DEFINITIONS

ACCOUNTING AND TAXATION RISK

The risk that the integrity of the financial statements and related information cannot be upheld.

ACCOUNTING RISK

• The risk that inappropriate accounting information causes suboptimal decisions to be made, due to inappropriate policy, faulty interpretation of policy, or plain error.
  
• The extent to which the financial statements can be affected by exchange rate fluctuations. Also called accounting exposure or translation risk.
  
• The risk that financial statements and other statutory and regulatory reporting do not accord with international financial reporting standards (IFRS) and/or other relevant statutory requirements are not based on appropriate accounting policies and do not incorporate required disclosures.
  
• The risk that the internal financial and operational controls of accounting and administration do not provide reasonable assurance that transactions are executed and recorded in accordance with generally accepted business practice and the group’s policies and procedures, and that assets are safeguarded.
  

ADVANCED INTERNAL RATINGS-BASED APPROACH (AIRB)

Subject to supervisory approval, a bank may use its internally developed credit risk measurement systems to calculate the capital requirements for credit risk.

ASSETS UNDER MANAGEMENT

Assets managed by Nedbank Group, which are beneficially owned by clients and are therefore not reported on the consolidated balance sheet. The service provided in respect of these assets is discretionary portfolio management on behalf of clients.

ASSURANCE RISK

The failure to reinsure with other acceptable quality insurers, beyond the level of risk appetite (excessive risk) mandated by the board of directors, risks underwritten by the short-term insurance and/or life assurance activities of the group, including catastrophe insurance (ie more than one insurance claim on the group arising from the same event), leading to disproportionate losses to the group.

AUTOMATED TELLER MACHINE (ATM)

A cash machine or free-standing device dispensing cash, which may also provide other information or services to clients who have a card and a personal identification number, password or other personal identification.

BANKS

This asset class covers all exposures to counterparties treated as banks.

BASEL CAPITAL ACCORD (BASEL II)

The new Basel Capital Accord (Basel II) of the Bank for International Settlements is an improved capital adequacy framework accomplished by closely aligning banks’ capital requirements with improved modern risk management practices and sophisticated risk assessment capabilities. It further ensures the risk sensitivity of the minimum capital requirements by including supervisory reviews and market discipline through enhanced disclosure.

BASEL ASSET CLASSES (AS CATEGORISED IN THE BA 200 RETURN) CORPORATE EXPOSURES

Corporate
Corporate exposures are defined as debt obligations of a corporation, partnership or proprietorship. Banks are permitted to distinguish between exposures to small-and medium-sized entities.

Specialised lending – high-volatility commercial real estate (property development)
High-volatility commercial real estate (HVCRE) lending is the financing of commercial real estate that exhibits higher loss rate volatility compared with other types of specialised lending.

Specialised lending – income-producing real estate
Income-producing real estate (IPRE) refers to a method of providing funding to real estate (such as office buildings to let, retail space, multifamily residential buildings, industrial or warehouse space, and hotels) where the prospects for repayment and recovery on the exposure depend primarily on the cashflows generated by the asset. The primary source of these cashflows would generally be lease or rental payments or the sale of the asset.

Specialised lending – object finance
Object finance (OF) refers to a method of funding the acquisition of physical assets (eg ships, aircraft, satellites, railcars and fleets) where the repayment of the exposure is dependent on the cashflows generated by the specific assets that have been financed and pledged.

Specialised lending – commodities finance
Commodities finance (CF) refers to structured short-term lending to finance reserves, inventories or receivables of exchange-traded commodities (eg crude oil, metals or crops) where the exposure will be repaid from the proceeds of the sale of the commodity.

Specialised lending – project finance
Project finance (PF) is a method of funding in which the lender looks primarily to the revenues generated by a single project, both as the source of repayment and as security for the exposure. This type of financing is usually for large, complex and expensive installations (eg power plants, chemical processing plants and mines).

SME corporate
This asset class covers all exposures to small and medium enterprises that are classified as corporate, based on criteria prescribed by the Banking Regulator.

Purchased receivables – corporate
This asset class covers all receivables classified as corporate exposures, which are purchased for inclusion in asset-backed securitisation structures. However, banks may also use this approach, with the approval of national supervisors, for appropriate on-balance-sheet exposures that share the same features.

PUBLIC SECTOR ENTITIES

This asset class covers all exposures to enterprises that are wholly or majority-owned by the central government, (eg Eskom and Transnet).

LOCAL GOVERNMENTS AND MUNICIPALITIES

This asset class covers all exposures to enterprises that are wholly or majority-owned by the central government (eg Eskom and Transnet).

SOVEREIGN (INCL CENTRAL GOVERNMENT AND CENTRAL BANK)

This asset class covers all exposures to counterparties treated as central government.

SECURITIES FIRMS

This asset class covers all exposures to enterprises regulated by a recognised authority and trading in securities.

RETAIL EXPOSURES

Retail mortgages (incl home equity line of credit)
This asset class covers all mortgage advances or credit lines to individuals that are fully secured by a mortgage over residential property.

Retail revolving credit
Exposures to individuals that are revolving, unsecured, and uncommitted (both contractually and in practice). In this context revolving exposures are defined as those where clients’ outstanding balances are permitted to fluctuate based on their decisions to borrow and repay, up to a limit established by the bank.

Retail – other
This asset class covers all non-revolving exposures (excluding mortgage advances) to individuals.

SME retail
This asset class covers all exposures to small and medium enterprises that are classified as corporate, based on criteria prescribed by the Banking Regulator.

Purchased receivables – Retail
This asset class covers all receivables classified as retail exposures, which are purchased for inclusion in asset-backed securitisation structures. However, banks may also use this approach, with the approval of national supervisors, for appropriate on-balance-sheet exposures that share the same features.

BLACK ECONOMIC EMPOWERMENT (BEE)

BEE is defined in the Financial Sector Charter and means the economic empowerment of all black people (Africans, coloureds and Indians who are South African citizens), including women, workers, youth, people with disabilities and people living in rural areas, through diverse but integrated socioeconomic strategies.

BEE TRANSACTION

Nedbank Group’s BEE transaction, which focused primarily on the issuing of shares to BEE partners for the purposes of BEE, equating to approximately 9,3% (43 618 748 shares) of total share capital and equating to black ownership of 11,5% of the value of Nedbank Group’s South African businesses in 2005. Nedbank Namibia’s BEE transaction, which focused primarily on the issuing of shares to BEE partners and affinity groups for the purposes of BEE in Namibia, equating to approximately 0,14% (665 680 shares) of total share capital of Nedbank Group Limited and equating to black ownership of 11,13% of the value of NedNamibia Holdings Limited, Nedbank Group’s Namibian business in 2006.

BORROWING GROUP

A group of clients and their underlying loans and advances according to the ‘per person’ definition of the ‘Regulations Related to Banks’.

BRANCH-IN-A-BOX

This is a cost-effective, quick-deployment, relocatable, prefabricated bank branch. It uses modern, broadband satellite technology for communication, which makes it effective for speedy access and hence client convenience. It is also used to test new markets, especially in areas with limited infrastructure such as urban townships and deep rural areas where banking services are not readily available. A branch-in-a-box provides full transaction facilities to clients, including cash withdrawals and deposits, sales and service.

CAPITAL ADEQUACY RATIO (CAR)

The capital adequacy of South African banks is measured in terms of the South African Banks Act requirements. The ratio is calculated by dividing the primary (Tier 1), secondary (Tier 2) and tertiary (Tier 3) capital by the risk-weighted assets.

Group capital adequacy ratio
Group capital adequacy is the ratio of group net qualifying capital and reserve funds to total group risk-weighted assets as calculated in accordance with the South African Banks Act requirements.

Primary (Tier 1) capital
Primary capital consists of issued ordinary share capital and perpetual preference share capital, qualifying perpetual callable hybrid capital, retained earnings and reserves, less regulatory deductions.

Core Tier 1 capital
Core Tier 1 capital is primary capital less any amount on non-core Tier 1 capital, being perpetual preference share capital and qualifying perpetual callable hybrid capital.

Secondary (Tier 2) capital
Secondary capital is made up of subordinated dated debt and certain types of perpetual callable debt, the excess amount in respect of eligible provisions and 50% of any revaluation surplus, less regulatory deductions.

Tertiary (Tier 3) capital

Tertiary capital consists of capital obtained by way of unsecured subordinated loans, subject to such conditions as may be prescribed.

CAPITAL RISK

The risk that the group will become unable to absorb losses, maintain public confidence and support the competitive growth of the business. This entails ensuring that opportunities can be acted on timeously, while solvency is never threatened.

CASHFLOW

Financing activities
Activities that result in changes to the capital structure of the group.

Investment activities
Activities relating to the acquisition, holding and disposal of property and equipment and long-term investments.

Operating activities
Activities that are not financing or investing activities and arise from the operations conducted by the group.

CLOSING PRICE/TANGIBLE NET ASSET VALUE PER SHARE

The closing share price on JSE at year-end divided by the tangible net asset value per share.

COMPETITION COMMISSION INQUIRY INTO BANKING

A formal inquiry that was conducted by the Competition Commission of South Africa into competition in the banking sector. A detailed report outlining the recommendations of the banking inquiry panel to the Competition Commission was published in December 2008. Industry stakeholders have been given an opportunity by National Treasury to comment on the recommendations contained in the report. This input will be discussed by National Treasury with the Department of Trade and Industry, the South African Reserve Bank and the Competition Commission, and it is anticipated that the final outcome of the banking inquiry process and the impact on the banking industry will be finalised during 2009.

COMPLIANCE RISK

The risk to earnings and capital arising from violations of or non-compliance with laws, rules and regulations, as well as internal group policies and authority levels, prescribed practices and ethical standards.

COMPOUND ANNUAL GROWTH RATE (CAGR)

The year-on-year growth rate of an amount over a specified period of time.

CREDIT LOSS RATIO

Credit loss ratio is the impairments charge as a percentage of average advances.

CREDIT RISK

The risk to earnings and capital arising from the probability of borrowers and counterparties failing to meet their repayment commitments (including accrued interest). Credit concentration risk arises on a portfolio basis where the bank has significant aggregated exposures to particular credit segments, sectors of industry or other portfolios.

CURRENCY TRANSLATION RISK

The risk to earnings or capital arising from the conversion of the group’s offshore banking book assets or liabilities or commitments or earnings from foreign currency to local or functional currency.

DEFAULTED ADVANCE

Any advance or group of advances that has triggered relevant ‘definition of default’ criteria for that portfolio, which is in line with the amended regulations relating to banks. For retail portfolios it is transaction-centric and therefore a default would be specific to an account (specific advance). For wholesale portfolios it is client- or borrower-centric, meaning that, should any transaction within a borrowing group default, then all transactions within the borrowing group would be defaulted.

DEFINITION OF DEFAULT

At a minimum, a default is deemed to have occurred where a material obligation is overdue for more than 90 days or an obligor exceeds an advised limit for more than 90 days.

DEFERRED TAXATION ASSETS

Deferred taxation assets are the amounts of income taxation recoverable in future periods in respect of:

• deductible temporary differences arising due to differences between the taxation and accounting treatment of transactions; and
  
• the carry-forward of unused taxation losses.
  

DEFERRED TAXATION LIABILITIES

Deferred taxation liabilities are the amounts of income taxation payable in future periods due to differences between the taxation and accounting treatment of transactions.

DIRECT TAXATION

Direct taxation includes normal taxation on income, capital gains tax (CGT) and secondary tax on companies (STC).

DIVIDEND/DISTRIBUTION COVER

Headline earnings per share divided by the dividend/distribution declared per share.

DIVIDEND/DISTRIBUTION DECLARED PER SHARE

Dividend/Distribution declared per share is the actual interim dividend paid/capitalisation award issued and the final dividend declared/capitalisation award declared for the period under consideration, expressed in cents.

DIVIDEND/DISTRIBUTION PAID/CAPITALISED PER SHARE

Dividend/Distribution paid/capitalised per share is the actual final dividend paid/capitalisation award issued for the prior year and the interim dividend paid/capitalisation award issued for the year under consideration, expressed in cents.

DIVIDEND YIELD

Dividend/Capitalisation award declared per ordinary share as a percentage of the closing share price of ordinary shares.

DOWNTURN EXPECTED LOSS

A stress-tested value for expected loss under downturn economic conditions that could have unfavourable effects on a bank’s credit exposures.

DTI CODES

The Codes of Good Practice, as promulgated on 9 February 2007 under section 9(1) of the Broad-based Black Economic Empowerment Act, 2003 (53 of 2003), establish the rules, targets and stipulations for the measurement of broad-based black economic empowerment within South Africa based on three scorecard classifications for organisations: emerging microenterprise (EME), qualifying small enterprise (QSE) and generic enterprise. Nedbank is scored as a generic enterprise.

EARNINGS PER SHARE (EPS)

Basic earnings basis
Income attributable to equityholders for the period divided by the weighted average number of ordinary shares in issue (net of shares held by group entities) during the period.

Headline earnings basis
Headline earnings divided by the weighted average number of shares in issue (net of shares held by group entities) during the period.

Fully diluted basis
The relevant earnings figure is adjusted for the assumed adjustments to income that would have been earned on the issue of shares issued from dilutive instruments. The resultant earnings are divided by the weighted average number of ordinary shares and other dilutive instruments (ie potential ordinary shares) outstanding at the period-end, assuming they had been in issue for the period.

EARNINGS YIELD

Headline earnings per share as a percentage of the closing price of ordinary shares.

ECONOMIC CAPITAL (ECAP)

Economic capital is the quantification of risk and an internal assessment of the amount of capital required to protect the group against economic losses with a desired level of confidence (solvency standard or default probability) over a one-year time horizon. In other words, it is the magnitude of economic losses the group could withstand while remaining solvent.

EFFECTIVE TAXATION RATE

The taxation charge in the income statement, excluding taxation relating to non-trading and capital items, as a percentage of profit before taxation.

EFFICIENCY RATIO (COST-TO-INCOME RATIO)

Total operating expenses (excluding indirect taxation) as a percentage of income from normal operations (net interest income plus non-interest revenue).

ENTERPRISEWIDE RISK

All risk types and categories across all business lines, functions, geographical locations and legal entities of the group, collectively known as its ‘risk universe’.

ENTERPRISEWIDE RISK MANAGEMENT FRAMEWORK (ERMF)

The risk framework developed by Nedbank Group and applied to all of its divisions to monitor and manage risk. Further details are included in the risk management section of this annual report.

EXPECTED LOSS (EL)

EL is the expected value of portfolio losses due to default over a specified time horizon.

EXPENSES PER EMPLOYEE

Operating expenses for the year divided by the number of employees at year-end.

EXPENSES TO AVERAGE ASSETS

Operating expenses for the year divided by average total assets.

EXPOSURE AT DEFAULT (EAD)

EAD is an estimation of the extent to which a bank may be exposed to a counterparty in the event and at the time of that counterparty’s default.

EYETHU

Eyethu means ‘ours’ in the Nguni languages and epitomises the inclusive and uniquely South African identity of the BEE transaction.

THE FINANCIAL ADVISORY AND INTERMEDIARY SERVICES ACT, 37 OF 2008 (FAIS)

FAIS aims to regulate a wide range of financial advisory and intermediary services to clients.All financial advisers who are authorised to operate under a FAIS licence have to adhere to certain standards and processes.

THE FINANCIAL INTELLIGENCE CENTRE ACT, 38 OF 2001 (FICA)

FICA is aimed at combating money laundering in South Africa. The group’s compliance function has developed processes and procedures across the business to ensure that clients are properly identified, suspicious transactions are reported, adequate records are maintained and employees are trained in respect of FICA.

FINANCIAL SECTOR CHARTER (FSC)

A transformation charter, as contemplated in the broad-based BEE legislation, that was voluntarily developed by the financial sector and constitutes a framework and establishes the principles on which BEE will be implemented in the financial sector.

FOREIGN EXCHANGE TRANSLATION GAINS/LOSSES

The results and assets/liabilities of all foreign entities controlled by the group that have a rand-functional currency are translated at the closing exchange rate and the differences arising are recognised in the income statement as foreign exchange translation gains/losses.

FTSE/JSE AFRICA ALL-SHARE INDEX

This comprises the top 99% of eligible listed companies on JSE ranked by full market capitalisation.

FTSE/JSE AFRICA BANKS INDEX

This comprises all companies that are constituents of both the FTSE/JSE Africa All-share Index and the banking sector.

GROSS DOMESTIC PRODUCT (GDP)

The total market value of the goods and services produced by a country’s economy during a specific period of time.

HEADLINE EARNINGS

Headline earnings is not a measure of maintainable earnings. For purposes of the definition and calculation the guidance given on headline earnings, as issued by the South African Institute of Chartered Accountants in circular 07/02 of December 2002, has been used. Headline earnings consist of the earnings attributable to ordinary shareholders, excluding non-trading and capital items.

HEADLINE EARNINGS PER EMPLOYEE

Headline earnings divided by the number of employees in service at year-end.

HEDGE

A risk management technique used to insulate financial results from market, interest rate or foreign currency exchange risk (exposure) arising from normal banking operations.The elimination or reduction of such exposure is accomplished by establishing offsetting positions. For example, assets denominated in foreign currencies can be offset against liabilities in the same currencies or through the use of foreign exchange hedging instruments such as futures, options or foreign exchange contracts.

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

The standards, as adopted by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the IASB. Nedbank Group’s consolidated financial results are prepared in accordance with IFRS.

IMPAIRMENTS CHARGE TO AVERAGE ADVANCES

Impairments charge on loans and advances for the year divided by average advances. Also known as the credit loss ratio or impairment ratio.

IMPAIRMENT OF LOANS AND ADVANCES

Impairment of loans and advances arises where there is objective evidence that the group will not be able to collect an amount due. The impairment is the difference between the carrying amount and the estimated recoverable amount.

INDIRECT TAXATION

Value-added tax (VAT) and other taxes, levies and duties paid to government, excluding direct taxation.

INFORMATION TECHNOLOGY RISK

The risk resulting from system malfunction and unavailability, security breaches and inadequate systems investment, development, implementation, support and capacity (refer to the definition of ‘Operational risk’).

INSURANCE RISK

The risk of no insurance cover or inadequate/failed insurance cover for insurable business risks.

INTEREST RATE RISK

Interest rate risk in the banking book is the risk that a bank’s earnings or economic value will decline as a result of changes in interest rates. The sources of interest rate risk in the banking book are:

• repricing risk (mismatch risk) – timing differences in the maturity (for fixed-rate) and repricing (for floating-rate) of bank assets, liabilities and off-balance-sheet positions;
  
• basis risk-imperfect correlation in the adjustment of the rates earned and paid on different instruments with otherwise similar repricing characteristics;
  
• yield curve risk changes in the shape and slope of the yield curve; and
  
• embedded-options risk – the risk pertaining to interest-related options embedded in bank products.
  

INVESTMENT RISK

The risk of a decline in the net realisable value of investment assets arising from adverse movements in market prices or factors specific to an investment itself (eg reputation and quality of management). Market prices are independent variables, which include interest rates, property values, exchange rates, equity and commodity prices.

‘JAWS’ RATIO

The difference between the rate of growth in total income from normal operations and the rate of total expense growth.

JOHANNESBURG INTERBANK AGREEMENT RATE (JIBAR)

The rate that South African banks charge each other for wholesale money.

JSE LIMITED (JSE)

Previously JSE Securities Exchange South Africa.

KING II (THE CODE)

The King Report on Corporate Governance 2002, which sets out principles of good corporate governance for South African companies and organisations.

LIQUIDITY RISK

There are two types of liquidity risk: market liquidity risk and funding liquidity risk. Market liquidity risk is the risk that the bank cannot easily offset or eliminate a position without significantly affecting the market price because of inadequate market depth or market disruption. It differs from funding liquidity risk, which is the risk that the bank will not be able efficiently to meet both expected and unexpected current and future cashflow and collateral needs without affecting either daily operations or the financial condition of the bank. However, in many cases, the same factors may trigger both types of liquidity risk.

LONDON INTERBANK OFFERED RATE (LIBOR)

The rate that banks participating in the London money market offer each other for short-term deposits.

LOSS-GIVEN DEFAULT (LGD)

Estimate of the amount of the exposure at default that will be lost (ie not recovered). Also includes other economic costs, eg legal costs.

MARKET CAPITALISATION

The group’s closing share price multiplied by the number of shares in issue, including shares held by group entities.

MARKET RISK

Market risk is the potential impact on earnings of unfavourable changes in foreign exchange rates, interest rates, prices, market volatilities and liquidity. Market risk includes trading risk and, in terms of the banking book, derivative instruments used for hedging risk in non-trading portfolios, investment risk, translation risk and interest rate risk. Investment risk arises from changes in the fair value of investments and includes private equity and property as well as strategic investments.

MARK-TO-MARKET

Valuation of financial instruments using prevailing market prices or fair value as of the balance sheet date.

MOBILE BOOTKITS

These are mobile sales and service kits that are easily transportable and can be quickly deployed in areas without traditional branch infrastructure.

MZANSI ACCOUNTS

The Mzansi Account is a card-based, entry-level savings/transmission product with a basic set of features and simplified pricing structure. The major banks worked collectively to provide a standard for new bank accounts that offer affordable and accessible products to previously unbanked individuals. Each bank sets its own pricing, but collaboration between the banks allows holders of Mzansi Accounts to make use of any of the participating banks’ ATMs at no additional cost.

NATIONAL CREDIT ACT (NCA)

The National Credit Act, 34 of 2005, that became effective in stages commencing on 1 June 2006, 1 September 2006 and 1 June 2007.The NCA sets a framework for every type of credit transaction and replaces the Usury Act of 1968 (governing moneylending transactions) and the Credit Agreements Act of 1980 (governing instalment sale or hire purchase agreements).

NET ASSET VALUE PER SHARE

Total equity attributable to equityholders of the parent divided by the number of shares in issue, excluding shares held by group entities.

NET INTEREST INCOME TO AVERAGE INTEREST-EARNING ASSETS (NET INTEREST MARGIN)

Net interest income expressed as a percentage of average net interest-earning banking assets. Net interest-earning banking assets are used, as these closely resemble the quantum of assets earning income that is included in net margin.

NEW-BUSINESS RISK

Development of new products and business that reach the client distribution channel without the appropriate signoff for compliance with the requirements for managing regulatory, legal, tax, accounting, pricing, strategic and any other relevant risks.Also the risk that new products and business do not generate anticipated revenue or cost savings to the group.

NON-INTEREST REVENUE TO TOTAL INCOME

Income from normal operations, excluding net interest, as a percentage of total income from normal operations.

NON-TRADING AND CAPITAL ITEMS

These comprise:

• surpluses and losses on disposal of long-term investments, subsidiaries, joint ventures and associates;
  
• impairment of goodwill arising on acquisition of subsidiaries, joint ventures and associates;
  
• surpluses and losses on the sale or termination of an operation;
  
• capital cost of fundamental reorganisation or restructuring that has a material effect on the nature and focus of the operations of the reporting entities;
  
• impairment of investments, property and equipment, computer software and capitalised development costs; and
  
• other items of a capital nature.
  

NUMBER OF SHARES TRADED

Total number of ordinary shares traded on JSE during the year.

NUMBER OF SHARES TRADED TO WEIGHTED AVERAGE NUMBER OF SHARES

Number of shares traded for the year as a percentage of the weighted average number of shares in issue during the year.

OFF-BALANCE-SHEET ASSETS

Assets managed on behalf of third parties on a fully discretionary basis.

ON-BALANCE-SHEET EXPOSURE

Advances that have either been fully or partially utilised by a borrower.

OPERATIONAL RISK

The risk of loss resulting from inadequate or failed internal processes and systems, incompetent people or external events.This definition includes legal risk.

ORDINARY SHAREHOLDERS’ FUNDS

Total equity attributable to equityholders of the parent.

PEOPLE RISK

People risk is defined as possible inadequacies in human capital and inadequate management of human resource practices, policies and processes resulting in the inability to attract, manage, develop and retain competent resources. This may stem from inadequate skills or knowledge, no clear consequences of not meeting performance standards, lack of alignment with strategy or a reward system that fails to motivate properly.

PRICE/EARNINGS RATIO

The closing price of ordinary shares divided by headline earnings (for the previous 12 months) per share.

PRICE TO BOOK

The group’s closing share price relative to the net asset value.

PRIMARY CLIENT

In the case of an individual, a client is classified as a primary client where a form of salary, wage, annuity or pension is paid into either a current account or a savings account.

PROBABILITY OF DEFAULT (PD)

Quantification of the likelihood of a borrower being unable to repay.

PROPERTIES IN POSSESSION (PIPs)

Properties acquired through payment defaults on loans secured by properties.

REPUTATIONAL RISK

The risk of impairment of the group’s image in the community or the long-term trust placed in the group by its stakeholders as a result of a variety of factors, such as the group’s performance, strategy execution, ability to create shareholder value, or an activity, action or stance taken by the group. This may result in loss of business and/or legal action.

RETURN ON ORDINARY SHAREHOLDERS’ EQUITY (ROE)

Headline earnings expressed as a percentage of average equity attributable to equityholders of the parent.

RETURN ON ORDINARY SHAREHOLDERS’ EQUITY (ROE) EXCLUDING GOODWILL

Headline earnings expressed as a percentage of average equity attributable to equityholders of the parent less goodwill.

RETURN ON RISK-ADJUSTED CAPITAL (RORAC)

Headline earnings expressed as a percentage of economic capital.

RETURN ON RISK-WEIGHTED ASSETS

Headline earnings for the year divided by the average risk-weighted assets.

RETURN ON ASSETS (ROA)

Headline earnings expressed as a percentage of average total assets.

RISK APPETITE

Risk appetite is a tool to express the group’s risk tolerance quantitatively and an articulation of the level of risk Nedbank Group is willing to take in pursuit of its strategic goals.

RISK-WEIGHTED ASSETS

Risk-weighted assets are determined by applying risk weights to balance sheet assets and off-balance-sheet financial instruments according to the relative credit risk of the counterparty. The risk weighting for each balance sheet asset and off-balance-sheet financial instrument is regulated by the South African Banks Act or by regulations in the respective countries of the other banking licences.

SARB REGULATIONS RELATED TO BANKS AND THE BA RETURNS

The regulations relating to banks were amended with effect from 1 January 2008, based on the revised Basel Capital Accord (Basel II). The new Basel Capital Accord of the Bank of International Settlements is an improved capital adequacy framework accomplished by closely aligning banks’ capital requirements with improved modern risk management practices and sophisticated risk assessment capabilities. It further ensures the risk sensitivity of the minimum capital requirements by including supervisory reviews and market discipline through enhanced disclosure.

SECONDARY TAX ON COMPANIES (STC)

STC is a tax paid at company level on the net difference between dividends paid and dividends received. The current rate of STC is 10%.The government has announced that STC will be replaced by a withholding tax on shareholders, which is expected to take place towards the end of 2010.

SECURITISATION EXPOSURES

This asset class covers all exposures to tradeable, interest-bearing commercial paper, which is secured by an underlying asset, eg mortgage loans.

SEGMENTAL REPORTING

Geographical segment
A distinguishable component of the group that is engaged in providing services within a particular economic environment and is subject to risks and returns that are different from those of components operating in other economic environments.

Operational segment
A distinguishable component of the group, based on the market on which each business area focuses, which is subject to risks and returns that are different from those of other operating segments.

SHARE-BASED PAYMENTS

Transfers of a company’s equity instruments by its shareholders to parties that have supplied goods or services to the company (including employees).

SHARES HELD BY GROUP ENTITIES (TREASURY SHARES)

Ordinary shares in Nedbank Group Limited acquired/held by group companies, including ordinary shares held in share trusts as part of the BEE transaction.

SOCIAL AND ENVIRONMENTAL RISKS

The risks related to non-achievement of a balanced and integrated financial, social and environmental performance (referred to as the ‘triple bottomline’), resulting in reputational impairment to the group and ultimately loss of business and profitability.

SELF-SERVICE TERMINAL (SST)

Similar to an ATM, but designed for non-cash transactions.

STANDARD(ISED) APPROACH

A standard approach (foundation approach) to calculate capital requirements for banks, prescribed by the supervisor, used in lieu of the AIRB Approach.

STRATEGIC RISK

Strategic risk relates to the consequences that arise when the environment in which decisions that are hard to implement quickly and to reverse has an unattractive or adverse impact. Strategic risk ultimately has two elements: doing the right thing at the right time; and doing it well.

TANGIBLE NET ASSET VALUE PER SHARE

Total equity attributable to equityholders of the parent, less goodwill, computer software and capitalised development costs, divided by the number of shares in issue, excluding shares held by group entities.

TAXATION RISK

Taxation risk is the risk of loss (financial or otherwise) as a result of:

• inappropriate tax planning and strategy;
  
• non-compliance with or incorrect interpretation and application of taxation legislation; or
  
• the effect of new tax legislation on existing financial structures or products.
  

TOTAL COLLATERAL

Total monetary value of all collateral held by a bank as security for an advance(s), limited to exposure.

TOTAL CREDIT EXTENDED

Total of all advances extended by a bank, including unutilised facilities.

TOTAL EQUITY ATTRIBUTABLE TO EQUITYHOLDERS OF THE PARENT

Ordinary share capital, share premium and reserves.

TOTAL INCOME FROM NORMAL OPERATIONS

Net interest income plus non-interest revenue plus foreign currency translation gains/losses.

TRADED PRICE

The last traded price on JSE on the last business day of the year, also referred to as ‘closing price’.

TRADING MARKET RISK

Trading market risk exists within the group’s proprietary trading activities (trading on the group’s own account). It is defined as the risk of loss occurring as a result of unfavourable changes in market prices such as foreign exchange rates, interest rates, equity prices and commodity prices.

VALUE AT RISK (VaR)

A generally accepted risk measurement concept that uses statistical models to estimate the distribution of possible returns on a portfolio at a given level of confidence.

VALUE OF SHARES TRADED

Total value of ordinary shares traded on JSE during the year.

VALUE TRADED TO MARKET CAPITALISATION

Value of shares traded as a percentage of market capitalisation at year-end.

WEIGHTED AVERAGE NUMBER OF SHARES

The number of shares in issue increased by shares issued during the period, weighted on a time basis for the period during which they participated in the income of the group, less shares held by group entities, weighted on a time basis for the period during which the entities held these shares.

These definitions should be read in conjunction with the group’s accounting policies, which also clarify certain terms used.

DISCLAIMER

Nedbank Group has acted in good faith and has made every reasonable effort to ensure the accuracy and completeness of the information contained in this document, including all information that may be defined as ‘forward-looking statements’ within the meaning of United States securities legislation.

Forward-looking statements may be identified by words such as ‘believe’, ‘anticipate’, ‘expect’,‘plan’, ‘estimate’, ‘intend’, ‘project’, ‘target’, ‘predict’ and ‘hope’.

Forward-looking statements are not statements of fact, but statements by the management of Nedbank Group based on its current estimates, projections, expectations, beliefs and assumptions regarding the group’s future performance.

No assurance can be given that forward-looking statements will prove to be correct and undue reliance should not be placed on such statements.

The risks and uncertainties inherent in the forward-looking statements contained in this document include, but are not limited to: changes to IFRS and the interpretations, applications and practices subject thereto as they apply to past, present and future periods; domestic and international business and market conditions such as exchange rate and interest rate movements; changes in the domestic and international regulatory and legislative environments; changes to domestic and international operational, social, economic and political risks; and the effects of both current and future litigation.

Nedbank Group does not undertake to update any forward-looking statements contained in this document and does not assume responsibility for any loss or damage whatsoever and howsoever arising as a result of the reliance by any party thereon, including, but not limited to, loss of earnings or profits, or consequential loss or damage.