Annual report 2014 The Standard Bank of South Africa About Standard Bank Contents Established in 1862, the Standard Bank of South Africa is one of South Africa’s oldest 1 Reporting suite 134 Statements of financial position companies. Our original vision was to understand our 2 About this report 135 Income statements customers better, have people 136 Statements of other with strong knowledge of local 4 Our business comprehensive income business conditions and to 137 Statements of cash flows connect borrowers with lenders. 4 How we create value 138 Statements of changes in equity This vision created the platform 6 Key socioeconomic for the kind of bank we have impact metrics 142 Accounting policy elections become and the qualities on 143 Notes to the annual financial which our customers and statements clients rely. Over our history, 8 Our performance 233 Annexure A – detailed accounting we have grown and extended 8 Chief executive’s review policies our roots deep into the fabric 12 Executive committee of South African society. 250 Annexure B – subsidiaries, 14 Finance review consolidated and unconsolidated We have evolved and adapted 24 Six-year review structured entities along with our customers and 28 Human capital review 260 Annexure C – associates and clients, growing a rich heritage 33 Environmental report joint ventures while nurturing and protecting our reputation. We uphold 38 R isk and capital management 264 Annexure D – equity-linked high standards of corporate report transactions governance, are committed 270 Annexure E – emoluments and taon da dpvraanctciicnegs tohfe s pursitnacinipalbelse 106 Governance and transparency sphreasrecr iinbceedn otifvfeicse orsf directors and development, and are 106 Corporate governance report 282 Annexure F – segmental inspired to advance national 108 • Board of directors statement of financial position development objectives. Our success and growth over the long term is built on making 126 Annual financial statements Additional information 284 a difference in the communities 128 D irectors’ responsibility for 284 Credit ratings in which we operate. financial reporting 285 Financial and other definitions 128 Group secretary’s certification 287 Acronyms and abbreviations 129 Report of the audit committee 292 Contact details 131 Directors’ report 133 Independent auditors’ report 2014 2013 Group headline earnings Rm 12 024 10 709 Return on equity (ROE) % 15.1 14.4 Tier I capital adequacy ratio % 12.3 12.8 Total assets Rb 1 131 1 016 UCount users: Approximately 553 000 300 000 ATMs 7 259 7 141 Access points 2 915 2 778 Reporting suite The financial results and commentary describe the consolidated results of The Standard Bank of South Africa group (the group or Standard Bank) unless otherwise indicated as relating to The Standard Bank of South Africa Limited (the company or SBSA). SBSA is a wholly-owned subsidiary of Standard Bank Group Limited (SBG) and is incorporated in South Africa. Cross-referencing The Standard Bank of South Africa annual report (this report) This report is the SBSA annual report and includes risk and capital management and financial information. www.standardbank.com/reporting In addition to this report, SBG produces a full suite of reporting publications tailored to readers with specific information requirements. SBG annual integrated report As SBG’s primary report, the annual integrated report (AIR) aims to provide an integrated assessment of the AIR SBG group’s ability to create value over time. www.standardbank.com/reporting SBG risk and capital management report SBG annual financial statements Provides a detailed discussion of the management of Sets out the full audited financial statements for RCM strategic risks related to SBG’s banking and insurance SBG, including the report of the group audit AFS operations, including capital and liquidity management committee (GAC). and regulatory developments. www.standardbank.com/reporting www.standardbank.com/reporting Sustainability report Presents a balanced and comprehensive analysis of the SBG and SBSA’s sustainability performance in relation SR to issues material to the group and its stakeholders. www.standardbank.com/sustainability The above icons refer readers to For the latest financial information, refer to our Indicates that additional information is information investor relations page at available online. elsewhere in this www.standardbank.com/reporting report, or in other or scan the QR code to be taken there directly. Denotes text in the risk and capital reports that form management report that forms part part of the group’s of the group’s audited annual suite of reporting financial statements. publications. We welcome the views of our stakeholders on the annual report and the way we approach our strategic priorities. Please contact us at [email protected] with your feedback. Feedback 1 About this report As a South African financial services group we have a fundamental role to play in the development of the society in which we operate. The success of our customers and stakeholders underpins our commercial sustainability and our ability to deliver returns to our stakeholders over the long term. The Standard Bank of South Africa 2 Annual report 2014 Serving our Growing our customers people 1 2 Respecting Working in each teams other 8 3 Our values 7 4 Constantly Being raising 6 5 proactive the bar Living the Delivering to our highest levels shareholders of integrity 3 Our business How we create value For more detail 14 18 38 refer to page: Income Principal risks arising Business activity statement impact from this activity Lending enables our individual customers to create wealth by acquiring assets which either grow in value over time or We lend money to our customers and clients within the Interest income k which support their ability to generate income. For our small- and medium-sized enterprise (SME) clients, lending ctthhoeen spgtrrroaeiusncptrs,i b foerfod ma rv eawgilhuailbcahlteo wrcyea p edinteavrlii rvaoenn dimn wteenitrthesis.n tT iohnuicsro crmirseeka otaevpsep rae sttsiimteete sa. nfodr aicmhnadpr agcirremesdeint t Credit ris est rate risk uidity risk etgbchlnarieeosaeinbwr.t l restWo,hs l ae eton h iefdne m mtwdhp reetilv ooiair nypm bg pra uelenyssma ipgngpoeleloon swbyssmaoeiblrse kl,be nicne tolg sean tnnct arpddipb rieniautcgcatoitl n npiccgoore amnt ocisint tcj ri omcagbeirni otscti wgsrae atnaahtndit.nd iohFg ncoa sav,r o sescchu oim sarftplle oaaociwnnrha,ada tbw neelih esncim vclsiiheusro npisnntpus ml,ppy ellpeaonocnft erdagt ilotns oro gi tsd ahksssseu s aiipisrnntp d cpod osrirosmettjrsremve citsctehsesree sctd hicaa aoncltu dn sws tuttiehosn emtufa ienciitonraysrna pacaboennirl.ddait t ye atanxd We source funding from deposits placed by customers and Inter Liq Cdeupstoosmit eprl adceepdo, swiths iechar mn iintitgearetsets aat graatiness td tehpee nedrionsgi oonn othfe c tayppieta ol fd suaev itnog sin oflra tiniovne.s tWmee npta rptricoidpuactet ainn de qthueit ys iazned o df ethbet other funders to enable lending. This creates liabilities, which Interest expense capital markets to source funding, which contribute to the continued functioning of the broader financial system. Our capital and liquidity management framework ensures that we are able to meet our funding requirements ts generate future interest expenses. and payment obligations under both normal and stressed conditions, protect our depositors’ funds and reduce n systemic risk in the domestic banking system. e m mpair al risk credit i Wkneo pwrloevdidgee -tbraansesadc steiornviacle bsa tnok oinugr cfuasctiolmitieerss aanndd clients. Ncreoevmte mnfeuieses aionnd d/or soci ckc Wlonieonenwv tfelsean dtciogei lenbit-teab ntateoesf e itttdh h fesreoem mrmv, ibocoeyvu sere, mnewaxhebpinlceinhtr g ioie nefnc llecmuecdot earno ncnedoiyc r,tp fr ooaerrcnamkatesb r loaeinfdc gvop iracsdyoum.rs ytWeo anment ed aarl snsloo daa nfnpad rsco tcivrlliuiidetcaintntutgesr itcnpoaga s ayhscme mcreevaniscnstea sstg ,hte aoeml ilnroe wnafttu oinsouednrrs avc iluic nrese tsaov. meOmneuaurrns e na enrd most Income after Wofouerre ociglfinfee nert xsmc thaoar nksgueept ,p aoccorctme tsmhseo iadrn ibtdyu, srciinrseekds smit ,ri etinqigtueairrteeisomtn er napttreso, adinnucdcl utesdq itunoigt y Trading revenue e, environmental an putational risk cclcPoaloricoeplalvnielti tadceslti q,n wiueogeinn tacia eutabhssgl eteteoros nm m actenaihrer seiksn mea tvnte i adtrfon l usca eclgtilteirfou-nonastwteasi lr o wvtenhiiqcsteeh uai irnet mydlbe iuacvntsorvrkileonaesntetitiolsc itsar ic eecbhsscaa,,es npwesno,se esw, l iost h.ffivoifceerh rley cr xiirsamekmap mptaelciettsi,ig natagh tc rioooonnun gdephmur oilpitds ltuofiocyntmrgs s iew nonvhntei caeshntq dmeu nitethayneb te l etxia ncfxhti naobnaa Agsneefcr.si ia Wctloa ep . r Trpaooios tsehei tecioltpin o onu r iWbnusest irenuaemrsnes ,nr ietnsvc.elunduineg f rsohomr t-o tahnedr l osnogu-rtceersm l iinnkseudra tnoc eo uorp ceorareti ons Credit risk Market risk e risk ncluding complianc Business and re awmBnyho de ni nnde tovivipeseeserrt sariintefiisngcog aiu tninri oc adences tt viahevnrlioodtpiu edingsighv e omrrtisashirkefk yret trtehsac ansonusn fcioenhrm ta.h siTee hAs eof.rsrideci anr.ia sSrkyus p caporoeur ritsnienh goe frte rnanodtr imning at lar abcdtuiisvniingtie easscs t piovrpoitevieirdase taison ngdsr ,ce asauntc ebhre ao msp poprrooerp tpeurrontnyit,o ipuernsivc taeotde aanctdiv gitaieinss. on property, private equity and strategic investment Other revenue Insuranc nal risk, i ecrqeuaittey aanddd itsitorantael gviacl uinev.estment activities, we invest in non-core opportunities that support the economy and o ati er p O We invest in developing and retaining our people in order We are a significant employer of the country. Through our training and development programmes we enhance the to execute our strategy and deliver to our customers and Staff costs level of financial services and related skills. clients. As active consumers and taxpayers, our employees make a significant contribution to their local economies. s e s n e p x E We invest in our operations, which includes information Our ongoing investment in our business ensures that we remain competitive and sustainable, and thus able to continue to make a positive contribution to our country. Our substantial investments in transforming our core technology (IT) systems and infrastructure, to improve Other operating banking platforms position us to serve our customers and clients more effectively and to innovate, strengthening our efficiency and deliver excellent products and services costs competitive position. We are a significant procurer of goods and services in the markets in which we operate. In to our customers and clients. South Africa, we focus on increasing our procurement spend with black suppliers. Our suppliers in turn create and sustain employment and form part of the corporate tax base in the countries in which they operate. Dividends to our shareholder as our primary Retained equity which is reinvested to sustain Net profit provider of capital and further grow our business The Standard Bank of South Africa 4 Annual report 2014 Linking our profitability to socially beneficial outcomes Lending enables our individual customers to create wealth by acquiring assets which either grow in value over time or Personal & We lend money to our customers and clients within the Interest income k which support their ability to generate income. For our small- and medium-sized enterprise (SME) clients, lending ctthhoeen spgtrrroaeiusncptrs,i b foerfod ma rv eawgilhuailbcahlteo wrcyea p edinteavrlii rvaoenn dimn wteenitrthesis.n tT iohnuicsro crmirseeka otaevpsep rae sttsiimteete sa. nfodr aicmhnadpr agcirremesdeint t Credit ris est rate risk uidity risk cetgbhlnarieeosaeinbwr.t l restWo,hs l ae eton h iefdne m mtwdhp reetilv ooiair nypm bg pra uelenyssma ipgngpoeleloon swbyssmaoeiblrse kl,be nicne tolg sean tnnct arpddipb rieniautcgcatoitl n npiccgoore amnt ocisint tcj ri omcagbeirni otscti wgsrae atnaahtndit.nd iohFg noca sav,r o sescchu oim sarftplle oaaociwnnrha,ada tbw neelih esncim vclsiiheusro npisnntpus ml,ppy ellpeaonocnft erdagt ilotns oro gi tsd ahksssseu s aiipisrnntp d cpod osrirosmettjrsremve citsctehsesree sctd hicaa aoncltu dn sws tuttiehosn emtufa ienciitonraysrna pacaboennirl.ddait t ye atanxd BB(proPuavidBnses Bikbnani)keninsgg asn d other Woteh esro fuurncdee frsu ntod iennga bfrleo mle nddeipnogs.i tTsh pisl accreeda tbeys cliuabstiolitmieesr,s w ahnidc h Interest expense Inter Liq Cdcaeuppsitotoasmli tm epral ardkceeepdtos, stwioths ieschoar umnr iicnteitg efaruetnsetsd aiatn grgaa,ti newssh tdi ctehhp ece onendritonrsgiib oounnt eot hfte oc tatyphpieet a colo fd nsuateivn itnuoge sidn of flrau tinniovcnet.is otWmneien npgta roptrifco itdphuaecte tb airnno dea qdthueeirt yfs iiaznnead no dcf ietahble t fcmiunesadtnoiucmimael- rsssei zarenvdidc eessnm ttaeolr lp-in rtdiosie vsid.ual system. Our capital and liquidity management framework ensures that we are able to meet our funding requirements generate future interest expenses. and payment obligations under both normal and stressed conditions, protect our depositors’ funds and reduce systemic risk in the domestic banking system. k al ris ci We facilitate the movement of money, enabling customers and clients to access their funds in a manner most Wkneo pwrloevdidgee -tbraansesadc steiornviacle bsa tnok oinugr cfuasctiolmitieerss aanndd clients. Ncreoevmte mnfeuieses aionnd d/or so ckclonieonnwvtelsen dtioge enb-teb ntaeosf eittdh fesroemmrv, ibcoeyu sre, newaxhbpilceinhrg iie nencllecuecdt earo ncndoic rtp frooarrcamktes r oaefdc vopirasdyom.r yWe anent d aal snlooda fnpa rscotivrliuidtcaitntuger icnpagas yhsme mrevanicnteassg ,te aoml lnoewnatt oisouenrr avciluc resetsov. meOneuurrs e a nd an collection agencies via self-service electronic channels. al Wofouerre ociglfinfee nert xsmc thaoar nksgueept ,p aoccorctme tsmhseo iadrn ibtdyu, srciinrseekds smit ,ri etinqigtueairrteeisomtn er napttreso, adinnucdcl utesdq itunoigt y Trading revenue e, environment putational risk clcPoalricoepavnilti tadesli q,n wuegein taciaeutbhssl etetoros m m atenahrr seikn meatnte dtrfonl uca clgtiteirounonatwtasi l o wtenhiqsteh uai irnt mydb iuavnsorvkilenaestetitols itsari eecbssca,,es pweso,se sw, iot hffivoifceerh rley cr xiirsamekmap mptaelciettsi,ig natagh tc rioooonnun gdephmur oilpitdsl tuofiocyntmrgs s iew nonvhntei caeshntq dmeu nitethayneb te l etxia ncfxhti naobnaa Agsneefcr.si ia Wctloa ep . r Trpaooios tsehei tecioltpin o onu r CInovrepsotrmateen t& iWbnusest irenuaemrsnes ,nr ietnsvc.elunduineg f rsohomr t-o tahnedr l osnogu-rtceersm l iinnkseudra tnoc eo uorp ceorareti ons Credit risk Market risk e risk ncluding complianc Business and re awmBnyho de ni nnde tovivipeseeserrt sariintefiisngcog aiu tninri oc adences tt viahevnrlioodtpiu edingsighv e omrrtisashirkefk yret trtehsac ansonusn fcioenhrm ta.h siTee hAs eof.rsrideci anr.ia sSrkyus p caporoeur ritsnienh goe frt ernanodtr imning at lar abcdtuiisvniingtie easscs t piovrpoitevieirdaset aison ngdsr ,ce asauntc ebhre ao msp poprrooerp tpeurrontnyit,o ipuernsivc taeotde Bpicpfnilranivoeraeaavnnssitdcttsnmaie aitsnlea kcinclnslotu,s ritbdlpaiaintornungrgtkaeig otigrne nocg saov s(neraeprdnCnro dvmr iacIeteenBsst ,st o,) aanctdiv gitaieinss. on property, private equity and strategic investment Other revenue Insuranc nal risk, i ecrqeuaittey aanddd itsitorantael gviacl uinev.estment activities, we invest in non-core opportunities that support the economy and international counterparties. o ati er p O Central We invest in developing and retaining our people in order We are a significant employer of the country. Through our training and development programmes we enhance the and other to execute our strategy and deliver to our customers and Staff costs level of financial services and related skills. clients. As active consumers and taxpayers, our employees make a significant contribution to their local economies. We invest in our operations, which includes information Our ongoing investment in our business ensures that we remain competitive and sustainable, and thus able to continue to make a positive contribution to our country. Our substantial investments in transforming our core technology (IT) systems and infrastructure, to improve Other operating banking platforms position us to serve our customers and clients more effectively and to innovate, strengthening our efficiency and deliver excellent products and services costs competitive position. We are a significant procurer of goods and services in the markets in which we operate. In to our customers and clients. South Africa, we focus on increasing our procurement spend with black suppliers. Our suppliers in turn create and sustain employment and form part of the corporate tax base in the countries in which they operate. 5 Our business Key socioeconomic impact metrics South Africa Our research indicates that the With 27 154 employees in Assuming that each Our activities could be seen local financial and insurance SBSA, we directly and indirectly of these jobs supports to support around sector has a formal employment sustain around multiplier of approximately 3.2 86 893 4 347 572 jobs in the broader economy people individuals (2013: 87 366 jobs in the broader economy supporting 349 466 individuals) Black economic empowerment (BEE) Corporate social investment (CSI) 94.25 R69,6 million BEE transformation score out of 107 spent on CSI initiatives in 2014 (2013: 94.52 out of 107) (2013: R57,6 million) SBG’s dividend payouts amounted to approximately Our flagship programmes in South Africa R164 million N ational Education Collaboration Trust An action-based and outcomes-oriented programme that takes a holistic approach to improving educational outcomes (2013: R139 million) to Tutuwa Managers’ Trusts beneficiaries and R50 million (2013: R43 million) to black SMEs participating • Our investment in 2014: R5,0 million in the Tutuwa Community Trust • Programme reach: around 2 million learners Based on our BEE scorecard, we ranked third in the Empowerdex National Benchmarking Test Top 100 Empowered Companies in 2014. Our prior-year ranking Assesses the academic readiness of first year university was ninth. students and provides foundation courses and other forms of academic support for students who are less well prepared for tertiary education Procurement/supply chain • Our investment in 2014: R5,7 million • Programme reach: around 70 000 learners R22,9 billion High School Curriculum Delivery and total procurement spend in South Africa Teacher Support Programme Aims to increase the number of learners attaining during 2014 (2013: R26,8 billion) matriculation exemption and to upskill teachers to effectively teach Grade R to Grade 7 learners During 2014, we met our targets for preferential procurement in South Africa, scoring 16 points out of a • Our investment in 2014: R1,8 million. possible 16. As a level 2 BEE contributor we are classified • Programme reach: around 1 040 learners as a value adding supplier and 42 teachers in Gauteng and Limpopo In 2014, our addressable procurement spend, which refers to 209 students supplier spend (which we are able to influence through negotiation or other mechanisms) amounted to approximately were assisted with bursaries through our CSI initiatives. R16,7 billion (2013: R17,2 billion) A total of 133 students were assisted through the 150 Bursaries and Scholarships Fund and a further 20 through the Standard Our weighted procurement spend with BEE suppliers Bank CSI Bursary Programme. The remainder are students from amounted to R19,2 billion (2013: R16,1 billion). Some 77% of our prior commitment to the Adopt a School Programme which our total procurement spend in South Africa is spent with our top we have continued to support despite exiting the Adopt a School 100 suppliers, 82% of whom have a level 4 BEE rating or better. Programme in 2013. The Standard Bank of South Africa 6 Annual report 2014 Infrastructure financing Inclusive banking R3,4 billion 6,7 million weighted transformational infrastructure lending inclusive banking customers (2013: R1,1 billion) (2013: 6,8 million) W e are the sole lead arranger and underwriter for the Inclusive banking customers represent 69% of our personal R650 million BUSAMed Private Hospital deal. This banking customer base (2013: 71%) 250-bed private hospital facility is situated in Gauteng and is the second private hospital development in South Africa 74% active AccessBanking transactional accounts financed by a commercial bank, both of which were (2013: 69%) structured and led by Standard Bank 65% of our AccessLoan customers hold an AccessAccount We are a co-mandated lead arranger for the financing and with us (2013: 73%) development of the City of Tshwane’s new head office complex procured as a public private partnership. R18,4 million spent on consumer education (2013: R20,2 million) SMEs 31,7 million R26 million people estimated to have been reached through the WalletWise consumer education drive enterprise development spend (2013: R27 million), The value of stokvels held at December 2014 was R1,4 billion 0.22% of SBSA’s net profit after tax (2013: 0.26%) (2013: R1,3 billion). >750 000 small, micro and start-up businesses banked (2013: >722 000) Affordable housing R8,6 billion in new advances to small, micro and start-up We hold a 34% share of the affordable housing businesses (2013: R5,4 billion) mortgage lending market in South Africa R14,3 billion total lending to small, micro and start-up R23,7 billion affordable housing home loan book value businesses (2013: R14,5 billion) (2013: R17,9 billion) R3,8 billion exposure to black SMEs (2013: R2,6 billion) R4,5 billion affordable home loan finance granted (2013: R4,0 billion) of which around 80% was disbursed 682 SMEs received non-financial development support, of to first-time home buyers (2013: 81%) which 99% were black-owned businesses (2013: 277 SMEs, of which 94% were black) R184 million pension-backed loans financed (2013: R370 million) We received the 2014 South Africa Frost & Sullivan Award for R1,3 million spent on providing borrower education Customer Value Leadership. This was awarded for the value to 2 937 first time home buyers. we deliver to our SME customers by constantly innovating across a variety of platforms For more comprehensive detail Standard Bank Centre for Agribusiness Leadership and please see “Our contribution to Development – we have invested R5,1 million in the centre, socioeconomic development” in the which through academic training, research and leadership 2014 SBG sustainability report at development support, focuses on transformation strategies in www.standardbank.com/sustainability the agriculture sector within the Africa context. 7 Our performance Chief executive's Overview review The Standard Bank of South Africa delivered a robust performance in 2014, as our operations maintained their positions in challenging conditions and pursued opportunities to grow market share. We maintained our reputation as a stable and trustworthy organisation in the global banking and investment communities. Revenues grew 11% as a result of our continued focus on customers and clients in our franchise and as a result of a good credit performance and well-contained operating expenses, including the amortisation of IT development programmes as these move into production. Headline earnings increased 12% to R12,0 billion from R10,7 billion. SBSA improved ROE to 15.1% (2013: 14.4%). As the largest subsidiary and earnings contributor in SBG, the capital SBSA generates continues to underpin the group’s investment in its future competitiveness. SIM TSHABALALA Labour disruption and infrastructure constraints, particularly in Chief executive, The Standard Bank of South Africa electricity supply, weighed on South Africa’s economic growth, and policy uncertainty continued to have a negative impact on “We are building a company that we foreign investment. High wage demands and increasing overhead believe will drive the growth of the costs impacted the performances of domestic businesses, while interest rate increases and the higher costs of food and basic South African economy, and will be the services placed further strain on households. Unemployment bank to beat in our chosen markets, remained high at 24.5%. whilst delivering superior returns to Encouragingly, the country’s fiscal management remains sound, shareholders.” with the National Treasury resolute in its commitment to reduce the budget deficit. There is also a clearer understanding in the private sector that the resolution of these challenges cannot be the responsibility of government alone, and that partnership is critical if the country is to increase its growth rate. Since the 2008 global financial crisis, the financial services industry has faced constant regulatory change intended to ensure the stability of our industry and protect consumers. We continue to adapt our systems and processes accordingly and to prepare for the adoption of additional regulations in the pipeline. We have made significant progress in strengthening our tier 1 capital ratio in compliance with the Basel III requirements and remain actively involved in processes to facilitate our adoption or ongoing compliance with other regulations, including the Treating Customers Fairly (TCF) regime, the Financial Markets Act, the Protection of Personal Information Act (PoPI) and the National Credit Amendment Act. The digital revolution is profoundly affecting the way financial services organisations operate. We continue to make significant progress in the comprehensive overhaul of our core banking systems, building a robust new architecture that will allow our group to deliver its strategy as a fully digital financial services company. The scale and reach of this programme is extensive and has elevated the role of IT from a support function to a critical enabler of our strategy. The programme involves major projects to replace decades-old systems with new IT architecture capable of meeting customer needs for more agility, higher levels of flexibility and increased availability. The Standard Bank of South Africa 8 Annual report 2014