Leading the way - Standard Chartered101.53 Thebe in 2008 • Dividend per share is 68.55 Thebe...

Annual Report and Accounts 2009

Leading the way in Africa, Asia and the Middle East

Botswana

Stand

ard C

hartered Annual R

eport and Accounts 2009

1Standard Chartered Annual Report 2009www.standardchartered.com

Annual Report and Accounts 2009for the year ended 31 December 2009

ContentsBusiness Review

Performance Review 2Chairman’s Statement 4Chief Executive Officer’s Review 6Consumer Banking 8Wholesale Banking 9People 10Sustainability 12

Corporate Governance

Corporate Governance 19Board of Directors 22Director’s Remuneration Report 23Senior Management 24

Financial Statements and Notes

Report of the Directors 26Board Approval 27Independent Auditor’s Report 28Consolidated Statements of Comprehensive Income 29Consolidated Statements of Financial Position 30Consolidated Statements of Changes in Equity 31Consolidated Statements of Cash Flows 34Accounting Policies 35Notes to the Financial Statements 43

2 Standard Chartered Annual Report 2009 www.standardchartered.com

Performance Review

Key Financial Highlights

• Net Operating Income declined marginally by

0.1% to BWP 740.5 million in 2009

from BWP 741.5 million in 2008

• Operating Expenses increased by 17.5% in 2009 over 2008

• Cost/ Income ratio rose to 51% in 2009

from 43.6% in 2008

• Net impairment loss on financial assets was

BWP 75.4 million in 2009 against

BWP 47.8 million in 2008

• Pre-tax profit declined by 23.0% to BWP 285.4 million

compared to BWP 370.5 million in 2008

• Earnings per share was 81.68 Thebe in 2009 against

101.53 Thebe in 2008

• Dividend per share is 68.55 Thebe compared to 92.17 Thebe in 2008


Business Review


It was therefore not surprising that the local economy was in recession for most of the year. This lack of growth particularly in the mining sector had a domino impact on the rest of the economy and manifested itself in higher credit default rates.

The Bank of Botswana, in an attempt to achieve the delicate balance between low inflation and palatable interest rates, cut the bank rate by 550 basis points during the year. The Pula, which depreciated against the currencies of its major trading partners for most of the year, appreciated by about 12% at the end of the year, but ended weaker than it was prior to the financial crisis in October 2008.

Standard Chartered Bank Botswana was able to overcome these challenges delivering a relatively strong financial performance. Revenues remained

at 2008 levels, however due to our commitment to invest in the business, profits declined when compared to our 2008 results.

Business performance was impacted by the economic slowdown in momentum in the first half of the year, as we reviewed the extension of credit to certain sectors to reflect the prevailing environment. Our business achieved healthier growth in the second half and these encouraging signs provided new hope for the continuing recovery of the Botswana economy.

Our business is fundamentally strong with good prospects for growth in 2010 and beyond. It is in this context that our Directors are pleased to present the Bank’s operating results for the year ended December 31, 2009.

Chairman’s Statement

The year 2009 was another challenging year for the global economy and

Botswana like most economies, dependent on the buying power of major

export markets was affected. The decline in consumer spending in the USA,

Japan and Europe negatively impacted export revenues for Botswana.

V.T. SeretseChairman (resigned Dec 2009)


Business Review

Key financial highlights

• NetOperatingIncome reduced marginallyby0.1%toBWP740.5millionin2009fromBWP741.5millionin2008.

• OperatingExpensesincreasedby17.5%in2009over2008

• Cost/Incomeratioroseto51%in2009from43.6%in2008

• NetimpairmentlossonfinancialassetswasBWP75.4millionin2009againstBWP47.8millionin2008

• Pre-taxprofitdeclinedby23.0%toBWP285.4millioncompared to BWP 370.5millionin2008.

• Earningspersharewas81.68Thebein2009against101.53Thebein2008

• Dividendpershareis68.55Thebecomparedto92.17Thebein2008

Governance

The Board of Standard Chartered Bank Botswana Limited has ultimate responsibility for ensuring an appropriate and effective Governance framework is established and maintained to manage and control the Bank’s activities. In 2009 I tendered my resignation as Chairman of the Board, a position held since 2006.

I would like to thank our customers and the executive management team of Standard Chartered Bank for their full support during my time as Chairman. I have left the bank to pursue a career in politics.

V.T. SeretseChairman


Chief Executive Officer’s Review

Despite the difficult credit conditions prevalent in 2009, the resilience of our balance sheet and the robust nature of our credit review process ensured the Bank achieved sustainable net revenue level during the year compared to 2008.

Improving our delivery channels continues to be a top priority. In 2009 we introduced mobile and online banking to the market, providing our customers with 24 hour access to a whole range of banking services. Alternative channels and fully integrated electronic platforms remain key to providing our clients with seamless and convenient methods of executing transactions, and we will continue to roll out these channels across the country for the benefit of our consumer and wholesale customers.

Risk management solutions and the deepening of client relationships were priorities for our Wholesale Banking business in 2009. Tapping into our extensive international product capabilities, we were able to structure commodity risk management solutions that enabled clients to secure cheaper funding while managing their exposure to volatility in commodity prices.

Major contraction in growth in the mining sector, the largest contributor to GDP, affected most if not all other business sectors in the country. This in part contributed to increases in the default rate in both businesses in the first half of the year, necessitating a higher loan impairment charge. Measures were put in place to effectively manage those assets, resulting in an improvement in the second half.

The Future

Overall, Consumer Banking ended 2009 with strong momentum and we are optimistic about 2010. Our continued focus on the customer, providing solutions to their financial needs, and delivering fast, accurate, and friendly service should result in continuing gains in our market share. The Wholesale Bank will continue to execute its client-centric strategy, ensuring that we align our business objectives with the requirements of our clients in the key economic sectors.

We will continue to leverage our Group network to bring customized solutions to different client segments, with particular emphasis on our China-Africa trade proposition and enhanced expertise as a banker to the Diamond and Jewellery sector.

We will also continue to emphasize the need for robust management of costs and risk, together with efficient utilization of liquidity and capital. Investment in training and developing staff to create highly knowledgeable and sophisticated teams will ensure superior service. The current economic environment has highlighted the need for the banking industry to play an even bigger role in areas such as financial literacy and personal financial management.

Our Customers

We thank our valued customers and clients for their loyal support. As a Group, the bank has adopted a new and dynamic “Customer Charter” to ensure that each customer has a

David D. CuttingChief Executive Officer

Standard Chartered Bank continues to have a very

solid Consumer and Wholesale Banking business. Both

businesses showed good momentum in 2009.

Overall,Consumer

Bankingended2009with

strongmomentumandwe

areoptimisticabout2010.

Ourcontinuedfocuson

thecustomer,providing

solutionstotheirfinancial

needs,anddeliveringfast,

accurate,andfriendly

serviceshouldresultin

continuinggainsinour

marketshare.


Business Review

delightful experience in the bank. We are committed to having a durable partnership with customers and clients on the basis that their success has an inexorable link to our success.

Our Communities

We focus on programmes that promote long term sustainable development of the communities in which we operate.

Over 100 years of presence in Botswana has given us the opportunity to observe and participate in the economic development of Botswana. We are excited about the role we will play in the continuation of this development especially as the need for diversification is now so critical.

During the year staff at all our branches across the country undertook various projects to assist their communities, getting involved by offering not only financial assistance, but, more importantly their time as volunteers.

The Standard Chartered Group has made it possible for staff all over the world to get 2 extra days off every year for the express purpose of volunteering in local communities.

Our Staff

We would like to thank our staff for their contribution to our performance in 2009. It was another challenging year and on many occasions we have required them to perform above and beyond the call of duty. We are grateful for their loyalty and support of our strategy and performance objectives. In 2010 we will continue the journey we have begun to make Standard Chartered Bank Botswana a great place to work.


Wearecommittedtohavingadurable

partnershipwithcustomersandclientsonthe

basisthattheirsuccesshasaninexorablelink

tooursuccess.


It was a difficult economic environment, with both deposit and lending growth grinding to a halt, while sharp cuts in interest rates by the Bank of Botswana decreased margins. Despite these challenges, we gained significant market share across our main product areas, and achieved some major milestones along the way.

Improving customer service was our number one strategic priority in 2009, and we made great strides. We improved the uptime of our ATMs, averaging more than 96% across our network in the second half of the year. We expanded the number of ATMs to 42, and will add additional ATMs in 2010. We launched our award-winning Mobile Banking and Internet Banking offerings, enabling customers to perform a variety of banking transactions directly from their phone or computer 24 hours a day, 7 days a week.

We also made strong progress in our branch service, upgrading much of the equipment to enable faster transaction processing. We are proud of the progress we have made in customer service in 2009, but we recognize that we are still in the early days of our journey to Lead the Way in customer service in Botswana.

Having refocused our personal lending book to lower-risk segments and limiting overall growth before and during the financial crisis, we were well positioned for strong growth once the crisis has passed. We grew our personal loan portfolio by 11% during the second half of 2009, while the rest of the market was flat. We have also repositioned our mortgage offering to target our preferred

segments, and expect to gain market share in both mortgage and personal lending in 2010.

We continued our recent trend of out-performing the market in household deposit growth, despite a difficult environment. We grew household deposits by 5% while the industry experienced double-digit declines between January and the end of the year. Revenues from deposits were down as market interest rates dropped sharply through the year. We continue to lead the market in product innovation in an attempt to encourage greater personal savings in Botswana. We awarded our first Millionaire Maker award in November to a lucky deposit customer.

We had similar success in SME banking, where we outperformed the market with 5% deposit growth while business deposits declined overall in the market from the end of 2008. We drove significant growth in foreign exchange (FX) volumes, and FX revenues increased [20%] in 2009 versus 2008. We launched our China Africa Network, leveraging Standard Chartered’s unique history, knowledge, and presence in China to serve our customers across Africa, including in Botswana.

Overall, we ended 2009 with strong momentum and optimism for 2010. While the low interest rate environment will continue to depress margins, balance sheet growth is strengthening, and our continued focus on the customer and service should enable us to continue to gain market share.

Consumer Banking

Michael WiegandHead of Consumer Banking

Improvingcustomer

servicewasour

numberonestrategic

priorityin2009,

andwemadegreat

strides.

The Consumer Bank made significant strides in its transformation in 2009, and the program started to show significant results during the year.


Business Review

Wholesale Banking

As a leading international bank in Botswana, we serve a diverse client base including local and multinational corporations, financial institutions, and development and non-governmental organizations.

In 2009, our strategy was to be a core bank to our key clients by deepening relationships and growing our capabilities across product and client segments, providing targeted market information and delivery of creative solutions to match client requirements. Our international expertise and global product capability has allowed us to pioneer the introduction of new financial products in the Botswana market. This led to the successful execution of structured trade finance and commodity derivatives transactions. As a result, during periods of market turmoil and uncertainty, we can consistently offer more complex risk solutions to our growing customer base to match their increasingly sophisticated requirements. Tight management of costs and risk, together with efficient utilization of liquidity and capital continue to be our primary areas of focus.

Converting clients onto our fully integrated

electronic platform, Straight2Bank, was a key priority in 2009 and with over 80% of our prospective users now activated, our customers now enjoy advanced technology allowing integration between our network and client’s own accounting systems. Benefits include integrated collections and payments solutions, simplified reconciliations and enhanced liquidity management.

In 2010, we will focus on:

• Continuing to be a core bank toour clients, deepening relationships by leveraging our extensive group network to increase strategic and value-adding capabilities.

• Upskilling and building dynamicteams to ensure seamless global coverage and superior service

• Reinforcement of our leadershipposition in delivering risk management and working capital solutions in the local market, whilst ensuring efficient management of capital and liquidity.

• Tight management of costs and arobust risk control environment.

Tightmanagement

ofcostsandrisk,

togetherwithefficient

utilizationofliquidity

andcapitalandrisk

continuestobeour

primaryfocus.

Our Wholesale Bank has a client-focused strategy providing cash management, trade finance, foreign exchange and risk management, capital raising and corporate finance solutions.

Olebile Makhupe Co-head of Wholesale Banking

Michael ShirleyCo-head of Wholesale Banking


The Group believes in a policy of Diversity and Inclusion, which allows the bank to reap the best from a wide spectrum of people and talents. The glue that holds our diverse workforce together is our five Values, which each employee embraces, and which give Standard Chartered its competitive advantage. Our Values: Courageous, Responsive, International, Creative and Trustworthy are the basis for customer and staff loyalty.

We attract and nurture future leaders by creating an environment in which individuals can play to their strengths, and developing those areas which require support and mentorship. We also leverage our global network, giving staff opportunities to develop through exposure to international markets and practices, through cross functional moves. Our International Graduate (IG) programme helps us identify exceptional

talent at university stage. The IG potential is developed through placement in the functions that provide the best fit for that talent. Graduates and staff alike are given a broader view of the Bank through internships in departments outside of their own area of focus.

In 2009 we offered a number of leadership development programmes which were very successful in improving the effectiveness of current managers and helping us to identify new ones.

The main Theme in 2009 was Driving Productivity through Engagement. Research has shown that engaged teams are more productive. Productivity is increased through having efficient work processes. As part of improving the way we work, in November 2009 Standard Chartered Bank Botswana joined the rest of Standard Chartered

Bank Group by going live on People soft, a people management database which is aimed at making the management of HR processes simpler, quicker and more effective. Management also interacted with staff across the country in face to face meetings throughout the year, to

People

AtStandardCharteredwerealizetheimportanceoffocusingonourpeople

andleveragingonourdiversitywhichprovidesuswithouruniqueculture.Our

employeesareincludedintheBank’stop5stakeholderlist.


Business Review

discuss the country’s 2009 aspirations and to reiterate senior management’s commitment to supporting staff in the journey towards achieving superior customer service.

During the year we continued the established tradition of formally recognising staff loyalty, by awarding certificates and prizes to our longest serving employees - those that achieved 10, 15 and 25 years. We believe that this recognition has created a very special sense of belonging which is a critical factor in engagement levels.

Our Values: Courageous, Responsive,

International,CreativeandTrustworthyare

thebasisforcustomerandstaffloyalty.


Sustainability


National Disability GamesIn 2007 Standard Chartered Bank first sponsored the Botswana games for the “differently-abled”, held under the auspices of the South East Sports Association for the “Differently-abled”, SESAD.

The huge success of this inaugural event resulted in the 1st National Paralympic Games, being held in 2008. The event is growing with each year with the 2nd National Paralympic Games in 2009 playing host to more athletes than in the previous year.

The staff at Standard Chartered Bank are proud to be a part of this very important event in Botswana’s sporting calendar.

The Paralympic Games is now a significant part of the global sporting calendar and its popularity at the Beijing Games last year was unsurpassed. It has come a long way since it was pioneered all the way back in 1948, when a sports competition involving British World War II veterans was held in England. Four years later, competitors from the Netherlands joined the games and an international movement was born.

Paralympic Games now play a central part in Botswana’s sporting calendar. The level of engagement, the competitive

spirit, the camaraderie, the passion and the sporting excellence of the athletes is a fantastic display of human endurance and human endeavour.

Social and economic development is enhanced when communities are diverse and fully inclusive. According to the bank’s Diversity and Inclusion policy, gender, nationality and disability should be no barriers to personal and professional success. These are issues of great importance to the Standard Chartered Group, right across its global footprint.

Diversity and Inclusion is a long-term commitment and integral part of the Bank’s Strategic Intent, brand and values, and it enables us to lead the way in our markets.

A commitment to diversity allows individuals to flourish, to grow and to succeed. It aims to get the best out of the broadest spectrum of people. Through our support of these Games, we encourage the celebration and promotion of diversity and inclusion right across the country.

Standard Chartered Bank focuses its social responsibility activities on projects that are sustainable in the long term and will make a difference in the communities in which we operate.

National Paralympics;Sheer determination in the Walking Race


Seeing Is Believing

The Global Challenge & Current Situation

Globally, 45 million people are blind, and a further 269 million people have serious visual impairment. The lack of eye care services and spectacles in underserved communities in the developing world accounts for 6 million blind and 100 million with serious visual impairment. This leads to reduced educational and employment opportunities and consequently the quality of life and lost economic opportunities for the individual, the family and society.

Botswana has a total population of approximately 1.8 million - a survey of the prevalence of blindness in 2114 adults, 50 years of age and over was 3.7%. The National Prevalence is estimated to be 0.6%, cataract being the leading cause of blindness (46.9%), followed by diabetic retinopathy (20%). Uncorrected refractive error is second to cataracts as a cause of moderate visual impairment (38.5% versus 50.2%). Uncorrected refractive error is the leading cause of visual impairment in children in Botswana, 20% bilateral and 28% being unilateral. 89 % of unilateral visual

impairment and 63% of bilateral visual impairment in children in Botswana is avoidable.

Health remains an integral part of the pillars of the long term vision of Botswana Vision 2016, the overall goal of which is to have a healthy nation that can contribute effectively to the development of the country. Botswana has been working towards the global call for the prevention of avoidable blindness, as advocated by the Vision2020: The Right to Sight.

The Botswana Eye Care Providers Society (BECPS), the brain child of the Batswana Eye Care providers, founded in 2003, is a not-for profit, non-governmental organisation that seeks to work hand –in-hand with the Ministry of Health, in realizing its ideals to eliminate blindness in the Republic of Botswana. Botswana Eye Care Providers Society’s strategy to prevent blindness is achieved by helping to set minimum standards of care for all the Eye Care Professionals by providing continuing professional

education to keep abreast of the latest developments in the field of eye care. They also work alongside the Ministry of Health to offer free eye care services to many Batswana.

Standard Chartered Bank Botswana’s participation

The launch of BECPS in 2004 was marked by distribution of educational materials on prevention of blindness which were produced through financial sponsorship from Standard Charted Bank Botswana. These were also distributed through the bank’s branches

National

Paralympics;Wheelchair

Racersprepare

National Paralympics; CEO David Cuttings cheers the Winner


to its customers. Its support further extended to its volunteer work by its staff in screening activities conducted at Maun in 2004, at Molepolole 2005, Selebe-Phikwe in 2006, Serowe in 2008 and at Molepolole in 2009.

In 2007 the Bank sponsored the purchase of a portable operating microscope which greatly improved access to cataract surgical services by many in rural areas. In 2008, the Bank resolved the ensuing struggle between the Northern and Southern regions of Botswana over a single microscope,

by donating a second operating microscope. This was handed over to Dr. Oathokwa Nkomazana, the BECPS Chair by Ms. Rutang Moses, the Seeing is Believing Champion of Standard Chartered Bank during the World Sight Day Commemoration at Serowe in October, 2008. Standard Chartered Bank is committed to playing an important role in defeating the avoidable and leading cause of blindness – cataracts – in the country. The donation of two operating microscopes to the Society, has thus far enabed surgeons to perform approximately 7500 cataract operations.

National Paralympics;Women’sBasketball


During the World Sight Day Commemoration of 2009 at the Scottish Livingstone Hospital, Molepolole, Standard Chartered Bank donated 300 soft and flexible frames for children. The SME banking unit of the Standard Chartered Bank, as part of their SME Month, sponsored the World Sight Day Commemoration 2009 held in Molepolole. An awareness talk on Eye Care tips and Computer Vision Syndrome was organised by Standard Chartered Bank SME banking for its staff through BECPS in October 2009.

The SME department of Standard Chartered Bank also played host to the children of the Mochudi Resource Centre School for the blind. The children were given a tour of the SME department and enjoyed a tutorial on banking. The children explained how they learned to use Braille, and demonstrated their skills. They also performed songs as a choir. Standard Chartered Bank donated funds to the Centre to assist with the procurement of more equipment necessary for teaching visually impaired children.

As a Seeing is Believing Phase III country, Botswana has chosen to focus on prevention of blindness caused by Diabetes. Diabetes is prevalent in adults over 60 years. Diabetic retinopathy is the fifth cause of global blindness and the second leading cause of blindness in the Republic of Botswana. Prevalence of retinopathy in diabetics is 20% (6000-10,000 per million) and blindness in

patients with diabetic retinopathy is 5% (300 -500 million). The BECPS has partnered with Cambridge’s Addenbrookes Hospital to prevent diabetic retinopathy in the country. This partnership has been made possible through Standard Chartered Bank’s Seeing is Believing Phase III, which enabled three Batswana eye care providers to get invaluable training in diabetic retinopathy screening and treatment in London. A retinal camera has also been purchased to be used in the screening process in Gaborone.

The Botswana Music Camp

Standard Chartered Bank Botswana’s focus for its Sustainability programmes is on Education, Health care and Youth development. The Botswana Music Camp workshop dovetails with the development of youth and Education of the nation. Standard Chartered Bank has been the major sponsor of this event since 2005 and will continue to support this initiative in 2010 and beyond. This is an opportunity to make a significant difference in the lives of the young people who participate. It allows them the opportunity to achieve their dreams and ambitions to excel in music and culture locally, regionally and internationally.

The Botswana music camp was established when, in 1985, the first workshop was held under the auspices of the Botswana International School of Music (BISM) Since then the event has grown but always with the same focus: to assist with the development of music and culture in Botswana, from a grassroots level. The aim has been to bring superior instruction and teaching to those who would not otherwise have access to such mentorship.

The team leaders who are brought in to facilitate each group have had a tremendous amount of experience in their chosen field, be it acappella singing, marimbas, traditional or modern dance, or jazz improvisation and have shown personal willingness to impart their knowledge and experience to the participants of the Botswana Music Camp.


The reaction of the participants who receive subsidies to attend is what makes it worthwhile. Their attitudes are positive and demonstrate a passion: for music, for dance for culture and for life.

Standard Chartered is passionate about contributing to the communities in which we live and this is one of the avenues through which we achieve this. We believe that the pursuit of excellence in cultural activities assists with the development of well-rounded young people who will be the leaders of tomorrow.

Okavango Macbeth

In keeping with the Bank’s desire to promote culture and music Standard Chartered sponsored the first ever opera to be staged in Botswana: The Okavango Macbeth.

The event was attended by many local and international literary and musical luminaries and celebrities. At the time, given the global financial crisis, banks in the major international markets were

not enjoying the most positive press. However, the Standard Chartered Group, having successfully weathered the storm, encouraged its operating businesses around the world to continue supporting sustainable development wherever possible.

Standard Chartered has been a partner to Botswana- as the country’s oldest bank- since 1897. The bank expects to have an operating presence in the country for a long time to come. Our community partnership initiatives will continue to be motivated by a desire to make a demonstrable contribution to the socio-economic development of Botswana.

Partnerships equate to sustainable growth and opportunities, and the bank was proud to be able to make another contribution by promoting the development and celebration of artistic talent in Botswana through the Okavango Macbeth.

Branch Sustainability Efforts

In Botswana, our branches identify local causes that are small and struggling for assistance. By rallying together, and doing self help activities, staff raise funds to assist these organizations. More important, they play a hands-on role, helping out with logistics, being caretakers for children, or putting their muscle behind a clean up campaign or a bush clearing exercise.

At Standard Chartered Bank we believe community assistance goes far beyond simply handing over a cheque. Staff have been involved in community clean-up campaigns, providing food and clothing, fun and games for orphans, and coming up with creative ways to fund raise for Seeing is Believing or other community projects.


HIV and AIDS

Living with HIV, is our global HIV and AIDS education programme that aims to reduce the number of new HIV infections and reduce the stigma associated with HIV. As part of our Clinton Global Initiative (CGI) we had committed, as a Group to educate one million people about HIV and AIDS by March 2010.

Group progress so far

• Wehaveoveronemillionpledgesfromaroundournetwork

• 645,000 people have attended face-to-faceeducation sessions

• There are 1,150 HIV Champions in 50 countriesand 4,000 peer educators trained

Education is key

Giving people the facts about HIV and AIDS enables them to avoid risky behaviour and also dispels the myths that drive stigma. Education sessions are run by our staff volunteers, called ‘HIV Champions’, with education tools available in 10 languages.

Each country has been given its target number of people to educate and staff in-country are responsible for finding ways of reaching their targets. In Botswana we have begun working with the SME companies. Our trained champions have held seminars, using interactive methods that reinforce learning. We are also working with youth AIDS organizations, schools and government departments, such as the Police, and Prisons departments.

Our HIV Champions also participate in activities every World AIDS Day and December 1st 2009, SCB HIV champions visited the villages of Mantshwabisi and Serinane in conjunction with Adopt-a-Person, who take care of over 600 orphans together

living with HIV. The team donated food and clothing and spent the whole day with the orphans, educating them on HIV and the treatment options available.

2010

Standard Chartered Bank will continue to play a major part in phase III of Seeing is Believing in Botswana through continued dissemination of information and awareness creation via its branch network. In 2010, the bank’s support for the prevention of Diabetes induced blindness will be enhanced. More effort will go into raising funds for the programme by staff, and wherever possible staff will play an hands-on role in the screening activities of the BECPS.

We will also continue to work with our partners the National Disability Games, the Botswana Music Camp and HIV and AIDS organisation. New sponsorships include the exciting Gaborone City Marathon, and building homes for the homeless in partnership with Habitat for Humanity.





Governance is the way Standard Chartered Bank is managed and

controlled. The Governance structure specifies the distribution of roles and

responsibilities among management and defines rules and procedures for

making decisions.

20 Standard Chartered Annual Report 2009 www.standardchartered.com20 Standard Chartered Annual Report 2009 www.standardchartered.com

The scope of our Corporate Governance includes our strategic agenda, performance, customers and people and talent, external regulatory and legal requirements and corporate responsibility. The approach includes the Boards and Committees, senior management accountability, internal policies and procedures, delegated authorities and monitoring internal controls.

Boards and CommitteesThe Board of Standard Chartered Bank Botswana Limited has ultimate responsibility for ensuring an appropriate and effective Governance framework is established and maintained to manage and control the Bank’s activities. The Board allocates responsibilities to its Committees and establishes standards for the control and governance of Standard Chartered Bank. Committees have responsibilities and authorities to monitor and control specific aspects as defined in their Terms of Reference (e.g. Audit Committee etc).

Board of Directors Strong governance is dependant upon a board of directors that is cohesive, independent in nature, fully engaged and committed to the role, as a result, operates effectively.

The board comprises of Executive and Non-Executive Directors who meet quarterly.

Executive Directors:David D Cutting – Managing DirectorSerty Leburu - Deputy Managing Director

Non Executive Directors:Vincent T Seretse – Chairman*Washington Matsaira**Bojosi Otlhogile**

Secretary:Thato Mmile

* Resigned 31st December 2009

** Member of the Audit Committee

Governance Committees

Audit Committee The Audit Committee has the responsibility for the appropriateness of accounting policies and oversight of internal controls and risk management processes. It reviews statutory accounts and published financial statements and considers both internal and external audit findings and regulatory reports. The committee meets quarterly and comprises of at least two Non Executive Directors.

Country Management Committee (MANCO)MANCO provides unified leadership in the country specifically by determining and agreeing the response to cross-business challenges in particular those relating to financial management, customer and franchise management, corporate governance, people and talent.

MANCO meets at least once a month and membership comprises of the Country Chief Executive Officer / Chairman, Heads of Consumer Banking, Origination & Client Coverage, Financial Markets, Technology & Operations, Finance, Human Resources, Legal/ Company Secretary, Corporate Affairs, Compliance and Assurance and Country Chief Risk Officer (CCRO).

Assets and Liability Committee (ALCO)ALCO ensures the efficient implementation of balance sheet management policies. It receives and reviews reports on liquidity, market risk and capital management. ALCO identifies balance sheet management issues that are leading to under-performance and reviews deposit pricing strategy for the market. ALCO meets monthly and comprises of Country Chief Executive Officer (Chairman), Heads of Consumer Banking, Origination & Client Coverage, Financial Markets, and Finance.

Country Operational Risk Group (CORG)CORG provides a forum for the identification, assessment, mitigation and subsequent monitoring of country level Operational Risk trends and issues. This includes ensuring compliance with internal policies and relevant regulations, as well as Bank’s Operational Risk Management and assurance Framework, promoting and sustaining a high level of operational risk management culture with the country, reviewing Country Operational Risk Profile and ensuring appropriate ownership, actions and progress for all risks and reviewing overdue Audit points. CORG meets monthly and comprises of Country Chief Executive Officer/ (Chairman), Heads of Consumer Banking, Origination & Client Coverage, Global Markets, Technology & Operations, Compliance and Assurance, Legal, Human Resources, Finance, Corporate Affairs and Head of Credit Risk

Early Alert and Credit Portfolio CommitteesThese committees provide overall direction and management of the credit portfolio and meet monthly. Membership comprises of Country Chief Executive Officer/ (Chairman), Heads of Consumer Banking, Origination & Client Coverage, Country Chief Risk Officer and various credit staff.

Pensions Executive Committee (PEC)PEC oversees the Bank’s pension scheme arrangements although specific responsibility for the Bank’s pension schemes vested in elected and appointed trustees. PEC comprises of Country Chief Executive Officer/ (Chairman), Heads of Finance and Human Resources. PEC meets at least twice per year.

Risk ManagementDuring 2009 the credit environment remained challenging. Notwithstanding the slowdown and continued turbulence in certain financial markets, Standard Chartered Bank has not seen a material downturn.

As a reflection of market conditions,





stress testing activity has increased across a range of product and customer segments. The stress testing exercises address different types of risk and cover the impact of possible specific shocks as well as the impact of possible downturn in macro economic factors.

The Bank is very liquid, the balance sheet is in good shape, conservatively positioned and we have firm grasp of risk and cost.

Standard Chartered Bank’s approach to risk management remains highly disciplined. Through its risk management framework the Bank seeks to efficiently manage credit, market, liquidity and operational risk, which arise through the Bank’s commercial activities, as well as operational, regulatory and reputational risks which arise as a normal consequence of any business undertaking. Risk Management Framework provides a structured and coherent top-down approach to risk management. It provides clarity around management of risks faced by the Bank and clear linkages between risks, the establishment of risk appetite and capital management processes.

Credit Risk Credit risk is the risk that customers are unable to meet their obligations in accordance with agreed terms. Credit exposures include both individual borrowers and groups of connected counterparties and portfolios in the banking and trading books.

In Consumer Banking, Credit risk is managed through a framework of policies and procedures. Credit origination uses standard application forms, which are processed in central units using largely automated approval processes. The repayment management process is automated to efficiently manage expected loan repayments on due dates. An account is considered to be delinquent when payment is not received on the due date. Accounts that are overdue on loan payments are closely monitored and subject to a collections process.

In Wholesale Banking, Credit risk is also managed through a framework which sets out policies and procedures covering the measurement and management of credit risk.

There is clear segregation of duties between transaction originators and the approvers in the Risk function. Accounts or portfolios are placed on Early Alert when they display signs of weakness. Such accounts and portfolios are subject to a dedicated process with oversight involving senior Risk Officers and Group Special Asset Management (GSAM).

Market RiskMarket risk is the exposure created by potential changes in market prices, the interest rates and interest rate curve or the foreign exchange rate. The Asset and Liability Committee (ALCO), receives and reviews reports on market risk, identifies balance sheet management issues and reviews deposit pricing strategy for the local market.

DerivativesDerivatives are contracts whose characteristics and value derive from underlying financial instruments, interest and exchange rates or indices. Derivatives are an important risk management tool for the Bank and its customers because they can be used to manage the risk of price, interest rate and exchange rate movements.

HedgingHedges are classified into three types: fair value hedges, where fixed rates of interest or foreign exchange are exchanged for floating rates; cash flow hedges, where variable rates of interest or foreign exchange are exchanged for fixed rates, and hedges of net investments in overseas operations translated to the parent company’s functional currency, US dollars. The Bank uses futures, forwards, swaps and options transactions in the foreign exchange and interest rate markets to hedge risk.

Liquidity RiskLiquidity risk is the risk that the Bank either does not have sufficient financial resources available to meet all its

obligations and commitments as they fall due, or can only access these financial resources at excessive cost. The Bank’s policy is to maintain adequate liquidity at all times and for all currencies, so that the Bank is in a position to meet all obligations as they fall due. Liquidity is managed by the Assets and Liability Committee (ALCO) with the pre-defined liquidity limits in compliance with the Bank’s policies and local regulatory requirements.

Operational Risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.

The Banks seeks to ensure that key operational risks are managed in a timely and effective manner through a framework of policies, procedures and tools to identify, assess, monitor, control and report such risks. The Country Chief Executive Officer is accountable for the effective management of operational risk. The Country Operational Risk Group (CORG) is the CEO’s forum for ensuring that operational risk is being managed appropriately.


Board of Directors

Serty LeburuDeputy Chief Executive Officer

David MoirNon-Executive Director

(resigned in July 2009)

Thato MmileCompany Secretary

Washington MatsairaNon-Executive Director


V.T. SeretseChairman (resigned Dec 2009)

Bojosi OtlhogileNon-Executive Director




Board of Directors

Vincent T. SeretseVincent T. Seretse, was appointed to the Board of Standard Chartered Bank Botswana in September 2005. Seretse brought to the Board of Standard Chartered Bank vast experience in business. He was appointed to the Botswana Telecommunications Corporation (BTC) Board of Directors in May 2004, until 2008.

Vincent graduated with a BA (Administration and Environmental Science) at the University of Botswana and Swaziland in 1981. This was followed by a Masters degree in City Planning gained in 1984 at the Boston University in the USA. He also obtained an MSc in Real Estate, New York University.* Resigned December 2009

David D. CuttingDavid D. Cutting was appointed to the Standard Chartered Bank Botswana Board in May 2007 when he took over as CEO. David brings a wealth of experience to Standard Chartered Bank Botswana.

He has been in the banking industry since 1970. He has worked in North America, Egypt, Singapore, Hong Kong, Nigeria and Uganda. His extensive experience covers Retail Banking, Operations, Credit Relationship Management and Country Management.

David joined Standard Chartered in March 1995 after 22 years with what is today, J.P Morgan Chase. He has spent the last 6 years in Africa wherehe has successfully grown the bank’s business in Nigeria and Uganda, and currently in Botswana.

Washington MatsairaWashington Matsaira is the Chief Executive Officer of Standared Chartered Bank Zimbabwe, and Area CEO for Southern Africa (Zimbabwe, Botswana and Zambia). He joined the Bank in 1977, and became CEO in July 2001. He has previously held the positions of CEO in Uganda, Head of Corporate & Institutional Banking, Account Relationship Manager, and Branch Manager in Zimbabwe. He was appointed to the Board of Standard Chartered Bank Botswana in November 2004.

David MoirDavid Moir was appointed to the board on 11 February 2004. He has a had a career of over 40 years with the Standard Chartered Group and has been an Executive and Non-Executive Director of the main Standard Chartered Board in London.

He was previously Managing Director of Standard Chartered Bank Botswana between 1974 and 1980.* Resigned July 2009

Bojosi OtlhogileBojosi Otlhogile was appointed to the board of Standard Chartered Bank in September 2008.

Otlhogile holds a law degree (LLB) from University of Botswana and an LLM and PHD in Law from the University of Cambridge. He has held various academic posts including Head of Law (1993-99) and Dean Faculty of Social Sciences (1999-2003) and now Vice Chancellor. He is an author of three law books. He is a member of the University of Botswana Council and Senate and was Councillor of the International Africa Institute, UK.

He is Chairman of the boards of Southern Africa Media Development Fund (SAMDEF) (1997-208) and Botswana Housing Corporation (BHC), is a Director of Longman Botswana and also chairs Special Olympics Botswana. He has also held the position of Chairman, Labour Advisory Board, Vice Chairman of the Independent Electoral Commission and

member of the Executive Committee of the Southern Africa Regional Universities Association ( SARUA).

He is a Council member of the Universities of Zambia and Swaziland.

Serty LeburuSerty Leburu is an Executive Director of Standard Chartered Bank of Botswana, She was appointed to the Board in May 2009, and Deputy CEO in 2010. She joined the Bank in May 2007 as the Chief Finance Officer and was promoted to Chief Operations Officer in December 2008.

Serty has previously held the position of Finance Manager in Debswana Diamond Company Jwaneng Mine, Botswana Diamond Valuing Company now DTC Botswana. Serty is a Board member of Botswana Telecommunication Corporation.

Thato MmileThato Mmile was appointed Company Secretary in February 2005 and is Head of Legal at Standard Chartered Bank Botswana. Thato graduated from UB in 1999, obtaining a degree in Law (LLB).She sits on the Northside School Council and is the Chairperson of the Botswana Football Association Disciplinary Committee.

Prior to joining the bank she worked for the Administration of Justice. She left the Judiciary after having been a Senior Magistrate in December 2004.

Executive Directors’s Remuneration

Base Salary Other BenefitsSerty Leburu* 434,415.73 56,000.00 David Cutting 1,142,688.49 691,633.43 Total (BWP) 1,577,104.22 747,633.43 *From May to December 2009 Non Executive Directos Vincent T Seretse 140,000.00 Bojosi Otlhogile 100,000.00 Total (BWP) 240,000.00


Senior Management

Ediretse RamahoboChief Information Officer

Michael WiegandHead of Consumer Banking

Ithabeleng LetsunyaneHead of Corporate Affairs

Kamogelo ChiusiwaHead of Human Resources

Rutang MosesHead of Compliance & Assurance

Thato MmileHead of Legal

Dayo OmolokunChief Finance Officer

Olebile Makhupe Head of Global Markets


Serty LeburuDeputy Chief Executive Officer

Michael ShirleyHead of Origination & Client Coverage


Financial Statements for the year ended 31 December 2009

In thousands of Pula

Annual GroupFinancialStatements2009for the year ended 31 December 2009

Contents

Page

Report Of The Directors 26

Board Approval 27

Independent Auditor’s Report 28

Consolidated Statements Of Comprehensive Income 29

Consolidated Statements Of Financial Position 30

Consolidated Statements Of Changes In Equity 31

Consolidated Statements Of Cash Flows 34

Accounting Policies 35

Notes To The Financial Statements 43




Report of the Directors

The directors have pleasure in submitting to the members their report and the

financial statements of the Group and Bank for the year ended 31 December

2009.

ActivitiesThe Bank continues to be engaged in the business of commercial banking and provides a wide range of financial services. The Bank also has an insurance brokerage company and an investment services company. The results of these companies are incorporated in the group results.

ResultsThe results for the year are disclosed in the statement of comprehensive income on page 29 which reflects the following changes over 2008:

•NetincomebeforetaxationP285.3million(down23.0%from2008)

•NetincomeaftertaxationP235.3million(down19.5%from2008)

DividendsThe directors recommend a final dividend payment of P20million (6.94 thebe per share gross) which was not provided for in the financial statements as it is declared after the year end. An interim dividend of P180 million (62.49 thebe per share gross) was declared during the year of which P60 million (20.82 thebe per gross share) was unpaid as at year end.

Stated CapitalThere have been no changes to the Bank’s stated capital during the year.

DirectorsThe following were directors of the Bank as at 31 December 2009.W Matsaira (Acting Chairman)V T Seretse (Resigned 31 December 2009)D Cutting (Managing Director)D Moir (Resigned 31 March 2009)B OtlhogileS Leburu (Appointed 13 May 2009)

AuditorsA resolution as to the appointment of auditors will be proposed to the members at the Annual General Meeting.

By order of the Board

Thato MmileCompany Secretary




Board Approval of the Group Financial Statements

The Group is required by law to prepare annual financial statements for each

financial period.

The directors are responsible for the preparation and fair presentation of the annual group financial statements, comprising the statement of financial positions at 31 December 2009, and the income statements, the statements of changes in equity and the cash flow statements for the year then ended, and a summary of significant accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards and in the manner required by the Botswana Companies Act, 2003 (No. 32 of 2004) as well as the Banking Act (Cap 46:04).

The directors’ responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of these financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

The directors’ responsibility also includes maintaining adequate accounting records and an effective system of risk management.The directors, supported by the Audit Committee, are satisfied that management introduced and maintained adequate internal control to ensure that dependable records exist for the preparation of the annual group financial statements, to safeguard the assets of the Group and to ensure all transactions are duly authorised.

The directors have made an assessment of the Group’s ability to continue as a going concern and have no reason to believe these entities will not continue as going concerns in the foreseeable future.

The auditor is responsible for reporting on whether the annual financial statements are fairly presented in accordance with the applicable financial reporting framework.

Approval of the annual group financial statements:The annual group financial statements were approved by the directors on 2 March, 2010 and are signed on their behalf by:

Washingtom Matsaira David. D. CuttingActing Chairman Managing Director




Independent Auditor’s Report

To The Shareholders Of Standard Chartered Bank Botswana Limited

Report on the Financial StatementsWe have audited the accompanying consolidated and separate financial statements of Standard Chartered Bank Botswana Limited and its subsidiaries, which comprise the statements of financial positions as at 31 December 2009, and the income statements, statements of changes in equity and statements of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes to the financial statements as set out on pages 29 to 70.

Directors’ Responsibility for the Financial StatementsThe directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in compliance with the Companies Act, 2003 (No. 32 of 2004) of Botswana, and with the Banking Act (Cap 46:04).

This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements present fairly, in all material respects the consolidated and separate financial position of Standard Chartered Bank Botswana Limited as at 31 December 2009, and of its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and in compliance with the Companies Act, 2003 (no 32 of 2004) of Botswana and with the Banking Act (Cap 46:04).

KPMG2 March, 2010




Consolidated Statements of Comprehensive Income

Notes Group Company 2009 2008 2009 2008 Interest income 5 923 712 1 203 060 923 712 1 203 060 Interest expense 6 (426 850 ) (657 552 ) (426 850 ) (657 552 ) Net interest income 496 862 545 508 496 862 545 508 Fee and commission income 157 965 115 813 138 228 105 673Less: commission expense (15 048 ) (11 769) (15 048 ) (11 769 )Net fee and commission income 142 917 104 044 123 180 93 904 Net trading income 7 94 096 91 916 94 096 91 916Dividend income - - 6 298 5 422Other income 6 585 - 6 585 -Operating income 740 460 741 468 727 021 736 750 Operating expenses Operating lease expense (13 338 ) (11 488 ) (13 338 ) (11 488 )Depreciation and amortisation (7 420 ) (6 337 ) (7 420 ) (6 337 )Personnel expenses 8 (152 170 ) (156 272 ) (151 810 ) (156 062 )Other expenses 9 (206 739 ) (149 109 ) (206 726 ) (149 097 )Net impairment loss on financial assets 10 (75 440 ) (47 784 ) (75 440 ) (47 784 ) Profit before income tax 285 353 370 478 272 287 365 982 Income tax expense 11 (50 045 ) (78 002) (47 554 ) (75 523 )

Total comprehensive income and profit for the period 235 308 292 476 224 733 290 459 Dividend per share (Thebe) 68.55 92.17 68.55 92.17 Basic and diluted earnings per share (Thebe) 81.68 101.53 78.01 100.83

The notes on pages 43 to 70 are an integral part of these consolidated financial statements




Consolidated Statements Of Financial Position

Group Company Notes 2009 2008 2009 2008 Assets Cash and cash equivalents 14 425 038 422 127 425 038 422 127 Loans and advances to banks 15 1 010 372 985 596 1 010 372 985 596 Loans and advances to customers 18 3 487 961 3 121 911 3 487 961 3 121 911 Financial Investments 16 3 013 468 4 335 680 3 013 468 4 335 680 Trading securities 17 263 896 52 176 263 896 52 176 Property and equipment 20 30 461 33 674 30 461 33 674 Other assets 19 94 744 117 812 94 744 117 812 Total assets 8 325 940 9 068 976 8 325 940 9 068 976 Liabilities Deposits from other banks 21 236 129 192 387 236 129 192 387 Deposits due to non bank customers 22 7 262 070 7 977 707 7 276 538 7 985 638 Subordinated liabilities 25 241 656 243 847 241 656 243 847 Deferred tax liabilities 24 2 117 5 985 2 117 5 985 Other liabilities 23 172 893 292 783 174 240 292 554 Current taxation 38 587 20 914 40 786 20 651 Total liabilities 7 953 452 8 733 623 7 971 466 8 741 062 Equity Stated capital 44 518 44 518 44 518 44 518 Retained earnings 267 970 213 359 249 956 205 920 Dividend reserve 60 000 77 476 60 000 77 476 Total equity 372 488 335 353 354 474 327 914 Total liabilities and equity 8 325 940 9 068 976 8 325 940 9 068 976 The notes on pages 43 to 70 are an integral part of these consolidated financial statements




Consolidated Statements Of Changes In Equity - Group

Statutory Stated Revaluation credit risk Retained Dividend Total capital reserve reserve earnings reserve

Balance at 01 January 2008 44 518 7 024 8 223 183 844 50 514 294 123 Total comprehensive income for the period Profit - - - 292 476 - 292 476 Transactions with owners, recorded directly in equity Contributions by and distributions to owners Other dividend reserve - - - 14 268 - 14 268Dividends to equity holders – paid - - - (215 000 ) (50 514 ) (265 514 )Dividends to equity holders – proposed - - - (77 476 ) 77 476 -Total contributions by anddistributions to owners - - - (278 208 ) 26 962 (251 246 ) Balance 31 December 2008 44 518 7 024 8 223 198 112 77 476 335 353 Total comprehensive income for the period Profit - - - 235 308 - 235 308Adjustments arising on disposal of property - (697 ) - - - (697 ) Transactions with owners, recorded directly in equity Contributions by and distributions to owners Dividends to equity holders – paid - - - (120 000 ) (77 476 ) (197 476 )Dividends to equity holders – proposed - - - (60 000 ) 60 000 -Total contributions by and distributions to owners - - - (180 000 ) (17 476 ) (197 476 ) Balance 31 December 2009 44 518 6 327 8223 253 420 60 000 372 488 The notes on pages 43 to 70 are an integral part of these consolidated financial statements




Consolidated Statements Of Changes In Equity - Company

Statutory Stated Revaluation credit risk Retained Dividend Total capital reserve reserve earnings reserve

Balance at 01 January 2008 44 518 7 024 8 223 178 422 50 514 288 701 Total comprehensive income for the period Profit - - - 290 459 - 290 459 Transactions with owners, recorded directly in equity Contributions by and distributions to owners Other dividend reserve - - - 14 268 - 14 268Dividends to equity holders – paid - - - (215 000 ) (50 514 ) (265 514 )Dividends to equity holders – proposed - - - (77 476) 77 476 -Total contributions by and distributions to owners - - - (278 208 ) 26 962 (251 246 ) Balance 31 December 2008 44 518 7 024 8 223 190 673 77 476 327 914 Total comprehensive income for the period Profit - - - 224 733 - 224 733Adjustment arising on disposal of property - (697) - - - (697 ) Transactions with owners, recorded directly in equity Contributions by and distributions to owners Dividends to equity holders – paid - - - (120 000 ) (77 476 ) (197 476 )Dividends to equity holders – proposed - - - (60 000 ) 60 000 -Total contributions by and distributions to owners - - - (180 000 ) (17 476 ) (197 476 ) Balance 31 December 2009 44 518 6 327 8 223 235 406 60 000 354 474 The notes on pages 43 to 70 are an integral part of these consolidated financial statements



Statement Of Changes In EquityAdditional information at 31 December 2009

Stated capitalIssued 288 062 570 ordinary shares of no par value. There was no movement in the number of shares issued during the year. All shares in issue prior to the commencement of the Companies Act, 2003 have been converted into shares of no par value. Such conversion does not affect the rights and liabilities attached to the shares.

Where a company, formed prior to the commencement of the Companies Act, 2003, has authorised un-issued shares the directors can issue these shares up to the authorised share capital limit without a further resolution of the general meeting. As at 31 December 2009 those un-issued shares totalled 111 937 430.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Bank. All shares rank equally with regard to the Bank’s residual assets.

Revaluation reserveThe revaluation reserve comprises the net cumulative increase in the fair value of premises.

Statutory credit risk reserveThis reserve represents the excess of the 1.25% general provision against risk weighted assets as required by the Bank of Botswana, over the impairment provision required by International Financial Reporting Standards (IFRS). In accordance with IFRS, statutory provisions can no longer be charged to income statement nor be offset against the gross value of assets.

DividendsDividends on ordinary shares are recognised as a liability in the period in which they are declared.Dividends unclaimed for a period greater than 3 years are transferred to equity by way of a resolution by the Board of Directors.




Consolidated Statements Of Cash Flows

Group Company Note 2009 2008 2009 2008Cash flow from operating activities Profit for the period 285 353 370 478 272 287 365 982Adjustments for: - Depreciation 20 7 420 6 337 7 420 6 337- Gains on disposal of property and equipment (5 866 ) - (5 866 ) -- Reversal of revaluation on disposal of property (697 ) - (697 ) -- Net impairment loss on loans and advances 10 75 440 47 784 75 440 47 784- Unrealised exchange loss(gain)on subordinated debt (2 191 ) 3 787 (2 191 ) 3 787- Unrealised exchange loss/(gain) on revaluation of outstanding deals 14 792 4 126 14 792 4 126 374 251 432 512 361 185 428 016Change in trading assets (229 463 ) 1 692 429 (229 463 ) 1 692 429Change in loans and advances to customers (441 490 ) (79 526 ) (441 490 ) (79 526 )Change in other assets 23 068 (8 693 ) 23 068 (8 693 )Change in deposits from banks 43 742 (7 556 ) 43 742 (7 556 )Change in amounts due to non-bank customers (715 637 ) 1 216 945 (709 100 ) 1 216 143Change in other liabilities and provisions (134 682 ) (40 595 ) (133 106 ) (39 321 ) (1 080 211 ) 3 205 516 (1 085 164 ) 3 201 492 Income tax paid 26 (36 240 ) (69 967 ) (31 287 ) (65 943 ) Net cash (used in) / generated from operating activities (1 116 451) 3 135 549 (1 116 451 ) 3 135 549 Cash flows from investing activities Acquisition of property and equipment (6 374 ) (7 336 ) (6 374 ) (7 336 )Proceeds from the sale of property and equipment 8 033 - 8 033 - Net cash generated from / (used in) investing activities 1 659 (7 336 ) 1 659 (7 336 ) Cash flows from financing activities Repayment of debt securities - (75 000 ) - (75 000 )Dividends paid (197 476 ) (190 515 ) (197 476 ) (190 515 ) Net cash (used in) / generated from financing activities (197 476 ) (265 515 ) (197 476 ) (265 515 ) Net increase / (decrease) in cashand cash equivalents (1 312 268 ) 2 862 698 (1 312 268 ) 2 862 698Cash and cash equivalents at 1 January 5 743 403 2 880 705 5 743 403 2 880 705

Cash and cash equivalents at 31 December 27 4 431 135 5 743 403 4 431 135 5 743 403 The notes on pages 43 to 70 are an integral part of these consolidated financial statements

Accounting Policies for the year ended 31 December 2009


Accounting Policies

Reporting entityStandard Chartered Bank Botswana Limited (the “Company”) was incorporated in Botswana as a Bank with limited liability under the Companies Act and is licensed to operate as a commercial bank under Section 6 of the Banking Act, 1995 (Chapter 46:04). The consolidated financial statements of the Company for the year ended 31 December 2009 comprise the Company and its subsidiaries (together referred to as the “Group”). The Group is primarily involved in investment, corporate, retail banking and in asset management services. The Bank is a subsidiary of Standard Chartered Bank PLC, London, its ultimate holding company.

Basis of preparation

Statement of complianceThe consolidated financial statements have been prepared in accordance with International Financial Reporting Standards.

Functional and presentation currencyThese financial statements are presented in Botswana Pula, which is also the functional currency. Except as indicated, financial information presented in Botswana Pula has been rounded to the nearest thousand.

Basis of measurementThe consolidated financial statements have been prepared on the historical cost basis except for the following:• derivativefinancialinstrumentsaremeasuredatfairvalue•available-for-salefinancialassetsaremeasuredatfairvalue• liabilitiesforcashsettlementshare-basedpayments arrangements are measured at fair value

Use of estimates and judgementsThe preparation of consolidated financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Management discusses with the Group Audit Committee, the development, selection and disclosure of the Group’s critical accounting policies and estimates, and the application of these policies and estimates. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are described in note 1.

Changes in accounting policies

OverviewEffective 1 January 2009, the Group has changed its accounting policies in the following areas:

•Determinationandpresentationofoperatingsegments•Presentation of financial statements

Determination and presentation of operating segmentsAs of 1 January 2009 the Group determines and presents operating segments based on the information that internally is provided to the Group Management Committee, which is the Group’s chief operating decision maker. This change in accounting policy is due to the adoption of IFRS 8 Operating Segments. Previously operating segments were determined and presented in accordance with IAS 14 Segment Reporting. The new accounting policy in respect of operating segment disclosure is presented as follows:Comparative segment information has been re-presented in conformity with the transitional requirements of this standard. Since the change in accounting policy only impacts presentation and disclosure aspects, there is no impact on earnings per share.

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenue and expenses that relate to transactions with any of the Group’s other components, whose operating results are reviewed regularly by the Group’s Management Committee to make decisions about resources allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the Group Management Committee include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets (primarily the Group’s headquarters), head office expenses, and income tax assets and liabilities.

Segment capital expenditure is the total cost incurred during the period to acquire property and equipment and other intangible assets other than goodwill.

Presentation of financial statementsThe Group applies revised IAS 1 Presentation of Financial Statements (2007), which became effective as of 1 January 2009. As a result, the Group presents in the consolidated statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income.Comparative information has been re-presented so that it also is in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.


Other accounting developments

Disclosures pertaining to fair values and liquidity risk for financial instrumentsThe Group has applied Improving Disclosures about Financial Instruments (Amendments to IFRS 7), issued in March 2009, that require enhanced disclosures about fair value measurements and liquidity risk in respect of financial instruments.The amendments require that fair value measurement disclosures use a three-level fair value hierarchy that reflects the significance of the inputs used in measuring fair values of financial instruments. Specific disclosures are required when fair value measurements are categorised as Level 3 (significant observable inputs) in the fair value hierarchy. The amendments require that any significant transfers between Level 1 and Level 2 of the fair value hierarchy be disclosed separately, distinguishing between transfers into and out of each level. Furthermore, changes in valuation techniques from one period to another, including the reasons therefore, are required to be disclosed for each class of financial instruments.Revised disclosures in respect of fair values of financial instruments are included in note 4.

Further, the definition of liquidity risk has been amended and it is now defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or other financial asset.

The amendments require disclosure of a maturity analysis for non-derivative and derivative financial liabilities, but contractual maturities are required to be disclosed for derivative financial liabilities only when contractual maturities are essential for an understanding of the timing of cash flows. For issued financial guarantee contracts, the amendments require the maximum amount of the guarantee to be disclosed in the earliest period in which the guarantee could be called.

Revised disclosures in respect of liquidity risk are included in note 1.

Key sources of estimation uncertainty

Allowances for credit lossesThe specific counterparty component of the total allowances for impairment applies to claims evaluated individually for impairment and is based upon management’s best estimate of the present value of the cashflows that are expected to be received. In estimating these cash flows, management makes judgements about counterparty’s financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are independently approved by Credit Risk Function.

Collectively assessed impairment allowances cover credit losses inherent in portfolios of loans and advances with similar credit risk characteristics when there is objective evidence to suggest that they contain impaired loans and advances, but the individual impaired items cannot yet be identified. In assessing the need for collective loan loss allowances, management considers factors such as credit quality, portfolio size, concentrations, and economic factors. In order to estimate the required allowance,

assumptions are made to define the way inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowances depends on how well these estimate future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances.

Determining fair valuesThe determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in accounting policy on financial instruments below. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

Critical accounting judgements in applying the Group’s accounting policies

Critical accounting judgements made in applying the Group’s accounting policies include:

Financial asset and liability classificationThe Group’s accounting policies provide scope for assets and liabilities to be designated on inception into different accounting categories in certain circumstances:

• In classifying financial assets or liabilities as “trading”, theGroup has determined that it meets the description of trading assets and liabilities.

• Indesignatingfinancialassetsorliabilitiesatfairvaluethroughprofit or loss, the Group has determined that it has met one of the criteria for this designation.

• Inclassifyingfinancialassetsasheld-to-maturity,theGrouphas determined that it has both the positive intention and ability to hold the assets until their maturity date

Details of the Group’s classification of financial assets and liabilities are given in note 4.

New standards and interpretations not yet adoptedA number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2009, and have not been applied in preparing these consolidated financial statements. None of these will have an effect on the consolidated financial statements of the Group with the exception of:

• IFRS 9 Financial Instruments, published on 12 November2009 as part of phase I of the IASB’s comprehensive project to replace IAS 39, deals with classification and measurement of financial assets. The requirements of this standard represent a significant change from the existing requirements in IAS39 in respect of financial assets. The standard contains two primary measurement categories for financial assets: amortised cost and fair value. A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cashflows, and the asset’s contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All



other financial assets would be measured at fair value. The standard eliminates the existing IAS 39 categories of held to maturity, available for sale and loans and receivables. For an investment in an equity instrument which is not held for trading, the standard permits an irrevocable election on initial recognition, on an individual share-by-share basis, to present all fair value changes from the investment in other comprehensive income. No amount recognised in other comprehensive income would ever be reclassified in profit or loss, at a later date. However, dividends on such investments are recognised in profit or loss, rather than other comprehensive income unless they clearly represent a partial recovery of the cost of the investment. Investments in equity instruments in respect of which an entity does not elect to present fair value changes in other comprehensive income would be measured at fair value with changes in fair value recognised in profit or loss.

• The standard requires that derivatives embedded incontracts with a host that is a financial asset within the scope of the standard are not separated; instead the hybrid financial instrument is assessed in its entirely as to whether it should be measured at amortised cost or fair value.

• The Group is currently in the process of evaluating thepotential effect of this standard. Given the nature of the Group’s operations, this standard is expected to have a pervasive impact on the Group’s financial statements.

• Amendments to IAS39Financial Instruments:Recognitionand Measurement – Eligible Hedged Items clarifies the application of existing principles that determine whether specific risks or portions of cash flows are eligible for designation in a hedging relationship. The amendments will become mandatory for the Group’s 2010 consolidated financial statements, with retrospective application required. The amendments are not expected to have a significant impact on the consolidation financial statements

Basis of consolidationSubsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The financial statements have been prepared using uniform accounting policies for like transactions and other events in similar circumstances.

Transactions eliminated on consolidationIntra-group balances, and income and expenses (except for foreign currency transactions gains or losses) rising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Trade and settlement date accountingAll regular way purchases and sales of financial assets held for

trading are recognised on the trade date i.e. the date on which the Bank commits to purchase or sell the financial asset. All regular way purchases and sales of other financial assets are recognised on the settlement date i.e. the date on which the asset is delivered to or received from the counterparty. Regular way purchases or sales are purchases or sales of financial assets that require delivery within the time frame generally established by regulation or convention in the market place.

Segment reportingAn operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components, whose operating results are reviewed regularly by the Group Management Committee (being the chief operating decision maker) to make decisions about resources allocated to each segment and assess its performance, and for which discrete financial information is available.

The Group’s primary format for segment reporting is based on business segments.

InterestInterest income and expense are recognised in profit or loss using the effective interest rate method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses. The calculation of the effective interest rate includes all fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.

Interest income and expense presented in the statement of comprehensive income include:• interestonfinancialassetsandfinancialliabilitiesmeasured

at amortised cost calculated on and effective interest rate basis;

• interestonavailable-for-saleinvestmentsecuritiescalculatedon an effective interest basis

Interest income and expense on all trading assets and liabilities are considered to be incidental to the Group’s trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income.

Fees and commissionFees and commission income that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate.

Other fees and commission income, including account servicing fees, sales commission, placement fees and syndication fees, are recognised as the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan, the related loan commitment fees are recognised on a straight-line basis over the commitment period. Other fees and


commission expenses relate mainly to transaction and service fees, which are expensed as the services are rendered.

Net trading incomeNet trading income comprises gains less losses related to trading assets and liabilities, and includes all realised and unrealised fair value changes, interest, dividends and foreign exchange differences.

DividendsDividend income is recognised when the right to receive income is established. Usually this is the ex-dividend date for equity securities. Dividends are reflected as other operating income.

Loans and AdvancesLoans and advances are non-derivative financial assets with fixed and determinable payments that are not quoted in an active market and that the Group does not intend to sell immediately in the near term. When the Group purchases a financial asset and simultaneously enters into an agreement to resell the asset (or a substantially similar asset) at a fixed price on a future date (“reverse repo” or “stock borrowing”), the arrangement is accounted for as a loan or advance, and the underlying asset is not recognised in the Group’s financial statements.

Loans and advances are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method.

Instalment credit agreementsInstalment credit agreements are regarded as financing transactions and the total lease and instalments receivable there under, less unearned finance charges are included in advances. Finance charges are credited to revenue in proportion to the capital balance outstanding.

Financial assets and financial liabilitiesRecognitionThe Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date that they are originated. Regular way purchases and sales of financial assets are recognised on the trade date at which the Group commits to purchase or sell the assets. All other financial assets and liabilities (including assets and liabilities designated at fair value through profit or loss) are initially recognised on the trade date at which the Group becomes a party to the contractual provision of the instruments. A financial asset or financial liability is measured initially at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue.

De-recognitionThe Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset in a transaction in which substantially all risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial assets. Any interest in transferred financial assets that qualify for de-recognition that is created or retained by the Group is recognised as a separate

asset or liability in the statement of financial position. On de-recognition of a financial assets, the difference between the carrying amount of the assets (or the carrying amount allocated to the portion of the asset transferred), and the sum of (i) the consideration received (including any new assets obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in other comprehensive income is recognised on profit or loss.

The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions.

When assets are sold to a third party with a concurrent total rate of return swap on the transferred assets, the transaction is accounted for as a secured financing transaction similar to repurchase transactions as the Group retains all or substantially all the risks and rewards of ownership of such assets.

In transactions in which the Group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of transferred assets.

In certain transactions the Group retains rights to service a transferred financial asset for a fee. The transferred asset is derecognised if it meets the de-recognition criteria. An asset or liability is recognised for the servicing contract, depending on whether the servicing fee is more than adequate (asset) or is less than adequate (liability) for performing the servicing.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

OffsettingFinancial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted under IFRSs, or for gains and losses arising from a group of similar transactions such as in the Group’s trading activity.

Amortised cost measurementThe amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.



Fair value measurementFair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction on the measurement date.

When available, the Group measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded active if quoted prices are readily and regularly available and represent actual and regularly occurring market transaction on an arm’s length basis.

If a market for a financial instrument is not active, the Group establishes fair value using a valuation technique. Valuation techniques include using recent arm’s length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analyses and option pricing models. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Group, incorporates all factors that market participants would consider insetting a price, and is consistent with accepted economic methodologies for pricing financial instruments. Inputs to calculation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument. The Group calibrates valuation techniques and tests them for validity using prices from observable market data.

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e., the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognised in profit or loss on an appropriate basis over the life of the instrument but not later than when the valuation is supported wholly by observable market data or the transaction is closed out.

Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group entity and the counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties; to the extent that the Group believes a third-party market participant would take them into account in pricing a transaction.

Identification and measurement of impairmentAt each reporting date the Group assesses whether there is objective evidence that the financial assets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets is (are) are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset(s), and that the loss event has an impact on the future cash flows on the asset that can be estimated reliably. Objective evidence that financial assets (including equity securities) are impaired can include significant financial difficulty

of the borrower or issuer, default or delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

The Group considers evidence of impairment for loans and advances and held-to-maturity investment securities at both a specific asset and collective level. All individually significant loans and advances and held-to-maturity investment securities are assessed for specific impairment. All individually significant loans and advances and held-to-maturity investment securities found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans and advances and held-to-maturity investment securities that are not individually significant are collectively assessed for impairment by grouping together loans and advances and held-to-maturity investment securities with similar risk characteristics.

In assessing collective impairment the Group uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate.

Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount of the financial assets and the present value of estimated cash flows discounted at the asset’s original effective interest rate. Impairment losses are recognised in profit or loss and reflected in an allowance account against loans and advances. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

Impairment losses on available-for-sale investment securities are recognised by transferring the cumulative loss that has been recognised in other comprehensive income to profit or loss as are classification adjustment. The cumulative loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Changes in impairment provisions attributable to time value are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity


security is recognised in other comprehensive income.The Group writes off certain loans and advances and investment securities when they are determined to be uncollectable (see note 1).

Cash and cash equivalentsCash and cash equivalent include notes and coins on hand, unrestricted balances held with central banks and highly liquid financial assets with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.

Cash and cash equivalents are carried at amortised cost in the statement of financial position.

Trading assets and liabilitiesTrading assets and liabilities are those assets and liabilities that the Group acquires or incurs principally for the purpose of selling or repurchasing in the near term, or holds as part of a portfolio that is managed together for short-term profit or position taking.

Trading assets and liabilities are initially recognised and subsequently measured at fair value in the statement of financial position, with transaction costs recognised in profit or loss. All changes in fair value are recognised as part of net trading income in profit or loss. Trading assets and liabilities are not reclassified subsequent to their initial recognition, except that non-derivative trading assets, other than those designated at fair value through profit or loss upon initial recognition, may be reclassified out of the fair value through profit or loss (i.e., trading) category if they are no longer held for the purpose of being sold or repurchased in the near term and the following conditions are met:

• If the asset would have met the definition of loans andreceivables (if the financial asset had not been required to be classified as held for trading at initial recognition), then it may be reclassified if the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity.

• If the financial asset would not have met the definition ofloans and receivables, then it may be reclassified out of the trading category only in “rare circumstances”.

Investment securitiesInvestment securities are initially measured at fair value plus, in case of investment securities not at fair value through profit or loss, incremental direct transaction costs, and subsequently accounted for depending on their classification as either held to maturity, fair value through profit or loss, or available for sale. The Group’s investment securities are designated as available-for-sale.

Available-for-saleAvailable-for-sale investments are non-derivative investments that are designated as available for sale or are not classified as another category of financial assets. Unquoted equity securities whose fair value cannot reliably be measured are carried at cost. All other available-for-sale investments are carried at fair value.

Interest income is recognised in profit or loss using the effective interest rate method. Dividend income is recognised in profit or loss when the Group becomes entitled to the dividend. Foreign exchange gains or losses on available-for-sale debt security investments are recognised in profit or loss.

Other fair value changes are recognised in other comprehensive income until the investment is sold or impaired, whereupon the cumulative gains and losses previously recognised in other comprehensive income are reclassified to profit or loss as a reclassification adjustment.

A non-derivative financial asset may be reclassified from the available-for-sale category to the loans and receivables category if it otherwise would have met the definition of loans and receivables and if the Group has the intention and ability to hold that financial asset for the foreseeable future or until maturity.

Property and equipment

Recognition and measurementItems of equipment are measured at cost less accumulated depreciation and accumulated impairment loss. Cost includes expenditures that are directly attributable to the acquisition of the asset.

Properties are shown at valuation less related accumulated depreciation and impairment losses (see accounting policy). Revaluations are carried out every three years by independent valuers, and periodically by the directors, on the open market basis. Surpluses and deficits arising on there valuation of properties are transferred to or from a revaluation reserve.

When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.

The gain or loss on disposal of an item of property and equipment is determined by comparing the proceeds from disposal with the carrying amount of the item of property and equipment, and are recognised net within other income in profit or loss.

Subsequent costThe cost of replacing a part of an item of property or equipment is recognised in the carrying amount of the item if is probable that future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property and equipment are recognised in the profit and loss as incurred.

DepreciationDepreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Land is not depreciated.



The estimated useful lives for the current and comparative periods are as follows:Freehold property NilLeasehold property Unexpired period of leaseBuildings 50 yearsEquipment 3 - 5 yearsMotor vehicles 3 yearsFurniture, fixtures and fittings 10 years

Depreciation methods, useful lives and residual values are reassessed at each financial year-end and adjusted if appropriate.

Impairment of non financial assetsThe carrying amounts of the Group’s non-financial assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset.

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of assets (the “cash generating unit” or “CGU”).

The Group’s corporate assets do not generate separate cash inflow. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.

An impairment loss is recognised if the carrying amount of an asset or a CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro-rata basis.

Impairment losses recognised in prior period are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Deposits, debt securities and subordinated liabilitiesDeposits, debt securities and subordinated liabilities are the Group’s sources of debt funding. When the Group sells a financial asset and simultaneously enters into an agreement to repurchase an asset (or similar asset) at a fixed price on a future date (“repo” or “stock lending”), the arrangement is accounted

for as a deposit, and the underlying assets continues to be recognised in the Group’s financial statements.

The Group classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments. The Group’s redeemable preference shares bear non-discretionary coupons and are redeemable by the holder, and are therefore included within subordinated liabilities.

Deposits, debt securities issued and subordinated liabilities are initially measured at fair value plus incremental direct transaction costs and subsequently measured at their amortised cost using the effective interest method.

The Group carries some deposits, debt securities and subordinated liabilities at fair value, with fair value changes recognised immediately in profit or loss.

ProvisionsA provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefit will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre tax rate that reflects current market assessment of the time value of money and where appropriate, the risks specific to the liability.

Financial GuaranteesFinancial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee liabilities are initially recognised at their fair value and the initial fair value is amortised over the life of the financial guarantee. The financial guarantee liability is subsequently carried at the higher of this amortised amount and the present value of any expected payments when a payment under the guarantee has become probable. Financial guarantees are included under other liabilities.

Lease paymentsPayments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Foreign currency transactionsTransactions in foreign currencies are translated to the respective functional currency of the operation at spot exchange rates at the dates of transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the spot exchange rate at that date.

The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments/receipts during the period, and the amortised cost in foreign currency translated at the spot exchange rate at the end of the period. Non-monetary assets and liabilities denominated


in foreign currencies that are measured at fair value are retranslated into the functional currency at the spot exchange rate at the date that the fair value was determined. Foreign currency differences arising on re translation are recognised in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

Income tax expenseIncome tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in the profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income.Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years.Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profits or loss differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities against current tax assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Additional income taxes that arise from the distribution of dividends by the Bank are recognised at the same time as the liability to pay the related dividend is recognised.

Withholding tax at rates varying between 5% and 15% is payable on the gross value of the dividends. This withholding tax is treated as an advance payment of company taxation and is set off, to extent available, against additional company tax in the financial year in which it is paid.

Employee Benefits

Retirement benefitsThe Group operates a defined contribution plan. Contributions by the Group to the plan are charged to income. The liability of the Group is limited to the contributions made on behalf of the employees. There are no post-retirement medical funding obligations.

1997/2008 Restricted Share SchemeStandard Chartered PLC operates a discretionary Restricted Share Scheme (“RSS”) for high performing and high potential staff at any level of the organisation whom the Group wish to motivate and retain. Except upon appointment when an executive director may be granted an award of restricted shares, the RSS is not applicable to executive directors, as it has no performance conditions attached to it. 50 per cent of the award vests two years after the date of grant and the balance after three years. The awards can be exercised within seven years of the grant date. The value of shares awarded in any year to any individual may not exceed two times their base salary. In addition, the Group operates a Supplementary Restricted Share Scheme which can be used to defer part of an employee’s annual bonus in shares. The plan is principally used for employees in the global markets area and is similar to the RSS outlined above except for three important factors: directors are specifically prohibited from the plan; no new shares can be issued to satisfy awards; and there is no individual annual limit. No awards were made under this scheme in 2008 and 2009, and none are outstanding as at 31 December 2008 and 2009.

International Sharesave SchemesEmployees have the choice of opening a three-year or five-year savings contract. Within a period of six months after the third or fifth anniversary, as appropriate, employees may purchase ordinary shares in the Company. The price at which they may purchase shares is at a discount of up to 20 percent on the share price at the date of invitation. There are no performance conditions attached to options granted under the all employee share save schemes.

Short term employee benefitsShort term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A provision is recognised for the amount expected to be paid under short term cash bonus or profit sharing class if the Group has a present legal or constructive obligation to pay this amount as a result of part service provided by the employee and the obligation can be estimated reliably.

Earnings per shareThe Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit attributable to the ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.

Comparative informationWhere necessary comparative information has been reclassified to reflect current period presentation.



Notes to the Financial Statements for the year ended 31 December 2009

1. Financial Risk Management 1.1 Introduction and overview The Group has exposure to the following risks from financial instruments: •creditrisk•liquidityrisk•marketrisks•operationalrisks This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Risk management framework The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has established the Group Asset and Liability (ALCO) Credit and Operational Risk committees, which are responsible for developing and monitoring Group risk management policies in their specified areas. All Board committees have both executive and non-executive members and report regularly to the Board of Directors on their activities. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adhere to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

The Group Audit Committee is responsible for monitoring compliance with the Group’s risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit Committee is assisted in these functions by Country Operational Risk and Assurance Management as well as Internal Audit. These undertake both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Group Audit Committee.

1.2 Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Goup’s loans and advances to customers and other banks and its investment in securities. For risk management reporting purposes, the Group considers and consolidates all elements of credit risk exposure (such as individual obligor default risk, country and sector risk). For risk management purposes, credit risk arising on trading assets is managed independently; and information thereon is disclosed below. The market risk in respect of changes in value in trading assets arising from changes in market credit spreads applied to debt securities and derivatives included in trading

assets is managed as a component of market risk, further details are provided in note 3.

Management of credit risk The Board of Directors have delegated responsibility for the oversight of credit risk to the Group Credit Committee. A separate Group Credit department, reporting to the Group Credit Committee, is responsible for management of the Group’s credit risk, including:-• Formulating credit policies in consultation with business

units, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements.

• Establishingtheauthorisationstructurefortheapprovalandrenewal of credit facilities. Larger facilities require approval by the Head of Credit, Group Regional Credit department and the Board of Directors as appropriate.

• Reviewingandassessingcreditrisk.GroupCreditassessesall credit exposures in excess of designated limits, prior to facilities being committed to customers by the business unit concerned. Renewals and reviews of facilities are subject to the same review process.

• Limiting concentrations of exposure to counterparties,geographies and industries (for loans and advances), and by issuer, credit rating band, market liquidity and country (for investment securities).

• Developing and maintaining the Group’s risk gradings inorder to categorise exposures according to the degree of risk of financial loss faced and to focus management of the attendant risks. The risk grading system is used in determining where impairment provisions may be required against specific credit exposures. The current risk grading framework consists of fourteen grades reflecting varying degrees of risk of default and the availability of collateral or other credit risk mitigation. The responsibility for setting risk grades lies with the Early Alert Committee. Risk grades are subject to regular reviews by Group Risk.

• Reviewing compliance of business units with agreedexposure limits, including those of selected industries, country risk and product types. Regular reports on the credit quality of local portfolios are provided to Group Credit who may require appropriate corrective action to be taken.

• Providingadvice,guidanceandspecialistskillstobusinessunits to promote best practice throughout the Group in the management of credit risk.

Each business unit is required to implement Group credit policies and procedures, with credit approval authorities delegated from the Group Credit Committee. Each business unit has a Chief Credit Risk officer who reports on all credit related matters to local management and the Group Credit Committee. Each business unit is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its portfolios, including those subject to central approval. Regular audits of business units and Group Credit processes are undertaken by Country Operational Risk and Assurance Management as well as Group Internal Audit.

Notes to the Financial Statements




Financial risk management (continued)

Exposure to credit risk Loans and advances Loans and advances Investment securities to customers to bank 2009 2008 2009 2008 2009 2008 Carrying amount 3 487 961 3 121 911 1 010 372 985 596 3 277 364 4 387 856 Assets at amortised cost Individually impaired: Grade 14: Doubtful 70 861 92 153 - - - - Allowance for impairment (50 879) (50 325) - - - - Carrying amount 19 982 41 828 - - - -Collectively impaired: Grade 1 – 9: Good - - - - - - Grade 10 – 12: Early alert 222 730 60 838 - - - - Grade 13: Substandard 1 047 3 153 - - - - Gross amount 223 777 63 991 - - - - Allowance for impairment (49 753 ) (26 403 ) - - - - Carrying amount 174 024 37 588 - - - -Past due but not impaired: Grade 1 – 9: Good 190 625 229 199 - - - - Grade 10 – 12: Early alert 68 732 114 841 - - - - Grade 13: Substandard 15 969 24 553 - - - - Carrying amount 275 326 368 593 - - - - Past due comprises: 01 – 30 days 190 625 229 199 - - - - 30 – 60 days 68 732 114 841 - - - - 60 – 90 days 15 969 24 553 - - - - Carrying amount 275 326 368 593 - - - -Neither past due nor impaired: Grade 1 – 9: Good 3 018 629 1 902 812 1 010 372 985 596 - -Carrying amount – amortised cost 3 487 961 2 398 080 1 010 372 985 596 - - Available-for-sale assets Low to fair risk - - - - 3 277 364 4 387 856 Carrying amount – fair value - - - - 3 277 364 4 387 856 Total carrying amount 3 487 961 3 121 911 1 010 372 985 596 3 277 364 4 387 856 In addition to the above, the Group had entered into lending commitments of P289 413 million (2008: P245 164 million) with

counterparties graded 1 to 9. Refer to note 30 for financial guarantee contracts in respect of debtors graded 1 to 9.





Exposure to credit risk (continued)

Impaired loans Individually impaired loans are loans and advances (other than those carried at fair value through profit or loss) for which the Group determines that there is objective evidence of impairment and it does not expect to collect all principal and interest due according to the contractual terms of the loan. These loans are graded 14 in the Group’s internal credit risk grading system.

Past due but not impaired loans Past due but not impaired loans, other than those carried at fair value through profit or loss, are those for which contractual interest or principal payments are past due, but the Group believes that impairment is not appropriate on the basis of the level of security / collateral available and / or the stage of collection of amounts owed to the Group.

Allowances for impairmentThe Group establishes an allowance for impairment losses on assets carried at amortised cost or classified as available for sale that represents its estimate of incurred losses in its loan and investment debt security portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loan loss allowance established for groups of homogeneous assets in respect of losses that have been incurred but have not been identified on loans that are considered individually insignificant as well as individually significant exposures that were subject to individual assessment for impairment but not found to be individually impaired. Assets carried at fair value through profit or loss are not subject to impairment testing as the measure of fair value reflects the credit quality of each asset.

Write off policyThe Group writes off a loan or an investment debt security balance, and any related allowances for impairment losses, when Group Credit determines that the loan or security is uncollectible. This determination is made after considering information such as the occurrence of significant changes in the borrower’s / issuer’s financial position such that the borrower / issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardised loans, write-off decisions generally are based on a product-specific past due status.

Set our below is an analysis of the gross and net (of allowances for impairment) amounts of individually impaired assets by risk grade. Loans and advances Loans and advances Available for sale to customers to bank investment debt securitiesIn thousands of Pula Gross Net Gross Net Gross Net31 December 2009 Grade 14: Doubtful 70 861 19 982 - - - - 31 December 2008 Grade 14: Doubtful 92 153 41 828 - - - -






The loans and advances of the group and its exposure to credit risk comprises:

Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’000Performing 3 242 406 2 737 893 3 242 406 2 737 893Past due but not impaired 275 326 368 593 275 326 368 593Impaired 70 861 92 153 70 861 92 153 3 588 593 3 198 639 3 588 593 3 198 639

Past due but not impaired loans and advances comprise: Past due up to 30 days 190 625 229 199 190 625 229 19931-60 days 68 732 114 841 68 732 114 84161-90 days 15 969 24 553 15 969 24 553 275 326 368 593 275 326 368 593 The Group holds collateral against loans and advances to customers in the form of mortgage interests over property, other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired. Collateral generally is not held over loans and advances to banks, except when securities are held as part of reverse repurchase and securities borrowed activity. Collateral usually is not held against investment securities, and no such collateral was held at 31 December 2009 or 2008.

An estimate of the fair value of collateral and other security enhancements held against loans and advances to customers and banks is shown below:

Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’000 Against individually impaired Others 40 40 40 40 Against past due but not impaired Property - 63 100 - 63 100 Against neither past due nor impaired Property 884 634 107 261 884 634 107 261Debt securities 570 786 594 055 570 786 594 055Others 127 084 270 231 127 084 270 231 1 582 544 1 034 687 1 582 544 1 034 687






The bank monitors concentration of credit risk by sector. Analysis of concentration of credit risk as at the reporting date is shown below:-

Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’000Segmental analysis by industry Agriculture - 1 918 - 1 918Mining 69 844 102 983 69 844 102 983Finance and Insurance 28 607 109 147 28 607 109 147Construction 2 650 2 949 2 650 2 949Manufacturing 1 084 9 273 1 084 9 273Wholesale and retail 940 096 579 976 940 096 579 976Community, social and personal services 1 260 1 970 1 260 1 970Transport 39 814 42 890 39 814 42 890Consumer 2 505 238 2 347 533 2 505 238 2 347 533 3 588 593 3 198 639 3 588 593 3 198 639Loans and advances to customers Loans and advances are receivable as follows Maturing within 3 months 926 087 457 311 926 087 457 311Maturing between 3 & 12 months 144 529 265 083 144 529 265 083Maturing after 12 months 2 517 977 2 476 245 2 517 977 2 476 245 3 588 593 3 198 639 3 588 593 3 198 639 Special allowances for impairment Balance at 1 January 76 728 74 532 76 728 74 532Charge for the year 119 047 79 718 119 047 79 718Write offs (69 987 ) (45 588 ) (69 987 ) (45 588 )Recoveries (25 156 ) (31 934 ) (25 156 ) (31 934 )Balance at 31 December 100 632 76 728 100 632 76 728 Net loans and advances 3 487 961 3 121 911 3 487 961 3 121 911 Trading assets The Group held trading assets, of P264 million at 31 December 2009 (2008: P52 million) consisting of Government bonds. Botswana’s investment grade sovereign credit rating for local currency is A+/A-1 per the latest Standard & Poor’s sovereign credit rating.

Cash and cash equivalents The Group held cash and cash equivalents of P4 438million at 31 December 2009 (2008: P5 743million) which represents its maximum credit exposure on these assets. The cash and cash equivalents are held with the central bank and other financial institution counterparties. A majority of the latter is held within the larger group as detailed in note 28.





1.1 Credit risk (continued)

Settlement risk The Group’s activities may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of loss due to the failure of an entity to honour its obligations to deliver cash, securities or other assets as contractually agreed.

For certain types of transactions the Group mitigates this risk by conducting settlements through a settlement / clearing agent to ensure that a trade is settled only when both parties have fulfilled their contractual settlement obligations. Settlement limit form part of the credit approval / limit monitoring process described earlier. Acceptance of settlement risk on free settlement trades requires transaction specific or counterparty specific approvals from Group Risk.

1.2 Liquidity riskLiquidity risk is the risk that the group will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

Management of liquidity riskThe Group‘s approach to managing liquidity is to ensure as far as possible that it will always have sufficient liquidity to meet its liabilities when due, both under stressed and normal conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All liquidity policies and procedures are subject to review and approval by ALCO. Daily reports cover the liquidity position of both the Group and operating subsidiaries and foreign branches. A summary report, including any exceptions and remedial action taken, is submitted regularly to ALCO.

The Group relies on deposits from customers and banks, and issued debt securities and subordinated liabilities as its primary sources of funding. While the Group’s debt securities and subordinated liabilities have maturities of over one year, deposits from customers and banks generally have shorter maturities and a large proportion of them are repayable on demand. The short-term nature of these deposits increases the Group’s liquidity risk and the Group actively manages this risk through maintaining competitive pricing and constant monitoring of market trends.

Exposure to liquidity risk

The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customer. For this purpose net liquid assets are considered as including cash and cash equivalents and investment grade debt securities for which there is an active and liquid market less any deposits from banks, debt securities issued, other borrowings and commitments maturing within the next month. A similar, but not identical, calculation is used to measure the Group’s compliance with the liquidity limit established by the Bank of Botswana. These guidelines require that total liquid assets divided by total deposits must be at least 10%.

Compliance with The Bank of Botswana liquidity ratio has been assessed as noted below:

Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’000Total liquid assets 2 811 447 4 436 546 2 811 447 4 436 546Total deposits 7 498 199 8 170 094 7 512 667 8 178 025 Ratio 37% 54% 37% 54%




Maturity gap analysis

Group - 31 December 2009 LIABILITIES AND SHAREHOLDERS FUNDS Less More Carrying Gross than 1-3 3-6 6-12 1-5 than amount nominal 1 month months months months years 5 years (outflow)

Current and savings account 5 590 119 (5 590 119 ) 5 590 119 - - - - -Term deposits accounts 1 671 951 (1 671 951 ) 1 042 999 377 338 41 690 26 137 133 787 50 000Deposits to banks 236 129 (236 129 ) 236 129 - - - - -Total Liabilities to Customers and banks 7 498 199 (7 498 199 ) 6 869 247 377 338 41 690 26 137 133 787 50 000 Other liabilities 172 893 (172 893 ) 172 893 - - - - -Current tax 38 587 (38 587 ) - 38 587 - - - -Deferred tax 2 117 (2 117 ) - 2 117 - - - -Subordinated loan 241 656 (479 904 ) - - 12 926 10 980 145 609 310 389Equity 372 488 (372 488 ) - 60 000 20 000 - 292 488 -

Total liabilities and shareholder’s funds 8 325 940 (8 564 188 ) 7 042 140 478 042 74 616 37 117 571 884 360 389

Company - 31 December 2009 LIABILITIES AND SHAREHOLDERS FUNDS Less More Carrying Gross than 1-3 3-6 6-12 1-5 than amount nominal 1 month months months months years 5 years (outflow) Current and savings account 5 604 587 (5 604 587 ) 5 604 587 - - - - -Term deposits accounts 1 671 951 (1 671 951 ) 1 042 999 377 338 41 690 26 137 133 787 50 000Deposits from banks 236 129 (236 129 ) 236 129 - - - - -Total Liabilities to Customers and banks 7 512 667 (7 512 667 ) 6 883 715 377 338 41 690 26 137 133 787 50 000 Other liabilities 174 240 (174 240 ) 174 240 - - - - -Current tax 40 786 (40 786 ) - 40 786 - - -Deferred tax 2 117 (2 117 ) - 2 117 - - -Subordinated loan 241 656 (479 904 ) - - 12 926 10 980 145 609 310 389Equity 354 474 (354 474 ) - 60 000 20 000 - 274 474 -

Total liabilities and shareholders funds 8 325 940 (8 564 188 ) 7 057 955 480 241 74 616 37 117 553 870 360 389




Maturity gap analysis (continued)

Group - 31 December 2008 LIABILITIES AND SHAREHOLDERS FUNDS Less More Carrying Gross than 1-3 3-6 6-12 1-5 than amount nominal 1 month months months months years 5 years (outflow) Current and savings account 6 165 904 (6 165 904 ) 6 165 904 - - - - -Term deposits accounts 1 811 803 (1 811 803 ) 1 332 427 325 413 60 098 40 002 53 863 -Deposits to banks 192 387 (192 387 ) 192 387 - - - - -Total Liabilities to Customers and banks 8 170 094 (8 170 094 ) 7 690 718 325 413 60 098 40 002 53 863 - Other liabilities 292 783 (292 783 ) 292 783 - - - - Current tax 20 914 (20 914 ) - 20 914 - - Deferred tax 5 985 (5 985 ) - - - 5 985 - Subordinated loan 243 847 (553 467 ) - - 13 020 13 623 167 140 359 684Equity 335 353 (335 353 ) - 75 000 77 476 - - 182 877

Total liabilities and shareholder’s funds 9 068 976 (9 378 596 ) 7 983 501 421 327 150 594 59 610 221 003 542 561

Company - 31 December 2008 LIABILITIES AND SHAREHOLDERS FUNDS Less More Carrying Gross than 1-3 3-6 6-12 1-5 than amount nominal 1 month months months months years 5 years (outflow)

Current and savings account 6 173 835 (6 173 835 ) 6 173 835 - - - - -Term deposits accounts 1 811 803 (1 811 803 ) 1 332 427 325 413 60 098 40 002 53 863 -Deposits from banks 192 387 (192 387 ) 192 387 - - - - -Total Liabilities to Customers and banks 8 178 025 (8 178 025) 7 698 649 325 413 60 098 40 002 53 863 - Other liabilities 292 554 (292 554 ) 292 554 - - - - -Current tax 20 651 (20 651 ) - 20 651 - - - -Deferred tax 5 985 (5 985 ) - - - 5 985 - -Subordinated loan 243 847 (553 467 ) - - 13 020 13 623 167 140 359 684Equity 327 914 (327 914 ) - 75 000 77 476 - - 175 438

Total liabilities and shareholders funds 9 068 976 (9 378 596 ) 7 991 203 421 064 211 147 59 610 221 003 535 122 Liquidity risk (continued)The above tables show the undiscounted cash flows on the Group’s non-derivative financial liabilities. The Group’s expected cash flows on these instruments vary significantly from this analysis. For example, demand deposits from customers are expected to maintain a stable or increasing balance. The gross nominal inflow / (outflow) represents the contractual undiscounted cash flows relating to derivative financial liabilities held for risk management purposes.

To manage the liquidity risk arising from financial liabilities, the Group holds liquid assets comprising cash and cash equivalents and investment grade investment securities for which there is an active and liquid market. These assets can be readily sold to meet liquidity requirements. Hence, the Group believes that it is not necessary to disclose a maturity analysis in respect of these assets to enable users to evaluate the nature and extent of liquidity risk.




1.3 Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the group’s processes, personnel, technology and infrastructure and from external factors other than credit, liquidity, interest rate and market risks such as those arising from legal and regulatory requirements and the requirement to observe generally accepted standards of corporate behaviour. Operational risks arise from all of the bank’s operations.

The objective of the group is to manage operational risks so as to balance the avoidance of financial losses and damages to the bank’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each department. The responsibility is supported by the development of overall standards in the group for the management of operational risks in the following areas:-

• requirementsforappropriatesegregationofduties,includingtheindependentauthorizationoftransactions• requirementsforthereconciliationandmonitoringoftransactions• compliancewithregulatoryandotherlegalrequirements• documentationofcontrolsandprocedures• requirementsfortheperiodicassessmentofoperationalrisksfaced,andtheadequacyofcontrolsandprocedurestoaddressthe

risks identified• requirementsforthereportingofoperationallossesandproposedremedialaction• developmentofcontingencyplans• trainingandprofessionaldevelopment• ethicalandbusinessstandards• riskmitigation,includinginsurancewherethisiseffective.

Compliance with group standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the relevant Audit Committees.

2. Capital management

Bank of Botswana sets and monitors the capital requirements for the group and requires the bank to maintain a minimum total capital of 15 percent of risk-weighted assets. The group’s regulatory capital is analyzed in two parts:-

• TierIcapital,whichincludesstatedcapital,retainedearnings,andotherreserveslessinvestmentinsubsidiaries• TierIIcapital,whichincludespropertyrevaluationreserveandloanlossreserve

The calculation of both the above ratios is given overleaf:-




1.3 Operational risk (continued)

Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’000Capital Adequacy Core capital Stated capital 44 518 44 518 44 518 44 518Other revenue reserves 321 643 283 811 363 629 276 372 366 161 328 329 348 147 320 890

Supplementary capital Revaluation reserve subject to a 50% risk-adjustment discount 3 164 3 511 3 164 3 511Non-specific impairment 36 635 26 403 36 635 26 403Subordinated loan 87 524 121 924 87 524 121 924 a 493 484 480 167 475 470 472 728 Risk adjusted exposure Balance sheet items 2 592 514 2 531 165 2 592 514 2 531 165Off-balance sheet items 338 180 126 748 338 180 126 748 b 2 930 694 2 657 913 2 930 694 2 657 913 Capital adequacy ratio (a/b x 100) 16.8% 18.1% 16.2% 17.8%




3. Market risks

Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates, equity prices and credit spreads (not relating to changes in the obligor’s/ issuer’s credit standing) will affect the group income or the value of its holding of financial instruments. The objective of the group’s market risk management is to manage and control market risk exposures within acceptable parameters while optimising the return on risk.

Exposure to market risksThe principal took used to measure and control market risk exposure within the Group’s trading portfolios is Value at Risk (VaR). The VaR of trading portfolio is the estimated loss that will arise on the portfolio over a specified period of time (holding period) from an adverse market movement with a specified probability (confidence level). The VaR model used by the Group is based upon a 99 percent confidence level and assumes a 8-day holding period. The VaR model used is based mainly on historical simulation. Taking account of market data from the previous two years, and observed relationships between different markets and prices, the model generates a wide range of plausible future scenarios for market price movements. Although VaR is an important tool for measuring market risk, the assumptions on which the model is based do give rise to some limitations, including the following:

• An8-dayholdingperiodassumesthatitispossibletohedgeordisposeofpositionswithinthatperiod.Thismaynotbethecasefor certain highly illiquid assets or in situations in which there is sever general market illiquidity.

• A99percentconfidenceleveldoesnotreflectlossesthatmayoccurbeyondthislevel.Evenwithinthemodelusedthereisaonepercent probability that losses could exceed the VaR.

• VaRiscalculatedonanend-of-daybasisanddoesnotreflectexposuresthatmayariseonpositionsduringthetradingday.• Theuseofhistoricaldataasabasis fordetermining thepossible rangeof futureoutcomesmaynotalwayscoverallpossible

scenarios, especially those of an exceptional nature.• TheVaRmeasureisdependantupontheGroup’spositionandthevolatilityofmarketprices.TheVaRofanunchangedposition

reduces if market price volatility declines and vise versa.

The Group uses VaR limits for total market risk and specific foreign exchange, interest rate, equity, credit spread and other price risks. The overall structure of VaR limits is subject to review and approval by ALCO. VaR limits are allocated to trading portfolios. VaR is measured at least daily and more regularly for more actively traded portfolios. Daily reports of utilisation of VaR limits are submitted to Group Market Risk and regular summaries are submitted to ALCO.

A summary of the VaR position of the Group’s trading portfolios at 31 December and during the period is as follows:

In millions of Pula At 31 December Average Maximum Minimum2009 Foreign currency risk 68 76 157 7Interest rate risk 227 74 242 9Overall 295 150 399 16 2008 Foreign currency risk 78 92 171 30Interest rate risk 81 52 144 5Overall 159 144 315 35

The limitations of the VaR methodology are recognised by supplementing VaR limits with other position and sensitivity limit structures, including limits to address potential concentration risks within each trading portfolio. In addition, the Group uses a wide range of stress tests to model the financial impact of a variety of exceptional market scenarios, such periods of prolonged market illiquidity, on individual trading portfolios and the Group’s overall position.

The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for re-pricing bands. ALCO is the monitoring body for compliance with these limits and is assisted by Group Treasury in its day-to-day monitoring activities.




3. Market risks (continued) Exposure to interest rate risk – non-trading portfolios The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Group’s financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are on a monthly basis include a 100 basis point parallel fall or rise in yield curves worldwide and a 50 basis points rise or fall in greater than 12-month portion of all yield curve. An analysis of the Group’s sensitivity to an increase or decrease in market interest rates, assuming no asymmetrical movement in yield curves and a constant financial position, is as follows: Group – 31 December 2009 Zero Floating Fixed rate Instruments rate rate 0 – 1 1 – 6 6 – 12 1 to 5 Over 5 Total month months months years years

Total assets 540 121 6 596 068 821 505 210 112 - 140 970 17 164 8 325 940Total liabilities and shareholders’ funds 572 085 6 871 395 159 934 2 625 478 245 66 656 175 000 8 325 940Net mismatch (31 964 ) (275 327 ) 661 571 207 487 (478 245 ) 74 314 (157 836 ) -

Interest Sensitivity Gap Impact of increase in interest rates 50 basis points (1 428 ) +1% (2 856 ) A decrease in interest rates is seen to have an equal and opposite effect on profits and equity as noted above. Fixed and zero rate instruments are by their very nature not affected by a change in interest rates.

Company – 31 December 2009 Zero Floating Fixed rate Instruments rate rate 0 – 1 1 – 6 6 – 12 1 to 5 Over 5 Total month months months years yearsTotal assets 540 121 6 596 068 821 505 210 112 - 140 801 17 333 8 325 940Total liabilities and shareholders’ funds 571 617 6 871 863 159 934 2 625 478 245 66 656 175 000 8 325 940Net mismatchInterest Sensitivity Gap (31 496 ) (275 795 ) 661 571 207 487 (478 245 ) 74 145 (157 667 ) -Impact of increase in interest rates 50 basis points (1 430 ) +1% (2 861 ) Group – 31 December 2008 Zero Floating Fixed rate Instruments rate rate 0 – 1 1 – 6 6 – 12 1 to 5 Over 5 Total month months months years years

Total assets 573 613 7 502 844 829 250 96 736 - 66 533 - 9 068 976Total liabilities and shareholders’ funds 555 483 7 257 345 810 740 324 494 20 914 50 000 50 000 9 068 976Net mismatch 18 130 245 499 18 510 (227 758 ) (20 914 ) 16 533 (50 000 ) - Company – 31 December 2008 Total assets 573 613 7 502 844 829 250 96 736 - 66 533 - 9 068 976Total liabilities and shareholders’ funds 555 483 7 257 608 810 740 324 494 20 651 50 000 50 000 9 068 976Net mismatch 18 130 245 236 18 510 (227 758 ) (20 651 ) 16 533 (50 000 ) - Interest Sensitivity Gap – Group and Company Impact of increase in interest rates 50 basis points (1 227 ) +1% (2 445 ) A decrease in interest rates is seen to have an equal and opposite effect on profits and equity as noted above. Fixed and zero rate instruments are by their very nature not affected by a change in interest rates.




3. Market risk management policy (continued)

Effective interest rates of financial assets and liabilities

In the opinion of directors, the fair values of the group’s financial assets and liabilities approximate the respective carrying amounts, due to the generally short period to contractual re-pricing or maturity dates. Fair values are based on discounted cash flows using a discount rate based upon the borrowing rate that directors expect would be available to the group at the reporting date.

3.2 Foreign Exchange Rate Risk Management

The responsibilities of Group Financial Markets include monitoring of foreign exchange risk. Foreign exchange rate risk is the po-tential impact of adverse currency rates movements on earnings and economic value. This involves the risks of the group incurring financial loss on settlement of foreign exchange positions taken in both the trading and banking books. The foreign exchange posi-tions arise from the following activities:-

• Tradinginforeigncurrenciesthroughspot,forwardandoptiontransactionsasamarketmakerorpositiontaker,includingthede-hedged position arising from customer driven foreign exchange transactions.

• holdingforeigncurrencypositioninthebankbooks(e.g.intheformofloans,depositsandcrossborderinvestments,etc)• Engaginginderivativetransactionsthataredenominatedinforeigncurrencyfortradingorhedgingpurposes.

Group financial markets is responsible for:-

• Settingtheforeignexchangeriskmanagementstrategyandtolerancelevels.• Ensuringthateffectiveriskmanagementsystemsandinternalcontrolsareinplace.• Monitoringsignificantforeignexchangeexposure.• Ensuringthatforeignexchangeoperationsaresupportedbyadequatemanagementinformationsystemswhichcomplementthe

risk management strategy• Reviewingthepolicies,proceduresandcurrencylimitsregularlyinlinewithchangesintheeconomicenvironment.

The ALCO regularly monitors the controls put in place by Group Financial Markets, which are approved and reviewed by the board from time to time.

The group does not perform a sensitivity analysis on its foreign exchange exposure but manages the foreign exchange risk mainly by hedging assets in foreign exchange with liabilities in foreign exchange. The group’s foreign exchange exposures at the reporting date were as follows:

Group 2009 2008 Assets Liabilities Net Assets Liabilities Net

USD 1 050 960 (1 050 960 ) - 1 225 025 (1 034 876 ) 190 179 GBP 39 962 (39 962) - 48 429 (48 823 ) (395 )EUR 134 043 (134 043 ) - 4 481 (245 010 ) (240 530 )ZAR 57 190 (57 190 ) - 6 796 (77 858 ) (71 062 )

Company USD 1 050 960 (1 050 960 ) - 1 225 025 (1 034 876 ) 190 179 GBP 39 962 (39 962 ) - 48 429 (48 823 ) (395 )EUR 134 043 (134 043 ) - 4 481 (245 010 ) (240 530 )ZAR 57 190 (57 190 ) - 6 796 (77 858 ) (71 062 )




4. Financial assets and liabilities The table below sets out the classification of each class of Financial assets and liabilities, and fair value (excluding accrued interest):

Group – 31 December 2009

Note Trading Available Held to Loans and Cash and Other Total Fair for sale maturity receivables bank amortized carrying value balances cost amount

Due from central bank 13 - - - - 263 854 - 263 854 263 854

Due from other banks 15 - - - - 1 010 372 - 1 010 372 1 010 372

Financial Investments 16 - 3 013 468 - - - - 3 013 468 3 013 468

Loans and Advances

to customers 18 - - - 3 487 961 - - 3 487 961 3 487 961

Trading securities 17 263 896 - - - - - 263 896 263 896

263 896 3 013 468 - 3 487 961 1 274 226 - 8 039 551 8 039 551

Deposits from banks 21 - - - - - 236 129 236 129 236 129

Deposits from customers 22 - - - - - 7 262 070 7 262 070 7 262 070

Debt securities issued 25 - - 100 000 - - - 100 000 100 000

Subordinated liabilities 25 - - 141 656 - - - 141 656 141 656

- - 241 656 - 7 498 199 7 739 855 7 739 855

Company – 31 December 2009


Due from other banks 15 - - - - 1 010 372 - 1 010 372 1 010 372


Loans and Advances to customers 18 - - - 3 487 961 - - 3 487 961 3 487 961


263 896 3 013 468 - 3 487 961 1 274 226 - 8 039 551 8 039 551





- - 241 656 - - 7 512 667 7 754 323 7 754 323

Group – 31 December 2008 Note Trading Available Held to Loans and Cash and Other Total Fair for sale maturity receivables bank amortized carrying value balances cost amount


Due from other banks 15 - - - - 985 596 - 985 596 985 596




52 176 4 335 680 - 3 121 911 1 306 937 - 8 816 704 8 816 704





- - 243 847 - - 8 170 094 8 413 941 8 413 941

Company – 31 December 2008


Due from other banks 15 - - - - 985 596 - 985 596 985 596




52 176 4 335 680 - 3 121 911 1 306 937 - 8 816 704 8 816 704





- - 243 847 - - 8 178 025 8 421 872 8 421 872




4. Financial assets and liabilities (continued)

Valuation of financial instruments

The Group’s accounting policy on fair value measurements in discussed in accounting policy outlined on page 36.

The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurement:

• Level1:Quotedmarketprice(unadjusted)inanactivemarketforanidenticalinstrument.• Level 2: Valuation techniques basedon observable inputs, either directly (i.e. as prices) or indirectly (i.e., derived fromprices).

This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

• Level 3:Valuation techniquesusing significant unobservable inputs. This category includesall instrumentswhere the valuationtechnique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Group determines fair values using valuation techniques.

Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist, Black-Scholes and polynomial option pricing models and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premia used in estimating discount rates, bond and equity prices, foreign currency exchange, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date that would have been determined by market participants acting at arm’s length.

The Group uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, like interest rate and currency swaps that use only observable market data and require little management judgement and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities, exchange traded derivatives and simple over the counter derivatives like interest rate swaps. Availability of observable market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets.

For more complex instruments, the Group uses propriety valuation models, which usually are developed from recognised valuation models. Some or all of the significant inputs into these models may not be observable in the market, and are derived from market prices or rates or are estimated based on assumptions. Example of instruments involving significant unobservable inputs include certain over the counter structured derivatives, certain loans and securities for which there is no active market and retained interests in securitisations.




4. Financial assets and liabilities (continued)

Valuation of financial instruments (continued)

Valuation models that employ significant unobservable inputs require a higher degree of management judgement and estimation in the determination of fair value. Management judgement and estimation are usually required for selection of the appropriate valuation model to be used, determination of expected future cash flows on the financial instrument being valued, determination of probability of counterparty default and prepayments and selection of appropriate discount rates.

The Group has an established control framework with respect to the measurement of fair values. This framework includes a Product Control function, which is independent of front office management and reports to Global Markets (Group), and which has overall respon-sibility for independently verifying the results of trading and investment operations and all significant fair value measurements. Specific controls include: verification of observable pricing inputs and re-performance of models involving both Product Control and Group Market Risk; calibration and back testing of models involving Group Market Risk personnel; and reporting of significant valuation issues to the Group Audit Committee.

The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categorised:

In thousands of Pula Note Level 1 Level 2 Level 3 Total31 December 2009 Due from central bank 13 - - 263 854 263 854Due from other banks 15 - - 1 010 372 1 010 372Financial Investments 16 - 3 013 468 - 3 013 468Loans and Advances to customers 18 - - 3 487 961 3 487 961Trading securities 17 - 263 896 - 263 896 - 3 277 364 4 762 187 8 039 551 Deposits from banks 21 - - 236 129 236 129Deposits from customers 22 - - 7 262 070 7 262 070Debt securities - 100 000 - 100 000Subordinated liabilities 25 - - 141 656 141 656 - 100 000 7 639 855 7 739 85531 December 2008 Due from central bank 13 - - 321 341 321 341Due from other banks 15 - - 985 596 985 596Financial Investments 16 - 4 335 680 - 4 335 680Loans and Advances to customers 18 - - 3 121 911 3 121 911Trading securities 17 - 52 176 - 52 176 - 4 387 856 4 428 848 8 816 704 Deposits from banks 21 - - 192 387 192 387Deposits from customers 22 - - 7 997 707 7 997 707Debt securities - 100 000 - 100 000Subordinated liabilities 25 - - 143 847 143 847 - 100 000 8 333 941 8 433 941




Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’000

5. Interest income Loans and advances to customers 554 870 636 261 554 870 636 261 Financial investments and bonds 323 514 468 803 323 514 468 803 Balances with banks and investments 45 328 97 996 45 328 97 996 923 712 1 203 060 923 712 1 203 060 6. Interest expense Amounts due to banks 45 080 115 396 45 080 115 396 Subordinated loan capital 24 027 26 982 24 027 26 982 Amounts due to customers 357 743 515 174 357 743 515 174 426 850 657 552 426 850 657 552 7. Dealing profits Foreign currency 83 279 90 785 83 279 90 785 Investment securities 10 817 1 131 10 817 1 131 94 096 91 916 94 096 91 916 8. Staff expenses Directors’ remuneration – management services 1 632 3 854 1 632 3 854 Salaries and wages 117 640 101 267 117 280 101 057 Pension fund costs 8 464 7 722 8 464 7 722 Other 24 434 43 429 24 434 43 429 152 170 156 272 151 810 156 062 9. Other expense Professional fees- audit 1 028 1 417 1 028 1 417 - consultancy 6 390 3 034 6 390 3 034 Directors’ fees 240 108 240 108 Repairs and maintenance 48 996 33 950 48 996 33 950 Communications costs 20 869 13 191 20 869 13 191 Group recharges 95 174 62 168 95 174 62 168 Advertising and sponsorship 6 024 6 237 6 024 6 237

Other expenses 28 018 29 004 28 005 28 992

206 739 149 109 206 726 149 097




Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’00010. Loan loss impairment Specific 94 709 69 756 94 709 69 756 Non specific 24 338 9 962 24 338 9 962 Recoveries (43 607) (31 934) (43 607) (31 934) Charge per income statement 75 440 47 784 75 440 47 784 Movement in specific impairments Balance at beginning of the year 50 325 57 786 50 325 57 786 Charge against profits 94 709 69 756 94 709 69 756 145 034 127 542 145 034 127 542 Write-offs during the year (68 999 ) (45 283) (68 999) (45 283) Provisions no longer required (25 156) (31 934) (25 156) (31 934) Balance at end of the year 50 879 50 325 50 879 50 325 Movement in non-specific impairments Balance at beginning of the year 26 403 16 746 26 403 16 746 Charge for the year 24 338 9 962 24 338 9 962 Write - offs during the year (988 ) (305 ) (988 ) (305 )

Balance at end of the year 49 753 26 403 49 753 26 403 Total specific and non-specific Impairment at end of year 100 632 76 728 100 632 76 728 11. Income tax expense Taxation charge for the year: Current taxation at 15% (2008 -15%) 43 128 56 500 41 633 54 719 Additional Company taxation at 10% 28 752 37 177 27 756 36 479 Less: Withholding tax utilised during the year (17 967 ) (13 558 ) (17 967 ) (13 558 ) Deferred tax charge (3 868 ) (2 117 ) (3 868 ) (2 117 ) Taxation per income statement 50 045 78 002 47 554 75 523 The Bank has P32 695 664 of additional company taxation (ACT) reserves available for set-off against withholding tax payable on

future dividends. ACT reserves fall away after five years if not utilised.




Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’000 11. Income tax expense (continued) Taxation reconciliation: Taxation at the current year rate on the profit for the year 71 880 92 620 69 389 91 496 Non deductible items: (1 432 ) - (1 432 ) - ACT utilised on dividends (17 967 ) (13 558 ) (17 967 ) (13 558 ) Disallowable impairment losses 1 733 2 251 1 733 2 251 Training allowances - (1 522 ) - (1 522 ) Dividend income - - (1 456 ) (1 356 ) Other (4 169 ) (1 789 ) (2 713 ) (1 788 ) Current taxation per income statement 50 045 78 002 47 554 75 523 12. Dividends Interim dividend paid/proposed 120 000 215 000 120 000 215 000 Final dividend proposed 60 000 77 476 60 000 77 476 180 000 292 476 180 000 292 476 Dividends per share is based upon the dividends declared and paid in the year on the 288 062 570 issued ordinary shares. The

proposed dividends have not been provided for but are expected to be paid on or before 31 March 2010. 13. Earnings per share Earnings per share is calculated on profit after taxation divided by the 288 062 570 issued ordinary shares. 14. Cash and balances with Central Bank Notes and coins 150 882 100 786 150 882 100 786 Balances with the central bank 274 156 321 341 274 156 321 341 425 038 422 127 425 038 422 127 Included in bank balances is an amount of P274 058 000. (2008: P321 262 000) which is a restricted minimum statutory reserve

balance not available for the Group’s daily operations.




Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’000 15. Balances due from other banks Bank balances 126 588 34 464 126 588 34 464 Placements and other investments 883 784 951 132 883 784 951 132 1 010 372 985 596 1 010 372 985 596 Maturity profile On demand to one month 1 010 372 985 596 1 010 372 985 596 Placements and other investments due from

other banks are part of the Bank’s money market activities and comprise short term lending to other banks

16. Financial Investments Bank of Botswana certificates 2 995 725 4 335 680 2 995 725 4 335 680 Treasury bills 17 743 - 17 743 - 3 013 468 4 335 680 3 013 468 4 335 680

Maturity profile 0-3 months 2 995 725 4 335 680 2 995 725 4 335 680

0-6 months 17 743 - 17 743 - 3 013 468 4 335 680 3 013 468 4 335 680

At 31 December 2009 Bank of Botswana

Certificates amounting to P353 000 000 (2008:P355 200 000) were pledged as se-curity to Bank of Botswana in respect of the Bank’s Secured Lending Facility. In addition Bank of Botswana Certificates amounting to PNil (2008: P35 000 000) were sold under a repurchase agreement.

17. Trading securities Government bonds – quoted 157 627 17 450 157 627 17 450 Public sector enterprise bonds – quoted 106 269 34 726 106 269 34 726 263 896 52 176 263 896 52 176 18. Loans and advances to customers Loans and advances – originated 3 588 593 3 198 639 3 588 593 3 198 639 Less: provision for impairment (100 632 ) (76 728) (100 632) (76 728) 3 487 961 3 121 911 3 487 961 3 121 911




18. Loans and advances to customers (cont.) Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’000 Impaired loans net of provisions Loans neither past due nor impaired 3 242 406 2 737 893 3 242 406 2 737 893 Less: portfolio impairment provisions (49 753 ) (26 403 ) (49 753 ) (26 403 ) 3 192 653 2 711 490 3 192 653 2 711 490 Gross impaired loans 70 861 92 153 70 861 92 153 Less: individual specific provisions (50 879 ) (50 325 ) (50 879 ) (50 325 ) Impaired loans net of specific provisions 19 982 41 828 19 982 41 828 Loans past due but not impaired 275 326 368 593 275 326 368 593 Net loans 3 487 961 3 121 911 3 487 961 3 121 911 Loans and advances are of a floating

rate nature, since as per the Bank’s loan agreements, the Bank reserves the right to change the rate of interest at any time in the event of market fluctuations and/or credit/banking considerations which may be set out from time to time by the Bank and/or any government or regulatory authority.

Loans and advances include the following aggregate amounts, on which interest has

not been accrued during the year 46 104 56 448 46 104 56 448 19. Other assets Prepayments and accrued income 72 101 66 272 72 101 66 272 Remittances and in transit items 22 643 51 540 22 643 51 540 94 744 117 812 94 744 117 812




20. Property and equipment – Group and Company

Premises Equipment Total P’000 P’000 P’000 Cost or valuation At 1 January 2009 12 547 112 940 125 487 Additions 58 6 316 6 374 Disposals (2 339) (13 763) (16 102) At 31 December 2009 10 266 105 493 115 759 Accumulated Depreciation At 1 January 2009 2 428 89 385 91 813 Charge for the year 251 7 169 7 420 Disposal (476) (13 459) (13 935) At 31 December 2009 2 203 83 095 85 298 Net book value 31 December 2009 8 063 22 398 30 461 At 31 December 2008 10 119 23 555 33 674 Premises are shown at valuation less accumulated depreciation and impairment losses. Revaluations are carried out every three

years by independent valuers and periodically by directors, on open market basis. The last valuation was performed by Knight Frank, an independent firm of professional property valuers on 25th February 2007.

Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’00021. Deposits due to other banks Bank balances 11 281 4 174 11 281 4 174 Placements 224 848 188 213 224 848 188 213 236 129 192 387 236 129 192 387 Maturity profile On demand to one month 236 129 192 387 236 129 192 387




Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’00022. Amount due to customers Demand deposits 5 602 749 6 165 904 5 617 217 6 173 835 Time deposits 1 659 321 1 811 803 1 659 321 1 811 803 7 262 070 7 977 707 7 276 538 7 985 638 Maturity profile On demand to one month 6 633 118 6 165 904 6 647 586 6 173 835 One month to six months 419 028 1 717 938 419 028 1 717 938 Six months to one year 26 137 40 002 26 137 40 002 Greater than one year 183 787 53 863 183 787 53 863 7 262 070 7 977 707 7 276 538 7 985 638 23. Other liabilities Deferred income and accruals 20 478 99 552 20 478 99 552 Accounts payable 152 415 193 231 153 762 192 992 172 893 292 783 174 240 292 544 24. Deferred taxation Balance at the beginning of the year 5 985 8 101 5 985 8 101 Current year charge (3 868) (2 116) (3 868) (2 116) Balance at the end of the year 2 117 5 985 2 117 5 985 The deferred tax balance comprises of: Deferred Tax on Fixed Assets 2 117 4 229 2 117 4 229 Deferred Tax on revaluation surplus - 1 756 - 1 756 2 117 5 985 2 117 5 985




Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’00025. Subordinated loan capital USD Loan 16 656 18 847 16 656 18 847 Local note issue (1) 50 000 50 000 50 000 50 000 Local note issue (2) 75 000 75 000 75 000 75 000 Senior debt 100 000 100 000 100 000 100 000 241 656 243 847 241 656 243 847

The USD loan amount to USD 2.5 million raised in 2002 and to be repaid no later than the tenth anniversary which is the 15th of October 2012 and no earlier than five years before that date. Interest rate on the loan is LIBOR plus 1% per annum. The local note issue (1) includes a subordinated debt of BWP 50 million with a floating interest rate payable quarterly at the 91 day BOBC plus a margin of 70 basis points per annum for first 5 years and the same reference rate plus a stepped up margin of 120 basis points. The debt matures on 20 December 2015. Local note issue (2) comprise of BWP 75 million raised through a new debt issue on 19 November 2007 as part of the BWP 500 Million Debt Issuance Programme and is to be repaid no later than on the tenth anniversary which is 27th November 2017 and no earlier than five years before that date. The interest rate is a floating interest rate payable quarterly at the 91 day BOBC plus a margin of 40 basis points per annum for first 5 years and the same reference rate plus a stepped up margin of 90 basis points. BWP 100 million senior debt was issued in tranches of BWP 50 million each. Tranche (I) issued at fixed interest rate of 10.30% to mature on 20 December 2012. Tranche (II) was issued at fixed rate of 10.50% maturing on 20 December 2020. The debt is callable after the 8th anniversary. Interest is payable semi annually. Claims in respect of the loan capital and interest thereon are subordinate to the claims of other creditors and depositors. None of the loan capital is secured or convertible.

Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’00026. Income tax paid Opening balance 20 914 10 762 20 651 8 954 Charge for the year 53 913 80 119 51 422 77 640 Closing balance (38 587 ) (20 914 ) (40 786 ) (20 651 ) 36 240 69 967 31 287 65 943




Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’00027. Cash and cash equivalents Cash and bank balances with Central Bank 425 038 422 127 425 038 422 127 Financial investments 2 995 725 4 335 680 2 995 725 4 335 680 Balances due from other banks 1 010 372 985 596 1 010 372 985 596 4 431 135 5 743 403 4 431 135 5 743 403 Cash and cash equivalents include Bank of Botswana certificates with a maturity of less than 3 months. 28. Related parties The Bank has a related party relationship with its parent Bank and with the Standard Chartered Group. The Bank also has a

related party relationship with its directors and executive officers. Transactions with other companies in the Standard Chartered Group are in the ordinary course of business on an arms length

basis. Details of related parties transactions and balances during the year are as follows: Balances due from: Standard Chartered Bank PLC London 836 944 930 313 836 944 930 313 Standard Chartered Bank New York 42 485 7 439 42 485 7 439 Other group companies 4 355 838 4 355 838 883 784 938 590 883 784 938 590 Balances due to Standard Chartered Bank PLC London - 4 780 - 4 780 Standard Chartered Bank New York 1 616 1 1 616 1 Other group companies 76 793 24 969 76 793 24 969 78 409 29 750 78 409 29 750 No impairment losses have been recorded against balances during the period with key management personnel, and no specific

allowance has been made for impairment losses on balances with key management personnel and their immediate relatives at the period end

Directors’ Fees 240 108 240 108 Executive Directors’ Remuneration 1 633 3 854 1 633 3 854 Interest Income 6 731 15 914 6 731 15 914 Interest Expense 159 1 076 159 1 076 Group Recharges 95 174 62 168 95 174 62 168 Group share scheme expense 2 056 1 951 2 056 1 951 Directors’ holding in company shares 86 160 86 160

In addition to their salaries, the Group also provides non-cash benefits to directors and executive officers.

Executive officers also participate in Group share scheme programme.




29. Operating leases 2008 2009 2010 2011 2012 2013 Long-term accrual 1 173 653 1 106 140 577 683 181 995 29 950 0Short-term accrual 139 686 333 807 605 993 412 519 152 045 29 950Total accrual 1 313 339 1 439 947 1 183 676 594 514 181 995 29 950 2008 2009 2010 2011 2012 2013Minimum lease payments Cash flow within 1 year 5 875 525 6 058 634 5 579 249 3 075 158 1 046 346 321 198Cash flow between 2 - 5 years Future cash flows 14 438 597 10 351 664 4 772 416 1 697 257 321 198 -Total future cash flows 20 314 122 16 410 298 10 351 665 4 772 415 1 367 544 321 198Already accrued (1 313 339 ) (1 439 947 ) (1 183 676 ) (594 515 ) (181 995 ) (29 950)Future expenses 19 000 783 14 970 351 9 167 989 4 177 910 1 185 549 291 248

Operating leases relate to various buildings and ATM sites which the Bank leases over varying periods with escalation rates at an average of 8.5%




Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’00030. Contingent liabilities and commitments Un-drawn commitments 14 125 245 164 14 125 245 164 Acceptances and letters of credit 546 720 82 676 546 720 82 676 Performance and bid bonds 305 990 401 834 305 990 401 834 Guarantees and standby letters of credit 1 130 411 580 971 1 130 411 580 971 1 997 246 1 310 645 1 997 246 1 310 645 In the normal course of business the Bank is a party to financial investments with off-balance sheet risk to meet the financing needs

of customers. These instruments involve, to varying degrees, elements of credit risk which are not reflected in the statement of financial position. The Bank’s maximum exposure to credit loss under contingent liabilities and commitments to extend credit in the event of non-performance by the other party where all counterclaims, collateral or security prove valueless, is represented by the contractual amount of those instruments. A large majority of these expire without being drawn upon, and as a result the contracted nominal principle amounts are not representative of the actual future credit exposure or liquidity requirements of the Bank.

Based upon the level of fees currently charged taking into account maturity and interest rates together with any change in the credit

worthiness of counterparties since origination, the Bank has determined that the fair value of contingent liabilities and un-drawn loan commitments is not material.

Group Company 2009 2008 2009 2008 P’000 P’000 P’000 P’00031. Trust activities Republic of Botswana Registered Bonds 6 500 24 500 6 500 24 500 These bonds are held in trust on behalf of customers and are therefore not treated as assets of the Bank and accordingly have

not been included in the financial statements. 32. Capital commitments Capital commitments at the reporting date amounted to nil (2008: nil) 33. Average balances for the Group The following are the average daily balances for the full year 2009 and 2008: 2009 2008 P’000 P’000 Total Assets 7 824 145 7 729 237 Total Liabilities 7 626 689 7 606 549 Shareholders’ Equity 372 488 372 902 Contingent liabilities and un-drawn commitments 289 413 245 164 34. Investment in wholly owned subsidiary companies BWP BWP Standard Chartered Bank Insurance Agency (Pty) Ltd 100 100 Standard Chartered Investments (Pty) Ltd 100 100




35. Segmental reporting Consumer Wholesale Total Banking Banking 2009 Statement of Comprehensive Income Net interest income 365 798 138 497 504 295Net funded income 139 815 96 350 236 165Net income before impairment 505 613 234 847 740 460Impairment charge (74 446) (994) (75 440)Net interest income after impairment 431 167 233 853 665 020Operating Expenses (241 132) (138 535) (379 667)Profit before taxation 190 035 95 318 285 353Taxation (50 045)Profit after taxation 190 035 95 318 285 353 Statement of Financial Position Performing advances and financial instruments 2 398 244 4 146 965 6 495 209Non performing advances 24 757 82 136 106 893Total Deposits 2 673 000 4 589 070 7 498 199 2008 Statement of Comprehensive Income Net interest income 381 685 163 823 545 508Net funded income 109 254 86 706 195 960Net interest income before impairment 490 939 250 529 741 468Impairment charge (51 778) 3 994 (47 784)Net interest income after impairment 439 161 254 523 693 684Operating Expenses (206 965) (116 241) (323 206)Profit before taxation 232 196 138 282 370 478Taxation (78 002 )Profit after taxation 232 196 138 282 292 476 Statement of Financial Position Performing advances and financial instruments 2 284 000 5 172 680 7 456 680Non performing advances 42 632 112 423 155 055Total Deposits 2 557 992 5 419 715 7 977 707

Reconciliation of reportable segment revenue, profits or loss and assets and liabilities 2009 2008Revenues Total revenue for reportable segments 740 460 741 468Profit or loss before taxation Total profit or loss for reportable segments 285 353 370 478 Assets Total assets for reportable segments 8 039 551 8 816 704Other unallocated amounts 286 389 252 272Consolidated assets 8 325 940 9 068 976 Liabilities Total liabilities for reportable segments 7 498 199 8 170 094Other unallocated amounts 455 253 563 529Consolidated total liabilities 7 953 452 8 733 623


Notice to Members

Notice is hereby given that the 34th Annual General Meeting of the members

of Standard Chartered Bank Botswana Limited will be held on Thursday 10th

June 2010 at 1800 hrs at the Gaborone International Convention Centre for

the following purposes:

1. To receive, consider and adopt the Chairperson’s Report.

2. To receive, consider and adopt the Chief Executive Officer’s Report.

3. To receive, consider and adopt the Annual Financial Statement for the year ended 31st December 2009, together with the Auditor’s Reports therein.

4. To note the resignation of Messr. Vincent T. Seretse in accordance with Article 89 (e) of the Articles of Association.

5. To confirm the appointment of Messers Reginald Motswaiso and Ebenezer Essoka as Non Executive Directors in accordance with Article 90 of the Articles of Association.

6. To fix the remuneration of the directors for the year 2010.

7. To approve the remuneration of the auditors for the year ended 31st December 2009.

8. To confirm the appointment of KPMG as auditors for the year 2010.

9. To transact any other business that may be properly transacted at the Annual General Meeting.

Notes:Any member entitled to attend and vote, is entitled to a proxy to attend and speak and, on a poll, vote in his/her stand. The person so appointed need not be a member. Proxy forms should be forwarded to reach the secretary, at Standard Chartered Bank Botswana Limited, Head Office, 5th Floor, Standard House, The Mall, P O Box 496, Gaborone, or send a fax to 3918299, not less than 48 hours before the meeting.

All shareholders attending should RSVP: Monei Matenge 3601504

By order of the Board

Thato MmileSecretary


Proxy Form

Please complete in block letters

I/WE

Being a member of Standard Chartered Bank Botswana Limited, hereby appoint:

or failing him or her



The chairman of the meeting, as my proxy to vote on my behalf at the annual general meeting of the company to be held on the 10th June 2010 at 18:00

Unless otherwise indicated, my proxy may vote as he/she thinks fit.

Signature Date 2010

Notes

1. Any alteration of this form must be initialed by the signatory

2. This form of proxy should be completed and returned so as to reach the Secretary of the company on the 5th floor, Standard House, The Mall, P. O. Box 496, Gaborone, or send a fax to 3918299, no later than 48 hours before the meeting.

Date post:	02-Jan-2021
Category:	Documents
Upload:	others
View:	2 times
Download:	0 times

Leading the way - Standard Chartered101.53 Thebe in 2008 • Dividend per share is 68.55 Thebe...

Documents