Wrap Text
Interim results and dividend announcement
Absa Bank Limited
Authorised financial services and registered credit provider (NCRCP7)
Registration number: 1986/004794/06
Incorporated in the Republic of South Africa
JSE share code: ABSP
ISIN: ZAE000079810
(Absa, Absa Bank, the Bank or the Company)
Unaudited condensed consolidated interim financial results for the reporting period ended 30 June 2018
The Board of Directors oversees the Bank's activities and holds management accountable for adhering to the risk
governance framework. To do so, directors review reports prepared by the businesses, Risk, and others. They exercise sound
independent judgement, and probe and challenge recommendations, as well as decisions made by management.
Finance is responsible for establishing a strong control environment over the Group's financial reporting processes
and serves as an independent control function advising business management, escalating identified risks and establishing
policies or processes to manage risk.
Finance is led by the Group's Financial Director who reports directly to the Chief Executive Officer. The Financial
Director has regular and unrestricted access to the Board of Directors as well as to the Group Audit and Compliance
Committee (GACC).
Together with the GACC, the Board has reviewed and approved the reporting changes contained in the announcement
released on the Stock Exchange News Services (SENS) on 6 August 2018. The GACC and the Board are satisfied that the changes
disclosed in the SENS result in fair presentation of the consolidated financial position and comply, in all material
respects, with the relevant provisions of the Companies Act, IFRS and interpretations of IFRS, and SAICA's Reporting Guides.
These unaudited condensed consolidated interim financial results were prepared by Absa Group Financial Control under the
direction and supervision of the Absa Group Limited Financial Director, J P Quinn CA(SA).
Profit and dividend announcement
for the reporting period ended
Overview of results
Absa Bank Limited (the Bank) is a subsidiary of Absa Group Limited (the Group), which is listed on the exchange
operated by the JSE Limited. These unaudited condensed consolidated interim financial results are published to provide
information to holders of the Bank's listed non-cumulative, non-redeemable preference shares.
Commentary relating to the Bank's condensed consolidated financial results is included in the Absa Group Limited
results, as presented to shareholders on 6 August 2018.
Normalised reporting
Given the process of separating from Barclays PLC, the Bank continues to report both International Financial Reporting
Standards (IFRS) compliant financial results and a normalised view. The latter adjusts for the consequences of the
seperation and better reflects its underlying performance. The Bank will present normalised results for future periods
where the financial impact of separation is considered material.
Normalisation adjusts for the following items: interest income on Barclays PLC's seperation contribution, hedging
revenue linked to seperation activities, operating expenses and other expenses, as well as the tax impact of the
aforementioned items. Normalisation does not affect divisional disclosures.
Non-IFRS measures such as normalised results are considered pro forma financial information as per the Johannesburg
Stock Exchange (JSE) listing requirements. The pro forma financial information, is the responsibility of the Bank's Board
of directors and is presented for illustrative purposes only and because of its nature may not fairly present the Bank's
financial position, changes in equity, and results in operations or cash flows.
Basis of presentation
The Bank's unaudited condensed consolidated interim financial results have been prepared in accordance with the
recognition and measurement requirements of IFRS, interpretations issued by the IFRS Interpretations Committee (IFRS-IC),
the South African Institute of Chartered Accountants' Financial Reporting Guides as issued by the Accounting Practices
Committee, Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the JSE Listings
Requirements and the requirements of the Companies Act of South Africa.
The preparation of financial information requires the use of estimates and assumptions about future conditions. Use of
available information and application of judgement are inherent in the formation of estimates. The accounting policies
that are deemed critical to the Bank's results and financial position, in terms of the materiality of the items to which
the policies are applied, and which involve a high degree of judgement including the use of assumptions and estimation,
are impairment of loans and advances, goodwill impairment, fair value measurements, impairment of fair value through
other comprehensive income financial assets (2018)/available-for-sale financial assets (2017), consolidation of structured
or sponsored entities, post-retirement benefits, provisions, income taxes, share-based payments and offsetting of
financial assets and liabilities.
The directors assess the Bank's future performance and financial position on an ongoing basis and have no reason to
believe that the Bank will not be a going concern in the reporting period ahead. For this reason, the information in this
report has been prepared on a going concern basis.
Accounting policies
The accounting policies applied in preparing the unaudited condensed consolidated interim financial results comply
with IAS 34 Interim Financial Reporting (IAS 34). The principal accounting policies applied are set out in the Bank's
most recent audited annual consolidated financial statements, except for:
- The adoption of IFRS 9 Financial Instruments (IFRS 9) and IFRS 15 Revenue from Contracts with Customers (IFRS 15)
as explained in note 16; and
- Changes to the Bank's operating segments and business portfolio changes.
Note 16 includes the impact of the adoption of IFRS 9 and specifically the transitional disclosures as required by
IFRS 7 Financial Instruments Disclosures (IFRS 7). All information marked as audited in note 16 has been audited by Ernst
and Young who expressed an unmodified opinion thereon in terms of ISA 805 Special Considerations - Audits of Single
Financial Statements and Specific Elements, Accounts or Items of Financial Statements. A copy of the auditor's report on the
audited sections of note 16 are available for inspection at the Bank's registered office.
Events after the reporting period
The directors are not aware of any events after the reporting date of 30 June 2018 and up to the date of authorisation
of these unaudited condensed consolidated interim financial results (as defined per IAS 10 Events after the Reporting
Period).
On behalf of the Board
W E Lucas-Bull M Ramos
Chairman Chief Executive Officer
Johannesburg
6 August 2018
Profit and dividend announcement for the reporting period ended
Declaration of preference share dividend number 25
Absa Bank non-cumulative, non-redeemable preference shares (Absa Bank preference shares)
The Absa Bank preference shares have an effective coupon rate of 70% of Absa Bank's prevailing prime overdraft lending
rate (prime rate). Absa Bank's current prime rate is 10%.
Notice is hereby given that preference dividend number 25, equal to 70% of the average prime rate for 1 March 2018 to
31 August 2018, per Absa Bank preference share has been declared for the period 1 March 2018 to 31 August 2018. The
dividend is payable on Monday, 17 September 2018, to shareholders of the Absa Bank preference shares recorded in the
Register of Members of the Company at the close of business on Friday, 14 September 2018.
The directors of Absa Bank Limited have applied the solvency and liquidity test and reasonably concluded that the Bank
will satisfy the solvency and liquidity test immediately after completion of the dividend distribution.
Based on the current prime rate, the preference dividend payable for the period 1 March 2018 to 31 August 2018 would
indicatively be 3 542.67 cents per Absa Bank preference share.
The dividend will be subject to dividend withholding tax at a rate of 20%. In accordance with paragraphs 11.17(a)(i)
to (ix) and 11.17(c) of the JSE Listings Requirements, the following additional information is disclosed:
- The dividend has been declared out of income reserves.
- The local dividend tax rate is twenty per cent (20%).
- The gross local dividend amount is 3 542.67 cents per preference share for shareholders exempt from the dividend tax.
- The net local dividend for shareholders subject to withholding tax at a rate of 20% amounts to 2 834.136 cents
per preference share.
- Absa Bank currently has 4 944 839 preference shares in issue.
- Absa Bank's income tax reference number is 9575117719.
In compliance with the requirements of Strate, the electronic settlement and custody system used by JSE Limited, the
following salient dates for the payment of the dividend are applicable:
Last day to trade cum dividend Tuesday, 11 September 2018
Shares commence trading ex dividend Wednesday, 12 September 2018
Record date Friday, 14 September 2018
Payment date Monday, 17 September 2018
On behalf of the Board
N R Drutman
Company Secretary
Johannesburg
6 August 2018
Absa Bank Limited is a company domiciled in South Africa. Its registered office is 7th Floor, Absa Towers West,
15 Troye Street, Johannesburg, 2001.
Condensed consolidated IFRS salient features for the reporting period ended
30 June 31 December
2018 2017 2017
Statement of comprehensive income (Rm)
Income 25 747 24 806 50 094
Operating expenses 16 394 14 696 31 608
Profit attributable to ordinary equity holders 3 959 4 546 8 067
Headline earnings(1) 4 151 4 805 8 548
Statement of financial position
Loans and advances to customers (Rm) 683 152 638 552 660 492
Total assets (Rm) 1 029 261 948 523 988 358
Deposits due to customers (Rm) 590 827 577 925 583 825
Loans to deposits and debt securities ratio (%) 93.4 89.0 91.5
Financial performance (%)
Return on average equity 10.9 14.3 11.8
Return on average assets 0.85 1.04 0.91
Return on average risk-weighted assets 1.62 1.96 1.64
Stage 3 loans ratio on gross loans and advances 5.1 n/a n/a
Non-performing loans (NPL) ratio on gross loans and advances n/a 3.3 3.6
Operating performance (%)
Net interest margin on average interest-bearing assets 3.77 3.83 3.91
Credit loss ratio on gross loans and advances to customers and banks 0.78 0.81 0.73
Non-interest income as a percentage of total income 42.1 41.6 41.3
Cost-to-income ratio 63.7 59.2 63.1
Jaws (7.8) (10.7) (12.2)
Effective tax rate, excluding indirect taxation 27.4 27.4 27.9
Share statistics (million)
Number of ordinary shares in issue 448.3 448.3 448.3
Weighted average number of ordinary shares in issue 448.3 433.1 440.7
Diluted weighted average number of ordinary shares in issue 448.3 433.1 440.7
Share statistics (cents)
Headline earnings per ordinary share 925.7 1 109.4 1 939.4
Diluted headline earnings per ordinary share 925.7 1 109.4 1 939.4
Basic earnings per ordinary share 883.3 1 049.6 1 830.3
Diluted basic earnings per ordinary share 883.3 1 049.6 1 830.3
Dividend per ordinary share relating to income for the reporting period 602.3 892.3 2 372.7
Dividend cover (times) 1.5 1.2 0.8
Net asset value (NAV) per ordinary share 17 446 17 659 17 998
Tangible net asset value per ordinary share 16 351 17 176 17 136
Capital adequacy (%)
Absa Bank Limited 17.9 17.4 16.9
Common Equity Tier (CET) 1 (%)
Absa Bank Limited 13.5 14.1 13.4
(1) After allowing for R176m (30 June 2017: R180m; 31 December 2017: R362m) profit attributable to preference equity
holders and R96m (30 June 2017: RNil; 31 December 2017: R48m) profit attributable to Additional Tier 1 capital.
Condensed consolidated normalised salient features for the reporting period ended
30 June 31 December
2018 2017 2017
Statement of comprehensive income (Rm)
Income 25 160 24 522 49 689
Operating expenses 15 039 14 236 29 708
Profit attributable to ordinary equity holders 4 675 4 936 9 550
Headline earnings 4 866 4 957 9 793
Statement of financial position
Total assets (Rm) 1 027 657 936 703 987 446
Financial performance (%)
Return on average equity 14.8 15.1 14.8
Return on average assets 1.00 1.08 1.05
Return on risk-weighted assets 1.90 2.02 1.88
Operating performance (%)
Non-interest income as a percentage of total income 41.4 41.2 41.5
Cost-to-income ratio 59.8 58.1 59.8
Jaws (3.04) (8.32) (6.11)
Effective tax rate, excluding indirect taxation 25.8 27.0 27.0
Share statistics (million)
Number of ordinary shares in issue 448.3 448.3 448.3
Weighted average number of ordinary shares in issue 448.3 433.1 440.8
Diluted weighted average number of ordinary shares in issue 448.3 433.1 440.8
Share statistics (cents)
Headline earnings per ordinary share 1 085.7 1 144.5 2 221.9
Diluted headline earnings per ordinary share 1 085.7 1 144.5 2 221.9
Basic earnings per ordinary share 1 042.8 1 139.7 2 166.5
Diluted basic earnings per ordinary share 1 042.8 1 139.7 2 166.5
NAV per ordinary share 15 193 15 046 15 599
Tangible NAV per ordinary share 14 411 14 563 14 913
Capital adequacy (%)
Absa Bank Limited 16.3 15.2 15.0
Common Equity Tier 1 (%)
Absa Bank Limited 11.9 11.9 11.6
Condensed consolidated normalised reconciliation for the reporting period ended
30 June 2018
Reconciliation of normalised to IFRS results Adjustments Normalised
IFRS Bank for Barclays Bank
performance separation performance
effects
Statement of comprehensive income (Rm)
Net interest income 14 915 175 14 740
Non-interest income 10 832 413 10 419
Total income 25 747 588 25 159
Expected credit losses (2 831) - (2 831)
Operating expenses (16 394) (1 355) (15 039)
Other expenses (754) (76) (678)
Share of post-tax results of associates and joint ventures 56 - 56
Operating profit before income tax 5 824 (843) 6 667
Tax expenses (1 593) 128 (1 721)
Profit for the reporting period 4 231 (715) 4 946
Profit attributable to:
Ordinary equity holders 3 959 (715) 4 674
Preference equity holders 176 - 176
Additional Tier 1 capital 96 - 96
4 231 (715) 4 946
Headline earnings 4 151 (715) 4 866
Operating performance (%)
Net interest margin on average interest-bearing assets 3.77 n/a 3.76
Credit loss ratio on gross loans and advances to customers and banks 0.79 n/a 0.79
Non-interest income as a percentage of total income 42.1 n/a 41.4
Income growth 3.8 n/a 2.6
Operating expenses growth 11.6 n/a 5.6
Cost-to-income ratio 63.7 n/a 59.8
Effective tax rate 27.4 n/a 25.8
Statement of financial position (Rm)
Loans and advances to customers 683 152 - 683 152
Loans and advances to banks 49 173 - 49 173
Investment securities 86 794 - 86 794
Other assets 210 142 1 603 208 539
Total assets 1 029 261 1 603 1 027 658
Deposits due to customers 590 827 - 590 827
Debt securities in issue 140 363 - 140 363
Other liabilities(1) 215 213 (8 502) 223 715
Total liabilities 946 403 (8 502) 954 905
Equity 82 858 10 105 72 753
Total equity and liabilities 1 029 261 1 603 1 027 658
Key performance ratios (%)
Return on average risk-weighted assets 1.62 n/a 1.90
Return on average assets 0.85 n/a 1.00
Return on average equity 10.9 n/a 14.8
Capital adequacy 17.9 n/a 16.3
Common Equity Tier 1 13.5 n/a 11.9
Share statistics (cents)
Diluted headline earnings per ordinary share 925.7 n/a 1 085.7
(1) This represents the contribution of R12.1bn that was received from Barclays PLC, net of amounts already spent on
seperation activities. The cash received is held centrally by Treasury and is presented as an intersegmental asset in
‘Other liabilities'.
Condensed consolidated normalised reconciliation for the reporting period ended
30 June 2017
Reconciliation of normalised to IFRS results IFRS Bank Adjustments Normalised
performance for Barclays Bank
separation performance
effects
Statement of comprehensive income (Rm)
Net interest income 14 475 46 14 429
Non-interest income 10 331 238 10 093
Total income 24 806 284 24 522
Impairment losses on loans and advances (2 779) - (2 779)
Operating expenses (14 696) (460) (14 236)
Other expenses (821) (325) (496)
Operating profit before income tax 6 510 (501) 7 011
Tax expenses (1 783) 111 (1 894)
Profit for the reporting period 4 727 (390) 5 117
Profit attributable to:
Ordinary equity holders 4 546 (390) 4 936
Non-controlling interest - ordinary shares (1) - (1)
Preference equity holders (180) - (180)
Additional Tier 1 capital - - -
4 365 (390) 4 755
Headline earnings 4 805 (152) 4 957
Operating performance (%)
Net interest margin on average interest-bearing assets 3.93 n/a 3.93
Credit loss ratio on gross loans and advances to customers and banks 0.82 n/a 0.82
Non-interest income as a percentage of total income 41.6 n/a 41.2
Income growth 1.4 n/a 0.2
Operating expenses growth 12.0 n/a 8.5
Cost-to-income ratio 59.2 n/a 58.1
Effective tax rate 27.4 n/a 27.0
Statement of financial position (Rm)
Loans and advances to customers 638 552 - 638 552
Loans and advances to banks 50 824 - 50 824
Investment securities 81 876 - 81 876
Other assets 177 271 (105) 177 376
Total assets 948 523 (105) 948 628
Deposits due to customers 577 925 - 577 925
Debt securities in issue 139 906 - 139 906
Other liabilities(1) 146 879 (11 819) 158 698
Total liabilities 864 710 (11 819) 876 529
Equity 83 813 11 714 72 099
Total equity and liabilities 948 523 (105) 948 628
Key performance ratios (%)
Return on average risk-weighted assets 1.96 n/a 2.02
Return on average assets 1.04 n/a 1.08
Return on average equity 14.3 n/a 15.1
Capital adequacy 17.4 n/a 15.2
Common Equity Tier 1 14.1 n/a 11.9
Share statistics (cents)
Diluted headline earnings per ordinary share 1 109.4 n/a 1 144.5
(1)This represents the contribution of R12.1bn that was received from Barclays PLC, net of amounts already spent on
seperation activities. The cash received is held centrally by Treasury and is presented as an intersegmental asset in
‘Other liabilities'.
Condensed consolidated normalised reconciliation for the reporting period ended
31 December 2017
Reconciliation of normalised to IFRS results Adjustments
IFRS for Barclays Normalised
Bank separation Bank
performance effects performance
Statement of comprehensive income (Rm)
Net interest income 29 413 325 29 088
Non-interest income 20 681 80 20 601
Total income 50 094 405 49 689
Impairment losses on loans and advances (5 113) - (5 113)
Operating expenses (31 608) (1 901) (29 707)
Other expenses (1 788) (394) (1 394)
Share of post-tax results of associates and joint ventures 170 - 170
Operating profit before income tax 11 755 (1 890) 13 645
Tax expenses (3 278) 408 (3 687)
Profit for the reporting period 8 477 (1 482) 9 959
Profit attributable to:
Ordinary equity holders 8 067 (1 482) 9 549
Preference equity holders 362 - 362
Additional Tier 1 capital 48 - 48
8 477 (1 482) 9 959
Headline earnings 8 548 (1 245) 9 793
Operating performance (%)
Net interest margin on average interest-bearing assets 3.91 n/a 3.90
Credit loss ratio on gross loans and advances to customers and banks 0.73 n/a 0.74
Non-interest income as a percentage of total income 41.3 n/a 41.5
Income growth 2.6 n/a 1.8
Operating expenses growth 14.8 n/a 7.9
Cost-to-income ratio 63.1 n/a 59.8
Effective tax rate 27.9 n/a 27.0
Statement of financial position (Rm)
Loans and advances to customers 660 492 - 660 492
Loans and advances to banks 43 217 - 43 217
Investment securities 76 524 - 76 524
Other assets 208 125 912 207 213
Total assets 988 358 912 987 446
Deposits due to customers 583 825 - 583 825
Debt securities in issue 137 942 - 137 942
Other liabilities(1) 181 262 (9 840) 191 102
Total liabilities 903 029 (9 840) 912 869
Equity 85 329 10 752 74 577
Total equity and liabilities 988 358 912 987 446
Key performance ratios (%)
Return on average assets 0.91 n/a 1.05
Return on average equity 14.3 n/a 14.8
Capital adequacy 16.9 n/a 15.0
Common Equity Tier 1 13.4 n/a 11.6
Share statistics (cents)
Diluted headline earnings per ordinary share 1 939.4 n/a 2 221.9
(1) This represents the contribution of R12.1bn that was received from Barclays PLC, net of amounts already spent on
seperation activities. The cash received is held centrally by Treasury and is presented as an intersegmental asset in
‘Other liabilities'.
Barclays separation financial results
‘Net interest income' includes the endowment benefit received on the Barclays PLC investment, while foreign exchange
hedging gains linked to the separation activities have been disclosed as ‘Non-interest income'. ‘Operating expenses'
includes R1.3bn (30 June 2017: R460m; 31 December 2017: R1.9bn) professional fees, information technology costs, marketing,
transitional service costs and salary costs for internal resources dedicated to the separation that was incurred during
the respective reporting periods. ‘Other expenses' reflects the VAT less any inputs incurred during the current
reporting period. In the prior reporting period, ‘Other expenses' included the impairment of an intangible asset that was
utilised. To date, there has been no further impairment recognised on intangible assets.
Condensed consolidated statement of financial position as at
30 June 31 December
2018 2017 2017
Note Rm Rm Rm
Assets
Cash, cash balances and balances with central banks 24 698 26 346 28 792
Investment securities 86 794 81 876 76 524
Loans and advances to banks 2 49 173 50 824 43 217
Trading portfolio assets 96 333 74 961 104 781
Hedging portfolio assets 2 320 2 270 2 667
Other assets 26 593 29 225 15 513
Current tax assets 614 386 57
Non-current assets held for sale 1 37 1 391 1 119
Loans and advances to customers 2 683 152 638 552 660 492
Loans to Group companies 38 730 26 117 36 530
Investments in associates and joint ventures 1 217 1 144 1 235
Investment properties 165 - -
Property and equipment 13 663 13 222 13 519
Goodwill and intangible assets 4 912 2 168 3 861
Deferred tax assets 860 41 51
Total assets 1 029 261 948 523 988 358
Liabilities
Deposits from banks 95 723 56 475 74 110
Trading portfolio liabilities 57 011 39 680 59 834
Hedging portfolio liabilities 1 334 1 470 1 117
Other liabilities 38 249 31 207 27 824
Provisions 1 468 1 233 2 073
Current tax liabilities - - 55
Deposits due to customers 590 827 577 925 583 825
Debt securities in issue 140 363 139 906 137 942
Borrowed funds 3 21 416 15 930 15 866
Deferred tax liabilities 12 884 383
Total liabilities 946 403 864 710 903 029
Equity
Capital and reserves
Attributable to ordinary equity holders:
Ordinary share capital 304 304 304
Ordinary share premium 36 879 36 880 36 879
Preference share capital 1 1 1
Preference share premium 4 643 4 643 4 643
Additional Tier 1 capital 1 500 - 1 500
Retained earnings 35 629 38 642 37 855
Other reserves 3 901 3 341 4 145
82 857 83 811 85 327
Non-controlling interest - ordinary shares 1 2 2
Total equity 82 858 83 813 85 329
Total equity and liabilities 1 029 261 948 523 988 358
Condensed consolidated statement of comprehensive income for the reporting period ended
30 June 31 December
2018 2017 2017
Note Rm Rm Rm
Net interest income 14 915 14 475 29 413
Interest and similar income(1) 36 241 35 820 71 438
Effective interest income 35 898 35 351 70 161
Other interest income 343 469 1 277
Interest expense and similar charges(1) (21 326) (21 345) (42 025)
Effective interest expense (21 326) (21 272) (42 025)
Other interest expense - (73) -
Non-interest income 4 10 832 10 331 20 681
Net fee and commission income 9 023 8 429 17 279
Fee and commission income 9 736 9 076 18 608
Fee and commission expense (713) (647) (1 329)
Gains from banking and trading activities 1 770 1 752 2 860
Gains from investment activities 4 - 3
Other operating income 36 150 539
Total income 25 747 24 806 50 094
Expected credit losses/impairment losses (2 831) (2 779) (5 113)
Operating income before operating expenditure 22 916 22 027 44 981
Operating expenditure (16 394) (14 696) (31 608)
Other expenses (754) (900) (1 788)
Other impairments 5 (183) (326) (512)
Indirect taxation (571) (574) (1 276)
Share of post-tax results of associates and joint ventures 56 79 170
Operating profit before income tax 5 824 6 510 11 755
Taxation expense (1 593) (1 783) (3 278)
Profit for the reporting period 4 231 4 727 8 477
Profit attributable to:
Ordinary equity holders 3 959 4 546 8 067
Non-controlling interest - 1 -
Preference equity holders 176 180 362
Additional Tier 1 capital 96 - 48
4 231 4 727 8 477
Earnings per share:
Basic earnings per share (cents per share) 883.3 1 049.6 1 830.3
Diluted earnings per share (cents per share) 883.3 1 049.6 1 830.3
(1)An amendment was made to IAS 1 Presentation of Financial Statements, which is effective from 1 January 2018. The
amendment requires ‘Interest and similar income' which is calculated using the effective interest method, to be presented
separately on the face of the statement of comprehensive income. The Bank has elected to apply the same approach in
presenting ‘Interest expense and similar charges' to achieve consistency.
Condensed consolidated statement of comprehensive income for the reporting period ended
30 June 31 December
2018 2017 2017
Rm Rm Rm
Profit for the reporting period 4 231 4 727 8 477
Other comprehensive income
Items that will not be reclassified to profit or loss 3 (19) (154)
Fair value gain on equity instruments measured at Fair Value through
Other Comprehensive Income (FVOCI) 2 - -
Movement due to changes in own credit risk on financial liabilities
designated at FVTPL 5 (13) (147)
Fair value losses (45) (13) (147)
Deferred tax 50 - -
Movement in retirement benefit fund assets and liabilities (4) (6) (7)
Decrease in retirement benefit surplus (6) (5) (10)
Deferred tax 2 (1) 3
Items that are or may be subsequently reclassified to profit or loss (205) 215 677
Movement in foreign currency translation reserve - 54 55
Differences in translation of foreign operations - 54 3
Release to profit or loss - - 52
Movement in cash flow hedging reserve (588) 519 794
Fair value (losses)/gains (737) 876 1 465
Amount removed from other comprehensive income and recognised in profit or loss (80) (157) (365)
Deferred tax 229 (200) (306)
Movement in fair value of debt instruments measured at FVOCI 383 - -
Fair value gains 529 - -
Release to profit or loss 3 - -
Deferred tax (149) - -
Movement in available-for-sale reserve - (358) (172)
Fair value losses - (515) (307)
Release to profit or loss - 18 67
Deferred tax - 139 68
Total comprehensive income for the reporting period 4 029 4 923 9 000
Total comprehensive income attributable to:
Ordinary equity holders 3 757 4 742 8 590
Non-controlling interest - 1 -
Preference equity holders 176 180 362
Additional Tier 1 capital 96 - 48
4 029 4 923 9 000
Condensed consolidated statement of changes in equity for the reporting period ended
Number of Share Share Preference Preference
ordinary capital premium share share
shares(1) Rm Rm capital premium
'000 Rm Rm
Balance as reported at the end of the previous 448 301 304 36 879 1 4 643
reporting period
Impact of adopting new accounting standards at
1 January 2018
IFRS 9 - - - - -
IFRS 15 - - - - -
Adjusted balance at the beginning of the 448 301 304 36 879 1 4 643
reporting period
Total comprehensive income for the reporting period - - - - -
Profit for the reporting period - - - - -
Other comprehensive income - - - - -
Dividends paid during the reporting period - - - - -
Distributions paid during the reporting period - - - - -
Purchase of Absa Group Limited shares in respect of
equity-settled share-based payment arrangements - - - - -
Movement in share-based payment reserve - - - - -
Intercompany recharge - - - - -
Value of employee services - - - - -
Deferred tax - - - - -
Share of post-tax results of associates and joint ventures - - - - -
Balance at the end of the reporting period 448 301 304 36 879 1 4 643
30 June 2018
Additional Retained Total Fair value
Tier 1 earnings other through
capital Rm reserves other
Rm Rm comprehensive
income
reserve
Rm
Balance as reported at the end of the previous 1 500 37 855 4 145 87
reporting period
Impact of adopting new accounting standards at
1 January 2018
IFRS 9 - (3 103) (204) (131)
IFRS 15 - (44) - -
Adjusted balance at the beginning of the 1 500 34 708 3 941 (44)
reporting period
Total comprehensive income for the reporting period - 4 231 (202) 386
Profit for the reporting period - 4 231 - -
Other comprehensive income - - (202) 386
Dividends paid during the reporting period - (3 176) - -
Distributions paid during the reporting period - (96) - -
Purchase of Absa Group Limited shares in respect of
equity-settled share-based payment arrangements - 18 - -
Movement in share-based payment reserve - - 106 -
Intercompany recharge - - (193) -
Value of employee services - - 327 -
Deferred tax - - (28) -
Share of post-tax results of associates and joint ventures - (56) 56 -
Balance at the end of the reporting period 1 500 35 629 3 901 342
Cash flow Foreign Capital Share-
hedging currency reserve based
reserve translation Rm payment
Rm reserve reserve
Rm Rm
Balance as reported at the end of the previous 649 1 1 422 749
reporting period
Impact of adopting new accounting standards at
1 January 2018
IFRS 9 - - - -
IFRS 15 - - - -
Adjusted balance at the beginning of the 649 1 1 422 749
reporting period
Total comprehensive income for the reporting period (588) - - -
Profit for the reporting period - - - -
Other comprehensive income (588) - - -
Dividends paid during the reporting period - - - -
Distributions paid during the reporting period - - - -
Purchase of Absa Group Limited shares in respect of
equity-settled share-based payment arrangements - - - -
Movement in share-based payment reserve - - - 106
Intercompany recharge - - - (193)
Value of employee services - - - 327
Deferred tax - - - (28)
Share of post-tax results of associates and joint ventures - - - -
Balance at the end of the reporting period 61 1 1 422 855
Associates Total Non- Total
and joint equity controlling equity
ventures' attributable interest - Rm
reserve to equity ordinary
Rm holders shares
Rm Rm
Balance as reported at the end of the previous 1 237 85 327 2 85 329
reporting period
Impact of adopting new accounting standards at
1 January 2018
IFRS 9 (73) (3 307) - (3 307)
IFRS 15 - (44) - (44)
Adjusted balance at the beginning of the 1 164 81 976 2 81 978
reporting period
Total comprehensive income for the reporting period - 4 029 - 4 029
Profit for the reporting period - 4 231 - 4 231
Other comprehensive income - (202) - (202)
Dividends paid during the reporting period - (3 176) (1) (3 177)
Distributions paid during the reporting period - (96) - (96)
Purchase of Absa Group Limited shares in respect of
equity-settled share-based payment arrangements - 18 - 18
Movement in share-based payment reserve - 106 - 106
Intercompany recharge - (193) - (193)
Value of employee services - 327 - 327
Deferred tax - (28) - (28)
Share of post-tax results of associates and joint ventures 56 - - -
Balance at the end of the reporting period 1 220 82 857 1 82 858
All movements are reflected net of taxation.
(1) This includes ordinary shares and ‘A' ordinary shares.
Condensed consolidated statement of changes in equity for the reporting period ended
Number of Share Share Preference
ordinary capital premium share
shares(1) Rm Rm capital
'000 Rm
Balance at the beginning of the reporting period 431 318 304 24 964 1
Total comprehensive income for the reporting period - - - -
Profit for the reporting period - - - -
Other comprehensive income - - - -
Dividends paid during the reporting period - - - -
Shares issued 16 983 - 3 500 -
Purchase of Absa Group Limited shares in respect of
equity-settled share-based payment arrangements - - - -
Elimination of the movement in treasury shares held - - - -
by Group entities
Transfer of vesting options - - - -
Movement in share-based payment reserve - - - -
Transfer from share-based payment reserve - - - -
Value of employee services - - - -
Deferred tax - - - -
Share of post-tax results of associates and joint ventures - - - -
Disposal of non-controlling interest and related
transaction costs(2) - - - -
Barclays separation(3) - - 8 416 -
Balance at the end of the reporting period 448 301 304 36 880 1
30 June 2017
Preference Retained Total Available-
share earnings other for-sale
premium Rm reserves reserve
Rm Rm Rm
Balance at the beginning of the reporting period 4 643 36 099 3 262 259
Total comprehensive income for the reporting period - 4 707 215 (358)
Profit for the reporting period - 4 726 - -
Other comprehensive income - (19) 215 (358)
Dividends paid during the reporting period - (5 780) - -
Shares issued - - - -
Purchase of Absa Group Limited shares in respect of
equity-settled share-based payment arrangements - 5 - -
Elimination of the movement in treasury shares held - - - -
by Group entities
Transfer of vesting options - - - -
Movement in share-based payment reserve - - (215) -
Transfer from share-based payment reserve - - (425) -
Value of employee services - - 229 -
Deferred tax - - (19) -
Share of post-tax results of associates and joint ventures - (79) 79 -
Disposal of non-controlling interest and related
transaction costs(2) - - - -
Barclays separation(3) - 3 690 - -
Balance at the end of the reporting period 4 643 38 642 3 341 (99)
Cash flow Foreign Capital Share-
hedging currency reserve based
reserve translation Rm payment
Rm reserve reserve
Rm Rm
Balance at the beginning of the reporting period (145) (54) 1 422 713
Total comprehensive income for the reporting period 519 54 - -
Profit for the reporting period - - - -
Other comprehensive income 519 54 - -
Dividends paid during the reporting period - - - -
Shares issued - - - -
Purchase of Absa Group Limited shares in respect of
equity-settled share-based payment arrangements - - - -
Elimination of the movement in treasury shares held - - - -
by Group entities
Transfer of vesting options - - - -
Movement in share-based payment reserve - - - (215)
Transfer from share-based payment reserve - - - (425)
Value of employee services - - - 229
Deferred tax - - - (19)
Share of post-tax results of associates and joint ventures - - - -
Disposal of non-controlling interest and related
transaction costs(2) - - - -
Barclays separation(3) - - - -
Balance at the end of the reporting period 374 - 1 422 498
Associates Total Non- Total
and joint attributable controlling equity
ventures' to ordinary interest - Rm
reserve equity ordinary
Rm holders shares
Rm Rm
Balance at the beginning of the reporting period 1 067 69 273 26 69 299
Total comprehensive income for the reporting period - 4 922 1 4 923
Profit for the reporting period - 4 726 1 4 727
Other comprehensive income - 196 - 196
Dividends paid during the reporting period - (5 780) - (5 780)
Shares issued - 3 500 - 3 500
Purchase of Absa Group Limited shares in respect of
equity-settled share-based payment arrangements - 5 - 5
Elimination of the movement in treasury shares held - - - -
by Group entities
Transfer of vesting options - - - -
Movement in share-based payment reserve - (215) - (215)
Transfer from share-based payment reserve - (425) - (425)
Value of employee services - 229 - 229
Deferred tax - (19) - (19)
Share of post-tax results of associates and joint ventures 79 - - -
Disposal of non-controlling interest and related
transaction costs(2) - - (25) (25)
Barclays separation(3) - 12 106 - 12 106
Balance at the end of the reporting period 1 146 83 811 2 83 813
All movements are reflected net of taxation.
(1) This includes ordinary shares and ‘A' ordinary shares.
(2) The Group disposed of its controlling stake in a non-core subsidiary which was classified as held for sale.
(3) As part of the Barclays PLC disinvestment, the Bank issued 10 ordinary shares to Barclays Bank PLC for R8,4bn and
received an additional R3,7bn as a cash contribution. The resultant cash received meets the definition of a transaction
with a shareholder.
Condensed consolidated statement of changes in equity for the reporting period ended
Number of Share Share Preference
ordinary capital premium share
shares(1) Rm Rm capital
'000 Rm
Balance at the beginning of the reporting period 431 318 304 24 964 1
Total comprehensive income for the reporting period - - - -
Profit for the reporting period - - - -
Other comprehensive income - - - -
Dividends paid during the reporting period - - - -
Distributions paid during the reporting period - - - -
Shares issued 16 983 - 3 500 -
Issuance of Additional Tier 1 capital - - - -
Purchase of Absa Group Limited shares in respect of
equity-settled share-based payment arrangements - - - -
Movement in share-based payment reserve - - - -
Transfer from share-based payment reserve - - - -
Value of employee services - - - -
Conversion from cash-settled schemes - - - -
Deferred tax - - - -
Share of post-tax results of associates and joint ventures - - - -
Disposal of interest in subsidiary(2) - - - -
Barclays separation(3) - - 8 415 -
Shareholder contribution - fair value of investment(4) - - - -
Balance at the end of the reporting period 448 301 304 36 879 1
Preference Additional Retained Total
share Tier 1 earnings other
premium capital(5) Rm reserves
Rm Rm Rm
Balance at the beginning of the reporting period 4 643 - 36 099 3 262
Total comprehensive income for the reporting period - - 8 323 677
Profit for the reporting period - - 8 477 -
Other comprehensive income - - (154) 677
Dividends paid during the reporting period - - (9 962) -
Distributions paid during the reporting period - - (48) -
Shares issued - - - -
Issuance of Additional Tier 1 capital - 1 500 - -
Purchase of Absa Group Limited shares in respect of
equity-settled share-based payment arrangements - - (125) -
Movement in share-based payment reserve - - - 36
Transfer from share-based payment reserve - - - (586)
Value of employee services - - - 590
Conversion from cash-settled schemes - - - -
Deferred tax - - - 32
Share of post-tax results of associates and joint ventures - - (170) 170
Disposal of interest in subsidiary(2) - - - -
Barclays separation(3) - - 3 690 -
Shareholder contribution - fair value of investment(4) - - 48 -
Balance at the end of the reporting period 4 643 1 500 37 855 4 145
31 December 2017
Available- Cash flow Foreign Capital
for-sale hedging currency reserve
reserve reserve translation Rm
Rm Rm reserve
Rm
Balance at the beginning of the reporting period 259 (145) (54) 1 422
Total comprehensive income for the reporting period (172) 794 55 -
Profit for the reporting period - - - -
Other comprehensive income (172) 794 55 -
Dividends paid during the reporting period - - - -
Distributions paid during the reporting period - - - -
Shares issued - - - -
Issuance of Additional Tier 1 capital - - - -
Purchase of Absa Group Limited shares in respect of
equity-settled share-based payment arrangements - - - -
Movement in share-based payment reserve - - - -
Transfer from share-based payment reserve - - - -
Value of employee services - - - -
Conversion from cash-settled schemes - - - -
Deferred tax - - - -
Share of post-tax results of associates and joint ventures - - - -
Disposal of interest in subsidiary(2) - - - -
Barclays separation(3) - - - -
Shareholder contribution - fair value of investment(4) - - - -
Balance at the end of the reporting period 87 649 1 1 422
Share- Associates Total
based and joint attributable
payment ventures' to equity
reserve reserve holders
Rm Rm Rm
Balance at the beginning of the reporting period 713 1 067 69 273
Total comprehensive income for the reporting period - - 9 000
Profit for the reporting period - - 8 477
Other comprehensive income - - 523
Dividends paid during the reporting period - - (9 962)
Distributions paid during the reporting period - - (48)
Shares issued - - 3 500
Issuance of Additional Tier 1 capital - - 1 500
Purchase of Absa Group Limited shares in respect of
equity-settled share-based payment arrangements - - (125)
Movement in share-based payment reserve 36 - 36
Transfer from share-based payment reserve (586) - (586)
Value of employee services 590 - 590
Conversion from cash-settled schemes - - -
Deferred tax 32 - 32
Share of post-tax results of associates and joint ventures - 170 -
Disposal of interest in subsidiary(2) - - -
Barclays separation(3) - - 12 105
Shareholder contribution - fair value of investment(4) - - 48
Balance at the end of the reporting period 749 1 237 85 327
Non- Total
controlling equity
interest - Rm
ordinary
shares
Rm
Balance at the beginning of the reporting period 26 69 299
Total comprehensive income for the reporting period - 9 000
Profit for the reporting period - 8 477
Other comprehensive income - 523
Dividends paid during the reporting period - (9 962)
Distributions paid during the reporting period - (48)
Shares issued - 3 500
Issuance of Additional Tier 1 capital - 1 500
Purchase of Absa Group Limited shares in respect of
equity-settled share-based payment arrangements - (125)
Movement in share-based payment reserve - 36
Transfer from share-based payment reserve - (586)
Value of employee services - 590
Conversion from cash-settled schemes - -
Deferred tax - 32
Share of post-tax results of associates and joint ventures - -
Disposal of interest in subsidiary(2) (24) (24)
Barclays separation(3) - 12 105
Shareholder contribution - fair value of investment(4) - 48
Balance at the end of the reporting period 2 85 329
All movements are reflected net of taxation.
(1) This includes ordinary shares and ‘A' ordinary shares.
(2) The Group disposed of its controlling stake in a non-core subsidiary which was classified as held for sale.
(3) As part of the Barclays PLC disinvestment, the Bank issued 10 ordinary shares to Barclays Bank PLC for R8,4bn and
received an additional R3,7bn as a cash contribution. The resultant cash received meets the definition of a transaction
with a shareholder.
(4) CLS Group Holding AG shares were transferred to Barclays PLC for no consideration in 2005. During the reporting
period these shares were transferred back to the Bank for a nominal consideration of one British Pound Sterling (GBP).
The shares have been recognised at a fair value of R48m. The related credit has been recognised in equity as a
shareholder contribution.
(5) The Additional Tier 1 notes represent perpetual subordinated instruments redeemable in full at the option of Absa
Bank Limited (the issuer) on 12 September 2022 subject to regulatory approval. Interest is paid at the discretion of
the issuer and is non-cumulative. In addition, if certain conditions are reached, the regulator may prohibit the issuer
from making interest payments. Accordingly, the instruments are classified as equity instruments.
Condensed consolidated statement of cash flows for the reporting period ended
30 June 1 December
2018 2017(1) 2017(1)
Note Rm Rm Rm
Net cash utilised in operating activities (4 336) (3 913) (4 478)
Income taxes paid (1 921) (1 765) (3 513)
Net cash utilised in other operating activities (2 415) (2 148) (965)
Net cash utilised in investing activities (1 459) (956) (3 906)
Purchase of property and equipment (1 361) (1 230) (2 622)
Proceeds from sale of non-current assets held for sale 1 155 398 672
Net cash utilised in other investing activities (1 253) (124) (1 956)
Net cash generated from financing activities 2 186 10 831 7 008
Net cash generated from Barclays separation - 12 106 12 106
Issue of ordinary shares - 3 500 3 500
Issue of Additional Tier 1 capital - - 1 500
Proceeds from borrowed funds 5 488 1 000 2 841
Repayment of borrowed funds - - (2 805)
Dividends paid (3 176) (5 780) (9 962)
Net cash (utilised in)/generated from other financing activities (126) 5 (172)
Net (decrease)/increase in cash and cash equivalents (3 609) 5 962 (1 376)
Cash and cash equivalents at the beginning of the reporting period 1 11 040 12 416 12 416
Cash and cash equivalents at the end of the reporting period 2 7 431 18 378 11 040
Notes to the condensed consolidated statement of cash flows
1. Cash and cash equivalents at the beginning of the reporting period
Cash, cash balances and balances with central banks(2) 9 684 9 662 9 662
Loans and advances to banks(3) 1 356 2 754 2 754
11 040 12 416 12 416
2. Cash and cash equivalents at the end of the reporting period
Cash, cash balances and balances with central banks(2) 6 833 7 673 9 684
Loans and advances to banks(3) 598 10 705 1 356
7 431 18 378 11 040
(1) In order to provide more transparent disclosures, the condensed consolidated statement of cash flows has been
expanded to include line items specifying significant cash flow movements. The effect of this is to provide specific
disclosure of the following line items, rather than include them in the total cash generated by/used in operating,
investing or financing activities: Income taxes paid, purchase of property and equipment, proceeds from sale of
non-current assets, cash generated from Barclays separation, Issue of shares, Issue of Additional Tier 1 capital,
proceeds/repayments of borrowed funds and dividends paid. Comparative statements of cash flows have been restated
to take account of this additional disclosure.
(2) Includes coins and bank notes.
(3) Includes call advances, which are used as working capital for the Bank.
Condensed notes to the consolidated financial results for the reporting period ended
1. Non-current assets and non-current liabilities held for sale
The following movements in non-current assets and non-current liabilities held for sale were effected during the
current financial reporting period:
- Retail Banking South Africa disposed of a loan book with a carrying amount of R1 118m and property and equipment with a
carrying amount of R1m.
- Head office transferred property and equipment with a carrying amount of R37m to non-current assets held for sale.
The following movements in non-current assets and non-current liabilities held for sale were effected during the
reporting period ended 30 June 2017:
- Retail Banking South Africa transferred a subsidiary with total assets of R1 391m to non-current assets held for sale.
The Commercial Property Finance (CPF) Equity division in Business Banking South Africa disposed of a subsidiary with
assets of R372m and liabilities of R26m out of non-current assets and non-current liabilities held for sale respectively.
The following movements in non-current assets and non-current liabilities held for sale were effected during the
reporting period ended 31 December 2017:
- Retail Banking South Africa transferred loans and advances to customers of R1 118m and property and equipment of R1m
to non-current assets held for sale. The CPF Equity division in Business Banking South Africa disposed of a subsidiary
with assets of R373m and liabilities of R26m out of non-current assets and non-current liabilities held for sale
respectively.
- Corporate and Investment Banking South Africa transferred investment securities with a carrying value of R547m to
non-current assets held for sale. Prior to its disposal at a carrying value of R467m, a negative fair value adjustment of
R80m was applied to the investment securities.
2. Loans and advances
30 June 2018
Stage 1 Stage 2
Gross Expected ECL Gross
carrying Credit coverage carrying
value(1) Loss (ECL) % value
Rm Allowance Rm
Rm
Loans and advances to customers 606 388 2 468 0.41 59 115
Retail and Business Banking (RBB) South Africa 392 311 2 185 0.56 35 578
Retail Banking South Africa 334 064 1 564 0.47 28 221
Credit cards 23 636 511 2.16 3 128
Instalment credit agreements 70 312 512 0.73 6 155
Loans to associates and joint ventures 24 682 1 - -
Mortgages 193 278 174 0.09 15 071
Other loans and advances 2 341 14 0.58 368
Overdrafts 4 561 57 1.25 1 239
Personal and term loans 15 254 295 1.93 2 260
Business Banking South Africa 58 247 621 1.07 7 356
Corporate and Investment Banking (CIB) South Africa 208 890 434 0.21 22 842
Wealth 4 796 28 0.58 213
Head Office, Treasury and other operations in South Africa 391 (179) - 483
Loans and advances 391 9 2.22 483
Reclassification to provisions(2) - (188) - -
Loans and advances to banks 47 615 9 0.02 1 574
Total credit risk exposure on loans and advances 654 003 2 477 0.38 60 689
Stage 3
ECL ECL Gross ECL
Allowance coverage carrying Allowance
Rm % value Rm
Rm
Loans and advances to customers 3 500 5.92 38 466 14 849
Retail and Business Banking (RBB) South Africa 3 366 9.46 35 350 13 214
Retail Banking South Africa 2 967 10.51 30 214 10 694
Credit cards 1 191 38.07 4 091 2 601
Instalment credit agreements 744 12.08 4 755 1 710
Loans to associates and joint ventures - - - -
Mortgages 352 2.33 18 317 4 523
Other loans and advances 14 3.88 22 20
Overdrafts 159 12.84 487 288
Personal and term loans 507 22.44 2 542 1 552
Business Banking South Africa 399 5.42 5 136 2 520
Corporate and Investment Banking (CIB) South Africa 331 1.45 2 804 1 432
Wealth 6 2.90 312 232
Head Office, Treasury and other operations in South Africa (203) - - (29)
Loans and advances 1 0.24 - -
Reclassification to provisions(2) (204) - - (29)
Loans and advances to banks 7 0.47 - -
Total credit risk exposure on loans and advances 3 507 5.78 38 466 14 819
Total
ECL Gross ECL ECL
coverage carrying Allowance coverage
% value Rm %
Rm
Loans and advances to customers 38.60 703 969 20 817 2.96
Retail and Business Banking (RBB) South Africa 37.38 463 237 18 765 4.05
Retail Banking South Africa 35.39 392 498 15 225 3.88
Credit cards 63.57 30 855 4 303 13.95
Instalment credit agreements 35.96 81 222 2 966 3.65
Loans to associates and joint ventures - 24 682 1 -
Mortgages 24.69 226 666 5 049 2.23
Other loans and advances 92.85 2 731 48 1.76
Overdrafts 59.01 6 287 504 8.01
Personal and term loans 61.04 20 056 2 354 11.73
Business Banking South Africa 49.07 70 739 3 540 5.00
Corporate and Investment Banking (CIB) South Africa 51.07 234 536 2 197 0.94
Wealth 74.38 5 321 266 4.99
Head Office, Treasury and other operations in South Africa - 874 (411) -
Loans and advances - 874 10 1.12
Reclassification to provisions(2) - - (421) -
Loans and advances to banks - 49 189 16 0.03
Total credit risk exposure on loans and advances 38.60 753 158 20 833 2.77
(1) Included in Stage 1 gross carrying amount on loans and advances to customers and banks is R65 242m relating to financial
instruments measured at fair value through profit or loss. The fair value measurements for these instruments include
adjustments in respect of their credit quality.
(2) This represents the ECL allowance on undrawn facilities which has resulted in the ECL allowance on loans and advances
exceeding the carrying value of the drawn exposure. This excess is recognised in ‘Provisions' on the Bank's statement of
financial position.
30 June 2017(1)
Performing loans
Exposure Impair- Coverage
Rm ment ratio
Rm %
RBB South Africa 418 739 3 992 0.95
Retail Banking South Africa 356 819 3 148 0.88
Credit cards 26 900 622 2.31
Instalment credit agreements 71 473 759 1.06
Loans to associates and joint ventures 20 707 - -
Mortgages 213 920 1 211 0.57
Other loans and advances 2 686 - -
Overdrafts 4 575 40 0.87
Personal and term loans 16 558 516 3.12
Business Banking South Africa 61 920 844 1.36
Mortgages (including CPF) 26 477 168 0.63
Overdrafts 19 367 425 2.19
Term loans 16 076 251 1.56
CIB South Africa 204 297 604 0.30
Wealth 5 430 12 0.22
Head office, Treasury and other operations
in South Africa 752 9 1.20
Loans and advances to customers 629 218 4 617 0.73
Loans and advances to banks 50 824 - -
680 042 4 617 0.68
Non-performing loans
Exposure Impair- Coverage Net total
Rm ment ratio exposure
Rm % Rm
RBB South Africa 21 352 8 455 39.60 427 644
Retail Banking South Africa 18 288 7 339 40.13 364 620
Credit cards 3 943 2 875 72.91 27 346
Instalment credit agreements 2 221 1 052 47.37 71 883
Loans to associates and joint ventures - - - 20 707
Mortgages 10 102 2 118 20.97 220 693
Other loans and advances - - - 2 686
Overdrafts 286 171 59.79 4 650
Personal and term loans 1 736 1 123 64.69 16 655
Business Banking South Africa 3 064 1 116 36.42 63 024
Mortgages (including CPF) 1 501 533 35.51 27 277
Overdrafts 853 390 45.72 19 405
Term loans 710 193 27.18 16 342
CIB South Africa 1 604 617 38.47 204 680
Wealth 128 61 47.66 5 485
Head office, Treasury and other operations
in South Africa - - - 743
Loans and advances to customers 23 084 9 133 39.56 638 552
Loans and advances to banks - - - 50 824
23 084 9 133 39.56 689 376
31 December 2017(1)
Performing loans
Exposure Impair- Coverage
Rm ment ratio
Rm %
RBB South Africa 425 859 3 356 0.79
Retail Banking South Africa 363 074 2 583 0.71
Credit cards 26 849 578 2.15
Instalment credit agreements 74 430 703 0.94
Loans to associates and joint ventures 23 037 - -
Mortgages 213 508 1 124 0.53
Other loans and advances 2 794 - -
Overdrafts 5 349 51 0.95
Personal and term loans 17 107 127 0.74
Business Banking South Africa 62 785 773 1.23
Mortgages (including CPF) 27 010 140 0.52
Overdrafts 19 865 393 1.98
Term loans 15 910 240 1.51
CIB South Africa 218 383 559 0.26
Wealth 4 930 14 0.28
Head Office, Treasury and other operations
in South Africa 987 10 1.01
Loans and advances to customers 650 159 3 939 0.61
Loans and advances to banks 43 217 - -
693 376 3 939 0.57
Non-performing loans
Exposure Impair- Coverage Net total
Rm ment ratio exposure
Rm % Rm
RBB South Africa 21 675 8 678 40.04 435 500
Retail Banking South Africa 18 340 7 582 41.34 371 249
Credit cards 3 622 2 626 72.50 27 267
Instalment credit agreements 2 360 1 112 47.12 74 975
Loans to associates and joint ventures - - - 23 037
Mortgages 10 241 2 056 20.08 220 569
Other loans and advances - - - 2 794
Overdrafts 384 236 61.46 5 446
Personal and term loans 1 733 1 552 89.56 17 161
Business Banking South Africa 3 335 1 096 32.86 64 251
Mortgages (including CPF) 1 477 519 35.14 27 828
Overdrafts 1 082 375 34.66 20 179
Term loans 776 202 26.03 16 244
CIB South Africa 2 019 832 41.21 219 011
Wealth 262 174 66.41 5 004
Head Office, Treasury and other operations
in South Africa - - - 977
Loans and advances to customers 23 956 9 684 40.42 660 492
Loans and advances to banks - - - 43 217
23 956 9 684 40.42 703 709
(1) These numbers have been restated, refer to the reporting changes overview in note 16.
3. Borrowed funds
During the reporting period the significant movements in borrowed funds were as follows: R5 488m (30 June 2017:
R1 142m; 31 December 2017: R2 841m) of subordinated notes were issued and RNil (30 June 2017: R1 000m; 31 December 2017:
R2 805m) were redeemed.
4. Disaggregation of non-interest income from contracts with customers
The following table disaggregates non-interest income splitting it into income received from contracts with customers
by major service lines and per reportable segment, and other items making up non-interest income:
30 June 2018
RBB CIB Wealth Head Office, Barclays Total
South South Treasury and separation
Africa Africa other effects
operations in
South Africa
Rm Rm Rm Rm Rm Rm
Fee and commission income from contracts 8 585 1 073 102 (24) - 9 736
with customers
Consulting and administration fees 115 10 4 - - 129
Transactional fees and commissions 7 362 744 54 4 - 8 164
Cheque accounts 2 619 55 27 - - 2 701
Credit cards 1 070 - - - - 1 070
Electronic banking 2 006 520 9 - - 2 535
Other(1) 634 168 18 3 - 823
Savings accounts 1 033 1 - 1 - 1 035
Merchant income 807 - - - - 807
Asset management 11 1 18 - - 30
Other fees and commissions 19 72 5 (28) - 68
Insurance commissions received 271 - 1 - - 272
Investment banking fees - 246 20 - - 266
Other income from contracts with customers 31 - - (14) - 17
Other non-interest income, net of expenses (287) 793 (13) 173 413 1 079
Total non-interest income 8 329 1 866 89 135 413 10 832
5. Other impairments
30 June 31 December
2018 2017 2017
Rm Rm Rm
Impairment/(reversal) raised on financial instruments 1 - (30)
Other 182 326 542
Intangible assets(2) - 326 326
Property and equipment(3) 182 - 216
183 326 512
(1) Includes fees on mortgage loans and foreign currency transactions.
(2) The impairment incurred during the prior reporting period mainly related to computer software, Barclays.Net which was
fully impaired.
(3) Management have decided to dispose of certain property and equipment resulting in an impairment of R182m (30 June 2017:
RNil; 31 December 2017: R216m). As the property will be disposed of, the impairment was calculated based on fair value less
costs to sell.
6. Headline earnings
30 June 31 December
2018 2017 2017
Gross Net(1) Gross Net(1) Gross Net(1)
Rm Rm Rm Rm Rm Rm
Headline earnings are determined as follows:
Profit attributable to ordinary equity holders of the Bank 3 959 4 546 8 067
Total headline earnings adjustment: 192 259 481
IFRS 5 - Loss/(profit) on disposal of non-current assets held for sale 40 40 (7) (5) 33 34
IAS 16 - Loss/(profit) on disposal of property and equipment 15 10 (5) (4) (18) (13)
IAS 21 - Recycled foreign currency translation reserve - - 52 52 52 52
IAS 36 - Impairment of property and equipment 182 142 - - 216 155
IAS 36 - Impairment of intangible assets - - 326 238 326 238
IAS 39 - Release of available-for-sale reserves - - 18 12 67 49
IAS 40 - Change in fair value of investment properties - - (37) (29) (37) (29)
IAS 40 - Profit on disposal of investment property - - (5) (5) (5) (5)
Headline earnings/diluted headline earnings 4 151 4 805 8 548
Headline earnings per share/diluted headline earnings per share (cents) 925.7 1 109.4 1 939.4
7. Dividends per share
30 June 31 December
2018 2017 2017
Rm Rm Rm
Dividends declared per share to ordinary equity holders
Interim dividend (6 August 2018: 602.27349 cents) (28 July 2017: 892.25702 cents) 2 700 4 000 4 000
Special dividend (30 June 2017: 811.4669592) - 3 500 3 500
Final dividend (1 March 2018: 669.1928 cents) - - 3 000
2 700 7 500 10 500
Dividends declared per share to preference equity holders
Interim dividend (6 August 2018: 3 542.67 cents) (28 July 2017: 3 685.06849 cents) 175 182 182
Final dividend (1 March 2018: 3 558.01 cents) - - 176
175 182 358
Distributions declared per note to Additional Tier 1 capital note holder
Distributions (12 March 2018: 31 500 Rands) (12 June 2018: 32 300 Rands)
(12 December 2017: 31 990.79 Rands) 96 - 48
96 - 48
Dividends paid per share to ordinary equity holders
Final dividend (16 April 2018: 669.1928 cents) (10 April 2017: 486.88017 cents)(2) 3 000 2 100 2 100
Interim dividend (11 September 2017: 892.25702 cents) - - 4 000
Special dividend (30 June 2017: 811.4669592 cents) - 3 500 3 500
3 000 5 600 9 600
Dividends paid per share to preference equity holders -
Final dividend (16 April 2018: 3 558.01 cents) (10 April 2017: 3 644.79452 cents) 176 180 180
Interim dividend (11 September 2017: 3 685.06849 cents) - - 182
176 180 362
Distributions paid per note to Additional Tier 1 capital note holder
Distributions (12 March 2018: 31 500 Rands) (12 June 2018: 32 300 Rands)
(12 December 2017: 31 990.79 Rands) 96 - 48
96 - 48
(1) The net amount is reflected after taxation.
(2) The final dividend paid on 10 April 2017 has been corrected since disclosed in the prior interim reporting period. The final
dividend per share paid to ordinary equity holders previously disclosed at interim was 1 249.15983 cents per share
(gross R5.6bn).
8. Acquisitions and disposals of businesses and other similar transactions
8.1.1 Acquisitions of businesses during the current reporting period
During the period, the Bank acquired the remaining 50% in a non-core investment, which was previously held as an
Investment in Associate at Fair Value. The acquisition of the investment had an effective acquisition date of
16 March 2018 and is a business combination within the scope of IFRS 3. The acquisition date fair value of the
consideration transferred amounted to R198m.
Fair value
recognised on
acquisition
30 June
2018
Rm
Consideration at date of acquisition
Cash 30
Acquisition - date fair value of initial interest 168
Total consideration 198
Recognised amounts of identifiable assets acquired and liabilities assumed
Cash and balances at central banks 15
Other assets 4
Investment properties 165
Current tax assets 1
Other liabilities (14)
Deferred tax liabilities (5)
Total identifiable net assets 166
Total non-controlling interest -
Goodwill 32
Total 198
A summary of the total net cash outflow and cash and cash equivalents related to acquisitions and disposals of
businesses and other similar transactions is included below:
30 June
2018 2017
Rm Rm
Summary of net cash outflow due to acquisitions 30 -
8.1.2 Disposals of businesses during the current reporting period
There were no disposals of businesses during the current reporting period.
8.2.1 Acquisitions of businesses during the previous reporting period
There were no acquisitions of businesses during the previous reporting period.
8.2.2 Disposals of businesses during the previous reporting period
Apart from the businesses classified as non-current assets/liabilities held for sale and disposed of (refer to note 1)
there were no other disposals of businesses that were finalised during the previous reporting period. The cash
consideration received on the disposal of a subsidiary included in non-current assets/liabilities held for sale was R205m.
9. Related parties
There were no once-off significant transactions with related parties of Absa Bank Limited during the current reporting
period.
In the prior reporting period, as part of the separation, Barclays PLC sold ordinary Absa Group Limited shares
representing 12.2% and 33.7% of issued ordinary share capital in May 2016 and June 2017 respectively. Barclays PLC currently
holds 126.2m ordinary Absa Group Limited shares representing 14.9% of issued ordinary shares. The remaining 85.1% of the
shares are widely held on the JSE.
Barclays PLC contributed £765 million to the Bank, primarily in recognition of the investments required for the Bank
to separate from Barclays PLC. This contribution will be invested primarily in rebranding, technology and
separation-related projects and it is expected that it will neutralise the capital and cash flow impact of separation
investments on the Bank over time.
CLS Group Holding AG shares were transferred to Barclays PLC for no consideration in 2005. During the previous
reporting period these shares were transferred back to the Bank for a nominal consideration of one British Pound (GBP).
The shares were recognised at a fair value of R48m. The related credit was recognised in equity as a shareholder
contribution.
10. Financial guarantee contracts
30 June 31 December
2018 2017 2017
Rm Rm Rm
Financial guarantee contracts 10 3 10
Financial guarantee contracts represent contracts where the Bank undertakes to make specified payments to a counterparty,
should the counterparty suffer a loss as a result of a specified debtor failing to make payment when due in accordance
with the terms of a debt instrument. The credit risk inherent in the balance has led to an ECL provision being raised for
such amount.
11. Commitments
30 June 31 December
2018 2017 2017
Rm Rm Rm
Authorised capital expenditure
Contracted but not provided for 664 767 257
The Bank has capital commitments in respect of computer equipment, software and property development. Management is
confident that future net revenues and funding will be sufficient to cover these commitments.
Operating lease payments due
No later than one year 1 065 971 1 026
Later than one year and no later than five years 2 617 2 524 2 654
Later than five years 781 1 068 902
4 463 4 563 4 582
The operating lease commitments comprise a number of separate operating leases in relation to property and equipment,
none of which is individually significant to the Bank. Leases are negotiated for an average term of three to five years
and rentals are renegotiated annually.
30 June 31 December
2018 2017 2017
Rm Rm Rm
12. Contingencies
Guarantees 31 035 29 182 28 960
Irrevocable debt facilities 148 673 126 605 145 087
Letters of credit 3 269 4 481 3 834
Other 87 91 151
183 064 160 359 178 032
Guarantees include performance guarantee contracts and payment guarantee contracts.
Irrevocable facilities are commitments to extend credit where the Bank does not have the right to terminate the
facilities by written notice. Commitments generally have fixed expiry dates. Since commitments may expire without being
drawn upon, the total contract amounts do not necessarily represent future cash requirements. The credit risk inherent in
the undrawn component of irrevocable lending facilities is managed and monitored by the Bank together with the drawn
component as a single exposure. The exposure at default (EAD) on the entire facility is therefore used to calculate the
ECL on loans and advances. As a result, the total ECL is recognised in the ECL allowance for the financial asset unless
the total ECL exceeds the gross carrying amount of the financial asset, in which case the ECL is recognised as a provision
on the face of the statement of financial position.
Legal proceedings
The Bank has been party to proceedings against it during the reporting period, and as at the reporting date the
following material cases are disclosed:
- Pinnacle Point Holdings Proprietary Limited: It is alleged that a local bank conducted itself unlawfully in
relation to a financial product offered by it, and that Absa Bank Limited was privy to such conduct. Subsequent to the
withdrawal of the first plaintiff's (Pinnacle Point Holdings) claim, the total claim amount has been substantially
reduced, however, the second to fifth plaintiffs persist with their claims for damages in an amount of R470m.
- Ayanda Collective Investment Scheme (the Scheme): Absa Capital Investor Services was the trustee of the Scheme, in
which Corporate Money Managers (CMM) managed a portfolio of assets within the Scheme. The joint curators of the CMM group
of companies and the Altron Pension Fund (an investor in the fund) allege that the defendants caused damages to them
arising from their alleged failure to meet their obligations in the trust deed together with their statutory obligations
set out in the Collective Investment Scheme Act, in respect of which they seek payment of R1 157m.
The Bank is engaged in various other legal, competition and regulatory matters both in South Africa and a number of
other jurisdictions. It is involved in legal proceedings which arise in the ordinary course of business from time to time,
including (but not limited to) disputes in relation to contracts, securities, debt collection, consumer credit, fraud,
trusts, client assets, competition, data protection, money laundering, employment, environmental and other statutory and
common law issues.
The Bank is also subject to enquiries and examinations, requests for information, audits, investigations and legal and
other proceedings by regulators, governmental and other public bodies in connection with (but not limited to) consumer
protection measures, compliance with legislation and regulation, wholesale trading activity and other areas of banking
and business activities in which the Bank is or has been engaged.
At the present time, the Bank does not expect the ultimate resolution of any of these other matters to have a material
adverse effect on its financial position. However, in light of the uncertainties involved in such matters and the
matters specifically described in this note, there can be no assurance that the outcome of a particular matter or matters
will not be material to the Bank's results of operations or cash flow for a particular period, depending on, amongst other
things, the amount of the loss resulting from the matter(s) and the amount of income otherwise reported for the
reporting period.
The Bank has not disclosed the contingent liabilities associated with these matters either because they cannot
reasonably be estimated or because such disclosure could be prejudicial to the outcome of the matter. Provision is made
for all liabilities which are expected to materialise.
Regulatory matters
The scale of regulatory change remains challenging and the global financial crisis has resulted in a significant
tightening of regulation and changes to regulatory structures, especially for companies that are deemed to be of systemic
importance. Concurrently, there is continuing political and regulatory scrutiny of the operation of the banking and
consumer credit industries which, in some cases, is leading to increased regulation. The nature and impact of future
changes in the legal framework, policies and regulatory action especially in the areas of financial crime, banking and
insurance regulation, cannot currently be fully predicted and are beyond the Bank's control. Some of these are likely to
have an impact on the Bank's businesses, systems and earnings.
The Bank is continuously evaluating its programmes and controls in general relating to compliance with regulation. The
Bank undertakes monitoring, review and assurance activities, and the Bank has also adopted appropriate remedial and/or
mitigating steps, where necessary or advisable, and has made disclosures on material findings as and when appropriate.
Absa Bank Limited, a subsidiary of Absa Group Limited, identified potentially fraudulent activity by certain of its
customers using advance payments for imports in 2014 and 2015 to effect foreign exchange transfers from South Africa to
beneficiary accounts located in East Asia, UK, Europe and the US. As a result, the Group conducted a review of relevant
activity, processes, systems and controls, and provided information to relevant authorities, in a process which has now
largely concluded. No financial impact is anticipated.
In February 2017 the South African Competition Commission (SACC) referred Barclays PLC, Barclays Capital Inc. (BCI),
and Absa Bank Limited, a subsidiary of Absa Group Limited, among other banks, to the Competition Tribunal to be
prosecuted for breaches of South African antitrust law related to foreign exchange trading of South African Rand. The
SACC found from its investigation that between 2007 and 2013 the banks had engaged in various forms of collusive behaviour.
Barclays was the first to bring the conduct to the attention of the SACC under its leniency programme and has cooperated
with, and will continue to cooperate with, the SACC in relation to this matter. The SACC is therefore not seeking an order
from the Tribunal to impose any fine on Barclays Bank PLC, BCI or Absa Bank Limited.
Income taxes
The Bank is subject to income taxes in numerous jurisdictions and the calculation of the Bank's tax charge and
provisions for income taxes necessarily involves a degree of estimation and judgement. There are many transactions and
calculations for which the ultimate tax treatment is uncertain or in respect of which the relevant tax authorities may have
indicated disagreement with the Bank's treatment and accordingly the final tax charge cannot be determined until resolution
has been reached with the relevant tax authority.
The Bank recognises provisions for anticipated tax audit issues based on estimates of whether additional taxes will be
due after taking into account external advice where appropriate. The carrying amount of any resulting provisions will
be sensitive to the manner in which tax matters are expected to be resolved, and the stage of negotiations or discussion
with the relevant tax authorities. There may be significant uncertainty around the final outcome of tax proceedings,
which in many instances, will only be concluded after a number of years. Management estimates are informed by a number of
factors including, inter alia, the progress made in discussions or negotiations with the tax authorities, the advice of
expert legal counsel, precedent set by the outcome of any previous claims, as well as the nature of the relevant tax
environment.
Where the final tax outcome of these matters is different from the amounts that were initially recorded, such
differences will impact the current and deferred income tax assets and liabilities in the reporting period in which such
determination is made. These risks are managed in accordance with the Bank's Tax Risk Framework.
13. Segment reporting
30 June 31 December
2018 2017(1) 2017(1)
Rm Rm Rm
13.1 Headline earnings contribution by segment
RBB South Africa 4 083 3 902 8 508
CIB South Africa 1 385 1 783 3 354
Wealth (198) (156) (419)
Head Office, Treasury and other operations in South Africa (404) (572) (1 649)
Barclays separation effects(2) (715) (152) (1 245)
Total headline earnings 4 151 4 805 8 548
13.2 Total income by segment
RBB South Africa 20 432 19 528 40 151
CIB South Africa 5 214 5 352 10 593
Wealth 208 214 430
Head Office, Treasury and other operations in South Africa (695) (571) (1 485)
Barclays separation effects(2) 588 283 405
Total income 25 747 24 806 50 094
13.3 Total internal income by segment
RBB South Africa (4 051) (4 520) (8 471)
CIB South Africa (3 274) 93 (2 885)
Wealth 24 15 6
Head Office, Treasury and other operations in South Africa 7 290 6 109 15 982
Barclays separation effects(2) 175 46 325
Total internal income (163) 1 743 4 957
13.4 Total assets by segment
RBB South Africa 747 268 718 518 740 856
CIB South Africa 514 632 445 114 486 168
Wealth 6 590 5 973 6 097
Head Office, Treasury and other operations in South Africa (239 832) (221 066) (245 674)
Barclays separation effects(2) 1 603 (16) 912
Total assets 1 029 261 948 523 988 358
13.5 Total liabilities by segment
RBB South Africa 742 955 712 954 730 734
CIB South Africa 512 052 442 163 481 646
Wealth 6 820 6 124 6 508
Head Office, Treasury and other operations in South Africa (306 922) (284 800) (306 019)
Barclays separation effects(2),(3) (8 502) (11 731) (9 840)
Total liabilities 946 403 864 710 903 029
(1) Operational changes, management changes and associated changes to the way in which the Chief Operating
Decision Maker (CODM) views the performance of each business segment, have resulted in the reallocation of
earnings, assets and liabilities between operating segments. For details on the business portfolio changes
refer to note 16.
(2) Barclays separation effects' is the reconciling stripe between IFRS and normalised results and does not
represent a reportable segment.
(3) This represents the contribution of R12.1bn that was received from Barclays PLC, net of amounts already
spent on separation activities. The cash received is centrally held by Treasury and is presented as an
intersegmental asset in ‘Other liabilities'.
14. Assets and liabilities not held at fair value
The following table summarises the carrying amounts and fair value of those assets and liabilities not held at fair value.
30 June
2018 2017
Carrying Carrying
value Fair value value Fair value
Rm Rm Rm Rm
Financial assets
Balances with the South African Reserve Bank 17 862 17 862 18 673 18 673
Coins and bank notes 6 833 6 833 7 673 7 673
Cash, cash balances and balances with central banks 24 695 24 695 26 346 26 346
Investment securities 5 498 5 498 - -
Loans and advances to banks 21 658 21 357 33 562 33 562
Other assets 24 589 24 589 27 241 27 241
RBB South Africa 444 473 444 440 426 863 426 971
Retail Banking South Africa 377 274 377 241 364 619 364 727
Credit cards 26 552 26 552 27 346 27 346
Instalment credit agreements 78 258 78 234 73 882 73 785
Loans to associates and joint ventures 24 681 24 681 20 707 20 707
Mortgages 221 617 221 617 220 713 220 722
Other loans and advances 2 680 2 680 687 687
Overdrafts 5 783 5 783 4 631 4 631
Personal and term loans 17 703 17 694 16 653 16 849
Business Banking South Africa 67 199 67 199 62 244 62 244
Mortgages (including CPF) 28 509 28 509 26 498 26 498
Overdrafts 21 647 21 647 19 403 19 403
Term loans 17 043 17 043 16 343 16 343
Rest of Africa Banking - - 684 684
CIB South Africa 194 612 194 612 177 495 177 495
Wealth 5 055 5 055 5 485 5 485
Head Office, Treasury and other operations in South Africa 1 285 1 285 740 740
Loans and advances to customers - net of impairment losses 645 425 645 392 611 267 611 375
Loans to Group companies 38 730 38 730 26 117 26 117
Total assets (not held at fair value) 760 595 760 261 724 533 724 641
Financial liabilities
Deposits from banks 64 582 64 582 38 212 38 212
Other liabilities 35 708 35 708 28 872 28 872
Call deposits 58 786 58 786 56 008 56 008
Cheque account deposits 154 676 154 676 157 138 157 138
Credit card deposits 1 788 1 788 1 811 1 811
Fixed deposits 130 708 130 397 121 292 122 084
Foreign currency deposits 16 897 16 897 22 857 22 857
Notice deposits 58 946 58 946 63 125 63 138
Other deposits 1 300 1 300 2 113 2 113
Savings and transmission deposits 136 663 136 663 130 709 130 709
Deposits due to customers 559 764 559 453 555 053 555 858
Debt securities in issue 136 004 136 004 134 957 134 957
Borrowed funds 21 416 21 416 15 930 15 930
Total liabilities (not held at fair value) 817 474 817 163 773 024 773 829
The following table summarises the carrying amounts and fair value of those assets and liabilities not held at fair value.
31 December
2017
Carrying
value Fair value
Rm Rm
Financial assets
Balances with the South African Reserve Bank 19 108 19 108
Coins and bank notes 9 684 9 684
Cash, cash balances and balances with central banks 28 792 28 792
Loans and advances to banks 26 020 26 020
Other assets 13 327 13 420
RBB South Africa 435 500 435 731
Retail Banking South Africa 371 248 371 479
Credit cards 27 267 27 267
Instalment credit agreements 77 044 77 275
Loans to associates and joint ventures 23 037 23 037
Mortgages 220 569 220 569
Other loans and advances 726 726
Overdrafts 5 443 5 443
Personal and term loans 17 162 17 162
Business Banking South Africa 64 252 64 252
Mortgages (including CPF) 27 828 27 828
Overdrafts 19 199 19 199
Term loans 17 225 17 225
CIB South Africa 192 203 192 203
Wealth 5 004 5 004
Head Office, Treasury and other operations in South Africa 974 974
Loans and advances to customers - net of impairment losses 633 681 633 912
Loans to Group companies 36 530 36 530
Non-current assets held for sale 1 118 1 118
Total assets (not held at fair value) 739 468 739 792
Financial liabilities
Deposits from banks 52 079 52 079
Other liabilities 25 709 25 724
Call deposits 62 725 62 725
Cheque account deposits 153 539 153 539
Credit card deposits 1 896 1 896
Fixed deposits 131 521 131 521
Foreign currency deposits 18 444 18 444
Notice deposits 58 460 58 460
Other deposits 1 414 1 414
Savings and transmission deposits 135 375 135 375
Deposits due to customers 563 374 563 374
Debt securities in issue 132 701 132 701
Borrowed funds 15 866 15 866
Total liabilities (not held at fair value) 789 729 789 744
15. Assets and liabilities held at fair value
15.1 Fair value measurement and valuation processes
Financial assets and financial liabilities
The Bank has an established control framework with respect to the measurement of fair values. The framework includes a
Traded Risk and Valuations Committee and an Independent Valuation Control (IVC) team, which is independent from the
front office.
The Traded Risk and Valuations Committee, which comprises representatives from senior management, will formally
approve valuation policies and any changes to valuation methodologies. Significant valuation issues are reported to the
Absa Group Audit and Compliance Committee.
The Traded Risk and Valuations Committee is responsible for overseeing the valuation control process and will
therefore consider the appropriateness of valuation techniques and inputs for fair value measurement.
The IVC team independently verifies the results of trading and investment operations and all significant fair value
measurements. They source independent data from external independent parties, as well as internal risk areas when
performing independent price verification for all financial instruments held at fair value. They also assess and document
the inputs obtained from external independent sources to measure the fair value which supports conclusions that valuations
are performed in accordance with IFRS and internal valuation policies.
Investment properties
The fair value of investment properties is determined based on the most appropriate methodology applicable to the
specific property. Methodologies include the market comparable approach that reflects recent transaction prices for similar
properties, discounted cash flows and income capitalisation methodologies. In estimating the fair value of the
properties, the highest and best use of the properties is taken into account.
Where possible the fair value of the Bank's investment properties is determined through valuations performed by
external independent valuators.
When the Bank's internal valuations are different to that of the external independent valuers, detailed procedures are
performed to substantiate the differences, whereby the IVC team verifies the procedures performed by the front office
and considers the appropriateness of any differences to external independent valuations.
15.2 Fair value measurements
Valuation inputs
IFRS 13 requires an entity to classify fair values measured and/or disclosed according to a hierarchy that reflects
the significance of observable market inputs. The three levels of the fair value hierarchy are defined as follows:
Quoted market prices - Level 1
Fair values are classified as Level 1 if they have been determined using observable prices in an active market. Such
fair values are determined with reference to unadjusted quoted prices for identical assets or liabilities in active
markets where the quoted price is readily available, and the price represents actual and regularly occurring market
transactions on an arm's length basis. An active market is one in which transactions occur with sufficient volume and
frequency to provide pricing information on an ongoing basis.
Valuation technique using observable inputs - Level 2
Fair values are classified as Level 2 if they have been determined using models for which inputs are observable in an
active market.
A valuation input is considered observable if it can be directly observed from transactions in an active market, or if
there is compelling external evidence demonstrating an executable exit price.
Valuation technique using significant unobservable inputs - Level 3
Fair values are classified as Level 3 if their determination incorporates significant inputs that are not based on
observable market data (unobservable inputs). An input is deemed significant if it is shown to contribute more than 10%
to the fair value of an item. Unobservable input levels are generally determined based on observable inputs of a similar
nature, historical observations or other analytical techniques.
Judgemental inputs on valuation of principal instruments
The following summary sets out the principal instruments whose valuation may involve judgemental inputs:
Debt securities and treasury and other eligible bills
These instruments are valued based on quoted market prices from an exchange, dealer, broker, industry group or
pricing service, where available. Where unavailable, fair value is determined by reference to quoted market prices for
similar instruments or, in the case of certain mortgage-backed securities, valuation techniques using inputs derived from
observable market data and, where relevant, assumptions in respect of unobservable inputs.
Equity instruments
Equity instruments are valued based on quoted market prices from an exchange, dealer, broker, industry group or
pricing service, where available. Where unavailable, fair value is determined by reference to quoted market prices for
similar instruments or by using valuation techniques using inputs derived from observable market data and, where relevant,
assumptions in respect of unobservable inputs.
Also included in equity instruments are non-public investments, which include investments in venture capital
organisations. The fair value of these investments is determined using appropriate valuation methodologies which, dependent
on the nature of the investment, may include discounted cash flow analysis, enterprise value comparisons with similar
companies and price: earnings comparisons. For each investment the relevant methodology is applied consistently over time.
Derivatives
Derivative contracts can be exchange-traded or traded over-the-counter (OTC). OTC derivative contracts include
forward, swap and option contracts related to interest rates, bonds, foreign currencies, credit spreads, equity prices and
commodity prices or indices on these instruments. Fair values of derivatives are obtained from quoted market prices, dealer
price quotations, discounted cash flow and option pricing models.
Loans and advances
The disclosed fair value of loans and advances to banks and customers is determined by discounting contractual cash
flows. Discount factors are determined using the relevant forward base rates (as at valuation date) plus the originally
priced spread. Where a significant change in credit risk has occurred, an updated spread is used to reflect valuation date
pricing. Behavioural cash flow profiles, instead of contractual cash flow profiles, are used to determine expected cash
flows where contractual cash flow profiles would provide an inaccurate fair value.
Deposits, debt securities in issue and borrowed funds
Deposits, debt securities in issue and borrowed funds are valued using discounted cash flow models, applying rates
currently offered for issuances with similar characteristics. Where these instruments include embedded derivatives, the
embedded derivative component is valued using the methodology for derivatives as detailed above.
The fair value of amortised cost deposits repayable on demand is considered to be equal to their carrying value. For
other financial liabilities at amortised cost the disclosed fair value approximates the carrying value because the
instruments are short term in nature or have interest rates that reprice frequently.
15.3 Fair value adjustments
The main valuation adjustments required to arrive at a fair value are described below:
Bid-offer valuation adjustments
For assets and liabilities where the Bank is not a market maker, mid prices are adjusted to bid and offer prices
respectively. Bid-offer adjustments reflect expected close out strategy and, for derivatives, the fact that they are
managed on a portfolio basis. The methodology for determining the bid-offer adjustment for a derivative portfolio will
generally involve netting between long and short positions and the bucketing of risk by strike and term in accordance
with hedging strategy. Bid-offer levels are derived from market sources such as broker data. For those assets and
liabilities where the firm is a market maker and has the ability to transact at, or better than, mid-price
(which is the case for certain equity, bond and vanilla derivative markets), the mid-price is used since the bid-offer
spread does not represent a transaction cost.
Uncollateralised derivative adjustments
A fair value adjustment is incorporated into uncollateralised derivative valuations to reflect the impact on fair
value of counterparty credit risk, the Bank's own credit quality, as well as the cost of funding across all asset classes.
Model valuation adjustments
Valuation models are reviewed under the Bank's model governance framework. This process identifies the assumptions
used and any model limitations (for example, if the model does not incorporate volatility skew). Where necessary, fair
value adjustments will be applied to take these factors into account. Model valuation adjustments are dependent on the
size of the portfolio, complexity of the model, whether the model is market standard and to what extent it incorporates
all known risk factors. All models and model valuation adjustments are subject to review on at least an annual basis.
15. Assets and liabilities held at fair value (continued)
15.4 Fair value hierarchy
The following table shows the Bank's assets and liabilities that are recognised and subsequently measured at fair
value and are analysed by valuation techniques. The classification of assets and liabilities is based on the lowest level
input that is significant to the fair value measurement in its entirety.
30 June
2018
Level 1 Level 2 Level 3 Total
Recurring fair value measurements Rm Rm Rm Rm
Financial assets
Cash, cash balances and balances with - 3 - 3
central banks
Investment securities 38 321 34 898 8 078 81 297
Loans and advances to banks - 26 961 554 27 515
Trading and hedging portfolio assets 30 964 64 605 2 508 98 077
Debt instruments 28 845 738 74 29 657
Derivative assets - 57 997 848 58 845
Commodity derivatives - 2 026 - 2 026
Credit derivatives - - 165 165
Equity derivatives - 3 019 601 3 620
Foreign exchange derivatives - 12 438 4 12 442
Interest rate derivatives - 40 514 78 40 592
Equity instruments 733 - - 733
Money market assets 1 386 5 870 1 586 8 842
Loans and advances to customers - 28 717 9 010 37 727
Total financial assets 69 285 155 184 20 150 244 619
Financial liabilities
Deposits from banks - 31 141 - 31 141
Trading and hedging portfolio liabilities 4 684 53 039 622 58 345
Derivative liabilities - 53 039 622 53 661
Commodity derivatives - 1 977 - 1 977
Credit derivatives - - 158 158
Equity derivatives - 3 264 249 3 513
Foreign exchange derivatives - 15 625 4 15 629
Interest rate derivatives - 32 173 211 32 384
Short positions 4 684 - - 4 684
Deposits due to customers 184 28 063 2 815 31 062
Debt securities in issue - 4 324 35 4 359
Total financial liabilities 4 868 116 567 3 472 124 907
Non-financial assets
Commodities 576 - - 576
Investment properties - - 165 165
Non-recurring fair value measurements
Non-current assets held for sale(1) - - 37 37
2017
Level 1 Level 2 Level 3 Total
Recurring fair value measurements Rm Rm Rm Rm
Financial assets
Cash, cash balances and balances with - - - -
central banks
Investment securities 45 985 31 263 4 628 81 876
Loans and advances to banks - 16 812 450 17 262
Trading and hedging portfolio assets 23 978 49 787 1 787 75 552
Debt instruments 21 316 3 220 1 390 25 926
Derivative assets - 40 511 177 40 688
Commodity derivatives - 554 - 554
Credit derivatives - 17 164 181
Equity derivatives - 1 302 13 1 315
Foreign exchange derivatives - 6 950 - 6 950
Interest rate derivatives - 31 688 - 31 688
Equity instruments 667 - - 667
Money market assets 1 995 6 056 220 8 271
Loans and advances to customers - 22 623 4 662 27 285
Total financial assets 69 963 120 485 11 527 201 975
Financial liabilities
Deposits from banks - 18 263 - 18 263
Trading and hedging portfolio liabilities 5 898 34 798 454 41 150
Derivative liabilities - 34 798 454 35 252
Commodity derivatives - 601 - 601
Credit derivatives - 3 188 191
Equity derivatives - 1 280 51 1 331
Foreign exchange derivatives - 7 372 - 7 372
Interest rate derivatives - 25 542 215 25 757
Short positions 5 898 - - 5 898
Deposits due to customers 149 21 813 910 22 872
Debt securities in issue 398 4 067 484 4 949
Total financial liabilities 6 445 78 941 1 848 87 234
Non-financial assets
Commodities 1 679 - - 1 679
Investment properties - - - -
Non-recurring fair value measurements
Non-current assets held for sale(1) - - 1 391 1 391
31 December
2017
Level 1 Level 2 Level 3 Total
Recurring fair value measurements Rm Rm Rm Rm
Financial assets
Investment securities 37 737 32 841 5 946 76 524
Loans and advances to banks - 16 713 484 17 197
Trading and hedging portfolio assets 31 379 72 194 1 824 105 397
Debt instruments 29 185 2 410 177 31 772
Derivative assets - 58 594 546 59 140
Commodity derivatives - 973 124 1 097
Credit derivatives - - 165 165
Equity derivatives - 2 356 173 2 529
Foreign exchange derivatives - 15 548 8 15 556
Interest rate derivatives - 39 717 76 39 793
Equity instruments 567 - - 567
Money market assets 1 627 11 190 1 101 13 918
Loans and advances to customers - 22 070 4 741 26 811
Total financial assets 69 116 143 818 12 995 225 929
Financial liabilities
Deposits from banks - 22 031 - 22 031
Trading and hedging portfolio liabilities 8 141 51 866 944 60 951
Derivative liabilities - 51 866 944 52 810
Commodity derivatives - 1 164 121 1 285
Credit derivatives - - 148 148
Equity derivatives - 1 965 423 2 388
Foreign exchange derivatives - 14 500 4 14 504
Interest rate derivatives - 34 237 248 34 485
Short positions 8 141 - - 8 141
Deposits due to customers 203 18 676 1 572 20 451
Debt securities in issue 399 4 354 488 5 241
Total financial liabilities 8 743 96 927 3 004 108 674
Non-financial assets
Commodities 2 051 - - 2 051
(1) Includes certain items classified in terms of the requirements of IFRS 5 which are measured in terms
of their respective standards.
15.5 Measurement of assets and liabilities categorised at Level 2
The following table presents information about the valuation techniques and significant observable inputs used in
measuring assets and liabilities categorised as Level 2 in the fair value hierarchy:
Category of Valuation Significant
asset/liability techniques applied observable inputs
Loans and advances to banks Discounted cash flow models Interest rate and/or
money market curves
Trading and hedging portfolio
assets and liabilities
Debt instruments Discounted cash flow models Underlying price of market
traded instruments and/or
interest rates
Derivatives
Commodity derivatives Discounted cash flow model Spot price of physical or futures,
and/or option pricing,
futures pricing and/or interest rates and/or volatility
exchange traded fund
(etf) models
Credit derivatives Discounted cash flow and/or Interest rate, recovery rate,
credit default swap models credit spread and/or quanto ratio
Equity derivatives Discounted cash flow, option Spot price, interest rate, volatility
pricing and/or futures and/or dividend stream
pricing models
Foreign exchange derivatives Discounted cash flow and/or Spot price, interest rate and/or
option pricing models volatility
Interest rate derivatives Discounted cash flow and/or Interest rate curves, repurchase
option pricing models agreement curves, money market
curves and/or volatility
Money market assets Discounted cash flow models Money market curves and/or
interest rates
Loans and advances to customers Discounted cash flow models Interest rate curves and/or
money market curves
Investment securities Listed equity: market bid price Underlying price of the market traded
Other items: discounted instruments and/or interest
cash flow models rate curves
Deposits from banks Discounted cash flow models Interest rate curves and/or
money market curves
Deposits due to customers Discounted cash flow models Interest rate curves and/or
money market curves
Debt securities in issue Discounted cash flow models Underlying price of the market
and other liabilities traded instrument and/or interest
rate curves
15.6 Reconciliation of Level 3 assets and liabilities
A reconciliation of the opening balances to closing balances for all movements on Level 3 assets is set out below:
30 June
2018
Trading and
hedging Loans and Loans and
portfolio advances to advances Investment Investment Total assets
assets customers to banks securities properties at fair value
Rm Rm Rm Rm Rm Rm
Opening balance at the beginning of
the reporting period 1 824 4 741 484 5 946 - 12 995
Net interest income - 32 - 40 - 72
Gains and losses from banking and
trading activities 418 (59) 8 (8) - 359
Gains and losses from investment activities - - - 10 - 10
Purchases 485 5 470 62 2 297 165 8 479
Sales (95) (61) - - - (156)
Movement in other comprehensive income - - - (9) - (9)
Transfer in/(out of) Level 3 (124) (1 113) - - - (1 237)
Step acquisition - - - (198) - (198)
Closing balance at the end of the
reporting period 2 508 9 010 554 8 078 165 20 315
30 June
2017
Trading and
hedging Loans and Loans and
portfolio advances to advances Investment Investment Total assets
assets customers to banks securities properties at fair value
Rm Rm Rm Rm Rm Rm
Opening balance at the beginning of
the reporting period 1 505 4 890 571 1 062 222 8 250
Net interest income - 51 - 10 - 61
Other income - - - - 9 9
Gains and losses from banking and
trading activities (2) - - - - (2)
Gains and losses from investment activities - - (51) 2 - (49)
Purchases 534 618 - 2 806 - 3 958
Sales (250) (897) (70) - (231) (1 448)
Transfer in/(out of) Level 3 - - - 748 - 748
Closing balance at the end of the
reporting period 1 787 4 662 450 4 628 - 11 527
A reconciliation of the opening balances to closing balances for all movements on Level 3 assets is set out below
(continued):
31 December
2017
Trading and
hedging Loans and Loans and
portfolio advances to advances Investment Investment Total assets
assets customers to banks securities properties at fair value
Rm Rm Rm Rm Rm Rm
Opening balance at the beginning of
the reporting period 1 505 4 890 571 1 062 222 8 250
Net interest income - 12 - 62 - 74
Other income - - - - 37 37
Gains and losses from banking and
trading activities (635) 29 - - - (606)
Gains and losses from investment activities - - - 2 - 2
Purchases 1 101 1 020 88 4 789 - 6 998
Sales (147) (1 112) (175) - (259) (1 693)
Movement in other comprehensive income - - - 31 - 31
Transfer out of Level 3 - (98) - - - (98)
Closing balance at the end of the
reporting period 1 824 4 741 484 5 946 - 12 995
30 June
2018
Trading and
hedging Debt Total
portfolio Deposits due securities liabilities
liabilities to customers in issue at fair value
Rm Rm Rm Rm
Opening balance at the beginning of the
reporting period 944 1 572 488 3 004
Gains and losses from banking and
trading activities (202) - - (202)
Purchases 1 - - 1
Issues - 4 352 - 4 352
Settlements - (1 618) - (1 618)
Transfer in/(out of) Level 3 (121) (1 491) (453) (2 065)
Closing balance at the end of the
reporting period 622 2 815 35 3 472
30 June
2017
Trading and
hedging Debt Total
portfolio Deposits due securities liabilities
liabilities to customers in issue at fair value
Rm Rm Rm Rm
Opening balance at the beginning of the
reporting period 307 1 139 604 2 050
Gains and losses from banking and
trading activities 147 - - 147
Issues - 295 - 295
Settlements - (540) (120) (660)
Transfer in/(out of) Level 3 - 16 - 16
Closing balance at the end of the
reporting period 454 910 484 1 848
31 December
2017
Trading and
hedging Debt Total
portfolio Deposits due securities liabilities
liabilities to customers in issue at fair value
Rm Rm Rm Rm
Opening balance at the beginning of the
reporting period 307 1 139 604 2 050
Net interest income - 7 - 7
Gains and losses from banking and
trading activities 585 - - 585
Issues 52 1 685 30 1 767
Settlements - (1 144) (68) (1 212)
Movement in/(out of) Level 3 - (115) (78) (193)
Closing balance at the end of the
reporting period 944 1 572 488 3 004
15.6.1 Significant transfers between levels
During the 2018 and 2017 reporting periods, transfers between levels occurred because of changes in the observability
of valuation inputs, in some instances owing to changes in the level of market activity. Transfers have been reflected
as if they had taken place at the beginning of the year.
15.7 Unrealised gains and losses on Level 3 assets and liabilities
The total unrealised gains and losses for the reporting period on Level 3 positions held at the reporting date are set
out below:
30 June
2018
Trading and Trading and
hedging Loans and hedging Total
portfolio advances to Investment Total assets portfolio liabilities
assets customers securities at fair value liabilities at fair value
Rm Rm Rm Rm Rm Rm
Gains and losses from banking
and trading activities 848 581 304 1 738 622 622
30 June
2017
Trading and Trading and
hedging Loans and hedging Total
portfolio advances to Investment Total assets portfolio liabilities
assets customers(1) securities(2) at fair value liabilities at fair value
Rm Rm Rm Rm Rm Rm
Gains and losses from banking
and trading activities 65 771 281 1 117 136 136
31 December
2017
Trading and Trading and
hedging Loans and hedging Total
portfolio advances to Investment Total assets portfolio liabilities
assets customers securities(2) at fair value liabilities at fair value
Rm Rm Rm Rm Rm Rm
Gains and losses from banking
and trading activities 142 761 76 979 (284) (284)
(1) The unrealised gains and losses for loans and advances to customers for June 2017 have been restated by R728m. The
gains and losses from banking and trading activities on loans and advances to customers has been restated to include
the movement in the unrealised gains relating to the base rates applicable to the assets. Previously only unrealised
gains relating to the unobservable credit spreads for these assets were taken into account in the disclosure.
(2) The unrealised gains and losses for Investment Securities for June and December 2017 have been restated by R243m
and R27.61m respectively. The gains and losses from banking and trading activities on investment securities have been
restated to include unrealised gains on unlisted Private Equity investments. Previously only unrealised gains relating
to unobservable corporate bonds were taken into account in the disclosure.
15.8 Sensitivity analysis of valuations using unobservable inputs
As part of the Bank's risk management processes, stress tests are applied on the significant unobservable parameters
to generate a range of potentially possible alternative valuations. The assets and liabilities that most impact this
sensitivity analysis are those with the more illiquid and/or structured portfolios. The stresses are applied independently
and do not take account of any cross correlation between separate asset classes that would reduce the overall effect on
the valuations.
The following table reflects how the unobservable parameters were changed in order to evaluate the sensitivities of
Level 3 financial assets and liabilities:
Significant unobservable parameter Positive/(negative) variance applied to parameters
Credit spreads 100/(100) basis points (bps)
Volatilities 10/(10)%
Basis curves 100/(100) bps
Yield curves and repo curves 100/(100) bps
Future earnings and marketability discount 15/(15)%
Funding spreads 100/(100) bps
A significant parameter has been deemed to be one which may result in a charge to profit or loss, or a change in the
fair value asset or liability by more than 10% of the underlying value of the affected item. This is demonstrated by the
following sensitivity analysis which includes a reasonable range of possible outcomes:
30 June
2018
Potential effect Potential effect
recorded recorded
in profit or loss directly in equity
Favourable/ Favourable/
Significant (unfavourable) (unfavourable)
unobservable parameters Rm Rm
Loans and Absa Group Limited (AGL)/
advances to banks Absa funding spread -/- -/-
Deposits due to AGL/Absa funding spread 32/(29) -/-
customers
Investment securities Risk adjustment yield curves,
future earnings and
marketability discount 81/(127) 263/(254)
Loans and advances Credit spreads 133/(131) -/-
to customers
Other assets Credit spreads -/- -/-
Trading and hedging Volatility, credit spreads,
portfolio assets basis curves, yield curves,
repo curves, funding spreads 338/(338) -/-
Trading and hedging Volatility, credit spreads,
portfolio liabilities basis curves, yield curves,
repo curves, funding spreads 84/(84) -/-
Other liabilities Volatility, credit spreads -/- -/-
668/(709) 263/(254)
30 June
2017
Potential effect Potential effect
recorded recorded
in profit or loss directly in equity
Favourable/ Favourable/
Significant (unfavourable) (unfavourable)
unobservable parameters Rm Rm
Deposits due AGL/Absa funding spread -/- -/-
to customers
Investment Risk adjustment yield curves,
securities future earnings and marketability 40/(62) 129/(125)
Loans and advances Credit spreads 90/(88) -/-
to customers
Other assets Credit spreads -/- -/-
Trading and hedging Volatility, credit spreads,
portfolio assets basis curves, yield curves, repo
curves, funding spreads 153/(153) -/-
Trading and hedging Volatility, credit spreads, basis
portfolio liabilities curves, yield curves, repo
curves, funding spreads 39/(39) -/-
Other Liabilities Volatility, credit spreads -/- -/-
322/(342) 129/(125)
31 December
2017
Potential effect Potential effect
recorded recorded
in profit or loss directly in equity
Favourable/ Favourable/
Significant (unfavourable) (unfavourable)
unobservable parameters Rm Rm
Loans and advances AGL/Absa funding spread 17/(17) -/-
to banks
Deposits due AGL/Absa funding spread 13/(12) -/-
to customers
Investment securities Risk adjustment yield curves,
future earnings and marketability 59/(59) 253/(240)
Loans and advances Credit spreads 60/(69) -/-
to customers
Other assets Volatility, credit spreads -/- -/-
Trading and hedging Volatility, credit spreads, basis
portfolio assets curves, yield curves, repo curves,
funding spreads 33/(33) -/-
Trading and hedging Volatility, credit spreads, basis
portfolio liabilities curves, yield curves, repo curves,
funding spreads 17/(17) -/-
Other liabilities Volatility, credit spreads -/- -/-
199/(207) 253/(240)
15.9 Measurement of assets and liabilities at Level 3
The following table presents information about the valuation techniques and significant unobservable inputs used in
measuring assets and liabilities categorised as Level 3 in the fair value hierarchy:
Category of asset/ Valuation techniques Significant
liability applied unobservable inputs
Loans and advances Discounted cash flow Credit spreads
to banks and and/or dividend yield
customers models
Investment Discounted cash flow Marketability
securities models, third-party discounts and/or
valuations, earnings comparator
multiples and/or multiples
income capitalisation
valuations
Trading and hedging
portfolio assets
and liabilities
Debt instruments Discounted cash flow Credit spreads
models
Derivative assets
Credit Discounted cash flow Credit spreads,
derivatives(1) and/or credit default recovery rates and/or
swap (hazard rate) quanto ratio
models
Equity derivatives Discounted cash flow, Volatility and/or
option pricing and/or dividend streams
futures pricing models (greater than 3 years)
Foreign exchange Discounted cash flow African basis curves
derivatives and/or option pricing models (greater than 1 year)
Interest rate Discounted cash flow Real yield curves
derivatives and/or option pricing models (less than 1 year),
repurchase agreement
curves (less than 1
year), funding spreads
Deposits due to Discounted cash flow The Bank's funding
customers models spreads(greater than
5 years)
Debt securities in Discounted cash flow Funding curves
issue models (greater than 5 years)
Investment Discounted cash flow Estimates of periods in
properties models which rental units will
be disposed of
Annual selling price
escalations
Annual rental escalations
Expense ratios
Vacancy rates
Income capitalisation
rates
Risk adjusted discount
rates
30 June 31 December
2018 2017 2017
Category of asset/ Range of estimates utilised
liability for the unobservable inputs
Loans and advances 0.04% to (0.1%) to 0.3% to
to banks and 1.97% 2.10% 2.3%
customers
Investment Discount rate Discount rate Discount rate
securities of 7.75% of 13%, of 7% and 9%,
to 8% comparator comparator
multiples between multiples between
5 and 10.5 5 and 10.5
Trading and hedging
portfolio assets
and liabilities
Debt instruments 0.15% to 8.2% 0.007% to 27.5% 3% to 15%
Derivative assets
Credit 0.03%-14%, (0.3%) to 9%, 0.04% to 10%,
derivatives(1) 15%-76%, 15% to 76%, 15% to 76%,
60%-90% 54% to 90% 54% to 90%
Equity derivatives 14.3% to 41.9% 16.6% to 21% 15.09% to 64.67%
Foreign exchange 3% to 45% (12.2%) to 3.27% (28%) to 29.5%
derivatives
Interest rate 0.21% to 7.2% 0.1% to 8.33% 0.25% to 10.69%
derivatives
Deposits due to 1.3% to 1.9% (0.1%) to 2.10% 0.2% to 1.9%
customers
Debt securities in 1.3% to 1.9% (0.1%) to 1.55% 0.2% to 1.9%
issue
Investment 1 to 6 years 1 to 10 years 1 to 6 years
properties
0% to 6% 1% to 6% 6%
n/a 1% to 7% 6%
n/a 25% to 50% n/a
n/a 1% to 7% n/a
7.5% to 8% 10% to 11% 7.75% to 8%
11% to 15% 14% 11% to 15%
For assets or liabilities held at amortised cost and disclosed in Levels 2 or 3 of the fair value hierarchy, the
discounted cash flow valuation technique is used. Interest rates and money market curves are considered unobservable
inputs for items which mature after five years. However, if the items mature in less than five years, these inputs are
considered observable.
For debt securities in issue held at amortised cost, a further significant input would be the underlying price of the
market traded instrument.
The sensitivity of the fair value measure is dependent on the unobservable inputs. Significant changes to the
unobservable inputs in isolation will have either a positive or negative impact on fair values.
(1) The range of estimates has been disaggregated to better reflect the individual assumptions used.
15.10 Unrecognised gains/(losses) as a result of the use of valuation models using unobservable inputs
The amount that has yet to be recognised in the statement of comprehensive income that relates to the difference between
the transaction price and the amount that would have arisen had valuation models using unobservable inputs been used on
initial recognition, less amounts subsequently recognised, is as follows:
30 June 31 December
2018 2017 2017
Rm Rm Rm
Opening balance at the beginning of the reporting period (134) (139) (139)
New transactions - 17 (27)
Amounts recognised in profit or loss during the reporting period - (18) 32
Closing balance at the end of the reporting period (134) (140) (134)
15.11 Third-party credit enhancements
There were no significant liabilities measured at fair value and issued with inseparable third-party credit
enhancements during the current and previous reporting periods.
16. Reporting changes overview
Overview of reporting changes
The financial reporting changes that have been applied in the current reporting period are as follows:
- The implementation of new IFRS:
• IFRS 9 - The Bank has applied IFRS 9 on a retrospective basis, with an adjustment to retained earnings and other
reserves as at 1 January 2018. As permitted under IFRS 9, the Bank has elected not to restate comparative
periods.(Audited)
• IFRS 15 - The Bank has elected to adopt IFRS 15 using the cumulative effect method, under which the comparative
information has not been restated.
All other amendments to IFRS effective for the current reporting period have had no impact on the Bank's reported
results(1);
- Changes in internal accounting policies:
• The presentation of interest income and interest expense
Comparative information has only been restated to reflect the amendment to the Bank's internal accounting
policies, and an adjustment has been recognised within retained income as at 1 January 2018 to reflect the
impact of implementing new standards.
The table below summarises the total impact on the Bank's statement of changes in equity
Capital and
reserves
Preference attributable
Share share to
capital capital Additional ordinary
and share and share Tier 1 Retained Other equity
premium premium capital earnings reserves holders
Rm Rm Rm Rm Rm Rm
Balance reported as at 37 183 4 644 1 500 37 855 4 145 85 327
31 December 2017
Impact of adopting IFRS 9 (Audited) - - - (3 103) (204) (3 307)
Impact of adopting IFRS 15 - - - (44) - (44)
Adjusted balance as at 37 183 4 644 1 500 34 708 3 941 81 976
1 January 2018
Non-
controlling
interest-
ordinary Total
shares equity
Rm Rm
Balance reported as at 2 85 329
31 December 2017
Impact of adopting IFRS 9 - (3 307)
Impact of adopting IFRS 15 - (44)
Adjusted balance as at 2 81 978
1 January 2018
(1) The amendments which are effective in the current reporting period relate to IAS 40 Investment Property,
IAS 28 Investment in Associates and Joint Ventures, as well as IFRS 2 Share-based Payment Transactions (IFRS 2).
The changes to IFRS 2 were however early adopted by the Bank in 2016. A new IFRIC Interpretation, IFRIC 22
Foreign Currency Transactions and Advance Consideration is effective in the current reporting period.
16.1 Initial adoption of IFRS 9 Financial Instruments
Basis of presentation
This section includes the impact of the adoption of IFRS 9 and specifically the transitional disclosures as required
by IFRS 7 Financial Instruments: Disclosures.
The information presented in this section has been prepared using the principal accounting policies as set out in the
Bank's most recent audited annual consolidated financial statements except for application of the new accounting
requirements of IFRS 9 as explained in this section. All amounts are presented on the historical cost basis with the
exception of financial assets and financial liabilities that are either required to or have been elected to be
classified at fair value through profit or loss, or in respect of financial assets measured at fair value through
other comprehensive income.
The directors assess the Bank's future performance and financial position on an ongoing basis and have no reason to
believe that the Bank will not be a going concern in the reporting period ahead. For this reason, the information in
this section has been prepared on a going concern basis.
All information marked as audited in this section has been audited by EY who expressed an unmodified opinion thereon
in terms of ISA 805 Special Considerations - Audits of single financial statements and specific elements, accounts or
items of financial statement. A copy of the auditor's report on the audited sections of note 16 is available for
inspection at the Bank's registered office.
16.1.1 Overview and highlights
16.1.1.1 The impact of IFRS 9 on the Bank (Audited)
IFRS 9 is effective from 1 January 2018 and introduces significant changes to three fundamental areas of the
accounting for financial instruments, namely:
- The classification and measurement of financial instruments;
- The scope and calculation of credit losses, which has moved from an incurred loss, to an expected credit loss (ECL)
approach; and
- The hedge accounting model.
Whilst the adoption of a revised classification and measurement framework has had a less material impact on the Bank,
application of the IFRS 9 ECL methodology has affected both the financial and regulatory capital position, and can be
reasonably expected to impact the net profit or loss of the Bank going forward.
In accordance with the transition options allowable under IFRS 9, the Bank will continue to apply the hedge accounting
requirements set out in IAS 39 Financial Instruments: Recognition and Measurement (IAS 39). The Bank employs a governed
hedging programme to reduce margin volatility associated with structural balances (i.e. rate insensitive liabilities
as well as the endowment associated with equity). Operational complexity would be introduced by adopting the revised
IFRS 9 hedge accounting requirements ahead of the finalisation of the International Accounting Standards Board's (IASB)
Dynamic Risk Management project in respect of macro hedging. The Bank has accordingly elected not to adopt the revised
IFRS 9 hedge requirements, but will adopt the revised disclosures set out in the amendments to IFRS 7, which include
those relating to hedge accounting.
16.1.1.2 The impact of adopting a revised classification and measurement framework for financial instruments (Audited)
A portfolio of South African consumer price index (CPI) linked investment securities have been reclassified from
available-for-sale under IAS 39, to amortised cost. This aligns the portfolio's classification with the Bank's business
model of holding the instruments to collect contractual cash flows. Other less significant reclassifications of financial
assets were also recorded, although these did not have any impact on equity. The accounting for financial liabilities
remains largely unchanged, except for financial liabilities designated at fair value through profit or loss (FVTPL). Gains
and losses on such financial liabilities are required to be presented in other comprehensive income (OCI), to the extent
that they relate to changes in own credit risk. The Bank early adopted this requirement in 2017, and recognised a debit
of R147m in OCI.
16.1.1.3 The impact of adopting a revised ECL methodology(1)
The adoption of IFRS 9 will impact the timing of credit loss recognition, by accelerating the recognition of losses
relative to IAS 39, and potentially creating increased volatility through the incorporation of forward looking
assumptions. Total write offs, debt collections, and the long-run actual credit losses incurred by the Bank should remain
unchanged. The Bank dedicates considerable resources to gaining a clear and accurate understanding of credit risk across
the business and to correctly reflect the value of the assets in accordance with applicable accounting principles. The
core processes remain the measurement of exposures and concentrations, performance monitoring and tracking of asset quality,
and the write off of assets when the whole or part of a debt is irrecoverable. (This paragraph has been audited)
The implementation of IFRS 9 has been a project of strategic importance to the Bank. Over the past four years,
extensive work was performed to design, build and test new models, create the necessary infrastructure and produce data
management systems that were able to facilitate a successful parallel run in the second half of 2017, and deliver a high
quality implementation on 1 January 2018. The Bank has had the ability to test the sensitivity of the ECL model and its
sub-components to different macroeconomic scenarios, but has not been able to back test the scenarios themselves. This is a
natural concomitant of implementing an accounting standard which requires the inclusion of point-in-time forward looking
assumptions, and in respect of which, the application of hindsight is expressly prohibited.
(1) Note that only the first paragraph of 16.1.1.3 has been audited.
16.1.1.4 Summary of the impact of IFRS 9 as at 1 January 2018
The disclosures set out within this section of the report serve to bridge the statement of financial position of the
Bank as at 1 January 2018 between IAS 39 and IFRS 9. Information has been provided to facilitate an understanding of the
key areas of difference, as well as the core drivers of ECL going forward. The Bank highlights the role that unexpected
changes in forward looking assumptions may play in driving earnings volatility, and that changes in stage distribution
could have an impact on net interest income. Exposures within certain industry sectors or products are expected to be
more sensitive to changes in macroeconomic conditions than others, which could mean that the overall response to changes in
forward looking assumptions is driven by the relative composition of the loans and advances portfolios. (This paragraph
has been audited)
The adoption of IFRS 9 has impacted the financial and regulatory capital position of the Bank, as follows:
- An increase of R4 314m (27%) in the Bank's ECL provisions (including interest in suspense), from R15 902m as
at 31 December 2017 to R20 216m as at 1 January 2018. Refer to section 16.1.3.1. (This bullet point has been audited)
- A net decrease in retained earnings of R3 103m (after a taxation adjustment of R1 211m) together with a net
decrease in other reserves of R204m which includes the effects of reclassifying investment securities from available-
for-sale to amortised cost. Refer to 16.1.3. (This bullet point has been audited)
- The Bank remains strongly capitalised notwithstanding a R1 558m decrease in CET 1 and a 16 bps decrease in the CET
1 ratio. The decrease in the CET 1 ratio is before the application of the transitional arrangement which defers the
impact over three years. This deferral reduces the impact on the CET 1 ratio on the date of initial adoption to 4 bps.
Refer to 16.1.5.1
16.1.1.5 Condensed consolidated statement of financial position for Absa Bank Limited (Audited)
The following table summarises the total impact of IFRS 9 on the statement of financial position as at 1 January 2018
Impact of IFRS 9
Classification
31 December and IFRS 9 1 January
2017 measurement(1) ECL(2) 2018
Rm Rm Rm Rm
Assets
Investment securities 76 524 (195) - 76 329
Loans and advances to banks 43 217 - (26) 43 191
Loans and advances to customers 660 492 (20) (3 827) 656 645
Investments in associates and joint ventures(3) 1 235 - (73) 1 162
Other assets(4) 206 890 55 792 207 737
Total assets 988 358 (160) (3 134) 985 064
Liabilities
Trading portfolio liabilities 59 834 (20) - 59 814
Provisions(5) 2 073 - 452 2 525
Other liabilities(4) 841 122 - (419) 840 703
Total liabilities 903 029 (20) 33 903 042
Equity
Capital and reserves
Attributable to equity holders:
Ordinary share capital 304 - - 304
Ordinary share premium 36 879 - - 36 879
Preference share capital 1 - - 1
Preference share premium 4 643 - - 4 643
Additional Tier 1 capital 1 500 - - 1 500
Retained earnings 37 855 - (3 103) 34 752
Other reserves 4 145 (140) (64) 3 941
85 327 (140) (3 167) 82 020
Non-controlling interest - ordinary shares 2 - - 2
Total equity 85 329 (140) (3 167) 82 022
Total liabilities and equity 988 358 (160) (3 134) 985 064
(1) Classification and measurement reclassifications relate to two portfolios: short-term commodity-linked
instruments that had embedded derivatives which were previously bifurcated under IAS 39, have been mandatorily
classified at FVPTL under IFRS 9; and a portfolio of CPI linked investment securities that have been reclassified
from available-for-sale to amortised cost.
(2) A further analysis of the ECL impact per segment has been disclosed in 16.1.3.1.
(3) Reflects the change in the Bank's share of net assets from associates and joint ventures due to them adopting
IFRS 9.
(4) Relates to the adjustments to deferred tax and current tax assets.
(5) The increase in the carrying value of provisions relates to the expected credit losses recognised on financial
guarantee contracts, letters of credit and undrawn facilities (to the extent that it exceeds the gross carrying
amount of loans and advances to customers).
16.1.2 Key elements of the revised impairment model under IFRS 9
16.1.2.1 Introduction (Audited)
IFRS 9 introduces an ECL impairment model that requires entities to recognise ECL based on a stage allocation
methodology, with such categorisation informing the level of provisioning required. The ECL allowance calculated on
stage 1 assets reflects the lifetime losses associated with events of default that are expected to occur within
12 months of the reporting date (12 month ECL). Assets classified within stage 2 and stage 3 carry an ECL allowance
calculated based on the lifetime losses associated with defaults that are expected to occur over the lifetime of the
exposure (lifetime ECL). The assessment of whether an exposure should be transferred from stage 1 to stage 2 is a
relative measure, where the credit risk at the reporting date is compared to the risk that existed at initial
recognition.
The stage allocation is required to be performed as follows:
- Stage 1: Stage 1 assets comprise exposures that are performing in line with expectations at origination.
Financial assets that are not purchased or originated with a credit impaired status are required to be classified on
initial recognition within stage 1.
- Stage 2: Exposures are required to be classified within stage 2 when a significant increase in credit risk has been
observed. The factors which trigger a reclassification from stage 1 to stage 2 have been defined so as to meet the
specific requirements of IFRS 9, and in order to align with the Bank's credit risk management practices. These are
discussed further in 16.1.2.2. Stage 2 assets are considered to be cured (i.e. reclassified back into stage 1), when
there is no longer evidence of a significant increase in credit risk. The definition of high risk is from a credit
management perspective central to controlling the flow of exposures back to stage 1 and gives effect to any cure
periods deemed necessary.
- Stage 3: Credit exposures are classified within stage 3, when they are regarded as being credit impaired, which
aligns to the bank's regulatory definition of default. This definition is discussed further in 16.1.2.3. Defaulted
assets are considered cured once the original default trigger event no longer applies and both internal and regulatory
probation periods have been met. In the Retail portfolio, assets will move from stage 3 to stage 2, but not directly
from stage 3 to stage 1. In the Wholesale portfolio assets can move from stage 3 directly to stage 1. Purchased or
originated credit impaired lending facilities are classified on origination within stage 3.
16.1.2.2 Definition of a significant increase in credit risk (Audited)
The Bank uses various quantitative, qualitative and back stop measures as indicators of a significant increase in
credit risk. The thresholds applied for each portfolio will be reviewed on a regular basis to ensure they remain
appropriate. Where evidence of a significant increase in credit risk is not yet available at an individual instrument
level, instruments that share similar risk characteristics are assessed on a collective basis.
Key drivers of a significant increase in credit risk include:
- Where the weighted average lifetime probability of default (PD) for an individual exposure or group of exposures
as at the reporting date evidences a material deterioration in credit quality, relative to that determined on
initial recognition;
- Adverse changes in payment status, and where accounts are more than 30 days in arrears at reporting date. In
certain portfolios a more conservative arrears rule is applied where this is found to be indicative of increased
credit risk (e.g. 1 day in arrears);
- Accounts in the Retail portfolio which meet the portfolio's impairment high risk criteria; and
- The Bank's watch list framework applied to the Wholesale portfolio, which is used to identify customers facing
financial difficulties or where there are grounds for concern regarding their financial health.
16.1.2.3 Definition of credit impaired assets (Audited)
Assets classified within stage 3 are considered to be credit impaired, which, as discussed in 16.1.2.1 applies when
an exposure is in default.
Default within Wholesale and Retail is aligned with the regulatory definition, and therefore assets are classified
as defaulted when either:
- The Bank considers that the obligor is unlikely to pay its credit obligations without recourse by the Bank to
actions such as realising security. Elements to be taken as indications of unlikeliness to pay include the
following:
• The Bank consents to a distressed restructuring/forbearance of the credit obligation where this is likely to
result in a diminished financial obligation caused by the material forgiveness of principal, interest or fees;
• The customer is under debt review, business rescue or similar protection; or,
• Advice is received of customer insolvency or death.
- The obligor is past due 90 days or more on any credit obligation to the Bank.
In addition, within the Retail portfolios:
- All forms of forbearance are treated as in default, regardless of whether the restructure has led to a diminished
financial obligation or not; and
- The Bank requires an exposure to reflect 12 consecutive months of performance, in order to be considered to have
been cured from default.
16.1.2.4 Impact of IFRS 9 on interest recognition (Audited)
Interest income is calculated on stage 1 or stage 2 financial assets by applying the effective interest rate (EIR)
to the gross carrying amount of such assets. When exposures are identified as credit impaired (stage 3), or when
they are purchased or originated within stage 3, IFRS 9 requires interest income to be calculated based on the net
carrying value, which is the gross carrying value after deducting the ECL allowance.
In order to practically give effect to this requirement for stage 3 assets, the Bank follows a two-step approach.
First, the Bank ceases to recognise in profit or loss the contractual interest charged on credit impaired assets
(that is to say, contractual interest is suspended). Second, the Bank multiplies the net carrying value of the
impaired exposure by its EIR and recognises only this amount of interest income within profit or loss. Simply,
this means that if during a reporting period, an exposure was classified within stage 3, lower interest income
would be recognised than if it had been classified within stage 1 or stage 2 over the same period.
Since an ECL allowance is calculated by discounting the future cash flows expected to be recovered by the
exposure's EIR, interest income recognised on stage 3 assets reflects the financial effect of unwinding the discount
embedded in the calculation. Application of this approach results in the Bank being able to appropriately reflect
in profit or loss the financial effect of the ‘time value of money', which is embedded within the calculation of
the ECL allowance.
In principle, the approach applied by the Bank to recognise interest on stage 3 assets under IFRS 9, is not
dissimilar from the manner in which the Bank calculated the interest on specifically impaired financial assets
under IAS 39. The key departure from IAS 39 is however that IFRS 9 requires the balance of interest in suspense to
be presented as part of both the gross carrying value of the exposure and the related ECL allowance. Under IAS 39,
such amount was excluded from both balances. Therefore, this constitutes a change to the presentation of the gross
carrying value and ECL allowance, although it has no impact on the net carrying value of the exposure. Had this
revised presentation requirement been applied as at 31 December 2017, the Bank would have recognised a larger gross
carrying value, and larger impairment allowance of R2 279m (refer to section 16.1.3.1. for more detail).
The Bank believes that IFRS 9 is not explicit regarding the treatment of contractual interest in suspense which is
subsequently recovered. There is only a clear prescription with regards to the recovery of contractual interest
previously unrecognised on exposures originated credit impaired, where the standard requires such interest to be
recognised as a credit impairment gain instead of interest income. There is presently diversity in interpretation
of this matter and therefore the Bank has elected to make an accounting policy choice in this regard. The Bank's
accounting policy is to recognise contractual interest that is recovered, but which was previously unrecognised
within net interest income, and resulted in R292m being recognised within interest income over the current
reporting period. The Bank believes that this policy promotes a fairer presentation of ECL as well as net interest
income, both of which the Bank believes would otherwise be understated.
16.1.3 Reconciliation of the allowance for impairment under IAS 39 to the total ECL allowance under IFRS 9
16.1.3.1 Summary of ECL by segment and class of credit exposure (Audited)
The following table sets out the transition of the impairment allowances applied to all credit exposures from
IAS 39 to IFRS 9, by asset class, and by segment
IAS 39 - 31 December 2017
Non-
Performing performing
provision portfolio
Rm Rm
Retail and Business Banking South Africa 3 356 8 678
Retail Banking 2 583 7 582
Credit cards 578 2 626
Instalment credit agreements 703 1 112
Loans to associates and joint ventures - -
Mortgages 1 124 2 056
Other loans and advances - -
Overdrafts 51 236
Personal and term loans 127 1 552
Business Banking South Africa 773 1 096
CIB South Africa 559 832
Wealth 14 174
Head Office, Treasury and other operations in South Africa 10 -
Loans and advances 10 -
Reclassification to provisions - -
Loans and advances to customers 3 939 9 684
Loans and advances to banks - -
Investment securities - -
Total ECL allowance: On-statement of financial position 3 939 9 684
Off-statement of financial position exposures
Undrawn committed facilities(1) - -
Financial guarantees - -
Letters of credit - -
Total ECL allowance: Off-statement of financial position - -
Total ECL allowance 3 939 9 684
IAS 39 - 31 December 2017
Total
IAS 39 Interest in
(excluding IIS) suspense
Rm Rm
Retail and Business Banking South Africa 12 034 2 131
Retail Banking 10 165 1 082
Credit cards 3 204 -
Instalment credit agreements 1 815 93
Loans to associates and joint ventures - -
Mortgages 3 180 822
Other loans and advances - -
Overdrafts 287 69
Personal and term loans 1 679 98
Business Banking South Africa 1 869 1 049
CIB South Africa 1 391 123
Wealth 188 25
Head Office, Treasury and other operations in South Africa 10 -
Loans and advances 10 -
Reclassification to provisions - -
Loans and advances to customers 13 623 2 279
Loans and advances to banks - -
Investment securities - -
Total ECL allowance: On-statement of financial position 13 623 2 279
Off-statement of financial position exposures
Undrawn committed facilities(1) - -
Financial guarantees - -
Letters of credit - -
Total ECL allowance: Off-statement of financial position - -
Total ECL allowance 13 623 2 279
IAS 39 - 31 December 2017
Total IAS 39 IFRS 9 - 1 January 2018
(including IIS) Stage 1 Stage 2
Rm Rm Rm
Retail and Business Banking South Africa 14 165 2 193 2 929
Retail Banking 11 247 1 553 2 621
Credit cards 3 204 456 1 021
Instalment credit agreements 1 908 539 610
Loans to associates and joint ventures - 2 -
Mortgages 4 002 210 364
Other loans and advances - 8 18
Overdrafts 356 44 127
Personal and term loans 1 777 294 481
Business Banking South Africa 2 918 640 308
CIB South Africa 1 514 482 384
Wealth 213 27 6
Head Office, Treasury and other operations in South Africa 10 (188) (172)
Loans and advances 10 8 11
Reclassification to provisions - (196) (183)
Loans and advances to customers 15 902 2 514 3 147
Loans and advances to banks - 4 22
Investment securities - 9 -
Total ECL allowance: On-statement of financial position 15 902 2 527 3 169
Off-statement of financial position exposures
Undrawn committed facilities(1) - 196 183
Financial guarantees - 15 8
Letters of credit - 1 2
Total ECL allowance: Off-statement of financial position - 212 193
Total ECL allowance 15 902 2 739 3 362
IAS 39 - 31 December 2017
Stage 3 Total IFRS 9 IFRS 9
Rm provision transition
(including IIS) adjustment
Rm Rm
Retail and Business Banking South Africa 12 927 18 049 3 884
Retail Banking 10 305 14 479 3 232
Credit cards 2 759 4 236 1 032
Instalment credit agreements 1 431 2 580 672
Loans to associates and joint ventures - 2 2
Mortgages 4 392 4 966 964
Other loans and advances 8 34 34
Overdrafts 240 411 55
Personal and term loans 1 475 2 250 473
Business Banking South Africa 2 622 3 570 652
CIB South Africa 955 1 821 307
Wealth 233 266 53
Head Office, Treasury and other operations in South Africa (47) (407) (417)
Loans and advances - 19 9
Reclassification to provisions (47) (426) (426)
Loans and advances to customers 14 068 19 729 3 827
Loans and advances to banks - 26 26
Investment securities - 9 9
Total ECL allowance: On-statement of financial position 14 068 19 764 3 862
Off-statement of financial position exposures
Undrawn committed facilities(1) 47 426 426
Financial guarantees - 23 23
Letters of credit - 3 3
Total ECL allowance: Off-statement of financial position 47 452 452
Total ECL allowance 14 115 20 216 4 314
(1) Relates to ECL on undrawn committee facilities to the extent that it exceeds the gross carrying amount
on loans.
The measurement of the ECL allowance is required to reflect an unbiased probability-weighted range of possible
future outcomes, which are factored into the PD and LGD models, as well as applied in determining whether a
significant increase in credit risk has occurred. The reconciliation has not separately presented the effects
of macroeconomic scenarios, since these are considered to be inextricably linked to the stage allocations above.
The key drivers of the ECL allowance are as follows:
– Interest in suspense – The cumulative interest which was suspended, and therefore not presented as part of
the impairment allowance as at 31 December 2017 has been included in the opening impairment allowance, with an
equivalent increase in the gross carrying value of the financial assets.
– Change in emergence period of stage 1 assets – The emergence period under IAS 39 was calculated as the average
time between when a loss event occurred and the impairment event was actually identified, and was typically
12 months or less.
– Significant increase in credit loss for stage 2 classification – Under IAS 39, stage 2 assets were classified as
performing exposures with an impairment allowance being recognised to reflect latent risks, and calculated based
on an appropriate emergence period. Under IFRS 9, lending exposures that have experienced a significant increase
in credit risk since origination are required to carry a lifetime ECL allowance.
– Change in default definition – The definition of credit impaired is aligned with the regulatory definition of
default, which has resulted in a larger population of credit exposures being classified within stage 3 compared to
the NPL population under IAS 39. The key differences, include the application of a 90 day backstop, as well as a
widening of the watch list categories included within stage 3, relative to those that were specifically impaired
under IAS 39. Further, all debt counselling and performing forbearance accounts are included in stage 3, but were
not previously classified as NPL.
– Off-balance sheet exposures – The credit risk inherent in the undrawn component of lending facilities are managed
and monitored by the Bank together with the drawn component as a single exposure. The exposure at default (EAD) on
the entire facility is therefore used to calculate the ECL on loans and advances. As a result, the total ECL is
recognised in the ECL allowance for the financial asset unless the total ECL exceeds the gross carrying amount of
the financial asset, in which case the ECL is recognised as a provision on the face of the statement of financial
position. The Bank presents the ECL on financial guarantees and letters of credit as a provision on the statement
of financial position.
– The calculation of ECL on other assets – Cash reserves with the South African Reserve Bank and investment
securities are included within the scope of IFRS 9 ECL and have contributed to the Bank's total ECL allowance.
16.1.4.1 Summary of ECL coverage for loans and advances to banks and customers (Audited)
The following table provides an analysis of the total ECL allowance by market segment, and per stage distribution.
For credit exposures disclosed on the statement of financial position, the gross carrying value of on-statement of
financial position exposures includes only the amounts that were drawn, as at 1 January 2018, whilst the allowance
for ECL includes expected losses on committed, undrawn lending facilities. To the extent that the ECL allowance
exceeds the carrying value of the drawn exposure, a liability (provision) has been recognised in the statement of
financial position. This provision is adjusted for in Head office.
1 January 2018
Stage 1
Gross
carrying Allowance ECL
value for ECL coverage
Rm Rm %
RBB South Africa 381 576 2 193 0.57
Retail Banking South Africa 326 985 1 553 0.47
Credit cards 23 116 456 1.97
Instalment credit agreements 67 498 539 0.80
Loans to associates and joint ventures 23 037 2 0.01
Mortgages 192 272 210 0.11
Other loans and advances 2 439 8 0.33
Overdrafts 4 362 44 1.01
Personal and term loans 14 261 294 2.06
Business Banking South Africa 54 591 640 1.17
CIB South Africa(1) 183 130 482 0.26
Wealth 4 658 27 0.58
Head Office, Treasury and other operations in 218 (188) -
South Africa
Loans and advances 218 8 3.67
Reclassification to provision - (196) -
Loans and advances to customers 569 582 2 514 0.44
Loans and advances to banks(2) 41 289 4 0.01
Total Loans and advances 610 871 2 518 0.41
1 January 2018
Stage 2
Gross
carrying Allowance ECL
value for ECL coverage
Rm Rm %
RBB South Africa 33 192 2 929 8.82
Retail Banking South Africa 26 284 2 621 9.97
Credit cards 3 122 1 021 32.70
Instalment credit agreements 5 217 610 11.69
Loans to associates and joint ventures - - -
Mortgages 14 290 364 2.55
Other loans and advances 345 18 5.22
Overdrafts 1 024 127 12.40
Personal and term loans 2 286 481 21.04
Business Banking South Africa 6 908 308 4.46
CIB South Africa(1) 35 232 384 1.09
Wealth 229 6 2.62
Head Office, Treasury and other operations in 769 (172) -
South Africa
Loans and advances 769 11 1.43
Reclassification to provision - (183) -
Loans and advances to customers 69 422 3 147 4.53
Loans and advances to banks(2) 1 928 22 1.14
Total Loans and advances 71 350 3 169 4.44
Stage 3
Gross
carrying ECL ECL
value allowance coverage
Rm Rm %
RBB South Africa 34 897 12 927 36.85
Retail Banking South Africa 29 227 10 305 35.04
Credit cards 4 233 2 759 65.18
Instalment credit agreements 4 167 1 431 34.34
Loans to associates and joint ventures - - -
Mortgages 18 009 4 392 24.39
Other loans and advances 11 8 72.73
Overdrafts 416 240 57.69
Personal and term loans 2 391 1 475 61.69
Business Banking South Africa 5 670 2 622 46.24
CIB South Africa(1) 2 143 955 44.56
Wealth 330 233 70.61
Head Office, Treasury and other operations in - (47) -
South Africa
Loans and advances - - -
Reclassification to provision - (47) -
Loans and advances to customers 37 370 14 068 37.65
Loans and advances to banks(2) - - -
Total Loans and advances 37 370 14 068 37.65
Gross Total
carrying ECL ECL
value allowance coverage
Rm Rm %
RBB South Africa 449 665 18 049 4.01
Retail Banking South Africa 382 496 14 479 3.79
Credit cards 30 471 4 236 13.90
Instalment credit agreements 76 882 2 580 3.36
Loans to associates and joint ventures 23 037 2 0.01
Mortgages 224 571 4 966 2.21
Other loans and advances 2 795 34 1.22
Overdrafts 5 802 411 7.08
Personal and term loans 18 938 2 250 11.88
Business Banking South Africa 67 169 3 570 5.31
CIB South Africa(1) 220 505 1 821 0.83
Wealth 5 217 266 5.10
Head Office, Treasury and other operations in 987 (407) -
South Africa
Loans and advances 987 19 1.93
Reclassification to provision - (426) -
Loans and advances to customers 676 374 19 729 2.92
Loans and advances to banks(2) 43 217 26 0.06
Total Loans and advances 719 591 19 755 2.75
(1) Included in Stage 1 gross carrying amount on loans and advances to customers is R26 808m relating to
financial instruments measured at fair value through profit or loss. The fair value measurement
for these instruments includes adjustments in respect of their credit quality.
(2) Included in Stage 1 gross carrying amount on loans and advances to banks is R17 198m relating to financial
instruments measured at fair value through profit or loss. The fair value measurement for these instruments
includes adjustments in respect of their credit quality.
16.1.5 The impact of IFRS 9 on regulatory capital
16.1.5.1 Adoption of IFRS 9 and its impact on the Bank's regulatory capital
The Bank has elected to utilise the transition period of three years for phasing in the regulatory capital
impact of IFRS 9, as afforded by paragraph 2.2 of Directive 5 of 2017 issued by the South African Reserve Bank
(SARB). The key drivers of such impact are explained in the next table.
31 December 2017
Key capital metrics Initial Release Impact on
(IAS 39) recognition of EL Deferred other
of ECL shortfall tax (RWA) reserves
Note 16.1.5.1.1 16.1.5.1.2 16.1.5.1.3 16.1.5.1.4
Capital supply (Rm)
Common Equity Tier 1 72 643 (3 103) 1 749 (204)
Tier 1 capital 76 454 (3 103) 1 749 (204)
Total capital 91 478 (3 103) 1 749 (204)
Risk weighted assets 542 199 2 331
Capital ratios (%)(1)
Common Equity Tier 1 13.4 (0.6) 0.3 (0.1) (0.0)
Tier 1 14.1 (0.6) 0.3 (0.1) (0.0)
Total capital 16.9 (0.6) 0.3 (0.1) (0.0)
Leverage ratio
Leverage exposure 1 153 338 (4 314) 1 749 1 266 (259)
Leverage ratio (%) 6.6 (0.2) 0.1 (0.0) (0.0)
31 December 2017 1 January 2018
Key capital metrics Release of
RWA on Eligible Fully
non- general loaded Transitional
performing provisions capital capital
loans (Tier 2) position position
Note 16.1.5.1.5 16.1.5.1.6
Capital supply (Rm)
Common Equity Tier 1 71 085 72 253
Tier 1 capital 74 896 76 065
Total capital 53 89 973 91 102
Risk weighted assets (7 421) 537 109 540 927
Capital ratios (%)(1)
Common Equity Tier 1 0.2 13.2 13.4
Tier 1 0.2 13.9 14.1
Total capital 0.2 - 16.7 16.8
Leverage ratio
Leverage exposure - - 1 151 780 1 152 949
Leverage ratio (%) - - 6.5 6.6
16.1.5.1.1 Increase in ECL provision under IFRS 9
The adoption of the revised IFRS 9 ECL model has reduced shareholders equity by R4 314m which is partially
offset by the recognition of a net tax credit within retained income of R1 211m. The tax credit includes
current and deferred tax.
16.1.5.1.2 Release of Expected Loss (EL) shortfall to credit provisions
For reporting periods up to 31 December 2017, the calculation of capital took into account the regulatory
expected loss for performing assets, which was greater than the IAS 39 provision, thereby resulting in an
additional deduction against CET 1 to the extent of the shortfall in the accounting provision. Under IFRS 9,
the accounting ECL allowance has increased resulting in the elimination of the majority of the shortfall.
This is reflected in the above reconciliation as a reversal of the previous deduction, and has the effect of
partially reducing the negative impact of IFRS 9 ECL on regulatory capital.
16.1.5.1.3 Recognition of a higher deferred tax asset balance
As discussed in 16.1.5.1.1, the carrying value of the Bank's deferred tax asset balance has increased, driven
by an increase in the ECL provision. The reclassification of investment securities, as discussed below in
16.1.5.1.4, resulted in a reversal of a deferred tax liability. The net effect has been an increase in risk
weighted assets (RWA) of R2 331m, and accordingly, a decrease in the CET 1 ratio.
16.1.5.1.4 Impact on other reserves under IFRS 9
Other reserves decreased by R204m (net of deferred tax) primarily as a result of a reclassification from
available-for-sale to amortised cost of a small portfolio of South African CPI linked investments so as to
reflect the Bank's business model of holding the instruments to collect contractual cash flows.
(1) The Bank's capital ratios decreased as follows as a result of the adoption of IFRS 9:
- CET 1 ratio decreased by 16 bps on a fully loaded basis and 4 bps afer phase-in.
- Tier 1 ratio decreased by 16 bps on a fully loaded basis and 4 bps afer phase-in.
- Total capital ratio decreased by 12 bps on a fully loaded basis and 3 bps afer phase-in.
16.1.5 The impact of IFRS 9 on regulatory capital
16.1.5.1 Adoption of IFRS 9 and its impact on the Bank's regulatory capital
16.1.5.1.5 Release of RWA on non-performing loans
The alignment of the definition of default for both accounting and regulatory purposes resulted in a
reduction of RWA of R7 421m due to specific provisions (stage 3) being raised for an increased population
of exposures. The methodology applied in calculating default RWA's permits a bank to reduce the LGD of the
defaulted exposure by the bank's estimate of expected loss, represented by the bank's specific accounting
provision.
16.1.5.1.6 Tier 2 eligible provisions
In respect of the Bank's standardised portfolio, the IFRS 9 general provision (stage 1 and stage 2) is added
back to Tier 2 capital, subject to a limit of 1.25% of the standardised credit RWA. This has resulted in an
increase in total capital of R53m.
16.1.5.1.7 Impact of IFRS 9 ECL on leverage ratio
Key drivers of change in the leverage ratio as a result of the adoption of IFRS 9 were a decrease in leverage
exposure and Tier 1 capital, mainly attributable to increased ECL provisions. This was, however, partly offset
by the release of the EL shortfall.
16.1.6. Drivers of the impairment charge under IFRS 9 (Audited)
Consistent with IAS 39, loans are written off when there is no realistic probability of recovery and the Bank's
write-off policy remains materially unchanged. IFRS 9 impacts the timing of loss recognition, but over time, the
long run expected cash losses are driven by economic and commercial factors, independent from the accounting
framework applied. Differences in the timing of recognition of an impairment charge under IFRS 9 versus IAS 39 are
attributed to, inter alia:
- significant increases in credit risk causing a transfer of assets to stage 2 assets;
- significant changes in forwarding looking macroeconomic conditions leading to assets moving between stages; and
- the size of new business growth.
Significant increase in credit risk: Transfers of exposures to stage 2 are driven by significant deterioration in
credit quality, although a large stage 2 balance does not necessarily mean that the exposures have a poor default
grade. An important principle under IFRS 9 is that a significant increase in credit risk constitutes a measure of
relative credit risk, requiring the absolute credit quality of an exposure on origination to be compared against
the absolute credit quality at reporting date. Exposures classified within stage 2 may actually have a better
credit quality than other assets which remain in stage 1. Further, owing to the Bank's definition of credit impaired,
and the inclusion of performing forbearance accounts within stage 3, a credit impaired exposure may have a better
credit quality than an exposure in stage 2. Notwithstanding this principle, should the Bank's stage 2 population
start growing, this could indicate that the credit quality across the portfolio on reporting date may be worse
than management had initially anticipated. Transfers between stages could be driven by factors at an individual
account level, or owing to a deteriorating macroeconomic environment.
Changes in forward looking assumptions: IFRS 9 requires forward-looking and historical information to be used in order
to determine whether a significant increase in credit risk has occurred, as well as to determine the appropriate PDs
and LGDs to be applied. Transfers between stages could be driven by a deteriorating or improving macroeconomic
environment, which could make the impairment charge more susceptible to volatility.
New business growth: One of the key changes under IFRS 9 is the recognition of ECL losses in respect of all exposures
on initial recognition, or on the date that the Bank becomes irrevocably committed to providing a lending facility.
This means that growth in new business will strain profitability in the short to medium term, although over time the
realised economic returns should, all else being equal, remain unchanged from IAS 39.
16.1.7. Impact of IFRS 9 on the Bank's tax position (Audited)
The adoption of IFRS 9 has resulted in a change in the timing of the recognition of credit losses, but does not
impact the value of credit losses ultimately incurred. Accordingly, the long run tax effect of credit losses and
recoveries are unchanged by the implementation of a new accounting framework. The change in the timing of loss
recognition is accounted for through the recognition of a deferred tax adjustment, calculated based on the statutory
tax rate applicable.
In South Africa, the value of the deferred tax asset (and corresponding impact on retained earnings and other reserves)
which was recognised on adoption of IFRS 9 was impacted by both a change in the accounting recognition of losses, as
well as a change in the tax legislation. In accordance with amended tax legislation issued by the South African Revenue
Service in 2017, the deduction permitted in respect of doubtful debt balances has changed to 25% for stage 1 ECL, 40%
for stage 2 ECL and 85% for stage 3 ECL. This is a change from the previous deductions under IAS 39, which were 25%
of incurred but not reported losses, 80% for portfolio specific impairments and 100% for specific impairments.
A larger deferred tax asset has therefore been driven by an increase in the ECL provision under IFRS 9, partially
offset by a change in the South African tax treatment of pre-existing allowances.
16.1.8. Incorporation of forward-looking information in their IFRS 9 modelling (Audited)
The Bank's IFRS 9 impairment models consume macroeconomic information to enable the models to provide an output that
is based on forward-looking information. The macroeconomic variables and forecast scenarios are sourced from one of the
world's largest research companies, and are reviewed and approved in accordance with the Bank's macroeconomic governance
framework. This review includes the testing of forecast estimates, the appropriateness of variables and probability
weightings, as well as the incorporation of these forecasts into the ECL allowance.
The Bank has adopted the use of three economic scenarios: a base scenario, a mild upside scenario, and a mild downside
scenario. IFRS 9 requires the inclusion of point-in-time forward-looking assumptions, and in respect of which the
application of hindsight is prohibited. The scenarios presented below are therefore reflective of the Bank's view of
forecast economic conditions as at the date of initial adoption.
16.1.8.1 Base scenario
Global
Global expansion is expected to remain broad-based across sectors and synchronised in developed economies. The outlook
on emerging market growth remains solid on the back of better growth in developed economies and rising commodity
prices. Developed market central banks continue tightening their monetary policies at a gradual pace in 2018-20 but this
is not expected to be disruptive to emerging markets.
South Africa
The economy recovered from a weak growth at the start of 2017, on the back of surging agricultural output, but the
near-term outlook still remains moderate. Gross Domestic Product (GDP) growth is forecast to marginally increase in 2018.
Positive political developments are observed, although the consumer remains in a defensive mindset, and household
spending remains relatively muted given tax increases. Beyond 2019, growth is supported by a stronger global and domestic
environment. South Africa's fiscal fortunes and potential ratings downgrade remain a concern over the forecast period.
Disappointing growth could result in low fiscal revenue that is expected to undershoot budget targets. No further interest
rate cuts over the forecast horizon are assumed.
Rest of Africa
Sub-Saharan Africa's economic recovery continues although the trajectory is not smooth across all jurisdictions.
Headwinds that could still derail growth in some markets include low fiscal buffers and political risks ahead of elections
in key markets this year. Countries with weak fiscal positions continue to necessitate close monitoring. Economic growth
is supported largely by a recovery in the agriculture sector, improved commodity output and prices, as well as more
accommodative monetary policy stances.
16.1.8.2 Mild upside scenario: Stronger near-term growth
Global
The global economy grows faster than expected, and is supported by fiscal stimulus in the United States (US), and a
quick negotiation of Britain's exit (Brexit) from the European Union (EU), which boosts global business confidence.
Commodity prices rise sharply relative to the base scenario and the global financial markets improve. Globally, investor
and consumer sentiment rises, due to the favourable financial environment.
South Africa
It is assumed there are no further rating downgrades. Policy and political stability boost business confidence and
private sector fixed investment. We assumed a strong rand compared to the base scenario that is driven by the sovereign
rating being unchanged and the positive global sentiment toward emerging markets. Inflation moves lower on the back
of the stronger rand and continued moderation in food price inflation. Falling inflation and diminished risk at a
domestic level gives the South African Reserve Bank room to provide stimulus to the economy by cutting interest rates to
support the economy. The cumulative interest rate cuts, higher commodity prices and stronger global growth boost South
Africa's GDP growth.
Rest of Africa
A stronger global economy and higher commodity prices help support growth in African commodity exports and fixed
investments. The level of output remains above the baseline scenario. Inflation moves lower as currencies appreciate on
the back of capital flows and higher commodity prices supporting exports. Easing inflation allows central banks to lower
interest rates, supporting the African economic growth further.
16.1.8.3 Mild downside scenario: Moderate recession
Global
The US economy slows relative to baseline due to delays in implementing the stimulus package promised before the
elections. Business and consumer confidence falls in the US, followed by stock market indices. It is assumed Brexit
negotiations take longer than expected, increasing uncertainty on financial markets, weighing on business and consumer
confidence. As a result, eurozone growth slows compared to baseline, contributing to economic and financial stress faced
by some of the heavily indebted countries in the region. Furthermore, slower growth in key markets affects China's
exports and result in its GDP growth slowing. Commodity prices fall on the back of weaker global growth.
South Africa
South Africa goes into recession on the back of weaker global growth environment and falling commodity prices. As a
result, government revenue comes under pressure and the finances of state-owned enterprises deteriorate. Ratings agencies
downgrade South Africa's sovereign rating further, resulting in capital outflow and rand weakness. The weakening of the
rand drives inflation above the SARB's 3%-6% target range in 2018-2019, resulting in the SARB hiking the repurchase
rate. The yield curve moves higher in line with the selling of South African bonds and higher short-term rates. Economic
performance recovers slowly from 2020 as the weaker exchange rate builds some export competitiveness aiding in arresting
some of the Rand's decline, and spending power returns slowly to consumers as inflation abates in the middle of 2020.
Rest of Africa
In Sub-Saharan Africa some economies go into recession on the back of lower global growth and commodity prices. Fiscal
positions deteriorate further and political risks increase in some markets. Capital outflows and falling exports drive
currencies weaker, pushing inflation higher. Central banks intervene by hiking interest rates to help stem the flight of
capital and protect currencies.
16.1.9 Critical judgements applied in implementing the new IFRS 9 ECL framework (Audited)
16.1.9.1 Determination of the lifetime of a credit exposure
The choice of initial recognition and asset duration (lifetime) is another critical judgement in determining quantum
of lifetime losses that apply. The date of initial recognition reflects the date that a transaction (or account) was
first recognised on the statement of financial position. The PD recorded at this time provides the baseline used for
subsequent determination of a significant increase in credit risk.
When determining the period over which the entity is expected to be exposed to credit risk, but for which the ECL
would not be mitigated by the entity's normal credit risk management actions, the Bank considers factors such as
historical information and experience about:
- the period over which the entity was exposed to credit risk on similar financial instruments;
- the length of time for related defaults to occur on similar financial instruments following a significant increase
in credit risk; and
- the credit risk management actions that an entity expects to take once the credit risk on the financial instrument
has increased, such as the reduction or removal of undrawn limits.
For asset duration, the approaches which are applied (in line with IFRS 9 requirements) are:
- Term lending: the contractual maturity date, reduced for behavioural trends where appropriate (such as expected
settlement and amortisation); and
- Revolving facilities: for Retail portfolios, asset duration is based on behavioural life and this is normally
greater than contractual life (which would typically be overnight). For Wholesale portfolios, a sufficiently long
period to cover expected life modelled and an attrition rate is applied to cater for early settlement.
16.1.9.2 IFRS 9 ECL model parameters
The calculation of ECL incorporates the probability that a credit loss will occur, as well as the probability that no
credit loss occurs, even if the most likely outcome is no credit loss. The estimate reflects an unbiased and
probability-weighted amount that is determined by evaluating a range of possible outcomes. In some cases, relatively
simple modelling is considered to be sufficient, without the need to consider the outcome under different scenarios.
For example, the average credit losses of a large Bank of financial instruments with shared risk characteristics may
be a reasonable estimate of the probability-weighted amount. In other situations, the identification of scenarios
that specify the amount and timing of the cash flows for particular outcomes and the estimated probability of those
outcomes will be needed.
The IFRS 9 models make use of three parameters, namely PD, LGD and EAD in the calculation of the ECL allowance.
The PD is the likelihood of default assessed on the prevailing economic conditions at the reporting date (that is, at
a point in time), adjusted to take into account estimates of future economic conditions that are likely to impact the
risk of default; it will not equate to a long run average. For IFRS 9 purposes, two distinct PD estimates are required:
- Lifetime PD: the likelihood of accounts entering default during the remaining life of the asset.
- 12 month PD: the likelihood of accounts entering default within 12 months of the reporting date.
The general approach for the IFRS 9 LGD models has been to leverage the Basel LGD models with bespoke IFRS 9
adjustments to ensure unbiased estimates.
In calculating LGD, losses are discounted to the reporting date using the EIR determined at initial recognition or an
approximation thereof. For debt instruments, such as loans and advances, the discount rate applied is the EIR calculated
on origination or acquisition date. For financial guarantee contracts or loan commitments for which the EIR cannot be
determined, losses are discounted using a rate that reflects the current market assessment of the time value of money
and the risks that are specific to the cash flows (to the extent that such risks have not already been taken into
account by adjusting the cash shortfalls).
The EAD model estimates the exposure that an account is likely to have at any point of default in future. This
incorporates both the amortising profile of a term loan, as well as behavioural patterns such as the propensity of
the client to draw down on unutilised facilities in the lead up to a default event.
Expert credit judgement may, in certain instances be applied to account for situations where known or expected risk
factors have not been considered in the ECL assessment or modelling process, or where uncertain future events have not
been incorporated into the modelled approach. Adjustments are intended to be short-term measures and will not be used to
incorporate any continuous risk factors. The Bank has a robust policy framework which is applied in the estimation and
approval of management adjustments.
Models are validated with the same rigour applied to regulatory models. Testing procedures assess the quality of data,
conceptual soundness and performance of models, model implementation and compliance with accounting requirements.
16.1.9.3 Interaction of the IFRS 9 ECL models with the Basel Framework
The Bank applies both the standardised (TSA) and advanced internal ratings-based (AIRB) approaches to calculate its
regulatory capital requirements relating to credit risk. While the Bank's operations across the rest of Africa as well as
the Edcon portfolio are subject to the TSA approach, the remaining portfolios are subject to the AIRB approach, which
applies the Bank's own measures of PD, EAD and LGD. In designing IFRS 9 compliant ECL models, the Bank recognised that it
could leverage the data used by the regulatory models to model IFRS 9 ECL and encourage easier reconciliation of inputs
for capital requirement and impairment calculations.
Existing Basel models were used as a starting point to develop IFRS 9 ECL parameters. The following are key
differences to the regulatory capital parameters:
Key risk parameter Basel III
Probability of default (PD) Average of default within the next 12 months, but calculated based on the long-run
historical average over the whole economic cycle (that is, through the cycle).
Loss Given Default (LGD) LGD is a downturn-based metric, representing a prudent view of recovery in adverse economic
conditions.
The LGD calculation incorporates both direct and indirect costs associated with the
collection of the exposure.
Cash flows are discounted at the risk-free rate plus an appropriate premium.
Exposure at default (EAD) A downturn EAD is calculated to reflect what would be expected during a period of economic
downturn.
Key risk parameter IFRS 9
Probability of default (PD) For stage 1 assets, the PD is measured for the next 12 months, whilst in the case of stage 2
and stage 3 assets, PD is measured over the remaining life of the financial instrument.
The PD should reflect the current and future economic cycles to the extent relevant to the
remaining life of the loan calculated at a point in time, as at the reporting date.
Loss Given Default (LGD) A current or forward-looking LGD is used to reflect the impact of economic scenarios, with no
bias to adverse economic conditions.
Collection costs incorporated into the LGD calculation include only those that are directly
attributable to the collection of recoveries.
The discount rate applied is the EIR on the exposure.
Exposure at default (EAD) The calculation of EAD considers all the contractual terms over the lifetime of the instrument.
16.1.9.4 Retail ECL model parameters
The Retail PD model consists of three elements, namely:
- a term structure, capturing typical default behaviour by the months since observation;
- a behavioural model which incorporates client level risk characteristics; and
- a macroeconomic model that incorporates forward looking macroeconomic scenarios.
A further adjustment is made to incorporate an account's propensity to attrite. The PD model is used to identify
accounts that have increased significantly in credit risk since origination. The final PD is a probability weighted average
of Bank's three forecasted macroeconomic scenarios.
The LGD model estimates the loss that can be expected if an account defaults. The regulatory LGD model is adjusted
for:
- forward-looking macroeconomic adjustments; and
- future expected changes in collateral and EAD.
The LGD model further incorporates the losses associated with re-defaults for lifetime losses.
16.1.9.5 Wholesale ECL model parameters
Wholesale PDs and LGDs are modelled using the parameters from regulatory models as a starting point. Parameters are
adjusted for differences between requirements under Basel III and IFRS 9.
The main adjustments to PD comprise:
• a macroeconomic adjustment that changes the paradigm from a long-run average default rate to a PD that reflects the
prevailing macroeconomic conditions, thereby adjusting the PD from a seven-year historical average to a PD reflective
of the macroeconomic environment at the reporting date; and
• an adjustment to the regulatory PD to convert it from a PD over 12 months, to a PD over the lifetime of an
exposure, to be able to assess significant increases in credit risk and estimate lifetime provisions for stage 2.
The main adjustments to LGD comprise a macroeconomic adjustment that changes the long-run LGD to reflect a given
macroeconomic scenario. Lifetime projections of LGD take into account the expected balance outstanding on a loan at
the time of default, as well as the value of associated collateral at that point in time.
16.1.10 The key elements of classification and measurement requirements under IFRS 9 (Audited)
IFRS 9 will require financial assets to be classified on the basis of two criteria:
- The business model within which financial assets are managed; and
- Their contractual cash flow characteristics, and specifically whether the cash flows represent Solely Payment of
Principal and Interest (SPPI).
Financial assets will be measured at amortised cost if they are held within a business model whose objective is to
hold financial assets to collect contractual cash flows, and their contractual cash flows meet the SPPI requirements.
Financial assets will be measured at FVOCI if they are held within a business model whose objective is achieved by
both collecting contractual cash flows as well as selling financial assets and their contractual cash flows meet the
SPPI requirements.
Other financial assets are required to be measured at FVPL if they are held for the purposes of trading, if their
contractual cash flows do not meet the SPPI criterion, or if they are managed on a fair value basis and the Bank
maximises cash flows through sale. IFRS 9 allows an entity to irrevocably designate a financial asset as at FVTPL
if doing so eliminates or significantly reduces a measurement or recognition inconsistency (i.e. an accounting
mismatch).
An entity is permitted to make an irrevocable election for non-traded equity investments to be measured at FVOCI,
in which case dividends are recognised in profit or loss, but other gains or losses remain in equity and are not
reclassified to profit or loss upon derecognition.
The accounting for financial liabilities remains largely unchanged, except for financial liabilities designated at
FVPTL. Gains and losses on such financial liabilities are required to be presented in OCI, to the extent that they
relate to changes in own credit risk. The Bank early adopted this requirement in 2017.
16.1.10.1 Classification and measurement impact
The following table presents the changes in the classification of financial assets as at 1 January 2018, by showing
the changes in the carrying amounts on the basis of their measurement categories in accordance with IAS 39 and the
changes in the net carrying amounts, which includes the effects of ECL:
IAS 39
Measurement category Carrying
amount Reclassification
Assets Rm Rm
Cash, cash balances and balances Amortised cost - designated 28 792 -
with central banks 28 792 -
Investment securities Designated at FVTPL 20 866 (9 503)
9 503
AFS - designated 35 241 (5 902)
287
AFS - hedged items 20 417 -
- 5 420
76 524 (195)
Loans and advances Designated at FVTPL 17 197 (15 745)
to banks 15 745
Amortised cost - designated 26 020 -
43 217 -
Trading portfolio assets FVTPL - held for trading 102 730 -
Hedging portfolio assets FVTPL - hedging instrument 2 667 -
Other assets Amortised cost - designated 13 327 -
Loans and advances Designated at FVTPL 26 811 (19 378)
to customers 19 358
Amortised cost - designated 633 635 -
Amortised cost - hedged items 46 -
660 492 (20)
Loans to Group companies Amortised cost - designated 36 530 -
Non-current asset Amortised cost - designated 1 118 -
held for sale
Assets outside the 22 961 55
scope of IFRS 9
Total assets 988 358 (160)
IFRS 9
Carrying
Remeasurement Measurement category amount
Assets Rm Rm
Cash, cash balances and balances
with central banks - Held at amortised cost 28 792
- 28 792
Investment securities - Designated at FVTPL 11 363
- Mandatorily at FVTPL 9 503
- FVOCI - debt instruments 29 339
- FVOCI - equity instruments 287
- FVOCI - hedged items 20 417
Amortised cost - debt instruments 5 420
- 76 329
Loans and advances - Designated at FVTPL 1 452
to banks - Mandatorily at FVTPL 15 745
(26) Amortised cost - debt instruments 25 994
(26) 43 191
Trading portfolio assets - Mandatorily at FVTPL 102 730
Hedging portfolio assets - FVTPL - hedging Instrument 2 667
Other assets - Held at amortised cost 13 327
Loans and advances - Designated at FVTPL 7 433
to customers - Mandatory at FVTPL 19 358
(3 827) Amortised cost - designated 629 808
- Amortised cost - hedged items 46
(3 827) 656 645
Loans to Group companies - Held at amortised cost 36 530
Non-current asset - Held at amortised cost 1 118
held for sale
Assets outside the 719 Assets outside the scope of IFRS 9 23 735
scope of IFRS 9
Total assets (3 134) 985 064
Adoption of the new classification and measurement rules will require a limited number of reclassifications to be
effected as at 1 January 2018, but will not require a significant adjustment to the gross carrying values of the
Bank's financial assets and financial liabilities. Initial application of the new requirements resulted in a decrease
in reserves of R140m (after tax) as at 1 January 2018. Explanations of the reclassifications that will be required are
provided below:
- A portfolio of consumer price index (CPI) linked investment securities within Treasury, have been reclassified from
available-for-sale under IAS 39, to amortised cost in terms of the Bank's business model of holding the instruments
to collect contractual cash flows. Had these assets not been reclassified to amortised, the fair value of the
instruments would have been R5 619m, and a fair value loss of R74m would have been recognised in OCI during the
reporting period.
- Certain financial assets, including loans and advances in CIB South Africa and investments in Wealth were
designated at FVTPL under IAS 39 as they were managed on a fair value basis. In terms of IFRS 9, these assets are
now required to be measured at FVTPL, and noted as mandatory designations.
- Debt securities are held by Treasury in a separate portfolio to meet everyday liquidity needs. These were
classified as available-for-sale under IAS 39. Treasury seeks to minimise the cost of managing liquidity needs and
therefore actively manages the return on the portfolio. The return consists of collecting contractual cash flows as
well as gains and losses from the sale of financial assets. The business model may result in sales activity and
these instruments have therefore been classified at FVOCI under IFRS 9.
- Commodity-linked debt instruments within CIB South Africa that were previously bifurcated and separately recognised
as a loan at amortised cost and a derivative. These are now classified as FVTPL as their cash flows do not consist
of SPPI.
- In October 2017, the IASB issued an amendment to IFRS 9 Prepayment Features with Negative Compensation. Under the
current IFRS 9 requirements, the SPPI condition is not met if the lender has to make a settlement payment in the
event of termination by the borrower (also referred to as early repayment gain). The amendment clarifies how a
company would classify and measure a debt instrument if the borrower is permitted to prepay the instrument at an
amount less than the unpaid principal and interest owed. Under the amendments, the sign of the prepayment amount is
not relevant. The calculation of this compensation payment must be the same for both the case of an early repayment
penalty and the case of an early repayment gain. This amendment is effective on 1 January 2019 and is not expected
to have a significant impact on the Bank.
16.1.11 Governance
16.1.11.1 Implementation of IFRS 9
The implementation of IFRS 9 has been completed through a jointly accountable risk and finance governance programme,
with representation from all impacted departments. A parallel run of IFRS 9 and IAS 39 was initiated in February 2017,
providing oversight for both IAS 39 and IFRS 9 impairment results. This included model, process and output validation,
testing, calibration and analysis. During the course of the programme there have been regular updates provided to the
Group Audit Compliance Committee (GACC), who have approved key judgements and decisions.
16.1.11.2 Ongoing governance of IFRS 9
The Bank's basic risk management framework has not been altered due to the introduction of IFRS 9. The Group Credit
Impairment Committee (GCIC) remains the key management committee responsible for the governance of impairments as well
as the oversight of the Bank's impairment position. The overall credit risk appetite also remains unchanged with all the
controls in place in the business for the extension and subsequent monitoring of credit exposure. It has, however, been
necessary to develop new processes and related controls to support the calculation of the Bank's ECL. In particular, new
governance processes have been established to review and approve the forward-looking macroeconomic assumptions.
16.2 Adoption of IFRS 15 Revenue from Contracts with Customers (IFRS 15)
IFRS 15 is effective from 1 January 2018, and replaces the previous revenue recognition standards and interpretations,
including IAS 18 Revenue and IFRIC 13 Customer Loyalty Programmes. IFRS 15 establishes a single approach for the
recognition and measurement of revenue, and requires an entity to recognise revenue as performance obligations are
satisfied. It applies to all contracts with customers except for transactions specifically scoped out, which includes
interest, dividends, leases, and insurance contracts. The adoption of IFRS 15 has resulted in a change in the
accounting treatment of a loyalty programme which resulted in a reduction in retained earnings of R44m, net of tax.
16.3 Accounting policy amendments
16.3.1 The presentation of net interest income
As a consequence of IFRS 9, an amendment was made to IAS 1 Presentation of Financial Statements, which is effective
from 1 January 2018. The amendment requires interest revenue, which is calculated using the effective interest method,
to be presented separately on the face of the statement of comprehensive income. This only includes interest earned on
financial assets measured at amortised cost or at FVOCI, subject to the effects of applying hedge accounting to
derivatives in designated hedge relationships. In compliance with this amendment the Bank has separately presented
its effective interest income within profit or loss, but elect to present all interest which fall outside the
aforementioned scope as a sub-component of ‘Interest and similar income'. The Bank has elected to apply the same
approach in presenting ‘Interest expense and similar charges' to achieve consistency in the presentation of ‘Net
interest income'. The revised presentation has been applied on a retrospective basis, to ensure comparability
between reporting periods.
16.4 Changes to reportable segments and business portfolios
The following business portfolio changes resulted in the restatement of financial results for the comparative
period.
None of the restatements have impacted the overall financial position or net earnings of the Bank:
- The Bank refined its Treasury allocation methodology, resulting in the restatement of net interest income, cash
and cash equivalents and investment securities between and within segments.
- The Bank continued refining its cost allocation methodology, resulting in the restatement of operating expenses
between and within segments.
- CIB South Africa review of customer portfolio to be industry specific resulted in a R16bn move of loans and
advances to customers from Corporate to Investment Banking.
- The South Africa Banking segment (which consisted of RBB South Africa and CIB South Africa in aggregate) has
been removed in the Bank's segmental disclosures to align with how the banking operations are now managed.
Administration and contact details
Absa Bank Limited Registered office
Incorporated in the Republic of South Africa 7th Floor, Absa Towers West
Registration number: 1986/004794/06 15 Troye Street, Johannesburg, 2001
Authorised financial services and registered credit provider (NCRCP7) PO Box 7735, Johannesburg, 2000
JSE share code: ABSP Switchboard: +27 11 350 4000
ISIN: ZAE000079810 www.absa.africa
Head Investor Relations Queries
Alan Hartdegen Please direct investor relations
Telephone: +27 11 350 2598 queries to IR@absa.co.za
Please direct media queries to
groupmedia@absa.africa
Please direct queries relating
to your Absa Group shares to
questions@computershare.co.za
Please direct other queries regarding
the Bank to groupsec@absa.co.za
Company Secretary
Nadine Drutman
Telephone: +27 11 350 5347
Head of Financial Control
John Annandale
Telephone: +27 11 350 3946
Transfer secretary Sponsors
Computershare Investor Services (Pty) Ltd Absa Bank Limited (Corporate and
Telephone: +27 11 370 5000 Investment Bank)
computershare.com/za/ Telephone: +27 11 895 6843
equitysponsor@absa.africa
Auditors
Ernst & Young Inc.
Telephone: +27 11 772 3000
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