Wrap Text
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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