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bsa Group Limited unaudited condensed consolidated interim financial results for the period ended 30 June 2018
Absa Group Limited
(formerly known as Barclays Africa Group Limited)
Authorised financial services and registered credit provider (NCRCP7)
Registration number: 1986/003934/06
Incorporated in the Republic of South Africa
JSE share code: ABG
ISIN: ZAE000255915
Absa Group Limited unaudited condensed consolidated interim
financial results for the reporting period ended 30 June 2018
These condensed consolidated interim financial results were prepared by Absa Group Financial Control
under the direction and supervision of Group Financial Director, J P Quinn CA(SA).
The Board of Directors oversees the Group's activities and holds management accountable for adhering to the
risk governance framework. To do so, directors review reports prepared by the businesses, Risk, and others.
They exercise sound independent judgment, and probe and challenge recommendations, as well as decisions made
by management.
Finance is responsible for establishing a strong control environment over the Group's financial reporting
processes and serves as an independent control function advising business management, escalating identified
risks and establishing policies or processes to manage risk.
Finance is led by the Group's Financial Director who reports directly to the Chief Executive Officer.
The Financial Director has regular and unrestricted access to the Board of Directors as well as to the
Group Audit Compliance Committee (GACC).
Together with the GACC, the Board has reviewed and approved the reporting changes contained in the
announcements released on the Stock Exchange News Services (SENS) on 6 August 2018. The GACC and the Board
are satisfied that the changes disclosed in the SENS result in fair presentation of the consolidated
financial position and comply, in all material respects, with the relevant provisions of the Companies
Act, IFRS and interpretations of IFRS, and SAICA's Reporting Guides.
GROUP SENS
Profit and dividend announcement
Salient features
Absa Group Limited (the Group) discloses International Financial Reporting Standards (IFRS) financial
results and a normalised view, which adjusts for the financial consequences of separating from Barclays PLC.
IFRS basis
- Diluted IFRS Headline earnings per share (HEPS), which includes R1.4bn of separation costs decreased
4% to 877.8 cents.
- An interim dividend of 490 cents was declared representing a 3% year-on-year increase.
- Retail and Business Banking (RBB) South Africa headline earnings grew 4% to R4.2bn, Corporate and
Investment Bank (CIB) South Africa declined 6% to R1.7bn, Rest of Africa Banking rose 8% to R1.6bn and
Wealth, Investment Management and Insurance (WIMI) increased 5% to R646m.
- Return on equity (RoE) declined to 13.9%.
- Revenue grew 3% to R37.6bn.
- Operating expenses rose 8% to R22.2bn
- Pre-provision decreased 3% to R15.4bn
- Credit impairments fell 9% to R3.4bn, resulting in a 0.83% credit loss ratio from 0.96%.
- Absa Group Limited's IFRS Common Equity Tier 1 (CET 1) ratio of 13.3% remains above
regulatory requirements and our board target range.
- Net asset value (NAV) per share rose 1% to 12 829 cents
Normalised basis
- Diluted HEPS grew 3% (5% on a constant currency basis) to 949.5 cents.
- RoE increased slightly to 16.9%.
- Revenue grew 3% to R37.0bn (4% on a constant currency basis).
- Operating expenses rose 4% to R20.8bn.
- Pre-provision profit increased 1% to R16.2bn.
- NAV per share rose 4% to 11 683 cents.
Normalised reporting
Given the process of separating from Barclays PLC, the Group continues to report both IFRS compliant
financial results and a normalised view. The latter adjusts for the consequences of the separation and
better reflects its underlying performance. The Group will present normalised results for future periods
where the financial impact of separation is considered material.
Normalisation adjusts for the following items: R175m of interest income on Barclays PLC's separation contribution
(30 June 2017: R46m); hedging revenue linked to separation activities of R413m (30 June 2017: R238m); operating
expenses of R1 364m (30 June 2017: R460m) and R76m of other expenses (30 June 2017: R325m), plus a R133m tax
impact of the aforementioned (30 June 2017: R111m) items. In total, these adjustments added R719m to the Group's
normalised headline earnings during the period (30 June 2017: R152m). Since normalisation occurs at a Group level,
it does not affect divisional disclosures.
Non-IFRS measures such as normalised results are considered pro forma financial information as per the JSE listing
requirements. The pro forma financial information, is the responsibility of the Group's Board of directors and
is presented for illustrative purposes only and because of its nature may not fairly present the Group's
financial position, changes in equity, and results in operations or cash flows.
Overview of results
The Group's IFRS headline earnings declined 4% to R7 324m from R7 650m and diluted HEPS decreased 4% to
877.8 cents. The Group's RoE fell to 13.9% from 16.2%, largely due to the higher capital base from the
Barclays PLC seperation contribution and costs, while its RoA declined to 1.26% from 1.38%. Net interest
income increased 3% and non-interest income grew 5%, resulting in 3% higher total revenue. Operating
expenses grew 8%, increasing the cost-to-income ratio to 59.0% from 56.4%. Pre-provision profit decreased
3% to R15.4bn. The Group's NAV per share rose 1% to 12 829 cents including Barclays PLC's remaining
separation contribution in equity.
On a normalised basis, the Group's headline earnings grew 3% to R8 043m from R7 802m and diluted HEPS
rose 3% to 949.5 cents from 921.5 cents. The Group's normalised RoE was 16.9% from 16.8% and its return
on assets was 1.40% from 1.41%. Revenue grew 3% to R37.0bn, with net interest income and non-interest
income rising 2% and 4% respectively. Revenue grew 4% on a constant currency basis. The Group's net
interest margin (on average interest-bearing assets) decreased to 4.76% from 4.81%. Gross loans and
advances to customers grew 8% to R811bn, while deposits due to customers rose 3% to R714bn. With
operating expenses growing 4%, the normalised cost-to-income ratio increased to 56.2% from 55.5%,
and pre-provision profit rose 1% to R16.2bn. The stronger rand reduced Group revenue by 1% and headline
earnings by 2%. In constant currency, pre-provision profit grew 3% and headline earnings 5%. Credit
impairments fell 9% to R3.4bn, resulting in a 0.83% credit loss ratio from 0.96%. The Group's
normalised NAV per share increased 4% to 11 683 cents and it declared a 3% higher half year
DPS of 490 cents.
RBB South Africa's headline earnings rose 4% to R4 209m primarily due to 6% lower credit impairments.
Retail Banking South Africa headline earnings grew 5% to R3 001m, while Business Banking South Africa
increased 1% to R1 208m. CIB South Africa's earnings declined 6%, given a 1% lower pre-provision
profit and 79% higher credit impairments. Corporate South Africa fell 3% to R556m and Investment
Banking South Africa decreased 7% to R1 127m. Rest of Africa Banking headline earnings grew 8% to
R1 636m, or 20% in constant currency. RBB Rest of Africa increased 38%, or 54% in constant currency,
while CIB Rest of Africa grew 3% and 15% in constant currency. WIMI's headline earnings increased
5% to R646m, reflecting significant growth in Short-term Insurance.
South African earnings grew 2% to R6.4bn, while Rest of Africa rose 9% or 21% in constant currency to
account for 20% of Group earnings.
Operating environment
Global economic recovery continued during the period with the US leading the developed economies in the
recovery process. Economic growth in Europe and Japan slowed, but domestic fundamentals remain solid
giving confidence that growth will improve in the second half. Inflation in developed economies
remains muted, while emerging markets saw an uptick due to currency pressures and higher commodity
prices. Global monetary policy is still broadly accommodative, although the broad trend is toward
tightening.
South Africa's GDP contracted by an annualised 2.2% in the first quarter after a strong annualised 3.1% in
the last quarter of 2017. The contraction was due to weakness across key sectors including agriculture, mining,
manufacturing and construction. Private sector fixed investment declined in contrast to the strong improvement
in business confidence in the first quarter. Headline inflation bottomed at 3.8% in March before increasing
slowly to 4.6% in June. As such, the Reserve Bank reduced interest rates 25 basis points in March, but left it
unchanged in July.
Economic growth continued to improve in a number of our key Rest of Africa countries. The strengthening
global economy, higher commodity prices and improved weather conditions supported growth, with the primary
sector activities including mining, construction and agriculturee standing out as the main growth drivers
in many economies. Monetary policy easing continued in our markets as inflation trended lower. Key headwinds
include the still weak fiscal positions in Mozambique, Zambia and Kenya.
Group performance
Statement of financial position
Total IFRS assets increased 9% to R1 235bn at June 2018, largely due to 8% growth in gross loans and
advances to customers and trading portfolio assets which grew by 23%. Normalised total assets increased
8% to R1 233bn at 30 June 2018.
Loans and advances to customers
Gross loans and advances to customers increased 8% to R811bn. RBB South Africa loans rose 5% to R477bn.
Retail Banking South Africa's loans grew 5% to R407bn, reflecting 12% growth in Vehicle and Asset Finance
(VAF), 10% higher Personal Loans and 1% growth in Home Loans, while Card and Payments increased by 1% despite
a reduction in the store card portfolio. Business Banking South Africa's loans rose 9% to R70bn, with Term
Loans and Agri Loans increasing 13% and 14% respectively. CIB South Africa's loans grew 14% to R235bn,
including 13% growth in Corporate and 14% in the Investment Bank. Rest of Africa Banking loans increased
14% to R94bn, or 10% in constant currency.
Funding
The Group's liquidity position remains strong, with liquid assets and other sources of liquidity growing 11%
to R218bn, which equates to 31% of customer deposits. The Group's three-month average liquidity coverage
ratio for the second quarter of 2018 was 109%, comfortably above the minimum regulatory hurdle of 90% during
the first half of 2018. The Group's deposits due to customers grew 3% to R714bn. Its loans to deposit and
debt securities ratio increased to 91.6% from 87.1%. Deposits due to customers constituted 76% of total
funding. RBB South Africa's deposits grew 5% to R305bn, with Retail Banking South Africa up 7% to R193bn
and Business Banking South Africa increasing 3% to R111bn. CIB South Africa's deposits were flat at R184bn.
Rest of Africa Banking deposits increased 6% to R127bn, or 3% in constant currency.
Net asset value
The Group's IFRS NAV rose 1% to R109bn and its NAV per share grew 1% to 12 829 cents, despite a R4.2bn
reduction on adoption of IFRS 9 on 1 January 2018. During the reporting period the Group generated
retained earnings of R7.3bn (Normalised: R8bn), from which it paid R5.0bn in ordinary dividends. Its
foreign currency translation reserve (FCTR) increased to R2.4bn from R1.8bn at the end of June 2017.
On a normalised basis, NAV rose 3% to R99bn and its NAV per share grew 4% to 11 683 cents.
Capital to risk-weighted assets
Group risk-weighted assets (RWAs) increased 6% to R771bn at 30 June 2018, mainly due to increased credit
risk RWAs. The Group remains well capitalised, comfortably above minimum regulatory capital requirements.
The Group's IFRS CET1 and total capital adequacy ratios were 13.3%and 16.7% respectively (from 13.7% and
16.1%).
On a normalised basis the CET 1 and total capital adequacy ratios were 12.2% and 15.7% respectively
(from 12.1% and 14.5%).
The Group generated 2.0% of CET1 capital internally over the past year. The day 1 impact from
implementing IFRS 9 reduced the Group's CET1 ratio by 5 basis points, as we opted to phase it in
over three years. Declaring a 3% higher half year DPS of 490 cents on a dividend cover of 1.9 times
took into account the operating environment, the Group's strong capital position, internal capital
generation, strategy and growth plans.
Statement of comprehensive income
Net interest income
Net interest income increased 3% to R21 363m from R20 837m (Normalised: increase of 2% to R21 188m from
R20 791m), while average interest-bearing assets grew 3%. The Group's net interest margin (to average
interest-bearing assets) declined to 4.75% from 4.81% (Normalised: declined to 4.76% from 4.81%). Net
interest income grew 3% on a constant currency basis.
Loan pricing reduced the Group's net interest margin by 6 bps, largely due to higher suspended interest in
RBB South Africa after implementing IFRS9. Loan composition added 2 bps to the margin, given slower growth in
Home Loans. Deposit pricing reduced the margin by 1 bp, primarily due to competitive pricing on fixed retail
deposits in South Africa. Deposit composition increased the margin by 3 bps, as wholesale funding balances were
flat. With lower interest rates in South Africa, the equity and deposit endowment reduced the Group margin by
4 bps. The structural hedge released R232m to the income statement, 3 bps more than in the prior reporting
period, to largely offset the reduced endowment contribution. Rest of Africa reduced the margin by 1 bp due
to the stronger rand.
Non-interest income
IFRS non-interest income grew 5% to R16 267m from R15 532m to account for 43% of total revenue. On a
constant currency basis, the growth was 5%.
On a normalised basis non-interest income grew 4% to R15 854m from R15 294m to account for 43% of
total revenue from 42%.
Net fee and commission income grew 4% to R10 991m, which represented 68% of total non-interest income.
Within this, cheque account fees increased 15% to R2 751m, electronic banking grew 3% to R2 576m, while
credit cards and merchant income rose by 7% and 9% respectively. Investment, markets execution and investment
banking fees decreased 8% to R266m.
Net trading excluding hedge accounting declined 6% to R2 510m, reflecting Markets in South Africa increasing
1%, while Rest of Africa Banking decreased 8%.
Within other operating income, sundry income increased significantly due to a non-headline gain on the
disposal of some subsidiaries.
RBB South Africa's non-interest income grew 5% to R8 763m, as Retail Banking South Africa increased 6% and
Business Banking South Africa was flat. Within Retail Banking, Transactional and Deposits rose 10%, reflecting
price increases, cheque account growth and reclassifying fee write-offs to credit impairments. CIB South
Africa increased 7% to R2 252m, with 10% growth in transactional revenue.
Rest of Africa Banking's non-interest income declined 2% to R2 427m as the impact of a stronger rand
offset constant currency growth of 5%. In constant currency, CIB Rest of Africa increased 2% and RBB Rest
of Africa 7%.
WIMI's non-interest income increased 11% to R2 844m, including 11% higher Life insurance net premium income,
3% growth in Short-term Insurance net premium income in South Africa and gains on the disposal of
subsidiaries.
Impairment losses
IFRS 9 replaced IAS 39 on 1 January 2018, in terms of which credit impairments moved from an incurred basis
to an expected credit loss approach. The Group has applied IFRS 9 retrospectively, with an adjustment to
retained earnings and other reserves as at 1 January 2018, and elected not to restate comparative periods.
Implementing IFRS 9 increased the Group's IAS 39 credit provisions and interest in suspense by R5.9bn or
27% at 1 January 2018 to R27.8bn. Previously reported IAS 39 impairment ratios in respect of performing and
non-performing portfolios are not comparable to similar ratios under IFRS 9. At 30 June 2018 the Group's stage
3 (defaulted) loans were 5.3% of gross loans and advances from 5.5% at 1 January 2018 and the expected credit
loss coverage ratios on these were 42.0% and 40.7% respectively.
Credit impairments decreased 9% to R3 431m from R3 773m, which improved the Group's credit loss ratio to
0.83% from 0.96% of gross loans and advances to customers and banks.
RBB South Africa credit impairments decreased 6% to R2 728m, resulting in a 1.15% credit loss ratio from
1.28%. Retail Banking South Africa credit impairments declined 7% to R2 517m, reducing its credit loss ratio to
1.24% from 1.39%. Home Loans' charge fell 61% to R181m resulting in a 0.16% credit loss ratio from 0.41%. Card
and Payments' credit loss ratio declined to 4.23% from 5.36%, given 21% lower credit impairments of R897m.
Vehicle and Asset Finance credit impairments grew 25% to R594m, increasing its credit loss ratio to 1.14% from
1.01%. Personal Loans' charge rose 3% to R568m and its credit loss ratio improved to 5.87% from 6.21%. Business
Banking South Africa credit impairments increased 8% to R211m, in line with its loan growth, to produce a flat
credit loss ratio of 0.62%.
CIB South Africa credit impairments increased 79% to R381m from R213m, due to a large single name exposure.
Its credit loss ratio increased to 0.30% from 0.18%.
Rest of Africa Banking credit impairments fell 47% to R335m from R638m, reducing its credit loss ratio to
0.72% from 1.38%. RBB Rest of Africa's charge fell 39% to R318m, a 1.53% credit loss ratio, while CIB Rest
of Africa decreased 91% to R11m or a 0.05% credit loss ratio.
Operating expenses
Group operating expenses grew 8% to R22 198m from R20 498m, resulting in a 59.0% cost-to-income ratio from
56.4%. Operating expenses increased 5% in constant currency. On a normalised basis operating expenses 4% to
R20 834m from R20 038m, resulting in a 56.2% cost-to-income ratio from 55.5%.
Staff costs grew 6% and accounted for 54% of total operating expenses. Salaries and total incentives rose
by 7% and 3%, respectively. On a normalised basis staff costs grew by 4% and accounted for 55% of total
expenses. Salaries rose by 5%, while total incentives fell 7%. Headcount decreased 1%, largely due to
reductions in Rest of Africa and a disposal in WIMI.
Non-staff costs grew 11% (Normalised: 4%). Professional fees increased 2% to R1 033m (Normalised: fell 9% to
R717m), while telephone and postage declined 9% and printing and stationery increased 7% (Normalised: 6%).
Operating leases on properties decreased 2% to R799m and property costs increased 5% to R883m (Normalised:
decreased 1% to R834m). Marketing costs rose by 6% to R834m (Normalised: flat at R731m). Total IT-related spend
grew 13% to R3 970m and constituted 18% (Normalised: 19%) of Group operating expenses. Amortisation of intangible
assets rose 5% to R366m (Normalised: rose 4% to R363m), while cash transportation increased 14% to R612m. The
21% (Normalised: 20%) growth in depreciation reflects investment in technology and optimisation of the
corporate property portfolio and branch network.
RBB South Africa costs grew 7% to R12 593m. Retail Banking South Africa increased 7% and Business Banking
South Africa 8%, due to salary increases, investment in physical and cyber security, higher cost of cash
and amortisation of IT infrastructure.
CIB South Africa expenses grew 10% to R3 071m, after two years of low cost growth, as it continues to invest
in systems and technology.
Rest of Africa Banking expenses increased 1%, or 7% in constant currency, to R4 333m. CIB Rest of Africa
increased 4% and RBB Rest of Africa was flat. A continued focus on optimising the branch network and enhancing
digital capabilities kept underlying cost growth below inflation.
WIMI's costs declined 3% to R1 776m, in part due to disposing of Employee Benefits. It achieved strongly
positive operating JAWS, which improved its cost-efficiency ratio to 33.6%.
Other expenses decreased 14% to R964m (Normalised: increased 12% to R888m).
Taxation
The Group's taxation expense increased 3% to R3 189m (Normalised: increased 4% to R3 322m), resulting in a
28.8% (Normalised: 27.8%) effective tax rate from 28.0% (Normalised: 27.7%).
Segment performance
RBB South Africa
Headline earnings increased 4% to R4 209m, due to 6% lower credit impairments, as pre-provision profits
were flat at R9 007m. Revenue grew 4% to R21 600m, with non-interest income increasing 5%. Costs rose 7%
to R12 593m, resulting in a 58.3% cost-to-income ratio from 56.6%. Credit loss ratio improved to 1.15%
from 1.28%. RBB South Africa generated a return on regulatory capital (RoRC) of 23.0% and constituted
52% of total normalised headline earnings excluding the Group centre.
Retail Banking South Africa
Headline earnings grew 5% to R3 001m, primarily due to lower credit impairments, as pre-provision profits
were flat. Transactional and Deposits earnings fell 9% to R1 048m, largely due to significantly higher credit
impairments. Home Loans earnings grew 16% to R901m, given 61% lower credit impairments which offset increased
interest in suspense after implementing IFRS 9. Card and Payments earnings grew 19% to R717m, as a result of
lower credit impairments and 14% growth in acquiring turnover. Vehicle and Asset Finance earnings fell 6% to
R406m, as 25% higher credit impairments outweighed 9% higher net interest income. Personal Loans earnings
increased 10% to R201m, largely due to 7% net interest income growth.
Retail Banking South Africa accounted for 37% of normalised headline earnings excluding the Group centre.
Business Banking South Africa
Headline earnings increased 1% to R1 208m, as revenue grew 5% due to 7% net interest income growth.
Pre-provision profits were flat, given 8% cost growth due to continued investment in frontline staff and
systems. Credit impairments increased 8%, largely in line with loan growth. Business Banking South Africa
generated 15% of overall normalised headline earnings excluding the Group centre.
CIB South Africa
Headline earnings decreased 6% to R1 683m, primarily due to 79% higher credit impairments. Pre-provision
profits declined 1% as 10% higher costs exceeded 5% revenue growth. Despite 10% revenue growth, Corporate
earnings fell 3% to R556m given 18% higher costs. Investment Bank earnings decreased 7% to R1 127m, due to
62% higher credit impairments. CIB South Africa contributed 21% of total normalised headline earnings
excluding the Group centre and generated a 15.9% RoRC.
Rest of Africa Banking
Headline earnings grew 8%, or 20% in constant currency, to R1 636m, largely due to 47% lower credit
impairments. Pre-provision profits increased 3% in constant currency. Revenue fell 1% to R7 565m, although it
increased 5% in constant currency. Costs grew 1% to R4 333m, or 7% in constant currency, resulting in a 57,3%
cost-to-income ratio. RBB Rest of Africa earnings increased 38% to R463m, or 54% in constant currency, given
positive operating leverage and 39% lower credit impairments. CIB Rest of Africa earnings grew 3%, or 15% in
constant currency, to R1 246m as its credit impairments dropped 91%. Rest of Africa Banking accounted for 20%
of total normalised headline earnings excluding the Group centre and produced a 19.6% RoE.
WIMI
Headline earnings grew 5% to R646m, with earnings from continuing business lines increasing 8% to R636m.
Gross operating income grew 11% to R3 455m and costs fell 7% to R1 551m. Life insurance net operating income
grew 26%, while earnings declined 4% due to a deferred tax benefit in the base. Its embedded value of new
business increased 25% in South Africa, due to improved retail lending and sales through bank branches.
Assets under management grew 8% to R319bn, despite declining 5% year to date. Wealth and Investment
Management's earnings declined 15%, largely due to margin compression. Short-term Insurance earnings grew
117%. South African underwriting margins increased to 9.8%. WIMI's South African earnings increased 3% to
R682m, while Rest of Africa reported a loss of R36m. WIMI's RoE improved to 22.5% and it generated 8% of
total earnings excluding the Group centre.
Prospects
In South Africa growth prospects remain challenging given subdued business confidence and headwinds to household
spending. We forecast real GDP growth of 1.2% this year and 2.0% next year. Fiscal policy remains a challenge
as recent tax increases might not be enough to deliver the much needed consolidation. We expect the Reserve Bank
to leave interest rates unchanged for some time.
We forecast real GDP growth of 6% in our Rest of Africa portfolio, although monetary policy easing may have
bottomed. At current levels, the rand would dampen our earnings less in the second half than it did in the
first half.
Based on these assumptions, and excluding any unforeseen major political, macroeconomic or regulatory
developments, our guidance for 2018 is largely unchanged. We expect our loan and deposit growth to improve
in 2018, with stronger loan growth in Rest of Africa, CIB and Retail South Africa. Our net interest margin
is likely to decline slightly this year. Costs will remain well controlled and our operating JAWS should
improve from last year's but is unlikely to be positive. We expect our credit loss ratio to improve in 2018.
Our CET1 ratio is expected to remain above board targets, which will allow us to maintain our current
dividend cover. Lastly, our normalised RoE should improve slightly in 2018.
Basis of presentation
The Group's unaudited condensed interim financial results have been prepared in accordance with the
recognition and measurement requirements of International Financial Reporting Standards (IFRS), interpretations
issued by the IFRS Interpretations Committee (IFRS-IC), the South African Institute of Chartered Accountants'
Financial Reporting Guides as issued by the Accounting Practices Committee, Financial Reporting Pronouncements as
issued by the Financial Reporting Standards Council, the JSE Listings Requirements and the requirements of the
Companies Act.
The accounting policies applied in preparing the unaudited condensed consolidated interim financial results
comply with IAS 34 Interim Financial Reporting. The principal accounting policies applied are set out in the
Group's most recent audited annual consolidated financial statements , except for the adoption of IFRS 9
Financial Instruments (IFRS 9), IFRS 15 Revenue from Contracts with Customers (IFRS 15), internal accounting
policy amendments and changes to the Group's operation segments and business portfolio changes. Refer to
note 16.
The directors assess the Group's future performance and financial position on an ongoing basis and have no
reason to believe that the Group will not be a going concern in the reporting period ahead. For this reason,
the information in this report has been prepared on a going concern basis.
Note 16 includes the impact of the adoption of IFRS 9 Financial Instruments (IFRS 9) and specifically
the transitional disclosures as required by IFRS 7 Financial Instruments: Disclosures. This summarised
report is extracted from audited information with the full transitional report 'Reporting Changes'
included from page 152 of Absa Group Limited's interim financial results for the reporting period
ending 30 June 2018. All information marked as audited in the Reporting Changes section has been
audited by Ernst & Young Inc. (EY) who expressed an unmodified opinion thereon in terms of ISA 805 –
Special considerations - Audits of single financial statements and specific elements, accounts or
items of financial statement. A copy of the auditor's report on the audited sections of the Reporting
Changes section are available for inspection at the Group's registered office, together with a copy
of the transitional disclosures that were audited.
The preparation of financial information requires the use of estimates and assumptions about future conditions.
Use of available information and application of judgement are inherent in the formation of estimates. The
accounting policies that are deemed critical to the Group's results and financial position, in terms of the
materiality of the items to which the policies are applied, and which involve a high degree of judgement
including the use of assumptions and estimation, are impairment of loans and advances, goodwill impairment,
fair value measurements, impairment of fair value through other comprehensive income financial assets
(2018)/available-for-sale financial assets (2017), consolidation of structured or sponsored entities,
post-retirement benefits, provisions, income taxes, share-based payments, liabilities arising from claims
made under short-term and long-term insurance contracts and offsetting of financial assets and liabilities.
Accounting policies
The accounting policies applied in preparing the unaudited condensed consolidated interim financial
statements are the same as those in place for the reporting period ended 31 December 2017 except for:
- The adoption of IFRS 9 Financial Instruments (IFRS 9) and IFRS 15 Revenue from Contracts with
Customers (IFRS 15);
- An accounting policy change with respect to the measurement of policyholder liabilities; and
- Changes of the Group's operating segments and business portfolios.
Refer to note 16 for further information.
Events after the reporting period
The directors are not aware of any events after the reporting date of 30 June 2018 and up to the date
of authorisation of these condensed consolidated interim financial restuls (as defined per IAS 10
Events after the Reporting Period (IAS 10)).
On behalf of the Board
W E Lucas-Bull M Ramos
Group Chairman Chief Executive Officer
Johannesburg
6 August 2018
Declaration of interim dividend number 64
Shareholders are advised that an interim ordinary dividend of 490 cents per ordinary share was declared on
6 August 2018, for the period ended 30 June 2018. The interim ordinary dividend is payable to shareholders
recorded in the register of members of the Company at the close of business on 14 September 2018. The directors
of Absa Group Limited have apllied the solvency and liquidity test and reasonably concluded that the Group will
satisfy the solvency and liquidity test immediately after completion of the dividend distribution.
The dividend will be subject to local dividends withholding tax at a rate of 20%. In accordance with
paragraphs 11.17 (a) (i) to (ix) and 11.17 (c) of the JSE Listings Requirements, the following additional
information is disclosed:
- The dividend has been declared out of income reserves.
- The local dividend tax rate is twenty per cent (20%).
- The gross local dividend amount is 490 cents per ordinary share for shareholders exempt from the
dividend tax.
- The net local dividend amount is 392 cents per ordinary share for shareholders liable to pay the
dividend tax.
- Absa Group Limited currently has 847 750 679 ordinary shares in issue (includes 16 009 837(1) treasury
shares).
- Absa Group Limited's income tax reference number is 9150116714.
In compliance with the requirements of Strate, the electronic settlement and custody system used by the JSE
Limited, the following salient dates for the payment of the dividend are applicable:
Last day to trade cum dividend Tuesday, 11 September 2018
Shares commence trading ex dividend Wednesday, 12 September 2018
Record date Friday, 14 September 2018
Payment date Monday, 17 September 2018
Share certificates may not be dematerialised or rematerialised between Wednesday, 12 September 2018 and
Friday, 14 September 2018, both dates inclusive. On Monday, 17 September 2018, the dividend will be
electronically transferred to the bank accounts of certificated shareholders. The accounts of those
shareholders who have dematerialised their shares (which are held at their participant or broker)
will also be credited on Monday, 17 September 2018.
On behalf of the Board
N R Drutman
Group Company Secretary
Johannesburg
6 August 2018
Absa Group Limited is a company domiciled in South Africa. Its registered office is 7th Floor, Absa Towers
West, 15 Troye Street, Johannesburg, 2001.
(1) Includes 13 510 987 of Absa Group Limited shares to be used in the furtherance of the Group's objective
of establishing a BBBEE structure.
Condensed consolidated IFRS salient features for the reporting period
30 June 31 December
2018 2017 2017
Statement of comprehensive income (Rm)
Income(1) 37 630 36 369 73 395
Operating expenses 22 198 20 498 43 304
Profit attributable to ordinary equity holders 7 253 7 423 13 888
Headline earnings(1)(2) 7 324 7 650 14 378
Statement of financial position
Loans and advances to customers (Rm) 783 116 728 985 749 772
Total assets (Rm) 1 234 643 1 137 876 1 165 979
Deposits due to customers (Rm) 714 491 696 362 689 867
Loans to deposits and debt securities ratio (%) 91.6 87.1 90.6
Financial performance (%)
Return on equity (RoE) 13.9 16.2 14.2
Return on average assets (RoA) 1.26 1.38 1.27
Return on risk-weighted assets (RoRWA) 2.00 2.18 2.00
Stage 3 loans ratio on gross loans and advances 5.31 n/a n/a
Non-performing loans (NPL) ratio on gross loans and advances n/a 3.73 3.75
Operating performance (%)
Net interest margin on average interest-bearing assets(3) 4.75 4.81 4.83
Credit loss ratio on gross loans and advances to customers and banks 0.83 0.96 0.87
Non-interest income as percentage of total income 43.2 42.7 41.9
Cost-to-income ratio 59.0 56.4 59.0
Jaws (5) (6) (7)
Effective tax rate 28.7 28.0 28.1
Share statistics (million)
Number of ordinary shares in issue 847.8 847.8 847.8
Number of ordinary shares in issue (excluding treasury shares) 831.8 847.1 832.8
Weighted average number of ordinary shares in issue(4) 832.0 833.8 833.7
Diluted weighted average number of ordinary shares in issue(4) 834.4 834.0 833.8
Share statistics (cents)
Headline earnings per ordinary share (HEPS)(1),(4) 880.3 917.5 1 724.5
Diluted headline earnings per ordinary share (DHEPS)(1),(4) 877.8 917.3 1 724.2
Basic earnings per ordinary share (EPS)(1),(4) 871.9 890.3 1 665.7
Diluted basic earnings per ordinary share (DEPS)(1),(4) 869.4 890.0 1 665.5
Dividend per ordinary share relating to income for the reporting period 490 475 1 070
Dividend cover (times) 1.8 1.9 1.6
NAV per ordinary share(1) 12 829 12 654 12 811
Tangible NAV per ordinary share(1) 12 075 12 215 12 373
Capital adequacy (%)
Absa Group Limited 16.7 16.1 16.1
Absa Bank Limited 17.9 17.4 16.9
Common Equity Tier 1 (%)
Absa Group Limited 13.3 13.7 13.5
Absa Bank Limited 13.5 14.1 13.4
(1) Numbers have been restated, refer to note 16 for further details.
(2) After allowing for R176m (30 June 2017: R180m; 31 December 2017: R362m) profit attributable to
preference equity holders and R96m (30 June 2017: Nil; 31 December 2017: R48m) profit attributable
to Additional Tier 1 capital holders.
(3) Net interest margin for comparative prior periods have been restated to reflect an update of the Group's
policy for classifying assets as interest bearing or non-interest bearing. The updated policy classifies
certain assets held for regulatory purposes as interest bearing, under the previous policy these assets were
classified as non-interest bearing.
(4) Numbers have been restated, refer to note 6.
Normalised salient features for the reporting period ended
30 June 31 December
2018 2017 2017
Statement of comprehensive income (Rm)
Income(1) 37 042 36 085 72 990
Operating expenses 20 834 20 038 41 403
Profit attributable to ordinary equity holders(1) 7 972 7 813 15 370
Headline earnings(1)(2) 8 043 7 802 15 623
Statement of financial position
Loans and advances to customers (Rm) 783 116 728 985 749 772
Total assets (Rm) 1 233 038 1 137 892 1 165 067
Deposits due to customers (Rm) 714 491 696 362 689 867
Loans to deposits and debt securities ratio (%) 91.6 87.1 90.6
Financial performance (%)
Return on equity (RoE)(1) 16.9 16.8 16.5
Return on average assets (RoA) 1.40 1.41 1.39
Return on risk-weighted assets (RoRWA) 2.20 2.22 2.17
Stage 3 loans ratio on gross loans and advances 5.31 n/a n/a
Non-performing loans (NPL) ratio on gross loans and advances(3) n/a 3.73 3.75
Operating performance (%)
Net interest margin on average interest-bearing assets(4) 4.76 4.81 4.83
Credit loss ratio on gross loans and advances to customers and banks 0.83 0.96 0.87
Non-interest income as percentage of total income 42.8 42.4 42.0
Cost-to-income ratio 56.2 55.5 56.7
Jaws (1) (4) (3)
Effective tax rate 27.8 27.7 27.5
Share statistics (million)
Number of ordinary shares in issue 847.8 847.8 847.8
Number of ordinary shares in issue (excluding treasury shares) 844.5 847.1 845.6
Weighted average number of ordinary shares in issue(5) 844.7 846.5 846.5
Diluted weighted average number of ordinary shares in issue(5) 847.1 846.7 846.6
Share statistics (cents)
Headline earnings per ordinary share(1),(5) 952.2 921.7 1 845.6
Diluted headline earnings per ordinary share(1),(5) 949.5 921.5 1 845.4
Basic earnings per ordinary share(1),(5) 943.8 923.0 1 815.7
Diluted basic earnings per ordinary share(1),(5) 941.1 922.8 1 815.5
Dividend per ordinary share relating to income for the reporting period 490 475 1 070
Dividend cover (times) 1.9 1.9 1.7
NAV per ordinary share(1) 11 683 11 281 11 573
Tangible NAV per ordinary share(1) 11 093 10 843 11 030
Capital adequacy (%)
Absa Group Limited 15.7 14.5 14.9
Absa Bank Limited 16.3 15.2 15.0
Common Equity Tier 1 (%)
Absa Group Limited 12.2 12.1 12.1
Absa Bank Limited 11.9 11.9 11.6
(1) Numbers have been restated, refer to note 16 for further details.
(2) After allowing for R176m (30 June 2017: R180m; 31 December 2017: R362m) profit attributable to
preference equity holders and R96m (30 June 2017: Nil; 31 December 2017: R48m) profit
attributable to Additional Tier 1 capital holders.
(3) The NPL ratio is the net exposure, being the outstanding NPL balance, less expected recoveries and fair
value of collateral, as a percentage of the total outstanding NPL balance.
(4) Net interest margin for comparative prior periods have been restated to reflect an update of the
Group's policy for classifying assets as interest bearing or non-interest bearing. The updated policy
classifies certain assets held for regulatory purposes as interest bearing, under the previous policy
these assets were classified as non-interest bearing.
(5) Numbers have been restated, refer to note 6.
Reconciliation of IFRS to normalised results for the reporting period ended
30 June
Barclays Total Group
IFRS Group separation normalised
performance effects performance
2018 2018 2018
Statement of comprehensive income (Rm)
Net interest income 21 363 175 21 188
Non-interest income(1) 16 267 413 15 854
Total income 37 630 588 37 042
Impairment losses (3 431) - (3 431)
Operating expenses (22 198) (1 364) (20 834)
Other expenses (964) (76) (888)
Share of post-tax results of associates and joint ventures 56 - 56
Operating profit before income tax 11 093 (852) 11 945
Tax expenses(1) (3 189) 133 (3 204)
Profit for the reporting period 7 904 (719) 8 623
Profit attributable to:
Ordinary equity holders(1) 7 253 (719) 7 972
Non-controlling interest - ordinary shares 379 - 379
Non-controlling interest - preference shares 176 - 176
Non-controlling interest - additional Tier 1 96 - 96
7 904 (719) 8 623
Headline earnings(1) 7 324 (719) 8 043
Operating performance (%)
Net interest margin on average interest-bearing assets(3) 4.75 n/a 4.76
Credit loss ratio on gross loans and advances to customers and banks 0.83 n/a 0.83
Non-interest income as % of total income 43.2 n/a 42.8
Income growth 3 n/a 3
Operating expenses growth 8 n/a 4
Cost-to-income ratio 59.0 n/a 56.2
Effective tax rate 28.7 n/a 27.8
Statement of financial position (Rm)
Loans and advances to customers 783 116 - 783 116
Loans and advances to banks 62 843 - 62 843
Investment securities 127 437 - 127 437
Other assets 261 247 1 605 259 642
Total assets 1 234 643 1 605 1 233 038
Deposits due to customers 714 491 - 714 491
Debt securities in issue 140 782 - 140 782
Other liabilities(1) 259 851 (8 496)(2) 268 347
Total liabilities(1) 1 115 124 (8 496) 1 123 620
Equity(1) 119 519 10 101 109 418
Total equity and liabilities(1) 1 234 643 1 605 1 233 038
Key performance ratios (%)
RoA 1.26 n/a 1.40
RoE 13.9 n/a 16.9
Capital adequacy 16.7 n/a 15.7
Common Equity Tier 1 13.3 n/a 12.2
Share statistics (cents)
Diluted headline earnings per ordinary share 877.8 n/a 949.5
(1) Numbers have been restated, refer to note 16 for further details.
(2) This represents the contribution of R12.1bn that was received from Barclays PLC, net of amounts
already spent on separation activities. The cash received is held centrally by Treasury and is
presented as an intersegmental asset in ‘Other liabilities'.
(3) Net interest margin for comparative prior periods have been restated to reflect an update of the
Group's policy for classifying assets as interest bearing or non-interest bearing. The updated
policy classifies certain assets held for regulatory purposes as interest bearing, under the
previous policy these assets were classified as non-interest bearing.
Reconciliation of IFRS to normalised results for the reporting period ended
30 June
Barclays Total Group
IFRS Group separation normalised
performance effects performance
2017 2017 2017
Statement of comprehensive income (Rm)
Net interest income 20 837 46 20 791
Non-interest income(1) 15 532 238 15 294
Total income 36 369 284 36 085
Expected credit losses/impairment losses on loans and advances (3 773) - (3 773)
Operating expenses (20 498) (460) (20 038)
Other expenses (1 120) (325) (795)
Share of post-tax results of associates and joint ventures 79 - 79
Operating profit before income tax 11 057 (501) 11 558
Tax expenses(1) (3 093) 111 (3 304)
Profit for the reporting period 7 964 (390) 8 354
Profit attributable to:
Ordinary equity holders(1) 7 423 (390) 7 813
Non-controlling interest - ordinary shares 361 - 361
Non-controlling interest - preference shares 180 - 180
Non-controlling interest - additional Tier 1 - - -
7 964 (390) 8 354
Headline earnings(1) 7 650 (152) 7 802
Operating performance (%)
Net interest margin on average interest-bearing assets(3) 4.81 n/a 4.81
Credit loss ratio on gross loans and advances to customers and banks 0.96 n/a 0.96
Non-interest income as % of total income 42.7 n/a 42.4
Income growth - n/a (1)
Operating expenses growth 5 n/a 3
Cost-to-income ratio 56.4 n/a 55.5
Effective tax rate 28.0 n/a 27.7
Statement of financial position (Rm)
Loans and advances to customers 728 985 - 728 985
Loans and advances to banks 63 451 - 63 451
Investment securities 115 834 - 115 834
Other assets 229 606 (16) 229 622
Total assets 1 137 876 (16) 1 137 892
Deposits due to customers 696 362 - 696 362
Debt securities in issue 140 192 - 140 192
Other liabilities(1) 184 825 (11 731)(2) 196 556
Total liabilities(1) 1 021 379 (11 731) 1 033 110
Equity(1) 116 497 11 715 104 782
Total equity and liabilities(1) 1 137 876 (16) 1 137 892
Key performance ratios (%)
RoA 1.38 n/a 1.41
RoE 16.2 n/a 16.8
Capital adequacy 16.1 n/a 14.5
Common Equity Tier 1 13.7 n/a 12.1
Share statistics (cents)
Diluted headline earnings per ordinary share 917.3 n/a 921.5
(1) Numbers have been restated, refer to note 16 for further details.
(2) This represents the contribution of R12.1bn that was received from Barclays PLC, net of amounts
already spent on separation activities. The cash received is held centrally by Treasury and is
presented as an intersegmental asset in ‘Other liabilities'.
(3) Net interest margin for comparative prior periods have been restated to reflect an update of the
Group's policy for classifying assets as interest bearing or non-interest bearing. The updated policy
classifies certain assets held for regulatory purposes as interest bearing, under the previous policy
these assets were classified as non-interest bearing.
Reconciliation of IFRS to normalised results for the reporting period ended
31 December
Barclays Total Group
IFRS Group separation normalised
performance effects performance
2017 2017 2017
Statement of comprehensive income (Rm)
Net interest income 42 644 325 42 319
Non-interest income(1) 30 751 80 30 671
Total income 73 395 405 72 990
Expected credit losses/impairment losses on loans and advances (7 022) - (7 022)
Operating expenses (43 304) (1 901) (41 403)
Other expenses (2 270) (394) (1 876)
Share of post-tax results of associates and joint ventures 170 - 170
Operating profit before income tax 20 969 (1 890) 22 859
Tax expenses(1) (5 882) 408 (6 290)
Profit for the reporting period 15 087 (1 482) 16 569
Profit attributable to:
Ordinary equity holders(1) 13 888 (1 482) 15 370
Non-controlling interest - ordinary shares 789 - 789
Non-controlling interest - preference shares 362 - 362
Non-controlling interest - additional Tier 1 48 - 48
15 087 (1 482) 16 569
Headline earnings(1) 14 378 (1 245) 15 623
Operating performance (%)
Net interest margin on average interest-bearing assets(3) 4.83 n/a 4.83
Credit loss ratio on gross loans and advances to customers and banks 0.87 n/a 0.87
Non-interest income as % of total income 41.9 n/a 42.0
Income growth 1 n/a 1
Operating expenses growth 8 n/a 3
Cost-to-income ratio 59.0 n/a 56.7
Effective tax rate 28.1 n/a 27.5
Statement of financial position (Rm)
Loans and advances to customers 749 772 - 749 772
Loans and advances to banks 55 426 - 55 426
Investment securities 111 409 - 111 409
Other assets 249 372 912 248 460
Total assets 1 165 979 912 1 165 067
Deposits due to customers 689 867 - 689 867
Debt securities in issue 137 948 - 137 948
Other liabilities(1) 218 906 (9 840)(2) 228 746
Total liabilities(1) 1 046 721 (9 840) 1 056 561
Equity(1) 119 258 10 752 108 506
Total equity and liabilities(1) 1 165 979 912 1 165 067
Key performance ratios (%)
RoA 1.27 n/a 1.39
RoE 14.2 n/a 16.5
Capital adequacy 16.1 n/a 14.9
Common Equity Tier 1 13.5 n/a 12.1
Share statistics (cents)
Diluted headline earnings per ordinary share 1 724.2 n/a 1 845.4
(1) Numbers have been restated, refer to note 16 for further details.
(2) This represents the contribution of R12.1bn that was received from Barclays PLC, net of amounts
already spent on separation activities. The cash received is held centrally by Treasury and is
presented as an intersegmental asset in ‘Other liabilities'.
(3) Net interest margin for comparative prior periods have been restated to reflect an update of the
Group's policy for classifying assets as interest bearing or non-interest bearing. The updated
policy classifies certain assets held for regulatory purposes as interest bearing, under the
previous policy these assets were classified as non-interest bearing.
Condensed consolidated statement of financial position as at
30 June 31 December
2018 2017 2017
Note Rm Rm Rm
Assets
Cash, cash balances and balances with central banks 48 578 45 078 48 669
Investment securities 127 437 115 834 111 409
Loans and advances to banks 62 843 63 451 55 426
Trading portfolio assets 124 982 101 554 132 183
Hedging portfolio assets 2 325 2 278 2 673
Other assets 37 974 36 091 20 960
Current tax assets 1 018 536 314
Non-current assets held for sale 79 2 601 1 308
Loans and advances to customers 1 783 116 728 985 749 772
Reinsurance assets 2 905 814 892
Investments linked to investment contracts 19 194 19 131 18 936
Investments in associates and joint ventures 1 217 1 144 1 235
Investment properties 420 268 231
Property and equipment 15 752 15 044 15 303
Goodwill and intangible assets 6 392 3 714 5 377
Deferred tax assets 2 411 1 353 1 291
Total assets 1 234 643 1 137 876 1 165 979
Liabilities
Deposits from banks 88 466 49 290 67 390
Trading portfolio liabilities 67 697 42 564 64 047
Hedging portfolio liabilities 1 339 1 478 1 123
Other liabilities 42 775 38 082 31 744
Provisions 2 558 1 974 3 041
Current tax liabilities 309 - 57
Non-current liabilities held for sale 1 7 114 48
Deposits due to customers 714 491 696 362 689 867
Debt securities in issue 140 782 140 192 137 948
Liabilities under investment contracts 30 546 29 918 30 585
Policyholder liabilities under insurance contracts(1) 4 570 4 264 4 342
Borrowed funds 3 21 448 15 963 15 895
Deferred tax liabilities(1) 136 1 178 634
Total liabilities 1 115 124 1 021 379 1 046 721
Equity
Capital and reserves
Attributable to ordinary equity holders:
Share capital 1 663 1 694 1 666
Share premium 10 850 12 868 10 498
Retained earnings(1) 90 148 87 965 92 080
Other reserves 6 100 4 750 4 370
108 761 107 277 108 614
Non-controlling interest - ordinary shares 4 614 4 576 4 500
Non-controlling interest - preference shares 4 644 4 644 4 644
Non-controlling interest - Additional Tier 1 capital 1 500 - 1 500
Total equity 119 519 116 497 119 258
Total liabilities and equity 1 234 643 1 137 876 1 165 979
(1) Numbers have been restated, refer to note 16 for further details.
Condensed consolidated statement of comprehensive income for the reporting period ended
30 June 31 December
2018 2017 2017
Note Rm Rm Rm
Net interest income 21 363 20 837 42 644
Interest and similar income(2) 43 481 42 938 85 929
Effective interest income 43 131 42 341 84 656
Other interest income 350 597 1 273
Interest expense and similar charges(2) (22 118) (22 101) (43 285)
Effective interest expense (22 118) (21 896) (43 285)
Other interest expense - (205) -
Non-interest income 4 16 267 15 532 30 751
Net fee and commission income 10 991 10 618 21 711
Fee and commission income 12 604 12 084 24 724
Fee and commission expense (1 613) (1 466) (3 013)
Net insurance premium income 3 465 3 250 6 598
Net claims and benefits incurred on insurance contracts (1 741) (1 694) (3 334)
Changes in investment and insurance
contract liabilities(1) (114) (513) (2 023)
Gains and losses from banking and trading activities 3 097 3 104 5 246
Gains and losses from investment activities 243 448 1 905
Other operating income 326 319 648
Total income 37 630 36 369 73 395
Impairment losses (3 431) (3 773) (7 022)
Operating income before operating expenditure 34 199 32 596 66 373
Operating expenditure (22 198) (20 498) (43 304)
Other expenses (964) (1 120) (2 270)
Other impairments 5 (184) (376) (648)
Indirect taxation (780) (744) (1 622)
Share of post-tax results of associates and
joint ventures 56 79 170
Operating profit before income tax 11 093 11 057 20 969
Taxation expense(1) (3 189) (3 093) (5 882)
Profit for the reporting period 7 904 7 964 15 087
Profit attributable to:
Ordinary equity holders(1) 7 253 7 423 13 888
Non-controlling interest - ordinary shares 379 361 789
Non-controlling interest - preference shares 176 180 362
Non-controlling interest - Additional Tier 1 capital 96 - 48
7 904 7 964 15 087
Earnings per share:
Basic earnings per share (cents)(1),(3) 871.9 890.3 1 724.5
Diluted basic earnings per share (cents)(1),(3) 869.4 890.0 1 724.2
(1) Numbers have been restated, refer to note 16 for further details.
(2) An amendment was made to IAS 1 Presentation of Financial Statements, which is effective from
1 January 2018. The amendment requires interest and similar income which is calculated using
the effective interest method, to be presented separately on the face of the statement of
comprehensive income. The Group has elected to apply the same approach in presenting interest
expense and similar charges to achieve consistency.
(3) Numbers have been restated, refer to note 6.
Condensed consolidated statement of other comprehensive income for the reporting period ended
30 June 31 December
2018 2017(1) 2017(1)
Rm Rm Rm
Profit for the reporting period(1) 7 904 7 964 15 087
Other comprehensive income
Items that will not be reclassified to profit or loss 3 (31) (179)
Fair value gain on equity instruments measured at FVOCI 2 - -
Movement of liabilities designated at FVTPL due to
changes in own credit risk 5 (26) (147)
Fair value losses (45) (26) (147)
Deferred tax 50 - -
Movement in retirement benefit fund assets and liabilities (4) (5) (32)
Decrease in retirement benefit surplus (6) (6) (91)
Decrease in retirement benefit deficit 1 2 45
Deferred tax 1 (1) 14
Items that are or may be subsequently reclassified
to profit or loss 2 016 (414) (1 328)
Movement in foreign currency translation reserve 2 373 (675) (2 219)
Differences in translation of foreign operations 2 373 (623) (2 271)
Release to profit or loss - (52) 52
Movement in cash flow hedging reserve (588) 518 794
Fair value (losses)/gains (737) 874 1 465
Amount removed from other comprehensive income and
recognised in profit or loss (80) (157) (365)
Deferred tax 229 (199) (306)
Movement in fair value of debt instruments measured at FVOCI 231 - -
Fair value gains 332 - -
Release to profit or loss 3 - -
Deferred tax (104) - -
Movement in available-for-sale reserve - (257) 98
Fair value (losse)/gains - (349) 154
Release to profit or loss - 18 67
Deferred tax - 74 (123)
Total comprehensive income for the reporting period 9 923 7 519 13 580
Total comprehensive income attributable to:
Ordinary equity holders(1) 8 940 7 068 12 654
Non-controlling interest - ordinary shares 711 271 516
Non-controlling interest - preference shares 176 180 362
Non-controlling interest - Additional Tier 1 capital 96 - 48
9 923 7 519 13 580
(1) Numbers have been restated, refer to note 16 for further details.
Condensed consolidated statement of changes in equity for the reporting period ended
30 June 2018
Fair value
through
other
General compre- Foreign
Number of Total credit- hensive Cash flow currency
ordinary Share Share Retained other risk income hedging translation
shares capital premium earnings reserves reserve reserve reserve reserve
'000 Rm Rm Rm Rm Rm Rm Rm Rm
Restated balance at
the end of the previous
reporting period(1) 832 838 1 666 10 498 92 080 4 370 779 445 650 431
Impact of adopting new
accounting standards at
1 January 2018
IFRS 9 - - - (4 106) (95) - (22) - -
IFRS 15 - - - (44) - - - - -
Adjusted balance at
the beginning of
the reporting period 832 838 1 666 10 498 87 930 4 275 779 423 650 431
Total comprehensive income - - - 7 255 1 685 - 227 (588) 2 046
Profit for the period - - - 7 253 - - - - -
Other comprehensive income - - - 2 1 685 - 227 (588) 2 046
Dividends paid during the
reporting period - - - (4 962) - - - - -
Distributions paid during
the reporting period - - - - - - - - -
Shares issued - - - - - - - - -
Purchase of Group shares
in respect of equity-settled
share-based payment arrangements - - (236) (42) - - - - -
Elimination of the movement
in treasury shares
held by Group entities (1 097) (3) 352 - - - - - -
Movement in share-based
payment reserve - - 236 - 107 - - - -
Transfer from share-based
payment reserve - - 236 - (236) - - - -
Value of employee services - - - - 371 - - - -
Deferred tax - - - - (28) - - - -
Movement in general
credit risk reserve - - - 24 (24) (24) - - -
Movement in foreign
insurance subsidiary
regulatory reserve - - - (1) 1 - - - -
Share of post-tax results
of associates
and joint ventures - - - (56) 56 - - - -
Balance at the end of
the reporting period 831 741 1 663 10 850 90 148 6 100 755 650 62 2 477
Condensed consolidated statement of changes in equity for the reporting period ended (continued)
30 June 2018
Fair value
Capital and Non-
Foreign reserves Non- Non- controlling
insurance Share- Associates attributable controlling controlling interest -
subsidiary based and joint to ordinary interest - interest - additional
regulatory payment ventures' equity ordinary preference Tier 1 Total
reserve reserve reserve holders shares shares capital equity
Rm Rm Rm Rm Rm Rm Rm Rm
Restated balance at
the end of the previous
reporting period(1) 6 837 1 222 108 614 4 500 4 644 1 500 119 258
Impact of adopting new
accounting standards at
1 January 2018
IFRS 9 - - (73) (4 201) (131) - - (4 332)
IFRS 15 - - - (44) - - - (44)
Adjusted balance at
the beginning of
the reporting period 6 837 1 149 104 369 4 369 4 644 1 500 114 882
Total comprehensive income - - - 8 940 711 176 96 9 923
Profit for the period - - - 7 253 379 176 96 7 904
Other comprehensive income - - - 1 687 332 - - 2 019
Dividends paid during the
reporting period - - - (4 962) (466) (176) - (5 604)
Distributions paid during
the reporting period - - - - - - (96) (96)
Shares issued - - - - - - - -
Purchase of Group shares
in respect of equity-settled
share-based payment arrangements - - - (278) - - - (278)
Elimination of the movement
in treasury shares
held by Group entities - - - 349 - - - 349
Movement in share-based
payment reserve - 107 - 343 - - - 343
Transfer from share-based
payment reserve - (236) - - - - - -
Value of employee services - 371 - 371 - - - 371
Deferred tax - (28) - (28) - - - (28)
Movement in general credit
risk reserve - - - - - - - -
Movement in foreign
insurance subsidiary
regulatory reserve 1 - - - - - - -
Share of post-tax results
of associates
and joint ventures - - 56 - - - - -
Balance at the end of
the reporting period 7 944 1 205 108 761 4 614 4 644 1 500 119 519
(1) The 'Retained earnings' balance at the beginning of the reporting period has been restated, owing to the change
in life insurance accounting policy. As a result, 'Capital and reserves attributable to ordinary equity holders'
and 'Total equity' at the beginning of the reporting period have also been restated. Refer to the reporting
changes overview in note 16.
Condensed consolidated statement of changes in equity for the reporting period ended
30 June 2017
General
Number of Total credit- Available- Cash flow
ordinary Share Share Retained other risk for-sale hedging
shares capital premium earnings reserves reserve reserves reserve
'000 Rm Rm Rm Rm Rm Rm Rm
Balance as reported
at the end of the
previous reporting period 846 675 1 693 4 467 81 604 5 293 757 377 (144)
Restatement owing to change
in life insurance
accounting policy - - - 134 - - - -
Restated balance at
the beginning of the
reporting period 846 675 1 693 4 467 81 738 5 293 757 377 (144)
Total comprehensive income - - - 7 392 (324) - (313) 518
Profit for the period - - - 7 423 - - - -
Other comprehensive income - - - (31) (324) - (313) 518
Dividends paid during the
reporting period - - - (4 832) - - - -
Purchase of Group shares
in respect of equity-settled
share-based payment arrangements - - (525) 26 - - - -
Elimination of the
movement in treasury
shares held by Group entities 395 1 (14) - - - - -
Movement in share-based
payment reserve - - 525 - (268) - - -
Transfer from share-based
payment reserve - - 525 - (525) - - -
Value of employee services - - - - 276 - - -
Deferred tax - - - - (19) - - -
Movement in general credit
risk reserve - - - 30 (30) (30) - -
Share of post-tax results of
associates and joint ventures - - - (79) 79 - - -
Disposal of non-controlling
interest(1) - - - - - - - -
Barclays separation(2) - - 8 415 3 690 - - - -
Restated balance at the end
of the reporting period 847 070 1 694 12 868 87 965 4 750 727 64 374
Condensed consolidated statement of changes in equity for the reporting period ended (continued)
30 June 2017
Capital and
Foreign reserves Non- Non-
insurance Share- Associates attributable controlling controlling
subsidiary based and joint to ordinary interest - interest -
regulatory payment ventures' equity ordinary preference Total
reserve reserve reserve holders shares shares equity
Rm Rm Rm Rm Rm Rm Rm
Balance as reported
at the end of the
previous reporting period 6 892 1 052 93 057 4 579 4 644 102 280
Restatement owing to
change in life insurance
accounting policy - - - 134 - - 134
Restated balance at
the beginning of the
reporting period 6 892 1 052 93 191 4 579 4 644 102 414
Total comprehensive income - - - 7 068 271 180 7 519
Profit for the period - - - 7 423 361 180 7 964
Other comprehensive income - - - (355) (90) - (445)
Dividends paid during the
reporting period - - - (4 832) (243) (180) (5 255)
Purchase of Group shares
in respect of equity-settled
share-based payment arrangements - - - (499) - - (499)
Elimination of the movement
in treasury shares held
by Group entities - - - (13) - - (13)
Movement in share-based
payment reserve - (268) - 257 (8) - 249
Transfer from share-based
payment reserve - (525) - - (8) - (8)
Value of employee services - 276 - 276 - - 276
Deferred tax - (19) - (19) - - (19)
Movement in general credit
risk reserve - - - - - - -
Share of post-tax results of
associates and joint ventures - - 79 - - - -
Disposal of non-controlling
interest(1) - - - - (23) - (23)
Barclays separation(2) - - - 12 105 - - 12 105
Restated balance at the end
of the reporting period 6 624 1 131 107 277 4 576 4 644 116 497
(1) The Group disposed of its controlling stake in a non-core subsidiary which was classified as held
for sale.
(2) As part of the disinvestment, Barclays PLC contributed R12.1bn in recognition of the investments
required for the Group to separate from Barclays PLC. The contribution meets the definition of a
transaction with a shareholder.
Condensed consolidated statement of changes in equity for the reporting period ended
31 December 2017
General Foreign
Number of Total credit- Available- Cash flow currency
ordinary Share Share Retained other risk for-sale hedging translation
shares capital premium earnings reserves reserve reserves reserve reserve
'000 Rm Rm Rm Rm Rm Rm Rm Rm
Balance as reported
at the end of the
previous reporting period 846 675 1 693 4 467 81 604 5 293 757 377 (144) 2 353
Restatement owing to
change in life insurance
accounting policy - - - 134 - - - - -
Restated balance at
the beginning of the
reporting period 846 675 1 693 4 467 81 738 5 293 757 377 (144) 2 353
Total comprehensive income - - - 13 714 (1 060) - 68 794 (1 922)
Profit for the period - - - 13 888 - - - - -
Other comprehensive income - - - (174) (1 060) - 68 794 (1 922)
Dividends paid during
the reporting period - - - (8 821) - - - - -
Distributions paid during
the reporting period - - - - - - - -
Issuance of Additional
Tier 1 capital - - - - - - - -
Purchase of Group shares
in respect of equity-settled
share-based payment arrangements - - (741) 12 - - - - -
Elimination of the movement
in treasury shares held
by Group entities (13 837) (27) (2 385) - - - - - -
Movement in share-based
payment reserve - - 742 - (55) - - - -
Transfer from share-based
payment reserve - - 742 - (742) - - - -
Value of employee services - - - - 655 - - - -
Deferred tax - - - - 32 - - - -
Movement in general
credit risk reserve - - - (22) 22 22 - -
Share of post-tax results
of associates
and joint ventures - - - (170) 170 - - -
Disposal of non-controlling
interest(1) - - - - - - - - -
Barclays separation(2) - - 8 415 3 690 - - - - -
Barclays separation -
Empowerment Trust(3) - - - 1 891 - - - -
Shareholder contribution -
fair value of investment(4) - - - 48 - - - - -
Restated balance at the end
of the reporting period 832 838 1 666 10 498 92 080 4 370 779 445 650 431
Condensed consolidated statement of changes in equity for the reporting period ended (continued)
31 December 2017
Capital and Non-
Foreign reserves Non- Non- controlling
insurance Share- Associates attributable controlling controlling interest -
subsidiary based and joint to ordinary interest - interest - additional
regulatory payment ventures' equity ordinary preference Tier 1 Total
reserve reserve reserve holders shares shares capital equity
Rm Rm Rm Rm Rm Rm Rm Rm
Balance as reported at
the end of the previous
reporting period 6 892 1 052 93 057 4 579 4 644 - 102 280
Restatement owing to
change in life insurance
accounting policy - - - 134 - - - 134
Restated balance at
the beginning of the
reporting period 6 892 1 052 93 191 4 579 4 644 - 102 414
Total comprehensive income - - - 12 654 516 362 48 13 580
Profit for the period - - - 13 888 789 362 48 15 087
Other comprehensive income - - - (1 234) (273) - - (1 507)
Dividends paid during
the reporting period - - - (8 821) (567) (362) - (9 750)
Distributions paid during
the reporting period - - - - - - (48) (48)
Issuance of Additional
Tier 1 capital - - - - - - 1 500 1 500
Purchase of Group shares in
respect of equity-settled
share-based payment arrangements - - - (729) - - - (729)
Elimination of the movement
in treasury shares held
by Group entities - - - (2 412) - - - (2 412)
Movement in share-based
payment reserve - (55) - 687 (4) - - 683
Transfer from share-based
payment reserve - (742) - - - - - -
Value of employee services - 655 - 655 (4) - - 651
Deferred tax - 32 - 32 - - - 32
Movement in general
credit risk reserve - - - - - - - -
Share of post-tax results
of associates
and joint ventures - - 170 - - - - -
Disposal of non-controlling
interest(1) - - - - (24) - - (24)
Barclays separation(2) - - - 12 105 - - - 12 105
Barclays separation -
Empowerment Trust(3) - - - 1 891 - - - 1 891
Shareholder contribution -
fair value of investment(4) - - - 48 48
Restated balance at the end
of the reporting period 6 837 1 222 108 614 4 500 4 644 1 500 119 258
(1) The Group disposed of its controlling stake in a non-core subsidiary which was classified as held
for sale.
(2) As part of the disinvestment, Barclays PLC contributed R12.1bn in recognition of the investments
required for the Group to separate from Barclays PLC. The contribution meets the definition of a
transaction with a shareholder.
(3) As part of the separation, Barclays PLC contributed cash of R1 891m to the independent Absa Empowerment
Trust to allow for its subsidiary to purchase 12 716 260 BAGL shares (1.5%) in the furtherance of the
Group's objective of establishing a broad-based black empowerment structure. In terms of the requirements
of IFRS, these shares have been accounted for as treasury shares and eliminated against the Group's
share capital.
(4) CLS Group Holding AG shares were transferred to Barclays PLC for no consideration in 2005. During the
reporting period these shares were transferred back to the Group for a nominal consideration of one
British Pound Sterling (GBP). The shares have been recognised at a fair value of R48m. The related
credit has been recognised in equity as a shareholder contribution.
Condensed consolidated statement of cash flows for the reporting period ended
30 June 31 December
2018 2017(3) 2017(3)
Note Rm Rm Rm
Net cash (utilised in)/generated from operating activities (1 471) 1 076 (534)
Income taxes paid (3 240) (3 236) (6 371)
Net cash generated from other operating activities 1 769 4 312 5 837
Net cash utilised in investing activities (1 706) (1 455) (2 634)
Purchase of property and equipment (1 809) (1 468) (3 263)
Proceeds from sale of non-current assets held for sale 1 481 347 1 146
Net cash utilised in other investing activities (1 378) (334) (517)
Net cash (utilised in)/ generated from financing activities (141) 6 721 2 593
Net cash generated from Barclays separation - 12 105 12 105
Issue of Additional Tier 1 capital - - 1 500
Proceeds from borrowed funds 5 488 1 000 2 841
Repayment of borrowed funds - (1 142) (2 805)
Dividends paid (5 605) (5 255) (9 750)
Net cash (utilised in)/generated from other financing activities (24) 13 (1 298)
Net (decrease)/increase in cash and cash equivalents (3 318) 6 342 (575)
Cash and cash equivalents at the beginning of the reporting period 1 17 320 17 734 17 734
Effect of foreign exchange rate movements on cash and cash equivalents 361 57 161
Cash and cash equivalents at the end of the reporting period 2 14 363 24 133 17 320
Notes to the condensed consolidated statement of cash flows
1. Cash and cash equivalents at the beginning of the reporting period
Cash, cash balances and balances with central banks(1) 13 518 13 141 13 141
Loans and advances to banks(2) 3 802 4 593 4 593
17 320 17 734 17 734
2. Cash and cash equivalents at the end of the reporting period
Cash, cash balances and balances with central banks(1) 10 428 10 924 13 518
Loans and advances to banks(2) 3 935 13 209 3 802
14 363 24 133 17 320
(1) Includes coins and bank notes.
(2) Includes call advances, which are used as working capital by the Group.
(3) In order to provide more transparent disclosures, the condensed consolidated statement of cash flows
has been expanded to include line items specifying significant cash flow movements. The effect of
this is to provide specific disclosure of the following line items, rather than include them in the
total cash generated by/used in operating, investing or financing activities: Income taxes paid,
purchase of property and equipment, proceeds from sale of non-current assets, cash generated from
Barclays separation, Issue of shares, Issue of additional Tier 1 capital, proceeds/repayments of
borrowed funds, dividends paid. Comparative statements of cash flows have been restated to take
account of this additional disclosure.
Condensed notes to the consolidated financial results for the reporting period ended
1. Non-current assets and non-current liabilities held for sale
The following movements in non-current assets and non-current liabilities held for sale were effected
during the current financial reporting period:
- Retail Banking South Africa disposed of a loan book with a carrying amount of R1 118m and property,
plant and equipment with a carrying amount of R1m.
- Rest of Africa Banking disposed of investment property with a carrying amount of R0.2m.
- WIMI disposed of a subsidiary with assets of R139m and liabilities of R34m out of non-current assets
and non-current liabilities held for sale respectively.
- WIMI further disposed of a business line with assets of R9m and liabilities of R9m out of non-current
assets and non-current liabilities held for sale respectively.
- In addition, WIMI transferred assets of R2m and liabilities of R2m to non-current assets and non-current
liabilities held for sale respectively.
- Head office transferred property, plant and equipment with a carrying amount of R37m to non-current
assets held for sale.
The following movements in non-current assets and non-current liabilities held for sale were effected during
the period ended 30 June 2017:
- Retail Banking South Africa transferred a subsidiary with total assets of R1 391m to non-current assets
held for sale. The Commercial Property Finance (CPF) Equity division in Business Banking South Africa
disposed of a subsidiary with assets of R372m and liabilities of R26m out of non-current assets and
non-current liabilities held for sale respectively.
- CIB South Africa transferred investment securities with a carrying value of R467m to non-current assets
held for sale.
- WIMI transferred a subsidiary with assets of R233m and liabilities of R114m to non-current assets and
non-current liabilities held for sale respectively.
The following movements in non-current assets and non-current liabilities held for sale were effected during
the period ended 31 December 2017:
- Retail Banking South Africa transferred loans and advances to customers of R1 118m and property and
equipment of R1m to non-current assets held for sale. The Commercial Property Finance (CPF) Equity
division in Business Banking South Africa disposed of a subsidiary with assets of R373m and liabilities
of R26m out of non-current assets and non-current liabilities held for sale respectively. Business Banking
South Africa further disposed of two investment properties with a total carrying value of R475m.
- Rest of Africa banking transferred property with a carrying value of R3m to non-current assets
held for sale.
- CIB South Africa transferred investment securities with a carrying value of R547m to non-current assets
held for sale. Prior to its disposal at a carrying value of R467m, a negative fair value adjustment of
R80m was applied to the investment securities.
- WIMI transferred two subsidiaries to non-current assets and non-current liabilities held for sale.
The subsidiaries held assets of R139m and R14m, and liabilities of R34m and R14m respectively.
2. Loans and advances
30 June 2018
Stage 1 Stage 2
Gross Gross
carrying ECL ECL carrying ECL ECL
value Allowance coverage value Allowance coverage
Rm Rm % Rm Rm %
Loans and advances
to customers 688 589 3 620 0.53 76 250 5 018 6.58
RBB South Africa 401 134 2 388 0.60 37 591 3 980 10.59
Retail Banking South Africa 343 612 1 767 0.51 30 235 3 581 11.84
Credit cards 29 713 666 2.24 4 711 1 619 34.37
Instalment credit agreements 70 312 512 0.73 6 155 744 12.09
Loans to associates and
joint ventures 24 682 1 - - - -
Mortgages 194 840 174 0.09 15 232 354 2.32
Other loans and advances 2 356 14 0.59 368 14 3.80
Overdrafts 4 560 57 1.25 1 239 159 12.83
Personal and term loans 17 149 343 2.00 2 530 691 27.31
Business Banking South Africa 57 522 621 1.08 7 356 399 5.42
CIB South Africa 202 288 434 0.21 29 702 331 1.11
Rest of Africa Banking 80 011 950 1.19 8 261 903 10.93
WIMI 4 796 28 0.58 213 6 2.82
Head Office, Treasury and
other operations
in South Africa 360 (180) - 483 (202) -
Loans and advances 360 8 2.22 483 2 0.41
Reclassification to
provisions(1) - (188) - - (204) -
Loans and advances to Banks 60 882 11 0.02 1 982 10 -
Total loans and advances
to customers and banks 749 471 3 631 0.48 78 232 5 028 6.43
30 June 2018
Stage 3 Total
Gross Gross
carrying ECL ECL carrying ECL ECL
value Allowance coverage value Allowance coverage
Rm Rm % Rm Rm %
Loans and advances
to customers 46 447 19 532 42.05 811 286 28 170 3.47
RBB South Africa 37 849 14 715 38.88 476 574 21 083 4.42
Retail Banking South Africa 32 713 12 195 37.28 406 560 17 543 4.31
Credit cards 5 700 3 790 66.49 40 124 6 075 15.14
Instalment credit agreements 4 755 1 710 35.96 81 222 2 966 3.65
Loans to associates and
joint ventures - - - 24 682 1 -
Mortgages 18 521 4 557 24.60 228 593 5 085 2.22
Other loans and advances 22 20 90.91 2 746 48 1.75
Overdrafts 487 288 59.14 6 286 504 8.02
Personal and term loans 3 228 1 830 56.69 22 907 2 864 12.50
Business Banking South Africa 5 136 2 520 49.07 70 014 3 540 5.06
CIB South Africa 2 804 1 432 51.07 234 794 2 197 0.94
Rest of Africa Banking 5 482 3 182 58.04 93 754 5 035 5.37
WIMI 312 232 74.36 5 321 266 5.00
Head Office, Treasury and
other operations
in South Africa - (29) - 843 (411) -
Loans and advances - - - 843 10 1.19
Reclassification to
provisions(1) - (29) - - (421) -
Loans and advances to Banks - - - 62 864 21 0.03
Total loans and advances
to customers and banks 46 447 19 532 42.05 874 150 28 191 3.22
(1) Included in Stage 1 gross carrying amount on loans and advances to customers and banks is R65 242m
relating to financial instruments measured at fair value through profit or loss. The fair value
measurements for these instruments includes adjustments in respect of their credit quality.
(2) This represents the ECL Allowance on undrawn facilities which has resulted in the ECL on loans and
advances exceeding the carrying value of the drawn exposure. This excess is recognised in 'Provisions'
on the Group's statement of financial position.
2. Loans and advances (continued)
30 June 2017(1)
Performing loans Non-performing loans
Impair- Coverage Impair- Coverage Net total
Exposure ment ratio Exposure ment ratio exposure
Loans and advances Rm Rm % Rm Rm % Rm
RBB South Africa 429 729 4 198 0.98 23 548 9 922 42.14 439 157
Retail Banking South Africa 368 494 3 354 0.91 20 484 8 806 42.99 376 818
Credit cards 34 386 776 2.26 5 403 3 882 71.85 35 131
Instalment credit agreements 71 473 759 1.06 2 221 1 052 47.37 71 883
Loans to associates and joint
ventures 20 707 - - - - - 20 707
Mortgages 216 062 1 195 0.55 10 216 2 132 20.87 222 951
Other loans and advances 2 697 - - - - - 2 697
Overdrafts 4 575 60 1.31 286 171 59.79 4 630
Personal and term loans 18 594 564 3.03 2 358 1 569 66.54 18 819
Business Banking South Africa 61 235 844 1.38 3 064 1 116 36.42 62 339
Mortgages (including CPF) 25 792 168 0.65 1 501 533 35.51 26 592
Overdrafts 19 367 425 2.19 853 390 45.72 19 405
Term loans 16 076 251 1.56 710 193 27.18 16 342
CIB South Africa 204 310 604 0.30 1 604 617 38.47 204 693
Rest of Africa Banking 77 610 1 085 1.40 4 972 2 559 51.47 78 938
WIMI 5 430 12 0.22 128 61 47.66 5 485
Head Office, Treasury and other
operations in South Africa 721 9 1.25 - - - 712
Loans and advances to customers 717 800 5 908 0.82 30 252 13 159 43.50 728 985
Loans and advances to banks 63 451 - - - - - 63 451
781 251 5 908 0.76 30 252 13 159 43.50 792 436
31 December 2017(1)
Performing loans Non-performing loans
Impair- Coverage Impair- Coverage Net total
Exposure ment ratio Exposure ment ratio exposure
Loans and advances Rm Rm % Rm Rm % Rm
RBB South Africa 436 694 3 997 0.92 23 868 9 671 40.52 446 894
Retail Banking South Africa 374 760 3 223 0.86 20 534 8 576 41.76 383 495
Credit cards 34 503 729 2.11 5 053 3 605 71.34 35 222
Instalment credit agreements 74 429 698 0.94 2 362 1 117 47.29 74 970
Loans to associates and joint
ventures 23 037 - - - - - 23 037
Mortgages 215 469 1 124 0.52 10 353 2 073 20.02 222 625
Other loans and advances 2 807 - - - - - 2 807
Overdrafts 5 348 71 1.33 383 215 56.14 5 445
Personal and term loans 19 167 601 3.14 2 383 1 566 65.72 19 383
Business Banking South Africa 61 934 774 1.25 3 334 1 095 32.84 63 399
Mortgages (including CPF) 26 158 141 0.54 1 477 519 35.12 26 975
Overdrafts 19 864 396 1.99 1 082 374 34.57 20 176
Term loans 15 912 237 1.49 775 202 26.08 16 248
CIB South Africa 218 437 559 0.26 2 019 832 41.21 219 065
Rest of Africa Banking 76 738 981 1.28 4 742 2 636 55.59 77 863
WIMI 4 930 13 0.26 262 175 66.79 5 004
Head Office, Treasury and other
operations in South Africa 956 10 1.05 - - - 946
Loans and advances to customers 737 755 5 560 0.75 30 891 13 314 43.10 749 772
Loans and advances to banks 55 426 - - - - - 55 426
793 181 5 560 0.70 30 891 13 314 43.10 805 198
(1) These numbers have been restated, refer to the reporting changes overview in note 16.
3. Borrowed funds
During the reporting period the significant movements in borrowed funds were as follows: R5 488m
(30 June 2017: R1 142m; 31 December 2017: R2 841m) of subordinated notes were issued and Rnil
(30 June 2017: R1 000m; 31 December 2017: R2 805m) were redeemed.
4. Disaggregation of non-interest income
The following table disaggregates non-interest income into income received from contracts with
customers (by major service lines) and non-interest income from other sources:
Group 2018
Head Office
Treasury
and other
Rest of operations Barclays
RBB SA CIB SA Africa WIMI in SA Seperation Total
Rm Rm Rm Rm Rm Rm Rm
Fee and commission income from
contracts with customers 8 878 1 165 1 487 1 652 (578) - 12 604
Consulting and administration fees 116 56 27 103 - - 302
Transactional fees and commissions 7 565 745 1 299 55 3 - 9 667
Cheque accounts 2 619 55 50 27 - - 2 751
Credit cards 1 271 - 72 - - - 1 343
Electronic banking 2 006 520 41 9 - - 2 576
Other (1) 635 169 1 130 19 2 - 1 955
Savings accounts 1 034 1 6 - 1 - 1 042
Merchant income 893 - 76 - - - 969
Asset management 11 - 2 649 (13) - 649
Other fees and commissions 19 118 50 293 (119) - 361
Insurance commissions received 274 - 33 532 (449) - 390
Investment banking fees - 246 - 20 - - 266
Other income from contracts
with customers 38 - 1 - (14) - 25
Other non-interest income,
net of expenses (153) 1 087 939 1 192 160 413 3 638
Total non-interest income 8 763 2 252 2 427 2 844 (432) 413 16 267
5. Other impairments
30 June 31 December
2018 2017 2017
Rm Rm Rm
Impairment raised on financial instruments 2 - 5
Other 182 376 643
Goodwill - - 38
Intangible assets(2) - 376 384
Property and equipment(3) 182 - 221
184 376 648
(1) Includes fees on mortgage loans and foreign currency transactions.
(2) The impairment incurred during the prior period on intangible assets mainly related to internally
generated software, Barclays.Net which was fully impaired.
(3) Management have decided to dispose of certain property and equipment resulting in an impairment
of R182m (30 June 2017: Rnil; 31 December 2017: R221m). As the property will be disposed of, the
impairment was calculated based on fair value less cost to sell.
6. Headline earnings
30 June 31 December
2018 2017 2017
Gross Net(1) Gross Net(1) Gross Net(1)
Rm Rm Rm Rm Rm Rm
Headline earnings is determined as follows:
Profit attributable to ordinary equity holders 7 253 7 423 13 888
Total headline earnings adjustment: 71 227 490
IFRS 3 - Goodwill impairment - - - - 38 38
IFRS 5 - (Gain)/loss on disposal of
non-current assets held for sale (121) (73) (7) (5) 36 39
IAS 16 - Loss/(profit) on disposal of
property and equipment 5 3 (28) (23) (43) (34)
IAS 21 - Recycled foreign currency
translation reserve - - 52 52 52 52
IAS 36 - Impairment of property and equipment 182 141 - - 221 159
IAS 36 - Impairment of intangible assets - - 376 274 384 280
IAS 38 - Release of available-for-sale reserves - - 18 12 67 49
IAS 40 - Change in fair value of
investment properties - - (95) (78) (105) (88)
IAS 40 - Profit on disposal of
investment property - - (5) (5) (5) (5)
7 324 7 650 14 378
Headline earnings per ordinary share (cents) 880.3 917.5 1 724.5
Diluted headline earnings per ordinary
share (cents) 877.8 917.3 1 724.2
IAS 33 Earnings per share prescribes that the weighted average number of shares outstanding during a
reporting period, and for all periods presented, should be adjusted for events that change the number
of ordinary shares outstanding without a corresponding change in resources. The contribution of cash
by Barclays PLC and acquisition of Absa Group Limited (AGL) shares by a subsidiary of the independent
Absa Empowerment Trust in the previous reporting period did not result in an adjustment to the net
asset value of the Group. The weighted average number of shares outstanding in June 2017 has been
restated to reflect the acquisition from Barclays PLC of 12 716 260 (1.5%) AGL shares in the current
reporting period. The acquisition of shares has been treated as treasury shares from the beginning
of 2017, which has led to a reduction in the number of ordinary shares outstanding for the purposes
of determining the weighted average number of shares in the Headline earnings per share and Diluted
headline earnings per share.
(1) The net amount is reflected after taxation and non-controlling interest.
7. Dividends per share
30 June 31 December
2018 2017 2017
Rm Rm Rm
Dividends declared per share to ordinary equity holders
Interim dividend (6 August 2018: 490 cents) (28 July 2017: 475 cents) 4 154 4 027 4 027
Final dividend (1 March 2018: 595 cents) - - 5 044
4 154 4 027 9 071
Dividends declared per share to ordinary equity holders
(net of treasury shares)(1)
Interim dividend (6 August 2018: 490 cents) (28 July 2017: 475 cents) 4 076 4 024 4 024
Final dividend (1 March 2018: 595 cents) - - 4 955
4 076 4 024 8 979
Dividends declared per share to non-controlling preference
equity holders
Interim dividend (6 August 2018: 3 543.67 cents) (28 July 2017:
3 684.06849 cents) 182 182 182
Final dividend (1 March 2018: 3 558.01 cents) - - 176
182 182 358
Distributions declared per note to Additional Tier 1 capital
note holders
Distributions (12 March 2018: 31 500 Rands) (12 June 2018:
32 200 Rands) 96 - 48
(12 December 2017: 31 990.79 Rands)
96 - 48
(1) The net amount is reflected after taxation and non-controlling interest.
(2) Numbers have been restated, refer to note 16 for details.
30 June 31 December
2018 2017 2017
Rm Rm Rm
Dividends paid per share to ordinary equity holders
(net of treasury shares)(1)
Final dividend (16 April 2018: 595 cents) (10 April 2017: 570 cents) 4 962 4 832 4 832
Interim dividend (11 September 2017: 475 cents) - - 3 989
4 962 4 832 8 821
Dividends paid per share to non-controlling preference equity holders
Final dividend (16 April 2018: 3 588.01 cents) (10 April 2017:
3 644.79452 cents) 176 180 180
Interim dividend (11 September 2017: 3 684.06849 cents) - - 182
176 180 362
Distributions paid per note to Additional Tier 1 capital note holders
Distributions (12 March 2018: 31 500 Rands) (12 June 2018:
32 200 Rands) 96 - 48
(12 December 2017: 31 990.79 Rands)
96 - 48
(1) The dividends paid on treasury shares are calculated on payment date.
8. Acquisitions and disposals of businesses and other similar transactions
8.1.1 Acquisitions of businesses during the current reporting period
During the period, the Group acquired the remaining 50% in a non-core investment, which was previously
held as an Investment in Associate at Fair Value. The acquisition of the investment had an effective
acquisition date of 16 March 2018 and is a business combination within the scope of IFRS 3.
The acquisition date fair value of the consideration transferred amounted to R198m.
Group
Fair value
recognised on
acquisition
30 June 2018
Rm
Consideration at date of acquisition:
Cash 30
Acquisition-date fair value of initial interest 168
Total consideration 198
Recognised amounts of identifiable assets acquired and liabilities assumed
Cash and balances at central banks 15
Other assets 4
Investment properties 165
Current tax assets 1
Other liabilities (14)
Deferred tax liabilities (5)
Total identifiable net assets 166
Total non-controlling interest -
Goodwill 32
Total 198
A summary of the total net cash outflow and cash and cash equivalents related to acquisitions and disposals
of businesses and other similar transactions is included below:
2018 2017
Rm Rm
Summary of net cash outflow due to acquisitions 30 -
(1) The dividends paid on treasury shares are calculated on payment date.
8.1.2 Disposals of businesses during the current reporting period
Apart from the business classified as non-current assets/liabilities held for sale and disposed of (refer to
note 1), there were no other disposals of businesses that were finalised during the current reporting period.
The cash consideration received on disposal of a subsidiary included in non-current assets/liabilities held
for sale was R288m.
8.2.1 Acquisitions of businesses during the previous reporting period
There were no acquisitions of businesses during the previous reporting period.
8.2.2 Disposals of businesses during the previous reporting period
Apart from the businesses classified as non-current assets/liabilities held for sale and disposed of (refer
to note 1), there were no other disposals of businesses that were finalised during the previous reporting
period. The cash consideration received on disposal of a subsidiary included in non-current assets/liabilities
held for sale was R205m.
9. Related parties
There were no one-off significant transactions with related parties of Absa Group Limited during the current
reporting period.
In the prior reporting period, as part of the separation, Barclays PLC sold ordinary Absa Group Limited
shares representing 12.2% and 33.7% of issued ordinary share capital in May 2016 and June 2017 respectively.
Barclays PLC currently holds 126.2m ordinary Absa Group Limited shares representing 14.9% of issued ordinary
shares. The remaining 85.1 % of the shares are widely held on the JSE.
Barclays PLC contributed £765m to the Group, primarily in recognition of the investments required for the
Group to separate from Barclays PLC. This contribution will be invested primarily in rebranding, technology
and separation-related projects and it is expected that it will neutralise the capital and cash flow impact
of separation investments on the Group over time.
Barclays PLC contributed cash of R1 891m to be used in the furtherance of the Group's objective of
establishing Broad-Based Black Economic Empowerment structure. The cash was contributed to the independent
Absa Empowerment Trust, whose subsidiary purchased 12 716 260 BAGL shares. In terms of the requirements
of IFRS, these shares have been accounted for as treasury shares and eliminated against the Group's
share capital.
CLS Group Holding AG shares were transferred to Barclays PLC for no consideration in 2005. During the
current reporting period these shares were transferred back to the Group for a nominal consideration of
one British Pound (GBP). The shares have been recognised at a fair value of R48m. The related credit has
been recognised in equity as a shareholder contribution.
10. Financial guarantee contracts
30 June 31 December
2018 2017 2017
Rm Rm Rm
Financial guarantee contracts 10 3 10
Financial guarantee contracts represent contracts where the Group undertakes to make specified payments
to a counterparty, should the counterparty suffer a loss as a result of a specified debtor failing to
make payment when due in accordance with the terms of a debt instrument. The credit risk inherent in
the balance has led to an ECL provision being raised for such amount.
11. Commitments
30 June 31 December
2018 2017 2017
Rm Rm Rm
Authorised capital expenditure
Contracted but not provided for 1 278 817 270
The Group has capital commitments in respect of computer equipment, software and property development.
Management is confident that future net revenues and funding will be sufficient to cover these commitments.
Operating lease payments due
No later than one year 1 466 1 336 1 365
Later than one year and no later than five years 3 485 3 173 3 056
Later than five years 829 1 096 948
5 780 5 605 5 369
The operating lease commitments comprise a number of separate operating leases in relation to property
and equipment, none of which is individually significant to the Group. Leases are negotiated for an
average term of three to five years and rentals are renegotiated annually.
12. Contingencies
30 June 31 December
2018 2017 2017
Rm Rm Rm
Guarantees 42 161 36 934 38 789
Irrevocable debt facilities 170 222 140 877 162 907
Irrevocable equity facilities 21 121 33
Letters of credit 6 968 8 543 7 814
Other 342 91 262
219 714 186 566 209 805
Guarantees include performance guarantee contracts and payment guarantee contracts.
Irrevocable facilities are commitments to extend credit where the Group does not have the right to terminate
the facilities by written notice. Commitments generally have fixed expiry dates. Since commitments may
expire without being drawn upon, the total contract amounts do not necessarily represent future cash
requirements. The credit risk inherent in the undrawn component of irrevocable lending facilities are
managed and monitored by the Group together with the drawn component as a single exposure. The exposure
at default (EAD) on the entire facility is therefore used to calculate the ECL on loans and advances.
As a result, the total ECL is recognised in the ECL allowance for the financial asset unless the total
ECL exceeds the gross carrying amount of the financial asset, in which case the ECL is recognised as a
provision on the face of the statement of financial position.
Legal proceedings
The Group has been party to proceedings against it during the reporting period, and as at the reporting date
the following material cases are disclosed:
- Pinnacle Point Holdings Proprietary Limited : It is alleged that a local bank conducted itself unlawfully
in relation to a financial product offered by it, and that Absa Bank Limited was privy to such conduct.
Subsequent to the withdrawal of the first plaintiff's (Pinnacle Point Holdings) claim, the total claim amount
has been substantially reduced, however, the second to fifth plaintiffs persist with their claims for
damages in an amount of R47m.
- Ayanda Collective Investment Scheme (the Scheme): Absa Capital Investor Services was the trustee of the
Scheme, in which Corporate Money Managers (CMM) managed a portfolio of assets within the Scheme. The joint
curators of the CMM group of companies and the Altron Pension Fund (an investor in the fund) allege that the
defendants caused damages to them arising from their alleged failure to meet their obligations in the trust
deed together with their statutory obligations set out in the Collective Investment Scheme Act, in respect
of which they seek payment of R1 157m.
The Group is engaged in various other legal, competition and regulatory matters, both in South Africa and a
number of other jurisdictions. It is involved in legal proceedings which arise in the ordinary course of
business from time to time, including (but not limited to) disputes in relation to contracts, securities,
debt collection, consumer credit, fraud, trusts, client assets, competition, data protection, money laundering,
employment, environmental and other statutory and common law issues.
The Group is also subject to enquiries and examinations, requests for information, audits, investigations
and legal and other proceedings by regulators, governmental and other public bodies in connection with
(but not limited to) consumer protection measures, compliance with legislation and regulation, wholesale
trading activity and other areas of banking and business activities in which the Group is or has been engaged.
At the present time, the Group does not expect the ultimate resolution of any of these other matters to have
a material adverse effect on its financial position. However, in light of the uncertainties involved in such
matters and the matters specifically described in this note, there can be no assurance that the outcome of a
particular matter or matters will not be material to the Group's results of operations or cash flow for a
particular period, depending on, amongst other things, the amount of the loss resulting from the matter(s)
and the amount of income otherwise reported for the reporting period.
The Group has not disclosed the contingent liabilities associated with these matters either because they
cannot reasonably be estimated or because such disclosure could be prejudicial to the outcome of the matter.
Provision is made for all liabilities which are expected to materialise.
Regulatory matters
The scale of regulatory change remains challenging and the global financial crisis has resulted in a
significant tightening of regulation and changes to regulatory structures, especially for companies that are
deemed to be of systemic importance. Concurrently, there is continuing political and regulatory scrutiny of the
operation of the banking and consumer credit industries which, in some cases, is leading to increased regulation.
The nature and impact of future changes in the legal framework, policies and regulatory action, especially in
the areas of financial crime, banking and insurance regulation, cannot currently be fully predicted and are
beyond the Group's control. Some of these are likely to have an impact on the Group's businesses, systems and
earnings.
The Group is continuously evaluating its programmes and controls in general relating to compliance with
regulation. The Group undertakes monitoring, review and assurance activities, and the Group has also adopted
appropriate remedial and/or mitigating steps, where necessary or advisable, and has made disclosures on material
findings as and when appropriate.
Absa Bank Limited, a subsidiary of Absa Group Limited, identified potentially fraudulent activities by
certain of its customers using advance payments for imports in 2014 and 2015 to effect foreign exchange transfers
from South Africa to beneficiary accounts located in East Asia, UK, Europe and the US. As a result, the Group
conducted a review of relevant activities, processes, systems and controls, and provided information to
relevant authorities, in a process which has now largely concluded. No financial impact is anticipated.
In February 2017 the South African Competition Commission (SACC) referred Barclays PLC, BCI and Absa Bank
Limited, a subsidiary of Absa Group Limited, among other banks, to the Competition Tribunal to be prosecuted
for breaches of South African antitrust law related to Foreign Exchange trading of South African Rand. The SACC
found from its investigation that between 2007 and 2013 the banks had engaged in various forms of collusive
behaviour. Barclays was the first to bring the conduct to the attention of the SACC under its leniency programme
and has cooperated with, and will continue to cooperate with, the SACC in relation to this matter. The SACC
is therefore not seeking an order from the Tribunal to impose any fine on Barclays Bank PLC, BCI or Absa Bank
Limited.
Income taxes
The Group is subject to income taxes in numerous jurisdictions, and the calculation of the Group's tax
charge and provisions for income taxes necessarily involves a degree of estimation and judgement. There
are many transactions and calculations for which the ultimate tax treatment is uncertain or in respect
of which the relevant tax authorities may have indicated disagreement with the Group's treatment, and
accordingly the final tax charge cannot be determined until resolution has been reached with the
relevant tax authority.
The Group recognises provisions for anticipated tax audit issues based on estimates of whether additional
taxes will be due after taking into account external advice where appropriate. The carrying amount of any
resulting provisions will be sensitive to the manner in which tax matters are expected to be resolved, and
the stage of negotiations or discussion with the relevant tax authorities. There may be significant
uncertainty around the final outcome of tax proceedings, which in many instances, will only be concluded
after a number of years. Management estimates are informed by a number of factors including, inter alia,
the progress made in discussions or negotiations with the tax authorities, the advice of expert legal
counsel, precedent set by the outcome of any previous claims, as well as the nature of the relevant
tax environment.
Where the final tax outcome of these matters is different from the amounts that were initially recorded,
such differences will impact the current and deferred income tax assets and liabilities in the reporting
period in which such determination is made. These risks are managed in accordance with the Group's Tax
Risk Framework.
13. Segment reporting
30 June 31 December
2018 2017(1) 2017(1)
Rm Rm Rm
13.1 Headline earnings contribution by segment
RBB South Africa 4 209 4 039 8 748
CIB South Africa 1 683 1 783 3 411
Rest of Africa Banking 1 636 1 512 2 954
WIMI 646 616 1 231
Head Office, Treasury and other operations in South Africa (131) (148) (721)
Barclays separation effects(2) (719) (152) (1 245)
7 324 7 650 14 378
(1) Operational changes, accounting policy changes, management changes and associated changes to
the way in which the chief operating decisionmaker views the performance of each segment, have
resulted in the allocation of earnings, assets and liabilities between segments, refer to
note 16 for further details.
(2) 'Barclays separation effects' is the reconciling stripe between IFRS and normalised results and
does not represent a reportable segment.
30 June 31 December
2018 2017(1) 2017(1)
Rm Rm Rm
13.2 Total income by segment
RBB South Africa 21 600 20 774 42 607
CIB South Africa 5 634 5 372 10 706
Rest of Africa Banking 7 565 7 670 15 617
WIMI 2 998 2 729 5 580
Head Office, Treasury and other operations in South Africa (755) (460) (1 520)
Barclays separation effects(2) 588 284 405
37 630 36 369 73 395
(1) Operational changes, accounting policy changes, management changes and associated changes to
the way in which the chief operating decisionmaker views the performance of each segment, have
resulted in the allocation of earnings, assets and liabilities between segments, refer to
note 16 for further details.
(2) 'Barclays separation effects' is the reconciling stripe between IFRS and normalised results and
does not represent a reportable segment.
30 June 31 December
2018 2017(1) 2017(1)
Rm Rm Rm
13.3 Total internal income by segment
RBB South Africa (4 430) (4 930) (9 282)
CIB South Africa (3 674) (1 729) (7 900)
Rest of Africa Banking 3 (74) (241)
WIMI (192) (155) (471)
Head Office, Treasury and other operations in South Africa 8 118 6 842 17 569
Barclays separation effects(3) 175 46 325
- - -
30 June 31 December
2018 2017(1) 2017(1)
Rm Rm Rm
13.4 Total assets by segment
RBB South Africa 758 949 732 049 753 849
CIB South Africa 527 795 467 993 492 110
Rest of Africa Banking 179 916 170 511 162 720
WIMI 51 456 51 146 50 697
Head Office, Treasury and other operations in South Africa (285 078) (283 807) (294 309)
Barclays separation effects (3) 1 605 (16) 912
1 234 643 1 137 876 1 165 979
30 June 31 December
2018 2017(1) 2017(1)
Rm Rm Rm
13.5 Total liabilities by segment
RBB South Africa 753 921 724 382 741 550
CIB South Africa 522 466 462 821 485 310
Rest of Africa Banking 157 355 149 829 142 394
WIMI 45 990 45 720 45 643
Head Office, Treasury and other operations in South Africa (356 112) (349 642) (358 336)
Barclays separation effects(2), (3) (8 496) (11 731) (9 840)
1 115 124 1 021 379 1 046 721
(1) Operational changes, accounting policy changes, management changes and associated changes to the
way in which the chief operating decisionmaker views the performance of each segment, have resulted
in the allocation of earnings, assets and liabilities between segments, refer to note 16 for
further details.
(2) This presents the cash contribution received from Barclays PLC, net of amounts already spent on
separation activities. The cash received is held centrally by Treasury and is presented as an
intersegmental asset in 'Other liabilities'.
(3) 'Barclays separation effects' is the reconciling stripe between IFRS and normalised results and
does not represent a reportable segment.
14. Assets and liabilities not held at fair value
The following table summarises the carrying amounts and fair value of those assets and liabilities
not held at fair value.
30 June 2017
Carrying Carrying
value Fair value value Fair value
Rm Rm Rm Rm
Financial assets
Balances with other central banks 14 689 14 689 10 323 10 323
Balances with the South African Reserve Bank 17 862 17 862 18 672 18 672
Coins and bank notes 10 429 10 429 10 924 10 924
Money market assets 101 101 - -
Cash, cash balances and balances
with central banks 43 082 43 082 39 919 39 919
Investment securities 6 580 6 580 - -
Loans and advances to banks 35 328 35 031 46 189 46 189
Other assets 34 468 34 468 32 422 32 422
RBB South Africa 455 491 455 457 439 062 439 169
Retail Banking South Africa 389 017 388 982 376 818 376 925
Credit cards 34 050 34 050 35 130 35 130
Instalment credit agreements 78 258 78 234 73 882 73 785
Loans to associates and joint ventures 24 681 24 681 20 707 20 707
Mortgages 223 507 223 507 222 952 222 960
Other loans and advances 2 695 2 695 698 698
Overdrafts 5 783 5 783 4 631 4 631
Personal and term loans 20 043 20 033 18 818 19 014
Business Banking South Africa 66 474 66 474 62 244 62 244
Mortgages (including CPF) 27 784 27 784 26 498 26 498
Overdrafts 21 647 21 647 19 403 19 403
Term loans 17 043 17 043 16 343 16 343
CIB South Africa 194 870 194 870 177 508 177 508
Rest of Africa Banking 88 719 88 719 78 937 78 937
WIMI 5 055 5 055 5 485 5 485
Head Office, Treasury and other operations
in South Africa 1 254 1 254 709 709
Loans and advances to customers
- net of impairment losses 745 389 745 354 701 701 701 808
Total assets 864 847 864 515 820 231 820 338
Financial liabilities
Deposits from banks 66 529 66 529 40 086 40 086
Other liabilities 38 267 38 267 33 576 33 576
Call deposits 75 453 75 453 56 100 56 100
Cheque account deposits 196 198 196 198 208 545 208 545
Credit card deposits 1 788 1 788 1 811 1 811
Fixed deposits 153 260 152 896 163 131 163 923
Foreign currency deposits 33 105 33 105 24 305 24 305
Notice deposits 58 946 58 946 63 125 63 138
Other deposits 2 021 2 021 3 456 3 456
Savings and transmission deposits 161 789 161 789 153 058 153 058
Deposits due to customers 682 559 682 195 673 531 674 336
Debt securities in issue 136 728 136 728 135 421 135 421
Borrowed funds 21 448 21 448 15 963 15 963
Total liabilities (not held at fair value) 945 530 945 166 898 577 899 382
The table below summarises the carrying amounts and fair values of those assets and liabilities
not held at fair value:
31 December
2017
Carrying
value Fair value
Rm Rm
Financial assets
Balances with other central banks 10 281 10 281
Balances with the South African Reserve Bank 19 109 19 109
Coins and bank notes 13 519 13 519
Cash, cash balances and balances with central banks 42 908 42 909
Loans and advances to banks 38 228 39 037
Other assets 17 486 17 556
RBB South Africa 447 752 447 984
Retail Banking South Africa 383 495 383 727
Credit cards 35 223 35 224
Instalment credit agreements 77 044 77 275
Loans to associates and joint ventures 23 037 23 037
Mortgages 222 625 222 625
Other loans and advances 740 740
Overdrafts 5 443 5 443
Personal and term loans 19 383 19 383
Business Banking South Africa 64 257 64 257
Mortgages (including CPF) 27 833 27 833
Overdrafts 19 199 19 199
Term loans 17 225 17 225
CIB South Africa 192 257 192 257
Rest of Africa Banking 77 005 77 137
WIMI 5 004 5 004
Head Office, Treasury and other operations in South Africa 943 943
Loans and advances to customers - net of impairment losses 722 961 723 325
Non-current assets held for sale 1 118 1 118
Total assets (not held at fair value) 822 702 823 945
Financial liabilities
Deposits from banks 54 835 54 915
Other liabilities 27 833 27 832
Call deposits 81 076 81 076
Cheque account deposits 191 048 191 048
Credit card deposits 1 921 1 921
Fixed deposits 148 328 148 328
Foreign currency deposits 28 418 28 418
Notice deposits 58 459 58 459
Other deposits 2 629 2 629
Savings and transmission deposits 157 098 157 098
Deposits due to customers 668 977 668 977
Debt securities in issue 132 891 132 891
Borrowed funds 15 895 15 895
Total liabilities (not held at fair value) 900 431 900 510
15. Assets and liabilities held at fair value
15.1 Fair value measurement and valuation processes
Financial assets and financial liabilities
The Group has an established control framework with respect to the measurement of fair values. The framework
includes a Traded Risk and Valuations Committee and an Independent Valuation Control team (IVC), which is
independent from the front office.
The Traded Risk and Valuations Committee, which comprises representatives from senior management, will
formally approve valuation policies and any changes to valuation methodologies. Significant valuation
issues are reported to the Absa Group Audit and Compliance Committee.
The Traded Risk and Valuations Committee is responsible for overseeing the valuation control process and
will therefore consider the appropriateness of valuation techniques and inputs for fair value measurement.
The IVC team independently verifies the results of trading and investment operations and all significant
fair value measurements. They source independent data from external independent parties, as well as internal
risk areas when performing independent price verification for all financial instruments held at fair value.
They also assess and document the inputs obtained from external independent sources to measure the fair
value which supports conclusions that valuations are performed in accordance with IFRS and internal
valuation policies.
Investment properties
The fair value of investment properties is determined based on the most appropriate methodology applicable
to the specific property. Methodologies include the market comparable approach that reflects recent transaction
prices for similar properties, discounted cash flows and income capitalisation methodologies. In estimating
the fair value of the properties, the highest and best use of the properties is taken into account.
Where possible, the fair value of the Group's investment properties is determined through valuations
performed by external independent valuators.
When the Group's internal valuations are different to that of the external independent valuers, detailed
procedures are performed to substantiate the differences, whereby the IVC team verifies the procedures
performed by the front office and considers the appropriateness of any differences to external independent
valuations.
15.2 Fair value measurements
Valuation inputs
IFRS 13 requires an entity to classify fair values measured and/or disclosed according to a hierarchy that
reflects the significance of observable market inputs. The three levels of the fair value hierarchy are
defined as follows:
Quoted market prices - Level 1
Fair values are classified as Level 1 if they have been determined using observable prices in an active
market. Such fair values are determined with reference to unadjusted quoted prices for identical assets or
liabilities in active markets where the quoted price is readily available, and the price represents actual and
regularly occurring market transactions on an arm's length basis. An active market is one in which transactions
occur with sufficient volume and frequency to provide pricing information on an ongoing basis.
Valuation technique using observable inputs - Level 2
Fair values are classified as Level 2 if they have been determined using models for which inputs are
observable in an active market.
A valuation input is considered observable if it can be directly observed from transactions in an active
market, or if there is compelling external evidence demonstrating an executable exit price.
Valuation technique using significant unobservable inputs - Level 3
Fair values are classified as Level 3 if their determination incorporates significant inputs that are not
based on observable market data (unobservable inputs). An input is deemed significant if it is shown to
contribute more than 10% to the fair value of an item. Unobservable input levels are generally determined
based on observable inputs of a similar nature, historical observations or other analytical techniques.
Judgemental inputs on valuation of principal instruments
The following summary sets out the principal instruments whose valuation may involve judgemental inputs:
Debt securities and treasury and other eligible bills
These instruments are valued, based on quoted market prices from an exchange, dealer, broker, industry group
or pricing service, where available. Where unavailable, fair value is determined by reference to quoted
market prices for similar instruments or, in the case of certain mortgage-backed securities, valuation
techniques using inputs derived from observable market data, and, where relevant, assumptions in respect
of unobservable inputs.
Equity instruments
Equity instruments are valued, based on quoted market prices from an exchange, dealer, broker, industry
group or pricing service, where available. Where unavailable, fair value is determined by reference to quoted
market prices for similar instruments or by using valuation techniques using inputs derived from observable
market data, and, where relevant, assumptions in respect of unobservable inputs.
Also included in equity instruments are non-public investments, which include investments in venture capital
organisations. The fair value of these investments is determined using appropriate valuation methodologies
which, dependent on the nature of the investment, may include discounted cash flow analysis, enterprise value
comparisons with similar companies and price:earnings comparisons. For each investment, the relevant methodology
is applied consistently over time.
Derivatives
Derivative contracts can be exchange-traded or traded over- the- counter (OTC). OTC derivative contracts
include forward, swap and option contracts related to interest rates, bonds, foreign currencies, credit spreads,
equity prices and commodity prices or indices on these instruments. Fair values of derivatives are obtained
from quoted market prices, dealer price quotations, discounted cash flow and option pricing models.
Loans and advances
The disclosed fair value of loans and advances to banks and customers is determined by discounting
contractual cash flows. Discount factors are determined using the relevant forward base rates (as at valuation
date) plus the originally priced spread. Where a significant change in credit risk has occurred, an updated
spread is used to reflect valuation date pricing. Behavioural cash flow profiles, instead of contractual
cash flowprofiles, are used to determine expected cash flows where contractual cash flow profiles would
provide an inaccurate fair value.
Deposits, debt securities in issue and borrowed funds
Deposits, debt securities in issue and borrowed funds are valued using discounted cash flow models, applying
rates currently offered for issuances with similar characteristics. Where these instruments include embedded
derivatives, the embedded derivative component is valued using the methodology for derivatives as detailed
above.
The fair value of amortised cost deposits repayable on demand is considered to be equal to their carrying
value. For other financial liabilities at amortised cost the disclosed fair value approximates the carrying
value because the instruments are short term in nature or have interest rates that reprice frequently.
15.3 Fair value adjustments
The main valuation adjustments required to arrive at a fair value are described below:
Bid-offer valuation adjustments
For assets and liabilities where the Group is not a marketmaker mid prices are adjusted to bid and offer
prices respectively. Bid-offer adjustments reflect expected close-out strategy and, for derivatives, the fact
that they are managed on a portfolio basis. The methodology for determining the bid-offer adjustment for a
derivative portfolio will generally involve netting between long and short positions and the bucketing of risk by
strike and term in accordance with hedging strategy. Bid-offer levels are derived from market sources, such as
broker data. For those assets and liabilities where the firm is a marketmaker and has the ability to transact
at, or better than, mid-price (which is the case for certain equity, bond and vanilla derivative markets), the
mid-price is used, since the bid-offer spread does not represent a transaction cost.
Uncollateralised derivative adjustments
A fair value adjustment is incorporated into uncollateralised derivative valuations to reflect the impact on
fair value of counterparty credit risk, the Group's own credit quality, as well as the cost of funding across
all asset classes.
Model valuation adjustments
Valuation models are reviewed under the Group's model governance framework. This process identifies the
assumptions used and any model limitations (for example, if the model does not incorporate volatility skew).
Where necessary, fair value adjustments will be applied to take these factors into account. Model valuation
adjustments are dependent on the size of portfolio, complexity of the model, whether the model is market
standard and to what extent it incorporates all known risk factors. All models and model valuation
adjustments are subject to review on at least an annual basis.
15.4 Fair value hierarchy
The following table shows the Group's assets and liabilities that are recognised and subsequently measured
at fair value and are analysed by valuation techniques. The classification of assets and liabilities is based
on the lowest level input that is significant to the fair value measurement in its entirety.
30 June
2018 2017
Recurring fair Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
value measurements Rm Rm Rm Rm Rm Rm Rm Rm
Financial assets
Cash, cash balances and
balances with central banks 1 689 3 807 - 5 496 2 071 3 088 - 5 159
Investment securities 54 279 56 391 10 189 120 859 57 345 52 208 6 281 115 834
Loans and advances to banks - 26 961 554 27 515 - 16 812 450 17 262
Trading and hedging
portfolio assets 52 028 72 194 2 508 126 730 43 617 56 750 1 787 102 154
Debt instruments 29 413 6 189 74 35 676 21 501 6 327 1 390 29 218
Derivative assets - 58 331 848 59 179 - 41 035 177 41 212
Commodity derivatives - 2 034 - 2 034 - 554 - 554
Credit derivatives - - 165 165 - 17 164 181
Equity derivatives - 3 038 602 3 640 - 1 315 13 1 328
Foreign exchange derivatives - 12 723 3 12 726 - 7 486 - 7 486
Interest rate derivatives - 40 536 78 40 614 - 31 663 - 31 663
Equity instruments 21 229 - - 21 229 20 120 - - 20 120
Money market assets 1 386 7 674 1 586 10 646 1 996 9 388 220 11 604
Other assets - 73 - 73 - 2 4 6
Loans and advances to
customers - 28 717 9 010 37 727 - 22 622 4 662 27 284
Investments linked to
investment contracts 15 320 3 874 - 19 194 16 794 2 337 - 19 131
Total financial assets 123 316 192 017 22 261 337 594 119 827 153 819 13 184 286 830
Financial liabilities
Deposits from banks - 21 937 - 21 937 - 9 204 - 9 204
Trading and hedging
portfolio liabilities 15 029 53 385 622 69 036 8 034 35 554 454 44 042
Derivative liabilities - 53 385 622 54 007 - 35 554 454 36 008
Commodity derivatives - 1 986 - 1 986 - 601 - 601
Credit derivatives - 7 158 165 - 9 188 197
Equity derivatives - 3 266 249 3 515 - 1 285 51 1 336
Foreign exchange derivatives - 15 945 4 15 949 - 8 151 - 8 151
Interest rate derivatives - 32 181 211 32 392 - 25 508 215 25 723
Short positions 15 029 - - 15 029 8 034 - - 8 034
Other liabilities - 16 43 59 - 12 - 12
Deposits due to customers 158 28 959 2 815 31 932 149 21 772 910 22 831
Debt securities in issue - 4 020 35 4 055 36 4 251 484 4 771
Liabilities under investment
contracts - 30 546 - 30 546 - 29 918 - 29 918
Total financial liabilities 15 187 138 863 3 515 157 565 8 219 100 711 1 848 110 778
Non-financial assets
Commodity 576 - - 576 1 678 - - 1 678
Investment properties - - 420 420 - - 268 268
Non-recurring fair value
measurements
Non-current assets held
for sale(1) - - 79 79 - - 2 601 2 601
Non-current liabilities held
for sale(1) - - 7 7 - - 114 114
(1) Includes certain items classified in terms of the requirements of IFRS 5 which are measured in terms of
their respective standards.
31 December
2017
Level 1 Level 2 Level 3 Total
Recurring fair value measurements Rm Rm Rm Rm
Financial assets
Cash, cash balances and balances with central banks 1 839 3 921 - 5 760
Investment securities 53 068 50 740 7 601 111 409
Loans and advances to banks - 16 714 484 17 198
Trading and hedging portfolio assets 54 966 76 015 1 824 132 805
Debt instruments 29 668 5 133 177 34 978
Derivative assets - 58 980 546 59 526
Commodity derivatives - 981 124 1 105
Credit derivatives - - 165 165
Equity derivatives - 2 371 173 2 544
Foreign exchange derivatives - 15 878 8 15 886
Interest rate derivatives - 39 750 76 39 826
Equity instruments 23 662 - - 23 662
Money market assets 1 636 11 902 1 101 14 639
Other assets - 2 2 4
Loans and advances to customers - 22 070 4 741 26 811
Investments linked to investment contracts 17 906 1 030 - 18 936
Total financial assets 127 779 170 492 14 652 312 923
Financial liabilities
Deposits from banks - 12 555 - 12 555
Trading and hedging portfolio liabilities 11 946 52 279 945 65 170
Derivative liabilities - 52 279 945 53 224
Commodity derivatives - 1 172 121 1 293
Credit derivatives - 10 148 158
Equity derivatives - 1 973 423 2 396
Foreign exchange derivatives - 14 874 4 14 878
Interest rate derivatives - 34 250 249 34 499
Short positions 11 946 - - 11 946
Other liabilities - 3 5 8
Deposits due to customers 203 19 115 1 572 20 890
Debt securities in issue 214 4 355 488 5 057
Liabilities under investment contracts - 30 585 - 30 585
Total financial liabilities 12 363 118 892 3 010 134 265
Non-financial assets
Commodity 2 051 - - 2 051
Investment properties - - 231 231
Non-recurring fair value measurements
Non-current assets held for sale(1) - - 190 190
Non-current liabilities held for sale(1) - - 48 48
(1) Includes certain items classified in terms of the requirements of IFRS 5 which are measured
in terms of their respective standards.
15.5 Measurement of assets and liabilities categorised at Level 2
The following table presents information about the valuation techniques and significant
observable inputs used in measuring assets and liabilities categorised as Level 2 in the fair
value hierarchy:
Category of Valuation Significant
asset/liability techniques applied observable inputs
Loans and advances to banks Discounted cash flow models Interest rate and/or
money market curves
Trading and hedging portfolio
assets and liabilities
Debt instruments Discounted cash flow models Underlying price of market
traded instruments and/or
interest rates
Derivatives
Commodity derivatives Discounted cash flow model Spot price of physical or futures,
and/or option pricing,
futures pricing and/or interest rates and/or volatility
exchange traded fund
(ETF) models
Credit derivatives Discounted cash flow and/or Interest rate, recovery rate,
credit default swap models credit spread and/or quanto ratio
Equity derivatives Discounted cash flow, option Spot price, interest rate, volatility
pricing and/or futures and/or dividend stream
pricing models
Foreign exchange derivatives Discounted cash flow and/or Spot price, interest rate and/or
option pricing models volatility
Interest rate derivatives Discounted cash flow and/or Interest rate curves, repurchase
option pricing models agreement curves, money market
curves and/or volatility
Money market assets Discounted cash flow models Money market curves and/or
interest rates
Loans and advances to customers Discounted cash flow models Interest rate curves and/or
money market curves
Investment securities and Listed equity: market bid price Underlying price of the market traded
investments linked to Other items: discounted instruments and/or interest
investment contracts cash flow models rate curves
Deposits from banks Discounted cash flow models Interest rate curves and/or
money market curves
Deposits due to customers Discounted cash flow models Interest rate curves and/or
money market curves
Debt securities in issue Discounted cash flow models Underlying price of the market
and other liabilities traded instrument and/or interest
rate curves
15.6 Reconciliation of Level 3 assets and liabilities
A reconciliation of the opening balances to closing balances for all movements on Level 3 assets and
liabilities is set out below:
30 June 2018
Trading and
hedging Loans and Loans and
portfolio Other advances to advances Investment Investment Total assets
assets assets customers to banks securities properties at fair value
Rm Rm Rm Rm Rm Rm Rm
Opening balance at the beginning
of the reporting period 1 824 2 4 741 484 7 601 231 14 883
Net interest income - - 32 - 40 - 72
Other income - - - - - - -
Gains and losses from banking and
trading activities 418 - (59) 8 148 - 515
Gains and losses from investment
activities - - - - 10 - 10
Purchases 485 - 5 470 62 2 596 165 8 778
Sales (95) - (61) - - - (156)
Movement in other comprehensive income - - - - (9) - (9)
Transfer in/(out) of Level 3 (124) (2) (1 113) - - - (1 239)
Step acquistion - - - - (198) - (198)
Level 3 FCTR - - - - 1 24 25
Closing balance at the end
of the reporting period 2 508 - 9 010 554 10 189 420 22 681
30 June 2017
Trading and
hedging Loans and Loans and
portfolio Other advances to advances Investment Investment Total assets
assets assets customers to banks securities properties at fair value
Rm Rm Rm Rm Rm Rm Rm
Opening balance at the beginning
of the reporting period 1 505 5 4 890 571 3 358 478 10 807
Net interest income - - 51 - 10 - 61
Other income - - - - - (2) (2)
Gains and losses from banking
and trading activities (2) - - - - - (2)
Gains and losses from
investment activities - - - (51) 12 - (39)
Purchases 534 - 618 - 2 803 22 3 977
Sales (250) (1) (897) (70) (560) (230) (2 008)
Transfer out of Level 3 - - - - 658 - 658
Closing balance at the end
of the reporting period 1 787 4 4 662 450 6 281 268 13 452
A reconciliation of the opening balances to closing balances for all movements on Level 3 assets
is set out below (continued):
31 December 2017
Trading and
hedging Loans and Loans and
portfolio Other advances to advances Investment Investment Total assets
assets assets customers to banks securities properties at fair value
Rm Rm Rm Rm Rm Rm Rm
Opening balance at the beginning
of the reporting period 1 505 5 4 890 571 3 358 478 10 807
Net interest income - - 12 - 62 - 74
Other income - - - - - 12 12
Gains and losses from banking
and trading activities (635) - 29 - - - (606)
Gains and losses from
investment activities - - - - 2 - 2
Purchases 1 101 - 1 020 88 4 832 1 7 042
Sales (147) - (1 112) (175) (579) (260) (2 273)
Movement in other
comprehensive income - - - - 29 - 29
Settlements - (3) - - (22) - (25)
Transfer out of Level 3 - - (98) - (81) - (179)
Closing balance at the end
of the reporting period 1 824 2 4 741 484 7 601 231 14 883
A reconciliation of the opening balances to closing balances for all movements on Level 3 liabilities
is set out below:
30 June 2018
Trading and
Deposits hedging Debt Total
from portfolio Other Deposits due securities liabilities
banks liabilities liabilities to customers in issue at fair value
Rm Rm Rm Rm Rm Rm
Opening balance at the beginning
of the reporting period - 945 5 1 572 488 3 010
Gains and losses from banking
and trading activities - (202) - - - (202)
Purchases - 1 38 - - 39
Issues - - - 4 352 - 4 352
Settlements - (1) - (1 618) - (1 619)
Transfer in/(out) of Level 3 - (121) - (1 491) (453) (2 065)
Level 3 FCTR - - - - - -
Closing balance at the end of
the reporting period - 622 43 2 815 35 3 515
30 June 2017
Trading and
Deposits hedging Debt Total
from portfolio Other Deposits due securities liabilities
banks liabilities liabilities to customers in issue at fair value
Rm Rm Rm Rm Rm Rm
Opening balance at the beginning
of the reporting period - 308 41 1 139 604 2 092
Gains and losses from banking
and trading activities - 146 - - - 146
Issues - - - 295 - 295
Settlements - - (41) (540) (120) (701)
Transfer in/(out) of Level 3 - - - 16 - 16
Closing balance at the end of
the reporting period - 454 - 910 484 1 848
31 December 2017
Trading and
Deposits hedging Debt Total
from portfolio Other Deposits due securities liabilities
banks liabilities liabilities to customers in issue at fair value
Rm Rm Rm Rm Rm Rm
Opening balance at the beginning
of the reporting period - 308 41 1 139 604 2 092
Net interest income - - - 7 - 7
Other income - - - - - -
Gains and losses from banking
and trading activities - 585 - - - 585
Gains and losses from investment
activities - - - - - -
Purchases - - - - - -
Sales - - - - - -
Movement in other comprehensive
income - - - - - -
Issues - 52 - 1 685 30 1 767
Settlements - - (36) (1 144) (68) (1 248)
Transferred to/(from)
assets/liabilities - - - - - -
Transfer in/(out) of Level 3 - - - (115) (78) (193)
Closing balance at the end of the
reporting period - 945 5 1 572 488 3 010
15.6.1 Significant transfers between levels
During the 2018 and 2017 reporting periods, transfers between levels occurred because of changes in the
observability of valuation inputs, in some instances owing to changes in the level of market activity.
Transfers have been reflected as if they had taken place at the beginning of the year.
15.7 Unrealised gains and losses on Level 3 assets and liabilities
The total unrealised gains and losses for the reporting period on Level 3 positions held at the
reporting date are set out below:
30 June 2018
Trading and Trading and
hedging Loans and hedging Total
portfolio advances to Investment Total assets portfolio liabilities at
assets customers securities at fair value liabilities fair value
Rm Rm Rm Rm Rm Rm
Gains and losses
from banking and
trading activities 848 581 304 1 738 622 622
30 June 2017
Trading and Trading and
hedging Loans and hedging Total
portfolio advances to Investment Total assets portfolio liabilities at
assets customers(1) securities at fair value liabilities fair value
Rm Rm Rm Rm Rm Rm
Gains and losses
from banking and
trading activities 65 771 287 1 123 136 136
31 December 2017
Trading and Trading and
hedging Loans and hedging Total
portfolio advances to Investment Total assets portfolio liabilities at
assets customers securities(2) at fair value liabilities fair value
Rm Rm Rm Rm Rm Rm
Gains and losses
from banking and
trading activities 67 761 88 916 284 284
(1) The unrealised gains and losses for loans and advances to customers for June 2017 have
been restated by R728m. The gains and losses from banking and trading activities on
loans and advances to customers has been restated to include the movement in the
unrealised gains relating to the base rates applicable to the assets. Previously
only unrealised gains relating to the unobservable credit spreads for these assets
were taken into account in the disclosure.
(2) The unrealised gains and losses for Investment Securities for June and December 2017
have been restated by R243m and R27.61m respectively. The gains and losses from banking
and trading activities on investment securities have been restated to include unrealised
gains on unlisted Private Equity investments. Previously only unrealised gains relating
to unobservable corporate bonds were taken into account in the disclosure.
15.8 Sensitivity analysis of valuations using unobservable inputs
As part of the Group's risk management processes, stress tests are applied on the significant
unobservable parameters to generate a range of possible alternative valuations. The assets and
liabilities that most impact this sensitivity analysis are those with the more illiquid and/or
structured portfolios. The stresses are applied independently and do not take account of any
cross correlation between separate asset classes that would reduce the overall effect on the
valuations.
The following table reflects how the unobservable parameters were changed in order to evaluate
the sensitivities of Level 3 financial assets and liabilities:
Significant unobservable parameter Positive/(negative) variance applied to parameters
Credit spreads 100/(100) bps
Volatilities 10/(10)%
Basis curves 100/(100) bps
Yield curves and repo curves 100/(100) bps
Future earnings and marketability discounts 15/(15)%
Funding spreads 100/(100) bps
A significant parameter has been deemed to be one which may result in a charge to profit or loss,
or a change in the fair value asset or liability by more than 10% or the underlying value of the
affected item. This is demonstrated by the following sensitivity analysis which includes
reasonable range of possible outcomes:
30 June 2018
Potential effect Potential effect
recorded recorded
in profit or loss directly in equity
Favourable/ Favourable/
Significant (unfavourable) (unfavourable)
unobservable parameters Rm Rm
Deposits due Absa Group Limited (AGL)/
to banks Absa funding spread -/- -/-
Deposits due to
customers AGL/Absa funding spread 32/(29) -/-
Investment securities Risk adjustment yield curves,
and investments linked future earnings and
to investment contracts marketability discount 81/(127) 263/(254)
Loans and advances Credit spreads 133/(131) -/-
to customers
Other assets Volatility, credit spreads, -/- -/-
Trading and hedging Volatility, credit spreads,
portfolio assets basis curves, yield curves,
repo curves, funding spreads 338/(338) -/-
Trading and hedging Volatility, credit spreads,
portfolio liabilities basis curves, yield curves,
repo curves, funding spreads 84/(84) -/-
Other liabilities Volatility, credit spreads -/- -/-
668/(709) 263/(254)
15.8 Sensitivity analysis of valuations using unobservable inputs
30 June 2017
Potential effect Potential effect
recorded recorded
in profit or loss directly in equity
Favourable/ Favourable/
Significant (unfavourable) (unfavourable)
unobservable parameters Rm Rm
Deposits due
to customers AGL/Absa funding spread -/- -/-
Investment securities Risk adjustment yield curves,
and investments linked future earnings and marketability 40/(62) 129/(125)
to investment contracts discount
Loans and advances Credit spreads 90/(88) -/-
to customers
Other assets Volatility, credit spreads -/- -/-
Trading and hedging Volatility, credit spreads,
portfolio assets basis curves, yield curves, repo
curves, funding spreads 153/(153) -/-
Trading and hedging Volatility, credit spreads, basis
portfolio liabilities curves, yield curves, repo
curves, funding spreads 39/(39) -/-
Other liabilities Volatility, credit spreads -/- -/-
322/(342) 129/(125)
31 December 2017
Potential effect Potential effect
recorded recorded
in profit or loss directly in equity
Favourable/ Favourable/
Significant (unfavourable) (unfavourable)
unobservable parameters Rm Rm
Deposits due to banks AGL/Absa funding spread 17/17 -/-
Deposits due to
customers AGL/Absa funding spread 13/(12) -/-
Investment securities Risk adjustment yield curves,
and investments linked future earnings and
to investment contracts marketability discount 76/(76) 323/(306)
Loans and advances
to customers Credit spreads 70/(69) -/-
Other assets Credit spreads -/- -/-
Trading and hedging Volatility, credit spreads,
portfolio assets basis curves, yield curves,
repo curves, funding spreads 33/(33) -/-
Trading and hedging Volatility, credit spreads,
portfolio liabilities basis curves, yield curves,
repo curves, funding spreads 17/(17) -/-
Other liabilities Volatility, credit spreads -/- -/-
226/(224) 323/(306)
15.9 Measurement of assets and liabilities at Level 3
The following table presents information about the valuation techniques and significant unobservable
inputs used in measuring assets and liabilities categorised as Level 3 in the fair value hierarchy:
30 June 31 December
2018 2017 2017
Category of asset/ Valuation techniques Significant Range of estimates utilised
liability applied unobservable inputs for the unobservable inputs
Loans and advances Discounted cash flow Credit spreads 0.04% to (0.1%) to 0.3% to
to banks and and/or dividend yield 1.97% 2.10% 2.3%
customers models
Investment securities Discounted cash flow Marketability Discount rate Discount rate Discount rate
and investments linked models, third-party discounts and/or of 7.75% of 13%, of 7% and 9%,
to investment contracts valuations, earnings comparator to 8% comparator comparator
multiples and/or multiples multiples between multiples between
income capitalisation 5 and 10.5 5 and 10.5
valuations
Trading and hedging
portfolio assets
and liabilities
Debt instruments Discounted cash flow Credit spreads 0.15% to 8.2% 0.07% to 27.5% 3% to 15%
models
Derivative assets
Credit Discounted cash flow Credit spreads, 0.03% to 14%, (0.3%) to 9%, 0.04% to 10%,
derivatives(1) and/or credit default recovery rates and/or 15% to 76%, 15% to 76%, 15% to 76%,
swap (hazard rate) quanto ratio 60% to 90% 54% to 90% 54% to 90%
models
Equity derivatives Discounted cash flow, Volatility and/or 14.3% to 41.9% 16.6% to 21% 15.09% to 64.67%
option pricing and/or dividend streams
futures pricing models (greater than 3 years)
Foreign exchange Discounted cash flow African basis curves 3% to 45% (12.2%) to 3.27% (28%) to 29.5%
derivatives and/or option pricing models (greater than 1 year)
Interest rate Discounted cash flow Real yield curves 0.21% to 7.2% 0.1% to 8.33% 0.25% to 10.69%
derivatives and/or option pricing models (greater than 1 year),
repurchase agreement
curves (greater than 1
year), funding spreads
Deposits due to Discounted cash flow Absa Group Limited's 1.3% to 1.9% (0.1%) to 2.10% 0.2% to 1.9%
customers models funding spreads(greater
than 5 years)
Debt securities in Discounted cash flow Funding curves 1.3% to 1.9% (0.1%) to 1.55% 0.2% to 1.9%
issue models (greater than 5 years)
Investment Discounted cash flow Estimates of periods in 1 to 6 years 1 to 10 years 1 to 6 years
properties models which rental units will
be disposed of
Annual selling price 0% to 6% 1% to 6% 0% to 6%
escalations
Annual rental escalations n/a 1% to 7% 0% to 6%
Expense ratios n/a 25% to 50% n/a
Vacancy rates n/a 1% to 7% n/a
Income capitalisation 7.5% to 8% 10% to 11% 7.75% to 8%
rates
Risk adjusted discount 11% to 15% 14% 11% to 15%
rates
For assets or liabilities held at amortised cost and disclosed in levels 2 or 3 of the fair value hierarchy,
the discounted cash flow valuation technique is used. Interest rates and money market curves are considered
unobservable inputs for items which mature after 5 years. However, if the items mature in less than 5 years,
these inputs are considered observable.
For debt securities in issue held at amortised cost, a further significant input would be the underlying
price of the market traded instrument.
The sensitivity of the fair value measure is dependent on the unobservable inputs. Significant changes to
the unobservable inputs in isolation will have either a positive or negative impact on fair values.
(1) The range of estimates have been disaggregated to better reflect the individual assumptions used.
15.10 Unrecognised losses as a result of the use of valuation models using unobservable input
The amount that has yet to be recognised in the statement of comprehensive income that relates
to the difference between the transaction price and the amount that would have arisen, had
valuation models using unobservable inputs been used on initial recognition, less amounts
subsequently recognised, is as follows:
30 June 31 December
2018 2017 2017
Rm Rm Rm
Opening balance at the beginning of the reporting period (134) (139) (139)
New transactions (140) 17 (27)
Amounts recognised in profit or loss during the reporting period 34 (18) 32
Closing balance at the end of the reporting period (240) (140) (134)
15.11 Third-party credit enhancements
There were no significant liabilities measured at fair value and issued with inseparable third-party credit
enhancements.
16. Reporting changes overview
The financial reporting changes that have been applied in the current reporting period are as follows:
- The implementation of new IFRS:
- IFRS 9 - The Group has applied IFRS 9 on a retrospective basis, with an adjustment to retained earnings
and other reserves as at 1 January 2018. As permitted under IFRS 9, the Group has elected not to restate
comparative periods.
- IFRS 15 Revenue from Contracts with Customers (IFRS 15) - The Group has elected to adopt IFRS 15 using
the cumulative effect method, under which the comparative information has not been restated.
All other amendments to IFRS effective for the current reporting period have had no impact on the Group's
reported results(1);
- Changes in internal accounting policies:
- A change in the valuation method applied to policyholder liabilities under the Group's life insurance
contracts, and
- The presentation of interest income and interest expense.
Comparative information has been restated to reflect the amendment to the Group's internal accounting
policies, and an adjustment has been recognised within retained earnings as at 1 January 2018 to reflect the
impact of implementing new standards.
The table below summarises the total impact of the reporting changes on the Group's statement of changes in
equity.
Capital and Non-
reserves Non- Non- controlling
Share attributable controlling controlling interest-
capital to ordinary interest- interest- additional
and share Retained Other equity ordinary preference Tier 1 Total
premium earnings reserves holders shares shares Capital equity
Rm Rm Rm Rm Rm Rm Rm Rm
Balance reported as at
31 December 2016 6 160 81 604 5 293 93 057 4 579 4 644 - 102 280
Restatement owing to change in
life insurance accounting policy - 134 - 134 - - - 134
Restated balance as at
31 December 2016 6 160 81 738 5 293 93 191 4 579 4 644 - 102 414
Balance reported as at
31 December 2017 12 164 91 882 4 370 108 416 4 500 4 644 1 500 119 060
Restatement owing to change in
life insurance accounting policy - 198 - 198 - - - 198
Restated balance as at
31 December 2017 12 164 92 080 4 370 108 614 4 500 4 644 1 500 119 258
Impact of adopting IFRS 9 (4 106) (95) (4 201) ( 131) - - (4 332)
Impact of adopting IFRS 15 - (44) - (44) - - - (44)
Adjusted balance as at
1 January 2018 12 164 87 930 4 275 104 369 4 369 4 644 1 500 114 882
(1) The amendments which are effective in the current reporting period relate to IAS 40 Investment
Property, IAS 28 Investment in Associates and Joint Ventures, as well as IFRS 2 Share-based Payment
Transactions (IFRS 2). The changes to IFRS 2 were however early adopted by the Group in 2016.
A new IFRIC Interpretation, IFRIC 22 Foreign Currency Transactions and Advance Consideration is
effective in the current reporting period.
16.1 Initial adoption of IFRS 9 Financial Instruments
This summarised report is extracted from audited information with the full transitional report
'Reporting changes' included from page 152 of Absa Group Limited's Interim Financial Results
for the reporting period ending 30 June 2018. All information marked as audited in the Reporting
Changes section has been audited by EY who expressed an unmodified opinion thereon in terms of
ISA 805 - Special considerations - Audits of single financial statements and specific elements,
accounts or items of financial statement. A copy of the auditor's report on the audited sections
of the Reporting Changes section is available for inspection at the Group's registered office,
together with a copy of the transitional disclosures that were audited.
16.1.1 Overview and highlights
16.1.1.1 The impact of IFRS 9 on the Group
IFRS 9 is effective from 1 January 2018 and introduces significant changes to three fundamental
areas of the accounting for financial instruments, namely:
- The classification and measurement of financial instruments;
- The scope and calculation of credit losses, which has moved from an incurred loss, to an expected
credit loss (ECL) approach; and
- The hedge accounting model.
Whilst the adoption of a revised classification and measurement framework has had a less material impact on
the Group, application of the IFRS 9 ECL methodology has affected both the financial and regulatory capital
position, and can be reasonably expected to impact the net profit or loss of the Group going forward.
In accordance with the transition options allowable under IFRS 9, the Group will continue to apply the hedge
accounting requirements set out in IAS 39 Financial Instruments: Recognition and Measurement (IAS 39). The
Group employs a governed hedging programme to reduce margin volatility associated with structural balances (i.e.
rate insensitive liabilities as well as the endowment associated with equity). Operational complexity would
be introduced by adopting the revised IFRS 9 hedge accounting requirements ahead of the finalisation of the
International Accounting Standards Board's (IASB) Dynamic Risk Management project in respect of macro hedging.
The Group has accordingly elected not to adopt the revised IFRS 9 hedge requirements, but will adopt the revised
disclosures set out in the amendments to IFRS 7 Financial Instruments: Disclosures (IFRS 7), which include
those relating to hedge accounting.
16.1.1.2 The impact of adopting a revised classification and measurement framework for financial instruments
A portfolio of South African consumer price index (CPI) linked investment securities have been reclassified
from available-for-sale under IAS 39, to amortised cost. This aligns the portfolio's classification with the
Group's business model of holding the instruments to collect contractual cash flows. Other less significant
reclassifications of financial assets were also recorded, although these did not have any impact on equity
(refer to 16.1.10.). The accounting for financial liabilities remains largely unchanged, except for financial
liabilities designated at fair value through profit or loss (FVTPL). Gains and losses on such financial
liabilities are required to be presented in other comprehensive income (OCI), to the extent that they
relate to changes in own credit risk. The Group early adopted this requirement in 2017, and recognised
a debit of R147m in OCI.
16.1.1.3 The impact of adopting a revised ECL methodology
The adoption of IFRS 9 will impact the timing of credit loss recognition, by accelerating the recognition of
losses relative to IAS 39, and potentially creating increased volatility through the incorporation of forward
looking assumptions. Total write offs, debt collections, and the long-run actual credit losses incurred by
the Group should remain unchanged. The Group dedicates considerable resources to gaining a clear and accurate
understanding of credit risk across the business and to correctly reflect the value of the assets in accordance
with applicable accounting principles. The core processes remain the measurement of exposures and concentrations,
performance monitoring and tracking of asset quality, and the write off of assets when the whole or part of a
debt is irrecoverable.
The implementation of IFRS 9 has been a project of strategic importance to the Group. Over the past four
years, extensive work was performed to design, build and test new models, create the necessary infrastructure and
develop data management systems that were able to facilitate a successful parallel run in the second half of
2017, and deliver a high quality implementation on 1 January 2018. The Group has had the ability to test the
sensitivity of the ECL model and its sub-components to different macroeconomic scenarios, but has not been able
to back test the scenarios themselves. This is a natural concomitant of implementing an accounting standard
which requires the inclusion of point-in-time forward looking assumptions, and in respect of which, the
application of hindsight is expressly prohibited.
16.1.1.4 Summary of the impact of IFRS 9 as at 1 January 2018
The disclosures set out within this section of the report serve to bridge the statement of financial
position of the Group as at 1 January 2018 between IAS 39 and IFRS 9. Information has been provided to
facilitate an understanding of the key areas of difference, as well as the core drivers of ECL going
forward. The Group highlights the role that unexpected changes in forward looking assumptions may play
in driving earnings volatility, and that changes in stage distribution could have an impact on net interest
income. Exposures within certain industry sectors or products are expected to be more sensitive to changes
in macroeconomic conditions than others, which could mean that the overall response to changes in forward
looking assumptions is driven by the relative composition of the loans and advances portfolios.
The adoption of IFRS 9 has impacted the financial and regulatory capital position of the Group, as follows:
- An increase of R5 868m (27%) in the Group's ECL provisions (including interest in suspense), from
R21 899m as at 31 December 2017 to R27 767m as at 1 January 2018. Refer to 16.1.3.1.
- A net decrease in retained earnings of R4 106m (after a taxation adjustment of R1 572m and a
non-controlling interest of R190m) together with a net decrease in other reserves of R95m which includes
the effects of reclassifying investment securities from available-for-sale to amortised cost.
Refer to 16.1.
- The Group remains strongly capitalised notwithstanding a R2 118m decrease in common equity tier 1 supply
(CET1) and a 21bps decrease in the CET1 ratio. The decrease in the CET1 ratio is before the application of
the transitional arrangement which recognises the impact over three years. This deferral reduces the impact
on the CET 1 ratio on the date of initial adoption to 5bps. Refer to 16.1.5.1.
16.1.1.5 Condensed consolidated statement of financial position for Absa Group Limited
The following table summarises the total impact of IFRS 9 on the statement of financial position as at
1 January 2018
Impact of IFRS 9
Classification
31 December and IFRS 9 ECL(2) 1 January
2017 measurement(1) 2018
Rm Rm Rm Rm
Assets
Cash, cash balances and balances with central banks(3) 48 669 - (10) 48 659
Investment securities 111 409 (195) (2) 111 212
Loans and advances to banks 55 426 - (67) 55 359
Loans and advances to customers 749 772 (20) (5 034) 744 718
Investments in associates and joint ventures(4) 1 235 - (73) 1 162
Other assets(5) 199 468 55 1 149 200 672
Total assets 1 165 979 (160) (4 037) 1 161 782
Liabilities
Trading portfolio liabilities 64 047 (20) - 64 027
Provisions(6) 3 041 - 574 3 615
Other liabilities(5) 979 831 - (419) 979 412
Total liabilities 1 046 919 (20) 155 1 047 054
Equity
Capital and reserves
Attributable to equity holders:
Share capital 1 666 - - 1 666
Share premium 10 498 - - 10 498
Retained earnings 91 882 - (4 106) 87 776
Other reserves 4 370 (140) 45 4 275
Ordinary equity holders 108 416 (140) (4 061) 104 215
Non-controlling interest - ordinary shares 4 500 - (131) 4 369
Non-controlling interest - preference shares 4 644 - - 4 644
Non-controlling interest - Additional Tier 1 capital 1 500 - - 1 500
Total equity 119 060 (140) (4 192) 114 728
Total liabilities and equity 1 165 979 (160) (4 037) 1 161 782
(1) Classification and measurement reclassifications relate to two portfolios:
- Short-term commodity-linked instruments that had embedded derivatives which were previously bifurcated
under IAS 39, have been mandatorily classified at FVPTL under IFRS 9; and
- A portfolio of CPI linked investment securities that have been reclassified from available-for-sale
to amortised cost.
(2) A further analysis of the ECL impact per segment has been disclosed in 16.1.3.1.
(3) Relates predominantly to a central bank within Rest of Africa
(4) Reflects the change in the Group's share of net assets from associates and joint ventures due to their
adoption of IFRS 9.
(5) Relates to the adjustments to deferred tax and current tax assets.
(6) The increase in the carrying value of provisions relates to the expected credit losses recognised on
financial guarantee contracts, letters of credit and undrawn facilities (to the extent that it exceeds
the gross carrying amount of loans and advances to customers at an account level).
16.1.2 Key elements of the revised impairment model under IFRS 9
16.1.2.1 Introduction
IFRS 9 introduces an ECL impairment model that requires entities to recognise ECL based on a stage
allocation methodology, with such categorisation informing the level of provisioning required. The ECL allowance
calculated on stage 1 assets reflects the lifetime losses associated with events of default that are expected to
occur within 12 months of the reporting date (12 month ECL). Assets classified within stage 2 and stage 3 carry
an ECL allowance calculated based on the lifetime losses associated with defaults that are expected to occur
over the lifetime of the exposure (lifetime ECL). The assessment of whether an exposure should be transferred
from stage 1 to stage 2, is a relative measure, where the credit risk at the reporting date is compared to the
risk that existed at initial recognition.
The stage allocation is required to be performed as follows:
- Stage 1: Stage 1 assets comprise exposures that are performing in line with expectations at origination.
Financial assets that are not purchased or originated with a credit impaired status are required to be
classified on initial recognition within stage 1.
- Stage 2: Exposures are required to be classified within stage 2 when a significant increase in credit risk has
been observed. The factors which trigger a reclassification from stage 1 to stage 2 have been defined so as to
meet the specific requirements of IFRS 9, and in order to align with the Group's credit risk management
practices. These are discussed further in 16.1. 2.2. Stage 2 assets are considered to be cured (i.e.
reclassified back into stage 1), when there is no longer evidence of a significant increase in credit
risk. The definition of high risk is from a credit management perspective central to controlling the
flow of exposures back to stage 1 and gives effect to any cure periods deemed necessary.
- Stage 3: Credit exposures are classified within stage 3, when they are regarded as being credit impaired, which
aligns to the bank's regulatory definition of default. This definition is discussed further in 16.1.2.3.
Defaulted assets are considered cured once the original default trigger event no longer applies and both
internal and regulatory probation periods have been met. In the Retail portfolio, assets will move from
stage 3 to stage 2, but not directly from stage 3 to stage 1. In the Wholesale portfolio assets can move
from stage 3 directly to stage 1. Purchased or originated credit impaired lending facilities are classified
on origination within stage 3.
16.1.2.2 Definition of a significant increase in credit risk
The Group uses various quantitative, qualitative and back stop measures as indicators of a significant
increase in credit risk. The thresholds applied for each portfolio will be reviewed on a regular basis to ensure
they remain appropriate. Where evidence of a significant increase in credit risk is not yet available at an
individual instrument level, instruments that share similar risk characteristics are assessed on a collective
basis.
Key drivers of a significant increase in credit risk include:
- Where the weighted average probability of default (PD) for an individual exposure or group of exposures
as at the reporting date evidences a material deterioration in credit quality, relative to that determined
on initial recognition;
- Adverse changes in payment status, and where accounts are more than 30 days in arrears at reporting date.
In certain portfolios a more conservative arrears rule is applied where this is found to be indicative of
increased credit risk (e.g. 1 day in arrears);
- Accounts in the Retail portfolio which meet the portfolio's impairment high risk criteria; and
- The Group's watch list framework applied to the Wholesale portfolio, which is used to identify customers
facing financial difficulties or where there are grounds for concern regarding their financial health.
16.1.2.3 Definition of credit impaired assets
Assets classified within stage 3 are considered to be credit impaired, which, as discussed in 16.1.2.1.
applies when an exposure is in default.
Default within Wholesale and Retail is aligned with the regulatory definition, and therefore assets are
classified as defaulted when either:
- The Group considers that the obligor is unlikely to pay its credit obligations without recourse by the
Group to actions such as realising security. Elements to be taken as indications of unlikeliness to pay
include the following:
- The Group consents to a distressed restructuring / forbearance of the credit obligation where this is
likely to result in a diminished financial obligation caused by the material forgiveness of principal,
interest or fees;
- The customer is under debt review, business rescue or similar protection; or,
- Advice is received of customer insolvency or death.
- The obligor is past due 90 days or more on any credit obligation to the Group.
In addition, within the Retail portfolios:
- All forms of forbearance are treated as in default, regardless of whether the restructure has led to a
diminished financial obligation or not; and
- The Group requires an exposure to reflect 12 consecutive months of performance, in order to be considered
to have been cured from default.
16.1.2.4 Impact of IFRS 9 on interest recognition
Interest income is calculated on stage 1 or stage 2 financial assets by applying the effective interest rate
(EIR) to the gross carrying amount of such assets. When exposures are identified as credit impaired (stage
3), or when they are purchased or originated within stage 3, IFRS 9 requires interest income to be calculated
based on the net carrying value, which is the gross carrying value after deducting the ECL allowance.
In order to practically give effect to this requirement for stage 3 assets, the Group follows a two-step
approach. First, the Group ceases to recognise in profit or loss the contractual interest charged on credit
impaired assets (that is to say, contractual interest is suspended). Second, the Group multiplies the net carrying
value of the impaired exposure by its EIR and recognises only this amount of interest income within profit or
loss. Simply, this means that if during a reporting period, an exposure were classified within stage 3, lower
interest income would be recognised than if it had been classified within stage 1 or stage 2 over the same
period.
Since an ECL allowance is calculated by discounting the future cash flows expected to be recovered by the
exposure's EIR, interest income recognised on stage 3 assets reflects the financial effect of unwinding the
discount embedded in the calculation. Application of this approach results in the Group being able to
appropriately reflect in profit or loss the financial effect of the "time value of money", which is embedded
within the calculation of the ECL allowance.
In principle, the approach applied by the Group to recognise interest on stage 3 assets under IFRS 9, is not
dissimilar from the manner in which the Group calculated the interest on specifically impaired financial
assets under IAS 39. The key departure from IAS 39 is however that IFRS 9 requires the balance of interest in
suspense to be presented as part of both the gross carrying value of the exposure and the related ECL allowance.
Under IAS 39, such amount was excluded from both balances. Therefore, this constitutes a change to the
presentation of the gross carrying value and ECL allowance, although it has no impact on the net carrying value
of the exposure. Had this revised presentation requirement been applied as at 31 December 2017, the Group would
have recognised a larger gross carrying value, and larger impairment allowance of R3 025m (refer to 16.1.3.1.
for more detail).
The Group believes that IFRS 9 is not explicit regarding the treatment of contractual interest in suspense
which is subsequently recovered. There is only a clear prescription with regards to the recovery of contractual
interest previously unrecognised on exposures originated credit impaired, where the standard requires such
interest to be recognised as a credit impairment gain instead of interest income. There is presently diversity
in interpretation of this matter and therefore the Group has elected to make an accounting policy choice in
this regard. The Group's accounting policy is to recognise contractual interest that is recovered, but which was
previously unrecognised within net interest income, and resulted in R292m being recognised within interest
income over the current reporting period. The Group believes that this policy promotes a fairer presentation of
ECL as well as net interest income, both of which the Group believes would otherwise be understated.
16.1.3 Reconciliation of the allowance for impairment under IAS 39 to the total ECL allowance under IFRS 9
16.1.3.1 Summary of ECL by segment and class of credit exposure
The following table sets out the transition of the impairment allowances applied to all credit exposures
from IAS 39 to IFRS 9, by asset class, and by segment
IAS 39 - 31 December 2017 IFRS 9 - 1 January 2018
Non- Total Total IFRS 9 IFRS 9
Performing performing IAS 39 Interest in Total IAS 39 provision transition
provision portfolio (excluding IIS) suspense (including IIS) Stage 1 Stage 2 Stage 3 (including IIS) adjustment
Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Retail and Business
Banking South Africa 3 997 9 671 13 668 2 313 15 981 2 408 3 492 14 378 20 278 4 297
Retail Banking 3 223 8 576 11 799 1 264 13 063 1 768 3 184 11 756 16 708 3 645
Credit cards 729 3 605 4 334 83 4 417 654 1 343 3 727 5 724 1 307
Instalment credit agreements 698 1 117 1 815 94 1 909 539 610 1 431 2 580 671
Loans to associates and
joint ventures - - - - - 2 - - 2 2
Mortgages 1 124 2 073 3 197 828 4 025 212 366 4 426 5 004 979
Other loans and advances - - - - - 8 18 8 34 34
Overdrafts 71 215 286 73 359 45 127 240 412 53
Personal and term loans 601 1 566 2 167 186 2 353 308 720 1 924 2 952 599
Business Banking South Africa 774 1 095 1 869 1 049 2 918 640 308 2 622 3 570 652
CIB South Africa 559 832 1 391 123 1 514 482 384 955 1 821 307
Rest of Africa Banking 981 2 636 3 617 564 4 181 1 090 798 3 087 4 975 794
WIMI 13 175 188 25 213 27 6 233 266 53
Head Office, Treasury and other
operations in South Africa 10 - 10 - 10 (188) (172) (47) (407) (417)
Loans and advances 10 - 10 - 10 8 11 - 19 9
Reclassification to provisions - - - - - (196) (183) (47) (426) (426)
Loans and advances to customers 5 560 13 314 18 874 3 025 21 899 3 819 4 508 18 606 26 933 5 034
Loans and advances to banks - - - - - 40 27 - 67 67
Total Loans and advances 5 560 13 314 18 874 3 025 21 899 3 859 4 535 18 606 27 000 5 101
Investment securities - - - - - 65 118 - 183 183
Cash, cash balances and
balances with central banks1 - - - - - 3 7 - 10 10
Total ECL allowance: On-statement
of financial position 5 560 13 314 18 874 3 025 21 899 3 927 4 660 18 606 27 193 5 294
Off-statement of financial
position exposures
Undrawn committed facilities(2) - - - - - 196 183 47 426 426
Financial guarantees - - - - - 91 48 - 139 139
Letters of credit - - - - - 9 - - 9 9
Total ECL allowance: Off-statement
of financial position - - - - - 296 231 47 574 574
Total ECL allowance 5 560 13 314 18 874 3 025 21 899 4 223 4 891 18 653 27 767 5 868
(1) Relates predominantly to a central bank within Rest of Africa.
(2) Relates to ECL on undrawn committee facilities to the extent that it exceeds the gross carrying
amount on loans and advances at an accounting level.
16.1.3 Reconciliation of the allowance for impairment under IAS 39 to the total ECL allowance under
IFRS 9 (continued)
The measurement of the ECL allowance is required to reflect an unbiased probability-weighted range of
possible future outcomes, which are factored into the PD and LGD models, as well as applied in determining
whether a significant increase in credit risk has occurred. The reconciliation has not separately presented
the effects of macroeconomic scenarios, since these are considered to be inextricably linked to the stage
allocations above.
Key drivers of the ECL allowance are as follows:
- Interest in suspense: The cumulative interest which was suspended, and therefore not presented as part
of the impairment allowance as at 31 December 2017 has been included in the opening impairment allowance,
with an equivalent increase in the gross carrying value of the financial assets.
- Change in emergence period of stage 1 assets: The emergence period under IAS 39 was calculated as the
average time between when a loss event occurred and the impairment event was actually identified, and
was typically 12 months or less.
- Significant increase in credit loss for stage 2 classification: Under IAS 39, stage 2 assets were
classified as performing exposures with an impairment allowance being recognised to reflect latent
risks, and calculated based on an appropriate emergence period. Under IFRS 9, lending exposures that
have experienced a significant increase in credit risk since origination are required to carry a
lifetime ECL allowance.
- Change in default definition: The definition of credit impaired is aligned with the regulatory definition
of default, which has resulted in a larger population of credit exposures being classified within stage 3
compared to the NPL population under IAS 39. The key differences include the application of a 90-day
backstop, as well as a widening of the watch list categories included within stage 3, relative to those
that were specifically impaired under IAS 39. Further, all debt counselling and performing forbearance
accounts are included in stage 3, but were not previously classified as NPL.
- Off-balance sheet exposures: The credit risk inherent in the undrawn component of lending facilities are
managed and monitored by the Group together with the drawn component as a single exposure. The exposure
at default (EAD) on the entire facility is therefore used to calculate the ECL on loans and advances.
As a result, the total ECL is recognised in the ECL allowance for the financial asset unless the total
ECL exceeds the gross carrying amount of the financial asset, in which case the ECL is recognised as
a provision on the face of the statement of financial position.
The Group presents the ECL on financial guarantees and letters of credit as a provision on the statement
of financial position.
The calculation of ECL on other assets: Cash reserves with central banks and investment securities are
included within the scope of IFRS 9 ECL and have contributed to the Group's total ECL allowance.
16.1.4.1 Summary of ECL coverage by segment and class of credit exposure
The following table provides an analysis of the total ECL allowance by market segment, and per stage
distribution. For credit exposures disclosed on the statement of financial position, the gross carrying
value of on-statement of financial position exposures includes only the amounts that were drawn,
as at 1 January 2018, whilst the allowance for ECL includes expected losses on committed, undrawn
lending facilities. To the extent that the ECL allowance exceeds the carrying value of the drawn
exposure, a liability (provision) has been recognised in the statement of financial position.
This Provision is adjusted for in Head office.
1 January 2018
Stage 1 Stage 2
Gross Gross
carrying ECL ECL carrying ECL ECL
value Allowance coverage value Allowance coverage
Rm Rm % Rm Rm %
RBB South Africa 390 374 2 408 0.62 34 888 3 492 10.01
Retail Banking South Africa 336 635 1 768 0.53 27 980 3 184 11.38
Credit cards 29 329 654 2.23 4 392 1 343 30.58
Instalment credit agreements 67 498 539 0.80 5 217 610 11.69
Loans to associates and
joint ventures 23 037 2 0.01 - - -
Mortgages 193 979 212 0.11 14 461 366 2.53
Other loans and advances 2 453 8 0.33 345 18 5.22
Overdrafts 4 360 45 1.03 1 024 127 12.40
Personal and term loans 15 979 308 1.93 2 541 720 28.34
Business Banking South Africa 53 739 640 1.19 6 908 308 4.46
CIB South Africa(1) 183 184 482 0.26 35 232 384 1.09
Rest of Africa Banking 65 662 1 090 1.66 10 732 798 7.44
WIMI 4 658 27 0.58 229 6 2.62
Head Office, Treasury and other
operations in South Africa 187 (188) - 769 (172) -
Loans and advances 187 8 4.28 769 11 1.43
Reclassification to provisions - (196) - - (183) -
Loans and advances to customers 644 065 3 819 0.59 81 850 4 508 5.51
Loans and advances to banks(2) 53 360 40 0.07 2 065 27 1.31
Total loans and advances 697 425 3 859 0.55 83 915 4 535 5.40
1 January 2018
Stage 3 Totals
Gross Gross
carrying ECL ECL carrying ECL ECL
value Allowance coverage value Allowance coverage
Rm Rm % Rm Rm %
RBB South Africa 37 612 14 378 38.23 462 874 20 278 4.38
Retail Banking South Africa 31 942 11 756 36.80 396 557 16 708 4.21
Credit cards 5 918 3 727 62.98 39 639 5 724 14.44
Instalment credit agreements 4 167 1 431 34.34 76 882 2 580 3.36
Loans to associates and
joint ventures - - - 23 037 2 0.01
Mortgages 18 213 4 426 24.30 226 653 5 004 2.21
Other loans and advances 11 8 72.73 2 809 34 1.21
Overdrafts 416 240 57.69 5 800 412 7.10
Personal and term loans 3 217 1 924 59.81 21 737 2 952 13.58
Business Banking South Africa 5 670 2 622 46.24 66 317 3 570 5.38
CIB South Africa(1) 2 143 955 44.56 220 559 1 821 0.83
Rest of Africa Banking 5 650 3 087 54.64 82 044 4 975 6.06
WIMI 330 233 70.61 5 217 266 5.10
Head Office, Treasury and other
operations in South Africa - (47) - 956 (407) (42.59)
Loans and advances - - - 956 19 1.99
Reclassification to provisions - (47) - - (426) -
Loans and advances to customers 45 735 18 606 40.68 771 650 26 933 3.49
Loans and advances to banks(2) - - - 55 425 67 0.12
Total loans and advances 45 735 18 606 40.68 827 075 27 000 3.26
(1) Included in stage 1 gross carrying amount on loans and advances to customers is R26 808m (CIB South Africa)
relating to financial instruments measured at fair value through profit or loss. The fair value measurement
for these instruments includes adjustments in respect of their credit quality.
(2) Included in stage 1 gross carrying amount on loans and advances to banks is R17 198m relating to financial
instruments measured at fair value through profit or loss. The fair value measurement for these instruments
includes adjustments in respect of their credit quality.
16.1.5 The impact of IFRS 9 on regulatory capital
16.1.5.1 Adoption of IFRS 9 and its impact on the Group's regulatory capital
The Group has elected to utilise the transition period of three years for phasing in the regulatory capital
impact of IFRS 9, as afforded by paragraph 2.2 of Directive 5 of 2017 issued by the SARB. The key drivers of
such impact are explained in the next table:
31 December 2017 1 January 2018
Release of
RWA on Eligible Fully
Initial Release Deferred Impact on non- general loaded Transitional
IFRS (Including recognition of EL tax other performing provisions capital capital
Unappropriated profits) (IAS 39) of ECL shortfall (RWA) reserves loans (Tier 2) position position
Note 16.1.5.1.1 16.1.5.1.2 16.1.5.1.3 16.1.5.1.4 16.1.5.1.5 16.1.5.1.6
Capital supply (Rm)
Common Equity Tier 1 99 321 (4 106) 2 083 (95) 97 203 98 792
Tier 1 capital 103 686 (4 106) 2 083 (95) 101 568 103 156
Total capital 118 899 (4 106) 2 083 (95) 1 269 118 050 118 687
Risk weighted assets 736 892 3 221 (7 421) 732 692 735 842
Capital ratios (%)1
Common Equity Tier 1 13.5 (0.6) 0.3 (0.1) (0.0) 0.2 13.3 13.4
Tier 1 14.1 (0.6) 0.3 (0.1) (0.0) 0.1 13.9 14.0
Total capital 16.1 (0.6) 0.3 (0.1) (0.0) 0.1 0.2 16.1 16.1
Leverage
Leverage exposure 1 311 893 (5 868) 2 083 1 622 (189) 1 309 541 1 311 305
Leverage ratio (%) 7.9 (0.2) 0.1 7.8 7.9
(1) The Group's IFRS capital ratios decreased as follows as a result of the adoption of IFRS 9:
- CET 1 ratio decreased by 22 bps on a fully loaded basis and 5 bps after phase-in.
- Tier 1 ratio decreased by 22 bps on a fully loaded basis and 5 bps after phase-in.
- Total capital ratio decreased by 3 bps on a fully loaded basis and 1 bps after phase-in.
16.1.5.1.1 Increase in ECL provision under IFRS 9
The adoption of the revised IFRS 9 ECL model has reduced shareholders equity by R5 868m which is partially
offset by the recognition of a net tax credit within retained earnings of R1 572m. The tax credit includes
current and deferred tax.
16.1.5.1.2 Release of ECL shortfall to credit provisions
For reporting periods up to 31 December 2017, the calculation of capital took into account the regulatory
expected loss for performing assets, which was greater than the IAS 39 provision, thereby resulting in an
additional deduction against CET 1 to the extent of the shortfall in the accounting provision. Under IFRS 9,
the accounting ECL allowance has increased resulting in the elimination of the shortfall. This is reflected
in the above reconciliation as a reversal of the previous deduction and has the effect of partially reducing
the negative impact of IFRS 9 ECL on regulatory capital.
16.1.5.1.3 Recognition of a higher deferred tax asset balance
As discussed in point 16.1.5.1.1, the carrying value of the Group's deferred tax asset balance has
increased, driven by an increase in the ECL provision. The reclassification of investment securities, as
discussed below in 16.1.5.1.4 resulted in a reversal of a deferred tax liability. The net effect has
been an increase in risk weighted assets (RWA) of R3 221m, and accordingly, a decrease in the CET 1 ratio.
16.1.5.1.4 Impact on other reserves under IFRS 9
Other reserves decreased by R95m (net of deferred tax) primarily as a result of a reclassification from
available-for-sale to amortised cost of a small portfolio of South African CPI linked investments so as
to reflect the Group's business model of holding the instruments to collect contractual cash flows.
16.1.5.1.5 Release of RWA on non-performing loans
The alignment of the definition of default for both accounting and regulatory purposes resulted in a
reduction of RWA of R7 421m due to specific provisions (stage 3) being raised for an increased population
of exposures. The methodology applied in calculating default RWA's permits a bank to reduce the LGD of the
defaulted exposure by the bank's estimate of expected loss, represented by the bank's specific accounting
provision.
16.1.5.1.6 Tier 2 eligible provisions
In respect of the Group's standardised portfolio, the IFRS 9 general provision (stage 1 and stage 2) is
added back to Tier 2 capital, subject to a limit of 1.25% of the standardised credit RWA. This has resulted
in an increase in total capital of R1 269m.
16.1.5.1.7 Impact of IFRS 9 ECL on leverage ratio
Key drivers of change in the leverage ratio as a result of the adoption of IFRS 9 were a decrease in
leverage exposure and Tier 1 capital, mainly attributable to increased ECL provisions. This was however
partly offset by the release of the EL shortfall.
16.1.6 Drivers of the impairment charge under IFRS 9
Consistent with IAS 39, loans are written off when there is no realistic probability of recovery and the
Group's write-off policy remains materially unchanged. IFRS 9 impacts the timing of loss recognition, but
over time, the long run expected cash losses are driven by economic and commercial factors, independent from
the accounting framework applied.
Differences in the timing of recognition of an impairment charge under IFRS 9 versus IAS 39 are attributed
to, inter alia:
- significant increases in credit risk causing a transfer of assets to stage 2 assets;
- significant changes in forward-looking macroeconomic conditions leading to assets moving between
stages; and
- the size of new business growth.
Significant increase in credit risk: Transfers of exposures to stage 2 are driven by significant
deterioration in credit quality, although a large stage 2 balance does not necessarily mean that the exposures
have a poor default grade. An important principle under IFRS 9 is that a significant increase in credit risk
constitutes a measure of relative credit risk, requiring the absolute credit quality of an exposure on origination
to be compared against the absolute credit quality at reporting date. Exposures classified within stage 2 may actually
have a better credit quality than other assets which remain in stage 1. Further, owing to the Group's definition of
credit impaired, and the inclusion of performing forbearance accounts within stage 3, a credit impaired exposure may
have a better credit quality than an exposure in stage 2. Notwithstanding this principle, should the Group's stage 2
population start growing, this could indicate that the credit quality across the portfolio on reporting date may be
worse than management had initially anticipated.
Changes in forward-looking assumptions: IFRS 9 requires forward-looking and historical information to be
used in order to determine whether a significant increase in credit risk has occurred, as well as to determine
the appropriate PDs and LGDs to be applied. Transfers between stages could be driven by a deteriorating or
improving macroeconomic environment, which could make the impairment charge more susceptible to volatility.
New business growth: One of the key changes under IFRS 9 is the recognition of ECL losses in respect of all
exposures on initial recognition, or on the date that the Group becomes irrevocably committed to providing a
lending facility. This means that growth in new business will strain profitability in the short to medium term,
although over time the realised economic returns should, all else being equal, remain unchanged from IAS 39.
16.1.7 Impact of IFRS 9 on the Group's tax position
The adoption of IFRS 9 has resulted in a change in the timing of the recognition of credit losses, but does
not impact the value of credit losses ultimately incurred. Accordingly, the long run tax effect of credit
losses and recoveries are unchanged by the implementation of a new accounting framework. The change in the
timing of loss recognition is accounted for through the recognition of a deferred tax adjustment, calculated
based on the statutory tax rate applicable.
In South Africa, the value of the deferred tax asset (and corresponding impact on retained earnings and
other reserves) which was recognised on adoption of IFRS 9 was impacted by both a change in the accounting
recognition of losses, as well as a change in the tax legislation. In accordance with amended tax legislation
issued by the South African Revenue Service in 2017, the deduction permitted in respect of doubtful debt
balances has changed to 25% for stage 1 ECL, 40% for stage 2 ECL and 85% for stage 3 ECL. This is a change
from the previous deductions under IAS 39, which were 25% of incurred but not reported losses, 80% for
portfolio specific impairments and 100% for specific impairments. A higher deferred tax asset has therefore
been driven by an increase in the ECL provision under IFRS 9, partially offset by a change in the South
African tax treatment of pre-existing allowances.
16.1.8 Incorporation of forward-looking information in the IFRS 9 modelling
The Group's IFRS 9 impairment models consume macroeconomic information to enable the models to provide
an output that is based on forward-looking information. The macroeconomic variables and forecast
scenarios are sourced from one of the world's largest research companies, and are reviewed and approved
in accordance with the Group's macroeconomic governance framework. This review includes the testing
of forecast estimates, the appropriateness of variables and probability weightings, as well as the
incorporation of these forecasts into the ECL allowance.
The Group has adopted the use of three economic scenarios: a base scenario, a mild upside scenario, and a
mild downside scenario. IFRS 9 requires the inclusion of point-in-time forward looking assumptions, and in
respect of which the application of hindsight is prohibited. The scenarios presented below are therefore
reflective of the Group's view of forecast economic conditions as at the date of initial adoption.
16.1.8.1 Base scenario
Global
Global expansion is expected to remain broad-based across sectors and synchronised in developed economies.
The outlook on emerging market growth remains solid on the back of better growth in developed economies and
rising commodity prices. Developed market central banks continue tightening their monetary policies at a gradual
pace in 2018 to 2020 but this is not expected to be disruptive to emerging markets.
South Africa
The economy recovered from a weak growth at the start of 2017, on the back of growing agricultural output,
but the near-term outlook still remains moderate. GDP growth is forecast to marginally increase in 2018.
Positive political developments are observed, although the consumer remains in a defensive mindset, and household
spending remains relatively muted given tax increases. Beyond 2019, growth is supported by a stronger global and
domestic environment. South Africa's fiscal fortunes and potential ratings downgrade remain a concern over
the forecast period. Disappointing growth could result in low fiscal revenue that is expected to undershoot
budget targets. No further interest rate cuts over the forecast horizon are assumed.
Rest of Africa
Sub-Saharan Africa's economic recovery continues although the trajectory is not smooth across all
jurisdictions. Headwinds that could still derail growth in some markets include low fiscal buffers and
political risks ahead of elections in key markets this year. Countries with weak fiscal positions continue
to necessitate close monitoring. Economic growth is supported largely by a recovery in the agriculture
sector, improved commodity output and prices, as well as more accommodative monetary policy stances.
16.1.8.2 Mild upside scenario: Stronger near-term growth
Global
The global economy grows faster than expected, and is supported by fiscal stimulus in the United States
(US), and a quick negotiation of Britain's exit (Brexit) from the European Union (EU), which boosts global
business confidence. Commodity prices rise sharply relative to the base scenario and the global financial
markets improve. Globally, investor and consumer sentiment rises, due to the favourable financial environment.
South Africa
It is assumed there are no further rating downgrades. Policy and political stability boosts business
confidence and private sector fixed investment. We assumed a strong rand compared to the base scenario
that is driven by the sovereign rating being unchanged and the positive global sentiment toward emerging
markets. Inflation moves lower on the back of the stronger rand and continued moderation in food price
inflation. Falling inflation and diminished risk at a domestic level gives the South African Reserve
Bank room to provide stimulus to the economy by cutting interest rates to support the economy. The
cumulative interest rate cuts, higher commodity prices and stronger global growth boost South Africa's
GDP growth.
Rest of Africa
A stronger global economy and higher commodity prices help support growth in African commodity exports and
fixed investments. The level of output remains above the baseline scenario. Inflation moves lower as currencies
appreciate on the back of capital flows and higher commodity prices supporting exports. Easing inflation
allows central banks to lower interest rates, supporting the African economic growth further.
16.1.8.3. Mild downside scenario: Moderate recession
Global
The US economy slows relative to baseline due to delays in implementing the stimulus package promised before
the elections. Business and consumer confidence falls in the US, followed by stock market indices. It is
assumed Brexit negotiations take longer than expected, increasing uncertainty on financial markets, weighing on
business and consumer confidence. As a result, eurozone growth slows compared to baseline, contributing to
economic and financial stress faced by some of the heavily indebted countries in the region. Furthermore, slower
growth in key markets affects China's exports and result in its GDP growth slowing. Commodity prices fall on the
back of weaker global growth.
South Africa
South Africa goes into recession on the back of weaker global growth environment and falling commodity
prices. As a result, government revenue comes under pressure and the finances of state-owned enterprises
deteriorate. Ratings agencies downgrade South Africa's sovereign rating further, resulting in capital outflow
and rand weakness. The weakening of the rand drives inflation above the SARB's 3% to 6% target range in 2018
to 2019, resulting in the SARB hiking the repurchase rate. The yield curve moves higher in line with the
selling of South African bonds and higher short-term rates. Economic performance recovers slowly from 2020
as the weaker exchange rate builds some export competitiveness aiding in arresting some of the rand's
decline, and spending power returns slowly to consumers as inflation abates in the middle of 2020.
Rest of Africa
In Sub-Saharan Africa some economies go into recession on the back of lower global growth and commodity
prices. Fiscal positions deteriorate further and political risks increase in some markets. Capital outflows and
falling exports drive currencies weaker, pushing inflation higher. Central banks intervene by hiking interest
rates to help stem the flight of capital and protect currencies.
16.1.9. Critical judgements applied in implementing the new IFRS 9 ECL framework
16.1.9.1 Determination of the lifetime of a credit exposure
The determination of initial recognition and asset duration (lifetime) are critical judgements in
determining quantum of lifetime losses that apply. The date of initial recognition reflects the date that
a transaction (or account) was first recognised on the statement of financial position. The PD recorded at
this time provides the baseline used for subsequent determination of a significant increase in credit risk.
When determining the period over which the entity is expected to be exposed to credit risk, but for which
the ECL would not be mitigated by the entity's normal credit risk management actions, the Group considers
factors such as historical information and experience about:
- the period over which the entity was exposed to credit risk on similar financial instruments;
- the length of time for related defaults to occur on similar financial instruments following a significant
increase in credit risk; and
- the credit risk management actions that an entity expects to take once the credit risk on the financial
instrument has increased, such as the reduction or removal of undrawn limits.
For asset duration, the approaches which are applied (in line with IFRS 9 requirements) are:
- Term lending: the contractual maturity date, reduced for behavioural trends where appropriate (such as
expected settlement and amortisation); and
- Revolving facilities: for Retail portfolios, asset duration is based on behavioural life and this is
normally greater than contractual life. For Wholesale portfolios, a sufficiently long period to cover
expected life modelled and an attrition rate is applied to cater for early settlement.
16.1.9.2 General IFRS 9 ECL model parameters
The calculation of ECL incorporates the probability that a credit loss will occur, as well as the probability
that no credit loss occurs, even if the most likely outcome is no credit loss. The estimate reflects an
unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes.
In some cases, relatively simple modelling is considered to be sufficient, without the need to consider
the outcome under different scenarios. For example, the average credit losses of a large group of financial
instruments with shared risk characteristics may be a reasonable estimate of the probability-weighted
amount. In other situations, the identification of scenarios that specify the amount and timing of the
cash flows for particular outcomes and the estimated probability of those outcomes will be needed.
The IFRS 9 models make use of three parameters, namely PD, LGD and EAD in the calculation of the ECL
allowance.
The PD is the likelihood of default assessed on the prevailing economic conditions at the reporting date
(that is, at a point in time), adjusted to take into account estimates of future economic conditions that
are likely to impact the risk of default; it will not equate to a long run average. For IFRS 9 purposes,
two distinct PD estimates are required:
- Lifetime PD: the likelihood of accounts entering default during the remaining life of the asset.
- 12 month PD: the likelihood of accounts entering default within 12 months of the reporting date.
The general approach for the IFRS 9 LGD models has been to leverage the Basel LGD models with bespoke IFRS 9
adjustments to ensure unbiased estimates.
In calculating LGD, losses are discounted to the reporting date using the EIR determined at initial
recognition or an approximation thereof. For debt instruments, such as loans and advances, the discount rate
applied is the EIR calculated on origination or acquisition date. For financial guarantee contracts or loan
commitments for which the EIR cannot be determined, losses are discounted using a rate that reflects the
current market assessment of the time value of money and the risks that are specific to the cash flows
(to the extent that such risks have not already been taken into account by adjusting the cash shortfalls).
The EAD model estimates the exposure that an account is likely to have at any point of default in future.
This incorporates both the amortising profile of a term loan, as well as behavioural patterns such as the
propensity of the client to draw down on unutilised facilities in the lead up to a default event.
Expert credit judgement may, in certain instances, be applied to account for situations where known or
expected risk factors have not been considered in the ECL assessment or modelling process, or where uncertain
future events have not been incorporated into the modelled approach. Adjustments are intended to be short-term
measures and will not be used to incorporate any continuous risk factors. The Group has a robust policy framework
which is applied in the estimation and approval of management adjustments.
Models are validated with the same rigour applied to regulatory models. Testing procedures assess the
quality of data, conceptual soundness and performance of models, model implementation and compliance with
accounting requirements.
16.1.9.3 Interaction of the IFRS 9 ECL models with the Basel Framework
The Group applies both the standardised (TSA) and advanced internal ratings-based (AIRB) approaches to
calculate its regulatory capital requirements relating to credit risk. While the Group's operations across
the rest of Africa as well as the Edcon portfolio are subject to the TSA approach, the remaining portfolios are
subject to the AIRB approach, which applies the Group's own measures of PD, EAD and LGD. In designing IFRS 9
compliant ECL models, the Group recognised that it could leverage the data used by the regulatory models to model
IFRS 9 ECL and encourage easier reconciliation of inputs for capital requirement and impairment calculations.
Existing Basel models were used as a starting point to develop IFRS 9 ECL parameters. The following are key
differences to the regulatory capital parameters:
Key risk parameter Basel III IFRS 9
Probability of default (PD) Average of default within the For stage 1 assets, the PD is measured
next 12 months, but calculated for the next 12 months, whilst in the
based on the long-run historical case of stage 2 and stage 3 assets,
average over the whole economic PD is measured over the remaining
cycle (that is, through the cycle). life of the financial instrument.
The PD should reflect the current and
future economic cycles to the extent
relevant to the remaining life of the
loan calculated at a point in time,
as at the reporting date.
Loss given default (LGD) LGD is a downturn-based metric, A current or forward-looking LGD is
representing a prudent view of used to reflect the impact of economic
recovery in adverse economic scenarios, with no bias to adverse
conditions. economic conditions.
The LGD calculation incorporates Collection costs incorporated into the
both direct and indirect LGD calculation include only those
costs associated with the that are directly attributable to
collection of the exposure. the collection of recoveries.
Cash flows are discounted at the The discount rate applied is the
risk-free rate plus an appropriate EIR on the exposure.
premium.
Exposure at default (EAD) A downturn EAD is calculated to The calculation of EAD considers all the
reflect what would be expected contractual terms over the lifetime of
during a period of economic the instrument.
downturn.
16.1.9.4 Retail ECL model parameters
The Retail PD model consists of three elements, namely:
- a term structure, capturing typical default behaviour by the months since observation;
- a behavioural model which incorporates client level risk characteristics; and
- a macroeconomic model that incorporates forward-looking macroeconomic scenarios.
A further adjustment is made to incorporate an account's propensity to attrite. The PD model is used to
identify accounts that have increased significantly in credit risk since origination. The final PD is a
probability weighted average of the Group's three forecasted macroeconomic scenarios.
The LGD model estimates the loss that can be expected if an account defaults. The regulatory LGD model is
adjusted for:
- forward-looking macroeconomic adjustments; and
- future expected changes in collateral and EAD.
The LGD model further incorporates the losses associated with re-defaults for lifetime losses.
16.1.9.5 Wholesale ECL model parameters
Wholesale PDs and LGDs are modelled using the parameters from regulatory models as starting point.
Parameters are adjusted for differences between requirements under Basel III and IFRS 9.
The main adjustments to PD comprise:
- a macroeconomic adjustment that changes the paradigm from a long-run average default rate to a PD that
reflects the prevailing macroeconomic conditions, thereby adjusting the PD from a seven year historical
average to a PD reflective of the macroeconomic environment at the reporting date; and
- an adjustment to the regulatory PD to convert it from a PD over 12 months, to a PD over the lifetime of
an exposure, to be able to assess significant increases in credit risk and estimate lifetime provisions
for stage 2.
The main adjustments to LGD comprise a macroeconomic adjustment that changes the long-run LGD to reflect a
given macroeconomic scenario. Lifetime projections of LGD take into account the expected balance outstanding
on a loan at the time of default, as well as the value of associated collateral at that point in time.
16.1.10. The key elements of classification and measurement requirements under IFRS 9
IFRS 9 will require financial assets to be classified on the basis of two criteria:
- The business model within which financial assets are managed; and
- Their contractual cash flow characteristics, and specifically whether the cash flows represent Solely
Payments of Principal and Interest (SPPI).
Financial assets will be measured at amortised cost if they are held within a business model whose objective
is to hold financial assets to collect contractual cash flows, and their contractual cash flows meet the SPPI
requirements.
Financial assets will be measured at FVOCI if they are held within a business model whose objective is
achieved by both collecting contractual cash flows as well as selling financial assets and their contractual
cash flows meet the SPPI requirements.
Other financial assets are required to be measured at FVPL if they are held for the purposes of trading, if
their contractual cash flows do not meet the SPPI criterion, or if they are managed on a fair value basis and
the Group maximises cash flows through sale. IFRS 9 allows an entity to irrevocably designate a financial
asset as at FVTPL if doing so eliminates or significantly reduces a measurement or recognition inconsistency
(i.e. an accounting mismatch).
An entity is permitted to make an irrevocable election for non-traded equity investments to be measured at
FVOCI, in which case dividends are recognised in profit or loss, but other gains or losses remain in equity
and are not reclassified to profit or loss upon derecognition.
The accounting for financial liabilities remains largely unchanged, except for financial liabilities
designated at FVPTL. Gains and losses on such financial liabilities are required to be presented in OCI, to the
extent that they relate to changes in own credit risk. The Group early adopted this requirement in 2017.
Classification and measurement impact
The following table presents the changes in the classification of financial assets as at 1 January 2018, by
showing the changes in the carrying amounts on the basis of their measurement categories in accordance with
IAS 39 and the changes in the net carrying amounts, which includes the effects of ECL:
IAS 39 IFRS 9
Measurement Carrying Reclassi- Remeasure- Measurement Carrying
category amount fication ment category amount
Assets Rm Rm Rm Rm
Cash, cash balances Designated at FVTPL 4 808 (4 808) - Designated at FVTPL -
and balances with - 4808 - Mandatorily at FVTPL 4808
central banks AFS - designated 952 - - FVOCI - debt instruments 952
Amortised cost -
designated 42 909 - (10) Held at amortised cost 42 899
48 669 - (10) 48 659
Investment securities Designated at FVTPL 26 335 (14 972) - Designated at FVTPL 11 363
- 14 972 - Mandatorily at FVTPL 14 972
AFS - designated 64 657 (7 593) - FVOCI - debt instruments 57 064
- 752 - FVOCI - equity instruments 752
AFS - hedged items 20 417 - - FVOCI - hedged items 20 417
- 6 646 (2) Amortised cost - debt instruments 6 644
111 409 (195) (2) 111 212
Loans and advances Designated at FVTPL 17 198 (15 747) - Designated at FVTPL 1 451
to banks 15 747 Mandatorily at FVTPL 15 747
Amortised cost
- designated 38 228 - (67) Amortised cost - debt instruments 38 161
55 426 - (67) 55 359
Trading portfolio assets FVTPL - held for
trading 130 132 - - Mandatorily at FVTPL 130 132
Hedging portfolio assets FVTPL - hedging
instrument 2 673 - - FVTPL - hedging Instrument 2 673
Other assets Designated at FVTPL 4 (4) - Designated at FVTPL -
- 4 - Mandatorily at FVTPL 4
Amortised cost
- designated 17 486 - - Amortised cost - designated 17 486
17 490 - - 17 490
Loans and advances Designated at FVTPL 26 811 (19 378) - Designated at FVTPL 7 433
to customers 19 358 - Mandatory at FVTPL 19 358
Amortised cost
- designated 722 915 - (5034) Amortised cost - designated 717 881
Amortised cost -
hedged items 46 - - Amortised cost - hedged items 46
749 772 (20) (5 034) 744 718
Investments linked to Designated at FVTPL 18 877 (18 877) - Designated at FVTPL -
investment contracts - 18 877 - Mandatory at FVTPL 18 877
FVTPL - held for
trading 59 - - FVTPL - held for Trading 59
18 936 - - 18 936
Non-current asset Amortised cost
held for sale - designated 1 118 - - Amortised cost - designated 1 118
Assets outside the 30 354 55 1 076 Assets outside the scope of IFRS 9 31 485
scope of IFRS 9
Total assets 1 165 979 ( 160) (4 037) 1 161 782
Adoption of the new classification and measurement rules will require a limited number of reclassifications
to be effected as at 1 January 2018, but will not require a significant adjustment to the gross carrying
values of the Group's financial assets and financial liabilities. Initial application of the new requirements
resulted in a decrease in reserves of R140m (after tax) as at 1 January 2018. Explanations of the reclassifications
that will be required are provided below:
- A portfolio of consumer price index (CPI) linked investment securities within Treasury, have been
reclassified from available-for-sale under IAS 39, to amortised cost in terms of the Group's business model of
holding the instruments to collect contractual cash flows. Had these assets not been reclassified to amortised,
the fair value of the instruments would have been R5 619m, and a fair value loss of R74m would have been
recognised in OCI during the reporting period.
- Certain financial assets, including loans and advances in CIB and investments in WIMI were designated at
FVTPL under IAS 39 as they were managed on a fair value basis. In terms of IFRS 9, these assets are now
required to be measured at FVTPL, and noted as mandatory designations.
- Debt securities are held by Treasury in a separate portfolio to meet everyday liquidity needs. These were
classified as available-for-sale under IAS 39. Treasury seeks to minimise the cost of managing liquidity
needs and therefore actively manages the return on the portfolio. The return consists of collecting contractual
cash flows as well as gains and losses from the sale of financial assets. The business model may result in sales
activity and these instruments have therefore been classified at FVOCI under IFRS 9.
- In a particular jurisdiction within Rest of Africa, a small portfolio of debt securities held by Treasury
have been reclassified from available-for-sale to amortised cost as there is limited evidence of an ability
to sell these securities, and the portfolio is therefore aligned to a business model with the objective of
collecting contractual cash flows.
- Commodity-linked debt instruments within CIB were previously bifurcated and separately recognised as a
loan at amortised cost and a derivative. These are now classified as FVTPL as their cash flows do not consist
of SPPI.
- Debt securities held by insurance entities within the rest of Africa have been reclassified from available-
for-sale to amortised cost. The objective of the portfolio is to collect contractual cash flows as the
securities are neither held within a portfolio whose business model is to manage the securities and
evaluate their performance on a fair value basis, nor is it possible to evidence an adequate frequency
and volume of sales.
In October 2017, the IASB issued an amendment to IFRS 9 Prepayment Features with Negative Compensation.
Under the current IFRS 9 requirements, the SPPI condition is not met if the lender has to make a settlement
payment in the event of termination by the borrower (also referred to as early repayment gain). The amendment
clarifies how a company would classify and measure a debt instrument if the borrower is permitted to prepay the
instrument at an amount less than the unpaid principal and interest owed. Under the amendments, the sign of the
prepayment amount is not relevant. The calculation of this compensation payment must be the same for both the
case of an early repayment penalty and the case of an early repayment gain. This amendment is effective on 1
January 2019 and is not expected to have a significant impact on the Group.
16.1.11 Governance
16.1.11.1 Implementation of IFRS 9
The implementation of IFRS 9 has been completed through a jointly accountable risk and finance governance
programme, with representation from all impacted departments. A parallel run of IFRS 9 and IAS 39 was initiated
in February 2017, providing oversight for both IAS 39 and IFRS 9 impairment results. This included model,
process and output validation, testing, calibration and analysis. During the course of the programme there have
been regular updates provided to the Group Audit Compliance Committee (GACC), who have approved key judgements
and decisions.
16.1.11.2 Ongoing governance of IFRS 9
The Group's basic risk management framework has not been altered due to the introduction of IFRS 9. The
Group Credit Impairment Committee (GCIC) remains the key management committee responsible for the governance of
impairments as well as the oversight of the Group's impairment position. The overall credit risk appetite also
remains unchanged with all the controls in place in the business for the extension and subsequent monitoring of
credit exposure. It has, however, been necessary to develop new processes and related controls to support the
calculation of the Group's ECL. In particular, new governance processes have been established to review and
approve the forward-looking macroeconomic assumptions.
16.2. Adoption of IFRS 15 Revenue from contracts with customers (IFRS 15)
IFRS 15 is effective from 1 January 2018, and replaces the previous revenue recognition standards and
interpretations, including IAS 18 Revenue and IFRIC 13 Customer Loyalty Programmes. IFRS 15 establishes
a single approach for the recognition and measurement of revenue, and requires an entity to recognise revenue
as performance obligations are satisfied. It applies to all contracts with customers except for transactions
specifically scoped out, which includes interest, dividends, leases, and insurance contracts. The adoption
of IFRS 15 has resulted in a change in the accounting treatment of a loyalty programme which resulted in
a reduction in retained earnings of R44m, net of tax.
16.3 Accounting policy amendments
16.3.1 The accounting treatment of policyholder liabilities under life insurance contracts
During the current reporting period, the Group amended its accounting policy with respect to the measurement
of policyholder liabilities, and specifically, with regards to the calculation of discretionary margins held
within policyholder reserves. This change impacts life insurance products where the present value of expected
benefit payments, plus the future expected administration expenses under a life insurance contract, is lower
than the expected discounted value of the contractual premiums to be received. Prior to the change, the Group's
policy was to eliminate all negative liabilities. The policy has been changed to allow for discretion to be
applied in full or partial elimination of negative liabilities in order to more appropriately provide for
prudent reserving and release of profits. This policy change will address scenarios where a loss is recognised
in a reporting period solely as a consequence of incurring initial acquisition costs despite the contract being
expected to be profitable over its duration. In accordance with the revised policy, negative liabilities will
still be eliminated, to avoid the premature recognition of profits; however, such elimination is only applied to
the excess remaining after adjusting for the product's initial acquisition costs. The change in accounting
policy has been applied retrospectively to the extent practicable, and comparatives restated accordingly.
The effects of the retrospective application are not determinable prior to 2014 and the change in accounting
policy has been applied from the start of the 2014 financial year.
The impact of this change on the Group's condensed statement of financial position as at 31 December 2017 is
set out in the following table:
As previously Restated
reported Change in
31 December accounting 31 December
2017 policy 2017
Rm Rm Rm
Assets
Total assets 1 165 979 - 1 165 979
Liabilities
Policyholder liabilities under insurance contracts 4 617 (275) 4 342
Deferred tax liabilities 557 77 634
Other liabilities 1 041 745 - 1 041 745
Liabilities 1 046 919 (198) 1 046 721
Equity
Capital and reserves
Attributable to ordinary equity holders:
Share capital 1 666 - 1 666
Share premium 10 498 - 10 498
Retained earnings 91 882 198 92 080
Other reserves 4 370 - 4 370
Ordinary equity holders 108 416 198 108 614
Non-controlling interest - ordinary shares 4 500 - 4 500
Non-controlling interest - preference shares 4 644 - 4 644
Non-controlling interest - Additional Tier 1 capital 1 500 - 1 500
Total equity 119 060 198 119 258
Total liabilities and equity 1 165 979 - 1 165 979
The impact of this change on the Group's condensed statement of financial position as at
31 December 2016 is set out in the following table:
As previously Restated
reported Change in
31 December accounting 31 December
2016 policy 2016
Rm Rm Rm
Assets
Total assets 1 101 023 - 1 101 023
Liabilities
Policyholder liabilities under insurance contracts 4 469 (186) 4 283
Deferred tax liabilities 1 185 52 1 237
Other liabilities 993 089 - 993 089
Liabilities 998 743 (134) 998 609
Equity
Capital and reserves
Attributable to ordinary equity holders:
Share capital 1 693 - 1 693
Share premium 4 467 - 4 467
Retained earnings 81 604 134 81 738
Other reserves 5 293 - 5 293
Ordinary equity holders 93 057 134 93 191
Non-controlling interest - ordinary shares 4 579 - 4 579
Non-controlling interest - Additional Tier 1 capital 4 644 - 4 644
Total equity 102 280 134 102 414
Total liabilities and equity 1 101 023 - 1 101 023
The impact of the change on the Group's condensed statement of comprehensive income for the
reporting period ended 31 December 2017 is disclosed in the following table:
As previously Restated
reported Change in
31 December accounting 31 December
2017 policy 2017
Rm Rm Rm
Net interest income 42 644 - 42 644
Non-interest income 30 661 90 30 751
Changes in investment and insurance
contract liabilities (2 113) 90 (2 023)
Other non-interest income 32 774 - 32 774
Operating income before operating expenses 73 305 90 73 395
Operating expenses (52 596) - (52 596)
Share of post-tax results of associates
and joint ventures 170 - 170
Operating profit before income tax 20 879 90 20 969
Taxation expense (5 857) (25) (5 882)
Profit for the reporting period 15 022 65 15 087
Ordinary equity holders 13 823 65 13 888
Non-controlling interest 1 199 - 1 199
15 022 65 15 087
16.3.2 The presentation of net interest income
As a consequence of IFRS 9, an amendment was made to IAS 1 Presentation of Financial Statements,
which is effective from 1 January 2018. The amendment requires interest revenue, which is calculated
using the effective interest method, to be presented separately on the face of the statement of
comprehensive income. This only includes interest earned on financial assets measured at amortised
cost or at FVOCI, subject to the effects of applying hedge accounting to derivatives in designated
hedge relationships. In compliance with this amendment the Group has separately presented its
effective interest income within profit or loss, but elect to present all interest which fall
outside the afore-mentioned scope as a sub-component of 'Interest and similar income'. The Group
has elected to apply the same approach in presenting 'Interest expense and similar charges' to
achieve consistency in the presentation of 'Net interest income'. The revised presentation has
been applied on a retrospective basis, to ensure comparability between reporting periods.
16.4 Changes to reportable segments and business portfolios
The following business portfolio changes resulted in the restatement of financial results for the
comparative period. None of the restatements have impacted the overall financial position or net earnings
of the Group:
- The Group refined its Treasury allocation methodology, resulting in the restatement of net interest
income, cash and cash equivalents and investment securities between and within segments.
- The Group continued refining its cost allocation methodology, resulting in the restatement of operating
expenses between and within segments.
- Corporate and Investment Banking South Africa (CIB SA) review of customer portfolio to be industry
specific resulted in R16bn move of loans and advances to customers from Corporate to Investment Banking.
- The South Africa Banking segment (which consisted of RBB (SA) and CIB (SA) in aggregate) has been removed
in the Group's segmental disclosures to align with how the banking operations are now managed.
Administration and contact details
Absa Group Limited Registered office
Incorporated in the Republic of South Africa 7th Floor, Absa Towers West
Registration number: 1986/003934/06 15 Troye Street, Johannesburg, 2001
Authorised financial services and registered PO Box 7735, Johannesburg, 2000
credit provider (NCRCP7) Switchboard: +27 11 350 4000
JSE share code: BGA www.absa.africa
ISIN: ZAE000174124
Head Investor Relations Queries
Alan Hartdegen Please direct investor relations and annual report queries to
Telephone: +27 11 350 2598 IR@absa.co.za
Please direct media queries to groupmedia@absa.africa
Group Company Secretary For all customer and client queries, please go to the relevant
Nadine Drutman country website (see details below) for the local customer
Telephone: +27 11 350 5347 contact information
Head of Financial Control Please direct queries relating to your Absa Group shares
John Annandale to questions@computershare.co.za
Telephone: +27 11 350 3496 Please direct other queries regarding the Group to
groupsec@absa.africa
Transfer secretary ADR depositary
Computershare Investor Services (Pty) Ltd BNY Mellon
Telephone: +27 11 370 5000 Telephone: +1 212 815 2248
computershare.com/za/ bnymellon.com
Auditors Sponsors
Ernst & Young Inc. Lead independent sponsor
Telephone: +27 11 772 3000 J.P. Morgan Equities South Africa (Pty) Ltd
ey.com/ZA/en/Home Telephone: +27 11 507 0300
jpmorgan.com/pages/jpmorgan/emea/local/za
Joint sponsor
Absa Bank Limited (Corporate and Investment Bank)
Telephone: +27 11 895 6843
equitysponsor@absacapital.com
Significant banking subsidiaries
Information on the entity and the products and services provided (including banking, insurance and
investments) can be found at:
Absa Bank Limited absa.africa
Barclays Bank of Botswana Limited barclays.co.bw
Barclays Bank of Ghana Limited gh.barclays.com/
Barclays Bank of Kenya Limited barclays.co.ke
Barclays Bank Mauritius Limited barclays.mu
Barclays Bank Mozambique SA barclays.co.mz/eng
Barclays Bank Seychelles Limited barclays.sc
Barclays Bank Tanzania Limited barclays.co.tz
Barclays Bank of Uganda Limited barclays.co.ug
Barclays Bank Zambia Plc zm.barclays.com/
National Bank of Commerce Limited nbctz.com
Representative offices
Absa Namibia (Pty) Ltd absanamibia.com.na
Absa Capital Representative cib.absa.co.za
Office Nigeria Limited
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