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Audited annual financial statements for the year ended 31 March 2020
Development Bank of Southern Africa Limited
Registration number: 1600157FN
JSE alpha code: DIDBS
(“DBSA or “the Bank”)
Audited annual financial statements for the year ended 31 March 2020
Overview
DBSA is a development finance institution; whose only shareholder is the Government of the Republic of South
Africa. This summary of the condensed year-end financial results is published on SENS to provide information to
the holders of the Bank’s listed debt instruments. The condensed year end results are prepared in accordance
with the requirements of International Financial Reporting Standards (IFRS) and its interpretations as issued by
the International Accounting Standards Board (IASB), the presentation requirements of IAS 1 and requirements of
section 27 to 31 of the Companies Act of South Africa (Act No.71 of 2008), these being the relevant and
corresponding sections specified in the Development Bank of Southern Africa Act. The annual financial statements
are available on the DBSA website (https://www.dbsa.org). The Bank will advise noteholders when the remaining
reports forming part of the Integrated Annual Report are available on the website.
Audit of the annual financial statements
The annual financial statements of the Bank for the year ended 31 March 2020 have been audited by the Bank’s
auditor, The Auditor-General of South Africa (hereafter referred to as the AG). The AG in his audit report, which
is available for inspection at the Bank’s Registered Office, stated that his audit was conducted in accordance with
International Standards on Auditing, and has expressed an unqualified audit opinion on the annual financial
statements for the year ended 31 March 2020.
Context of the annual financial statements
During the last quarter of the year under review, the global spread of COVID-19 created an unprecedented health
and economic crisis which saw most countries closing borders and implementing lockdown measures to contain
the spread of the virus. The economic fallout from the pandemic necessitated the implementation of
unconventional monetary and fiscal policy measures across the world. In South Africa an infrastructure-led
recovery was identified as an important driver of the post-lockdown recovery plan. The South African economy
recorded its third consecutive quarter of economic decline of 2.0% (seasonally adjusted and annualised) in the
first quarter ending 31 March 2020. This followed contractions of 1.4% and 0.8% in the fourth and third quarters
of 2019, respectively. The first-quarter downturn was largely driven by, among others, sharp declines in mining
and manufacturing output.
Following the outbreak of the COVID-19 pandemic, the Bank increased its expected credit loss provisions on the
performing loan book resulting in higher expected credit loss coverage and lower profitability levels when
compared to the prior year. However, development loan disbursements increased by more than 75% when
compared to 2019 levels. The Bank achieved higher levels of loan approvals and commitments compared to the
prior year. Furthermore, the Bank remained focused in line with its mandate, on pursuing its growth strategy
designed to augment disbursements through emphasis on its catalytic role aimed at contributing to sustainable
infrastructure development beyond the confines of its own balance sheet. Through this strategy, the Bank aims
at crowding in third party funding through de-risking projects through early stage project preparation and
structuring and innovative solutioning.
Preparation of the annual financial statements
The annual financial statements have been prepared under the supervision of the Chief Financial Officer,
Boitumelo Mosako CA (SA). The directors take full responsibility for the preparation and for correctly extracting
the financial information from the underlying audited annual financial statements for inclusion in the SENS
announcement.
Basis of preparation
The annual financial statements have been prepared in accordance with the recognition, measurement and
disclosure requirements of International Financial Reporting Standards (“IFRS”), Public Finance Management Act
of South Africa (“PFMA”), Section 27 to 31 of the Companies Act of South Africa and the Development Bank of
Southern Africa Act.
Except for where indicated in the detailed financial results, the accounting policies and practices applied during
the year ended 31 March 2020 are in all material respects consistent with those applied in the Annual Financial
Statements for the prior year. The Bank adopted IFRS 16 Leases during the period under review and the impact of
the standard was not material (refer to page 9 below).
The annual financial statements are prepared on the historical cost basis except for the following assets and
liabilities that are stated at their fair value: derivative financial instruments, financial instruments held at fair value
through profit and loss, financial instruments designated at fair value through profit and loss, land and buildings,
equity investments, other financial assets, post-retirement medical aid benefit investment, funeral benefit and
post-retirement medical aid liabilities. The preparation of annual financial statements requires management to
make judgments, estimates and assumptions that affect the application of accounting policies and reported
amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.
Key impressions of the financial results and activities
Funding and liquidity management
The Bank’s liquidity and capital positions remain strong despite the recent Moody’s Investors Service downgrade
of the DBSA’s long-term foreign currency issuer credit rating to a notch below that of the sovereign, and of the
Bank’s long-term national scale issuer rating to Aa3.za, from Aa1.za. Notwithstanding the disruption of the local
fixed income market, the DBSA has been successful in raising funding from international development finance
institutions as well as international and local commercial banks. Total debt increased from R51bn as at 31 March
2019 to R61bn as at 31 March 2020 and this increased debt capital was used to fund the Bank’s development
activities and infrastructure financing amounting to R15.7bn. Further, the Bank successfully redeemed the DV22
bond amounting to R9.2bn during the year under review.
Capital adequacy
The debt-to-equity ratio including R20 billion callable capital as at 31 March 2020 amounted to 108% (31 March
2019: 90%), well below the Bank’s regulatory debt-to-equity ratio cap of 250%. In the same vein, the Bank’s capital
ratio expressed as a percentage of balance sheet shareholder capital to unweighted total assets as at end March
2020 was approximately 37% (March 2019: 42%). Callable capital is shares authorized but not yet issued. The
Bank’s balance sheet equity position increased during the year from R37.2bn as at March 2019 to R37.6bn as at
31 March 2020.
Loan asset quality and expected credit losses provisions
IFRS 9 requires that the Bank considers forward looking information in the calculation of expected credit losses.
In doing so, the Bank is required to make reasonable forward-looking assumptions. However, forecasting under
the current environment is complex and expected credit loss provisions have a high variability potential because
of the influence from the ongoing economic recession and recovery prospects. Given the current deterioration in
the macroeconomic base, the Bank experienced a rise in expected credit loss provisions. The Bank increased its
expected coverage levels on the performing loan book from approximately 4% in 2019 to 7% as at 31 March 2020
resulting in the balance sheet provision for expected credit losses increasing by 65% to R10.2 billion (31 March
2019: R6.2 billion). The total expected credit loss charge increased from R1.4bn for the March 2019 financial year
to R3.6bn for the March 2020 financial year. As at 31 March 2020, the IFRS 9 Stage 3 gross non-performing loan
ratio (gross non-performing loans to total gross development loan book) amounted to approximately 7%; and
remained largely unchanged when compared to September 2019 half year levels although up when compared to
March 2019 (5%).
Asset growth
The Bank’s total asset base increased by 12% from R89bn as at March 2019 to R100bn as at March 2020 primarily
due to a solid net growth in the development loan book. Despite the growth in the asset base, there was a marginal
decrease in net interest income on the back of SARB interest rate cuts. Development loan disbursements
amounted to R15.7bn representing an increase of more than 75% when compared to 2019 development loan
disbursement levels. As at 31 March 2020, the equity investment portfolio remained largely unchanged at R6bn
when compared to the prior year March 2019 (R6bn).
Profitability & Efficiency
The Bank has remained profitable despite a challenging environment which has been worsened by the outbreak
of the COVID-19 pandemic. The net profit for year ended March 2020 decreased by R2.5bn from approximately
R3bn in the prior year to R503m due to increased expected credit loss provisions resulting from adjusting for the
estimated COVID-19 pandemic impact on the performing loan portfolio. The Bank has a net foreign currency USD
asset position and given the depreciation of ZAR against USD; exchange rate gains increased to R1.2bn compared
to foreign exchange gains of R744m in the prior year. The Bank closely monitors and manages its exposure to
foreign exchange rate risk, with the result that the gains reflected in the income statement were on the back of
substantially limited downside risk exposure to potential Rand appreciation.
The Bank remains efficient in managing operational costs and the cost optimisation strategy continues to be
effective. The total cost-to-income ratio for March 2020 amounted to 28% (23%: March 2019) and the ratio
continues to track in line with our cost optimization strategy.
Development impact performance
DBSA successfully delivered infrastructure to the value of R66.3bn billion in total, of which R43.1bn was
infrastructure catalysed. In addition, the Bank achieved R2.4bn in projects prepared and committed and was able
to unlock infrastructure within under resourced municipalities amounting to R1.4bn. During the year under
review, 2 062 learners benefited from 4 newly built schools, 60 501 learners benefited from 110 refurbished
schools and 600 people benefited from 200 urban housing dwellings completed. Further anticipated development
impact includes benefit to 143 485 households from funds committed to municipalities, funds approved for the
preparation of projects of black owned entities to a total value of R1.9 billion and R3.4 billion approved for projects
of black-owned entities.
Statement of Financial Position as at 31 March 2020
in thousands of rand 2020 2019
Assets
Cash and cash equivalents at amortised cost 3 458 836 2 922 876
Trade receivables and other assets 328 069 365 579
Investment securities 1 787 361 1 880 502
Derivative assets held for risk management purposes 812 053 713 304
Other financial assets 36 152 43 732
Development loans held at fair value through profit or loss 22 413 -
Equity investments held at fair value through profit and loss 5 993 951 5 937 578
Development bonds at amortised cost 1 288 278 1 290 179
Development loans at amortised cost 86 240 264 75 816 506
Property, equipment and right of use of assets 417 518 435 020
Intangible assets 80 220 83 133
Total assets 100 465 115 89 488 409
Equity and liabilities
Trade, other payables and accrued interest on debt funding 696 324 678 991
Repurchase agreements at amortised cost 587 338 -
Derivative liabilities held for risk management purposes 784 835 297 798
Liability for funeral and post-retirement medical benefits 42 885 44 484
Debt funding designated at fair value through profit or loss 1 505 805 6 469 451
Debt funding held at amortised cost 59 040 495 44 516 190
Provisions and lease liabilities 229 856 309 010
Total liabilities 62 887 538 52 315 924
Equity
Share capital 200 000 200 000
Retained income 23 005 253 22 717 877
Permanent government funding 11 692 344 11 692 344
Other reserves 191 749 293 808
Reserve for general loan risks 2 488 231 2 268 456
Total equity 37 577 577 37 172 485
Total equity and liabilities 100 465 115 89 488 409
Statement of Comprehensive Income for the year ended 31 March 2020
in thousands of rand 2020 2019
Interest income
Interest income calculated using the effective interest rate 8 019 931 8 157 805
Other interest income 266 386 252 034
Interest expense
Net interest expense calculated using the effective interest rate (3 392 585) (3 344 288)
Other interest expense (470 229) (571 101)
Net interest income 4 423 503 4 494 450
Net fee income 255 513 193 380
Net foreign exchange gain 1 171 519 743 713
Net (loss)/gain from financial assets and financial liabilities (529 027) 69 945
Investment and other income 202 617 139 773
Other operating income 1 100 622 1 146 811
Operating income
5 524 125 5 641 261
Project preparation expenditure (41 539) (1 405)
Development expenditure (47 192) (20 505)
Expected credit losses on financial assets held at amortised cost (3 632 679) (1 441 056)
Personnel expenses (751 070) (751 300)
General and administration expenses (489 738) (292 403)
Depreciation and amortisation (29 321) (19 579)
Profit from operations 532 586 3 115 013
Grants paid (28 654) (18 318)
Profit for the year 503 932 3 096 695
Statement of Other Comprehensive Income for the year ended 31 March 2020
in thousands of rand 2020 2019
Profit for the year 503 932 3 096 695
Items that will not be reclassified to profit and loss
(Loss)/gain on revaluation of land and buildings (15 661) 19 947
Movement due to changes in own credit risk on financial liabilities designated
at fair value through profit or loss (31 794) (12 852)
Remeasurement of funeral and post-employment medical benefit liability 3 450 2 750
(44 005) 9 845
Items that may be reclassified subsequently to profit and loss
Unrealised loss on cash flow hedges (133 443) (143 346)
Loss on cash flow hedges reclassified to profit and loss 78 839 94 367
(54 604) (48 979)
Other comprehensive loss (98 609) (39 134)
Total comprehensive income for the year 405 323 3 057 561
Condensed statement of changes in equity for the year ended 31 March 2020
in thousands of rand 2020 2019
Balance at 1 April 2019 37 172 485 34 114 924
Impact of adoption of IFRS 16 (231) -
Restated balance at 1 April 2019 37 172 254 34 114 924
Profit for the year 503 932 3 096 695
Unrealised loss on cash flow hedges (133 443) (143 346)
Loss on cash flow hedges reclassified to profit and loss 78 839 94 367
(Loss)/gain on revaluation of land and buildings (15 661) 19 947
Movements in changes in own credit risk (31 794) (12 852)
Remeasurement of funeral and post-employment medical benefit liability 3 450 2 750
Balance at 31 March 2020 37 577 577 37 172 485
Condensed Statement of Cash Flows for the year ended 31 March 2020
In thousands of rand
Cash flows generated from operating activities 3 613 758 3 796 777
Cash flows (used in)/generated from development activities (9 016 612) 1 216 652
Cash flows generated from/(utilised by) investing activities 32 637 (345 238)
Cash flows generated from/(utilised by) financing activities 5 838 680 (5 516 646)
Effect of exchange rate movement on cash balances 67 497 29 478
Net increase/(decrease) in cash and cash equivalents 535 960 (818 977)
Cash and cash equivalents at the beginning of the year 2 922 876 3 741 853
Cash and cash equivalents at the end of the year 3 458 836 2 922 876
Events after the reporting period
On the 17th of August 2020, the National Treasury, Department of Public Works and Infrastructure:
Infrastructure South Africa and the DBSA signed the Infrastructure Fund Memorandum of Agreement
(MOA) mandating the DBSA to establish and manage the Infrastructure Fund. The signing of the MOA is
a significant milestone for the country and paves the way for bringing together key stakeholders to
create a platform for blended finance of infrastructure projects. The Infrastructure Fund is one of three
national infrastructure funding mechanisms – the others being commercial funding and fiscal allocations.
The sources of funding for the Infrastructure Fund will therefore include local capital markets, local and
international financing institutions in the private and public sectors as well as the government. There
were no other adjusting events that occurred after the reporting date other that impact of COVID-19
pandemic.
Outlook
Despite the challenging economic environment, the DBSA has a strong leadership and management
team steering the Bank through the challenging COVID-19 pandemic-driven recessionary environment
whilst following principles of good corporate governance. The Bank has a resilient balance sheet and
continues to play a significant role in infrastructure development through lending and non-lending
activities, whilst making progress in the implementation of the country’s Infrastructure Fund and playing
an active role in crafting enhancement of municipal service delivery through the District Delivery Model.
The Bank’s continued success hinges on the Bank’s ability to grow developmental impact using its own
balance sheet and partnering with others. Both domestic and global economic factors are critical to the
achievement of the Bank’s objectives. The Bank has a healthy pipeline of projects that form a solid
springboard for success in the future and will continue to focus on disbursing to infrastructure projects
to grow developmental impact in line with its mandate.
2 October 2020
Debt Sponsor
Nedbank Corporate and Investment Banking, a division of Nedbank.
10
Date: 02-10-2020 09:30:00
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