Basel Capital Accord (Basel II)
Basel Capital Accord (Basel II) of the Bank for International
Settlements is an improved capital adequacy
framework accomplished by closely aligning banks capital
requirements with improved modern risk management practices
and sophisticated risk assessment capabilities. It further
ensures the risk sensitivity of the minimum capital requirements
by including supervisory reviews and market discipline through
Group capital adequacy
Group capital adequacy is the ratio of group net
qualifying capital and reserve funds to total group risk-weighted assets
as calculated per the regulations relating to banks.
Capital adequacy ratio
The capital adequacy of South African banks is measured
in terms of the South African Banks Act requirements. The
ratio is calculated by dividing the primary (Tier 1), secondary
(Tier 2) and tertiary (Tier 3) capital by the risk-weighted
assets. The minimum South African total capital adequacy
ratio for banks is now 10% of risk-weighted assets. Non-South
African banks within the group have similar requirements.
Primary (Tier 1) capital Primary capital consists of issued ordinary share
capital and perpetual preference share capital, retained earnings
and the reserves. This amount is then reduced by the portion
of capital that is allocated to trading activities.
Secondary (Tier 2) capital Secondary capital is made up of compulsorily
convertible loans, the general bad-debt provision and 50% of any revaluation
Tertiary (Tier 3) capital Tertiary capital means
- accrued current-period uncapitalised net profits derived
from trading activities; and
- capital obtained by means of unsecured subordinated loans,
subject to such conditions as may be prescribed.
Activities that result in changes
to the capital structure of the group.
Activities relating to the acquisition,
holding and disposal of fixed assets and long-term investments.
Operating activities Activities that are not financing
or investing activities and arise from the operations conducted
by the group.
Deferred taxation assets
Deferred taxation assets are the
amounts of income tax recoverable in future periods in
- deductible temporary differences arising due to differences
between the tax and accounting treatment of transactions;
- the carry forward of unused tax losses.
Deferred taxation liabilities
Deferred taxation liabilities
are the amounts of income tax payable in future periods
due to differences between
the tax and accounting treatment of a transaction.
Earnings per share divided by dividends
Dividend per share
Dividend per share is the actual interim
dividend paid and the final dividend declared for the year
expressed in cents.
Dividend per ordinary share as a percentage
of the closing share price of ordinary shares.
Earnings per share
Attributable earnings basis
Net profit for the year divided
by the weighted average number of ordinary shares in issue
during the year.
Headline earnings basis
Headline earnings divided by the
weighted average number of shares in issue during the year.
Fully diluted basis
The relevant earnings figure is adjusted
for the assumed adjustments to income that would have been
earned on the
issue of shares issued from dilutive instruments. The resultant
earnings are divided by the weighted average number of
shares and other dilutive instruments (ie potential ordinary
outstanding at the year-end, assuming they had been in
issue for the year.
Headline earnings per share as a percentage
of the closing price of ordinary shares.
Effective tax rate
The taxation charge in the income statement,
excluding taxation relating to non-trading and capital
items, as a
percentage of earnings before taxation.
Efficiency ratio (cost-to-income ratio)
as a percentage of income from normal operations.
Headline earnings is not a measure of
maintainable earnings. For purposes of the definition and
calculation, the opinion
on headline earnings as issued by the UK Society of Investment
Professionals (UKSIP) has been used.
Headline earnings consist of the earnings attributable
to ordinary shareholders, excluding non-trading and capital
Headline earnings per employee
Headline earnings divided
by the number of employees in service at the year-end.
Impairment of advances
Impairments of advances are made
where there is objective evidence that the group will not
be able to collect an amount
due. The impairment is the difference between the carrying
amount and the recoverable amount.
King II (the code)
The King Report on Corporate Governance
2002, which sets out principles of good corporate governance
for South African
companies and organisations.
The groups closing share price
multiplied by the number of shares in issue.
Net asset value per share
Share capital and reserves adjusted by the difference
between the book and market value of investments divided by the number
of shares in issue, less any treasury shares held.
Net interest income to interest-earning assets (net interest
Net interest income expressed as a percentage of
average net interest-earning assets. Net interest-earning assets
are used, as these closely resemble the quantum of assets
earning income, which is included in net margin.
Non-interest revenue to total income
Income from normal operations, excluding
net interest, as a percentage of total income from normal operations.
Advances are classified as non-performing
- categorised as 'doubtful' and 'loss' per the
bank regulatory credit risk classification system;
- a counterparty is under judicial management or declared
- management is doubtful about the collection of future
Non-trading and capital items
These comprise the following:
- surplusses and losses on disposal of long-term investments,
subsidiaries, joint ventures and associates;
- amortisation and impairments of goodwill arising on acquisition
of subsidiaries, joint ventures and associates;
- surplusses and losses on the sale or termination of an
- capital cost of fundamental reorganisation or restructuring
having a material effect on the nature and focus of the
operations of the reporting entities;
- impairments of investments, property and equipment, computer
software and capitalised development costs; and
- other items of a capital nature.
Assets managed on behalf of third
parties on a fully discretionary basis.
Ordinary shareholders equity
Ordinary share capital,
share premium and reserves.
Ordinary shareholders return per share
per share added to the difference between the opening and
closing share price for the year.
The closing price of ordinary shares
divided by headline earnings per share.
Price to book
The groups closing share price relative
to the net asset value.
Properties in possession
Properties acquired through payment defaults on
a loan secured by the property.
Risk-weighted assets are determined by applying risk
weights to balance sheet assets and off-balance-sheet financial instruments
according to the relative credit risk of the counterparty.
The risk weighting for each balance sheet asset and off-balance-sheet
financial instrument is regulated by the South African
Banks Act or by regulations in the respective countries of the
other banking licences.
Return on ordinary shareholders equity
Headline earnings expressed
as a percentage of average ordinary shareholders funds.
Return on total assets
Headline earnings expressed as a percentage of average
A distinguishable component of the group, based on the
market on which each business area focuses, which is subject
to risks and returns that are different from those of other
A distinguishable component of the group that is engaged
in providing services within a particular economic environment
and is subject to risks and returns that are different
from those of components operating in other economic environments.
Tangible net asset value per share
Total shareholders equity less goodwill,
computer software and capitalised development costs, divided by the number
of shares in issue, less any treasury shares held.
Ordinary shares in Nedcor Limited acquired by group companies.
Weighted average number of shares
The number of shares in issue increased
by shares issued during the year, weighted on a time basis for the period
during which they participated in the income of the group,
less treasury shares held by entities in the group, weighted
on a time basis for the period during which the entities
held these shares.
These definitions should be read in conjunction with the
groups accounting policies, which also clarify certain