                                                                        10 095               6 442               9 926                6 442

                                     As part of the reverse repurchase and securities borrowing
                                     agreements, the group has received securities that it is allowed
5                                    to sell or re-pledge. R7.0 billion (2014: R7.1 billion) has been
                                     re-sold or re-pledged to third parties in connection with
                                     financing activities or to comply with commitments under short
                                     sale transactions.

                                     Liabilities
                                     Repurchase agreements                                              16 556             17 329               15 225               16 051
                                     Cash collateral on securities lent                                      –                357                    –                  356
                                                                                                        16 556             17 686               15 225               16 407
                                     The assets transferred and not derecognised in the above
                                     repurchase agreements are fair valued at R16.0 billion
                                     (2014: R18.8 billion). They are pledged as security for the
                                     term of the underlying repurchase agreement.




                              158                                                                       Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


At 31 March                                                                   Group               Company
R’million                                                                   2015       2014     2015         2014


18. Sovereign debt securities
          Bonds                                                            11 990      9 405   11 990        9 405
          Government securities                                               20           –        –            –
          Treasury bills                                                   19 368     25 410   19 368       25 410
                                                                           31 378     34 815   31 358       34 815

          The country risk of the sovereign debt securities lies
          in the following geographies:
          South Africa                                                     31 358     34 815   31 358       34 815
          Other                                                               20           –        –            –
                                                                           31 378     34 815   31 358       34 815




At 31 March                                                                   Group               Company
R’million                                                                   2015       2014     2015         2014


19. Bank debt securities
          Bonds                                                            10 279     10 109    8 928        8 804
          Debentures                                                         967       1 044     967         1 044
          Floating rate notes                                               6 086     10 385    6 086       10 385
                                                                           17 332     21 538   15 981       20 233

          The country risk of the bank debt securities lies in
          the following geographies:




                                                                                                                     Annual financial statements
          South Africa                                                      6 600      6 857    6 600        6 857
          United Kingdom                                                    5 886      7 937    5 235        7 361
          Europe (excluding UK)                                              397       1 106     397         1 106
          Australia                                                             –        22         –          22
          United States of America                                          4 288      5 513    3 588        4 783
          Other                                                              161        103      161          104
                                                                           17 332     21 538   15 981       20 233




                                                                                                                        5




Investec Bank Limited group and company annual financial statements 2015                                       159
                              Notes to the financial statements (continued)


                              At 31 March                                               Group                                     Company
                              R’million                                              2015                2014                 2015                 2014


                              20. Other debt securities
                                     Bonds                                           7 654               6 247               6 821                5 470
                                     Commercial paper                                   75               1 042                   75               3 212
                                     Floating rate notes                             4 850               1 413               6 494                1 413
                                     Other investments                                170                3 231                     –              2 924
                                                                                    12 749             11 933               13 390               13 019

                                     The country risk of the above assets lies in
                                     the following geographies:
                                     South Africa                                   10 275               7 149              11 264                8 728
                                     United Kingdom                                  1 466               3 732               1 429                3 696
                                     Europe (excluding UK)                            177                  224                     –                    –
                                     Australia                                        209                  379                   75                  367
                                     Other                                            622                  449                  622                  228
                                                                                    12 749             11 933               13 390               13 019
Annual financial statements




5




                              160                                                   Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


21. Derivative financial instruments
          The group enters into various contracts for derivatives both as principal for trading purposes and as customer for hedging foreign
          exchange and interest rate exposures. These include financial futures, options, swaps and forward rate agreements.

          The risks associated with derivative instruments are monitored in the same manner as for the underlying instruments. Risks are also
          measured across the product range in order to take into account possible correlations.

          In the tables that follow notional principal amounts indicate the volume of business outstanding at the balance sheet date and do
          not represent amounts at risk. The fair value of a derivative financial instrument represents the present value of future positive or
          negative cash flows which would have occurred had the rights and obligations arising from that instrument been closed out by the
          group in an orderly market transaction at balance sheet date.

                                                                                    2015                                 2014
                                                                    Notional                                 Notional
         At 31 March                                                principal       Positive    Negative     principal    Positive    Negative
         R’million                                                  amounts        fair value   fair value   amounts     fair value   fair value

         Group
         Foreign exchange derivatives
         Forward foreign exchange contracts                            10 110            295          388      70 844         547          511
         Currency swaps                                              120 532           6 948      12 934      112 308       4 370       10 078
         OTC options bought and sold                                   10 001            206          165      18 828           96           78
         Other foreign exchange contracts                                  4 212           65          87      15 725           40           68
                                                                     144 855           7 514      13 574      217 705       5 053       10 735

         Interest rate derivatives
         Caps and floors                                                   2 647            7           6       7 623           19           18
         Swaps                                                       332 442           3 178        4 484     372 015       3 285        4 246
         Forward rate agreements                                     311 225             167          159     819 850         434          436
         OTC options bought and sold                                       1 600           27          27          11           30           27




                                                                                                                                                   Annual financial statements
         Other interest rate contracts                                      500          175           92         480         208          128

                                                                     648 414           3 554        4 768    1 199 979      3 976        4 855

         Equity and stock index derivatives
         OTC options bought and sold                                   30 039          4 253          887      48 177       3 450          807
         Equity swaps and forwards                                     15 599              89         255       3 492           34           14
         OTC derivatives                                               45 638          4 342        1 142      51 669       3 484          821
         Exchange traded futures                                            585             2            –      6 396            –             4
         Exchange traded options                                           5 328            5            –     31 049            4             –
         Warrants                                                          1 799            –       2 511         253            –       1 375
                                                                       53 350          4 349        3 653      89 367       3 488        2 200

         Commodity derivatives                                                                                                                        5
         OTC options bought and sold                                       1 717           ^            ^         279           71           49
         Commodity swaps and forwards                                         3          174          190          18           53           83
                                                                           1 720         174          190         297         124          132

         Credit derivatives                                                5 608            2          36       5 719           36           36

         Embedded derivatives*                                                           299             –                    417              –

         Cash collateral                                                                (714)      (9 820)                    (795)      (8 699)

         Derivatives per balance sheet                                               15 178       12 401                   12 299        9 259

         * Mainly includes profit shares received as part of lending transactions.
         ^ Less than R1 million.




Investec Bank Limited group and company annual financial statements 2015                                                                     161
                              Notes to the financial statements (continued)


                              21. Derivative financial instruments (continued)

                                                                                                   2015                                                 2014
                                                                                    Notional                                         Notional
                                    At 31 March                                     principal      Positive      Negative            principal          Positive          Negative
                                    R’million                                       amounts       fair value     fair value          amounts           fair value         fair value

                                    Company
                                    Foreign exchange derivatives
                                    Forward foreign exchange contracts                10 108            295              388           85 918                 547               511
                                    Currency swaps                                  120 532           6 948          12 934           112 286              4 370            10 078
                                    OTC options bought and sold                       10 001            206              165           18 828                  96                 78
                                    Other foreign exchange contracts                   4 212              65              87           15 725                  40                 68
                                                                                    144 853           7 514          13 574           232 757              5 053            10 735

                                    Interest rate derivatives
                                    Caps and floors                                    2 647               7                6            7 623                 19                 18
                                    Swaps                                           332 442           3 178           4 484           371 673              3 285              4 246
                                    Forward rate agreements                         311 225             167              159          819 850                 434               436
                                    OTC options bought and sold                        1 600              27              27                 11                30                 27
                                    Other interest rate contracts                        330            174               92               480                208               128
                                                                                    648 244           3 553           4 768        1 199 637               3 976              4 855

                                    Equity and stock index derivatives
                                    OTC options bought and sold                       30 039          4 253              887           48 177              3 450                807
                                    Equity swaps and forwards                         15 599              89             255             3 492                 34                 14
                                    OTC derivatives                                   45 638          4 342           1 142            51 669              3 484                821
                                    Exchange traded futures                              585               2                –            6 396                   –                  4
Annual financial statements




                                    Exchange traded options                            5 328               5                –          31 049                    4                  –
                                    Warrants                                           1 799               –          2 511                253                   –            1 375
                                                                                      53 350          4 349           3 653            89 367              3 488              2 200

                                    Commodity derivatives
                                    OTC options bought and sold                        1 717               ^                ^              279                 71                 49
                                    Commodity swaps and forwards                            3           174              190                 18                53                 83
                                                                                       1 720            174              190               297                124               132

                                    Credit derivatives                                 5 608               2              36             5 719                 36                 36


                                    Embedded derivatives*                                                 91                –                                  75                   –


5                                   Cash collateral                                                     (714)         (9 820)                                (795)           (8 699)

                                    Derivatives per balance sheet                                    14 969          12 401                               11 957              9 259

                                    * Mainly includes profit shares received as part of lending transactions.
                                    ^ Less than R1 million.




                              162                                                                               Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


At 31 March                                                                                     Group                    Company
R’million                                                                                  2015           2014        2015           2014


22. Securities arising from
    trading activities
             Bonds                                                                             978         797         978            797
             Floating rate notes                                                                40         197          40            197
             Listed equities                                                                   271         322         271            322
                                                                                          1 289           1 316       1 289          1 316




At 31 March                                                                                     Group                    Company
R’million                                                                                  2015           2014        2015           2014


23. Investment portfolio
             Listed equities                                                              2 913           2 381       2 664          2 377
             Unlisted equities*                                                           7 059           6 453       6 917          6 280
                                                                                          9 972           8 834       9 581          8 657

         *     Unlisted equities includes loan instruments that are convertible into equity.

At 31 March                                                                                     Group                    Company
R’million                                                                                  2015           2014        2015           2014


24. Loans and advances to customers
    and other loans and advances
             Gross loans and advances to customers                                      174 132         149 810     159 971        135 750




                                                                                                                                              Annual financial statements
             Impairments of loans and advances to customers                               (1 139)        (1 248)       (943)        (1 139)
             Net loans and advances to customers                                        172 993         148 562     159 028        134 611


             Gross other loans and advances to customers                                       490         597         528               –
             Impairments of other loans and advances to customers                              (18)         (45)        (52)             –
             Net other loans and advances to customers                                         472         552         476               –

               For further analysis on loans and advances refer to pages 40 to 48 in the risk management section.




                                                                                                                                                 5




Investec Bank Limited group and company annual financial statements 2015                                                               163
                              Notes to the financial statements (continued)


                              At 31 March                                                              Group                                    Company
                              R’million                                                            2015                 2014                 2015                 2014


                              24. Loans and advances to customers
                                  and other loans and advances (continued)
                                     Specific and portfolio impairments
                                     Reconciliation of movements in specific and portfolio
                                     impairments:

                                     Loans and advances to customers
                                     Specific impairment
                                     Balance at the beginning of the year                          1 076                1 227               1 053                1 154
                                     Charge to the income statement                                  648                  711                  538                  660
                                     Reversals and recoveries recognised in the income statement    (149)                (114)                (126)                (110)
                                     Utilised                                                       (605)                 (716)               (612)                (664)
                                     Transfers                                                           –                 (32)                   –                  13
                                     Balance at the end of the year                                  970                1 076                  853               1 053

                                     Portfolio impairment
                                     Balance at the beginning of the year                            172                  122                   86                   56
                                     (Release)/charge to the income statement                         (17)                  43                    4                  29
                                     Transfers                                                           –                   (1)                  –                    1
                                     Exchange adjustment                                               14                    8                    –                    –
                                     Balance at the end of the year                                  169                  172                   90                   86

                                     Other loans and advances
                                     Specific impairment
                                     Balance at the beginning of the year                              44                   12                    –                  12
Annual financial statements




                                     (Release)/charge to the income statement                         (27)                    –                 52                     –
                                     Transfers                                                           –                  32                    –                  (12)
                                     Balance at the end of the year                                    17                   44                  52                     –

                                     Portfolio impairment
                                     Balance at the beginning of the year                               1                     –                   –                    –
                                     Transfer to securitised assets                                      –                    1                   –                    –
                                     Balance at the end of the year                                     1                     1                   –                    –

                                     Total specific impairments                                      987                1 120                  905               1 053
                                     Total portfolio impairments                                     170                  173                   90                   86
                                     Total impairments                                             1 157                1 293                  995               1 139


5                                    Reconciliation of income statement charge:
                                     Loans and advances                                              482                  640                  416                  579

                                     Specific impairment charged to income statement                 499                  597                  412                  550
                                     Portfolio impairment (released)/charged to income statement      (17)                  43                    4                  29

                                     Securitised assets (refer to note 25)                               –                   (2)                  –                    –

                                     Specific impairment released to income statement                    –                   (2)                  –                    –

                                     Other loans and advances                                         (27)                    –                 52                     –

                                     Specific impairment (released)/charged to income statement       (27)                    –                 52                     –

                                     Total income statement charge                                   455                  638                  468                  579




                              164                                                                  Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


At 31 March                                                                  Group              Company
R’million                                                                  2015      2014     2015        2014


25. Securitised assets and liabilities
    arising on securitisation
          Gross own originated loans and advances
          to customers securitised                                         4 537     2 824       –           –
          Impairments of own originated loans and advances
          to customers securitised                                            (2)       (2)      –           –
          Net own originated loans and advances
          to customers securitised                                         4 535     2 822       –           –

          Other securitised assets are made up of the following
          categories of assets:
             Cash and cash equivalents                                      544      1 272       –           –
             Loans and advances to customers                                   –      157        –           –
             Other debt securities                                           74        74     137          527
          Total other securitised assets                                    618      1 503    137          527

          The associated liabilities are recorded on balance
          sheet in the following line items:
          Liabilities arising on securitisation of own originated
          loans and advances                                               1 089     1 369       –           –
          Liabilities arising on securitisation of other assets                –      156        –           –

          Specific and portfolio impairments
          Reconciliation of movements in group-specific and portfolio
          impairments of assets that have been securitised:




                                                                                                                  Annual financial statements
          Specific impairment
          Balance at the beginning of the year                                1         1        –           1
          Charge to the income statement                                       –        (2)      –           –
          Utilised                                                             –        1        –           –
          Recoveries                                                           –        1        –           –
          Transfers from other loans and advance                               –         –       –          (1)
          Balance at the end of the year                                      1         1        –           –

          Portfolio impairment
          Balance at the beginning of the year                                1         1        –           1
          Transfers from other loans and advance                               –         –       –          (1)
          Balance at the end of the year                                      1         1        –           –

          Total portfolio and specific impairments on balance sheet           2         2        –           –       5




Investec Bank Limited group and company annual financial statements 2015                                    165
                              Notes to the financial statements (continued)


                              At 31 March                                                                                                                       Group
                              R’million                                                                                                                    2015                 2014


                              26. Interest in associated undertakings
                                     Associated undertakings comprise unlisted investments.
                                     Analysis is the movement in our share of net assets:
                                     At the beginning of the year                                                                                             52                   45
                                     Exchange adjustments                                                                                                      8                    7
                                     At the end of the year                                                                                                   60                   52


                              At 31 March                                                                            Group                                     Company
                              R’million                                                                           2015                 2014                2015                 2014


                              27. Deferred taxation
                                     Deferred taxation assets                                                        88                   75                    –                     –
                                     Deferred taxation liabilities                                                   (76)                 (61)                (36)                 (54)
                                     Net deferred taxation assets/(liabilities)                                      12                   14                  (36)                 (54)

                                     The net deferred taxation assets/(liabilities) arise from:
                                     Income and expenditure accruals                                                642                  461                 663                  449
                                     Unrealised fair value adjustments on financial instruments                    (625)                (490)               (625)                (490)
                                     Tax relief from assessed losses                                                   1                    2                   –                     –
                                     Impairment of loans and advances to customers                                     7                    4                   –                     –
                                     Fair value on cash flow hedges                                                  (74)                 (13)                (74)                 (13)
                                     Finance lease accounting                                                        61                   50                    –                     –
                                     Net deferred taxation assets/(liabilities)                                      12                   14                  (36)                 (54)

                                     Reconciliation of net deferred taxation assets/(liabilities):
Annual financial statements




                                     At the beginning of the year                                                    14                    (6)                (54)                 (54)
                                     Charge to income statement – current year taxation                             141                   18                 150                      –
                                     Charge directly in other comprehensive income                                 (132)                    –               (132)                     –
                                     Prior year tax adjustments                                                      (11)                   –                   –                     –
                                     Exchange adjustments                                                              –                    2                   –                     –
                                     At year end                                                                     12                   14                  (36)                 (54)

                                     Deferred taxation assets are recognised to the extent it is likely that profits will be available in future periods. The assessment of
                                     the likelihood of future profits is based on past performance and current projections. Deferred taxation assets are not recognised in
                                     respect of capital losses as crystallisation of capital gains and the eligibility of potential losses is uncertain.




5




                              166                                                                                Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


At 31 March                                                                      Group                          Company
R’million                                                                     2015            2014            2015        2014


28. Other assets
          Settlement debtors                                                     17             188             16          179
          Trading properties                                                    209             264             39           71
          Prepayments and accruals                                              280             573            196          551
          Trading initial margins                                               204             204            204          204
          Fee debtors                                                            83              59             83           59
          Other                                                                 469             483            456          428
                                                                              1 262           1 771            994        1 492



At 31 March                                                                   Leasehold    Furniture
R’million                                                                  improvements and vehicles       Equipment      Total


29. Property and equipment
          Group
          2015
          Cost
          At the beginning of the year                                                24          152           582        758
          Additions                                                                   11             9           39         59
          Disposals                                                                    (1)          (1)           (3)        (5)
          At the end of the year                                                      34          160           618        812

          Accumulated depreciation
          At the beginning of the year                                                (20)        (105)         (414)      (539)
          Disposals                                                                      –            –             1          1
          Depreciation charge for the year                                              (1)          (8)          (73)       (82)




                                                                                                                                    Annual financial statements
          At the end of the year                                                      (21)        (113)         (486)      (620)

          Net carrying value                                                          13              47        132        192

          2014
          Cost
          At the beginning of the year                                                24          147            560        731
          Additions                                                                     1            9           134        144
          Disposals                                                                    (1)          (4)         (112)      (117)
          At the end of the year                                                      24          152            582        758

          Accumulated depreciation
          At the beginning of the year                                                (19)          (84)        (404)      (507)
          Disposals                                                                      –            1            61         62
          Depreciation charge for the year
          At the end of the year
                                                                                        (1)
                                                                                      (20)
                                                                                                    (22)
                                                                                                  (105)
                                                                                                                  (71)
                                                                                                                (414)
                                                                                                                             (94)
                                                                                                                           (539)
                                                                                                                                       5
          Net carrying value                                                            4             47        168        219




Investec Bank Limited group and company annual financial statements 2015                                                     167
                              Notes to the financial statements (continued)


                              At 31 March                                                                            Leasehold    Furniture
                              R’million                                                                           improvements and vehicles               Equipment                 Total


                              29. Property and equipment (continued)
                                     Company
                                     2015
                                     Cost
                                     At the beginning of the year                                                             24                 141               586                751
                                     Additions                                                                                11                    7               36                 54
                                     Disposals                                                                                 (1)                 (1)               (1)                (3)
                                     At the end of the year                                                                   34                 147               621                802

                                     Accumulated depreciation
                                     At the beginning of the year                                                           (21)                (107)             (408)              (536)
                                     Depreciation charge for the year                                                         (1)                  (6)              (72)               (79)
                                     At the end of the year                                                                 (22)                (113)             (480)              (615)

                                     Net carrying value                                                                       12                   34              141                187

                                     2014
                                     Cost
                                     At the beginning of the year                                                             24                 136                565               725
                                     Additions                                                                                  1                   9               133               143
                                     Disposals                                                                                 (1)                 (4)             (112)             (117)
                                     At the end of the year                                                                   24                 141                586               751

                                     Accumulated depreciation
                                     At the beginning of the year                                                           (20)                  (88)             (397)             (505)
                                     Disposals                                                                                 –                    1                 61                62
                                     Depreciation charge for the year                                                         (1)                 (20)               (72)              (93)
                                     At the end of the year                                                                 (21)                (107)              (408)             (536)

                                     Net carrying value                                                                         3                  34              178                215
Annual financial statements




                              At 31 March                                                                                 Group                                    Company
                              R’million                                                                                2015                2014                2015                 2014


                              30. Investment properties
                                     At the beginning of the year                                                        84                    1                  84                     1
                                     Additions                                                                             –                  20                    –                   20
                                     Fair value movement                                                                   –                  63                    –                   63
                                     Exchange adjustment                                                                  (4)                  –                   (4)                   –
                                     At the end of the year                                                              80                   84                  80                    84


5                                    Investment properties are carried at fair value and falls within level 3 of the fair value hierarchy.
                                     Exchange adjustments are recognised in trading income on the income statement and are unrealised.
                                     The group values its investment properties twice annually. The properties are valued by directors. The valuation is performed by
                                     capitalising the annual net income of a property at a market-related yield applicable at the time.




                              168                                                                                    Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


                                                                                    Group                              Company

                                                                                    Internally                          Internally
At 31 March                                                          Acquired      generated               Acquired    generated
R’million                                                            software        software     Total    software      software     Total

31. Intangible assets
         2015
         Cost
         At the beginning of the year                                      428            104      532         421             99      520
         Additions                                                         155             10      165         154              2      156
         Disposals                                                          (24)            (2)    (26)         (23)            (2)    (25)
         At the end of the year                                            559            112      671         552             99      651

         Accumulated amortisation and
         impairments
         At the beginning of the year                                      (336)          (94)    (430)        (329)          (95)    (424)
         Disposals                                                            5             –        5            5             –        5
         Amortisation                                                       (53)            (3)    (56)         (53)            (2)    (55)
         At the end of the year                                            (384)          (97)    (481)        (377)          (97)    (474)

         Net carrying value                                                175             15      190         175              2      177

         2014
         Cost
         At the beginning of the year                                      381             86      467         377             84      461
         Additions                                                          56             18       74           53            15       68
         Disposals                                                           (9)            –        (9)         (9)            –        (9)
         At the end of the year                                            428            104      532         421             99      520




                                                                                                                                               Annual financial statements
         Accumulated amortisation and
         impairments
         At the beginning of the year                                      (294)          (83)    (377)        (288)          (84)    (372)
         Amortisation                                                       (42)          (11)     (53)         (41)          (11)     (52)
         At the end of the year                                            (336)          (94)    (430)        (329)          (95)    (424)

         Net carrying value                                                 92             10      102           92             4       96




                                                                                                                                                  5




Investec Bank Limited group and company annual financial statements 2015                                                                169
                              Notes to the financial statements (continued)


                              At 31 March                                                                             Group                                       Company
                              R’million                                                                            2015                 2014                   2015                 2014


                              32. Loans to group companies
                                     Loans from holding company – Investec Limited                                  (682)             (1 353)                   (774)              (1 353)
                                     Loans to fellow subsidiaries                                                 3 608                3 218                   2 515                3 243
                                     Preference share investment in Investec Limited                                319                    400                     –                     –
                                     Preference share investment/(funding) in fellow subsidiaries                   174                  (181)                 1 084                1 081
                                     Intergroup derivative instruments                                              (151)                (160)                     –                 (174)
                                                                                                                  3 268                1 924                   2 825                2 797

                                     R2.8 billion (2014: R1.9 billion) is unsecured interest-bearing, with no fixed terms of repayment.

                                     There were no subordinated loan amounts included in the loans to group companies.



                                                                                                                             Shares at book value                Net indebtedness
                                                                                                     Issued
                                                                      Nature of                     ordinary    Holding         2015              2014            2015              2014
                              At 31 March                             business                       capital         %       R’million         R’million       R’million         R’million


                              33. Investment in
                                  subsidiaries
                                     Material direct subsidiaries
                                     of Investec Bank Limited
                                     Investec Bank (Mauritius)        Banking institution
                                     Limited^                                                  $56 478 463          100             535             535           1 874             1 406
                                     Reichmans Holdings (Pty) Ltd     Trade and asset
Annual financial statements




                                                                      financing                         R15         100             112             112           2 930             2 355
                                     Sechold Finance Services         Investment holding
                                     (Pty) Ltd                                                       R1 000         100                    *               *           119            382
                                     KWJ Investments (Pty) Ltd        Investment holding               R100         100                    *               *        (199)             484
                                     AEL Investment Holdings          Investment holding
                                     (Pty) Ltd                                                       R1 000         100                    *               *           773           (286)
                                     Investpref Ltd                   Investment holding             R1 000         100                    *               *        (190)            (552)
                                     Copperleaf Country Estate        Leisure activities
                                     (Pty) Ltd                                                         R100         100                    *               *           205            242
                                     Matzopath (Pty) Ltd              Investment holding      R185 000 000          100             178                –                     *           –
                                     Other                                                                                            80             80                 13              8
                                                                                                                                    905             727           5 525             4 039
5                                    Details of subsidiary and associated companies which are not material to the financial position of the group are not reflected above.

                                     Loans to/(from) group companies are unsecured interest-bearing, with no fixed terms of repayment.

                                     ^   Mauritius.
                                     *   Less than R1 million.




                              170                                                                                 Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


33. Investment in subsidiaries (continued)
         Consolidated structured entities
         Investec Bank Limited has no subordinated investment interest in the following structured entities which are consolidated.
         Typically a structured entity is an entity in which voting or similar rights are not the dominant factor in deciding control. The
         judgements to assess whether the group has control over these structures include assessing the purpose and design of the entity,
         considering whether the group or another involved party with power over the relevant activities is acting as a principal in its own right
         or as an agent on behalf of others.

          Name of principal structured entity                                          Type of structured entity

          Private Mortgages 1 (RF) (Pty) Ltd                                           Securitised residential mortgages
          Private Residential Mortgages (RF) Ltd                                       Securitised residential mortgages
          Fox Street 2 (RF) Ltd                                                        Securitised residential mortgages
          Fox Street 3 (RF) Ltd                                                        Securitised residential mortgages
          Fox Street 4 (RF) Ltd                                                        Securitised residential mortgages
          Integer Home Loans (Pty) Ltd                                                 Securitised third party originated residential mortgages

         Grayston Conduit 1 (RF) Limited has been wound up.

         For additional detail on the assets and liabilities arising on securitisation refer to note 25. For details of the risks to which the group is
         exposed through its all of its securitisations are included in the risk management report on page 51 and 52.

         The key assumptions for the main types of structured entities which the group consolidates are summarised below:

         Securitised residential mortgages
         The group has securitised residential mortgages in order to provide investors with exposure to residential mortgage risk and to raise
         funding. These structured entities are consolidated due to the group's holdings of subordinated notes. The group is not required
         to fund any losses above those incurred on the notes it has retained, such losses are reflected in any impairment of securitised
         mortgages as those assets have not been derecognised.

         Securitised third party originated residential mortgages




                                                                                                                                                          Annual financial statements
         The group has a senior and subordinated investment in a third party originated structured entity. The structured entity is consolidated
         due to the group's exposure to residual economic benefits. The group is not required to fund any losses above those incurred on the
         investments made.




At 31 March                                                                                   Group                               Company
R’million                                                                                  2015              2014              2015             2014


34. Other trading liabilities
          Deposits                                                                          797               668               797               668
          Short positions – gilts                                                           826               763               826               763
                                                                                          1 623             1 431             1 623             1 431
                                                                                                                                                             5




Investec Bank Limited group and company annual financial statements 2015                                                                           171
                              Notes to the financial statements (continued)


                              At 31 March                                         Group                                     Company
                              R’million                                        2015                 2014                2015                 2014


                              35. Debt securities in issue
                                     Repayable in:
                                     Less than three months                       77                   56                  77                    56
                                     Three months to one year                 1 149                  612                  319                  612
                                     One to five years                        4 291                4 698               4 126                3 718
                                                                              5 517                5 366               4 522                4 386




                              At 31 March                                         Group                                     Company
                              R’million                                        2015                 2014                2015                 2014


                              36. Other liabilities
                                     Settlement liabilities                     885                  802                  788                  528
                                     Other creditors and accruals             2 267                1 899               2 161                1 794
                                     Other non-interest-bearing liabilities     589                  492                  543                  351
                                                                              3 741                3 193               3 492                2 673
Annual financial statements




5




                              172                                             Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


At 31 March                                                                               Group                             Company
R’million                                                                               2015             2014             2015             2014


37. Subordinated liabilities
          Issued by Investec Bank Limited
          IV08 13.735% subordinated unsecured callable upper
          tier 2 bonds                                                                   200              200              200              200
          IV09 variable rate subordinated unsecured callable upper
          tier 2 bonds                                                                   200              200              200              200
          IV012 variable rate subordinated unsecured callable bonds                         –             250                 –             250
          IV013 variable rate subordinated unsecured callable bonds                       50               50               50               50
          IV014 10.545% subordinated unsecured callable bonds                            125              125              125              125
          IV015 variable rate subordinated unsecured callable bonds                    1 350            1 350            1 350            1 350
          IV016 variable rate subordinated unsecured callable bonds                      325              325              325              325
          IV017 indexed rate subordinated unsecured callable bonds                     2 063            1 936            2 063            1 936
          IV019 indexed rate subordinated unsecured callable bonds                        86               79               86               79
          IV019A indexed rate subordinated unsecured callable bonds                      317              295              317              295
          IV022 variable rate subordinated unsecured callable bonds                      997              997              997              997
          IV023 variable rate subordinated unsecured callable bonds                      860              860              860              860
          IV024 variable rate subordinated unsecured callable bonds                      106              106              106              106
          IV025 variable rate subordinated unsecured callable bonds                    1 000            1 000            1 000            1 000
          IV026 variable rate subordinated unsecured callable bonds                      750              750              750              750
          IV030 indexed rate subordinated unsecured callable bonds                       342              321              342              321
          IV030A indexed rate subordinated unsecured callable bonds                      368              344              368              344
          IV031 variable rate subordinated unsecured callable bonds                      500              500              500              500
          IV032 variable rate subordinated unsecured callable bonds                      810              810              810              810
                                                                                     10 449            10 498           10 449           10 498




                                                                                                                                                     Annual financial statements
          All subordinated debt issued by Investec Bank Limited and
          its subsidiaries is denominated in South African Rand.

          Remaining maturity:
          In one year or less, or on demand                                              175              250              175              250
          In more than one year, but not more than two years                                –             175                 –             175
          In more than two years, but not more than five years                           400            6 784              400            6 784
          In more than five years                                                      9 874            3 289            9 874            3 289
                                                                                      10 449           10 498           10 449           10 498

          The only event of default in relation to the subordinated debt is the non-payment of principal or interest. The only remedy available to
          the holders of the subordinated debt in the event of default is to petition for the winding up of the issuing entity. In a winding up no
          amount will be paid in respect of the subordinated debt until all other creditors have been paid in full.
                                                                                                                                                        5




Investec Bank Limited group and company annual financial statements 2015                                                                      173
                              Notes to the financial statements (continued)


                              37. Subordinated liabilities (continued)
                                    IV08 13.735% subordinated unsecured callable upper tier 2 bonds
                                    R200 million Investec Bank Limited IV08 locally registered subordinated unsecured callable bonds without a maturity date. Interest
                                    is paid six-monthly in arrears on 31 October and 30 April at a rate of 13.735% per annum until 30 April 2018. The company has the
                                    option to call the bonds from 30 April 2013 or on any interest payment date falling after 30 April 2018. If not called by 30 April 2018,
                                    the bonds will pay interest of 5.625% above JIBAR payable quarterly in arrears until called.

                                    IV09 variable rate subordinated unsecured callable upper tier 2 bonds
                                    R200 million Investec Bank Limited IV09 locally registered subordinated unsecured callable bonds without a maturity date. Interest
                                    is paid quarterly in arrears on 31 July, 31 October, 31 January and 30 April at a rate equal to three-month JIBAR plus 3.75%
                                    until 30 April 2018. The company has the option to call the bonds from 30 April 2013 or on any interest payment date falling
                                    after 30 April 2018. If not called by 30 April 2018, the bonds will pay interest of 5.625% above JIBAR payable quarterly in arrears
                                    until called.

                                    IV012 variable rate subordinated unsecured callable bonds
                                    Rnil (2014: R250 million) Investec Bank Limited IV012 locally registered subordinated unsecured callable bonds were due in
                                    November 2019. Interest is payable quarterly in arrears on 26 November, 26 February, 26 May and 26 August at a rate equal
                                    to three-month JIBAR plus 3.25% until 26 November 2014. From and including 26 November 2014, up to and excluding
                                    26 November 2019 interest is paid at a rate equal to three-month JIBAR plus 4.50%. The maturity date was 26 November 2019,
                                    but the company had the option to call the bonds from 26 November 2014. The bonds were called on 26 November 2014.

                                    IV013 variable rate subordinated unsecured callable bonds
                                    R50 million Investec Bank Limited IV013 locally registered subordinated unsecured callable bonds are due in June 2020. Interest
                                    is payable quarterly in arrears on 22 March, 22 June, 22 September and 22 December at a rate equal to three-month JIBAR plus
                                    2.75% until 22 June 2015. From and including 22 June 2015, up to and excluding 22 June 2020, interest is paid at a rate equal
                                    to three-month JIBAR plus 5.50%. The maturity date is 22 June 2020, but the company has the option to call the bonds from
                                    22 June 2015.

                                    IV014 10.545% subordinated unsecured callable bonds
                                    R125 million Investec Bank Limited IV014 locally registered subordinated unsecured callable bonds are due in June 2020. Interest
Annual financial statements




                                    is payable six-monthly in arrears on 22 June and 22 December at a fixed rate of 10.545% until 22 June 2015. From and including
                                    22 June 2015, up to and excluding 22 June 2020, interest is paid quarterly in arrears on 22 June, 22 September, 22 December and
                                    22 March at a rate equal to three-month JIBAR plus 5.50%. The maturity date is 22 June 2020, but the company has the option to
                                    call the bonds from 22 June 2015.

                                    IV015 variable rate subordinated unsecured callable bonds
                                    R1 350 million Investec Bank Limited IV015 locally registered subordinated unsecured callable bonds are due in September 2022.
                                    Interest is payable quarterly in arrears on 20 December, 20 March, 20 June and 20 September at a rate equal to three-month JIBAR
                                    plus 2.65% until 20 September 2017. From and including 20 September 2017, up to and excluding 20 September 2022 interest is
                                    paid at a rate equal to three-month JIBAR plus 4.00%. The maturity date is 20 September 2022, but the company has the option to
                                    call the bonds upon regulatory capital disqualification or from 20 September 2017.

                                    IV016 variable rate subordinated unsecured callable bonds
5                                   R325 million Investec Bank Limited IV016 locally registered subordinated unsecured callable bonds are due in December 2021.
                                    Interest is payable quarterly in arrears on 6 December, 6 March, 6 June and 6 September at a rate equal to three-month JIBAR plus
                                    2.75%, up to and excluding 6 December 2021. The maturity date is 6 December 2021, but the company has the option to call the
                                    bonds upon regulatory disqualification or from 6 December 2016.

                                    IV017 indexed rate subordinated unsecured callable bonds
                                    R2 063million (2014: R1 936 million) Investec Bank Limited IV017 locally registered subordinated unsecured callable bonds are due
                                    in January 2022. Interest on these inflation-linked bonds is payable semi-annually on 31 January and 31 July at a rate of 2.75%.
                                    The IV017 is a replica of the R212 South African government bond. The maturity date is 31 January 2022, but the company has the
                                    option to call the bonds upon regulatory capital disqualification or from 31 January 2017.

                                    IV019 indexed rate subordinated unsecured callable bonds
                                    R86 million (2014: R79 million) Investec Bank Limited IV019 locally registered subordinated unsecured callable bonds are due in
                                    March 2028. Interest on these inflation-linked bonds is payable semi-annually on 31 March and 30 September at a rate of 2.60%.
                                    The IV019 is a replica of the R210 South African government bond. The maturity date is 31 March 2028, but the company has the
                                    option to call the bonds upon regulatory capital disqualification from 3 April 2023.




                              174                                                                                Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


37. Subordinated liabilities (continued)
          IV019A indexed rate subordinated unsecured callable bonds
          R317 million (2014: R295 million) Investec Bank Limited IV019A locally registered subordinated unsecured callable bonds are due in
          March 2028. Interest on these inflation-linked bonds is payable semi-annually on 31 March and 30 September at a rate of 2.60%.
          The IV019A is a replica of the R210 South African government bond. The maturity date is 31 March 2028, but the company has the
          option to call the bonds upon regulatory capital disqualification from 3 April 2023.

          IV022 variable rate subordinated unsecured callable bonds
          R997 million Investec Bank Limited IV022 locally registered subordinated unsecured callable bonds are due in April 2022. Interest
          is payable quarterly on 2 January, 2 April, 2 July and 2 October at a rate equal to the three-month JIBAR plus 2.50% up to and
          excluding 2 April 2022. The maturity date is 2 April 2022, but the company has the option to call the bonds upon regulatory capital
          disqualification from 2 April 2017.

          IV023 variable rate subordinated unsecured callable bonds
          R860 million Investec Bank Limited IV023 locally registered subordinated unsecured callable bonds are due in July 2022. Interest is
          payable quarterly on 11 January, 11 April, 11 July and 11 October at a rate equal to the three-month JIBAR plus 2.50% up to and
          excluding 11 July 2022. The maturity date is 11 July 2022, but the company has the option to call the bonds upon regulatory capital
          disqualification from 11 July 2017.

          IV024 variable rate subordinated unsecured callable bonds
          R106 million Investec Bank Limited IV024 locally registered subordinated unsecured callable bonds are due in July 2022. Interest is
          payable quarterly on 27 January, 27 April, 27 July and 27 October at a rate equal to the three-month JIBAR plus 2.70% up to and
          excluding 27 July 2022. The maturity date is 27 July 2022, but the company has the option to call the bonds upon regulatory capital
          disqualification from 27 July 2017.

          IV025 variable rate subordinated unsecured callable bonds
          R1 000 million Investec Bank Limited IV025 locally registered subordinated unsecured callable bonds are due in September 2024.
          Interest is payable quarterly on 12 December, 12 March, 12 June and 12 September at a rate equal to the three-month JIBAR plus
          2.50% up to and excluding 12 September 2024. The maturity date is 12 September 2024, but the company has the option to call
          the bonds upon regulatory capital disqualification from 12 September 2019.




                                                                                                                                                Annual financial statements
          IV026 variable rate subordinated unsecured callable bonds
          R750 million Investec Bank Limited IV026 locally registered subordinated unsecured callable bonds are due in September 2024.
          Interest is payable quarterly on 27 December, 27 March, 27 June and 27 September at a rate equal to the three-month JIBAR plus
          2.45% up to and excluding 27 September 2024. The maturity date is 27 September 2024, but the company has the option to call
          the bonds upon regulatory capital disqualification from 27 September 2019.

          IV030 indexed rate subordinated unsecured callable bonds
          R342 million (2014: R321 million) Investec Bank Limited IV030 locally registered subordinated unsecured callable bonds are due
          in January 2025. Interest on these inflation-linked bonds is payable semi-annually on 31 January and 31 July at a rate of 2.00%.
          The IV030 is a replica of the I2025 South African government bond. The maturity date is 31 January 2025, but the company has the
          option to call the bonds upon regulatory capital disqualification from 31 January 2020.

          IV030A indexed rate subordinated unsecured callable bonds
                                                                                                                                                   5
          R368 million (2014: R344 million) Investec Bank Limited IV030A locally registered subordinated unsecured callable bonds are due
          in January 2025. Interest on these inflation-linked bonds is payable semi-annually on 31 January and 31 July at a rate of 2.00%.
          The IV030A is a replica of the I2025 South African government bond. The maturity date is 31 January 2025, but the company has
          the option to call the bonds upon regulatory capital disqualification from 31 January 2020.

          IV031 variable rate subordinated unsecured callable bonds
          R500 million Investec Bank Limited IV031 locally registered subordinated unsecured callable bonds are due in March 2025. Interest
          is payable quarterly on 11 December, 11 March, 11 June and 11 September at a rate equal to the three-month JIBAR plus 2.95%
          up to and excluding 11 March 2025. The maturity date is 11 March 2025, but the company has the option to call the bonds upon
          regulatory capital disqualification from 11 March 2020.

          IV032 variable rate subordinated unsecured callable bonds
          R810 million Investec Bank Limited IV032 locally registered subordinated unsecured callable bonds are due in August 2023. Interest
          is payable quarterly on 14 November, 14 February, 14 May, 14 August at a rate equal to the three-month JIBAR plus 2.95%. The
          maturity date is 14 August 2023, but the company has the option to call the bonds upon regulatory capital disqualification from
          14 August 2018.



Investec Bank Limited group and company annual financial statements 2015                                                                  175
                              Notes to the financial statements (continued)


                              At 31 March                                                                             Group                                     Company
                              R’million                                                                            2015                 2014                 2015                2014


                              38. Ordinary share capital
                                     Authorised
                                     105 000 000 (2014: 105 000 000) ordinary shares of
                                     50 cents each

                                     Issued
                                     63 019 022 (2014: 63 019 022) ordinary shares of
                                     50 cents each                                                                    32                   32                   32                   32




                              At 31 March                                                                             Group                                     Company
                              R’million                                                                            2015                 2014                2015                 2014


                              39. Perpetual preference shares
                                     Authorised
                                     70 000 000 (2014: 70 000 000) non-redeemable, non-cumulative,
                                     non-participating preference shares of one cent each.
                                     20 000 000 non-redeemable, non-cumulative, non-participating
                                     preference shares with a par value of one cent each
                                     (Non-redeemable programme preference shares)

                                     Issued
                                     15 447 630 (2014: 15 447 630) non-redeemable, non-cumulative,
                                     non-participating preference shares of one cent each, issued at a
                                     premium of between R96.46 and R99.99 per share.                              1 534                1 534               1 534                1 534
                                     – Perpetual preference share capital                                                 *                    *                   *                    *
Annual financial statements




                                     – Perpetual preference share premium                                         1 534                1 534               1 534                1 534

                                     *   Less than R1 million.

                                     Share premium on perpetual preference shares is included in the line item share premium on the balance sheet. Refer to note 40.

                                     Preference shareholders will be entitled to receive dividends, if declared, at a rate limited to 83.33% of the South African prime
                                     interest rate on R100 being the deemed value of the issue price of the preference share held.

                                     Preference shareholders receive dividends in priority to any payment of dividends to the holder of any other class of shares in the
                                     capital of the company not ranking prior or pari passu with the preference shares.

                                     An ordinary dividend will not be declared by Investec Bank Limited unless the preference dividend has been declared. If declared,
                                     preference dividends are payable semi-annually at least seven business days prior to the date on which Investec Bank Limited pays
                                     its ordinary dividends, if any, but shall be payable no later than 120 business days after 31 March and 30 September, respectively.
5




                              176                                                                                 Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


At 31 March                                                                          Group                           Company
R’million                                                                         2015          2014              2015           2014


40. Share premium
          Share premium on ordinary shares                                      13 366         13 366           13 366         13 366
          Share premium on perpetual preference shares (refer to note 39)        1 534          1 534            1 534          1 534
          Share issue expenses written off                                         (15)           (15)             (15)           (15)
                                                                                14 885         14 885           14 885         14 885


                                                                                                    Group
                                                                                       2015                           2014
                                                                            Total future                    Total future
At 31 March                                                                   minimum         Present         minimum          Present
R’million                                                                    payments           value        payments            value


41. Finance lease disclosures
          Finance lease receivables included in loans and advances
          to customers
          Lease receivables due in:
          Less than one year                                                        666           543               572           461
          One to five years                                                         634           561               634           557
                                                                                  1 300         1 104             1 206         1 018

          Unearned finance income                                                   196                             188

          At 31 March 2015 and 31 March 2014, there were no unguaranteed residual values.




                                                                                                                                          Annual financial statements



                                                                                                                                             5




Investec Bank Limited group and company annual financial statements 2015                                                            177
                              Notes to the financial statements (continued)


                              At 31 March                                                                 Group                                    Company
                              R’million                                                                2015                2014                2015                 2014


                              42. Notes to cash flow statement
                                     Profit before taxation adjusted for non-cash items
                                     is derived as follows:
                                     Profit before taxation                                           3 673               2 465               3 090                1 831
                                     Depreciation and impairment of property, equipment
                                     and intangibles                                                    138                 147                  134                  145
                                     Impairment of loans and advances                                   455                 638                  468                  579
                                     Loss on realisation of fixed assets                                  –                   5                    –                    7
                                     Gain on realisation of available-for-sale assets recycled
                                     through the income statement                                         –                   (2)                 –                    (2)
                                     Profit before taxation adjusted for non-cash items               4 266               3 253               3 692                2 560

                                     Increase in operating assets
                                     Loans and advances to banks                                        744              (7 296)                 745               (7 788)
                                     Reverse repurchase agreements and cash collateral on
                                     securities borrowed                                              (3 639)              1 226              (3 484)               1 226
                                     Sovereign debt securities                                         3 466              (1 085)              3 484               (1 085)
                                     Bank debt securities                                              4 182                (406)              4 045                 (385)
                                     Other debt securities                                              (757)             (5 584)               (448)              (7 733)
                                     Derivative financial instruments                                 (3 232)               (292)             (3 394)                (249)
                                     Securities arising from trading activities                           27                   41                 27                    41
                                     Investment portfolio                                               (781)                  76               (597)                   96
                                     Loans and advances to customers                                (23 509)            (12 405)            (24 958)             (10 863)
                                     Own originated loans and advances to customers securitised       (1 713)               (443)                   –                 919
                                     Other loans and advances                                             80                 120                (476)                 672
                                     Other securitised assets                                            885                (335)                390                 (113)
Annual financial statements




                                     Other assets                                                        515                (598)                498                 (627)
                                     Investment properties                                                  4                 (83)                  4                  (83)
                                     Loans to group companies                                         (1 388)              9 465                 173                9 043
                                     Non-current assets held for sale                                      (1)              (731)                  (1)               (731)
                                                                                                    (25 117)            (18 330)            (23 992)             (17 660)

                                     Increase in operating liabilities
                                     Deposits by banks                                                7 385               4 543                7 386               4 578
                                     Derivative financial instruments                                 3 142                  27                3 142                  27
                                     Other trading liabilities                                          192                 368                  192                 368
                                     Repurchase agreements and cash collateral on securities lent    (1 310)               (661)              (1 182)               (682)
                                     Customer accounts (deposits)                                   15 223               18 635              15 737               17 005
                                     Debt securities in issue                                           151               1 275                  136               1 125
5                                    Liabilities arising on securitisation of own originated
                                     loans and advances                                               (280)               (1 564)                 –                 (919)
                                     Liabilities arising on securitisation of other assets            (156)                 (432)                 –                    –
                                     Other liabilities                                                 517                   374                819                   25
                                                                                                    24 864               22 565              26 230               21 527




                              178                                                                    Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


At 31 March                                                                                Group                             Company
R’million                                                                               2015              2014            2015                2014


43. Commitments
          Undrawn facilities                                                          43 479            36 943          41 513            35 316
          Other commitments                                                                 –              215                –                 98
                                                                                      43 479            37 158          41 513            35 414

          The group has entered into forward foreign exchange contracts
          and loan commitments in the normal course of its banking
          business for which the fair value is recorded on balance sheet.

          Operating lease commitments
          Future minimum lease payments under non-cancellable
          operating leases:
          Less than one year                                                             423               410              423                408
          One to five years                                                            1 873             1 457            1 873               1 457
          Later than five years                                                        1 123             1 862            1 123               1 862
                                                                                       3 419             3 729            3 419               3 727

          At 31 March 2015, Investec was obligated under a number of operating leases for properties, computer equipment and office
          equipment for which the future minimum lease payments extend over a number of years. The annual escalation clauses range
          between 7.0% and 10.0% per annum. The majority of the leases have renewal options. Contingent rent represents payments made
          to landlords for operating, tax and other escalation expenses.

                                                                                            2015                               2014
                                                                                                     Carrying
                                                                                                                                        Carrying
                                                                                                      value of                           value of
                                                                                                       related                            related
                                                                                                       liability                          liability




                                                                                                                                                       Annual financial statements
                                                                                                 Repurchase                         Repurchase
                                                                                                 agreements                         agreements
                                                                                   Carrying         and cash          Carrying         and cash
                                                                                  amount of      collateral on       amount of      collateral on
         At 31 March                                                               pledged         securities         pledged         securities
         R’million                                                                    asset                lent          asset                lent

          Pledged assets
          Group
          Sovereign debt securities                                                    5 055             8 220            3 475               7 635
          Bank debt securities                                                         7 466             4 144           10 829               4 718
          Other debt securities                                                        3 083             1 712            1 542                 735
          Securities arising from trading activities                                     357             1 146              688                 688
          Reverse repurchase agreements and cash collateral                                                                                               5
          on securities borrowed                                                         698               472            2 275            2 275
                                                                                      16 659            15 694           18 809           16 051

          Company
          Sovereign debt securities                                                    5 055             8 220            3 475               7 635
          Bank debt securities                                                         7 466             4 144           10 829               4 718
          Other debt securities                                                        3 083             1 712            1 542                 735
          Securities arising from trading activities                                     357             1 146              688                 688
          Reverse repurchase agreements and cash collateral
          on securities borrowed                                                         698               472            2 275            2 275
                                                                                      16 659            15 694           18 809           16 051

          The assets pledged by the group are strictly for the purpose of providing collateral for the counterparty. To the extent that the
          counterparty is permitted to sell and/or re-pledge the assets, they are classified on the balance sheet as reverse repurchase
          agreements and cash collateral on securities borrowed.




Investec Bank Limited group and company annual financial statements 2015                                                                         179
                              Notes to the financial statements (continued)


                              At 31 March                                                                              Group                                     Company
                              R’million                                                                             2015                 2014                2015                 2014


                              44. Contingent liabilities
                                    Guarantees and assets pledged as collateral security:
                                    – Guarantees and irrevocable letters of credit                                19 757              16 252               20 353               16 906
                                                                                                                  19 757              16 252               20 353               16 906

                                     The amounts shown above are intended only to provide an indication of the volume of business outstanding at the balance
                                     sheet date.

                                     Guarantees are issued by Investec Bank Limited on behalf of third parties and other group companies. The guarantees are issued
                                     as part of the banking business.

                                     Legal proceedings
                                     Investec operates in a legal and regulatory environment that exposes it to litigation risks. As a result, Investec is involved in disputes
                                     and legal proceedings which arise in the ordinary course of business. Investec does not expect the ultimate resolution of any of the
                                     proceedings to which Investec is a party to have a significant adverse effect on the financial position of the group. These claims,
                                     if any, cannot be reasonably estimated at this time.

                              For the year to 31 March                                                                                                  Group and company
                              R’million                                                                                                                      2015                 2014


                              45. Related party transactions
                                     Transactions, arrangements and agreements involving directors and others:
                                     Transactions, arrangements and agreements involving directors with directors and connected
                                     persons and companies controlled by them, and with officers of the company, were as follows:

                                     Directors, key management and connected persons and companies controlled by them:
                                     Loans
Annual financial statements




                                     At the beginning of the year                                                                                              531                  508
                                     Increase in loans                                                                                                         250                   72
                                     Repayment of loans                                                                                                       (173)                (182)
                                     Exchange adjustment                                                                                                         6                  133
                                     At the end of the year                                                                                                    614                  531

                                     Guarantees
                                     At the beginning of the year                                                                                                77                   64
                                     Additional guarantees granted                                                                                               30                   77
                                     Guarantees cancelled                                                                                                       (33)                 (81)
                                     Exchange adjustments                                                                                                         1                   17
                                     At the end of the year                                                                                                      75                   77

5                                    Deposits
                                     At the beginning of the year                                                                                             (554)                (388)
                                     Increase in deposits                                                                                                     (399)                (359)
                                     Decrease in deposits                                                                                                      344                  323
                                     Exchange adjustment                                                                                                        (12)               (130)
                                     At the end of the year                                                                                                   (621)                (554)

                                     The above transactions were made in the ordinary course of business and on substantially the same terms, including interest
                                     rates and security, as for comparable transactions with persons of a similar standing or, where applicable, with other employees.
                                     The transactions did not involve more than the normal risk of repayment. None of these loans have been impaired.




                              180                                                                                  Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


For the year to 31 March                                                                                            Group and company
R’million                                                                                                               2015        2014


45. Related party transactions (continued)
         Transactions with Investec plc and its subsidiaries
         Assets
         Loans and advances to banks                                                                                      234           289
         Loans and advances to customers                                                                                    –           284
         Other debt securities                                                                                          2 882      4 588
         Derivative financial instruments                                                                               1 782           454
         Other assets                                                                                                       –           204

         Liabilities
         Deposits from banks                                                                                               63           537
         Customer accounts (deposits)                                                                                      31            20
         Repurchase agreements and cash collateral on securities lent                                                   4 193      5 379
         Derivative financial instruments                                                                                 696            20
         Debt securities in issue                                                                                         125             –
         Other liabilities                                                                                                 55             –

         Income statement
         Interest income                                                                                                  157           502
         Interest expense                                                                                                  26            27

         The above outstanding balances arose from the ordinary course of business and on substantially
         the same terms, including interest rates and security, as for comparable transactions with third
         party counterparties.
         In the normal course of business, services are rendered between Investec plc and Investec Bank
         Limited. In the year to 31 March 2015, this resulted in a net payment by Investec plc group of




                                                                                                                                               Annual financial statements
         R383.0 million (2014: R140.3 million). Specific transactions of an advisory nature between group
         entities resulted in a net fee payment by Investec plc group of R5.3 million (2014: Rnil).

         Transactions with other related parties
         Loan from Investec Bank (Mauritius) Limited to Forty Two Point Two                                               463           751
         The loan arises from Investec’s portion of funding in relation to the 15% acquisition of Investec
         Asset Management by senior management of the business


                   Refer to pages 90 to 99 in the directors’ remuneration report for other transactions relating to directors.



                   Refer to note 32 for loans to group companies and note 33 for loans to/(from) subsidiary companies.

                                                                                                                                                  5




Investec Bank Limited group and company annual financial statements 2015                                                                 181
                              Notes to the financial statements (continued)


                              46. Liquidity analysis of financial liabilities based on undiscounted cash flows
                                                                                                 One        Three             Six             One
                                                                                 Up to        month        months         months              year
                                    At 31 March                                    one       to three       to six         to one           to five          > Five
                                    R’million                     Demand         month       months        months            year            years            years            Total

                                    Group
                                    2015
                                    Liabilities
                                    Deposits by banks                  710        1 643           742           10         12 188          14 499                  –        29 792
                                    Derivative financial
                                    instruments                     12 390             –            –             –               –                –              21        12 411
                                    – held for trading              12 354             –            –             –               –                –               –        12 354
                                    – held for hedging risk             36             –            –             –               –                –              21              57
                                    Other trading liabilities        1 623             –            –             –               –                –               –          1 623
                                    Repurchase agreements
                                    and cash collateral on
                                    securities lent                  1 237        9 493             2          681          1 340            3 931                 –        16 684
                                    Customer accounts
                                    (deposits)                      88 651       27 923       39 490        13 919         20 091          28 596             2 729        221 399
                                    Debt securities in issue              –            –           77           81          1 068            4 291                 –          5 517
                                    Liabilities arising on
                                    securitisation of own
                                    originated loans and
                                    advances                              –            –            –             8               2          4 229            1 014           5 253
                                    Other liabilities                  679          518           894          516              68             512              608           3 795
                                    Subordinated liabilities              –           61          315          163             356           5 993            7 277         14 165
                                    Total on balance sheet
Annual financial statements




                                    liabilities                   105 290        39 638       41 520        15 378         35 113          62 051           11 649         310 639
                                    Contingent liabilities           5 447            54        5 405          303             320           7 404            1 289         20 222
                                    Commitments                      3 169            43      10 246         1 141          3 627          11 438           14 088          43 752
                                    Total liabilities             113 906        39 735       57 171        16 822         39 060          80 893           27 026         374 613

                                    The balances in the above table will not agree directly to the balances in the consolidated balance sheet as the table incorporates
                                    all cash flow on an undiscounted basis relating to both principal and those associated with all future coupon payments (except
                                    for trading liabilities and trading derivatives). Furthermore loan commitments are generally not recognised on the balance sheet.
                                    Trading liabilities and trading derivatives have been included in the ‘Demand’ time bucket and not by contractual maturity because
                                    trading liabilities are typically held for short periods of time.


                                             For an analysis based on discounted cash flows, please refer to page 65.


5




                              182                                                                               Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


46. Liquidity analysis of financial liabilities based on undiscounted cash flows
        (continued)

                                                                                   One     Three        Six     One
                                                                  Up to         month     months    months      year
         At 31 March                                                one        to three    to six    to one   to five      > Five
         R’million                             Demand             month        months     months       year    years        years         Total

         Group
         2014
         Liabilities
         Deposits by banks                           915           2 095         2 066       352       257    16 723            –       22 408
         Derivative financial
         instruments                              9 238                    –         –         –         –         –           21        9 259
         – held for trading                       9 238                    –         –         –         –         –            –        9 238
         – held for hedging risk                        –                  –         –         –         –         –           21           21
         Other trading liabilities                1 431                    –         –         –         –         –            –        1 431
         Repurchase agreements
         and cash collateral on
         securities lent                          3 411            3 515             –         –     4 638     5 130          993       17 687
         Customer accounts
         (deposits)                              77 611          27 656        31 094     18 585    23 551    24 639        1 906     205 042
         Debt securities in issue                       –                  4        52       131       480     4 698            –        5 365
         Liabilities arising on
         securitisation of own
         originated loans and
         advances                                       –                  –       299         –         –     6 951            –        7 250
         Liabilities arising on
         securitisation of other




                                                                                                                                                   Annual financial statements
         assets                                         –                  –       156         –         –         –            –          156
         Other liabilities                        1 035              765           882       171       340      445           621        4 259
         Subordinated liabilities                       –              56          134       154       339     6 584        6 802       14 069
         Total on balance sheet
         liabilities                             93 641          34 091        34 683     19 393    29 605    65 170      10 343      286 926
         Contingent liabilities                   7 200              537           733       220       920     4 121        2 521       16 252
         Commitments                                    –            102         5 287       717     2 802    12 173      16 077        37 158
         Total liabilities                     100 841           34 730        40 703     20 330    33 327    81 464      28 941      340 336

         The balances in the above table will not agree directly to the balances in the consolidated balance sheet as the table incorporates all
         cash flow on an undiscounted basis.



                                                                                                                                                      5




Investec Bank Limited group and company annual financial statements 2015                                                                     183
                              Notes to the financial statements (continued)


                              46. Liquidity analysis of financial liabilities based on undiscounted cash flows
                                    (continued)

                                                                                                  One        Three             Six             One
                                                                                  Up to        month        months         months              year
                                    At 31 March                                     one       to three       to six         to one           to five          > Five
                                    R’million                     Demand          month       months        months            year            years            years            Total

                                    Company
                                    2015
                                    Liabilities
                                    Deposits by banks                  570         1 643          742            10         12 188          14 499                  –        29 652
                                    Derivative financial
                                    instruments                     12 390              –            –             –               –                –              21        12 411
                                    – held for trading              12 354              –            –             –               –                –               –        12 354
                                    – held for hedging risk              36             –            –             –               –                –              21              57
                                    Other trading liabilities        1 623              –            –             –               –                –               –          1 623
                                    Repurchase agreements
                                    and cash collateral on
                                    securities lent                  1 149         9 492             –          679          1 335            2 570                 –        15 225
                                    Customer accounts
                                    (deposits)                      81 020        27 347       38 974        13 637         20 032          28 175             2 729        211 914
                                    Debt securities in issue              –             –           77           81             238           4 126                 –          4 522
                                    Other liabilities                  517           511          821           516              64             512              608           3 549
                                    Subordinated liabilities              –           61          315           163             356           5 993            7 277         14 165
                                    Total on balance sheet
                                    liabilities                     97 269        39 054       40 929        15 086         34 213          55 875           10 635         293 061
                                    Contingent liabilities           5 573              –       5 163           279             220           8 339            1 246         20 820
                                    Commitments                      3 136            43       10 219         1 141          3 154          10 762           13 330          41 785
Annual financial statements




                                    Total liabilities              105 978        39 097       56 311        16 506         37 587          74 976           25 211         355 666

                                    The balances in the above table will not agree directly to the balances in the consolidated balance sheet as the table incorporates all
                                    cash flow on an undiscounted basis.




5




                              184                                                                                Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


46. Liquidity analysis of financial liabilities based on undiscounted cash flows
        (continued)

                                                                                   One     Three         Six           One
                                                                  Up to         month     months     months            year
         At 31 March                                                one        to three    to six     to one         to five        > Five
         R’million                             Demand             month        months     months        year          years          years          Total

         Company
         2014
         Liabilities
         Deposits by banks                           774           2 095         2 066       352          257        16 723               –       22 267
         Derivative financial
         instruments                              9 238                    –         –         –             –             –            21         9 259
         – held for trading                       9 238                    –         –         –             –             –              –        9 238
         – held for hedging risk                        –                  –         –         –             –             –            21             21
         Other trading liabilities                1 431                    –         –         –             –             –              –        1 431
         Repurchase agreements
         and cash collateral on
         securities lent                          3 320            3 515             –         –       4 638          4 935               –       16 408
         Customer accounts
         (deposits)                              71 178          27 002        30 809     18 220      22 651         24 548          1 906      196 314
         Debt securities in issue                       –                  4        52       131          480         3 718               –        4 385
         Other liabilities                           697             648           816       151          338           429            621         3 700
         Subordinated liabilities                       –              56          134       154          339         6 584          6 802        14 069
         Total on balance sheet
         liabilities                             86 638          33 320        33 877     19 008      28 703         56 937          9 350      267 833
         Contingent liabilities                   7 200              537           613       183          911         4 941          2 521        16 906
         Commitments                                    –              66        5 061       717       2 785         10 708        16 077         35 414




                                                                                                                                                             Annual financial statements
         Total liabilities                       93 838          33 923        39 551     19 908      32 399         72 586        27 948       320 153

         The balances in the above table will not agree directly to the balances in the consolidated balance sheet as the table incorporates all
         cash flow on an undiscounted basis.



47. Hedges
         The group uses derivatives for the management of financial risks relating to its asset and liability portfolios, mainly associated
         with non-trading interest rate risks and exposures to foreign currency risk. Most non-trading interest rate risk is transferred from
         the originating business to the Central Treasury in the Specialist Bank. Once aggregated and netted Central Treasury, as the sole
         interface to the wholesale market for cash and derivative transactions, actively manages the liquidity mismatch and non-trading
         interest rate risk from our asset and liability portfolios. In this regard, Treasury is required to exercise tight control of funding, liquidity,
         concentration and non-trading interest rate risk within defined parameters.

         The accounting treatment of accounting hedges is dependant on the classification between fair value hedges and cash flow hedges
                                                                                                                                                                5
         and in particular accounting hedges require the identification of a direct relationship between a hedged item and hedging instrument.

         This relationship is established in limited circumstances based on the manner in which the group manages its risk exposure. Below is
         a description of each category of accounting hedges achieved by the group.




Investec Bank Limited group and company annual financial statements 2015                                                                               185
                              Notes to the financial statements (continued)


                              47. Hedges (continued)
                                    Fair value hedges
                                    Fair value hedges are entered into mainly to hedge the exposure of changes in fair value of fixed-rate financial instruments
                                    attributable to interest rates.

                                                                         Description                        Cumulative        Current year          Cumulative               Current
                                                                          of financial      Fair value           losses      gains/(losses)           gains on            year gains
                                    At 31 March                           instrument       of hedging       on hedging         on hedging              hedged             on hedged
                                    R’million                          being hedged        instrument       instrument         instrument                 item                  item

                                    2015
                                    Interest rate swaps                        Bonds              (635)             (192)                 (16)                179                   37

                                    2014
                                    Interest rate swaps                        Bonds              (631)             (355)                  94                 337                   36

                                    At year end the hedges were both retrospectively and prospectively effective.

                                    Cash flow hedges
                                    The group is exposed to variability in cash flows on future liabilities arising from changes in base interest rates. The aggregate
                                    expected cash flows are hedged based on cash flow forecasts with reference to terms and conditions present in the affected
                                    contractual arrangements. Changes in fair value are initially recognised in other comprehensive income and transferred to the income
                                    statement when the cash flow affects the income statement.

                                                                                                  Description
                                                                                                   of financial                                         Period cash flows are
                                    At 31 March                                                    instrument              Fair value of          expected to occur and affect
                                    R’million                                                   being hedged         hedging instrument                     income statement

                                    2015
                                    Cross-currency swaps                                                  Bonds                        4 356                          Three months
Annual financial statements




                                    2014
                                    Cross-currency swaps                                                  Bonds                        4 824                          Three months

                                    There are cash flow hedges during the year to mitigate interest rate and currency risk. A reconciliation of the cash flow hedge reserve
                                    can be found in the statement of changes in equity. There was no ineffective portion recognised in the income statement.

                                    Releases to the income statement for cash flow hedges are included in net interest income.

                                    Hedges of net investments in foreign operations
                                    Investec Bank Limited has entered into foreign exchange contracts to hedge its balance sheet exposure to its net investment, in
                                    US Dollars, in Investec Bank (Mauritius) Limited.

                                                                                                                                                                             Hedging
5                                   At 31 March
                                    R’million
                                                                                                                                                                          instrument
                                                                                                                                                                            fair value

                                    2015                                                                                                                                          (351)
                                    2014                                                                                                                                            (33)

                                    There was no ineffective portion recognised in the income statement in the current and prior year.




                              186                                                                                 Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


                                                                                      Amounts subject to enforceable
                                                                                         netting arrangements
                                                                                                                              Related
                                                                                                                             amounts
                                                                           Effects of offsetting on-balance sheet           not offset
                                                                                                                             Financial
                                                                                                        Net amounts       instruments
                                                                                                         reported on        (including
At 31 March                                                                  Gross         Amounts       the balance         non-cash         Net
R’million                                                                  amounts           offset            sheet         collateral)   amount

48. Offsetting
          2015
          Group
          Assets
          Cash and balances at central banks                                  6 261                –           6 261                  –      6 261
          Loans and advances to banks                                        43 242           (9 820)        33 421                   –     33 421
          Non-sovereign and non-bank
          cash placements                                                    10 540                –         10 540                   –     10 540
          Reverse repurchase agreements and cash
          collateral on securities borrowed                                  10 095                –         10 095                   –     10 095
          Sovereign debt securities                                          31 378                –         31 378             (8 220)     23 158
          Bank debt securities                                               17 332                –         17 332             (4 144)     13 188
          Other debt securities                                              12 749                –         12 749             (1 712)     11 037
          Derivative financial instruments                                   15 892             (714)        15 178             (6 374)      8 804
          Securities arising from trading activities                          1 289                –           1 289            (1 146)       143
          Investment portfolio                                                9 972                –           9 972                  –      9 972
          Loans and advances to customers                                   174 839           (1 846)       172 993                   –    172 993




                                                                                                                                                     Annual financial statements
          Own originated loans and advances to
          customers securitised                                               4 535                –           4 535                  –      4 535
          Other loans and advances                                              472                –                472               –       472
          Other securitised assets                                              618                –                618               –       618
          Other assets                                                        1 262                –           1 262                  –      1 262
                                                                            340 476          (12 380)       328 095            (21 596)    306 499
          Liabilities
          Deposits by banks                                                  30 506             (714)        29 792                   –     29 792
          Derivative financial instruments                                   22 221           (9 820)        12 401             (6 374)      6 027
          Other trading liabilities                                           1 623                –           1 623                  –      1 623
          Repurchase agreements and cash
          collateral on securities lent
          Customer accounts (deposits)
                                                                             16 556
                                                                            223 223
                                                                                                   –
                                                                                              (1 846)
                                                                                                             16 556
                                                                                                            221 377
                                                                                                                               (15 222)
                                                                                                                                      –
                                                                                                                                             1 334
                                                                                                                                           221 377
                                                                                                                                                        5
          Debt securities in issue                                            5 517                –           5 517                  –      5 517
          Liabilities arising on securitisation of own
          originated loans and advances                                       1 089                –           1 089                  –      1 089
          Other liabilities                                                   3 741                –           3 741                  –      3 741
          Subordinated liabilities                                           10 449                –         10 449                   –     10 449
                                                                            314 925          (12 380)       302 545            (21 596)    280 949




Investec Bank Limited group and company annual financial statements 2015                                                                       187
                              Notes to the financial statements (continued)


                                                                                                        Amounts subject to enforceable
                                                                                                           netting arrangements
                                                                                                                                                   Related
                                                                                                                                                   amounts
                                                                                             Effects of offsetting on-balance sheet               not offset
                                                                                                                                                     Financial
                                                                                                                           Net amounts            instruments
                                                                                                                            reported on             (including
                              At 31 March                                                      Gross         Amounts        the balance              non-cash                  Net
                              R’million                                                      amounts           offset             sheet              collateral)            amount

                              48. Offsetting (continued)
                                     2014
                                     Group
                                     Assets
                                     Cash and balances at central banks                         5 927                 –              5 927                      –             5 927
                                     Loans and advances to banks                               41 371           (8 699)            32 672                       –            32 672
                                     Non-sovereign and non-bank
                                     cash placements                                            9 045                 –              9 045                      –             9 045
                                     Reverse repurchase agreements and cash
                                     collateral on securities borrowed                          6 442                 –              6 442               (2 275)              4 167
                                     Sovereign debt securities                                 34 815                 –            34 815                (7 635)             27 180
                                     Bank debt securities                                      21 538                 –            21 538                (4 718)             16 820
                                     Other debt securities                                     11 933                 –            11 933                   (735)            11 198
                                     Derivative financial instruments                          13 094             (795)            12 299                (5 753)              6 546
                                     Securities arising from trading activities                 1 316                 –              1 316                  (688)                628
                                     Investment portfolio                                       8 834                 –              8 834                      –             8 834
                                     Loans and advances to customers                          148 562                 –           148 562                       –          148 562
Annual financial statements




                                     Own originated loans and advances to
                                     customers securitised                                      2 822                 –              2 822                      –             2 822
                                     Other loans and advances                                     552                 –                552                      –                552
                                     Other securitised assets                                   1 503                 –              1 503                      –             1 503
                                     Other assets                                               1 771                 –              1 771                      –             1 771
                                                                                              309 525           (9 494)           300 031               (21 804)           278 227
                                     Liabilities
                                     Deposits by banks                                         23 202             (795)            22 407                       –            22 407
                                     Derivative financial instruments                          17 958           (8 699)              9 259               (5 753)              3 506
                                     Other trading liabilities                                  1 431                 –              1 431                      –             1 431
                                     Repurchase agreements and cash collateral

5                                    on securities lent
                                     Customer accounts (deposits)
                                                                                               17 686
                                                                                              204 903
                                                                                                                      –
                                                                                                                      –
                                                                                                                                   17 686
                                                                                                                                  204 903
                                                                                                                                                        (16 051)
                                                                                                                                                                –
                                                                                                                                                                              1 635
                                                                                                                                                                           204 903
                                     Debt securities in issue                                   5 366                 –              5 366                      –             5 366
                                     Liabilities arising on securitisation of own
                                     originated loans and advances                              1 369                 –              1 369                      –             1 369
                                     Liabilities arising on securitisation of other assets        156                 –                 156                     –                156
                                     Other liabilities                                          3 193                 –              3 193                      –             3 193
                                     Subordinated liabilities                                  10 498                 –            10 498                       –            10 498
                                                                                              285 762           (9 494)           276 268               (21 804)           254 464




                              188                                                                               Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


                                                                                      Amounts subject to enforceable
                                                                                         netting arrangements
                                                                                                                        Related
                                                                                                                        amounts
                                                                           Effects of offsetting on-balance sheet      not offset
                                                                                                                          Financial
                                                                                                        Net amounts    instruments
                                                                                                         reported on     (including
At 31 March                                                                  Gross         Amounts       the balance      non-cash         Net
R’million                                                                  amounts           offset            sheet      collateral)   amount

48. Offsetting (continued)
          2015
          Company
          Assets
          Cash and balances at central banks                                  6 148                –          6 148                 –     6 148
          Loans and advances to banks                                        40 104           (9 820)        30 284                 –    30 284
          Non-sovereign and non-bank
          cash placements                                                    10 540                –         10 540                 –    10 540
          Reverse repurchase agreements and cash
          collateral on securities borrowed                                   9 926                –          9 926                 –     9 926
          Sovereign debt securities                                          31 358                –         31 358          (8 220)     23 138
          Bank debt securities                                               15 981                –         15 981          (4 144)     11 837
          Other debt securities                                              13 390                –         13 390          (1 712)     11 678
          Derivative financial instruments                                   15 683             (714)        14 969          (6 374)      8 595
          Securities arising from trading activities                          1 289                –          1 289          (1 146)       143
          Investment portfolio                                                9 581                –          9 581                 –     9 581
          Loans and advances to customers                                   160 854           (1 826)       159 028                 –   159 028




                                                                                                                                                   Annual financial statements
          Other loans and advances                                              476                –            476                 –      476
          Other securitised assets                                              137                –            137                 –      137
          Other assets                                                          994                –            994                 –      994
                                                                            316 461         (12 360)        304 101         (21 596)    282 505
          Liabilities
          Deposits by banks                                                  30 366             (714)        29 652                 –    29 652
          Derivative financial instruments                                   22 221           (9 820)        12 401          (6 374)      6 027
          Other trading liabilities                                           1 623                –          1 623                 –     1 623
          Repurchase agreements and cash
          collateral on securities lent                                      15 225                –         15 225         (15 222)         3
          Customer accounts (deposits)                                      213 740           (1 826)       211 914                 –   211 914
          Debt securities in issue
          Other liabilities
                                                                              4 522
                                                                              3 492
                                                                                                   –
                                                                                                   –
                                                                                                              4 522
                                                                                                              3 492
                                                                                                                                    –
                                                                                                                                    –
                                                                                                                                          4 522
                                                                                                                                          3 492
                                                                                                                                                      5
          Subordinated liabilities                                           10 449                –         10 449                 –    10 449
                                                                            301 638         (12 360)        289 278         (21 596)    267 682




Investec Bank Limited group and company annual financial statements 2015                                                                     189
                              Notes to the financial statements (continued)


                                                                                             Amounts subject to enforceable
                                                                                                netting arrangements
                                                                                                                                        Related
                                                                                                                                        amounts
                                                                                  Effects of offsetting on-balance sheet               not offset
                                                                                                                                         Financial
                                                                                                                Net amounts           instruments
                                                                                                                 reported on            (including
                              At 31 March                                           Gross         Amounts        the balance             non-cash                  Net
                              R’million                                           amounts           offset             sheet             collateral)            amount

                              48. Offsetting (continued)
                                    2014
                                    Company
                                    Assets
                                    Cash and balances at central banks               5 751                 –              5 751                      –             5 751
                                    Loans and advances to banks                     38 371           (8 699)            29 672                       –           29 672
                                    Non-sovereign and non-bank
                                    cash placements                                  9 045                 –              9 045                      –             9 045
                                    Reverse repurchase agreements and cash
                                    collateral on securities borrowed                6 442                 –              6 442               (2 275)              4 167
                                    Sovereign debt securities                       34 815                 –            34 815                (7 635)            27 180
                                     Bank debt securities                           20 233                 –            20 233                (4 718)            15 515
                                     Other debt securities                          13 019                 –            13 019                  (735)            12 284
                                     Derivative financial instruments               12 752             (795)            11 957                (5 411)              6 546
                                     Securities arising from trading activities      1 316                 –              1 316                 (688)                 628
                                     Investment portfolio                            8 657                 –              8 657                      –             8 657
                                     Loans and advances to customers               134 611                 –          134 611                        –          134 611
Annual financial statements




                                     Other securitised assets                          527                 –                527                      –                527
                                     Other assets                                    1 492                 –              1 492                      –             1 492
                                                                                   287 031           (9 494)          277 537               (21 462)            256 075
                                     Liabilities
                                     Deposits by banks                              23 061             (795)            22 266                       –           22 266
                                     Derivative financial instruments               17 958           (8 699)              9 259               (5 411)              3 848
                                     Other trading liabilities                       1 431                 –              1 431                      –             1 431
                                     Repurchase agreements and cash
                                     collateral on securities lent                  16 407                 –            16 407              (16 051)                  356
                                     Customer accounts (deposits)                  196 177                 –          196 177                        –          196 177
                                     Debt securities in issue                        4 386                 –              4 386                      –             4 386

5                                    Other liabilities
                                     Subordinated liabilities
                                                                                     2 673
                                                                                    10 498
                                                                                                           –
                                                                                                           –
                                                                                                                          2 673
                                                                                                                        10 498
                                                                                                                                                     –
                                                                                                                                                     –
                                                                                                                                                                   2 673
                                                                                                                                                                 10 498
                                                                                   272 591           (9 494)          263 097               (21 462)            241 635




                              190                                                                    Investec Bank Limited group and company annual financial statements 2015
Notes to the financial statements (continued)


49. Derecognition
         Transfer of financial assets that do not result in derecognition
         Investec Bank Limited has been party to securitisation transactions whereby assets continue to be recognised on balance sheet
         (either fully or partially) although they have been subject to legal transfer to another entity. Securitisations may, depending on the
         individual arrangement, result in continued recognition of the securitised assets and the recognition of the debt securities issued in
         the transaction.

                                                                                                                              2015
                                                                                                                      Carrying
                                                                                                                       amount
                                                                                                                     of assets
                                                                                                                       that are        Carrying
                                                                                                                    continued         amount of
                                                                                                                         to be       associated
         R’million                                                                                                 recognised          liabilities

         Company

         No derecognition achieved
         Loans and advances to customers                                                                                 3 323             3 323
                                                                                                                         3 323             3 323

         All the above derecognised assets in the company relate to Fox Street 3 (RF) Ltd and Fox Street 4 (RF) Ltd. For additional information
         refer to page 51 in the risk management report.

         For transfer of assets in relation to repurchase agreements see note 43.




                                                                                                                                                     Annual financial statements



                                                                                                                                                        5




Investec Bank Limited group and company annual financial statements 2015                                                                       191
                              Contact details


                              Botswana, Gaborone                  South Africa, Johannesburg                         South Africa, Pretoria
                              Plot 64511, Unit 5                  100 Grayston Drive                                 Cnr Atterbury and Klarinet Streets
                              Fairgrounds Gaborone                Sandown Sandton 2196                               Menlo Park Pretoria 0081
                              Telephone (267) 318 0112            PO Box 785700                                      PO Box 35209 Menlo Park 0102
                              Facsimile (267) 318 0114            Sandton 2146                                       Telephone (27 12) 427 8300
                              e-mail info@investec.com            Telephone (27 11) 286 7000                         Facsimile (27 12) 427 8310
                                                                  Facsimile (27 11) 286 7777
                              Mauritius, Port Louis               e-mail, South African offices                      South Africa, Stellenbosch
                              6th Floor Dias Pier Building                                                           Office 401, Mill Square
                              Le Caudan Waterfront Caudan
                                                                  •   Recruitment queries:
                                                                                                                     12 Plein Street, Stellenbosch 7600
                              Port Louis                              recruitment@investec.co.za                     PO Box 516 Stellenbosch 7599
                              Telephone (230) 207 4000            •   Client queries:                                Telephone (27 21) 809 0700
                              Facsimile (230) 207 4002                                                               Facsimile (27 21) 809 0730
                              e-mail info@investec.com                – Asset management:
                                                                        comcentre@investecmail.com
                              Namibia, Windhoek
                                                                      – Institutional Securities:
                              Office 1 Ground floor                     securities@investec.co.za
                              Heritage Square Building
                                                                      – Private Client Securities:
                              100 Robert Mugabe Avenue Windhoek
                                                                        iso@investec.co.za
                              Telephone (264 61) 389 500
                              Facsimile (264 61) 249 689              – Property Group:
                              e-mail info@investec.com                  ipg@investec.co.za
                                                                      – Private Bank:
                              South Africa, Cape Town                   privatebank@investec.co.za
                              36 Hans Strijdom Avenue                 – Capital Markets:
                              Foreshore Cape Town 8001                  info-tsf@investec.co.za
                              PO Box 1826 Cape Town 8000
                              Telephone (27 21) 416 1000          South Africa, Knysna
                              Facsimile (27 21) 416 1001          TH24/TH25 Long Street Ext
                                                                  Thesen Harbour Town Knysna 6571
                              South Africa, Durban
                                                                  Telephone (27 44) 302 1800
                              5 Richefond Circle                  Facsimile (27 44) 382 4954
Annual financial statements




                              Ridgeside Office Park
                              Umhlanga Durban 4319                South Africa, Pietermaritzburg
                              PO Box 25278 Gateway Durban 4321    Acacia House Redlands Estate
                              Telephone (27 31) 575 4000          1 George MacFarlane Lane
                              Facsimile (27 865) 009 901          Pietermaritzburg 3201
                                                                  PO Box 594 Pietermaritzburg 3200
                              South Africa, East London
                                                                  Telephone (27 33) 264 5800
                              Cube 1                              Facsimile (27 33) 342 1561
                              Cedar Square
                              Bonza Bay Road                      South Africa, Port Elizabeth
                              Beacon Bay                          Waterfront Business Park, Pommern Street
                              East London 5241                    Humerail, Port Elizabeth, 6045
                              Telephone (27 43) 709 5700          PO Box 13434

5
                              Facsimile (27 43) 748 1548          Humewood, Port Elizabeth 6013
                                                                  Telephone (27 41) 396 6700
                                                                  Facsimile (27 41) 363 1667




                              192                                                                    Investec Bank Limited group and company annual financial statements 2015
Notes




                                                                                 Annual financial statements



                                                                                    5




Investec Bank Limited group and company annual financial statements 2015   193
                              Notes
Annual financial statements




5




                              194     Investec Bank Limited group and company annual financial statements 2015
Corporate information


Secretary and registered office             Transfer secretaries
Niki van Wyk                                Computershare Investor Services (Pty) Ltd
100 Grayston Drive                          70 Marshall Street
Sandown Sandton 2196                        Johannesburg 2001
PO Box 785700 Sandton 2196                  PO Box 61051
Telephone (27 11) 286 7000                  Marshalltown 2107
Facsimile (27 11) 286 7966                  Telephone (27 11) 370 5000

Internet address                            Directorate
www.investec.com                            Refer to page 88

Registration number
                                                   For contact details for Investec
Reg. No. 1969/004763/06                            offices refer to page 192.

Auditors
KPMG Inc.
Ernst & Young Inc.




For queries regarding information in this document
Investor Relations
Telephone (27 11) 286 7070
e-mail: Investorrelations@investec.com
Internet address:
www.investec.com/en_za/#home/investor_relations.html
Specialist Banking   Asset Management   Wealth & Investment

Date: 23/09/2015 10:59:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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