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DIDBS - Audited Annual Financial Statements for the Year Ended 31 March 2023
Development Bank of Southern Africa Limited
(Reconstituted and incorporated in terms of section 2 of the Development Bank of Southern Africa Act, 1997)
Registration number: 1600157FN
JSE company code: DIDBS
LEI code: 25490071AZ4HOFUNIH94
(the “DBSA” or the “Bank”)
AUDITED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2023
Overview
The DBSA is a development finance institution; whose only shareholder is the Government of the Republic of South
Africa. This summary of the financial results for the year ended 31 March 2023 (the “results”) is published on the JSE
Limited (“JSE”) Stock Exchange News Service (“SENS”) to provide the information to the holders of the Bank’s listed debt
securities. The 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 the requirements of sections 27 to 31 of the Companies Act of South Africa
(Act No.71 of 2008) (the “Companies Act”), these being the relevant and corresponding sections specified in the
Development Bank of Southern Africa Act (Act No. 13 of 1997) (the “DBSA Act”). The annual financial statements and
annual report of the Bank for the year ended 31 March 2023 (“annual financial statements” or “AFS”) are available on
the DBSA website: https://www.dbsa.org/investor- relations
Audit of the annual financial statements
The annual financial statements have been audited by the Bank’s auditor, the Auditor-General of South Africa
(hereafter referred to as the “AG”). The AG in her audit report, which is available for inspection at the Bank’s Registered
Office and in the annual financial statements that are available on the DBSA website, stated that her audit was
conducted in accordance with the International Standards on Auditing and has expressed an unqualified audit opinion
on the annual financial statements.
Context of the annual financial statements
South Africa continues to experience crippling power cuts, volatile commodity prices, transport and logistical
constraints, barriers to sector investment, structural rigidities in the labor market, and low economic growth
performance. In addition, South Africa has an elevated public debt level and a wage bill that presents a challenge to the
country’s ability to balance emergency shocks, social spending and much needed infrastructure investment. Further,
the economy is facing rising interest rates, high food and energy prices and the knock on effect on rising inflation (which
is outside the inflation target range). In addition, the governance challenges and financial positions of municipalities
crucial to service delivery and infrastructure roll out remains a concern.
Globally, the Ukraine-Russia war exacerbated a number of pre-existing adverse global economic trends which included
rising inflation, extreme poverty, food insecurity and increased climate change risk. The Bank has exposures in a number
of African countries some of which are facing slow pace of recovery from the COVID-19 pandemic (the “pandemic”)
which had created an unprecedented health and economic crisis. With the exception of countries like Angola, many
African countries’ public debt to GDP ratio increased during the pandemic and has remained elevated with a number of
African countries requiring IMF support, debt relief and debt restructure to remain fiscally sustainable. The global
economic outlook remains skewed to the downside given the risks associated with fast rise in policy rates, banking sector
vulnerabilities and risk of contagion, lingering global supply chain disruptions and geopolitical tensions and increased
risk of geoeconomic policy fragmentation. Despite the challenges noted above, DBSA remains 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 outcomes beyond the confines of its own balance
sheet.
Preparation of the annual financial statements
The directors take full responsibility for the preparation of this announcement and confirm that financial information
has been correctly extracted from the underlying audited annual financial statements for inclusion in this
announcement.
Basis of preparation
The annual financial statements have been prepared in accordance with the recognition, measurement and disclosure
requirements of IFRS, the Public Finance Management Act of South Africa (Act No. 1 of 1999) (the “PFMA”), sections
27 to 31 of the Companies Act, the DBSA Act and the JSE Debt Listings Requirements. Except for where indicated in the
annual financial statements available on the DBSA website, the accounting policies and practices applied during the
financial year ended 31 March 2023 (“current year” or “year under review”) are in all material respects consistent with
those applied in the annual financial statements for the financial year ended 31 March 2022 (“prior year”, “last year”
or “2022 financial year”).
The annual financial statements are prepared on a 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 and equity
investments. The preparation of the annual financial statements requires management to make judgments, estimates
and assumptions that affect the application of the accounting policies and the 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
Despite a very difficult operating environment, DBSA successfully raised funding from a diverse pool of international
development finance institutions, local and international banks and the domestic fixed income market amounting to
R11bn equivalent. Further the Bank’s loan book remained resilient in a difficult environment with high cash collections
of approximately R18bn (comprising interest R9.5bn and capital R8.5bn). During the year under review, the Bank’s
R7.8 billion outstanding DV23 bond issue was redeemed, which together with other debt capital repayments brought
the total debt redemptions for the year to approximately R13.1bn equivalent. Liquidity holdings remained within
policy parameters with total liquid assets of R6.2bn as at 31 March 2023, down from R8bn as at 31 March 2022. The
Bank’s total outstanding debt funding increased by R3bn from R56bn as at 31 March 2022 to R59bn as at 31 March
2023. Loan and bond disbursement activities increased to R13.7bn when compared to last year’s R12.9bn. Overall,
the Bank’s funding and liquidity position remains strong.
Capital adequacy
The Bank continues to have strong capital buffers for unexpected loss events. The Bank’s capital base substantially
increased by R5.2bn (to a total of R48bn) during the current year when compared to last year’s R3.8bn increase in the
equity base. As a result, the debt-to-equity ratio, including the R20bn callable capital as at 31 March 2023, improved
marginally to 87% (31 March 2022: 88%), and remains well below the Bank’s regulatory debt-to-equity ratio cap of
250%. The debt to equity ratio without callable capital improved to 124% (31 March 2022: 130%). Callable capital
refers to shares authorized but not yet issued. The Bank’s capital ratio, expressed as a percentage of balance sheet
shareholder capital to unweighted total assets, increased to 44% as at 31 March 2023 from approximately 43% as at
31 March 2022. Overall, the Bank remains well capitalized.
Loan asset quality and expected credit loss provisions (impairments)
The DBSA loan book performance has remained resilient under a difficult operating environment. The loan book, on
average, remains largely moderate risk when compared to last year and non-performing ratios improved when
compared to prior year. During the year under review the gross development loans and development bonds reached
a record of R108.14bn on the back of increased disbursements, currency exchange movements and prevailing high
interest rate environment.
The single largest risk that the DBSA faces from its lending activities is credit risk. The Bank has remained conservative
in provisioning and proactive in loan management and monitoring given the evolving current economic environment
and negative outlook skewed to the downside. Further, in terms of IFRS 9, the Bank is required to consider forward
looking information in the estimation of expected credit losses on the development loan and bond book. In doing so,
the DBSA is required to make reasonable forward-looking assumptions. However, forecasting under the current
environment is complex and expected credit loss provisions by nature have a higher variability potential because of
the influence from the many factors including the weak economy, currency movements, pockets of sovereign debt
distress and rocky recovery prospects.
Despite a marginal improvement in the macro-economic base compared to the prior years affected by the pandemic,
the Bank experienced a marginal increase in expected credit loss balance sheet provisions amounting to approximately
R650m, on the back of changes in the overall risk profile of the loan book and in particular the municipal sector. The
key driver in the increase in expected credit loss (IFRS 9 stage 1 to stage 2 migration) was experienced in the municipal
sector in South Africa and increased provisions for Ghana; and this was offset by positive credit risk migration of
exposures in Angola and Zimbabwe. During the year under review, the bank successfully restructured key exposures
in Zimbabwe following years of intense credit monitoring and consistent client payment behavior.
The balance sheet provision for expected credit losses (impairment provision) increased by 4% to R12.1bn (31 March
2022: R11.7bn). Despite the overall balance sheet provisions being marginally up, the expected credit loss coverage
level on the total development loan book reduced from 12.2% (31 March 2022) to 11.5% (31 March 2023) due to new
disbursements (which carry lower ECLs as stage 1 loans), successful loan restructures of the distressed portfolio, solid
cash collections within the portfolio offset by write offs associated with clean-up of legacy exposures within the
distressed loan book. The write offs processed during the year were with respect of fully provided distressed legacy
assets and had no impact on current year profitability.
A significant increase was noted in IFRS 9 Stage 2 loans which increased by 42% from R31.9bn to R45.4bn and this
increase was driven by significant increase in credit risk within South Africa and in particular municipalities sector. The
expected credit loss coverage ratio on stage 2 loans remains conservative at 18% (31 March 2022: 19%). However,
there was no material increase in expected credit loss charge when compared to the prior year since the Bank in
2021/2022 had proactively taken IFRS 9 provisions in light of early signs of increased credit risk in the municipal sector.
The impairments charge in the income statement increased marginally by 5%, from approximately R1bn in the prior
year to approximately R1.05bn in the current year. IFRS 9 stage 3 net non-performing loan ratio (net non-performing
loans to net development loan book) decreased from 1.4% as at 31 March 2022 to 1.1% of the total loan book as at
31 March 2023. IFRS 9 Stage 3 gross non-performing loan ratio (gross non-performing loans to total gross
development loan book) decreased from approximately 4.6% as at 31 March 2022 to approximately 3.3% as at 31
March 2023 on the back of cash collections, write offs, successful loan restructures and currency movements. The
expected credit loss coverage ratio for Stage 3 (non-performing) loans decreased to 69.3% at year end from 73.2% at
31 March 2022, mainly due to successful loan restructures, credit risk migration, currency movement and cash
collections. Overall, the expected credit loss provisions remains adequately and appropriately conservative.
Total assets
The Bank’s total asset base increased to R108.56bn as at 31 March 2023 to when compared to the prior year total of
R100bn due to new disbursements and currency movements. Despite a tough operating environment, the Bank
continued to record strong cash collections on development loans with total cash repayments (capital and interest)
amounting to approximately R18bn (31 March 2022: R19bn). Total development and bond disbursements amounted
to over R13.7bn (March 2022: R12.9bn), representing a 6% increase from the prior year. As at 31 March 2023, the
equity investment portfolio increased from R4.9bn (31 March 2022) to R5.1bn due to new disbursements, fair value
adjustments and currency movements.
Profitability & efficiency
Despite a challenging environment, net profit for the year increased by 36% from R3.8bn in the prior year to new
record amounting to R5.2bn in the current year. Similar to 31 March 2022, the net profit for the year continued to
be driven from the Bank’s core lending activities and the loan book remained resilient in a rising interest rate
environment. During the current year, the Bank experienced a solid growth in net interest income amounting to 19%
when compared to prior year.
The DBSA funds projects in United States Dollar (“USD”) and Euro outside South Africa. Consequently, the Bank has a
net foreign currency asset position after hedging amounting to USD124m and EUR37m as at 31 March 2023 remained
within risk policy parameters. Given the depreciation of the South African ZAR against the USD and Euro during the
year; foreign currency exchange rate gains amounted to R860m, when compared to gains of R156m in the prior year.
The Bank does not fully hedge the foreign currency position and closely monitors and manages its exposure to foreign
exchange rate risk through the use of natural hedges and derivative hedging strategies.
The Bank remains efficient in managing operational costs and the cost optimisation strategy continues to be effective.
The total cost-to-income ratio for the year ended 31 March 2023, remained relatively unchanged at 24% (31 March
2022: 24%) and the ratio continues to track in line with the Bank’s cost optimization strategy.
Development impact performance highlights
The development impact highlights are summarized in the table below:
Operational performance
R60.2bn Total infrastructure support
R14.2bn Funds catalysed
R13.7bn Total loans and bonds disbursements
R4.8bn Infrastructure implementation support delivered
R25.4bn Value of prepared projects approved
R2.1bn Infrastructure unlocked for under-resourced municipalities
Development impact
2 208 Learners benefited from two newly built schools
64 400 Learners benefited from 85 refurbished schools
1 524 Local SMMEs and subcontractors employed in the construction of projects
R3.8bn Value of infrastructure delivered by black-owned entities, of which R1.4 billion delivered by black
women-owned entities
R785m Benefit accrued to local small, medium, and micro enterprises (SMMEs) and subcontractors employed
in the construction of projects
162 Department of Basic Education (DBE) SAFE VIP toilets constructed
10 362 Temporary and permanent jobs created
Fund managers contribution
3 842 965 Tonnes of food and food-related products delivered to date
144 519 Total smallholder farmers and micro-entrepreneurs impacted
14 006 Permanent jobs sustained in the agricultural sector
8 Kilometres of road and rail network built
48 008 Kilometres of fibre built
STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2023
in thousands of rands 2023 2022
Assets
Cash and cash equivalents at amortised cost 6 166 069 7 990 108
Trade receivables and other assets 402 066 259 293
Investment securities 359 881 444 287
Derivative assets held for risk management purposes 64 543 458 243
Other financial assets 40 452 43 067
Development loans held at fair value through profit or loss 48 309 19 309
Equity investments held at fair value through profit or loss 5 149 050 4 976 507
Development bonds at amortised cost 2 154 345 1 151 903
Development loans at amortised cost 93 679 089 84 177 054
Property, equipment and right of use of assets 441 149 444 847
Intangible assets 59 626 63 423
Total assets 108 564 579 100 028 041
Equity and Liabilities
Liabilities
Trade, other payables, and accrued interest on debt funding 1 088 791 890 743
Derivative liabilities held for risk management purposes 612 920 34 240
Liability for funeral and post-employment medical benefits 44 767 48 529
Debt funding designated at fair value through profit or loss - 688
Debt funding held at amortised cost 58 469 380 55 535 354
Provisions and lease liabilities 173 858 91 795
Deferred income 542 819 515 667
Total liabilities 60 932 535 57 117 016
Equity and reserves
Share capital 200 000 200 000
Retained income 33 158 903 28 881 710
Permanent government funding 11 692 344 11 692 344
Other reserves (211 586) 281 800
Reserve for general loan risk 2 792 383 1 855 171
Total equity and reserves 47 632 044 42 911 025
Total equity, reserves and liabilities 108 564 579 100 028 041
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2023
in thousands of rands 2023 2022
Interest income
Interest income calculated using the effective interest rate 10 422 335 8 831 968
Other interest income 258 112 146 337
Interest expense
Interest expense calculated using the effective interest rate (4 159 075) (3 085 112)
Other interest expense (3 195) (100 424)
Net interest income 6 518 177 5 792 769
Net fee income 334 691 279 794
Net foreign exchange gain 860 205 156 130
Net gain/(loss) from financial assets and financial liabilities 86 745 (606)
Investment and other income 97 864 56 523
Other operating income 1 379 505 491 841
Operating income 7 897 682 6 284 610
Project preparation expenditure (14 306) (48 466)
Development expenditure (274 323) (71 687)
Impairment losses (1 054 078) (1 004 938)
Personnel expenses (914 408) (867 998)
Other operating expenses (366 299) (402 268)
Depreciation and amortisation (31 557) (36 684)
Profit from operations 5 242 711 3 852 569
Grants paid (32 720) (27 412)
Profit for the year 5 209 991 3 825 157
STATEMENT OF OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2023
in thousands of rands 2023 2022
Profit for the year 5 209 991 3 825 157
Items that will not be reclassified to profit or loss
Loss on revaluation of land and buildings (43 934) -
Movement in own credit risk for funding held at fair value through profit or loss (13) (34 424)
Remeasurement of funeral and post-employment medical benefit liabilities 4 414 (469)
Total items that will not be reclassified to profit or loss (39 533) (34 893)
Items that may be reclassified subsequently to profit or loss
Unrealised loss on cash flow hedges (167 680) (59 239)
Gain/(loss) on cash flow hedges reclassified to profit or loss (281 759) 29 546
Total items that may be reclassified subsequently to profit or loss (449 439) (29 693)
Other comprehensive loss (488 972) (64 586)
Total comprehensive income for the year 4 721 019 3 760 571
CONDENSED STATEMENT OF CHANGES IN EQUITY AS AT 31 MARCH 2023
in thousands of rands 2023 2022
Balance at beginning of the year 42 911 025 39 150 454
Profit for the year 5 209 991 3 825 157
Loss on revaluation of land and buildings (43 934) -
Movement in own credit risk for funding held at fair value through profit or loss (13) (34 424)
Remeasurement of funeral and post-employment medical benefit liabilities 4 414 (469)
Unrealised loss gain on cash flow hedges (167 680) (59 239)
Gain/(loss) on cash flow hedges reclassified to profit or loss (281 759) 29 546
Balance at end of the year 47 632 044 42 911 025
CONDENSED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2023
in thousands of rands 2023 2022
Cash flows from operating activities 5 111 213 4 463 481
Cash flow from development activities (4 989 616) (1 744 452)
Cash flow from investing activities 30 688 (21 549)
Cash flow from financing activities (2 276 415) (3 585 276)
Net decrease in cash and cash equivalents (2 124 130) (887 796)
Effect of exchange rate movements on cash balances 300 091 (100 704)
Movement in cash and cash equivalents (1 824 039) (988 500)
Cash and cash equivalents at the beginning of the year 7 990 108 8 978 608
Cash and cash equivalents at the end of the year 6 166 069 7 990 108
Events after the reporting period
As indicated in the SENS dated 26 May 2023, DBSA detected an abnormality during a routine check of its information systems
and further inquiry confirmed a breach of the Bank’s information systems which immediately prompted the Bank’s disaster
recovery protocol. The breach had no impact on the results for the year ended 31 March 2023. The Bank is currently
investigating the breach in partnership with the Bank’s data security partners and forensic investigators. The findings of the
investigation will inform further action. (To be updated with new information/developments )
Outlook
Despite the challenging economic environment, the DBSA has a strong leadership and management team steering the
Bank through these challenges, whilst following the 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. The Bank’s continued success hinges on its ability to increased 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 platform for success in the future and
will continue to focus on disbursing to infrastructure projects to grow developmental impact in line with its mandate.
3 August 2023
Debt Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
9
Date: 03-08-2023 01:38:00
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