Principal accounting policies
||The following principal accounting policies have been applied consistently in dealing with items that are considered material in
relation to the Nedbank Group Limited consolidated financial statements and the Nedbank Group Limited company financial
||Basis of preparation
||The financial statements have been prepared on a going-concern basis and have been prepared on a
consistent basis with the prior year, except as detailed in note 3.
The group and company financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) and the requirements of the South African Companies Act, 1973, as amended.
The financial statements are presented in South African rands, the functional currency of Nedbank Group Limited, and are
rounded to the nearest million rands. The statements are prepared on the accrual and historical-cost basis of accounting,
- non-current assets and disposal groups held for sale, which are all stated at the lower of the carrying amount and the
fair value less costs to sell; and
- the following assets and liabilities, which are stated at their fair value:
- financial assets and financial liabilities classified as at fair value through profit or loss;
- financial assets classified as available for sale; and
- investment properties and owner-occupied properties.
||Foreign currency translation
Foreign currency transactions
Transactions in foreign currencies are translated into the functional currency of the individual entities in the group at the
date of the transaction by applying the spot exchange rate ruling at the transaction date to the foreign currency amounts.
The functional currency of the individual entities in the group is the currency of the primary economic environment in
which these entities operate.
Monetary assets and liabilities in foreign currencies are translated into the functional currency of the respective entities
of the group at the spot exchange rate ruling at the reporting date.
Exchange differences that arise on the settlement or translation of monetary items at rates that are different from those
at which they were translated on initial recognition during the period or in previous financial statements are recognised
in profit or loss in the period that they arise.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated into
the respective functional currencies of the group entities using the foreign exchange rates ruling at the dates when the
fair values were determined.
Non-monetary assets and liabilities denominated in foreign currencies that are measured in terms of historical cost are
converted into the functional currency of the respective group entities at the rate of exchange ruling at the date of the
transaction and are not subsequently retranslated.
Exchange differences on non-monetary items are recognised consistently with the gains and losses that arise on such
items. For example, exchange differences relating to an item for which gains and losses are recognised directly in equity are
recognised in equity. Conversely, exchange differences for non-monetary items for which gains and losses are recognised
in profit or loss are recognised in profit or loss in the period in which they arise.
Investments in foreign operations
Nedbank Group Limited’s presentation currency is South African rands.
The assets and liabilities, including goodwill, of those entities that have functional currencies other than that of the group
(South African rands) are translated at the closing rate. Income and expenses are translated using the average exchange
rate for the period. The differences that arise on translation of these entities are recognised directly in equity. All these
exchange differences are recognised as a separate component of equity in other comprehensive income in the statement
of comprehensive income. This is represented by the cumulative balance in the foreign currency translation reserve.
On disposal of a foreign operation the cumulative exchange differences deferred in the foreign currency translation
reserve relating to the foreign operation being disposed of are recognised in profit or loss when the gain or loss on disposal
The primary and major determinants for non-rand functional currencies are the economic factors that determine the sales
price for goods and services as well as costs. Additional supplementary factors to be considered are funding, autonomy
Subsidiary undertakings and special-purpose entities
Subsidiary undertakings are those entities, including unincorporated entities such as trusts and partnerships, that are
controlled by the group. The group financial statements include the assets, liabilities and results of the company plus
subsidiaries, including special-purpose entities (SPEs) controlled by the group from the date of acquisition until the date
the group ceases to control the subsidiary. Subsidiary undertakings are consolidated when they are considered to be
material to the financial statements of the group.
Control is defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from
its activities. Control is presumed to exist when the group owns, directly or indirectly through subsidiaries, more than
half of the voting power of an entity, unless, in exceptional circumstances, it can clearly be demonstrated that such
ownership does not constitute control. The existence and effect of potential voting rights that are currently exercisable
or convertible, including potential voting rights held by other entities, are taken into account when assessing whether
the group has control.
Subsidiaries include SPEs that are created to accomplish a narrow and well-defined objective, which may take the form
of a company, corporation, trust, partnership or unincorporated entity. The assessment of whether control exists over
SPEs is based on the substance of the relationship between the group and the SPE. SPEs in which the group holds half
or less of the voting rights, but which are controlled by the group by retaining the majority of risks or benefits, are
consolidated in the group financial statements.
Intragroup balances, transactions, income and expenses, and profits and losses are eliminated in preparation of the
group financial statements. Unrealised losses are not eliminated to the extent that they provide objective evidence of
Subsidiary undertakings are accounted for on the cost basis in the company financial statements.
An associate is an entity, including an unincorporated entity, over which the group has the ability to exercise significant
influence, but not control or joint control, through participation in the financial and operating policy decisions of the
investment (that is neither a subsidiary nor an investment in a joint venture). This is generally demonstrated by the
group holding in excess of 20%, but no more than 50%, of the voting rights.
The profit or loss of the associate and assets and liabilities, including goodwill identified on acquisition, net of any
accumulated impairment losses, are included in the group financial statements using the equity method of accounting
from the date significant influence commences until the date significant influence ceases. Where an associate has a
reporting period that is different from that of the group, the results of the associate are adjusted to reflect a reporting
period consistent with the consolidating company’s reporting period. The carrying amount of such investments is
reduced to recognise any impairment in the value of individual investments. When the group’s share of losses exceeds
the carrying amount of the associate, the carrying amount is reduced to nil, inclusive of any debt outstanding. The
recognition of further losses is discontinued, except to the extent that the group has incurred or guaranteed obligations
in respect of the associate.
Where an entity within the group transacts with an associate of the group, unrealised profits and losses are eliminated
to the extent of the group’s interest in the relevant associate.
Investments in associates that are held with the intention of disposing thereof within 12 months are accounted for and
classified as non-current assets held for sale.
Joint ventures are those entities over which the group has joint control in terms of a contractual agreement. Jointly
controlled entities are incorporated into the group financial statements using the equity method of accounting. The
carrying amount of such investments is reduced to recognise any impairment in the value of individual investments, by
applying the impairment methodology described in 1.8.
Where an entity within the group transacts with a joint venture of the group, unrealised profits and losses are eliminated
to the extent of the group’s interest in the joint venture. When the group’s share of losses exceeds the carrying amount
of the joint venture, the carrying amount is reduced to nil. The recognition of further losses is discontinued, except to the
extent that the group has incurred or guaranteed obligations in respect of the joint venture.
Investments in joint ventures that are held with the intention of disposing thereof within 12 months are accounted for
and classified as non-current assets held for sale.
Investments held by venture capital divisions
Where the group has an investment in an associate company or joint venture company held by a venture capital division,
whose primary business is to purchase and dispose of minority stakes in entities, the investment is classified as designated
fair value through profit or loss, as the divisions are managed on a fair-value basis. Changes in fair value are recognised in
the non-interest revenue line in profit or loss in the period in which they occur.
Acquisitions and disposals of stakes in group companies
Where appropriate, the cost of acquisition that includes any asset or liability resulting from a contingent consideration
arrangement is measured at the acquisition date fair value of such asset or liability. Subsequent changes in such fair
values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below).
All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted
for in accordance with the relevant IFRS. Changes in the fair value of contingent consideration that have been classified
as equity are not recognised.
Acquisitions of subsidiaries (entities acquired) and businesses (assets and liabilities acquired) are accounted for using the
acquisition method. The cost of a business combination is measured as the aggregate of the fair values (at the acquisition
date) of assets given, liabilities incurred or assumed, and equity instruments issued by the group in exchange for control
of the acquiree. For all transactions subsequent to 31 December 2008 acquisition-related costs are recognised in profit or
loss as incurred. Prior to this date all acquisition-related costs were capitalised to the cost of the acquisition.
The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under
IFRS 3 are recognised at their fair value at the date of acquisition, except:
- deferred tax assets or liabilities, which are recognised and measured in accordance with IAS 12 Income taxes, and
liabilities or assets related to employee benefit arrangements, which are recognised and measured in accordance with
IAS 19 Employee benefits;
- liabilities or equity instruments that relate to the replacement, by the group, of an acquiree’s share-based payment
awards, which are measured in accordance with IFRS 2 Share-based payments; and
- assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale
and Discontinued operations, which are measured in accordance with that standard.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the
combination occurs, the group reports provisional amounts for the items for which the accounting is incomplete. Where
provisional amounts were reported, these are adjusted during the measurement period (see below). Additional assets or
liabilities are recognised to reflect any new information obtained about the facts and circumstances that existed at the
date of acquisition, which if known, would have affected the amounts recognised on that date.
The measurement period is the period from the date of acquisition to the date the group receives complete information
about the facts and circumstances that existed at the acquisition date. This measurement period is subject to a maximum
of one year after the acquisition date.
Where a business combination is achieved in stages, the group’s previously held interest in the acquiree is remeasured to
fair value at the acquisition date on the date the group attains control, and the resulting gain or loss, if any, is recognised
in profit or loss. Amounts arising from an interest in the acquiree prior to the acquisition date that have previously been
recognised in other comprehensive income are reclassified to profit or loss, where such treatment would be appropriate
if that interest was disposed of.
A non-controlling interest in the net assets of consolidated subsidiaries is identified separately from the group’s equity
therein. The interest of a non-controlling shareholder is initially measured either at fair value or at the non-controlling
interest’s proportionate share of the acquiree’s identifiable net assets. The choice of measurement basis is made on
an acquisition-by-acquisition basis. Subsequent to the acquisition, a non-controlling interest consists of the amount
attributed to such interest at initial recognition and the non-controlling interest’s share of changes in equity since the
date of the combination.
The difference between the proceeds from the disposal of a subsidiary and its carrying amount at the date of disposal,
including the cumulative amount of any exchange differences recognised in the statement of changes in equity that relate
to the subsidiary, is recognised in the group profit and loss as the gain or loss on the disposal of the subsidiary.
Changes in the group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity
(transactions with owners). Any difference between the amount by which the non-controlling interest is adjusted and the
fair value of the consideration paid or received is recognised directly in equity and attributed to the group.
This accounting policy has been adopted for all transactions after 1 January 2009. The accounting for prior transactions
has not been restated.
Goodwill arising on the acquisition of a subsidiary is recognised as an asset on the date that
control is acquired, being
the acquisition date. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any
non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the
entity over the net fair value of the identifiable net assets recognised. If, after reassessment, the group’s interest in the
net fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred plus the amount
of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest (if any),
this excess is recognised immediately in profit or loss as a bargain purchase gain.
Goodwill is not amortised, but is reviewed for impairment at least once a year. Any impairment loss is recognised
immediately in profit or loss and is not subsequently reversed.
On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit or loss
||Financial instruments, as recognised on the statement of financial position, include all financial assets and financial
liabilities, including derivative instruments, but exclude investments in subsidiaries, associate companies and joint
ventures (other than investments held by venture capital divisions) and employee benefit plans. Financial instruments
are accounted for under IAS 32 Financial Instruments: Presentation, IAS 39 Financial Instruments: Recognition and
Measurement and IFRS 7 Financial Instruments: Disclosure.
The group does not currently apply hedge accounting. This accounting policy should be read in conjunction with the
group’s categorised statement of financial position and the group’s risk management policies.
Financial instruments are recognised on the statement of financial position when the group becomes a
party to the contractual provisions of a financial instrument. All purchases of financial assets that require delivery within the timeframe
established by regulation or market convention (‘regular way’ purchases) are recognised at trade date, which is the date
on which the group commits to purchase the financial asset. The liability to pay for ‘regular way’ purchases of financial
assets is recognised on trade date, which is when the group becomes a party to the contractual provisions of the financial
Contracts that require or permit net settlement of the change in the value of the contract are not considered ‘regular way’
contracts and are treated as derivatives between the trade and settlement of the contract.
Financial instruments that are designated at initial recognition as being at fair value through
profit or loss are recognised at fair value with transaction costs, which are directly attributable to the acquisition or issue of the financial instruments,
being recognised immediately through profit and loss.
Financial instruments that are not carried at fair value through profit or loss are initially measured at fair value plus
transaction costs that are directly attributable to the acquisition or issue of the financial instruments.
Where the transaction price in a non-active market is different to the fair value from other observable current market
transactions in the same instrument or based on a valuation technique, the variables of which include only data from
observable markets, the group defers such differences (day-one gains or losses). Day-one gains or losses are amortised
on a straight-line basis over the life of the financial instrument. To the extent that the inputs determining the fair value
of the instrument become observable, or on derecognition of the instrument, day-one gains or losses are recognised
immediately in profit or loss.
Categories of financial instruments
Subsequent to initial recognition, financial instruments are measured at fair
value, amortised cost or cost, depending on their classification and whether fair value can be measured reliably:
Financial instruments at fair value through profit or loss
Financial instruments at fair value through profit or loss consist of instruments that are held for trading and instruments
that the group has designated, at initial recognition date, as at fair value through profit or loss.
The group classifies instruments as held for trading if they have been acquired or incurred principally for the purpose
of sale or repurchase in the near term, they are part of a portfolio of identified financial instruments for which there
is evidence of a recent actual pattern of short-term profit-taking or they are derivatives. The group’s derivative
transactions include foreign exchange contracts, interest rate futures, forward rate agreements, currency and interest
rate swaps, and currency and interest rate options (both written and purchased).
Financial instruments that the group has elected, at initial recognition date, to designate as at fair value through profit
or loss are those that meet any one of the following conditions:
the fair value through profit or loss designation eliminates or significantly reduces a measurement or recognition
inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on
assets and liabilities on different bases;
the instrument forms part of a group of financial instruments that is managed and its performance is evaluated on a
fair-value basis, in accordance with a documented risk management or investment strategy, and information about
the group is provided internally on that basis to key management personnel, using a fair-value basis; or
a contract contains one or more embedded derivatives that require separation from the host contract or a derivative
that significantly modifies the cashflows of the host contract.
Gains or losses on financial instruments at fair value through profit or loss (excluding interest income and interest expense
calculated on the amortised-cost basis relating to interest-bearing instruments that have been designated as at fair value
through profit or loss) are reported in non-interest revenue as they arise. Interest income and interest expense calculated in
accordance with the effective-interest-rate method are reported in interest income and expense, except for interest income
and interest expense on instruments held for trading, which are recognised in non-interest revenue.
Gains or losses on the derecognition of trading financial liabilities are reported in non-interest revenue.
Non-trading financial liabilities
All financial liabilities, other than those at fair value through profit or loss, are classified as non-trading financial
liabilities and are measured at amortised cost. Interest expense is recorded in net interest income.
Held-to-maturity financial assets
Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and a fixed
maturity that the group has the positive intention and ability to hold to maturity, other than those that meet the
definition of loans and receivables or those that were designated as at fair value through profit or loss or available forsale.
Held-to-maturity financial assets are measured at amortised cost, with interest income recognised in interest and
similar income. Gains or losses arising on disposal of held-to-maturity financial assets are recognised in non-interest
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on
an active market, other than those financial assets classified by the group on initial recognition as at fair value through
profit or loss, available for sale or loans and receivables that are held for trading.
Financial assets that are classified as loans and receivables are carried at amortised cost, with interest income recognised
in interest and similar income. Gains or losses arising on disposal are recognised in non-interest revenue. The majority
of the group’s advances are included in the loans and receivables category.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that the group has
designated as available for sale or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets as at fair value
through profit or loss.
Available-for-sale financial assets are measured at fair value, with fair-value gains or losses recognised directly in equity,
in the statement of other comprehensive income. Foreign currency translation gains or losses or interest income,
calculated on the effective-interest-rate method, is reported in profit or loss.
When available-for-sale financial assets are disposed of, the fair-value gains or losses accumulated in equity are
recognised in profit and loss. Previous gains and losses recognised in the statement of other comprehensive income are
reversed on disposal.
Derivatives in a host contract that is a financial or non-financial instrument, such as an
equity conversion option in a
convertible bond, are separated from the host contract when all of the following conditions are met:
- The economic characteristics and risks of the embedded derivative are not closely related to those of the host contract.
- A separate instrument with the same terms as the embedded derivative would meet the definition of a derivative.
- The combined contract is not measured at fair value, with changes in fair value recognised in profit or loss.
The host contract is accounted for:
- under IAS 39 if it is a financial instrument; and
- in accordance with other appropriate accounting standards if it is not a financial instrument.
If an embedded derivative is required to be separated from its host contract but it is not possible separately to measure
the fair value of the embedded derivative, either at acquisition or at a subsequent financial reporting date, the entire
hybrid instrument is categorised as at fair value through profit or loss and measured at fair value.
Measurement basis of financial instruments
There are two bases of measurement:
- amortised cost; and
- fair value.
- Amortised cost
The amortised cost of a financial instrument is the amount at which the financial instrument is measured on initial
recognition minus principal repayments, plus or minus the cumulative amortisation using the effective-interest-rate
method of any difference between the initial contractual amount and the maturity amount, less any cumulative
The effective-interest-rate method is a method of calculating the amortised cost of a financial asset and of allocating
the interest income and expense over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate,
a shorter period, to the net carrying amount of the financial instrument. When calculating the effective interest rate,
we estimate cashflows considering all contractual terms of the financial instrument, but do not consider future credit
losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral
part of the effective interest rate, transaction costs, and all other premiums or discounts.
Fair value is defined as the price at which an asset or liability could be exchanged in a current transaction between
knowledgeable, willing parties, other than in a forced or liquidation sale.
The fair value of instruments that are quoted in active markets is determined using the quoted prices where they
represent those at which regularly and recently occurring transactions take place.
The group uses valuation techniques to establish the fair value of instruments where quoted prices in active markets
are not available.
For a detailed discussion of the fair value of financial instruments refer to
Note 6.1: Valuation of Financial Instruments.
The group derecognises a financial asset (or group of financial assets) or a part of a financial asset (or part of a group of
financial assets) when and only when:
- the contractual rights to the cashflows arising from the financial asset have expired; or
- it transfers the financial asset, including substantially all the risks and rewards of ownership of the asset; or
- it transfers the financial asset, neither retaining nor transferring substantially all the risks and rewards of ownership of
the asset, but no longer retaining control of the asset.
A financial liability (or part of a financial liability) is derecognised when and only when the liability is extinguished, ie when
the obligation specified in the contract is discharged, cancelled or has expired.
The difference between the carrying amount of a financial asset or financial liability (or part thereof) that is derecognised
and the consideration paid or received, including any non-cash assets transferred or liabilities assumed, is recognised in
profit or loss for the period.
The group securitises various consumer and commercial financial assets, generally resulting in the sale of these assets
to SPEs, which in turn issue securities to investors. Interests in the securitised financial assets may be retained in the
form of senior or subordinated tranches, interest-only strips or other residual interests (retained interests). Retained
interests are primarily recorded in available-for-sale investment securities and carried at fair value. Gains or losses on
securitisation depend in part on the carrying amount of the transferred financial assets, allocated between the financial
assets derecognised and the retained interests based on their relative fair values at the date of transfer. Gains or losses on
securitisation are recorded in other operating income and in profit and loss for the period.
Impairment of financial assets
The group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial
assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only
if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition
of the asset (a loss event) and that loss event has (or events have) an impact on the estimated future cashflows of
the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset
or group of assets is impaired includes observable data that comes to the attention of the group about the following
- significant financial difficulty of the issuer or obligor;
- a breach of contract, such as a default or delinquency in interest or principal payments;
- the group granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty,
a concession that the group would not otherwise consider;
- it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
- the disappearance of an active market for that financial asset because of financial difficulties; or
- observable data indicating that there is a measurable decrease in the estimated future cashflows from a group of
financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the
individual financial assets in the group, including
- adverse changes in the payment status of borrowers in the group, or
- national or local economic conditions that correlate with defaults on the assets in the group.
Assets carried at amortised cost
If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity financial assets
carried at amortised cost has been incurred, the amount of the impairment loss is measured as the difference between
the asset’s carrying amount and the present value of estimated future cashflows (excluding future credit losses that
have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the
asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss.
The group first assesses whether there is objective evidence of impairment individually for financial assets that are
individually significant, and individually or collectively for financial assets that are not individually significant. If the
group determines that there is no objective evidence of impairment for an individually assessed financial asset, whether
significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and
collectively assesses them for impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the
previously recognised impairment loss is reversed by adjusting the allowance account. The reversal may not result in a
carrying amount of the financial asset that exceeds what the amortised cost would have been had the impairment not
been recognised at the date on which the impairment is reversed. The amount of the reversal is recognised in profit or
loss for the period.
Financial assets carried at cost
If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not
recognised at fair value, because its fair value cannot be reliably measured, or on a derivative asset that is linked to and
has to be settled by delivery of such an unquoted equity instrument, or a financial asset that is carried at cost because
its fair value could not be determined, the amount of the impairment loss is measured as the difference between the
carrying amount of the financial asset and the present value of estimated future cashflows discounted at the current
market rate of return for a similar financial asset. Such impairment losses are not reversed.
Available-for-sale financial assets
When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity in the
statement of comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that has
been recognised directly in equity in the statement of comprehensive income is removed from equity and recognised in
profit or loss. The amount of the cumulative loss that is removed from equity and recognised in profit or loss is the difference
between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment
loss on that financial asset previously recognised in profit or loss. Impairment losses recognised in profit or loss for an
investment in an equity instrument classified as available for sale are not reversed through profit or loss.
If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can
be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment
loss is reversed, with the amount of the reversal recognised in profit or loss for the period.
Maximum credit risk
Credit risk arises principally from loans and advances to clients, investment security derivatives and irrevocable
commitments to provide facilities. The maximum credit risk is typically the gross carrying amount, net of any
amounts offset and impairment losses. The maximum credit exposure for loan commitments is the full amount of the
commitment if the loan cannot be settled net in cash or using another financial asset.
Offsetting financial instruments and related income
Financial assets and liabilities are offset and the net amount reported in the statement of financial position only when
the group has a legally enforceable right to set off the financial asset and financial liability and the group has an intention
of settling the asset and liability on a net basis or realising the asset and settling the liability simultaneously. Income and
expense items are offset only to the extent that their related instruments have been offset in the statement of financial
Financial and non-financial assets are held as collateral in respect of recognised financial assets. Such collateral, except
cash collateral, is not recognised by the group, as the group does not retain the risks and rewards of ownership, and is
obliged to return such collateral to counterparties on settlement of the related obligations. Should a counterparty be
unable to settle its obligations, the group takes possession of collateral or calls on other credit enhancements as full or
part settlement of such amounts. These assets are recognised when the applicable recognition criteria under IFRS are met,
and the group’s accounting policies are applied from the date of recognition. Cash collateral is recognised when the group
receives the cash and is reported as amounts received from depositors. Collateral is also given to counterparties under
certain financial arrangements, but such assets are not derecognised where the group retains the risks and rewards of
ownership. Such assets are at risk to the extent that the group is unable to fulfil its obligations to counterparties.
Interest income and expense
Interest income and expense are recognised in profit or loss using the effective-interest-rate method taking into account
the expected timing and amount of cashflows. The effective-interest-rate method is a method of calculating the
amortised cost of a financial asset or financial liability (or group of financial assets or financial liabilities) and of allocating
the interest income or interest expense over the relevant period. Interest income and expense include the amortisation of
any discount or premium or other differences between the initial carrying amount of an interest-bearing instrument and
its amount at maturity calculated on an effective-interest-rate basis.
- Fees and commissions
The group earns fees and commissions from a range of services it provides to clients and these are accounted for as
- Income earned on the execution of a significant act is recognised when the significant act has been performed.
- Income earned from the provision of services is recognised as the service is rendered by reference to the stage of
completion of the service.
- Income that forms an integral part of the effective interest rate of a financial instrument is recognised as an
adjustment to the effective interest rate and recorded in interest income.
Dividend income is recognised when the right to receive payment is established on the ex-dividend date for equity
instruments and is included in dividend income under non-interest revenue.
Net trading income
Net trading income comprises all gains and losses from changes in the fair value of financial assets and financial
liabilities held for trading, together with the related interest, expense, costs and dividends. Interest earned while holding
trading securities and interest incurred on trading liabilities are reported within non-interest revenue.
Income from investment contracts
Refer to 1.21 for non-interest revenue arising on investment management contracts.
Exchange and securities trading income, from investments and net gains on the sale of investment banking assets, is
recognised in profit or loss when the amount of revenue from the transaction or service can be measured reliably, it is
probable that the economic benefits of the transaction or service will flow to the group and the costs associated with
the transaction or service can be measured reliably.
Fair-value gains or losses on financial instruments at fair value through profit or loss, including derivatives, are included
in non-interest revenue. These fair-value gains or losses are determined after deducting the interest component, which
is recognised separately in interest income and expense.
Gains or losses on derecognition of any financial assets or financial liabilities are included in non-interest revenue.
Sale and repurchase agreements and lending of securities
Securities sold subject to linked repurchase agreements are retained in the financial statements, as the group retains all
risks and rewards of ownership of the securities. The securities are recorded as trading or investment securities and the
counterparty liability is included in amounts owed to other depositors, deposits from other banks, or other money market
deposits, as appropriate. Securities purchased under agreements to resell are recorded as loans and advances to other
banks or clients, as appropriate. The difference between the sale and repurchase price is treated as interest and recognised
over the duration of the agreements using the effective-interest-rate method. Securities lent to counterparties are also
retained in the financial statements and any interest earned is recognised in profit or loss using the effective-interest-rate
Securities borrowed are not recognised in the financial statements, unless these are sold to third parties, in which case
the purchase and sale are recorded with the gain or loss included in non-interest revenue. The obligation to return them
is recorded at fair value as a trading liability.
Acceptances comprise undertakings by the group to pay bills of exchange drawn on clients. The group expects most
acceptances to be settled simultaneously with the reimbursement from clients. Acceptances are disclosed as liabilities,
with the corresponding asset recorded in the statement of financial position.
Financial guarantee contracts
Issued financial guarantee contracts are recognised as insurance contracts. Liability adequacy testing is performed to
ensure that the carrying amount of the liability for issued financial guarantee contracts is sufficient.
||Taxation expense, recognised in the statement of comprehensive income, comprises current and deferred taxation. Income
or direct taxation is recognised in profit or loss, except to the extent that it relates to items recognised directly in equity,
in which case it too is recognised in equity.
Current taxation is the expected tax payable on the taxable income for the year, using taxation rates enacted or
substantively enacted at the reporting date, and any adjustment to taxation payable in respect of previous years (prior-period
Secondary tax on companies (STC) arises from the distribution of dividends. STC is recognised at the same time as the
liability to pay the related dividend, being the date of the declaration of the dividend.
Deferred taxation is provided using the balance sheet liability method, based on temporary differences. Temporary
differences are differences between the carrying amounts of assets and liabilities for financial reporting purposes and their
respective taxation bases. The amount of deferred taxation provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, and is measured at the taxation rates (enacted or substantively
enacted at the reporting date) that are expected to be applied to the temporary differences when they are reversed.
Deferred taxation is recognised in profit or loss for the period, except to the extent that it relates to a transaction that
is recognised directly in equity, or a business combination that is accounted for as an acquisition. The effect on deferred
taxation of any changes in taxation rates is recognised in profit or loss for the period, except to the extent that it relates
to items previously charged or credited directly to equity.
Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are generally
recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available
against which those deductible temporary differences can be utilised.
Deferred taxation is not recognised for the following temporary differences: the initial recognition of goodwill; the initial
recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting
nor taxable profit; and differences relating to investments in subsidiaries and jointly controlled entities to the extent that
they will not be reversed in the foreseeable future.
Deferred tax assets are recognised to the extent that it is probable that future taxable income will be available against
which the unutilised taxation losses and deductible temporary differences can be used. Deferred taxation assets are
reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related taxation
benefits will be realised.
Deferred tax assets are recognised for STC credits received based on the expected utilisation of these credits by group
companies in the declaration of future dividends.
Goodwill and intangible assets
Goodwill and goodwill impairment
Goodwill arises on the acquisition of subsidiaries, associates and joint ventures. Goodwill is measured at cost less
accumulated impairment losses. In respect of equity-accounted investments, the carrying amount of goodwill is included
in the carrying amount of the investment.
Goodwill is allocated to one or more cash-generating units (CGUs), being the smallest identifiable group of assets that
generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill
is allocated to the CGUs in which the synergies from the business combinations are expected. Each CGU containing
goodwill is annually tested for impairment. An impairment loss is recognised whenever the carrying amount of an asset
or its CGU exceeds its recoverable amount. Impairment losses that are recognised in respect of CGUs are allocated first
to reduce the carrying amount of any goodwill allocated to a CGU and then to reduce the carrying amount of the other
assets in the CGU on a pro rata basis. However, the carrying amount of these other assets may not be reduced below the
highest of its fair value less costs to sell, its value in use and zero.
Impairment testing procedures
The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value in use. The fair value less cost
to sell is determined by ascertaining the current market value of an asset (or the CGU) and deducting any costs related
to the realisation of the asset.
In assessing value in use the expected future pretax cashflows from the CGU are discounted to their present value using
a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the
Impairment losses relating to goodwill are not reversed and all impairment losses are recognised in profit or loss for the
Computer software and capitalised development costs
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and
understanding, and expenditure on internally generated goodwill and brands are recognised as an expense in profit or loss
for the period.
If costs can be reliably measured and future economic benefits are available, expenditure on computer software and
other development activities, whereby set procedures and processes are applied to a project for the production of new or
substantially improved products and processes, is capitalised if the computer software and other developed products or
processes are technically and commercially feasible and the group has sufficient resources to complete development. The
expenditure capitalised includes the cost of materials and directly attributable employee and other direct costs. Computer
development expenditure is amortised only once the relevant software is available for use in the manner intended by
management. Capitalised software is stated at cost less accumulated amortisation and impairment losses. Computer
development expenditure that is not yet available for use is not amortised and is stated at cost less impairment losses.
Amortisation of computer software and development costs is charged to profit or loss on a straight-line basis over
the estimated useful lives of these assets, which do not exceed five years and are reviewed at appropriate intervals.
Subsequent expenditure relating to computer software is capitalised only when it increases the future economic benefits
embodied in the specific asset, in its current condition, to which it relates. All other subsequent expenditure is recognised
as an expense in the period in which it is incurred. The profit or loss on the disposal of computer software is recognised in
non-trading and capital items (in profit or loss). The profit or loss on disposal is the difference between the net proceeds
received and the carrying amount of the asset.
Contractual client relationships
Contractual client relationships, including the present value of in-force business in insurance businesses, acquired in a
business combination are recognised at fair value at the date of acquisition. The contractual client relationships have a
finite useful life and are carried at cost less accumulated amortisation. The useful lives of these client relationships are
reviewed on an annual basis. Amortisation is calculated using the straight-line method over the expected life of the client
Property and equipment
||Items of property and equipment are initially recognised at cost if it is probable that any future economic benefits
associated with the items will flow to the group and it has a cost that can be measured reliably. Certain items of property
and equipment that had been revalued to fair value on 1 January 2004, the date of transition to IFRS, are measured on
the basis of deemed cost, being the revalued amount at the date of that revaluation.
Subsequent expenditure is capitalised to the carrying amount of items of property and equipment if it is measurable and
it is probable that it increases the future economic benefits associated with the asset. All other expenses are recognised
in profit or loss as an expense when incurred.
Subsequent to initial recognition, computer equipment, vehicles and furniture and other equipment are measured at cost
less accumulated depreciation and accumulated impairment losses.
Land and buildings, the fair values of which can be reliably measured, are carried at revalued amounts, being the fair value
at the date of revaluation less any subsequent accumulated depreciation and impairment losses. Revaluation increases are
credited directly to equity in ‘Other comprehensive income’ under the heading ‘Revaluation reserve’. However, revaluation
increases are recognised in profit or loss to the extent that they are reversed a revaluation decrease of the same asset
previously recognised in profit or loss. Revaluation decreases are recognised in profit or loss. However, decreases are
debited directly to equity to the extent of any credit balance existing in the revaluation surplus in respect of the same
asset. Land and buildings are revalued on the same basis as investment properties.
Each part of an item of property and equipment with a cost that is significant in relation to the total cost of the item
is depreciated separately. Items of property and equipment that are classified as held for sale in terms of IFRS 5 are not
depreciated. The depreciable amounts of property and equipment are recognised in profit or loss on a straight-line basis
over the estimated useful lives of the items of property and equipment, unless they are included in the carrying amount
of another asset. The useful lives, residual values and depreciation methods for property and equipment are assessed and
adjusted (where required) on an annual basis.
On revaluation any accumulated depreciation at the date of the revaluation is eliminated against the gross carrying
amount of the item concerned and the net amount restated to the revalued amount. Subsequent depreciation charges
are adjusted based on the revalued amount and residual values.
Any difference between the depreciation charge on the revalued amount and that which would have been charged under
historic cost is transferred net of any related deferred taxation between the revaluation reserve and retained earnings as
the property is utilised. Land is not depreciated.
The maximum initial estimated useful lives are as follows:
|• Computer equipment
|• Motor vehicles
|| 6 years
|• Fixtures and furniture
|| 10 years
|• Leasehold property
|| 20 years
|• Significant leasehold property components
|| 10 years
|• Freehold property
|• Significant freehold property components
|| 5 years
Items of property and equipment are derecognised on disposal or when no future economic benefits are expected from
their use or disposal. The gain or loss on derecognition is recognised in profit or loss and is determined as the difference
between the net disposal proceeds, if any, and the carrying amount of the item. On derecognition any surplus in the
revaluation reserve in respect of an individual item of property and equipment is transferred directly to retained earnings
in the statement of changes in equity.
Compensation from third parties for items of property and equipment that were impaired, lost or given up is included in
profit or loss when the compensation becomes receivable.
Impairment (all assets other than goodwill and financial assets)
||The group assesses all assets (other than financial instruments, goodwill and intangible assets not yet available for
use) for indications of impairment or the reversal of a previously recognised impairment at each reporting date. These
impairments (where the carrying amount of an asset exceeds its recoverable amount) or the reversal of a previously
recognised impairment is recognised in profit or loss for the period. Intangible assets not yet available for use are tested
on a minimum of an annual basis for impairment.
An impairment loss is recognised in profit or loss whenever the carrying amount of an asset exceeds its recoverable amount.
The recoverable amount of an asset is the higher of its fair value less cost to sell and its value in use. The fair value less
cost to sell is determined by ascertaining the current market value of an asset and deducting any costs related to the
realisation of the asset.
In assessing value in use the expected future pretax cashflows from the asset are discounted to their present value using
a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset. For an asset the cashflows of which are largely dependent on those of other assets the recoverable amount is
determined for the cash-generating unit to which the asset belongs.
A previously recognised impairment loss will be reversed if the recoverable amount increases as a result of a change in the
estimates used previously to determine the recoverable amount, but not to an amount higher than the carrying amount
that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised in prior
||Investment properties comprise real estate held for earning rentals and/or for capital appreciation. This does not include
real estate held for use in the supply of services or for administrative purposes. Investment properties are initially measured
at cost plus any directly attributable expenses.
Investment properties are stated at fair value. Internal professional valuers perform valuations annually. For practical
reasons valuations are carried out over a cyclical basis over a 12-month period due to the large number of investment
properties involved. External valuations are obtained once every three years on a rotational basis. In the event of a
material change in market conditions between the valuation date and reporting date, an internal valuation is performed
and adjustments made to reflect any material changes in value.
The valuation methodology applied is dependent on the nature of the property. Income-generating assets are valued
using discounted cashflows. Vacant land, land holdings and residential flats are valued according to sales of comparable
properties. Near-vacant properties are valued at land value less the estimated cost of demolition.
Surpluses and deficits arising from changes in fair value are recognised in profit or loss for the period in the statement of
For properties reclassified during the year from property and equipment to investment properties any revaluation gain
arising is initially recognised in profit or loss to the extent of previously charged impairment losses. Any residual excess is
taken to the revaluation reserve. Revaluation deficits are recognised in the revaluation reserve to the extent of previously
recognised gains and any residual deficit is accounted for in profit or loss for the period.
Investment properties that are reclassified to owner-occupied property are revalued at the date of transfer, with any
difference being taken to profit or loss.
||Borrowing costs directly attributable to the acquisition, construction and production of qualifying assets are capitalised as
part of the costs of these assets. Qualifying assets are assets that necessarily take a substantial period of time to prepare
for their intended use or sale. Capitalisation of borrowing costs continues up to the date when the assets are substantially
ready for their use or sale.
All other borrowing costs are expensed in the period in which they are incurred.
Borrowing costs capitalised are disclosed in the notes by asset category and are calculated at the group’s average funding
cost, except to the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset. Where this
occurs, actual borrowing costs incurred less any investment income on the temporary investment of those borrowings
||Defined-benefit and defined-contribution plans have been established for eligible employees of the group, with assets
held in separate trustee-administered funds.
Pension obligations are accounted for in accordance with IAS 19 Employee Benefits. The projected-unit credit method
is used to determine the defined-benefit obligations based on actuarial assumptions, which incorporate not only the
pension obligations known on the reporting date, but also information relevant to their expected future development. The
discount rates used are determined based on the yields for government bonds that have maturity dates approximating
the terms of the group’s obligations.
Actuarial gains and losses are accounted for using the corridor method and are not recognised in the statement of
changes in equity. The portion of actuarial gains and losses that are recognised for each defined-benefit plan is the excess
of the net cumulative unrecognised actuarial gains and losses at the end of the previous reporting period over the greater
of 10% of the present value of the defined-benefit obligation at that date, before deducting plan assets, and 10% of the
fair value of any plan assets at that date. This is then divided by the expected average remaining working lives of the
employees participating in that plan.
Where the calculation results in a benefit to the group, the recognised asset is limited to the net total of any unrecognised
actuarial losses and past service costs and the present value of any future refunds from the plan or reductions in future
contributions to the plan.
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is
recognised as an expense in profit or loss on a straight-line basis over the average period until the benefits become vested.
To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss.
Plan assets are only offset against plan liabilities where they are assets held by long-term employee benefit funds or
qualifying insurance policies. Qualifying insurance policies exclude any insurance policies held by the group’s holding or
Contributions in respect of defined-contribution benefits are recognised as an expense in profit or loss in the statement
of comprehensive income as incurred.
Postemployment benefit plans
Certain entities within the group provide postretirement medical benefits and disability cover to eligible employees.
Non-pension postemployment benefits are accounted for according to their nature, either as defined-contribution
or defined-benefit plans. The expected costs of postretirement benefits that are defined-benefit plans in nature are
accounted for in the same manner as in the case of defined-benefit pension plans.
Short-term employee benefits
Short-term employee benefit obligations are measured in the statement of financial position on an undiscounted basis
and are expensed as the related service is provided.
Equity-settled share-based payment transactions with employees
The services received in an equity-settled share-based payment transaction with employees are measured at the fair
value of the equity instruments granted. The fair value of the equity instruments is measured at grant date and is not
If the equity instruments granted vest immediately and an employee is not required to complete a specified period of
service before becoming unconditionally entitled to the instruments, the services received are recognised in profit or loss
for the period in full on grant date with a corresponding increase in equity.
Where the equity instruments do not vest until the employee has completed a specified period of service, it is assumed
that the services rendered by the employee, as consideration for the equity instruments, will be received in the future
during the vesting period. The services are accounted for in profit or loss in the statement of comprehensive income as
they are rendered during the vesting period, with a corresponding increase in equity. The share-based payment expense
is adjusted for non-market-related performance conditions, such as service period required to be completed. Where the
equity instruments are no longer outstanding, the accumulated share-based payment reserve in respect of those equity
instruments is transferred to retained earnings.
Measurement of fair value of equity instruments granted
The equity instruments granted by the group are measured at fair value at measurement date using standard option
pricing valuation models. The valuation technique is consistent with generally acceptable valuation methodologies for
pricing financial instruments and incorporates all factors and assumptions that knowledgeable, willing market participants
would consider in setting the price of the equity instruments. Vesting conditions, other than market conditions, are not
taken into account in determining fair value. Vesting conditions are taken into account by adjusting the number of equity
instruments included in the measurement of the transaction amount.
Share-based payment transactions with persons or entities other than employees
Transactions in which equity instruments are issued to historically disadvantaged individuals and organisations in
South Africa for less than fair value are accounted for as share-based payments. Where the group has issued such
instruments and expects to receive services in return for equity instruments, the share-based payments charge is spread
over the related vesting (ie service) period. In instances where goods and services could not be identified, the cost has
been expensed with immediate effect. The valuation techniques are consistent with those mentioned above.
The group as lessee
Leases in respect of which the group bears substantially all risks and rewards incidental to ownership are classified as
finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the lease
property and the present value of the minimum lease payments. Directly attributable costs, such as commission paid,
incurred by the group are added to the carrying amount of the asset. Each lease payment is allocated between the liability
and finance charges to achieve a constant periodic rate of interest on the balance outstanding. Contingent rentals are expensed in the period they are incurred. The depreciation policy for leased assets is consistent with that of depreciable
assets owned. If the group does not have reasonable certainty that it will obtain ownership of the leased asset by the end
of the lease term, the asset is depreciated over the shorter of the lease term and its useful life.
Leases that are not classified as finance leases are classified as operating leases. Payments made under operating leases,
net of any incentives received from the lessor, are recognised in profit or loss on a straight-line basis over the term of the
lease. When another systematic basis is more representative of the time pattern of the user’s benefit, then that method
The group as lessor
Where assets are leased out under a finance lease arrangement, the present value of the lease payments is recognised
as a receivable and included under loans and advances in the statement of financial position. Initial direct costs are
included in the initial measurement of the receivable. The difference between the gross receivable and unearned finance
income is recognised under loans and advances in the statement of financial position. Finance lease income is allocated
to accounting periods to reflect a constant periodic rate of return on the group’s net investment outstanding in respect
of the leases.
Assets leased out under operating leases are included under property and equipment in the statement of financial
position. Initial direct costs incurred in negotiating and arranging the lease are added to the carrying amount of the
leased asset and recognised as an expense over the lease term on the same basis as the rental income. Leased assets are
depreciated over their expected useful lives on a basis consistent with similar assets. Rental income, net of any incentives
given to lessees, is recognised on a straight-line basis over the term of the lease. When another systematic basis is more
representative of the time pattern of the user’s benefit, then that method is used.
Recognition of lease of land
Leases of land and buildings are classified as operating or finance leases in the same way as leases of other assets.
However, when a single lease covers both land and a building, the minimum lease payments at the inception of the lease
(including any upfront payments) are allocated between the land and the building in proportion to the relative fair values
of the respective leasehold interests. Any upfront premium allocated to the land element that is normally classified as an
operating lease represents prepaid lease payments. These payments are amortised over the lease term in accordance with
the time pattern of benefits provided. If the lease payments cannot be allocated reliably between these two elements, the
entire lease is classified as a finance lease, unless it is clear that both elements are operating leases.
Cash and cash equivalents
||Cash and cash equivalents comprise balances with a maturity of less than 90 days from the date of acquisition, including
cash and balances with central banks that are not mandatory, other eligible bills and amounts due from other banks.
||Provisions are recognised when the group has a present legal or constructive obligation as a result of a past event, in
respect of which it is probable that an outflow of economic benefits will occur and a reliable estimate can be made of the
amount of the obligation. The amount recognised as a provision is the reasonable estimate of the expenditure required
to settle the obligation at the reporting date. Where the effect of discounting is material, the provision is discounted. The
discount rate reflects current market assessments of the time value of money and, where appropriate, the risks specific to
the liability. Gains from the expected disposal of assets are not taken into account in measuring provisions. Provisions are
reviewed at each reporting date and adjusted to reflect the current reasonable estimate. If it is no longer probable that an
outflow of resources will be required to settle the obligation, the provision is reversed.
Where some or all of the expenditure required to settle a provision is expected to be reimbursed by a party outside
the group, the reimbursement is recognised when it is virtually certain that it will be received if the group settles
the obligation. The reimbursement is recorded as a separate asset at an amount not exceeding the related provision.
The expense for the provision is presented net of the reimbursement in profit or loss. Specific policies that apply are:
- Onerous contracts
A provision for onerous contracts is recognised when the expected benefits to be derived by the group from a contract
are lower than the unavoidable cost of meeting the obligations under the contract.
A provision for restructuring is recognised when the group has a detailed formal plan for restructuring and has raised
a valid expectation, among those parties directly affected, that the plan will be carried out, either by having begun
implementation or by publicly announcing the plan’s main features. Restructuring provisions include only those costs
that arise directly from restructuring that is not associated with the ongoing activities of the group.
Future operating costs or losses are not provided for.
||An operating segment is a component of an entity that engages in business activities from which it may earn revenues,
the operating results of which segment are regularly reviewed by management to make decisions about resources to be
allocated to the segment and to assess its performance, for which financial information is available.
The group’s identification of its segments and the measurement of segment results are based on the group’s internal
reporting to management. The segments have been identified according to the nature of their respective products and
services and their related target markets, the details of which can be found in the
Operational Segmental Report of the
The segments identified are complemented by Shared Services and Central Management, which provide support in the
areas of finance, human resources, governance and compliance, risk management and information technology.
Additional information relating to geographic areas, major clients and other performance measures is provided.
The group accounts for intersegment revenues and transfers as if the transactions were with third parties at current
||Government grants are recognised when there is reasonable assurance that they will be received and that the group will
comply with the conditions attached to them. Grants that compensate the group for expenses or losses already incurred
or for purposes of giving immediate financial support to the entity with no future-related costs are recognised as income
in the period it becomes receivable. Grants that compensate the group for expenses to be incurred are recognised as
revenue in profit or loss on a systematic basis in the same periods in which the expenses will be incurred. Grants that
compensate the group for the cost of an asset are recognised in profit or loss as revenue on a systematic basis over the
useful life of the asset.
Non-current assets held for sale and discontinued operations
||Non-current assets (or disposal groups) are classified as held for sale when their carrying amount will be recovered
principally through sale rather than use.
The asset or disposal group must be available for immediate sale in its present condition and the sale should be highly
probable, with an active programme to find a buyer and the appropriate level of management approving the sale.
Immediately before classification as held for sale, all assets are remeasured in accordance with the group’s accounting
policies. Non-current assets (or disposal groups) held for sale are measured at the lower of carrying amount and fair value
less incremental directly attributable cost to sell (excluding taxation and finance charges) and are not depreciated.
Gains or losses recognised on initial classification as held for sale and subsequent remeasurement are recognised in profit
or loss, regardless of whether the assets were previously measured at revalued amounts. The maximum gains that can be
recognised are the cumulative impairment losses previously recognised in profit or loss. A disposal group continues to be
consolidated while classified as held for sale. Income and expenses continue to be recognised in profit or loss.
Non-current assets (or disposal groups) are reclassified from held for sale to held for use if they no longer meet the heldfor-
sale criteria. On reclassification the non-current asset (or disposal group) is remeasured at the lower of its recoverable
amount and the carrying amount that would have been recognised had the asset (or disposal group) never been classified
as held for sale. Any gains or losses are recognised in profit or loss, unless the asset was carried at a revalued amount prior
to classification as held for sale.
A discontinued operation is a clearly distinguishable component of the group’s business that has been disposed of or is
held for sale, which:
- represents a separate major line of business or geographical area of operations;
- is part of a single coordinated plan to dispose of a major line of business or geographical area of operations; or
- is a subsidiary acquired exclusively with a view to resell.
||Ordinary share capital, preference share capital or any financial instrument issued by the group is classified as equity
- payment of cash, in the form of a dividend or redemption, is at the discretion of the group;
- the instrument does not provide for the exchange of financial instruments under conditions that are potentially
unfavourable to the group;
- settlement in the group’s own equity instruments is for a fixed number of equity instruments at a fixed price; and
- the instrument represents a residual interest in the assets of the group after deducting all of its liabilities.
Consideration paid or received for equity instruments is recognised directly in equity. Equity instruments are initially
measured at the proceeds received, less incremental directly attributable issue costs, net of any related income tax
benefit. No gain is recognised in profit or loss on the purchase, sale, issue or cancellation of the group’s equity instruments.
When the group issues a compound instrument, ie an instrument that contains both a liability and equity component,
the equity component is initially measured at the residual amount after deducting from the fair value of the compound
instrument the amount separately determined for the liability component. Transaction costs that relate to the issue of a
compound financial instrument are allocated to the liability and equity components of the instrument in proportion to
the allocation of proceeds.
Distributions to holders of equity instruments are recognised as distributions in the statement of changes in equity in
the period in which they are payable. Dividends for the year that are declared after the reporting date are disclosed in the
notes to the financial statements.
||When the group acquires its own share capital, the amount of the consideration paid, including directly attributable costs,
net of any related tax benefit, is recognised as a change in equity. Shares repurchased by the issuing entity are cancelled.
Shares repurchased by group entities are classified as treasury shares and are held at cost. These shares are treated as
a deduction from the issued and weighted average number of shares, and the cost price of the shares is presented as a
deduction from total equity. The par value of the shares is presented as a deduction from ordinary share capital and the
remainder of the cost is presented as a deduction from ordinary share premium. Dividends received on treasury shares
are eliminated on consolidation.
Investment contract liabilities
Liabilities for unit-linked and market-linked contracts are reported at fair value. For unit-linked contracts the fair value is
calculated as the account value of the units, ie the number of units held multiplied by the bid price value of the assets in
the underlying fund (adjusted for taxation). For market-linked contracts the fair value of the liability is determined with
reference to the fair value of the underlying assets. This fair value is calculated in accordance with the financial soundness
valuation basis, except that negative rand reserves arising from the capitalisation of future margins are not permitted.
The fair value of the liability, at a minimum, reflects the initial deposit of the client, which is repayable on demand.
Investment contract liabilities (other than unit-linked and market-linked contracts) are measured at amortised cost.
Embedded derivatives included in investment contracts are separated out and measured at fair value. The host contract
liability is measured on an amortised-cost basis.
Revenue on investment management contracts
Fees charged for investment management services in conjunction with investment management contracts are recognised
as revenue as the services are provided. Initial fees that exceed the level of recurring fees and relate to the future provision
of services are deferred and amortised over the projected period over which services will be provided.
Contribution income relating to investment contracts
Contribution income includes lump sums received in respect of linked businesses with retirement funds and are accounted
for when due. The contribution income is set off directly against the liability under investment contracts.
Benefits relating to investment contracts
Policyholder benefits are accounted for when claims are intimated directly against the liability under investment contracts.
||Contracts under which the scheme accepts insurance risk from another party by agreeing to compensate such party or
other beneficiaries if a specified uncertain future event adversely affects the party or other beneficiaries are classified as
The policy liabilities under unmatured policies, including unintimated claims, are computed at the reporting date by
PA Vergeest, the statutory actuary, according to the financial soundness valuation method as set out in the guidelines
issued by the Actuarial Society of South Africa in Professional Guidance Note (PGN) 104. Claims intimated but not paid
are provided for. The actuarial balance sheet is included as a separate item in the group’s annual financial statements. The
group performs a liability adequacy test on its liabilities in line with IFRS 4 Insurance Contracts.
Linked products are investment-related products where the risk and reward of the underlying investment portfolio
accrues to the policyholder. Linked products, which provide for returns based on the change in the value of the underlying
instruments and market indicators, are initially recorded at cost. These products are revalued at year-end using discountedcashflow
analysis, closing market values and index values based on the observation dates stated in the underlying
investment agreements. Valuations are adjusted for the effects of changes in foreign exchange rates. Actuarial liabilities of
these linked products are stated at the same value as the underlying investments.
||When a cardholder makes a purchase that is regarded as eligible spend, the person/company will be granted points that
can be redeemed at a later date for goods or services. Points do not expire, unless a client is delinquent or dormant, in
which case the points accrued are forfeited as stated in the terms and conditions.
The fair value of the consideration received or receivable in respect of the initial sale is allocated between the award
credits and the other components of the sale. The award credits are recognised as deferred revenue until the entity fulfils
its obligations to deliver awards to clients.
The consideration allocated to the award credits will be measured by reference to the fair value thereof, ie the amount
for which the award credits could be sold separately and the expected manner in which the points will be utilised.
Adjustments are made for the expected utilisation and non-utilisation of the points awarded.
Standards and interpretations
||Standards and interpretations issued but not yet effective
The following standards, mandatory for the group’s accounting periods commencing on or after 1 January 2009, have not
been early-adopted by the group:
IFRS 9 Financial Instruments
The International Accounting Standards Board (IASB) has issued IFRS 9 Financial Instruments, which is the first step in
its project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces new requirements
for classifying and measuring financial assets. The IASB intends to expand IFRS 9 during 2010 to add new requirements
for the classification and measurement of financial liabilities, the derecognition of financial instruments, impairment
and hedge accounting.
The implementation of the standard is expected to have a material impact on the group’s financial statements. The
group is currently evaluating the impact of the adoption of the current requirements of the standard.
The standard is effective for the group for the year commencing 1 January 2013.
The following revisions to International Accounting Standards (IAS) have not been early-adopted by the group:
Amendments to IFRS 2 Group-settled Arrangements
The amendment provides additional guidance on the accounting for share-based payment transactions among group
entities. The most significant change is that the entity receiving the goods or services will recognise the transaction
as an equity-settled share-based payment transaction only if the awards granted are its own equity instruments or if
it has no obligation to settle the transaction. In all other circumstances the entity will measure the transaction as a
cash-settled share-based payment.
The scope of IFRS 2 has also been amended to clarify that the standard applies to all share-based payment transactions,
irrespective of whether or not the goods or services received under the share-based payment transaction can be
The amendment is effective for the group for the annual periods commencing on or after 1 January 2010 and is not
expected to have a significant impact on any of the group entities.
Amendments to IAS 32 Classification of Rights Issues
The amendment states that rights, options and warrants – otherwise meeting the definition of equity instruments in
IAS 32.11 – issued to acquire a fixed number of an entity’s own non-derivative equity instruments for a fixed amount
in any currency are classified as equity instruments, provided the offer is made pro rata to all existing owners of the
same class of the entity’s own non-derivative equity instruments.
The amendment is effective for the group for the annual periods commencing on or after 1 January 2010 and is not
expected to have a significant impact on the group.
Annual improvement project
As part of its second annual improvement project the IASB has issued its edition of annual improvements.
The annual improvement project aims to clarify and improve the accounting standards.
The improvements include those involving terminology or editorial changes with minimal effect on recognition and
There are no significant changes in the current year’s improvement that will affect the group and is effective for the
group commencing 1 January 2009.
The following interpretations of existing standards are not yet effective and have not been early-adopted by the group:
- Amendments to IFRIC 14 Prepayment of a Minimum Funding Requirement
The interpretation was amended to remedy an unintended consequence of IFRIC 14, where entities are, in some
circumstances, not permitted to recognise prepayments of minimum funding contributions as an asset.
The amendment to IFRIC 14 is effective for annual periods commencing on or after 1 July 2011 and is not anticipated
to have a significant effect on the group’s financial statements.
- IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
The interpretation addresses divergent accounting by entities issuing equity instruments to extinguish all or part of
a financial liability (often referred to as ‘debt for equity swaps’). The interpretation concludes that the issue of equity
instruments to extinguish an obligation constitutes consideration paid.
The consideration should be measured at the fair value of the equity instruments issued, unless that fair value is not
readily determinable, in which case the equity instruments should be measured at the fair value of the obligation
extinguished. Any difference between the fair value of the equity instruments issued and the carrying value of the
liability extinguished is recognised in profit or loss.
If the issue of equity instruments is to settle a portion of a financial liability, the entity should assess whether a part of
the consideration relates to a renegotiation of the portion of the liability that remains outstanding.
The adoption of this standard is not expected to have a material impact on the group’s annual financial statements.
The standard is effective for the group for the year commencing 1 January 2011.
||Standards and interpretations adopted in the current year
The following revisions to International Financial Reporting Standards have been adopted by the group:
Amendment to IFRS 2 Vesting Conditions and Cancellations
The amendments clarify the definition of vesting conditions for the purpose of this standard, introduces the concept of
‘non-vesting’ conditions and clarifies the accounting treatment for cancellations as well as group cash-settled share-based
The adoption of the amendments to the standards did not have an impact on the group’s financial statements.
IFRS 3 Business Combinations: Comprehensive revision on applying the acquisition method and consequential
amendments to IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates and IAS 31
Interest in Joint Ventures.
The revised IFRS 3 retained the basic requirements of IFRS 3 (2004) to apply acquisition accounting for all
business combinations within the scope of IFRS 3, to identify the acquirer and to determine the acquisition
date for every business combination. The most significant change is a move from a purchase price allocation
approach to a fair-value measurement principle. The revision applies to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
1 July 2009.
The amended IAS 27 requires that accounting for changes in ownership interests in a subsidiary that occur without loss
of control be recognised as an equity transaction. When the group loses control of a subsidiary, any interest retained in
the former subsidiary will be measured at fair value, with the gain or loss recognised in profit and loss.
The group adopted the revisions to the standard for its annual period commencing 1 January 2009.
The revision and amendment is applicable prospectively and will not affect past transactions, and therefore did not
have any effect on the group financial statements.
IAS 27 has been amended, requiring that all dividends received from subsidiary companies are disclosed in profit and
loss in the individual financial statements. The adoption of this amendment did not have an effect on the company’s
Amendment to IFRS 7 Enhancing Disclosures about Fair Value and Liquidity Risk
The amendments expand the disclosures required in respect of fair-value measurements recognised in the statement of
financial position. For the purpose of these expanded disclosures a three-level hierarchy has been introduced.
The additional disclosures required can be summarised as follows: the level in the hierarchy in which fair-value
measurements are categorised; reasons for significant transfers between level 1 and 2 of the hierarchy; a reconciliation
from beginning to closing balances for level 3 of the hierarchy; and, if changes to any of the assumptions applied for
level 3 measurements will have a significant effect on the fair value, disclosure of the nature and extent thereof.
The amendments also clarify the scope of items to be included in the maturity analyses required under IFRS 7 by
changing the definition of liquidity risk to state that liquidity risk only includes financial liabilities that are settled by
delivering cash or another financial asset.
This results in the exclusion of financial liabilities that are settled by the entity delivering its own equity instruments
or non-financial assets.
Furthermore, the amendments specify different liquidity risk disclosure requirements for derivative and non-derivative
The adoption of the standard did not have an effect on the group’s financial position or performance as it did not
require any measurement adjustment, but rather enhanced disclosure.
IAS 1 Presentation of Financial Statements: Comprehensive revision including requiring a statement of comprehensive
The revisions made to IAS 1 required information in financial statements to be aggregated on the basis of shared
characteristics and introduce a statement of comprehensive income. The revision includes changes in titles of financial
statements to reflect their functions more clearly.
The main change in the revised IAS 1 is the requirement to present all non-owner transactions in the statement of
comprehensive income. The amendment also requires two sets of comparative numbers to be provided for the financial
position in any year where there has been a restatement or reclassification of balances.
The revised standard was adopted in the current year and had an effect on the disclosure provided in the
Amendments to IAS 32 Financial Instruments: Presentation, and IAS 1, Presentation of Financial Statements: Puttable
Financial Instruments Arising on Liquidation and Obligations
The amendment requires additional information to be presented on puttable instruments that are presented as equity.
The amendment did not affect the group, as the group does not have puttable instruments that are presented in equity.
Amendment to IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items and Clarification
regarding ending Assessment of Embedded Derivatives.
The amendments provide clarification on two aspects of hedge accounting, namely identifying inflation as a hedged
risk and hedging with options.
The adoption of the amendment of the standard regarding eligible hedged items does not have an effect on the group,
as the group does not apply hedge accounting.
These amendments also deal with the accounting treatment for embedded derivatives in the case of a reclassification
of a financial asset out of the ‘fair value through profit or loss’ category.
The amendment did not affect the group, as the group does not have any financial assets that have been reclassified
out of the ‘fair value through profit or loss’ category.
Annual improvement project
As part of its first annual improvement project, the IASB has issued its edition of annual improvements. The annual
improvement project aims to clarify and improve the accounting standards.
The improvements include those involving terminology or editorial changes with minimal effect on recognition and
No significant changes were made to the group financial statements for the revisions that were effective for periods
commencing on or after 1 January 2009.
The following interpretations of existing standards have been adopted by the group:
IFRIC 13 Customer Loyalty Programmes
The interpretation clarified the application of IAS 18 to customer loyalty programmes. The interpretation requires an
entity that grants loyalty award credits to allocate some of the initial proceeds from the initial revenue-generating
transaction to the award credit as a liability (entity’s obligation to provide the award). The award is accounted for as
a separate revenue-generating transaction. The interpretation is effective for annual periods commencing on or after
1 July 2008.
The application of IFRIC 13 did not result in any adjustments required to be made to prior-period annual financial
IFRIC 17 Distributions of Non-cash Assets to Owners
IFRIC 17 clarifies that:
- a dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the
discretion of the entity;
an entity should measure the dividend payable at the fair value of the net assets to be distributed;
an entity should recognise the difference between the dividend paid and the carrying amount of the net assets
distributed in profit or loss; and
an entity should provide additional disclosures if the net assets being held for distribution to owners meet the
definition of a discontinued operation.
The adoption of this interpretation did not have an impact on the group’s annual financial statements.
AC 504: IAS 19 (AC 116) The limit on a Defined-benefit Asset, Minimum Funding Requirements and their Interaction in
the SA Pension Fund Environment
This SA interpretation provided further clarity on the limit for the recognition of defined-benefit assets in the
SA environment. The group early-adopted this SA interpretation, which did not have an effect on the financial
statements of the group.
Key assumptions concerning the future and key sources of estimation
||The group’s accounting policies are set out on pages 256 to 274. Certain of these policies, as well as estimates made
by management, are considered to be important to an understanding of the group’s financial condition, since they require
management to make difficult, complex or subjective judgements and estimates, some of which may relate to matters that are
inherently uncertain. The following accounting policies include estimates that are particularly sensitive in terms of judgements
and the extent to which estimates are used. Other accounting policies involve significant amounts of judgements and estimates,
but the total amounts involved are not significant to the financial statements. Management has discussed the accounting
policies and critical accounting estimates with the board and the Audit Committee.
Allowances for loan impairment and other credit risk provisions
||Allowances for loan impairment represent management’s estimate of the losses incurred in the loan portfolios at the
balance sheet date.
The group assesses its loan portfolios for impairment at each balance sheet date. In determining whether an impairment
loss should be recorded in the statement of other comprehensive income, the group makes judgements as to whether
there is observable data indicating a measurable decrease in the estimated future cashflows from a portfolio of loans
before the decrease can be allocated to an individual loan in that portfolio. Estimates are made of the duration between
the occurrence of a loss event and the identification of a loss on an individual basis. The impairment for performing loans
is calculated on a portfolio basis, based on historical loss ratios, adjusted for national and industry-specific economic
conditions and other indicators present at the reporting date that correlate with defaults on the portfolio. These include
early arrears and other indicators of potential default, such as changes in macroeconomic conditions and legislation
affecting credit recovery. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated
loss emergence period.
Within the retail and the business banking portfolios, which comprise large numbers of small homogeneous assets
with similar risk characteristics where credit-scoring techniques are generally used, statistical techniques are used to
calculate impairment allowances on the portfolio, based on historical recovery rates and assumed emergence periods.
These statistical analyses use as primary inputs the extent to which accounts in the portfolio are in arrears and historical
information on the eventual losses encountered from such delinquent portfolios. There are many such models in use, each
tailored to a product, line of business or client category.
Judgement and knowledge is needed in selecting the statistical methods to use when the models are developed or
revised. The impairment allowance reflected in the financial statements for these portfolios is therefore considered to be
reasonable and supportable.
For larger exposures impairment allowances are calculated on an individual basis and all relevant considerations that have
a bearing on the expected future cashflows are taken into account, for example, the business prospects for the client,
the realisable value of collateral, the group’s position relative to other claimants, the reliability of client information and
the likely cost and duration of the workout process. The level of the impairment allowance is the difference between
the value of the discounted expected future cashflows (discounted at the loan’s original effective interest rate) and
its carrying amount. Subjective judgements are made in the calculation of future cashflows. Furthermore, judgements
change with time as new information becomes available or as workout strategies evolve, resulting in frequent revisions to
the impairment allowance as individual decisions are taken. Changes in these estimates would result in a change in the
allowances and have a direct impact on the impairments charge.
Fair value of financial instruments
||Some of the group’s financial instruments are carried at fair value through profit or loss, such as those held for trading,
designated by management under the fair-value option and non-cashflow hedging derivatives.
Other non-derivative financial assets may be designated as available for sale. Available-for-sale financial investments are
initially recognised at fair value and are subsequently held at fair value. Gains and losses arising from changes in the fair
value of such assets are included as a separate component of equity. The fair value of a financial instrument is the amount
at which the instrument could be exchanged in a current transaction between knowledgeable, willing parties, other than
in a forced or liquidation sale. Financial instruments entered into as trading transactions, together with any associated
hedging, are measured at fair value and the resultant profits and losses are included in net trading income, along with
interest and dividends arising from long and short positions and funding costs relating to trading activities. Assets and
liabilities resulting from gains and losses on financial instruments held for trading are reported gross in trading portfolio
assets and liabilities or derivative financial instruments, reduced by the effects of netting agreements where there is an
intention to settle net with counterparties.
Details of the processes, procedures and assumptions used in the determination of fair value are discussed in
note 6.1 to
the financial statements.
Derecognition, securitisations and special-purpose entities
||The group enters into transactions that may result in the derecognition of certain financial instruments. Judgement is
applied as to whether these financial instruments are derecognised from the group’s statement of financial position.
The group sponsors the formation of special-purpose entities (SPEs) primarily for the purpose of allowing clients to
hold investments, for asset securitisation transactions, for asset financing and for buying or selling credit protection.
The group consolidates SPEs it controls in terms of International Financial Reporting Standards (IFRS) guidance. Where
it is difficult to determine whether the group controls an SPE, it makes judgements, in terms of IFRS guidance, about its
exposure to the risks and rewards, as well as about its ability to make operational decisions for the SPE in question. In
arriving at judgements, these factors are considered both jointly and separately. Further information in respect of those
securitisations, consolidated into the group financial statements, can be found in
note 47 to the financial statements.
||Management has to consider at least annually whether the current carrying value of goodwill is impaired. The first step
of the impairment review process requires the identification of independent cash-generating units, by dividing the group
business into as many largely independent income streams as is reasonably practicable. The goodwill is then allocated to
these independent units. The first element of this allocation is based on the areas of the business expected to benefit from
the synergies derived from the acquisition. The second element reflects the allocation of the net assets acquired and the
difference between the consideration paid for those net assets and their fair value. This allocation is reviewed following
business reorganisation. The carrying value of the unit, including the allocated goodwill, is compared with its fair value
to determine whether any impairment exists. If the recoverable amount of a unit is less than its carrying value, goodwill
will be impaired.
Detailed calculations may need to be carried out, taking into consideration changes in the market in which a business
operates (eg competitive activity and regulatory change). In the absence of readily available market price data this
calculation is based on discounting expected pretax cashflows at a risk-adjusted interest rate appropriate to the operating
unit, the determination of both of which requires the exercise of judgement. The estimation of pretax cashflows is
sensitive to the periods for which detailed forecasts are available and to assumptions regarding the long-term sustainable
cashflows. While forecasts are compared with actual performance and external economic data, expected cashflows
naturally reflect management’s view of future performance.
The most significant amounts of goodwill relate to Imperial Bank and Nedbank (as a result of the BoE acquisition). The
goodwill impairment testing performed in 2009 indicated that none of the goodwill was impaired in the year under
review. Management believes that reasonable changes in key assumptions used to determine the recoverable amounts of
Imperial Bank and Nedbank goodwill will not result in impairment.
Further information in respect of goodwill recognised in the statement of financial position can be found in
note 36 to
the annual financial statements.
Retirement benefit obligations
||The group provides pension plans for employees in most parts of the world. Arrangements for staff retirement benefits
vary from country to country and are made in accordance with local regulations and customs.
For defined-benefit schemes actuarial valuation of each of the scheme’s obligations using the projected-unit credit
method and the fair valuation of each of the scheme’s assets are performed annually in accordance with the requirements
of IAS 19.
The actuarial valuation is dependent upon a series of assumptions, the key ones being interest rates, mortality, investment
returns and inflation. Mortality estimates are based on standard industry and national mortality tables, adjusted, where
appropriate, to reflect the group’s own experience.
The returns on fixed-interest investments are set to market yields at the valuation date (less an allowance for risk) to
ensure consistency with the asset valuation. The returns on equities are based on the long-term outlook for global equities
at the calculation date, having regard to current market yields and dividend growth expectations. The inflation assumption
reflects long-term expectations of both earnings and retail price inflation.
The group’s IAS 19 pension surplus across all pension and postretirement schemes at 31 December 2009 was a surplus
of R1 184 million (2008: R1 140 million). This comprises net recognised assets of R733 million (2008: R640 million) and
unrecognised actuarial gains of R451 million (2008: R500 million). The group’s IAS 19 pension asset in respect of the main
SA scheme at 31 December 2009 was R710 million (2008: R616 million surplus).
If the group had increased/decreased the assumption relating to the discount rate by 1% to the significant postretirement
and pension funds, the result would have been an increase/decrease of R15 million in the net funded position of the
relevant funds in the year under review. If the group had increased/decreased the assumption relating to the expected
return on plan assets by 1% to the significant postretirement and pension funds, the result would have been an increase/
decrease of R44 million of the net pension cost in the year under review.
Further information on retirement benefit obligations, including assumptions, is set out in
note 35 to the financial
||The group is subject to direct taxation in a number of jurisdictions in which it operates. There may be transactions
and calculations for which the ultimate tax determination has an element of uncertainty during the ordinary course of
business. The group recognises liabilities based on objective estimates of the quantum of taxes that may be due. Where
the final tax determination is different from the amounts that were initially recorded, such differences will impact the
income tax and deferred tax provisions in the period in which such determination is made, through profit and loss for the
Financial risk management
||The group’s risk management policies and procedures are disclosed in the
Risk and Balance Sheet Management Report
of the annual report. These risk management procedures include, but are not limited to, credit risk,
securitisation risk, liquidity risk, interest rate risk in the banking book and market risk.
Nedbank Group’s Capital Management Framework reflects the integration of risk, capital, strategy and performance measurement
across the group and contributes significantly to the successful Enterprisewide Risk Management Framework (ERMF).
A board-approved Solvency and Capital Management policy requires Nedbank Group to be capitalised at the greater of Basel II
regulatory capital and economic capital.
The Group Capital Management Division reports to the Chief Operating Officer and is mandated with the implementation of
the Capital Management Framework and the internal capital adequacy assessment process (ICAAP) across the group. Capital
management (incorporating ICAAP) responsibilities of the board and management are incorporated in their respective terms of
reference contained in the ERMF and are assisted by the board’s Group Risk and Capital Management Committee and Group
Asset and Liability Committee respectively.
Capital, reserves and long-term debt instruments
The group’s Capital Management Framework, policies and processes include all group capital and reserves as per the group
statement of changes in total shareholders’ equity as well as the long-term debt instruments per
Further details on the capital management and regulatory requirements are disclosed in the
Risk and Balance Sheet Management
Consolidated statement of financial position - categories of financial instruments
Click to enlarge
Valuation of financial instruments
Information obtained from the valuation of financial instruments is used by the group to assess the performance of the
business and, in particular, provide assurance that the risk and return measures that the business has taken are accurate
and complete. It is important that the valuation of financial instruments accurately represent the financial position of the
group while complying with the requirements of the applicable accounting standards.
The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction
between knowledgeable, willing parties. Underlying the definition of fair value is a presumption that an entity is a going
concern without any intention or need to liquidate, to curtail materially the scale of its operations or to undertake a
transaction on adverse terms. Fair value is not, therefore, the amount that an entity would receive or pay in a forced
transaction, involuntary liquidation or distressed sale.
- Validation and approval
The business unit entering into the transaction is responsible for the initial determination and recording of the fair
value of the transaction. There are formalised review protocols for the independent review and validation of fair values
separate from the business unit entering into the transaction. These include, but are not limited to:
- daily controls over the profit or loss recorded by trading and treasury front office traders;
- specific controls to ensure consistent pricing policies and procedures are adhered to; and
- independent valuation of structures, products and trades.
The validation of pricing and valuation methodologies is verified by a specialist team that is part of the group’s risk
management function and that is independent of all the business units. A specific area of focus is the marking-to-model
of illiquid and/or complex financial instruments.
All valuation techniques are validated and reviewed by qualified senior staff and are calibrated and back-tested for
validity by using prices from any observable current market transaction in the same instrument (ie without modification
or repackaging) or based on any observable market data. The group obtains market data consistently in the same
market where the instrument was originated or purchased.
If the fair-value calculation deviates from the quoted market value due to inaccurate observed market data, these
deviations in the valuation are documented and presented at a review committee, which is independent of both
the business unit and the specialist team, for approval. The committee will need to consider both the regulatory and
accounting requirements in arriving at an opinion on whether the deviation is acceptable.
The group refines and modifies its valuation techniques as markets and products develop and as the pricing for individual
products becomes more or less readily available. While the group believes its valuation techniques are appropriate and
consistent with those of other market participants, the use of different methodologies or assumptions may result in
different estimates of fair value at the different reporting dates.
- Stress testing and sensitivity measures
Comprehensive stress testing is conducted by the group, in which the following, at a minimum, is considered:
- anticipated future projected trading positions;
- historical events;
- scenario testing to evaluate plausible future events; and
- specific testing to supplement the value-at-risk methodology (ie one-day holding period and 99% confidence interval).
For further discussion in respect of stress testing and sensitivity measures refer to
note 6.6 of the annual financial statements.
- Quoted price
A financial instrument is regarded as quoted in an active market if quoted prices are readily available from an exchange,
industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market
transactions on an arm’s length basis. The appropriate quoted market price for an asset held or a liability to be issued is
usually the current bid price and, for an asset to be acquired or a liability held, the asking price.
The objective of determining fair value is to arrive at the transaction price of an instrument on the measurement date
(ie without modifying or repackaging the instrument) in the most advantageous active market to which the business
has immediate access.
The existence of published price quotations in an active market is the best evidence of fair value and, when they exist,
they are used to measure the financial asset or financial liability.
These quoted prices would generally be classified as level 1 in terms of the fair-value hierarchy prescribed by IFRS 7
Financial Instruments: Disclosure.
- Valuation technique
If the market for a financial instrument is not active, the group establishes fair value by using a valuation technique.
Such valuation techniques may include:
- using recent arm’s length market transactions between knowledgeable, willing parties;
- reference to the current fair value of another instrument that is substantially of the same nature;
- reference to the value of the net asset of the underlying business;
- earning multiples;
- discounted-cashflow analysis; and
- various option-pricing models.
If there is a valuation technique that is commonly used by market participants to price the financial instrument and that
technique has been demonstrated to provide reasonable estimates of prices obtained in actual market transactions, the
group will use that technique.
The objective of using a valuation technique is to establish what the transaction price would have been on the
measurement date in an arm’s length exchange and motivated by normal business considerations. In applying valuation
techniques, the group uses estimates and assumptions that are consistent with available information about the
estimates and assumptions that market participants would use in setting a price for the financial instrument.
Fair value is therefore estimated on the basis of the results of a valuation technique that makes maximum use of market inputs and relies as little as possible on entity-specific inputs. A valuation technique would be expected to arrive
at a realistic estimate of the fair value if:
- it reasonably reflects how the market could be expected to price the instrument; and
- the inputs to the valuation technique reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument.
Therefore, a valuation technique:
- will incorporate all relevant factors that market participants would consider in determining a price; and
- is consistent with accepted economic methodologies for pricing financial instruments.
If a published price quotation in an active market does not exist for a financial instrument in its entirety, but active
markets exist for its component parts, fair value is determined on the basis of the relevant market prices for the various
If a rate (rather than a price) is quoted in an active market, the group uses that market-quoted rate as an input into a
valuation technique to determine fair value. If the market-quoted rate does not include credit risk or other factors that
market participants would include in valuing the instrument, the group adjusts for these factors.
Valuation techniques applied by the group would generally be classified as level 2 or level 3 in terms of the fairvalue
hierarchy prescribed by IFRS 7 Financial Instruments: Disclosure. The determination of whether an instrument
is classified as level 2 or level 3 is dependent on the degree of observable inputs versus unobservable inputs used in
determining the fair value.
Inputs to valuation techniques
A suitable valuation technique for estimating the fair value of a particular financial instrument would incorporate
observable market data about the market conditions and other factors that are likely to affect the instrument’s fair value.
The principal inputs to these valuation techniques include the following:
- Discount rate: Where discounted-cashflow techniques are used, estimated future cashflows are based on management’s
best estimates and the discount rate used is a market rate at the reporting date for an instrument with similar terms
- The time value of money: The business may use well-accepted and readily observable general interest rates, such as the
Johannesburg Interbank Agreed Rate (South Africa), London Interbank Offered Rate (United Kingdom) or an appropriate
swap rate, as the benchmark rate to derive the present value of a future cashflow.
- Credit risk: Credit risk is the risk of loss associated with a counterparty’s failure or inability to fulfil its contractual
obligations. The valuation of the relevant financial instrument takes into account the effect of credit risk on fair value
by including an appropriate adjustment for the risk taken.
- Foreign currency exchange prices: Active currency exchange markets exist for most major currencies, and prices are
quoted daily on various trading platforms and in financial publications.
- Commodity prices: Observable market prices are available for those commodities that are actively traded on exchanges
in London, New York, Chicago and other commercial exchanges.
- Equity prices: Prices (and indices of prices) of traded equity instruments are readily observable on JSE Limited or any
other recognised international exchange. Present-value techniques may be used to estimate the current market price
of equity instruments for which there are no observable prices.
- Volatility: Measures of the volatility of actively traded items can be reasonably estimated by the implied volatility in
current market prices. The shape and skew of the volatility curve is derived from a combination of observed trades and
doubles in the market. In the absence of an active market, a methodology to derive these volatilities from observable
market data will be developed and utilised.
- Recovery rates/Loss given default: These are used as an input to valuation models as an indicator of the severity
of losses on default. Recovery rates are primarily sourced from market data providers or inferred from observable
- Prepayment risk and surrender risk: Expected repayment patterns for financial assets and expected surrender patterns
for financial liabilities can be estimated on the basis of historical data.
- Servicing costs: If the cost of servicing a financial asset or financial liability is significant and other market participants
would face comparable costs, the issuer would consider them in determining the fair value of that financial asset or
- Dividends: Consistent consensus dividend forecasts adjusted for internal analysts’ projections can be applied to each
share. Forecasts are usually available for the current year plus one additional year. Thereafter, a constant growth rate
would be applied to the specific dates into the future for each individual share.
- Inception profit (day-one gain or loss): The best evidence of the fair value of a financial instrument at initial
recognition is the transaction price (ie the fair value of the consideration given or received), unless the fair value of
that instrument is evidenced by comparison with other observable current market transactions in the same instrument
(ie without modification or repackaging) or based on a valuation technique whose variables include data from observable
To determine a reliable fair value, where appropriate, the group applies certain valuation adjustments to the pricing
information derived from the above sources. In making appropriate adjustments, the group considers certain adjustments
to the modelled price that market participants would make when pricing that instrument. Factors that would be considered
include the following:
Own credit on financial liabilities: The carrying amount of financial liabilities held at fair value is adjusted to reflect the
effect of changes in the group’s own credit spreads. As a result, the carrying value of issued bonds and subordinated-debt
instruments that have been designated at fair value through profit or loss is adjusted by reference to the movement
in the appropriate spreads. The resulting gain or loss is recognised in the profit and loss in the statement of other
Counterparty credit spreads: Adjustments are made to market prices when the creditworthiness of the counterparty
differs from that of the assumed counterparty in the market price (or parameter).
Quoted market prices in active markets are the best evidence of fair value and are used as the basis of measurement,
A determination of what constitutes ‘observable market data’ will necessitate significant judgement. It is the group’s
belief that ‘observable market data’ comprises, in the following hierarchical order:
- prices or quotes from exchange or listed markets in which there are sufficient liquidity and activity;
- proxy observable market data that is proven to be highly correlated and has a logical, economic relationship with the
instrument that is being valued; and
- other direct and indirect market inputs that are observable in the marketplace.
Data is considered by the group to be ‘observable’ if the data is:
- readily available;
- regularly distributed;
- from multiple independent sources;
- transparent; and
- not proprietary.
Data is considered by the group to be ‘market based’ if the data is:
- based on consensus within reasonable narrow, observable ranges;
- provided by sources that are actively involved in the relevant market; and
- supported by actual market transactions.
It is not intended to imply that all of the above characteristics must be present to conclude that the evidence qualifies as
observable market data. Judgement is applied based upon the strength and quality of the available evidence.
Valuation techniques by instrument
- Other short-term securities and government and other securities
The fair value of these instruments is based on quoted market prices from an exchange dealer, broker, industry group or
pricing service, when available. When they are unavailable, the fair value is determined by reference to quoted market
prices for similar instruments, adjusted as appropriate for the specific circumstances of the instruments.
Where these instruments include corporate bonds, the bonds are valued using observable active quoted prices or
recently executed transactions, except where observable price quotations are not available. Where price quotations are
not available, the fair value is determined based on cashflow models, where significant inputs may include yield curves
and bond or single-name credit default swap spreads.
- Derivative financial instruments
Derivative contracts can either be traded via an exchange or over the counter (OTC) and are valued using market
standard models and quoted parameter inputs. Parameter inputs are obtained from pricing services, consensus pricing
services and recently occurring transactions in active markets, whenever possible. Certain inputs may not be observable
in the market directly, but can be determined from observable prices via model calibration procedures. Some inputs are
not observable, but can generally be estimated from historical data or other sources.
- Loans and advances
Loans and advances include mortgage loans (home loans and commercial mortgages), other asset-based loans, including
collaterised debt obligations, and other secured and unsecured loans.
In the absence of an observable market for these instruments, the fair value is determined by using internally developed
models that are specific to the instrument and that incorporate all available observable inputs. These models involve
discounting the contractual cashflows by using a credit-adjusted zero-coupon curve.
Investment securities include private equity investments, listed investments and unlisted investments.
The fair value of listed investments is determined with reference to quoted bid prices at the close of business on the
relevant securities exchange.
Where private equity investments are involved, the exercise of judgement is required because of uncertainties inherent
in estimating the fair value. The fair value of private equity is determined using appropriate valuation methodologies
that, dependent on the nature of the investment, may include an analysis of the investee’s financial position and results,
risk profiles and prospects, discounted-cashflow analysis, enterprise value comparisons with similar companies, price earnings
comparisons and earning multiples. For each investment the relevant methodology is applied consistently over
time and may be adjusted for changes in market conditions relative to that instrument.
The fair value of unlisted investments is determined using appropriate valuation techniques that may include, but are
not limited to, discounted cashflow analysis, net asset value calculations and directors’ valuations.
Short positions in equities arise in trading activities where equity shares, not owned by the group, are sold in the market
to third parties. The fair value of these instruments is determined by reference to the gross short position valued at the
Investments in instruments that do not have a quoted market price in an active market and the fair value of which
cannot be reliably measured, as well as derivatives that are linked to and have to be settled by delivery of such unquoted
equity instruments, are measured at fair value, utilising models considered to be appropriate by management.
Amounts owed to depositors
Amounts owed to depositors include deposits under repurchase agreements, negotiable certificates of deposit and
These instruments incorporate all market risk factors, including a measure of the group’s credit risk relevant for that
financial liability when designated at fair value through profit or loss. The fair value of these financial liabilities is
determined by discounting the contractual cashflows using a Nedbank-specific credit-adjusted yield curve that reflects
the level at which the group would issue similar instruments at the reporting date. The market risk parameters are
valued consistently to similar instruments held as assets.
The fair value of a financial liability with a demand feature is not less than the amount payable on demand, discounted
from the first date on which the amount could be required to be paid. When the fair value of a financial liability cannot
be reliably determined, the liability is recorded at the amount due.
Fair value is considered reliably measurable if:
- the variability in the range of reasonable fair-value estimates is not significant for that instrument; or
- the probabilities of the various estimates within the range can be reasonably assessed and used in estimating
Investment contract liabilities
The fair value of investment contract liabilities is determined by reference to the fair value of the underlying assets.
Long-term debt instruments
The fair value of long-term debt instruments is determined by reference to published market values on the relevant
These instruments are valued by using internally developed models that are specific to the instrument and that have
been calibrated to market prices. In less active markets data is obtained from less frequent market transactions, broker
quotes and through extrapolation and interpolation techniques. Where observable prices or inputs are not available,
other relevant sources of information such as historical data, fundamental analysis of the economics of the transaction
and proxy information from similar transactions are used. These models are continually reviewed and assessed to
ensure that the best available data is being utilised in the determination of fair value.
Short positions in equities arise in trading activities where equity shares, not owned by the group, are sold in the market
to third parties. The fair value of these instruments is determined by reference to the gross short position valued at the
Where the group has assets and liabilities with offsetting market risks, it may use mid-market prices as a basis for
establishing fair values for the offsetting risk positions and apply the bid or asking price to the net open position, as
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||The financial instruments recognised at fair value have been categorised under the three levels of the IFRS 7 Financial Instruments: Disclosure as follows:
||Unadjusted quoted prices in active markets where the quoted price is readily available and the price represents actual and regularly occurring market transactions on an arms length basis.
||Valuation techniques using market observable inputs. Various factors influence the availability of observable inputs and these may vary from product to product and change over time. Factors include, for example, the depth of activity in the relevant market, the type of product, whether the product is new and not widely traded in the market, the maturity of market modelling and the nature of the transaction (bespoke or generic).
||Valuation techniques that include significant inputs that are not observable. To the extent that a valuation is based on inputs that are not market observable, the determination of the fair value can be more subjective, dependent on the significance of the unobservable inputs to the overall valuation.
Unobservable inputs are determined based on the best information available and may include reference to similar instruments, similar maturities, appropriate proxies or other analytical techniques.
Details of changes in valuation techniques
||There have been no significant changes in valuation techniques during the year under review.
Significant transfers between level 1 and level 2
||There have been no significant transfers between level 1 and level 2 during the year under review.
Level 3 reconciliation
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Effect of changes in significant unobservable assumptions to reasonable
As discussed above, the fair-value measurement of financial instruments are, in certain circumstances, measured using valuation techniques that include assumptions that are not market observable. Where these scenarios apply, the group performs stress testing on the fair value of the relevant instruments. In performing the stress testing, appropriate levels for the unobservable input parameters are chosen so that they are consistent with prevailing market evidence and in line with the group's approach to valuation control.
In accordance with IFRS 7 Financial Instruments: Disclosure, the following information is intended to illustrate the potential impact of the relative uncertainty in the fair value of financial instruments for which valuation is dependent on unobservable input parameters. However, it is unlikely in practice that all unobservable parameters would simultaneously be at the extremes of their ranges of reasonably possible alternatives. Furthermore, the disclosure is neither predictive nor indicative of future movements in fair value.
The following table shows the effect on fair value of changes in unobservable input parameters to reasonable possible alternative assumptions:
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Fair-value approximates carrying value
The group measures all significant fixed-rate instruments at fair value, with all changes in fair value being recognised in profit and loss in the statement of comprehensive income.
Loans and advances and other financial assets and liabilities that are not recognised at fair value principally comprise variable-rate financial assets and liabilities. The interest rates on these financial assets and liabilities are adjusted when the applicable benchmark interest rate changes.
Loans and advances are not actively traded in the SA market and therefore one cannot determine the fair value of these loans and advances based on observable market prices. Because of the unique characteristics of the loans and advances book, and the fact that there have been no recent transactions involving the disposals of loans and advances, there is no basis to determine what price would be agreed with a market participant. The group is not currently in the scenario of a forced sale for the underlying loans and advances and therefore it would be incorrect to value the loans and advances on such a basis.
The group has developed and applied a fair-value methodology in respect of gross exposures for loans and advances and financial liabilities that are measured at amortised cost at 31 December 2009. The methodology incorporates the average interest rates per product type and the projected monthly cashflows per product type.
Future forecasts for the overall groups probability of default (PD) and loss given default (LGD) for periods 2010 through to 2012, based on the latest internal data available, are applied to the first three years projected cashflows. Average PDs and LGDs are applied to the projected cashflows for the period 2012 onwards.
In the determination of the fair value of loans and advances for 31 December 2009, the group used point-in-time LGD and performed stress tests on the underlying data based on the scenarios below, and the results are as follows:
The percentages are the added/deducted value that would be attributed if the various scenarios were applied to the fair-value model.
Negative percentages indicate that the fair value is above the carrying value of the reported loans and advances value (refer to note 26) and positive percentages indicate that the fair value is below the carrying value of the reported loan and advances value (refer to note 26).
In the determination of the fair value of loans and advances for 31 December 2008, the group used point-in-time LGD and performed stress tests on the underlying data based on the scenarios below, and the results are as follows:
Through-the-cycle LGD refers to the average LGD over a full economic cycle (7 12 years). Downturn LGD refers to the loss given default during an economic downturn.
For impaired advances the carrying value as determined after consideration of the groups IAS 39 credit impairments is considered the best estimate of fair value.
The group is therefore satisfied that, after considering the internal credit models together with other assumptions and the variable-interest-rate exposure, the carrying value of loans and receivables and financial liabilities measured at amortised cost approximates fair value.
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Contractual maturity analysis for financial liabilities
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Historical value at risk (99%, one day) by risk type
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Interest rate repricing gap
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