TABLE OF CONTENTS - Centenary Bank · table of contents list of acronyms 4 financial definitions 5...

TABLE OF CONTENTS

LIST OF ACRONYMS 4

FINANCIAL DEFINITIONS 5

BANK CONTACT INFORMATION 6

CHAIRMAN BOARD OF DIRECTORS’ STATEMENT 11

MANAGING DIRECTOR’S STATEMENT 14

STATEMENT OF CORPORATE GOVERNANCE 18

RISK MANAGEMENT AND CONTROL 28

SUSTAINABILITY REPORTING STATEMENT 34

FINANCIAL REVIEW 49

AUDITED FINANCIAL STATEMENTS

Directors’ Report 56

Directors’ Responsibility for Financial Reporting 58

Report of Independent Auditors 59

Statement of Comprehensive Income 61

Statement of Financial Position 62

Statement of Changes in Equity 63

Statement of Cash flow 64

Notes to the Financial Statements 65

BANK AND ATM NETWORK 127

CENTENARY BANK l Annual Report & Financial Statements 2016 3

4 CENTENARY BANK l Annual Report & Financial Statements 2016

LIST OF ACRONYMS

aBi Finance Agriculture Business Initiative Finance Limited

aBi Trust Agriculture Business Initiative Trust

ACF Agricultural Credit Facility

AGM Annual General Meeting

ALCO Asset and Liability Committee

ATM Automated Teller Machines

BCP Business Continuity Plan

BCM Business Continuity Management

BCMT Business Continuity Management Team

BOD Board of Directors

BOU Bank of Uganda

CBS Core Banking System

CSI Corporate Social Investment

CSR Corporate Social Responsibility

EaR Earnings at Risk

EIB EAC MF Loan European Investment Bank East African Community Microfinance Loan

EIB PEFF European Investment Bank Private Enterprise Finance Facility

EIR Effective Interest Rate

ERM Enterprise Risk Management

FAMOS Female and Male Operated Small enterprises

HR Human Resource

HRD Human Resource Division

IAS International Accounting Standards

ICT Information and Communication Technology

IFRS International Financial Reporting Standards

ILO Intenational Labour Organisation

KCCA Kampala Capital City Authority

LPO Local Purchase Order

MOGLSD Ministry of Gender, Labour and Social Development

NIM Net Interest Margin

NSSF National Social Security Fund

NPAT Net Profit After Tax

OSH Occupational Safety and Health

P.A.Y.E Pay As You Earn

QMM Quarterly Management Meeting

REPO Repurchase agreement loan

ROA Return on Assets

ROE Return on Equity

RSA Interest Rate Sensitive Assets

RSL Interest Rate Sensitive Liabilities

SIDI Solidarite’ Internationale pour le Development et l’ investissement

SOCI Statement of Comprehensive Income

SOFP Statement of Financial Position

ToT Trainer of Trainers

UECCC Uganda Energy Credit Capitalization Company

URA Uganda Revenue Authority

w.e.f With effect from

WENRECO West Nile Rural Electrification Company


FINANCIAL DEFINITIONS

Core capital Permanent equity in the form of issued and fully paid-up shares plus all disclosed reserves less goodwill or any intangible assets

Cost-to-income ratio (%) Total operating expenses as a percentage of total income

Credit impairment charge (Shs) The amount by which the period profits are reduced to cater for the effect of non-performing loans for the period

Credit loss impairment [Statement of Financial Position (SOFP)] (Shs)

The amount by which gross loans in the SOFP are written down to cater for non-performing loans

Credit loss ratio (%) Provision for credit losses per the Statement of Comprehensive Income as a percentage of average net loans

Dividend cover (times) Earnings Per Share divided by ordinary dividend per share

Dividend per share ( Shs) Total ordinary dividends declared per share with respect to the year

Earnings per share (cents) Earnings attributable to ordinary shareholders divided by the weighted average number of ordinary shares

Effective tax rate (%) The income tax charge as a percentage of income before tax excluding income from associates

Lending Ratio Net loans and advances divided by total deposits

Net interest margin (%) Net interest income as a percentage of average earning assets

Non-performing loans [NPL] (Shs) Loans whose servicing is due but the borrower has no money on the account from which to recover the installment(s)

Percentage change in credit loss ratio (%) Ratio of change in the rate of credit loss impairment between time periods

Percentage change in the impairment charge (%)

Ratio of change in the rate of impairment charge between time periods

Profit for the year (Shs) Annual profit attributable to ordinary shareholders and preference shareholders

Return on Assets (%) Earnings as a percentage of average total assets

Return on Equity (%) Earnings as a percentage of average equity

SOFP credit impairment as a % of gross loans and advances (%)

Ratio of SOFP credit impairment to gross loans and advances

Supplementary capital General provisions which are held against future and current unidentified losses that are freely available to meet losses which subsequently materialize, and re-valuation reserves on banking premises, and any other form of capital as may be determined from time to time.

Total capital The sum of core capital and supplementary capital

Total capital adequacy Total capital divided by the sum of total risk weighted assets and total risk weighted contingent claims


1. Principal place of business and registered office Mapeera House Plot 44-46, Kampala Road P. O. Box 1892, Kampala. Tel: +256 414-251276/7 Toll-free line: 0800 200 555 Fax: +256 414-251273/4 E-mail: [email protected] Website: http://www.centenarybank.co.ug

2. Company Secretary Peninnah Tibagwa Kasule Mapeera House Plot 44-46, Kampala Road P. O. Box 1892, Kampala. 3. Correspondent Banks • Citibank NA New York - US • Deutsche Bank AG - Germany • Deutsche Bank Trust Company – USA• Bank of China • Ivory Bank - South Sudan • Sparkase Aachen Bank - UK 4. Auditors Ernst & Young Certified Public Accountants Ernst & Young House Plot 18, Clement Hill Road Shimoni Office Village P. O. Box 7215, Kampala. Uganda.

BANK CONTACT INFORMATION


We are in a race, and to stay well ahead of the rest, we constantly evolve to compete effectively in the digital era.

VISION MISSION AND OWNERSHIP


“To be the best provider of Financial Services, especially Microfinance.”

“To provide appropriate financial services especially microfinance to all people, particularly in rural areas, in a sustainable manner and in accordance with the law.”

OUR VISION

OUR MISSION STATEMENT

OUR VALUES

SUPERIOR CUSTOMER SERVICE

LEADERSHIP

EXCELLENCE

COMPETENCE

INTEGRITY TEAMWORK

PROFESSIONALISM


SHAREHOLDERS

The Registered Trustees of Various Catholic Dioceses in Uganda 38.5%

The Registered Trustees of the Uganda Episcopal Conference 31.3%

SIDI 11.6%

Stichting Hivos-Triodos Fonds 18.3%

Individuals 0.3%

Total 100%

OWNERSHIP

• The Catholic Dioceses, which are all independent legal personalities incorporated as Registered Trusteeships, are: Arua, Fort Portal, Gulu, Hoima, Jinja, Kabale, Kasana-Luwero,

Lugazi, Kampala, Kasese, Kotido, Lira, Masaka, Mbarara, Mityana, Moroto, Nebbi, Soroti, and Tororo.

• Registered Trustees of the Uganda Episcopal Conference.

• SIDI - Solidarite’ Internationale pour le Development et l’Investissement (International Solidarity for Development and Investment) based in France, invests in developing countries

through institutions to foster financial inclusion, social and economic development.

• STICHTING HIVOS-TRIODOS FONDS. An investment fund, specializing in investing in mi-crofinance and trade finance, managed by Triodos Investment Management in the Netherlands.

• Individual shareholders (4 individuals).

Solidarité Internationale pour le Développement et l’Investissement (International Solidarity for Development and Investment)


Chairman Board of Directors

Professor John Ddumba-Ssentamu

We maintained our position as the leading commercial microfinance Bank and plan to reach more people with banking services through financial inclusion in 2017.

Annual Report & Financial Statements l 2015Annual Report & Financial Statements l 2015


I am pleased to present Centenary Bank’s annual report for the year ended 31st December 2016. Centenary Bank continued to register growth and good performance supported by a more stable macro environment, although to an extent the business environment was still affected by continuous drought, competition and changing trends in the banking environment. We maintained our position as the leading commercial microfinance Bank and plan to reach more people with banking services through financial inclusion in 2017.

The Operating Environment At a macroeconomic level, 2016 was a better year than 2015. The annual headline inflation reduced to 5.7% from the re-based rate of 8.4% in 2015, where the main drivers were stable prices for fuel and utilities and less volatility in exchange rates. The above, coupled with the Central Bank’s objective of increasing private sector lending, led to the reduction of the central bank rate from 17% in December 2015 to 12% as at 31st December 2016. This was aimed at increasing private sector credit which only grew by 3.7% due to other intervening factors such as increasing poor quality of loans, instability in the neighboring countries and overall volatility in the global economy. The average prime lending rates in the industry slightly fell from 23% to 22%.

The Parliament of Uganda further adopted the Financial Institutions Bill 2015, which introduced amendments to the Financial Institutions Act paving the way for the development of bancassurance and agent banking in the country. Currently the Central Bank is setting up a regulatory framework as many players in the industry prepare for the roll out. Centenary Bank is no exception. Our focus shall be on agent banking and bancassurance. Agent banking fits with our mission ‘to provide appropriate financial services especially microfinance to all people, particularly in rural areas in a sustainable manner, and in accordance with the law.’ Bancassurance is a direct response to customer requests. They shall be delivered countrywide.

Centenary Bank still maintains its promise of sustainable banking, through managing risk, growing our balance sheet, innovation, and being responsive to customers and other stakeholders. The Bank was adequately capitalized in 2016 and its total capital adequacy ratio stood at 25.92%, which is above the statutory capital requirement of 12% and above the industry average of 19.8%. While industry non-performing rates (NPR) was as high as 10.5%, our Bank’s NPR was kept within set limits of 3.5% due to enhanced risk management.

During the year, the Uganda shilling weakened from USD/UGX 3,375 as at 31st December 2015 to USD/UGX 3,610 as at end of 31st December 2016 although the depreciation was 5.5% in 2016 compared to 24.7% in 2015. The effect on the bank was that our expenses of dollar dominated operating cost continued to go up in 2016.

For the year under review

THE NUMBERS

91 DAY TREASURY BILL AVERAGE YIELD

14.1%


15.1%


15.9%

CHAIRMAN’S STATEMENT



Regarding money markets, the interest rates reduced in 2016 particularly on short tenors. The 91-day treasury bill average yield for December 2016 closed at 14.1% from 19.7% in December 2015, 182-day treasury bill average yield for December 2016 was 15.1% from 22.8% for December 2015, while the 364-day rate closed at 15.9% in December 2016 compared to 22.7% for December 2015. This negatively impacted the Bank’s return on investment in short-term government paper.

Nevertheless, I am glad to report that the Bank’s basic earnings per ordinary share increased to Ushs 4,392 from Ushs 4,059 the previous year. The Bank achieved a return on equity (ROE) of 24.8% down from 28.3% the previous year although it was still above the Industry ROE of 7.8%.

The strides made by the Bank in 2016 are a positive indication of our ability to deliver substantial and sustained value for our shareholders and other stakeholders.

Corporate Social Investment Centenary Bank maintained its policy of investing 1% of the previous year’s net profit to Corporate Social Investment (CSI). The activities in the four key areas of health, education, environment and the social mission of the church increased, thereby reaching millions of people country wide. We couldn’t have done this without partners, to whom we are grateful. These include; Agriculture Business Initiative Trust (aBi Trust), Private Sector Foundation Uganda (PSFU), International Labour Organisation (ILO), Rotary D9211, Nsambya Hospital and The Catholic Church. We plan to reach more people in 2017.

Corporate Governance The Board remains committed to high standards of corporate governance designed to protect the interests of stakeholders, ensure effective functioning of the Bank, while promoting the highest standards of integrity, transparency and accountability. In 2016, the Central Bank approved appointment of 3 directors to our board. These are; Mr. Caspar Jan Sprokel representing Stichting Hivos – Triodos Fonds, who replaced Mr. Jacco Minnaar; Mr. Richard Thil representing SIDI (International Solidarity for Development and Investment), who replaced Mr. Rene Ehrmann and Dr. Mary Theopista Wenene who was nominated by the majority shareholders representing the Ecclesiastical Province of Tororo.

Environmental Outlook The board is confident about 2017. The economy is projected to grow at about 5.5% in 2017, mainly driven by recovery in private sector consumption and investment and public infrastructure investment. Centenary Bank is well positioned to leverage on its strength and get hold of opportunities in the business environment. The Bank will continue to deliver sustainable performance and to contribute to the country’s economic development mainly through financial inclusion.

Appreciation I take this opportunity to thank our customers and other stakeholders for the partnership and trust throughout 2016. We couldn’t have made it without you. I also extend my gratitude to the regulator for the guidance and to our Shareholders, Board Members, Management and the entire staff of Centenary Bank family who continue to work tirelessly to ensure success. I believe that with your support, we shall achieve more in 2017.

Professor John Ddumba-SsentamuChairman of the Board


THE NUMBERS

EARNINGS PER ORDINARY SHARE

UGX 4,392

RETURN ON EQUITY

24.8%

CHAIRMAN’S STATEMENT (continued...)

Managing Director

Fabian Kasi

We are pleased with the Bank’s continued progress that led to solid results and this aligns well with our vision and our proven track record of sustained growth.


I am delighted to report that during financial year 2016, we further improved our performance, despite a volatile operating environment marked by low growth, increasing competition, climate changes and mar-ket volatility. Given the developments in the environment, we maintained a balanced approach to growth, profitability and risk management.

In the year under review, our position in the banking industry got better in terms of market share, distribution network and capital position; thereby creating a platform for robust growth. We are pleased with the bank’s continued progress that led to solid results and this aligns well with our vision and our proven track record of sustained growth. In this context, I would like to share with you some of our key performance highlights for the year 2016:

2016 Performance reviewThe bank continued its growth drive in all fronts particularly profitability and total assets. This growth has been maintained due to continued focus on strategy execution.

The bank posted 8.2% growth in profit after tax to close at UGX 109.9 billion compared to UGX 101.6 billion the previous year, representing a market share of 16.2%. Total income went up by 17.8% to reach UGX 463.8 billion up from UGX 393.9 billion the previous year, mainly driven by growth in loans and advances to customers and increase in transaction volumes. Net interest income rose by 18.9% to UGX 318.4 billion from UGX 267.7 billion the previous year. Total expenses increased by 22.8% to UGX 316.0 billion from UGX 257.4 billion mainly attributed to the bank’s expansion, improvements in staff welfare and increased investments in business technology. During the year, the balance sheet grew impressively with total assets reaching UGX 2,315.7 billion from UGX 1,974.4 billion the previous year, representing a 17.3% increase and above the total assets industry growth of 9.1%. This impressive growth was reflected in the net loan book that grew to UGX 1,247.7 billion up from UGX 1,020.2 billion the previous year, representing a growth of 22.3% which is above the industry growth of 1.2%. Despite this growth, the bank maintained a high quality asset portfolio with an average non-performing loan book of 2.8%, which is slightly above last year’s figure of 2.5% and below the bank’s set target of 3.5% and below the industry rate of 10.5%. Customer deposits grew from UGX 1,380.2 billion to UGX 1,626.6 billion, a growth of 17.9% which is above the industry growth of 9.5%. The bank continued to attract new customers and closed the year with 1,482,617 deposit accounts compared to 1,473,958 the previous year, having transferred all dormant accounts to Bank of Uganda, thereby maintaining the lead position in the industry in terms of customer base. In addition to customer deposits, the other funding sources of the bank are represented by equity which increased by 21.1% to UGX 485.0 billion, up from UGX 400.6 billion the previous year

PROFIT AFTER TAX

8.2%


THE NUMBERS

NET INTEREST INCOME

18.9%

MANAGING DIRECTOR’S STATEMENT


DEPOSIT ACCOUNTS

1,482,617

CUSTOMER DEPOSITS

UGX1,626.6 billion

TOTAL ASSETS

UGX 2,315.7 billion

NET LOAN BOOK

UGX1,247.7 billion

Business development and innovationWith regard to business development and innovation, the bank closed 2016 with 69 branches and 172 ATMs at 127 locations. Over the past years, the bank has been expanding its footprint in terms of delivery channels. In 2012, we expanded by 2 branches and 11 ATMs. In 2013, we opened 4 Branches and 4 offsite ATMs. In order to consolidate our position, we decided to open one branch in 2014 and 5 offsite ATMs. In 2015, the Bank opened 1 branch and 4 offsite ATMs. In 2016, the Bank opened 6 Branches and 5 offsite ATMs. Due to the growing customer base, the bank will continue to roll out more convenient channels such as agent banking, internet banking and further improve its Mobile Banking platform.

Partnerships and collaborationsThe Bank continues to respond to some of the challenges that private enterprises and the youth face in accessing credit facilities. The bank continues to collaborate with European Investment Bank, aBi-Trust, Kampala Capital City Authority and Government of Uganda and the main focus is on financing the agro industry, micro credit projects and supporting expansion of business ventures owned by the youth residents in the country. The bank plans to increase the number of partners in the year 2017 in order to achieve its Financial Inclusion objective. The bank continues to attract, develop and retain the right talent to drive its business strategy through good leadership.

Strategy 2017

The bank will continue to execute a forward-looking strategy that combines financial inclusion and technology driven service delivery. This will result into taking advantage of emerging growth opportunities in Uganda and also manage the ever changing customer needs, preferences and behavior. We expect that the growth momentum will be sustained by maintaining efficient operations, prudent lending and risk management. The bank will continue to implement an engaging strategy that focuses on delighting customers, enhancing productivity and efficiency and come up with innovations based on technology. The Bank will rollout agent banking and bancassurance in the coming months and also enhance its mobile banking platform by offering more functionality. The bank successfully completed the implementation of a new core banking system and this is starting to improve service delivery to the clients. In order to manage the emerging industry frauds, the bank will be migrating to a more secure ATM card system which is based on PIN and Chip technology and also introduce a new method of identifying customers based on biometric technology.

Conclusion

We are grateful to our valued customers for the support, trust and confidence you placed in us over the past year, and to our partners for the accomplishments we attained together. I would also like to thank the Board of Directors for their ongoing service and valuable support. Lastly, I am grateful to the management and staff of the bank for their dedication and sacrifice that enabled delivery of this good financial performance.

In closing, I believe we are better positioned than ever to achieve our goal of building a top-performing bank. We have the right strategy, vision, capabilities and people to deliver on our commitments.

Fabian Kasi Managing Director

69 branches

127 ATM locations

172ATMS

MANAGING DIRECTOR’S STATEMENT (continued...)


Mr. Joseph KimbowaGeneral Manager - Operations

Mr. Fabian Kasi Managing Director

Dr. Simon M. S. KagugubeExecutive Director

Mrs. Peninnah Kasule Company Secretary

Mr. Joseph LutwamaGeneral Manager - Credit

Mr. Godfrey ByekwasoGeneral Manager - Finance

Mrs. Beatrice LugalambiGeneral Manager - Business Development & Marketing

General Manager-HumanResource

Mrs. Florence Mawejje

Mr. Micheal NyagoGeneral Manager - Audit

Mr. Denis EcheruGeneral Manager - Risk

Management

Mr. George K. ThogoGeneral Manager - Business

Technology

Mr. Arnold ByansiGeneral Manager-Corporate

Services

THE EXECUTIVE MANAGEMENT


Leadership is our steering wheel to success. Our foresighted leaders embrace systems and policies

that keep us ahead.

STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT


Compliance with codes and regulations

The Bank is supervised by the Central Bank which through legislation and regulation has set corporate governance principles and practices for compliance by financial institutions in Uganda. This along with the Bank’s own Corporate Governance Charter, reviewed annually to keep abreast with current best practices and principles have been one of the fundamental reasons for the Bank’s steady growth path.

The Bank is reputed for subscribing to sound corporate governance which it believes has a direct contribution to both bottom line and strategic performance. The Company as part of its progressive practices conducts year on year reviews of various Board and Senior Management mandates to enhance effectiveness, and improve alignment with emerging trends in the area of corporate governance.

Leadership

Board Structure

The Bank has a unitary board structure and is designed to ensure that the Board focuses on strategy, evaluation of the performance of the company, and monitoring governance, risk and control issues.

The Board delegates specified matters to the Board Committees and remains accountable for all decisions taken by its Committees. Detailed implementation of matters approved by the Board and the day-to-day operational aspects of the business are delegated by the Board of Directors to the Executive Directors.

Board Responsibilities

The business of the Bank is managed by the Board which exercises all of the powers of the company, subject to the Articles of Association and the Companies Act. The Board is collectively responsible for the long-term success of the Bank, and to achieve this the Board’s main responsibility and the key actions carried out during the period are set out below: -

(a) Establish strategic objectives; approving both financial and non-financial targets including new products and markets.

(b) Approve large capital investments and Corporate Social Investment plans.

(c) Evaluate Management performance for alignment with approved strategic objectives, initiatives and targets; the Board sets a fairly high bar of execution and performance to attain maximization of shareholder and other stakeholder values through a healthy balance of risk and return within the Bank.

(d) The Board conducts at least two (2) strategic planning sessions annually with its Senior Management at which both the traditional opportunities and challenges of the Banking Industry as well as innovative disruptors are reviewed through a holistic and comprehensive analysis covering the short, medium and long term parameters to determine strategic direction.

(e) The Board and its respective committees convene at least once in every quarter of the financial year. An annual activities calendar and work plan are developed containing specific tasks the Board wishes to have accomplished at its level and or shareholders by year end.

(f) The Board recognizes the significant importance of the audit process which is therefore communicated throughout the Bank. Findings in both the internal

Statement of Corporate Governance

Centenary Bank embraces best corporate governance practices and their implementation is considered fundamental to its growth and sustainability. The Board is therefore consistent in its commitment to keep abreast with new corporate governance initiatives unfolding constantly on both the international, regional and local scenes to uplift corporate governance for the benefit of the company and for all its stakeholders.The Bank has remained a dedicated active member of the Institute of Corporate Governance Uganda and supports other local organizations which promote corporate governance in Uganda.


and external audits are reported and utilized in a timely and effective manner for correction by Management of lapses, infractions and issues identified by the Auditors.

(g) Review and set the Bank’s compensation philosophy for recognition and reward and approve compensation of senior management and other key human resource.

(h) Define and review mandates between the Board and Management to take into account organizational growth requirements and to maintain adequate risk control and oversight.

(i) Approve internal policies and controls in line with prudent risk management.

Board Roles

The Directors bio data as at the date of this Annual report are set out in the Board of Directors section. Under the board structure the executive and the non-executive directors are brought together in a single body and share collective responsibility. As at the date of this Annual Report, the Board comprises 12 members including the Chairperson, 2 Executive Directors (namely the Managing Director and the Executive Director) and 10 non-executive Directors. There are no vacancies on the Board.The key responsibilities of these stated offices are as follows: -

(a) Board Chairperson The office of the Chairperson is non-executive

and provides overall leadership including setting the ethical tone, and setting the Board annual work plan. The Chairperson guides Board meetings and sets a conducive atmosphere for frank discussions and is a vital link between the Board and Management. The Board Chairperson ensures that through an annual Board evaluation process a culture of accountability and performance is extended. The Chairperson is also responsible for ensuring that the Bank maintains good relationships with its major shareholders, regulators and major stakeholders.

(b) Executive Directors The Central Bank under the “Four Eyes” principle

requires financial institutions to have at least 2 Executive Directors, resident in Uganda who are knowledgeable in the institution’s long term strategy to direct the business of the company. The Bank therefore has two (2) Executive

Directors including the Managing Director who is accountable to the Board of Directors and is assigned overall control of management of the Bank. In line with the “Four Eye” there is also a balanced span of control of direct reports to the office of the Managing Director and the Executive Director. The Managing Director is charged with the responsibility of identifying the business strategy of the Bank. As the Chief Executive Officer, he is also responsible for directing the Bank’s operations and for acquisition, development and retention of critical human capital to drive the business. The Managing Director ensures that adequately informative reports on the state of affairs of the business are submitted to the Board of Directors on a timely basis along with possible action plans for its alignment with approved targets.

(c) Non-Executive Directors The Bank takes cognizance of the increasing

importance and value of the role of non-executive directors. They bring about independent thinking, outsider perspective, expertise and diversification of views by generating a wider spectrum of options to those proposed by Management. The non- executive directors consequently enrich the final decision of the Board. At the Bank, the quorum for all committees of the Board is accordingly comprised of Non-Executive Directors. The 3 Directors appointed to the Board in 2016 were all Non Executive Directors which refreshed the level of Independence on the Board.

(d) Company Secretary The Board has a service of a full time Company

Secretary who provides guidance to the Chairperson and the Board on ethics and good corporate governance. The Company Secretary also guides directors in their duties and responsibilities in consonance with legislation. This is mostly with the Financial Institutions Act and relevant regulations and the new Company’s Act 2012 which greatly enhanced the standard of care for directors. The office of the Company Secretary supports the Board in the annual evaluation process inclusive of identifying the full Board and individual members development needs, plans and appropriate faculty often agreed upon on completion of the evaluation process. The Company Secretary also supports the Board in administering strategic level matters.

STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued...)


The primary responsibilities of the Independent Board Chairman, Managing Director and the Company Secretary are all set out in writing in the Board Charter. This enhances transparency and the respective positions are embedded with checks and balances in which no individual has unfettered decision- making power which therefore promotes accountability.

Board Committees

Certain aspects of the Board’s responsibilities have been delegated to the Committees to assist the Board by providing in-depth analysis. The members and Chairpersons of the Committees are appointed by the Board of Directors which also approves their tenure. The Chairman of each committee, on its behalf reports at the subsequent meeting of the full Board on the activities and decisions of the Committee. Directors also have full and timely access to documents and proceedings of Committees shared on the Board Portal. The Board Committees comprise of “specialized committees” required under the Financial Institutions Act and regulations among others. Each committee has elaborate and clear written Terms of Reference setting out their role, function, term of service of members, responsibilities, scope of authority and operational matters relating to quorum, secretary and attendance of Management. The

mandates of the specialized committees comply with relevant legislation and regulations and their performance and effectiveness is reviewed annually, this also enhances risk management above the standards set by legislation.

The specialized committees of the Board are Audit, Assets & Liability Committee (ALCO), Human Resource and Compensation and Risk Management. Besides these the Board has additional committees, Credit and IT (Strategy) to support it in its oversight since the Board reserved certain ‘high’ risk and large investment decisions to itself.

As a private limited liability company, the shareholders are entitled to nominate and elect the Directors of the Company. In the quest of adopting beneficial corporate governance practices applied by public liability stature companies, the Board through the Nominations Advisory Committee supports the shareholders in managing succession planning. The Board developed a matrix to self-assess the strengths of the Board and the gaps to be filled ensuring an important balance of continuity and acquisition of relevant competences. This is in light of evolving institutional needs that are kept at the forefront of changes on the Board of Directors. The mandates of the Committees and their performance are reviewed annually.

Some of the key functions of the Board Committees:

Board Committee

Role and Terms of Reference (TORs)Membership Required under the TORs

Minimum No. of Meetings per year

Audit Reviews and reports to the Board on financial reporting, internal control and risk man-agement systems, independence and effectiveness of both external auditors and the in-ternal audit function and monitoring compliance with legislation. Makes recommenda-tions to the Board for a resolution to be put to shareholders of the company in relation to appointment and remuneration of the external auditors.

4 members all non-executive directors.

4

Assets and Liability Committee

Establishes guidelines in risk tolerance and expectations on investments, financial targets and expenses and supports Board in evaluating business performance. Ensures that Man-agement implements the Assets and Liability Management policy and effectively manages the market risks.

4 members with at least 2 non-executive directors.

4

Human Resource and Compensation

Makes recommendations to the Board on remuneration and incentive, compensation plans (including bonuses), and other benefits and contract terms for Senior Management. This is done in line with the institution’s culture, objectives, strategy and industry trends.

4 members all non-executive directors.

4

Risk Management

Oversees Operational Risk Management systems, practices and procedures including risk identification, management, monitoring and control. The Committee also monitors legal suits against the Bank and their materiality and reports on risk assessment levels.

4 members with at least 2 non-executive directors

4



Board Committee

Role and Terms of Reference (TORs)Membership Required under the TORs

Minimum No. of Meetings per year

Credit Considers the Bank’s credit strategy, its implementation and reports on the entire credit portfolio of the Bank as well as compliance with applicable statutory and internal ratios and provisioning.


4

IT (Strategy) Reviews and reports on governance of the Bank’s IT resources, services and initiatives for direction and alignment with the business.


4

Nominations (Advisory)

Reviews and makes recommendations to the Board for it to put to the shareholders for consideration on the structure, size and composition of the Board with an appropriate balance of skills, knowledge, experience and diversity.

4 members all inde-pendent

2

Management CommitteesCertain detailed aspects of Board’s responsibilities are delegated, in addition to the Executive Directors, to appropriate management-led committees whose key roles are set out below: -

Management Committee

Role and Terms of Reference (TORs)

Executive Committee

Comprises of Executive Directors, business line and support function heads. Meetings are attended by the head of Internal Audit. The forum performs an advisory role to the office of the Managing Director on various matters including formulation, implementation and review of strategy, structure and policy and is responsible for making recommendations on reports from all Management Committees

Assets & Liability Management Committee

Ensures the Bank’s balance sheet is managed in accordance with regulatory requirements and policy set by the Board. It also ensures that the financial performance (income/loss) and status (balance sheet) is optimal, stable and positive through implemen-tation of appropriate strategies in respect of funding, pricing, liquidity and investments.

Human Resource Committee

The Committee is responsible for reviewing, aligning and making recommendations on strategic matters regarding the Bank’s human resource capital.

Credit Committee

Reviews the policy, procedures and performance of the credit business in line with applicable legislation, board mandates and performance targets.

Operational Risk Committee

Responsible for Risk assessment, management and reporting matters arising from discussions of existing and potential operational risk within the various units across the entire Bank.

ICT Committee

Monitors progress, implementation and maintenance of the Bank’s ICT strategic plan and makes recommendations to the Board on adequate policies, standards and procedures especially relating to information security, control and management of data.



Managing Director/ Executive Director

Board AuditCommittee

Board Risk ManagementCommittee

Board ALCOCommittee

Board CreditCommittee

Board HR andCompensation

Committee

Board IT(Strategy)

Committee

Management Responsibility

Board Oversight

Operation RiskCommittee

Management ICT

Management Credit RiskCommittee

Management ALCO

Committee

ManagementHRC

Internal Audit

Assurance

Centenary Bank Board

RISK GOVERNANCE STRUCTURE


Board Attendance

The Board scheduled quarterly meetings for itself and its respective committees and all meetings are held in accordance with the Financial Institutions Act in respect to specialized committees. Committees are permitted to convene additional meetings to afford them time to attend to critical matters within their purview. Additional meetings were held for the IT Strategy Committee as the new core Banking project progressed to more critical levels. Overall the Board and its Committees achieved the following average attendance score:

Name of Board Forum Actual attendance of members as %Board of Directors 100% Board ALCO 100% Board Audit Committee 100% Board Risk Committee 100% Board Human Resource & Compensation 92%Board IT Strategy 100%

Board Credit Committee 100%

The Board is aware of the responsibility of the Directors to execute their functions through meetings hence the high record of attendance.

Board composition

Board Changes:Three (3) new Directors were approved by the Central Bank and joined the Board in the course of the year, namely Mr. Richard Thil (French), Mr. Caspar Sprokel (Dutch) and Dr. Mary Teopista Wenene (Ugandan); The Board was pleased by the appointment of a female Director on the Board and maintained international or geographical diversity.

Tenure of Directors

The company has no restrictions on length of tenure and age of Directors. It rather recognizes the superseding importance of strong objective judgment, independence of its non-executive Directors, and that it has the right mix of collective knowledge and experience which are critical for the strategic well-being of the company.Due regard has nonetheless been given to ‘new blood’ on the Board albeit not at the expense of desired continuity in light of the strategic needs of the company.


Diversity and independence

The Board seeks to ensure that it and its committees have an appropriate composition to discharge their duties effectively and to manage succession issues. To enable the Board to meet its responsibilities, it is important that the Board’s composition is sufficiently diverse and reflects a broad range of knowledge, skills and experience and is committed to the Bank’s mission. The composition of the Board illustrates the diversity of the Board in terms of skills and experience. This can be seen as indicated below:

Economics• Prof. John Ddumba-Ssentamu

Banking• Mr. Andrew Obol• Mr. Henry Kibirige• Mr. Richard Thil• Mr. Caspar Jan Frits Sprokel

Accounting & Finance• Mr. Kimanthi Mutua• Mr. Fabian Kasi

Human Resource• Dr. Mary Theopista Wenene

Theology & Sociology• Archbishop Paul Bakyenga• Archbishop Cyprian Kizito Lwanga

Legal, Governance and Business Administration• Dr. Simon Kagugube

Agricultural Economics• Dr. Peter Ngategize

The Corporate Governance regulations to the Financial Institutions Act require at least 5 directors to possess demonstrated expertise and experience relevant to the functions of the financial institution. They do include financial control, accounting, Banking, risk and corporate planning. The Bank is compliant and further conducts a skills review as part of its self- evaluation. This indicates the main areas of knowledge and experience of existing Directors and enables the Board to cite skills areas needed for recommendation to its shareholders to observe in submitting nominations of new directors.

Out of the current Non-Executive Directors only two(2) are employees of shareholding companies, however all the non-executive directors are independent in both character and judgment. In compliance with regulations and best practice, members of the Audit Committee, Compensation (which is joined with Human Resource affairs) and the Nominations Advisory Committee are Non-Executive Directors.

Board diversity in terms of skills and experience


Effectiveness

Review of Board effectiveness

The effectiveness of the Board is important to the success of the company and for that reason the Board conducts an annual review to reflect on its collective performance and that of its individual members. The objective of the latter focuses on identifying training needs of Individual Directors which areas are subsequently attended to. The review for 2016 was carried out with the help of an External independent consultant who also contributed to the improvement of evaluation tools and trained the Board with emphasis placed on succession planning at both Board and Management levels. Otherwise the results generally indicated continued progress of the Bank in its corporate governance.

Board induction and professional development

The Board received both local and international training during the year in specialist areas including strategy, company structures and IT governance. Directors, particularly the new Directors attended conferences on corporate governance, visited a number of branches and head office operations as part of their induction.

This is typically arranged by the Company Secretary in consultation with the Chairman. The members of the Audit Committee received written technical updates

from the Bank’s External Auditors, Ernst and Young to keep abreast of latest financial reporting development. Developments in the tax arena were received from time to time from the Company’s tax consultants PricewaterhouseCoopers to ensure compliance and avert legal risk of exposure.

Information for Directors

The Chairman is responsible for ensuring that all of the Directors are properly briefed on issues arising at Board meetings and that they have full and timely access to relevant information. To enable the Board todischarge its duties, all Directors receive appropriate information from time to time, including briefing papers distributed in advance of the Board meetings on an E-board reports software.

Directors can, where they judge it to be necessary to discharge their responsibilities as Directors, obtain independent professional advice at the Company’s expense. The Board committees therefore have access to sufficient resources to discharge their duties, including external consultants and advisers.

External Board appointments and conflicts

At every meeting directors are expected to disclose any area of potential conflict of interest and would therefore be excluded during consideration of the relevant matter under the company’s governance charter. This principle is also practiced in Management. The Chairman and the Board members are also expected to inform of any proposed external appointments they receive as they arise. Each Director’s biographical details and significant time commitments outside of the company are set out in the Board of Directors section.

Going Concern

Based on performance, mid and long term projections the Directors believe and continue to view the Bank as a going concern.

CENTENARY BANK l Annual Report & Financial Statements 2016


In order to enhance independence and objectivity, the Financial Institutions Act (Corporate Governance) regulations also require that 50% of the Board should comprise of non-executive directors. The Bank had 10 Non-Executive Directors during the period and was above the mark.

The Bank’s standard Board size is 10 Non-Executive Directors and this has been maintained and justified.


Prof. John Ddumba SsentamuBoard Chairman. (Ugandan)

Professor of Economics and holds a PhD in Economics, with various international awards. Currently Vice Chancellor, Makerere University Uganda and previously acting Principal, College of Business and Management Sciences. For several years he was Chairman, Microfinance African Institutions Network (based in Lome, Togo), and has contributed greatly to the Centre for Research on Environmental Economics and Policy in Africa as member of its Advisory Board and Committees. Has been Chairman, Academic Board, African Economic Research Consortium (AERC), Nairobi, Kenya and holds an honourary fellowship of the Uganda Institute of Banking and Financial Services (FUIB, HONS). He has made a number of publications on a spectrum of areas in Economics. Previously served as member of the Finance Committee of CARITAS, International based in the Vatican.

Archbishop Cyprian K. LwangaNon-Executive Director. (Ugandan)

Archbishop of Kampala Archdiocese. Is a professor of Canon Law from Ggaba National Seminary and St. Mbaaga Major Seminary and holds a Doctorate in Canon law from Pontifical Urban University in Rome. As an entrepreneur, he has innovated and set various programmes including Wekembe Corporation Programme (now SACCO), the Uganda Martyrs Development Foundation and Kampala Archdiocese Pro-life Apostolate. Was the World-wide Vice President of Caritas International and Continental President of Caritas Africa and has also served on Board of Governors of various Church founded schools/institutions.

Mr. Henry KibirigeNon-Executive Director. (Ugandan)

Chairman of the Audit Committee. He is also a Director on the Board of National Water and Sewerage Corporation and is the Chairman of its Audit Committee. He serves on the Board of Lion Assurance Company Ltd and chairs its Investment Committee. He holds a Bachelor of Arts degree from Makerere University and most of his career was served in the Bank of Uganda (Central Bank) rising to the level of Executive Director Supervision Function, where he contributed to the liberalization of foreign exchange transactions and implemented legislative and institutional reforms of the country’s financial sector programme, funded by the World Bank under the Financial Sector Adjustment Credit. He worked briefly with Citi Bank (U) as a Banking Consultant after leaving the Central Bank.

STATEMENT OF CORPORATE GOVERNANCE AND RISK MANAGEMENT (continued...)BOARD OF DIRECTORS

Archbishop Paul Bakyenga Non-Executive Director. (Ugandan)

Holds a doctorate in Sacred Scripture from Rome LSS. Currently Archbishop of Mbarara Diocese which is a shareholder in the Bank and is an advocate for service to the poor which is a bedrock of the mission of the Bank of providing financial services especially to the rural poor. Previously chaired the Uganda Episcopal Conference, the Association of Members of Episcopal Conferences of Eastern Africa (AMECEA) and was Chancellor of Catholic University of East Africa (Nairobi) and Uganda Martyrs University [Nkozi].


Mr. Kimanthi MutuaNon-Executive Director. (Kenyan)

Currently Chairs IT (Strategy) and the Assets and Liability Committees (ALCO). A Certified Public Accountant with considerable experience in banking, finance and information technology. He served as founding Managing Director of K-Rep Bank (now Sidian Bank in Kenya between 1999 – 2010). Currently he serves on boards of several organizations, including Sidian Bank, ECLOF International (Chair), PAMIGA Association (Chair) and K-Rep Group of Companies (CEO). He is a faculty member of the Boulder Microfinance Training Program and also advises several organizations, locally and international, on Regulatory & Supervision issues for financial inclusion, as well as transformation strategies for microfinance institutions.

Dr. Peter NgategizeNon-Executive Director. (Ugandan)

Currently Chairman of Credit and Risk Management Committees. Holds a PhD (Agricultural Economics) and is the National Coordinator of the Competitiveness and Investment Climate Strategy (CICS) Secretariat with the Ministry of Finance, Planning and Economic Development of Uganda. Representative of the Government of Uganda on the Founders’ Committee of the Agricultural Business Initiative Trust (aBi) Trust. Has spearheaded many initiatives towards the Private Sector competitiveness and development in Uganda.

Mr. Andrew P.K. ObolNon-Executive Director. (Ugandan)

Chairs the Human Resource & Compensation Committee. A qualified professional banker. Served on the top management of Uganda Commercial Bank (now Stanbic Bank) and was the Coordinator of CARITAS Kitgum under Gulu Diocese. He was a member of the District Service Commission.

Mr. Fabian KasiManaging Director. (Ugandan)

Managing Director of Centenary Bank. He was a Board Chairman of the Association of Microfinance Institutions of Uganda and served on the Board of FINCA Uganda and Kampala Club. He is the current Chairman of the Uganda Bankers Association, a member of the Board of Uganda Institute of Bankers, British American Tobacco (U), PAX Insurance and is the Chairman of the Advisory Board of Microfinance Department of Nkozi University. He holds a Bachelor’s Degree in Commerce, a Masters of Business Administration and is a Fellow of the Association of Chartered Certified Accounts (FCCA), United Kingdom.



BOARD OF DIRECTORS

Dr. Mary Theopista WeneneNon-Executive Director. (Ugandan)

Member of the Human Resource and Compensation Committee. Holds a PhD in Public Administration. Has risen through the ranks from Human Resource Officer to Permanent Secretary. Has made contribution to public service reforms aimed at improving performance management and public service delivery. Currently Permanent Secretary/Secretary, Health Service Commission.

Dr. Simon KagugubeExecutive Director. (Ugandan)

He holds a Doctorate in the Science of Law (JSD), from Yale Law School (USA), and a Certificate in Public Finance from the University of Bath, (UK). He is an Advocate of the High Court of Uganda. Prior to assuming the office of Executive Director with the Bank, he had served as Chairman of the Board of Directors Centenary Bank in 2002, while also holding the position of Director, Tax and Legal Services PricewaterhouseCoopers. He worked with the Uganda Revenue Authority as Commissioner Value Added Tax and was appointed Deputy Commissioner General. Currently Board Chairman, Monitor Publications Limited, a Nation Media Group subsidiary in Uganda, and is a Member of the Board of Nation Media Group where he also serves as member of its Finance and Audit Committees. He is the Board Chairman, Uganda Revenue Authority and President, East African School of Taxation.

Mr. Richard ThilNon-Executive Director. (French)

Currently member of the Assets & Liability (ALCO) and Credit Committees. He holds a MS in Public Affairs (Institut d’Etudes Politiques de Paris); a Master degree in Law with honor (Paris Assas), a Bachelor degree in History with specialization in international relations (Paris/Pantheon). Prior to assuming the position of non-executive Director with the bank, he had served for 18 years as General Partner and member of the Executive Committee of an important international investment bank based in Paris and London.

Mr. Caspar Jan Frits SprokelNon-Executive Director. (Dutch)

Member of the Assets & Liability (ALCO). Has experience spanning over 20 years in financial institutions across Europe, Asia and Africa specifically in commercial banking, SMEs and Corporate banking. His experience in Africa involves 17 countries including memberships on Boards of Directors with Akiba Commercial Bank – Tanzania, Novo Banco Mozambique and on the Mozambique Private Equity Fund. Has wide experience in Management of Equity and Debt Investments and exits especially in SMEs and microfinance institutions and has a track record of adding value to and transforming Investee companies through providing strategy, Business Planning and Strategic Direction.



Centenary Bank uses an Enterprise wide Risk Management (ERM) approach which is governed by the Risk Management Framework Policy. The Bank recognizes that many risks within the organization are interrelated and should not be managed independently, but rather across the Bank. This ERM frame-work sets forth guidance to manage risks across the Bank. It aims to strengthen the Bank’s ability to develop an integrated view of risk and the means to handle risks within a comprehensive approach.

Risk Management Philosophy:

The bank is committed to improving the risk management framework, capabilities, and culture across the bank, so as to ensure the long-term growth and sustainability of our business.

Risk is inherent in the bank’s business and the markets in which it operates. The aim is to identify risks and then manage them so that they can be understood, reduced, mitigated, transferred or avoided. This demands a proactive approach to risk management and an effective enterprise wide risk management framework.

Centenary Bank’s overall risk management process is overseen by the Board through the Board Risk Committee as an element of solid corporate governance. Centenary Bank recognizes that risk management is the responsibility of everyone within the bank. Rather than being a separate and standalone process, risk management is integrated into business and decision-making processes including strategy formulation, business development, business planning, capital allocation, investment decisions, internal control and day-to-day operations.

Risk management objectives:

• At a strategic level, the bank focuses on the identification and management of material risks at the top, business and functional levels, in order to better equip itself to pursue the bank’s strategic and business objectives. In pursuing growth opportunities, the bank aims to optimize risk / return decisions whilst establishing strong and independent review and challenge processes.

• At an operational level, the bank aims to identify, assess, evaluate and mitigate operational hazards and risks in order to create safe, healthy, efficient and environmentally friendly workplace for its employees and contractors whilst ensuring public safety and health, minimizing environmental impact, and securing asset integrity and adequate insurance.

ERM Objectives applicable

Centenary Bank’s ERM program brings risk knowledge and information to the fore in decision-making processes to mitigate the downside of unrewarded risk while exploiting rewarded risks to benefit from business opportunities.

The ERM objectives are to:

• Support the Bank’s business growth strategy through the implementation of well defined and common risk management processes, tools, and techniques.

• Counter losses and improve business value through optimization of risk and return.

• More knowledgeably seize and exploit opportunities and quickly identify risks to avoid, both current and emerging risks.

• Reduce uncertainty and increase the likelihood of success in achieving the bank’s strategic initiatives.

• Build credibility and sustainable stakeholder confidence in Centenary Bank’s governance and

risk management processes and comply with both regulatory and local laws and jurisdictions.

Risk management and control




• Improve the understanding of interactions and interrelationships between risks.

• Establish clear accountability and ownership of risk.

• Develop a common language that helps to establish the broad scope of risk and to organize risk management activities, and reinforce Centenary Bank’s risk culture.

• Develop capacity for continuous monitoring and reporting of risk across Centenary Bank, from the operational level to the Board.

Risk Categories

To enhance the understanding of particular sources of risk, their possible consequences, and the practical approaches to managing them, Centenary Bank has defined risks into 9 major categories. These risk categories are groupings that help the bank to consistently identify, assess, measure, monitor and report across on its overall risk exposure. Using consistent risk categories across the bank enables aggregation and determination of overall risk impact.

This enhances the understanding of particular sources of risk, their possible consequences, and the practical approaches to managing them. Centenary Bank has adopted the following risk categories:

i) Strategic Risk

Risk of current and prospective impact on the Bank’s earnings and capital arising from poor business decisions, improper implementation of decisions or lack of response to industry, economic or technological changes.

Strategic risks and opportunities may affect Centenary Bank’s strategic ambitions. Strategic risks include economic and political developments and anticipating and timely responding to market circumstances. Centenary Bank is prepared to take considerable strategic risks given the necessity to invest in growth& development and manage the portfolio of businesses, including Partnerships and corporations, in a highly uncertain global political and economic environment.

Strategic risk was rated medium during the year on account of high interest risk and residual risk. The major drivers of strategic risk were technological changes, competition and projects.

ii) Credit Risk

Potential that a bank borrower or counterparty will fail to meet their obligations in accordance with agreed terms.

Credit was assessed to be low but increasing. Inherent risk was medium and residual risk was low but both were increasing. The year was characterized with unpleasant economic environment and changes in climate that caused prolonged draught that affected loan repayment.

iii) Liquidity Risk

Risk resulting from the Bank’s failure to pay its debts and obligations when due because of its in- ability to convert assets into cash, or its failure to procure enough funds, or, if it can, that the funds come with an exceptionally high cost that may affect the bank’s incomes and capital fund now and in the future.

Liquidity Risk was low and stable throughout the year. All the key liquidity ratios were adequately managed and Bank of Uganda liquidity requirements were satisfied.

iv) Market Risk

This is the risk that the value of the Bank’s investments will decrease due to unexpected and/or adverse changes in market factors such as stock and commodity prices as well as interest and foreign exchange rates.

Key market risks factors for the Bank include; Interest Rate Risk and Foreign Exchange Risk which have been described below:

Interest Rate Risk: The exposure of the Bank’s financial condition to adverse movements in interest rates. The year was characterized with pressure from Government and demand from the public to reduce interest rates and a volatile Net Interest Margin (NIM) regime. Overall Interest rate risk was medium and stable.


Foreign Exchange Risk: Risk associated with doing business in two or more currencies. Foreign exchange price risk relates to possible revaluation losses (or gains) on long/over bought or short/oversold currency positions in response to movements in exchange rates.

Despite the depreciation of the Uganda Shilling against major currencies, the bank’s foreign exchange risk was adequately managed and rated low as at 31 December, 2016 with a net open position of 2.16% compared with a threshold of 25%.

v) Reputation Risk

This is the risk arising from changes in public opinion that impact the Bank’s earnings or access to capital. This can be mainly thought of as publicity or operational inadequacies that would have an adverse effect on the Bank’s public image.

vi) Operational Risk

Risk of direct or failed internal processes, people, and systems or from the external events or unforeseen catastrophes. It includes the exposure to loss resulting from the failure of a manual or automated system to process, produce, or analyze transactions in an accurate, timely and secure manner.

Operational risks increase the Bank’s exposure

to other risks by impairing the Bank’s ability to adequately assess, monitor and report on other risks. Operational risks cut across all the Bank’s divisions and include, but not limited to:

Human Resources Risk: The risk arising from inadequate human resources or inappropriate use of available staffing resources.

Business Process Risk: The risk arising from inadequate implementation and non-adherence to the Bank’s business processes.

Legal Risk: The risk arising from contracts or other arrangements that are not enforceable

through available means.

Health & Safety Risk: The risk arising from non-compliance with or lack of health and safety regulations, policies or procedures.

Operational risks include; adverse unexpected developments resulting from internal processes, people and systems or from external events that are linked to the actual running of each business. The Bank aims to minimize downside risks due to the need for high quality of its products and services, reliable IT systems and sustainability commitments.

Vii) Compliance Risk

Risk of legal or regulatory sanctions, material financial loss or loss to reputation. The Bank may suffer these as a result of its failure to comply with laws, regulations, prudential guidelines, supervisory recommendations and directives, rules, internal policies and procedural guidelines and codes of conduct applicable to its banking activities.

Compliance risks cover unanticipated failures to implement, or comply with, appropriate laws, regulations, policies and procedures.

Viii) Information Technology Risk

The risk arising from inadequate information communication technology (ICT) resources or inappropriate use of available ICT resources. This can result in financial loss and lost business opportunities due to unavailability of the ICT resources, loss of data integrity and confidentiality.

ix) Country Risk

Refers to the risk of investing in a country, other than Uganda, resulting from uncertainties arising from the economic, social and political conditions of that country that may cause borrowers in that country to be unable or unwilling to fulfill their obligations to the Bank.



The main categories of country risk comprise sovereign, transfer and contagion risk and are described below:

Sovereign risk: Denotes a foreign government’s capacity and willingness to repay its direct and indirect (i.e. guaranteed) foreign currency obligations.

Transfer risk: This is the risk that a borrower may not be able to secure foreign exchange to service its external obligations.

Contagion risk: This risk arises where adverse developments in one country lead to a downgrade of rating or a credit squeeze not only for that country but also other countries in the region.

Centenary Bank’s Risk Appetite and Risk Profiling Criteria:

The bank’s risk appetite represents the amount of risk the bank is willing to undertake in pursuit of its strategic and business objectives.

In line with bank’s Value Framework and expectations of its stakeholders, Centenary Bank will only take reasonable risks that (a) fit its strategy and capability, (b) can be understood and managed, and (c) do not expose the bank to:

• material financial loss impacting ability to execute the bank’s business strategy and / or materially compromising the bank’s ongoing financial viability,

• incidents affecting safety and health of our staff, contractors and the general public,

• material breach of external regulations leading to loss of critical operational / business license and / or substantial fines,

• damage of the bank’s reputation and brand name,

• business / supply interruption leading to severe impact on the community, and

• severe environmental incidents.

Based on the above, the bank has established its risk monitoring in the form of a risk assessment matrix to help rank risks and prioritize risk management efforts at the strategy level. Business units are required to adopt the same risk matrix structure in order to establish their own risk profiling, determine consequence and likelihood of identified risks with reference to their own materiality and circumstances as well as establishing risk mitigation strategies.

Risk Mitigation & Communication:

Risks identified through our risk management processes are prioritized and, depending on the probability and severity of the risk, escalated as appropriate. Senior management discusses these risks periodically and assigns responsibility for them to the businesses. The assigned owners continually monitor, evaluate and report on risks for which they bear responsibility. Enterprise risk leaders withineach business and unit functions are responsible to present risk assessments and key risks to senior management at least monthly. We have general response strategies for managing risks, which categorize risks according to whether the bank will avoid, transfer, reduce or accept the risk. These response strategies are tailored to ensure that risk levels are within the risk appetite.

Depending on the nature of the risk involved and the particular business or function affected, we use a wide variety of risk mitigation strategies, including; delegations of authority, standardized processes and strategic planning reviews, operating reviews, insurance, and hedging. Our service businesses employ a comprehensive tollgate process leading up to and through the execution of contractual service agreement to mitigate legal, financial and operational risks.

Furthermore, we centrally manage some risks by purchasing insurance, the amount of which is determined by balancing the level of risk retained or assumed with the cost of transferring risk to others. We manage the risk of fluctuations in economic activity and customer demand by monitoring industry dynamics and responding accordingly, including by adjusting capacity, implementing cost reductions.



The Bank has a zero tolerance to fraud policy. In 2016 we introduced a fraud risk unit in the risk division with the aim of supporting all stakeholders be aware and eliminate fraud. The program on money laundering prevention continued, with a focus on the ‘know your customer’ initiative.

Business Continuity Management:

Business Continuity Management (BCM) is a holistic management process that identifies potential impacts that threaten an organization and provides a framework for building resilience and the capability for an effective response that safeguards the interests of its key stakeholders, reputation, brand and value creating activities.

The Bank has in place an appropriate business continuity management program. Its ultimate purpose is to minimize the impact on the organization and recover from loss of information assets which may result from natural disasters, accidents, equipment failures, and deliberate actions to an acceptable level. This is through a combination of preventive and recovery controls. The process includes the development, maintenance, and testing of contingency plans and work around procedures necessary to sustain the operational continuity of mission critical processes, information technology systems and resources.

Business Continuity Management Framework

Centenary Bank continues to ensure that a business continuity management process is in place and sufficient financial, organizational, technical, and environmental resources are identified to address the specific requirements for Business Continuity.

A Business Continuity Management Framework was developed in accordance with best practices and standards to ensure all plans are consistent and to identify priorities for testing and maintenance.

Business Continuity Management (BCM) Process BCM is important to the Bank and is the overall

responsibility of Senior Management to ensure that it is implemented. Senior Management is committed to drive the BCP process, provide adequate resources and ensure that the respective plans are well developed, documented, tested, updated and maintained.

Consequently, the following BCP management process has been established to ensure that the plans are developed, documented, tested, updated and maintained;

• The Bank’s plans are developed according to the BCP framework and in compliance with the policies.

• BCP is an ongoing process of development, testing, updating and maintenance, and not just a one off project. It is a part of every division Head’s normal responsibilities to ensure that the division has not only planned for the recovery of all critical business processes of that business unit, but has also tested and maintained those plans.

• Each division has an approved Business Continuity Recovery Plan for the recovery of its critical business processes.

• Every year, the BCM unit in consultation with the BCP Steering Committee/BCMT establishes the BCP Development Plan for the year. The plan sets out the BCP activities to be undertaken for that year, who is responsible for those activities and the timeline for such activities. The BCP Steering Committee reviews and approves the BCP Development Plan.



We do not exist in a vacuum so we rely on technology to give us a 360 degree view of our environments, the risks

to navigate and the opportunities to exploit.

SUSTAINABILITY REPORTING STATEMENT


Sustainability Reporting Statement

Centenary Bank is aware of its role in satisfying short and long term needs of the various stakeholders that it serves and ensures that they gain outstanding value, through commercial Microfinance. The Bank is further using technological interventions to expand financial inclusion. The aim of this report is to provide an objective analysis of sustainability issues that are critical to the Bank’s operations. The report follows guidelines released by the Global Reporting Initiative (GRI), which is a joint initiative coalition for Environmentally Responsible Economies and the United Nations Environment Programme. The guidelines have been issued for voluntary use by organizations for reporting on the economic, environment and social diversion of their activities, products and services aimed in articulating the understanding contribution to sustainable developments.

Value Added Statement

The Value Added Statement shows the social value added that the Bank makes through its activities. Value added is calculated as the Bank’s performance minus payments such as cost of materials, depreciation and amortisation. The resulting amount is distributed to the stakeholders who include employees, shareholders and the government

Value Added Statement for the year ended 31 December 2016

2016 2015 Shs’000 % Shs’000 %

Value added Interest income 367,590,650 79.2% 305,327,547 77.5%Commission, fee income 76,206,366 16.4% 66,990,666 17.0%Other revenue 20,059,736 4.4% 21,582,433 5.5%Total income 463,856,752 100% 393,900,646 100%Less:Interest paid to depositors 46,817,284 39,108,973 Cost of other services 113,217,631 80,331,284 Wealth created 303,821,837 274,460,389

Distribution of wealthSalaries, wages and other benefits 130,921,674 43.1% 117,502,822 42.8%Government 37,955,689 12.5% 34,910,783 12.7%Shareholders - (dividends) 27,593,817 9.1% 25,516,936 9.3%Retention to support future business growth 107,350,657 35.3% 96,529,849 35.2%

Wealth distributed 303,821,837 100% 274,460,389 100%

Retention surplus 82,314,955 76,084,312

Depreciation 25,035,702 20,445,536

As illustrated by the Value Added Statement, the Bank is a material contributor in the financial sense to various stakeholders.

Of the total wealth created in 2016:

• Shs 130.9billion (43.1%) was distributed to employees as remuneration and benefits.• Shs 38.0 billion (12.5%) was allocated to Government in form of direct and indirect taxes, including; charges

in deferred taxation assets and liabilities.• Shs 107.4 billion (35.3%) was retained for investment in business in order to ensure its profitability and

sustainability contentment into the future.• Shs 27.6 billion (9.1%) is to be distributed to shareholders as dividends.

Responsibility for sustainable development

The Managing Director held the ultimate responsibility for sustainability development of the Bank which cascaded down to staff through the Executive Committee (EXCO).


Key Stakeholders

We continuously engage with our various stakeholders who are the drivers of our business. Below is a detailed discussion of how the various stakeholders impact on the value of the company and how relationships with them are managed;

Stakeholder Effect of performance on business Engagement Activities Carried Out

ShareholdersProvide long term capital. The capital base stands at Ushs.485 billion making us one of most capital-ized banks in the Uganda.

Annual General Meeting (AGM) is held on a yearly basis.Annual Report is presented at the AGM by the Board of Directors.Audit Opinion is presented to the shareholders by External Auditors.

Board of Directors The Board is responsible for the strategic direction

of the company, implementation of sound internal control systems, approval of company policies, op-erational and capital expenditure budgets amongst other roles.

The Board sits at least four times a year to review company operations and perfor-mance, internal audit and risk management reports and other reports.Training sessions are held for the Board. On an annual basis, strategy review sessions attended by the Board of Directors and the management team are held.

CustomersThese are the individuals and companies with whom the Bank conducts business.

A call Centre was set up to ensure constant engagement with the customers.CRM Model has been institutionalized with different segments attached to various staff that visit and follow up customer issues and needs.Customer days where customers are invited to interact with staff and management as per detailed customer engagement report below.Service contact points: 69 Branches, 172 ATMs and Point Of Sale terminals.

EmployeesThe Bank has close to 2,400 dedicated staff who offer services to our customers and other stake-holders. The Bank focuses on attracting, recruit-ing, training and developing its staff as well as fairly remunerating and retaining the best talent in the market.

The Bank trains its staff to be able to deliver its services. Trainings are provided in a workshop setting and on line training as detailed in the employee empowerment report.The Bank also has team building exercises to engage staff. For example CenteFusion, CenteFun day

Regulators(BOU,NSSF and URA)

Monitoring of the banks compliance with the ap-plicable laws and regulations.The bank complied with all legal and regulatory requirements.

Taxes to URA and employee contributions to NSSF were paid as stipulated in the law.The bank provided all bank returns required by Bank of Uganda and complied with FIA 2004 (as amended) and prudential regulations.

External Auditors Ensure that company’s financial results reported

are a true and fair representation of the company operations and that internal control systems are functioning as designed.

External audits were done by Ernst Young. Quarterly returns were reviewed and sub-mitted to BOU, an interim audit was conducted in September 2016 and final audit was concluded with an unqualified opinion. A management letter highlighting internal control weaknesses was shared with management and the board.

SuppliersSupply inputs for use in business within stipulated delivery times.

A list of vetted suppliers is in place. Competitive procurement of goods and supplies is exercised at all times and fairness is of utmost importance while awarding supply con-tract to selected service providers. Cash outflow towards investing activities during the year 2016 was UGX.36.3bn (2015:78bn) whereas payments to supplier of non-capital goods and services amounted to UGX124.3bn (2015:76bn).

General PublicThese are our target clients and the communities in which we operate.

These are reached through CSI activities as per detailed CSI report, advertisemnets, talkshows, to mention but a few. The products we sell to the market take into account aspects of conservation of nature and the environment.

SUSTAINABILITY REPORTING STATEMENT (continued...)


Customers Engagement and Support

One of the Bank’s core values is superior customer service and the importance of service delivery is fundamental towards achieving the goals of the Bank. The Board of Directors and management have put in place a comprehensive customer service strategy and customer service standards that drive the Bank’s service delivery.

In order to achieve the above objective, the Bank has employed the following strategies;

1. Built an infrastructure to support customer service and resolve customer issues at the first point of contact. The following activities were undertaken and promoted in 2016;

• Queue Management System piloted in 4 branches namely Nateete, Rubaga, Ntinda and Najjanakumbi. This has enabled the Bank to measure customer waiting time in the Banking hall, service times at the counter and has improved teller productivity. Customers are now able to plan for their Banking time and schedule other activities accordingly.

• A Call Centre that continues to operate from 8:00am to 8:00pm with 16 agents per shift. The call Centre operates in 3 languages namely English, Luganda and Runyakitara. This is the biggest feedback platform utilized by the customers.

• Social Media grew to over 200,000 followers on Facebook and 4000 on twitter. This platform is the second biggest feedback platform utilized by existing and potential customers.

• Toll free line - 0800200555, email address – [email protected] and website – http://www.centenaryBank.co.ug

were all maintained and available to our customers.

2. Continuous training of employees - The Bank has continued to train its employees to be able to have good product knowledge and customer empathy. Annual refresher trainings are offered to the front line staff and field staff to further strengthen their knowledge.

3. Instituted a Customer Relationship Management (CRM) Tool to deal with customer complaints and queries. The CRM tool provides the Bank with a system to track customer feedback and appreciate what is not going on well. Customer interactions are documented and systematically resolved.

4. Customer Service Weeks and Customer Days were maintained. Customers at every branch have an opportunity to interact with top management during the Customer service week. This has provided a good platform for customer feedback.

5. Invested in platforms and products that make it convenient for customers to continue transacting with the Bank away from the banking hall. Below are some of the products;

• CenteMobile – Customers can conveniently transact in the comfort of their homes and offices

• Push and Pull – Customers are able to transfer money from their accounts to their mobile wallet





• School Pay – Parents are able to pay school fees with less paper work and without having to queue in the Banking hall using mobile money, centemobile or payway services.

Customer Engagement Report for the year ended 31st December 2016

Year Inquiries Complaints Appreciations Totals

2015 75,369 48,016 530 123,915

2016 114,038 91,184 856 206,078

Financial Products and Services

The Bank offers the following products and services to its segmented market;

Retail/Micro Segment

Deposit products

CenteOrdinary Savings AccountDeposit account designed for regular savers. Cash withdrawals are made over the counter and by the use of the ATM Card (CenteCard).

CenteSupa Woman The Bank offers a special program for women dubbed CenteSupa Woman Club to increase financial inclusion for women in business while improving their levels of income and livelihoods. The program has seen over 1500 women trained in financial literacy offering sector based specific trainings for the club members and tailored solutions based on their sector specific challenges faced in their businesses. Over 600 women leaders have also been equipped with personal finance management and life skills. The supa Women have access to health insurance at very low insurance premiums that cover upto 6 family members.

CenteJuniorIt is specifically targeted at children from the early age of toddlers up to a maximum of 17 years. The CenteJunior account provides a child’s parent or guardian with an opportunity to start saving early for the benefit of securing the financial future of the children.

The account has a Life assurance policy cover for the parent or guardian, for account with a minimum credit balance of UGX 200,000 covering permanent

disablement caused by accident, death plus funeral expenses.

CenteVolution Savings AccountAs you transform, you discover a new world and freedom. CenteVolution is the account that understands this journey to meet the financial needs and preference of Students in Tertiary educational institutions that fall in the age bracket of 18 to 26 years. This account has no monthly maintenance fees, free Bank drafts for school fees payment and a free conspicuous ATM Card

CentePlusThis is a special savings account for anyone who wants to accumulate savings for financing future investments thus enabling them to realize their dreams. The customer commits to open the account and keep accumulating funds in it till it is enough to buy a stated asset or make a stated investment. A customer can get a loan equivalent to 100% of the amount on account to pay for the desired asset/ investment

Micro Loan Products

Micro business loans

Short term business loan targeting micro business enterprises for financing any business or productive purpose like working capital.

Home Improvement LoanShort-term loan with both regular and irregular repayments targeted at home owners with a source of income earnings for the purpose of financing home improvement either through construction/renovation of residential/commercial houses, erecting of perimeter wall/fence, and installation of power and or energy systems, kitchenettes, water and sanitation systems.

CenteSolarCentenary Bank’s Solar Loan is a short term loan for financing the purchase and installation of solar power at places of residence or business premises.

CenteLandLoan designed specifically for the purpose of financing land purchase, survey and registration. The loan is targeted at the Micro and Retail customer segments. Survey and registration of land is undertaken by the Bank’s accredited Land Surveyors who guarantee delivery of the land title or registration certificate.


CenteHomeShort to medium term Housing microfinance loan for financing construction of houses on a progressive basis to habitable or decent standards. This loan is bundled with the provision of housing support services.

CenteYouthThe loan supports the business ventures owned by young entrepreneurs aged 18 to 35 years and are engaged in any of the eligible business sectors and can be accessed by individuals or legal entities.

Salary LoanThe Bank provides financing to salaried employees of reputable organizations whose salaries are channeled through their accounts at Centenary.

Education loanThis loan facilitates parents, guardians and students in the payment of school/tuition fees and other related educational requirements. The loan applies to all levels of education right from Nursery, Primary, and Secondary to Tertiary or University level as long as the beneficiary student is enrolled or offered a place in a study program.

Small and Medium Enterprises (SME) Segment

SME Deposit products

CenteCurrent AccountDeposit account designed for transactions by cheque, where the customer can draw on demand as long as there are sufficient funds in the account and the Bank is open for business. It can be operated by individuals as a personal current account and by Companies, Partnerships, Societies, Clubs and Associations as non-personal account.

CenteInvestment Club AccountsTargets investment clubs where members desire to save and invest jointly as a Group or Club in a business or income generating activity with a common goal of improving their level of income and livelihood, capitalizing on the strength of numbers to boost wealth creation.

CenteDiasporaAccount for Ugandans in the Diaspora who would desire to save or make investments back home.

SME Loans

Commercial business loanThe Bank extends loans to SME’s engaged in business in a variety of sectors including trade, transport, communication, industry/ manufacturing, agriculture (animal husbandry, fisheries, crop finance), Government sector, building/construction, and service sectors. The loans can be used to finance working capital, acquisition of business assets and infrastructural development.

CenteLeaseThe Bank leases assets/equipment to the customer in exchange of payment of periodic rentals for entire lease period. The customer automatically owns the asset once all the agreed lease payments/rentals have been made.

Trade FinanceTo facilitate the flow of goods and services from the seller to the buyer and the subsequential flow of payments from buyer to seller various trade finance products are offered by the Bank to meet the customers’ vast needs. The products are differentiated by purpose, size, price, maturity and security requirements. Commodity finance, LPO Financing, Shipment Finance, Letters of Credit, Invoice Discounting, Structured trade finance, Guarantees and Documentary collection

CenteMortgageThis is a medium-to-long term housing finance product targeting salary earners as well as economically active rural and urban low, middle and high regular income earners engaged in self-employment. The loan can be used for the purpose of financing housing needs through purchase, construction or completion.

Agricultural Loans

The Bank provides an Agricultural Loan Product Suite to finance business activities in the agricultural production, processing & marketing value chain, animal production, fishing, bee keeping and food processing. These include the Production loan,



revolving production loan, marketing loan and the Farm & Asset equipment loan. The loan period and repayment plan is dependent on the nature and season of the agricultural activity to be financed.

High Net Worth Segment

The Bank offers special services to its High Net worth customers and personal loans including all loans under the SME segment

Corporate Segment

The Bank takes care of banking needs for corporate organizations, NGOs, Church, Districts, Public sector and value chains under Trade & Commerce

Linkage Banking SegmentThe bank has special Account offering to SACCOs, MFIs, VSLAs and Women groups.

Products and services available to all segments

• Term deposits

• Overdraft

• School Pay – Payment of school fees without filling in bank slips

• Money Transfers - RTGS, EFT, EFT Debit, MTN Mobile Money, Ezee Money, AirTel Money

• Inter-branch money transfers, standing Orders

• Regional and International Money Transfers – TTs, RTGS, East African Payment Services, Western Union

• E-Payment Services – e-water, e-UMEME,

e-Tax, e-US Visa fees, e-NSSF, KCCA

• E- Banking Services – CenteMobile, CentePOS, Internet Banking, CentePoint (ATM)

• Other Services – Forex trading, Safe custody, SMS transaction Alerts, Bulk Salary payment, Treasury Bill/Bond dealership

Employee empowerment and engagement

At Centenary Bank, we don’t view our employees as resources, instead, we value them as people whose skills, and abilities represent the most valuable asset in the company. Our Human Resource Division actively supports employees in their careers, professions and encourages them to develop talents.

Learning and Development

The Bank employs close to 2,400 full time employees and the target is to have each staff train at least once annually. The Bank spent close to UGX.4.1 billion on training as a way of ensuring that the staff have the right skills and knowledge to deliver the bank services. During the year, 182 training events were implemented. The Bank’s e-learning platform known as click campus has over 500 courses in different banking areas. By the end of the year 2016, over 88% of the staff had accessed the system, 62.5% had undertaken a course whereas 55.9% were able to complete the course. A total of 78 courses for the new corebanking were implemented with the support of the vendor, internal Trainers (ToT) and business champions.

2,400Full time employees

FOR THE YEAR UNDER REVIEW

THE NUMBERS

ACCESSED SYSTEM

88%

UNDERTOOK COURSE

62.5%

COMPLETED COURSE

55.9%

UGX4.1Billion Budget Allocation

182Training events



Talent Management and Succession Planning

The Bank’s people management philosophy is to progressively build its own talent pool to effectively support the Bank’s growth. Branch successor pools including; Branch Manager, Manager Credit Services, Credit Administrators and Branch supervisors were updated and approved by management. Development interventions for the identified staff were incorporated in the training budget and plan.

Performance Measurement

In order to monitor an employee’s contribution to the company, the Bank developed a performance measurement tool. The performance management cycle involves goal setting, performance monitoring conversations and performance reviews for the teams and all individuals. It’s an inclusive, two-way process that creates feedback and considers future capability requirements of the Bank, and personal development needs and aspirations.

Staff Welfare, Rewards and Recognition

The Bank does its best to ensure that the employees’ welfare is prioritized. That it does by making sure both the physical and mental wellbeing is taken care of. The Bank has done this in a number of ways including;

• Partnering with Medical Insurance Companies (AAR and Liberty) so that each staff has medical coverage.

• Coordinate sports team building activities with the major aim of encouraging each staff to participate in a sports activity for health purposes and teamwork.

• Providing gym memberships, a benefit to employees at managerial level, not only for networking purposes but also for health purposes. We currently have 186 employees on the gym membership benefit. Weekly fitness classes and exercises were introduced at the Head Office.

• The Bank offered food subsubsidies during the year

• Occupational safety and Health (OSH) programs. The Bank complies with Occupational Safety and Health (OSH) regulations under the labour law. All the Bank premises have been certified as good working environments under the OSH regulations.

The Bank has created a “sense of worth” environment in various forms through market based competitive compensation, merit awards, sports and team building models.

Employee Feedback

The Bank instituted a regular climate survey, an online avenue through which staff views, ideas and value adding input is sought. The primary aim of the successive climate survey is to track and evaluate progress made in identified employee work related challenges and risks. The 2016 annual engagement survey was conducted and the Bank was rated 66% versus a market benchmark of 64%.

There was continuous use of the HR help desk that responds to staff issues.

Staff engaging in sports during the CenteFun day




Centenary Bank has a long history of supporting communities for sustainable development. In 2016, we dedicated up to 1% of the previous year’s after-tax income on Corporate Social Investment (CSI) as per policy. This was coupled with partner support to increase our community activities and reach as summarized in the table below;

Corporate Social Investment

OUR OBJECTIVES FOR 2016 WERE AS BELOW;

To expand the financial literacy training target group.

To increase our support to the ‘Bridging the cancer gap program’

To increase our work in environmental conservation.

Our overall goal was to touch more lives to better society through the areas of education, health, environment, social mission of the church and other community interventions through our branch network.

Item 2014 2015 2016

Bank CSI Amount (Millions) 580 (5%) 636 (9.7%) Ugx 952 (49.7%)

Number of activities 303 (43%) 359 (18.5%) 485 (35.1%)

People reached (Millions) 16 (6%) 19 (18.8%) 21 (10.5%)

Promoting education by donating desks to Cleaveland Primary School in FortPortal



The youth unemployment challenge still stands tall in the nation, at over 70%, hence calling for interventions from all stakeholders. We increased the number of youth benefitting from the ‘Start and Improve Your Business’ by 8% thereby training 390 in 13 groups in 2016. This was done along with our partners International Labour Organisation (ILO). Our 2017 plan is to carry out evaluations for all youth trained in the last two years.

We expanded the financial literacy target group to include the church, and skilled 90 financial managers and administrators in three provinces of Mbarara, Tororo, and Gulu. The key skilling areas were governance, financial management, utilising banking products and personal finance. Evaluation showed that they needed further support in the above areas, which shall be handled in 2017.

The small and medium enterprises (SME) category makes the bulk of our customers, many of whom need financial literacy. We did publish the newspaper column code named ‘CenteBusinessLife’ in 2016, as was the case in 2015, by soliciting questions from the readers, and answering them, although this time it was twice a month for five months other than weekly. Our partners, Private Sector Foundation Uganda (PSFU) and Agriculture Business Initiative Trust (aBi Trust) supported this cause.

Our social media channel remained active throughout the year with financial literacy tips and literature through videos and texts to the public, reaching over 200,000 people. We plan to reach more in 2017.

390 youth in 13 groups benefitted from the ‘Start and Improve Your Business” trainings

Over 200,000 people were actively reached using our social media channels throughout the year with financial literacy tips and literature through videos and texts

EDUCATION

Enhancing financial literacy by training small and medium entreprises



The cry for health is commonly heard in every community. While we cannot support on all diseases, we did choose breast and cervical cancer, because they are increasingly silent killers, yet, they can be avoided. In 2016, we once again partnered with Rotary District 9211 and St. Raphael of St. Francis Hospital Nsambya to reach more women countrywide with the message of avoiding cancer. With an investment of over UGX 300 million, our message reach increased by 50% getting to over 15 million people, through media and direct intervention. The activities we participated in included; Rotary Family health days in 70 districts were we bought the cancer testing kits for the exercise, the cancer run in 5 regions, the Rotary annual conference, launching a youth skilling centre and supporting five hospitals with cancer testing kits on women’s day. The awareness messages in these activities were resounded through electronic, print and social media.

Members of staff who also took part in the cancer testing exercise at Mapeera house during the cancer month in October 2016.

Runners form a human ribbon at Kololo Ceremonial Grounds to demostrate their willingness to fight cancer.

With an investment of over UGX 300M, our message reach increased by 50% getting to more than 15 million people, through media and direct intervention

HEALTH




Change in staff behaviour and use of technology led to reduction in paper usage by 12.5%.


THE NUMBERS

Increased allocation on the banks CSI

Increased number of activities

Was allocated on the banks CSI

Were carried out by the bank

People were reached

49.7%

35.1%

952 million

485 activities

21 million

ENVIRONMENT

Bwaise branch represented by Branch Manager Mr. Ojiambo Patrick (back row, second left), donating water tank to Malaika Orphanage Children Foundation

We do appreciate that we have a role in conserving the environment, that is why we set aside activities every year to promote its sustainability. Last year we reduced the amount of carbon released by generators in our branches. This was achieved by increasing the number of generators whose capacity needed scaling down, from 15-150kva to 15-60kva, by 50%, from 8 to12.

We rolled out the installation of LED lights which minimise consumption of energy. The exercise commenced with head office, and we plan to expand country wide after the first phase.

A deliberate agenda was set out to reduce paper usage through changing staff behaviour and use of technology there by reducing paper usage by 12.5%.

The Bank invested in a number of community activities that persevered the environment, which included community cleaning activities, and donation of water tanks and energy saving cooking charcoal stoves to schools.

In 2017, we plan to continue with all the above, along with increasing the number of off-site Automated Teller Machines (ATMs) using the uninterruptable power supply (UPS) system to back up grid power by 50%. Air conditioning systems that minimise energy use shall be installed within the year.



OTHER COMMUNITY ACTIVITIESWe were involved in more than 100 community activities

Chief Manager Business Growth, Mr. Michael Jingo and Managing Director, Mr. Fabian Kasi donating UGX 210 million to Buganda kingdom which was represented by Owek. Kattikiro (Prime Minister), Mr. Charles Peter Mayiga.

The Bank’s partnership with the church is as old as the Bank. We do work together to transform communities through numerous interventions. In 2016 we gave over UGX 450 million for constructions, hospital and school equipment, event sponsorships, youth and women activities and publications.

Our Bank is part of communities. What affects the community affects us and what benefits the community benefits us. We supported community interventions by increasing our support by 42%, from 70 to 100. Our role in community transformation shall remain unchanged.

450 million allocated in supporting the church through direct sponsoring of various programmes, events and publications country wide.

THE SOCIAL MISSION OF THE CHURCH

General Manager Operations Mr. Joseph Kimbowa (second right) and Branch Manager Wakiso (extreme left) donated chairs to St. Yowana Maria church, Gombe Sub-Parish, Kayunga-Wakiso which was represented by Rev. Father Ronnie Mubiru (second left).


The index below comprises indicators from the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines.

The index has been abridged to relate it to the Bank’s disclosure status.

GRI Indicators’ report

PERFORMANCE INDICATORS

TOPIC DISCLOSURE PAGES

DESCRIPTION

1.1 & 1.2 Vision, Mission and Ownership 8, 9 Mission Statement

PROFILE



DESCRIPTION

2.1 Name of reporting organisation 6 & 66 Centenary Rural Development Bank Limited

2.2 Major products or services, including brands if appropriate

37 - 39 Financial products and services

2.3 Operational structure of the organisation 16 & 2522

Excecutive Management, Board of DirectorsCorporate governance

2.4 Description of major divisions, operating com-panies, subsidiaries and joint ventures

16 & 22 Excecutive Management, Corporate governance

2.5 Countries in which the organisation’s located 6 & 65 Bank contact information, general information

2.6 Nature of ownership 9 Ownership

2.7 Nature of markets served 83 Sectors financed / Industry analysis

2.8 Scale of the reporting organization’s:

Number of employees 39 Staffing

Products produced/services offered 37 & 38 Products and services

GOVERNANCE STRUCTURE AND MANAGEMENT SYSTEMS



DESCRIPTION

3.1-3.6 Governance structure of the organisation, in-cluding major committees under the board of directors that are responsible for strategy and oversight

18 - 27 Corporate governance

ECONOMIC PERFORMANCE INDICATORS



DESCRIPTION

EC1 Net sales and Increase in retained earnings 6162 63

Statement of Comprehensive Income,Statement of changes in Equity, Financial review

EC3 Geographic breakdown of markets 128 -129 Branch and ATM Network

EC3 Cost of all goods and services purchased 34 Value added statement

Total employee remuneration 34, 61 & 108 Value added statement

EC8 Total taxes of all types paid 34 Value added statement/ income statement/ note 14



HUMAN RIGHTS



DESCRIPTION

HR1 Policies and guidelines dealing with human rights

Human rights recognized, observed and em-bedded in the Ugandan’s Constitution. No evi-dence of transgressions but Bank’s Policies not formally codified.

HR2 Consideration of human rights impacts in mak-ing business decisions

HR3 Policies/procedures to evaluate human rights performance within supply chain

HR4 Global policy/procedures preventing discrimi-nation of any form

HR5 Policy on freedom of association independent of local laws

HR6 Policy excluding child labour

HR7 Description of policy to prevent forced and compulsory labour

SOCIAL LABOUR PERFORMANCE INDICATORS



DESCRIPTION

LA1 Breakdown of workforce 39 Staffing highlights

LA3 Retention rates 39 Staffing highlights

LA4 Policies/procedures on negotiations with em-ployees over changes in operations

39 -40 Employee empowerment and engagement

LA5 Health and safety committees 40 Occupational safety and health

LA6 Occupational accidents and diseases 40 Occupational safety and health

LA6 Injury, lost days and absentee rates and work-related fatalities

40 Occupational safety and health

LA8 Policies and programmes on HIV/AIDS 40 Staff welfare issues

LA9 Average hours of training per employee 39 Training and Development Programmes for the year 2016



To keep an eye on where we have been and ensure we are on track with where we are going,

we embrace near error-free metrics.

FINANCIAL REVIEW


NET PROFIT

COST TO INCOME RATIO

EQUITY CAPITAL

LOAN ASSETS DEPOSITS

REVENUE

8.2%

2.8%

21.1%

22.3% 17.9%

17.8%

Shs109.9 billion

68.1%

Shs485.0 billion

Shs1,247.7 billion

Shs1,626.6 billion

Shs463.9 billion

FINANCIAL HIGHLIGHTS FINANCIAL REVIEW (continued...)

Financial Perfomance Trend 2016 2015 2014 2013 2012 2011 2010 Shs’M Shs’M Shs’M Shs’M Shs’M Shs’M Shs’M

Total Assets 2,315,749 1,974,400 1,636,923 1,451,040 1,122,296 944,044 807,238

Loans and Advances to Customers 1,247,703 1,020,227 830,932 672,307 556,960 515,421 395,820

Customer Deposits 1,626,614 1,380,194 1,175,116 965,891 818,479 694,343 630,814

Equity 485,017 400,625 317,501 253,337 205,584 157,547 115,573

Total Revenue 463,857 393,901 324,299 275,579 240,460 189,143 146,544

Net Results after tax 109,909 101,601 73,817 58,006 56,017 47,931 29,397



Budget Performance

Actual 2016 Budget 2016 % variance Actual 2015 Budget 2015

Shs.‘000’ Shs.‘000’ +/- Shs.‘000’ Shs.‘000’

Financial data

Total assets 2,315,749,311 2,357,066,352 -1.8 1,974,400,355 1,973,577,855

Shareholders’ funds 485,016,969 459,585,755 5.5 400,625,133 377,918,596

Customer deposits 1,626,614,165 1,638,815,897 -0.7 1,380,193,855 1,414,443,439

Net loans to customers 1,247,702,785 1,181,517,829 5.6 1,020,227,352 986,476,641

Total income 463,856,752 463,667,061 0.0 393,900,646 323,554,518

Total expenses 315,992,291 319,582,926 -1.1 257,388,615 217,137,789

Profit before income tax 147,864,461 144,084,135 2.6 136,512,031 106,416,728

Net results after tax 109,908,772 106,296,132 3.4 101,601,248 79,794,882

Key performance ratios

Cost to income ratio 68.1% 68.9% -0.8 65.3% 71.3%

Return on assets 5.1% 4.9% 0.2 5.6% 4.4%

Return on equity 24.8% 24.9% -0.1 28.3% 23.2%

Lending ratio 76.7% 72.1% 4.6 73.9% 69.7%

Total expenses to loan ratio 25.3% 27.0% -1.7 25.2% 22.0%

Capital adequacy ratio (Tier 2) 25.9% 24% 1.9 25.1% 24%

Non-financial data

Number of accounts 1,482,617 1,593,457 -7.5 1,473,958 1,433,460

Number of ATMs 172 172 0.0 157 158

Number of Branches 69 69 0.0 63 66

FINANCIAL REVIEW (continued...)


Statement of Comprehensive

Income Analysis

The Bank’s total income is comprised of interest income, income from commissions and fees and other non-operating income. Total income went up by UGX 70.0billion in 2016 (2015: 69.6 billion), representing a growth of 17.8% when compared to 21.5% in 2015. Income moved up as a result of an increase in loans to customers and short-term investments.

Net interest income

Net interest income, which is the margin between interest income and interest expense, remained the main source of income for the Bank. Net interest income for the year 2016 was UGX 318.4 billion (2015: UGX 267.7 billion) and it represents 76.3% of operating income(2015: 75.4%). 2016 2015 % %

Growth in net interest income 18.9 27.2Net interest margin 19.1 18.4

The high growth in Net interest income in 2016 was as a result of an increase in the prime lending rate in 2015 to 23.0% from 21.0% in 2014.This remained constant throughout the year 2016 and was revised downwards to 22.0% in December, 2016.

The Bank’s net interest margin increased by 70 basis points (2015: Increased by 80 basis points) to close at 19.1% (2015: 18.4%). The increase was mainly attributed to an increase in investment in short-government securities. The trend of the Bank’s net interest income and net interest margin over the last five years is presented below:

Non-interest income:

The Bank’s non-interest income arose from trade financing activities such as letters of credit, transactional activities including Bank drafts, funds transfers, mobile money, trading income and revaluation of currency positions and exchange income on foreign transactions with customers.

Net non-interest income: 2016 2015 % %

Growth in net non- interest income 13.3 13.5Net non-interest income as % of 23.7 24.6total operating income

Net non-interest income rose to UGX 98.7 billion (2015: UGX 87.1 billion) following growth in fee and commission income by 13.8% (2015: 12.6%). This growth was mainly driven by higher transaction volumes initiated through customer interactions with the branches and expanded ATM network.

The trend of the Bank’s net non-interest income as per percentage of a total income over the last five years is presented below:

Non-Interest income has continued to grow steadily however, the rate of growth of interest income supersedes the rate of growth of non-interest income.



Credit impairment charges

The charge for credit losses for the year 2016 (excluding interest in suspense) increased by 118.0% to UGX 15.0 billion (2015:6.9 billion). This charge to the statement of comprehensive income as a percentage of gross loans and advances increased to 1.2% (2015: 0.7%).

Credit impairment charges:

2016 2015

Percentage change in the 0.2 (0.4)impairment charge

Credit loss ratio 1.2 0.7

Credit impairment as % 1.9 1.9of gross loans and advances

Non-performing loans 35,641 27,454(NPL) - millions

Credit loss provision 23,923 19,789(SOFP) - millions

Credit impairment charge - millions 14,9839 6,873

Total expenses

2016 2015 % %

Growth in total operating expense 22.8 12.5 Change in cost-to-income ratio 2.8 ( 5.2)

Total expenses increased by 22.8% against income growth of 17.8% (2015:12.5% against income growth of 21.5%). The increase in the cost to income ratio in 2016 was mainly attributed to investment in technology with preliminary costs incurred in the year 2016, improvement in staff welfare and bank’s expansion. More technology related costs will be reflected in the year 2017 however, this new technology is expected to result into excellent customer service delivery.

Statement of Financial Position Analysis

The Bank’s total assets during the year under review increased by 17.3% (2015: 20.8%) due to the expansion in the Bank’s distribution channels by 6 branch, 15 ATMs at 12 locations, and a growth in the loans and advances portfolio.

Net loans and advances accounted for 53.9% (2015: 51.7%) of total assets and registered a 22.3% (2015: 22.8%) growth to close at UGX 1,247.78billion in 2016 up from UGX 1,020.2 billion in 2015. The loan growth was driven by good customer service and increased lending opportunities in the market arising from increased outreach.

Customer deposits, which consist of current accounts, savings accounts and time deposits, made up the Bank’s main sources of funding. These deposits grew by 17.9% (2015: 17.5%) to UGX 1,626.6billion in 2016 from UGX 1,380.2 billion in 2015 despite the economic hardships during the year. The good deposit growth is attributed to increased marketing efforts and an increase in the Bank’s distribution channels.

Credit Loss as a Percentage of Gross Loans and Advances

2011 2012 2013 2014 2015 2016

Perc

enta

ge (%

)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

BS Impairment/Total Loans

NPL/Total Loans

Credit Loss Rat io

Income and OperatingExpenses

2011 2012 2013 2014 2015 2016

Total IncomeO perating Expenses

6.0

62.0

64.0

66.0

68.0

70.0

72.0

74.0

76.0

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Shs

Mill

ion



Loan Composition

In accordance with the Bank’s mission, its microfinance segment continues to constitute over 50% of loans and advances. For the year ended December 2016, Micro-finance loans were 55.5% of the gross loans and advances (2015:56.9%). The number of total borrowers increased from 178,576 in 2015 to 200,623 in 2016 of which 190,854 (95.1%) were microfinance clients (2015: 178,576; of which microfinance 107,729: 60.3 %)

Deposit composition

The number of deposits accounts increased to 1,482,617 in 2016 (2015: 1,473,958). This came as a result of increased market efforts to bring in more customers. The current account average balance per account in 2016 Increased to UGX 1.1 million (2015:

UGX 0.9 million)

Funding mix

The funding mix has remained rather stable in terms of value. Savings accounts represent 47.1% of total funding compared to 49.0% in 2015. The Bank has been able to maintain a stable deposit mix in 2016 due to an increase in its loyal customer base and deposit mobilisation. Current accounts represent 16.3% of total funding compared to 14.7% for the same period last year. Time deposits constituted 6.9% of total funding compared to 6.2% for 2015. Borrowed and managed funds contribute only 5.1% of the total funding (2015: 5.7%).



Equity

Equity, which comprises share capital, share premium and retained earnings, finances 20.9% (2015:20.3%) of the total assets. The level of equity is a function of earnings which are distributed as dividends and amount of earnings which are ploughed back into the business. The Bank’s policy is to maintain a sustainable dividend growth which satisfies shareholders. Dividend payable during the year represents 25% of Net profit after tax.

Capital Adequacy

The Bank monitors its capital adequacy using ratios established by the Bank for International Settlement (BIS) as approved by Bank of Uganda, the regulator. The ratios measure capital adequacy by comparing the Bank’s eligible capital with its statement of financial position assets, off-statement of financial position commitments and market and other risk positions at weighted amounts to reflect their relative risk. At 31st December, 2016, the Bank had a regulatory total capital base of 25.9% (2015: 24.7%) of risk- weighted assets and core capital to risk weighted assets of 25.1% (2015:23.9%). Risk weighted assets increased by 19.1% (2015:26.5%) whereas total capital (net of intangible assets)

increased by 16.8% (2015:8.3%). This compares favorably with the regulatory requirement of 12.0% and 8% respectively.

Analysis of Cashflow Statement

The Bank’s cashflow from operating activities increased to UGX.147.1 billion from UGX.130.5billion in the year 2015.

The increase was mainly due to an increase in business revenue.

Cashflows in investing activities decreased to UGX.36.3 billion from UGX. 78.1 billion in 2015. The decrease in investing activities was mainly attributed to the new software payments made in the year 2015.

Cashflows from financing- There was a net cash outflow of UGX.19.8 billion in the year 2016 as a result of less borrowed funds received in the year 2016 compared to the year 2015 and an increase in dividend payout.

Dividends paid out in 2016 were UGX.25.5 billion(2015: 18.5 billion) and borrowed funds were UGX.16.6 billion (2015: 45. 6 billion).

36.3 billion 25.5 billion

19.8 billion 16.6 billion

Cashflows in investing activities

Dividends paid out

Net cash used in financing activities

Borrowed funds

CASHFLOW FROM OPERATING ACTIVITIES

147.1 billion


THE NUMBERS



We believe the best thing audits do is to expose areas where we can improve. Once identified, we dedicate

man power and technology to turn them into strengths.

AUDITED FINANCIAL STATEMENTS


Principal activitiesCentenary Rural Development Bank (“The Bank or Centenary Bank”) provides a range of banking and related financial services especially to the economically disadvantaged people in rural areas. The Bank is an approved and licensed financial institution under the Financial Institutions Act 2004 and is a member of the Uganda Banker’s Association.

ResultsThe Bank’s results for the year ended 31 December 2016 are indicated in the statement of comprehensive income.

DividendThe directors recommend payment of dividends for the year ended 31 December 2016 of Shs 27,593 million (2015: Shs 25,516 million).

Share capitalDuring the year, no preference shares were issued.

Directors and directors’ interestThe directors who held office during the year and to the date of this report were as follows:

Prof. John Ddumba Ssentamu Board ChairmanMr. Fabian Kasi Managing DirectorDr. Simon M.S. Kagugube Executive DirectorMr. Kimanthi Mutua Member (Chairman IT Strategy Committee & Chairman ALCO)Dr. Peter Ngategize Member (Chairman Credit Committee & Risk Management Committee)Mr. Henry Kibirige Member (Chairman Audit Committee)Mr. Andrew Obol Member (Chairman Compensation and Human Resources Committee)Mt. Rev. Dr. Cyprian K. Lwanga Member Mt. Rev. Paul Bakyenga MemberMr. Thil Richard Member (Appointed May 2016)Mr.Sprokel Casper Jan Frits Member(Appointed August 2016)Dr.Wenene Mary Theopista Member(Appointed October 2016)

None of the directors held any beneficial interest in the ordinary share capital of the Bank as at 31 December 2016.

AuditorsThe Bank’s external auditor, Ernst & Young, is not eligible for reappointment having reached the mandatory limit of four years of continuous service to the Bank as stipulated in the Financial Institutions Act, 2004.

Management by third partiesNone of the business of the Bank was managed by a third party or a company in which a director had an inter-est during the financial year.

DIRECTORS’ REPORT

AUDITED FINANCIAL STATEMENTS (continued...)


Risk managementManaging risk is an integral part of the Bank’s business. The Board of Directors is ultimately responsible for risk management and continues to establish new policies and procedures to control and monitor risk throughout the Bank as market risks continue to change.

Corporate Social Investment StatementThe Bank is focused on achieving strong sustainable financial returns while promoting a more decent, dignified and kinder society. We commit considerable amounts of resources every year to the humani-tarian cause both directly and indirectly through our pricing and product mix.

The Bank has adopted the reporting mechanism developed by the Global Reporting Initiatives (GRI) in an attempt to be transparent about our performance on the triple bottom line of people, planet and profit.

Retirement benefitsThe Bank contributes to a retirement benefits scheme covering all of its employees. On attaining the retirement age or honorably leaving the service of the Bank, all permanent staff are eligible for terminal benefits applicable to them.

By order of the Board:

Mrs. Peninnah T Kasule COMPANY SECRETARY



The Bank’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of Uganda, 2012 and Financial Institutions Act 2004 as amended by the Financial Institutions (Amendment) Act, 2016, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

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, wheth-er due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Under the Companies Act of Uganda, the directors are required to prepare financial statements for each year that give a true and fair view of the state of affairs of the Bank as at the end of the financial year and of the oper-ating results of the Bank for that year. It also requires the directors to ensure the Bank keeps proper accounting records that disclose with reasonable accuracy the financial position of the Bank.

The directors accept responsibility for the financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates, in conformity with Inter-national Financial Reporting Standards, the Companies Act of Uganda, 2012 and Financial Institutions Act 2004 as amended by the Financial Institutions (Amendment) Act, 2016. The directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs and the profit and cash flows for the year ended 31 December 2016. The directors further accept responsibility for the maintenance of account-ing records that may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control.

The directors have made an assessment of the Bank’s ability to continue as a going concern and have no reason to believe the business will not be a going concern for the next twelve months from the date of this statement.

The auditor is responsible for reporting on whether the annual financial statements are fairly presented in ac-cordance with the International Financial Reporting Standards, the Companies Act of Uganda, 2012 and Financial Institutions Act 2004 as amended by the Financial Institutions (Amendment) Act, 2016.

Approval of the Financial Statements

The financial statements, as indicated above, were approved by the Board of Directors and signed on its behalf on 16th March, 2017 by:

Prof. John Ddumba-Ssentamu Mr. Fabian Kasi Mr. Henry Kibirige Mrs. Peninnah T. KasuleCHAIRMAN, BOARD OF DIRECTORS MANAGING DIRECTOR CHAIRMAN, AUDIT COMMITTEE COMPANY SECRETARY

DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING



OpinionWe have audited the accompanying financial statements of Centenary Rural Development Bank Limited set out on pages 61 to 125, which comprise the statement of financial position as at 31 December 2016, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the financial statements present fairly, in all material respects, the financial position of Centenary Rural Development Bank Limited as at 31 December 2016, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of Uganda, 2012 and the Financial Institutions Act, 2004 as amended by the Financial Institutions (Amendment) Act, 2016.

Basis of OpinionWe conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the International Federation of Account-ants’ Code of Ethics for Professional Accountants (IFAC code) and other independence requirements applicable to performing audits of Centenary Rural Development Bank Limited. We have fulfilled our other ethical responsibilities in accordance with the IFAC Code, and in accordance with other ethical requirements applicable to performing the audit of Centenary Rural Development Bank Limited. We believe that the audit evidence we have obtained is suf-ficient and appropriate to provide a basis for our opinion.

Other InformationThe directors are responsible for the other information. The other information comprises the Directors’ Report as required by the Companies Act of Uganda, 2012. The other information does not include the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express an audit opin-ion or any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the directors for the financial statements

The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of Uganda, 2012 and the Financial Institutions Act, 2004 as amended by the Financial Institutions (Amendment) Act, 2016, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of ac-

REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF CENTENARY RURAL DEVELOPMENT BANK LIMITED




counting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suf-ficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, in-tentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit 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 Bank’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclo-sures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Report on other legal requirements

As required by the Companies Act of Uganda, 2012, we report to you, based on our audit that:

i) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of the audit;

ii) in our opinion proper books of account have been kept by the Bank, so far as appears from our examination of those books; and

iii) The Bank’s statement of financial position and statement of comprehensive income are in agreement with the books of account.

The engagement partner on the audit resulting in this independent auditor’s report is CPA Geoffrey Byamugisha – P0231

Certified Public AccountantsKAMPALA

19th April, 2017CENTENARY BANK l Annual Report & Financial Statements 2016 60



Statement of comprehensive income

Note 2016 2015 Shs ‘000 Shs ‘000

Interest income 6(a) 365,193,656 306,784,732

Interest expense 7 (46,817,284) (39,108,973)

Net interest income 318,376,372 267,675,759

Fee and commission Income 8 76,206,366 66,990,666

Net interest, fee and commission income 394,582,738 334,666,425

Gain/(loss) from financial instruments at fair value 6(b) 2,396,994 (1,457,185)

Foreign exchange income 9 7,057,826 9,868,336

Other operating income 10 13,001,910 11,714,097

Operating income 417,039,468 354,791,673

Employee benefits 11 (116,027,009) (105,183,751)

Impairment losses on loans and advances 12 (14,983,513) (6,872,858)

Depreciation 21(b) (22,947,127) (19,243,295)

Amortisation 21(c) (2,088,575) (1,202,240)

Operating expenses 13 (113,128,783) (85,777,498)

Profit before income tax 147,864,461 136,512,031

Income tax expense 14 (37,955,689) (34,910,783)

Profit for the year 109,908,772 101,601,248

Other comprehensive income net of tax - - -

Total comprehensive income, net of tax 109,908,772 101,601,248

Earnings per share

Basic earnings per ordinary share (shilling per share) 31 4.392 4.059



Statement of financial position

Note 2016 2015 Shs ‘000 Shs ‘000Assets Cash and balances with Bank of Uganda 15 314,099,382 176,919,896 Placements with other banks 16 56,630,549 92,522,927 Government securities –held for trading 17(a) 90,784,201 31,885,743 Government securities –held to maturity 17(b) 337,141,441 409,067,314 Loans and advances to customers 18 1,247,702,785 1,020,227,352 Other assets 19 54,265,079 37,930,814 Deferred capital expenditure 20 1,902,568 1,801,287Finance lease on leasehold land 21(a) 2,134,831 2,178,446Property and equipment 21(b) 202,988,247 197,655,135 Intangible assets 21(c) 4,219,989 1,663,391Deferred income tax asset 22 3,880,239 2,548,050 Total assets 2,315,749,311 1,974,400,355 Liabilities Customer deposits 23 1,626,614,165 1,380,193,855Deposits from other banks 24 3,862,194 3,071,430Inter-bank borrowing 25 - 4,006,082Managed funds 26 10,431,212 10,284,689Borrowed funds 27 107,603,439 102,045,662Current income tax payable 14 6,607,864 5,137,889Deferred grants 30 391,732 536,587Other liabilities 28 72,235,114 66,858,407Provision for litigation 29 2,986,622 1,640,621Total liabilities 1,830,732,342 1,573,775,222

Equity Ordinary share capital 32 25,000,000 25,000,000Preference share capital 32 116,624 116,624Share premium 32 1,138,927 1,138,927Regulatory reserve 34 8,215,937 5,239,369Proposed dividends 33 27,593,817 25,516,936Retained earnings 422,951,664 343,613,277Total equity 485,016,969 400,625,133

Total equity and liabilities 2,315,749,311 1,974,400,355

The financial statements were approved by the Board of Directors and signed on its behalf on 16th March, 2017 by:

Prof. John Ddumba-Ssentamu Mr. Fabian Kasi Mr. Henry Kibirige Mrs. Peninnah T. KasuleCHAIRMAN, BOARD OF DIRECTORS MANAGING DIRECTOR CHAIRMAN, AUDIT COMMITTEE COMPANY SECRETARY



Statement of changes in equity

Year ended December 2016 Note Ordinary Preference Share Regulatory Retained Proposed TOTAL

shares shares premium Reserve profits dividends

Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

At 1 January 2016 25,000,000 116,624 1,138,927 5,239,369 343,613,277 25,516,936 400,625,133

Total comprehensive income - - - - 109,908,772 - 109,908,772

Transfer to regulatory reserve 34 - - - 2,976,568 (2,976,568) - -

Dividend paid 33 (a) - - - - - (25,516,936) (25,516,936)

Proposed dividends 33 (b) - - - - (27,593,817) 27,593,817 -

At 31 December 2016 25,000,000 116,624 1,138,927 8,215,937 422,951,664 27,593,817 485,061,969

Year ended December 2015 Note Ordinary Preference Share Regulatory Retained Proposed TOTAL

shares shares premium Reserve profits dividends

Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

At 1January 2015 25,000,000 116,624 1,138,927 3,377,657 269,390,677 18,477,452 317,501,337

Total comprehensive income - - - - 101,601,248 - 101,601,248

Transfer to regulatory reserve 34 - - - 1,861,712 (1,861,712) - -

Dividend paid 33 (a) - - - - - (18,477,452) (18,477,452)

Proposed dividends 33 (b) - - - - (25,516,936) 25,516,936 -

At 31 December 2015 25,000,000 116,624 1,138,927 5,239,369 343,613,277 25,516,936 400,625,133



Statement of cash flows

Note 2016 2015 Shs ‘000 Shs ‘000Cash flows from operating activities Interest receipts 362,771,632 283,657,004Interest payments (43,472,897) (37,320,999)Fee and commission income 79,643,658 69,671,724Other income received 11,416,784 10,490,357Recoveries from loans previously written off 10 4,469,236 4,063,117Payments to employees (117,799,895) (101,621,113)Payments to suppliers and other payments (124,286,941) (76,164,903)Grants received 30 - 421,187Income tax paid 14 (37,817,903) (37,880,750) Cash flows from operating activities beforechanges in operating assets and liabilities 134,923,674 115,315,624

Changes in operating assets and liabilities Increase in Cash reserve requirement (24,120,000) (13,530,000)Investments 27,730,628 12,060,603Loans and advances to customers (227,475,433) (189,295,383)Other assets (13,814,010) (6,217,468)Customer deposits 246,420,310 205,078,301Deposits from other banks (3,215,318) 1,621,123Other liabilities 6,637,332 5,439,038 12,163,509 15,156,214 Net cash flows generated from operating activities 147,087,183 130,471,838 Cash flows from investing activities Additions to deferred expenses 20 (17,256,950) (21,105,223)Additions to property and equipment 21(b) (4,440,956) (17,796,765)Additions to WIP New Core Banking System 21(b) (13,400,729) (39,239,929)Additions to software 21(c) (1,289,830) (189,599)Proceeds from sale of property and equipment 120,066 244,800Net cash flows used in investing activities (36,268,399) (78,086,716) Cash flows from financing activities Dividends paid (25,516,936) (18,477,452)Proceeds from managed/borrowed funds 16,622,919 45,583,828Repayments of managed/borrowed funds (10,918,619) (16,679,480) Net cash flows generated from / (used in) financing activities (19,812,636) 10,426,896 Net increase / (decrease) in cash and cash equivalents 91,031,158 62,812,018Net foreign exchange difference 839,163 19,574,158Cash and cash equivalents at 1 January 333,638,194 251,252,018Cash and cash equivalents at 31 December 35 425,508,515 333,638,194

AUDITED FINANCIAL STATEMENTS (continued...)AUDITED FINANCIAL STATEMENTS (continued...)


1. General information

The Bank is incorporated in the Republic of Uganda under the Companies Act 2012 and is domiciled in the Republic of Uganda. The address of its registered office is:

Mapeera HousePlot 44-46 Kampala RoadP. O. Box 1892, Kampala

2. Summary of significant accounting policies

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

a. Basis of preparation

The financial statements are prepared in compliance with International Financial Reporting Standards (IFRS). The financial statements are presented in the functional currency, Uganda Shillings (Shs), rounded to the nearest thousand, and prepared on the historical cost basis, except where otherwise stated in the accounting policies below. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions. It also requires management to exercise its judgment in the process of applying the Bank’s accounting policies. The areas involving a higher degree of judgment or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in Note 3.

For purposes of reporting under the Companies Act, 2012 of Uganda, the balance sheet in these financial statements is represented by the statement of financial position and the profit and loss account is represented by the statement of comprehensive income.

New and amended standards and interpretations

The standards and interpretations that were issued and which are effective for annual periods beginning on or after 1 January 2016 are described below. Although these new standards and amendments applied for the first time in 2016, they did not have a material impact on the annual financial statements.

NOTES TO THE FINANCIAL STATEMENTS



International Financial Reporting Standards and amendments issued but not effective for 31 December 2016 year-end

Number Title Effective date Executive summary

IFRS 14 Regulatory Defer-ral Accounts

1-Jan-16 This is an optional standard that allows an entity, whose activities are subject to rate-regulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of IFRS. Entities that adopt IFRS 14 must present the regulatory deferral accounts as separate line items on the statement of financial position and present movements in these account balances as separate line items in the statement of profit or loss and OCI. The standard requires disclosure of the nature of, and risk associated with, the entity’s rate-regulation and the effects of that rate-regulation on its financial statements. Since the bank is an ex-isting IFRS preparer and is not involved in any rate-regulated activities, this standard does not apply.

Amendment to IFRS 11

Joint Arrange-ments: Accounting for Acquisitions of Interests

1-Jan-16 The amendments to IFRS 11 require that a joint operator accounting for the acquisi-tion of an interest in a joint operation, in which the activity of the joint operation con-stitutes a business, must apply the relevant. IFRS 3 Business Combinations principles for business combination accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation if joint control is retained. In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under com-mon control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are applied prospectively. These amendments do not have any impact on the bank as there has been no interest ac-quired in a joint operation during the period.

Amend-ments to IAS 16 and IAS 38:

Clarification of Ac-ceptable Methods of Depreciation and Amortisation

1-Jan-16 The amendments clarify the principle in IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is a part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible assets. The amendments are applied prospectively and do not have any impact on the bank, given that it has not used a revenue-based method to depreciate its non-current assets.

Amend-ments to IAS 16 and IAS 41

Agriculture: Bearer Plants

1-Jan-16 The amendments change the accounting requirements for biological assets that meet the definition of bearer plants. Under the amendments, biological assets that meet the definition of bearer plants will no longer be within the scope of IAS 41 Agriculture. Instead, IAS 16 will apply. After initial recognition, bearer plants will be measured under IAS 16 at accumulated cost (before maturity) and using either the cost model or revaluation model (after maturity). The amendments also require that produce that grows on bearer plants will remain in the scope of IAS 41 measured at fair value less costs to sell. For government grants related to bearer plants, IAS 20 Accounting for Government Grants and Disclosure of Government Assistance will apply. The amendments are applied retrospectively and do not have any impact on the bank as it does not have any bearer plants.

Amend-ments to IAS 27

Equity Method in Separate Financial Statements

1-Jan-16 The amendments allow entities to use the equity method to account for invest-ments in subsidiaries, joint ventures and associates in their separate financial state-ments. Entities already applying IFRS and electing to change to the equity method in their separate financial statements have to apply that change retrospectively. These amendments do not have any impact on the bank’s financial statements.

Annual Improvements 2012-2014 Cycle

IFRS 5 Non-current As-sets Held for Sale and Discontinued Operations

1-Jan-16 Assets (or disposal groups) are generally disposed of either through sale or distribu-tion to the owners. The amendment clarifies that changing from one of these dis-posal methods to the other would not be considered a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. This amendment is applied prospectively. These amendments do not have any impact on the bank’s financial statements.

NOTES TO THE FINANCIAL STATEMENTS (continued...)




IFRS 7 Financial Instru-ments: Disclo-sures

1-Jan-16 (i) Servicing contractsThe amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, the required disclosures need not be provided for any period beginning before the annual period in which the entity first applies the amendments.

(ii) Applicability of the amendments to IFRS 7 to condensed interim financial state-mentsThe amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. This amend-ment is applied retrospectively. These amendments do not have any impact on the bank’s financial statements.

Clarification of Ac-ceptable Methods of Depreciation and Amortisation

1-Jan-16 The amendments clarify the principle in IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets that

IAS 19 Employee Benefits 1-Jan-16 The amendment clarifies that market depth of high quality corporate bonds is as-sessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. This amendment is applied prospectively.These amendments do not have any impact on the bank’s financial statements.

IAS 34 Interim Financial Reporting

1-Jan-16 The amendment clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial re-port (e.g., in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment is applied retrospectively. These amendments do not have any impact on the Group.


Disclosure Initia-tive

1-Jan-16 The amendments to IAS 1 clarify, rather than significantly change, existing IAS 1 requirements. The amendments clarify:• The materiality requirements in IAS 1• That specific line items in the statement(s) of profit or loss and OCI and the state-ment of financial position may be disaggregated• That entities have flexibility as to the order in which they present the notes to financial statements• That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss

Agriculture: Bearer Plants

1-Jan-16 The amendments change the accounting requirements for biological assets that meet the definition of bearer

Equity Method in Separate Financial Statements

1-Jan-16 The amendments allow entities to use the equity method to account for investments in subsidiaries, jointFurthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI. These amendments do not have any impact on the bank.



Amend-ments to IFRS 10 and IAS 28

Sale or Contribu-tion of Assets be-tween an Investor and its Associate or Joint Venture

1-Jan-16 The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or con-tribution of assets that constitute a business, as defined in IFRS 3, between an inves-tor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors’ interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefi-nitely, but an entity that early adopts the amendments must apply them prospec-tively. This is not expected to have any impact on the Bank’s financial statements.

IFRS 5 Non-current As-sets Held for Sale and Discontinued Operations

1-Jan-16 Assets (or disposal groups) are generally disposed of either through sale or distribu-tion to the owners. The amendment clarifies that changing from one of these dis-posal methods to the other would not be considered a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. This amendment is applied prospectively. These amendments do not have any impact on the bank’s financial statements.

IFRS 7 Financial Instru-ments: Disclo-sures

1-Jan-16 (i) Servicing contractsThe amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in IFRS 7 in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, the required disclosures need not be provided for any period beginning before the annual period in which the entity first applies the amendments.

(ii) Applicability of the amendments to IFRS 7 to condensed interim financial state-mentsThe amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim financial statements, unless such disclosures provide a significant update to the information reported in the most recent annual report. This amend-ment is applied retrospectively. These amendments do not have any impact on the bank’s financial statements.

IAS 19 Employee Benefits 1-Jan-16 The amendment clarifies that market depth of high quality corporate bonds is as-sessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. This amendment is applied prospectively. These amendments do not have any impact on the bank’s financial statements.

IAS 34 Interim Financial Reporting

1-Jan-16 The amendment clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial re-port (e.g., in the management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. This amendment is applied retrospectively. These amendments do not have any impact on the Group.


Disclosure Initia-tive

1-Jan-16 The amendments to IAS 1 clarify, rather than significantly change, existing IAS 1 requirements. The amendments clarify:• The materiality requirements in IAS 1• That specific line items in the statement(s) of profit or loss and OCI and the state-ment of financial position may be disaggregated• That entities have flexibility as to the order in which they present the notes to financial statements• That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the statement(s) of profit or loss and OCI. These amendments do not have any impact on the bank.



Amend-ments to IFRS 10 and IAS 28

Sale or Contribu-tion of Assets be-tween an Investor and its Associate or Joint Venture

1-Jan-16 The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or con-tribution of assets that constitute a business, as defined in IFRS 3, between an inves-tor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors’ interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefi-nitely, but an entity that early adopts the amendments must apply them prospec-tively. This is not expected to have any impact on the Bank’s financial statements.

Standards issued but not yet effectiveThe standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Bank’s financial statements are disclosed below. The Bank intends to adopt these standards, if applicable, when they become effective.

International Financial Reporting Standards and amendments issued but not ef-fective for 31 December 2016 year-end


IFRS 9 Financial Instruments

1-Jan-18 In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previ-ous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.

The Bank plans to adopt the new standard on the required effective date. During 2015, the Bank has performed a high-level impact assessment of all three aspects of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analyses or additional rea-sonable and supportable information being made available to the Bank in the future. Overall, the Bank expects no significant impact on its statement of financial position and equity except for the effect of applying the impairment requirements of IFRS 9. The Bank expects a higher loss allowance resulting in a negative impact on equity and will perform a detailed assessment in the future to determine the extent.

IFRS 15 Revenue from Contracts with Customers

1-Jan-18 IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recog-nised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The new revenue standard will supersede all current revenue recognition require-ments under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Bank plans to adopt the new standard on the required effective date using the full retrospective method. During 2015, the Bank performed a preliminary assessment of IFRS 15, which is subject to changes arising from a more detailed ongoing analysis. Furthermore, the Bank is considering the clarifications issued by the IASB in an exposure draft in July 2015 and will monitor any further developments. The Bank is still assessing the impact the new standard will have on its revenue.




IFRS 16 Leases 1-Jan-2019 The IASB issued the new standard for accounting for leases - IFRS 16 Leases in Janu-ary 2016. The new standard does not significantly change the accounting for leases for lessors. However, it does require lessees to recognise most leases on their bal-ance sheets as lease liabilities, with the corresponding right of- use assets. Lessees must apply a single model for all recognised leases, but will have the option not to recognise ‘short-term’ leases and leases of ‘low-value’ assets. Generally, the profit or loss recognition pattern for recognised leases will be similar to today’s finance lease accounting, with interest and depreciation expense recognised separately in the statement of profit or loss. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted provided the new revenue standard, IFRS 15, is applied on the same date. Lessees must adopt IFRS 16 using either a full retrospective or a modified retrospective approach. The Bank does not anticipate early adopting IFRS 16 and is currently evaluating its impact.

Amendments to IAS 12

Income Taxes 1-Jan-2017 In January 2016, through issuing amendments to IAS 12, the IASB clarified the accounting treatment of deferred tax assets of debt instruments measured at fair value for accounting, but measured at cost for tax purposes. The amendment is effective from 1 January 2017. The Bank is currently evaluating the impact, but does not anticipate that adopting the amendments would have a material impact on its Financial statements.

Amendments to IAS 7

Statement of Cash Flows

1 January 2017 In January 2016, the IASB issued amendments to IAS 7 Statement of Cash Flows with the intention to improve disclosures of financing activities and help users to better understand the reporting entities’ liquidity positions. Under the new require-ments, entities will need to disclose changes in their financial liabilities as a result of financing activities such as changes from cash flows and non-cash items (e.g., gains and losses due to foreign currency movements). The amendment is effective from 1 January 2017. The Bank is currently evaluating the impact

Amendments to IFRS 2

Classification and Measurement of Share-based Payment Transactions

1 January 2017 The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment trans-action with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment trans-action changes its classification from cash settled to equity settled.On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amend-ments and other criteria are met. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted. This is not expected to have any impact on the Bank’s financial statements.

IAS 40 Investment Property (Amendments to IAS 40)

1 January 2018 The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use.

TransitionEntities should apply the amendments prospectively to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments. An entity should reassess the classification of property held at that date and, if applicable, reclassify property to reflect the conditions that exist at that date. Retrospective application in accordance with IAS 8 is only permitted if that is possible without the use of hindsight. Early application of the amendments is permitted and must be disclosed. The Bank is still assessing the impact the new standard will have on it.




IFRS 9 and IFRS 4

Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - Amendments to IFRS 4

1 January 2018 The amendments address concerns arising from implementing the new financial instruments Standard, IFRS 9, before implementing the new insurance contractsstandard that the Board is developing to replace IFRS 4. The amendments introduce two options for entities issuing insurance contracts: a temporary exemption from applying IFRS 9 and an overlay approach.

TransitionThe temporary exemption is first applied for reporting periods beginning on or after 1 January 2018. An entity may elect the overlay approach when it first applies IFRS 9 and apply that approach retrospectively to financial assets designated on transi-tion to IFRS 9. The entity restates comparative information reflecting the overlay approach if, and only if, the entity restates comparative information when applying IFRS 9.

ImpactThe overlay approach requires an entity to remove from profit or loss additional volatility that may arise if IFRS 9 is applied with IFRS 4.When applying the temporary exemption, entities must still provide extensive dis-closure that require the application of some aspects of IFRS 9. The change will have no impact on the bank as it does not have insurance contracts.

IFRIC Interpretation 22

Foreign Curren-cyTransactions and Advance Consideration

1 January 2018 The interpretation clarifies that in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially rec-ognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. This is not expected to have an impact on the bank as it already uses the methodology stated above.

2014-2016 cycle (issued in December 2016)

IFRS 1 First-time Adoption of International Financial Report-ing Standards

1 January 2018 Deletion of short-term exemptions for first-time adopters • Short-term exemptions in paragraphs E3–E7 of IFRS 1 were deleted because they have now served their intended purpose. This is not expected to have any impact on the Bank’s financial statements.

IAS 28 Investments in Associates and Joint Ventures

1 January 2018 Clarification that measuring investees at fair value through profit or loss is an investment-by investment choice. The amendments clarifies that: • An entity that is a venture capital organisation, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss. • If an entity that is not itself an investment entity has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment en-tity associate or joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date on which (a) the investment entity associate or joint venture is initially recognised; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint ven-ture first becomes a parent. This is not expected to have any impact on the Bank’s financial statements.

IFRS 12 Disclosure of In-terests in Other Entities

1 January 2017 Clarification of the scope of the disclosure requirements in IFRS 12• The amendments clarify that the disclosure requirements in IFRS 12, other than those in paragraphs B10–B16, apply to an entity’s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale. This is not expected to have any impact on the Bank’s financial statements.



b. Interest income and expense

Interest income and expense on all interest bearing instruments are recognised using the effective interest method in profit or loss.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts financial instruments estimated future cash payments or receipts through its expected life or, where appropriate, a shorter period, to the net carrying amount.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised based on the rate of interest that was used to discount the future cash flows for the purpose of measuring the impairment loss.

c. Fees and commission income

Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawndown are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan.

Other fees and commissions include; Loan and lease processing fees, Commitment Fees Overdraft to Customers, commissions on Advance Payment Guarantees, bid bonds & Guarantees, drafts Payable, bills Payable, Inter-branch, RTGS /EFT Transfers, Cheques, uncleared effects and ledger fees.

d. Translation of foreign currencies

The accounting records are maintained in the currency of the primary economic environment in which the Bank operates, Uganda Shillings (“the functional currency”). Transactions in foreign currencies during the year are converted to Uganda shilling using the exchange rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

Non–monetary items that are measured in terms of historical cost in a foreign currency are translated using the spot exchange rates as at the date of recognition.

e. Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

i) Financial assets

Initial recognition and measurementFinancial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments or available- for-sale financial assets. All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Bank commits to purchase or sell the asset.

Subsequent measurementFor purposes of subsequent measurement financial assets are classified in four categories:

• Financial assets at fair value through profit or loss. • Loans and receivables.• Held-to-maturity investments.• Available-for-sale financial investments.

Financial assets at fair value through profit or lossFinancial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments as defined by IAS 39. The Bank has designated its financial assets as held for trading, at fair value through profit or loss. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value presented as a line item in the statement of comprehensive income.

Loans and receivablesThis category is the most relevant to the Bank. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are sub-sequently measured at amortised cost



using the Effective Interest Rate (EIR) method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in profit or loss. The losses arising from impairment are recognised as a line item in the statement of comprehensive income. This category generally applies to loans and advances to customers and other receivables.

Held-to-maturity investmentsNon-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to maturity when the Bank has the positive intention and ability to hold them to maturity. After initial measurement, held to maturity investments are measured at amortised cost using the EIR, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as interest income in profit or loss. The losses arising from impairment are recognized in profit or loss as finance costs.

Available-for-sale (AFS) financial investmentsAFS financial investments include equity investments and debt securities. Equity investments classified as AFS are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in the market conditions. The Bank did not have any available-for-sale assets as at 31 December, 2016 or 31 December, 2015.

DerecognitionA financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Bank’s statement of financial position) when:• The rights to receive cash flows from the asset have expired, or• The Bank has transferred its rights to receive

cash flows from the asset or has assumed an

obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either

(a) The Bank has transferred substantially all the risks and rewards of the asset, or

(b) The Bank has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset

When the Bank has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Bank continues to recognise the transferred asset to the extent of the Bank’s continuing involvement. In that case, the Bank also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Bank has retained.

ii) Financial liabilities

Initial recognition and measurementFinancial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, plus directly attributable transaction costs. The Bank’s financial liabilities include customer deposits, deposits from other banks, loans and borrowings and managed funds.

Subsequent measurementThe measurement of financial liabilities depends on their classification, as described below:

Financial liabilities at fair value through profit or lossFinancial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading



if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Bank that are not designated as hedging instruments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognized in profit or loss Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IAS 39 are satisfied. The Bank has not designated any financial liability as at fair value through profit or loss.

Loans and borrowingsThis is the category most relevant to the Bank. After initial recognition, interest-bearing loans and borrowings, customer deposits and managed funds are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in profit or loss.

DerecognitionA financial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in profit or loss.

OffsettingFinancial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the bank has a currently enforceable legal right to set off the recognised amounts and it intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. In- come and expenses are presented on a net basis only when permitted under IFRSs.

f. Impairment of financial assets

The Bank assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Bank about the following loss events:

• Significant financial difficulty of the borrower• A breach of contract, such as default or

delinquency in interest or principal repayments;• The granting to the borrower, for economic or

legal reasons relating to the borrower’s financial difficulty, a concession that the lender would not otherwise consider;

• It becoming probable that the borrower will enter bankruptcy or other financial re-organization;

• The disappearance of an active market for that financial asset because of financial difficulties; or

• Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including:

• Adverse changes in the payment status of borrowers in the group; or

• National or local economic conditions that correlate with defaults on the assets in the group.

The estimated period between loss occurring and its identification is determined by management for each identified portfolio. In general, the periods used vary between 3 months and 6 months.

Assets carried at amortised costThe Bank first assesses whether objective evidence of impairment exists individually for financial assets



that are individually significant, and individually or collectively for financial assets that are not individually significant.

If the Bank determines no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss on loans or held-to-maturity investmentscarried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial instrument’s original effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Bank may measure impairment on the basis of an instrument’s fair value using an observable market price.

The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Provisions for impairment on assets assessed individually are referred to as specific provisions, whilst provisions for such losses on assets assessed collectively are referred to as general provisions.

When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are reported as other income in the statement of comprehensive income.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in profit or loss.

In addition to the measurement of impairment losses on loans and advances in accordance with IFRS as set out above, the Bank is required by the Financial Institutions Act 2004 to estimate losses on loans and advances as follows:

Specific provision for the loans and advances considered to be non-performing (impaired) based on the criteria and classification of such loans and advances established by the Bank of Uganda, as follows:

Commercial, Salary, Home Improvements and Micro finance loans above UGX 5 million• Substandard loans with arrears period between 91 to 180 days – 20%• Doubtful loans with arrears period between 180 to 365 days – 50%• Loss with arrears period exceeding 365 days –100% provision

Microfinance loans up to UGX 5 million• Substandard loans with arrears period

between 30 to 59 days – 25%• Doubtful loans with arrears period between 60 to 89 days – 50%• Loss with arrears period exceeding 89 days –100% provision



• General provision of 1% of credit facilities less specific provision and suspended interest

In the event that provisions computed in accordance with the Financial Institution Act 2004 materially exceed provisions determined in accordance with IFRS, the excess is accounted for as an appropriation of retained earnings.

g. Impairment of non-financial assets

At the end of each reporting period, the Bank assesses whether there is any indication that an asset is impaired, that is, whether its carrying amount is higher than its recoverable amount. If there is an indication that an asset is impaired, then the asset’s recoverable amount is calculated. The recoverable amount is determined by assessing;• If the fair value less costs of disposal or value in

use is more than carrying amount, then it is not necessary to calculate the other amount since the asset is not impaired.

• If an impaired loss is determined, the loss is recognised through profit and loss.

• If fair value less costs of disposal cannot be determined, then recoverable amount is value in use.

• For assets to be disposed of, recoverable amount is fair value less costs of disposal.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre–tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are collaborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Bank estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying

amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement.The Bank looks at both external and internal indicators to determine if an asset is impaired.

External Indicators:• Decline in market value• Negative changes in technology, markets, economy, or laws• Increases in market interest rates• Net assets of the Bank higher than market capitalisation

Internal Indicators:• Obsolescence or physical damage of the asset• Asset is idle as part of a restructuring or held for

disposal• Worse economic performance than expected

h. Property and equipment Recognition and measurementItems of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

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

Subsequent costsThe cost of replacing a part of an item of property or equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the bank and its cost can be measured reliably. The costs of the day-to-day servicing of property and equipment are recognised in profit or 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. Leased assets under finance leases are depreciated over the shorter of the lease term and their useful lives. land is not depreciatedThe estimated useful lives for the current and comparative periods are as follows:

Leased buildings Shorter of 50 years or lease periodComputer hard ware 3 yearsCore Banking software 7 yearsCore Banking Hardware 5 YearsFurniture, fixtures and fittings 5 yearsMotor vehicles 5 yearsMotor cycles 4 YearsGenerators & office equipment 8 years

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

DerecognitionProperty and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition or the asset (calculated as the different between the net disposal proceeds and the carrying amount of the asset) is recognized in other operating income in profit or loss in the year the asset is derecognised.

i. Fair value measurementThe Bank measures some financial instruments at fair value at each reporting date. Also, fair values offinancial instruments measured at amortised cost are disclosed in Note 4(d).

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:• In the principal market for the asset or liability, or• In the absence of a principal market, in the

most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Bank. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Bank uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or

liabilities• Level 2 — Valuation techniques for which the

lowest level input that is significant to the fair value measurement is directly or indirectly observable

• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Bank determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

j. Intangible assets

An intangible asset is recognised only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the bank.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with



finite lives are amortised over the useful economic life. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Changes in the expected useful life, or the expected pattern of consumption of future economic benefits embodied in the asset, are accounted for by changing the amortisation period or methodology, appropriate, which are then treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss.

Computer software Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful lives of 3 years.

The useful life of the new Core Banking System (CBS), was revised to 7 years w.e.f year 2014.

Costs associated with developing or maintaining computer software programs are recognized as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the bank, and that will probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets. Direct costs include software development employee costs and an appropriate portion of relevant overheads.

k. Tax

The Bank is subject to various government taxes under the Ugandan tax laws. Significant judgement is required in determining the provision for income taxes. Significant estimates and judgements are required in determining the provision for taxes on certain transactions. For these transactions, the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. The deferred tax asset /liability is indicated in note 20.

Current income taxIncome tax expense is the aggregate of the charge to profit or loss in respect of current income tax and deferred income tax. Current income tax is the

amount of income tax payable on the taxable profit for the year determined in accordance with the Ugandan Income Tax Act. Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities.

Current income tax relating to items recognised directly in equity or other comprehensive income is recognised directly in equity or other comprehensive income and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which the tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred income taxDeferred income tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred income tax liabilities are recognised for all taxable temporary differences, except:

• When the deferred income tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

• In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:

• When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.



• In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised

Deferred income tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred income tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax to be utilised. Unrecognized deferred tax assets are reassessed at each reporting date and are recognised to the extent that it becomes probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to set off current income tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

Withholding taxWithholding tax is deducted at source at 20% on income earned on treasury bills and bonds. This amount is included under the income tax charge for the year.

Value Added taxValue added tax is chargeable at a rate of 18%. Output VAT is the value added tax you calculate and charge on your own sales of goods and services if you are registered. Input VAT is the value added tax added to the price when you purchase goods or services liable to VAT. VAT payable arises when the output VAT is in excess of input VAT.

The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

l. Employee benefits

The Bank and all its employees contribute to the National Social Security Fund, which is a defined contribution scheme.

The Bank also operates a defined contribution benefits scheme for its employees. The Bank has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The assets of the scheme are held in separate trustee administered funds, which is funded by contributions from both the Bank and employees.

The Bank’s contributions to the defined contributions schemes are charged to profit or loss in the year in which they relate.

The estimated monetary liability for employees’ accrued annual leave entitlement at the reporting date is recognised as an expense accrual.

m. Contingent liabilities and commitments

Contingent liabilities and commitments comprised letters of credit, acceptances, guarantees and commitments to extend credit are not included in assets and liabilities in note 36. They are accounted for as off-statement of financial position transactions and are disclosed as contingent liabilities and commitments.

n. Share capital

Ordinary shares are classified as ‘share capital’ in equity. Any premium received over and above the par value of the shares is classified as ‘share premium’ in equity. Preference shares (irredeemable) classified as share capital in equity.

Dividends on shares are charged to equity in the period in which they are declared. Proposed dividends are shown as a separate component of equity until declared.

o. Cash and cash equivalents

Cash and cash equivalents include cash at hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, including: cash and unrestricted balances with the



Bank of Uganda, Treasury and other eligible bills, and amounts due from other banks.

p. Comparatives

No comparative figures have been adjusted.

q. Grants

Grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item it is recognized as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is recognized as deferred income and released to income in equal amounts over the expected useful life of the related asset.

r. Provisions

A provision is recognised if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of obligation.

s. Managed funds and borrowed funds

The Bank manages funds on behalf of others in terms of specific agreements. The funds are recorded as a liability on receipt of the funds and the corresponding investments (as per the agreement) are recorded under cash and cash equivalents or loans and advances to customers. Details of the funds are included in note 26 and 27.

t. Leases

The determination of whether an arrangement is a lease, or contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Bank as a lesseeLeases that do not transfer to the Bank substantially all the risks and benefits incidental to ownership of the leased items are operating leases. Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease term. Contingent rental payable is recognised as an expense in the period in which they are incurred.

Bank as a lessorWhen assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method. The Bank has entered into finance lease transactions as a lessor (Note18(b) – Finance Leases).

3 Critical Accounting Estimates and Judgments in Applying Accounting Policies

The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

i) Impairment losses on loans and advances The Bank reviews its loan portfolios to assess

impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in profit or loss, the Bank makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets.



Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows.

The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

The carrying amount of loans and advances is

indicated in note 18(a).

ii) Held-to-maturity investments The Bank follows the guidance of IAS 39

on classifying non-derivative financial assets with fixed or determinable payments and fixed maturing as held-to-maturity. This classification requires significant judgment. In making this judgment, the Bank evaluates its intention and ability to hold such investments to maturity. If the Bank fails to keep these investments to maturity other than for the specific circumstances – for example, selling a insignificant amount close to maturity – it will be required to reclassify the entire class as available-for- sale. The investments would therefore be measured at fair value and not amortised cost. The carrying amount of held-to-maturity investments is indicated in note 17(b).

iii) Determining fair values The determination of fair value for financial

assets and liabilities for which there is no observable market price requires the use of valuation techniques. 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.

The Bank measures fair value using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:

Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.

Level 2: Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived from prices). 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 techniques using significant unobservable inputs. This category includes all instruments where the valuation technique 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.The fair value disclosures are included in note 4.

4 Financial Risk Management

The Bank’s activities expose it to variety of financial and non-financial risks. These activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the Bank’s business, and the operational risks are inevitable consequences of being in business. The effective management of risk is critical to earnings and balance sheet growth within Centenary Bank where the culture encourages sound commercial decision making, which adequately balances risk and reward. The identification and management of risk remains a high priority and under- pins all business activities.

The Bank’s approach to risk management is based on a well-established risk, compliance and governance process and relies both on individual responsibility and collective oversight supported by comprehensive reporting. This approach balances strong corporate oversight at head office level with risk management structures within the business units.



The Bank has governance standards for all major risk types. All standards are applied consistently across the Bank and are approved by the Board through either Bank’s Board Risk Management Committee or Board ALCO Committee.

The standards form an integral part of the Bank’s governance infrastructure reflecting the expectations and requirements of the Board in respect of key areas control across the Bank. The standards ensure alignment and consistency in the manner major risk types across the Bank are identified, measured, managed, controlled and are reported.The standards underpin the Bank’s governance principles, which are:

Shareholder valueThe Bank’s primary objective is to protect and enhance shareholder value. As such the risks to this objective drive the Bank’s system of internal control.

EmbeddedThe Bank’s culture reflects its appetite for risk. Risk management is achieved at all levels of the business through a suitable organisational structure, policies, and procedure, and appropriate staff training. Responsibility for risk resides at all levels of management from the Board down through the organisation to individuals in office. Each business manager is accountable for managing risk in his or her business area.

Supported and assuredThe system of governance and internal control provide management and Board with assurance that risks are being managed appropriately. The designated executives and Board Committees regularly receive and review reports on risks, compliance, governance and control process.

ReviewedThe Board of Directors considers the effectiveness of the internal control system and risk management processes, at least annually. The major risks to which the Bank is exposed, including non – financial risks are: -• Credit risk• Operational risk• Compliance risk• Reputation risk • Business risk• Strategic risk

• Market risk• Liquidity risk• Taxation risk

A combination of these risks occurring concurrently would be the most likely cause of significant loss. The Bank’s approach to managing risk on a holistic basis therefore ensures that risk types are not managed in isolation.

a) Credit Risk

Comprehensive resources, expertise and control are in place to ensure efficient and effective management of credit risk. In lending transactions, credit risk arises through non-performance by counter party for facilities used. These facilities are typically loans and advances, including the advancement of securities and contracts to support customer obligations (such as letters of credit and guarantees).

Approach to managing credit riskCredit risk is managed by means of a governance structure with clearly defined mandates and delegated authorities. The Board Risk Committee delegates authority to the Management Credit Risk Committee for the approval of credit proposals. The management further delegates authority within its limits, primarily on a risk adjusted basis.



Credit Risk Measurement

Internal Risk RatingsThe Bank assesses the credit quality and assigns – watch and standard for performing loans and substandard, doubtful and loss for non-performing borrowers.

Standard and current:

Items that are fully current and the full repayment of the contractual principal and interest amounts are expected.

Watch list: Items for which the borrower is ex-periencing difficulties. Ultimate loss is not expected but could occur if adverse conditions persist.

Substandard1 Items that show underlying well de-fined weaknesses that could lead to probable loss if not corrected. The risk that these items may be impaired is probable and the Bank relies to a large extent on the available security.

Doubtful1 Items that are considered to be im-paired, but are not yet considered fi-nal losses because of pending factors, which may strengthen the quality of the items.

Loss1 Items that are considered to be un-collectible and where the realization of collateral and institution of legal proceedings have been unsuccess-ful. These items are considered of such little value that they should no longer be included in the net assets of the Bank.

1Classified as impaired for accounting purposes

Industry AnalysisThe Bank analyses its customers per industry using various portfolio segmentation techniques. These include the use of Bank of Uganda categories as well as International Standard Classification (SIC) codes whilst ensuring compliance with regulatory requirements.

• Agriculture• Manufacturing• Trade and commerce• Transport and utilities• Building and construction• Other services

The Bank takes on exposure to credit risk which is the risk that a counterparty will be unable to pay amounts in full as and when due. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to industry segments. Such risks are monitored on a revolving basis and are subject to an annual or more frequent review. Limits on the level of credit risk by product, and industry sector are approved by the Board of Directors.

The exposure to any one borrower including banks and brokers is further restricted by sublimits covering on and off-statement of financial position exposures and daily delivery risk limits in relation to trading items. Actual exposures against limits are monitored daily.

Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate and personal guarantees, but a significant portion is personal lending where no such security/undertaking can be obtained.



Maximum exposure to credit risk before collateral held:

2016 2015 Shs ‘000 Shs ‘000

Credit risk exposure relating to statement of financial position items: Balances with Bank of Uganda (Note 15) 226,920,198 97,215,868Placements with other banks (Note 16) 56,630,549 92,522,927Investment securities – held to maturity (Note 17) 337,141,441 409,067,314Investment securities – held for trading (Note 17) 90,784,201 31,885,743Loans and advances (Note 18 (a)) 1,271,626,340 1,039,965,420Other assets () 37,006,187 26,616,926 2,020,108,916 1,697,274,198

Credit risk exposures relating to off-statement of financial position items: - Letters of credit, guarantees and performance bonds (Note 36) 30,178,036 31,123,717- Commitment to extend credit (Note 36) 8,255,036 6,328,088 38,433,072 37,451,805Total 2,058,541,988 1,734,726,003

The above table represents the worst case scenario of credit risk exposure to the Bank at 31 December 2016 and 2015, without taking into account any collateral held or other credit enhancements attached. The exposures set out above are based on carrying amounts as reported in the statement of financial position.

As shown above, 61.8% (2015: 59.9%) of the total maximum exposure is derived from loans and advances to banks and customers. Investment in debt securities represents 20.8% (2015: 25.4%) of the total maximum exposure.

The table below shows the collateral coverage for secured loans as at year end. The type of collateral held includes land titles, motor vehicles and chattels.

As at Dec 2016 Total loan Netting off Exposure Collateral portfolio agreements after 51-100% Coverage Shs 000 (cash accured) netting off Shs 000 over 100% Shs000 Shs000

Secured loans 905,334,142 5,822,464 899,511,678 107,595,667 791,916,011

Partly secured loans by cash 366,292,198 - 366,292,198 197,308,171 168,984,027

Total 1,271,626,340 5,822,464 1,265,803,876 304,903,838 960,900,038

As at Dec 2015 Total loan Netting off Exposure Collateral portfolio agreements after 51-100% Coverage Shs 000 (cash accured) netting off Shs 000 over 100% Shs000 Shs000

Secured loans 750,896,923 2,410,956 784,485,966 71,811,327 679,085,596

Partly secured loans by cash 289,068,497 - 289,068,497 13,807,116 275,261,381

Total 1,039,965,420 2,410,956 1,073,554,463 85,618,443 954,346,977



Loans and advances to customers are secured mainly by collateral in the form of charges over land and buildings and/or plant and machinery or corporate guarantees. Micro loans can also be secured by chattels.

Loans and advances are summarised as follows: 2016 2015 Shs ‘000 Shs ‘000

Neither past due nor impaired 1,205,868,036 973,990,998Past due but not impaired 30,117,205 38,520,080Impaired 35,641,099 27,454,342

Gross loans and advances 1,271,626,340 1,039,965,420Less: Allowance for impairment (23,923,555) (19,738,068)

Net loans and advances 1,247,702,785 1,020,227,352

Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from both its loans and advance portfolio and debt securities based on the following:

• The Bank exercises stringent controls over granting new loans.• 94.8% (2015: 93.7%) of the loans and advances portfolio are neither past due nor impaired.• 100.0% (2015: 100.0%) of the investments in debt securities are government securities.

Loans and advances neither past due nor impaired

The quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the internal rating system adopted by the Bank, as follows:

2016 2015 Shs ‘000 Shs ‘000Standard 1,157,002,417 932,918,680Watch 48,860,768 41,072,318

Total 1,205,863,185 973,990,99

Loans and advances past due but not impaired

Micro loans that are less than 30 days overdue and other loans that are less than 90 days past due are not considered impaired, unless other information is available to indicate the contrary. The gross amounts of loansand advances that were past due but not impaired were as follows: 2016 2015 Shs ‘000 Shs ‘000

Past due up to 30 days 13,381,888 24,011,595Past due 31-60 days 15,491,136 7,813,362Past due 61-89 days 1,244,181 6,695,123

Total 30,117,205 38,520,080



Of the total gross amount of impaired loans, the following amounts have been individually assessed for impairment:

2016 2015 Shs ‘000 Shs ‘000

Loans individually assessed for impairment by category

Commercial loans 11,465,779 7,994,307Micro loans 7,777,038 5,223,478Home improvement loans 1,305,797 892,422Agricultural loans 9,679,014 5,752,261Salary loans 3,405,364 7,233,459Overdrafts 2,008,107 358,415

35,641,099 27,454,342

Gross loans and advances by category

Commercial loans 434,363,218 381,170,822Micro loans 190,398,516 167,374,534Home improvement loans 62,526,723 46,018,861Agricultural loans 210,555,752 125,090,281Salary loans 304,129,711 252,889,344Overdrafts 36,025,021 35,545,430Staff loans 33,627,399 31,876,148

Gross loans and advances 1,271,626,340 1,039,965,420

Less: Provision for impairment of loans and advances

Individually assessed (15,764,514) (12,892,365)Collectively assessed (8,159,041) (6,845,703)

Net loans 1,247,702,785 1,020,227,352

Other financial assets not impaired

Carrying amounts:Balances with Bank of Uganda 226,920,198 97,215,868Placements with other banks 56,630,549 92,522,927Investment securities- Held-to-maturity 337,141,441 409,067,927Investment securities- Held for trading 90,784,201 31,885,743Other assets 37,006,187 26,616,926

Total 748,482,576 657,309,391



These are low risk assets which did not exhibit any indicators of impairment as at year end.Movement in provisions for impairment of loans and advances in the statement of financial position are as follows:

Commercial Microfinance Leasing Staff Overdraft Loans Loans portfolio Loans Total

Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000

Non-performing loans - Identified loss:

At 1 January 2016 41,569 708,984 11,918,444 142,388 80,980 12,892,365

Impaired accounts written off - (3,843,046) (7,141,836) (35,488) (242,972) (11,263,342)

Additional identified impairment 618,604 5,606,653 10,268,278 364,248 184,986 17,042,769

Impairments released due (10,875) (185,467) (3,117,819) (37,248) (21,184) (3,372,593)to improved status

Movement in interest suspended during the year 0 614,706 (149,644) - 253 2,607,015

At 31 December 2016 649,298 2,901,830 11,777,423 433,900 2,063 15,764,514

Performing loans - Unidentified loss:

At 1 January 2016 267,604 1,182,292 4,843,239 159,508 393,060 6,845,703

Net provisions raised 29,407 391,980 589,473 21,800 280,678 1,313,338

At 31 December 2016 297,011 1,574,272 5,432,712 181,308 673,738 8,159,041

Total 946,309 4,476,102 17,210,135 615,208 675,801 23,923,555

Commercial Microfinance Leasing Staff Overdraft Loans Loans portfolio Loans Total Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000


At 1 January 2015 147,396 395,872 13,619,950 108,404 80,980 14,352,602

Impaired accounts written off (78,283) (1,200,197) (6,025,002) (157,864) - (7,461,346)

Additional identified impairment 120,777 1,703,144 13,679,404 204,827 - 15,708,152

Impairments released due (167,811) (383,317) (9,680,162) (12,979) - (10,244,269) to improved status

Movement in interestsuspended during the year 19,490 193,482 324,254 - - 537,226

At 31 December 2015 41,569 708,984 11,918,444 142,388 80,980 12,892,365


At 1 January 2015 229,859 807,579 4,215,263 129,458 54,569 5,436,728


At 31 December 2015 267,604 1,182,292 4,843,239 159,508 393,060 6,845,705

Total 309,173 1,891,276 16,761,683 301,897 474,040 19,738,068



Commercial Microfinance Leasing Staff Overdraft Loans Loans portfolio Loans Total

Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000


At 1 January 2016 41,569 708,984 11,918,444 142,388 80,980 12,892,365

Impaired accounts written off - (3,843,046) (7,141,836) (35,488) (242,972) (11,263,342)

Additional identified impairment 618,604 5,606,653 10,268,278 364,248 184,986 17,042,769

Impairments released due to (10,875) (185,467) (3,117,819) (37,248) (21,184) (3,372,593)improved status

Movement in interest 0 614,706 (149,644) - 253 465,315suspended during the year

At 31 December 2016 649,298 2,901,830 11,777,423 433,900 2,063 15,764,514


At 1 January 2016 267,604 1,182,292 4,843,239 159,508 393,060 6,845,703


At 31 December 2016 297,011 1,574,272 5,432,712 181,308 673,738 8,159,041

Total 946,309 4,476,102 17,210,135 615,208 675,801 23,923,555

Commercial Microfinance Leasing Staff Overdraft Loans Loans portfolio Loans Total Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000


At 1 January 2015 147,396 395,872 13,619,950 108,404 80,980 14,352,602

Impaired accounts written off (78,283) (1,200,197) (6,025,002) (157,864) (7,461,346)

Additional identified impairment 120,777 1,703,144 13,679,404 204,827 - 15,708,152

Impairments released due to (167,811) (383,317) (9,680,162) (12,979) - (10,244,269)improved status

Movement in interest 19,490 193,482 324,254 - - 537,226suspended during the year

At 31 December 2015 41,569 708,984 11,918,444 142,388 80,980 12,892,365


At 1 January 2015 229,859 807,579 4,215,263 129,458 54,569 5,436,728


At 31 December 2015 267,604 1,182,292 4,843,239 159,508 393,060 6,845,703

Total 309,173 1,891,276 16,761,683 301,897 474,040 19,738,068



Movement in provisions for impairment of loans and advances in the statement of comprehensive income are as follow:

2016 2015 Shs ‘000 Shs ‘000Provision for impairment losses Additional identified impairment 17,042,769 15,708,152Additional unidentified impairment 1,313,337 1,408,975 18,356,106 17,117,127

Reduction due to improved statusIdentified impairment (3,372,593) (10,244,269) 3,372,593 10,244,269

Provisions for the year 18,356,106 17,117,127Reductions in provision for impairment 3,372,593 (10,244,269)Total statement of comprehensive income movement 14,983,513 6,872,858

Concentration of Risk

Economic sector risk concentrations within the customer loan portfolio were as follows: 2016 2016 Shs ‘000 Shs ‘000 % Credit commitmentsSector analysis by industry Agriculture 218,648,695 17.2 1,136,636Manufacturing 8,292,795 0.7 10,405Trade and commerce 231,312,941 18.2 31,112,445Transport and utilities 25,593,245 2.0 334,295Building and construction 303,136,043 23.8 2,240,021Other services 484,642,621 38.1 3,599,564 1,271,626,340 100 38,433,366

2015 2015 Shs ‘000 Shs ‘000 % Credit commitmentsSector analysis by industry Agriculture 180,047,716 17.3 1,002,610Manufacturing 7,890,510 0.8 1,970,418Trade and commerce 205,952,558 19.8 14,026,154Transport and utilities 22,443,306 2.2 122,600Building and construction 245,999,992 23.7 16,253,330Other services 377,631,338 36.3 4,076,694 1,039,965,420 100 37,451,806



As at 31 December 2016, the Bank had no loans and advances to a single borrower or group of related borrowers exceeding 25.0% of core capital (31 December 2015: Nil).

Credit Related Commitments

The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet its obligation to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the Bank on behalf of the customer authorizing a third party to draw drafts up to a stipulated amount under specific terms and conditions, are collateralized by the underlying shipments of goods to which they relate and therefore carry less risk than a direct borrowing.

Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards.

The Bank monitors the term of maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

Impaired loans and advances

Individually impaired loans and securities are loans and advances and investments in debt securities (other than those carried at fair value through profit or loss) for which the bank 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 agreement. These loans are graded

as standard and watch in the bank’s internal credit risk grading system. Investments in debt securities carried at fair value through profit or loss are not assessed for impairment but are subject to the same internal 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 bank believes that impairment is not appropriate on the basis of the level of securit/collateral available and/or the stage of collection of amounts owed to the bank.

Loans with renegotiated terms

Loans with renegotiated terms are loans that have been restructured due to deterioration in the borrower’s financial position and where the bank has made concessions that it would not otherwise consider. Once the loan is restructured it remains in this category for at least one year and returned to normal category there after satisfactory performance.

Allowances for impairment

The Bank establishes an allowance for impairment losses on assets carried at amortized 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 policy

The Bank writes off a loan or an investment debt security balance, and any related allowances for impairment losses, when the Bank Credit Committee 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 standardized loans, write-off decisions generally are based on a product-specific past due status.

Collateral held

The Bank holds collateral against loans and advances to customers in the form of mortgage interests over property such as land and buildings and plant and machinery, other registered securities over assets e.g. chattels for micro loans, and corporate 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 within the board approved risk tolerance limit, except when securities are held as part of reverse repurchase and securities borrowing activity. Collateral usually is not held against investment securities and no such collateral was held at 31 December, 2015 or 31 December, 2014. As an internal requirement, the forced sale value of the collateral security is over and above the amount of loans and advances disbursed.

b) Operational Risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Bank’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising

from legal and regulatory requirements and generally accepted standards of corporate behavior. Operational risks arise from all the Bank’s operations.

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

c) Market Risk

Market risk arises from decrease in the market value of portfolio of financial instruments caused by adverse movements in the market variables such as currency exchange rates, interest rates, credit spreads and implied volatilities on all the above. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while optimizing the return on risk. The Board grants the general authority to take on market risk exposures to the Board Asset and Liability Committee (ALCO).

The ALCO sets market risk standards and policies to ensure that the measurement, reporting, monitoring and management of market risk is maintained. The day to day implementation of these policies rests with the Treasury Department.

The Bank manages risk through a range of market risk and capital risk limits. Stress testing and basic risk management measures (permissible instruments, concentration of exposures, gap limits and maximum tenor) are used to facilitate this process.

(i) Interest Rate Risk

The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. The Asset and Liability Committee sets limits on the level of mismatch of interest rate repricing that may be undertaken, which is monitored monthly.



Methods of Measuring and Managing the Interest Rate Risk:

There are a good number of techniques and tools available for measuring and managing interest rate risk ranging from simple calculation to highly complex simulations and modeling. The technique that Centenary Bank utilizes is explained below:

Gap Analysis:

Under this, interest sensitive assets and liabilities are classified into various time bands according to their maturity in the case of fixed interest rates, and residual maturity towards next repricing date in the case of floating interest rates.

The size of the gap in a given time band is analyzed to study the interest rate exposure and the possible effects on the Bank’s earnings. Items in assets and liabilities are captured into various buckets, using judgmental factors by studying behavioral patterns, customer segmentation, and roll over history, etc., on a continuous basis which eventually leads to a dynamic gap analysis.

In order to evaluate the earnings exposure, interest Rate Sensitive Assets (RSA) in each time band are netted off against the interest Rate Sensitive Liabilities (RSL) to produce a repricing “Gap” for that time band.

A positive gap indicates that the Bank has more RSA than RSL. A positive or asset sensitive gap means that an increase in market interest rates could cause an increase in the net interest margin and vice versa. Conversely, a negative or liability sensitive gap implies that the Bank’s net interest margin could decline as a result of increase in market rates and vice versa.

The positive or negative gap is multiplied by the assumed interest rate changes to derive the Earnings at Risk (EaR). The EaR method helps to estimate how much the earnings might be impacted by an adverse movement in interest rates. The assumed changes in interest rate are estimated on basis of past trends, forecasting of interest rates, etc. The off-statement of financial position items are excluded from the gap report because the Bank does not bear any interest rate risk on these items.

The table on page 85 summarizes the Bank’s exposure to interest rate risks. Included in the table are the Bank’s assets and liabilities at carrying amounts, categorized by the earlier of contractual re-pricing or maturity dates.

The carrying amounts of derivative financial instruments which are principally used to reduce the exposure to interest rate movements are included in ‘Other Assets’ and ‘Other Liabilities” under the heading ‘Non-interest Bearing’. The off-statement of financial position gap represents the net notional amounts of all interest-sensitive derivative financial instruments.



Interest rate risk exposure Over 5 Fixed& Nov- <1 mth 1-12 mth 1-5 Years Years interest bearing TOTAL Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000

31 December 2016

Financial assets

Cash and short-term funds 140,139,726 - - - 173,959,656 314,099,382

Due from other banks 38,847,822 - - - 17,782,727 56,630,549

Investments 120,977,569 306,948,073 - - - 427,925,642

Loans and advances to customers 14,898658 374,226,582 773,461,964 54,998,321 30,117,260 1,247,702,785

Other financial assets - - - - 37,006,187 37,006,187

Total financial assets 314,863,775 681,174,655 773,461,964 54,998,321 258,865,830 2,083,364,545

Non-financial assets

Property & Equipment and intangible assets - - - - 213,309,662 213,309,662

Other assets - - - - 19,075,104 19,075,104

Total non-financial assets - - - - 232,384,766 232,384,766

Total assets 314,863,775 681,174,655 773,461,964 54,998,321 491,250,596 2,315,749,311

Financial Liabilities

Due to customers and other banks 33,675,809 1,215,714,655 350,778 380,735,117 - 1,630,476,359

Managed/ borrowed funds - - 107,603,439 - 10,431,213 118,034,652

Other liabilities - - - - 25,560,242 25,560,242

Total liabilities 33,675,809 1,215,714,655 107,954,217 380,735,117 35,991,455 1,774,071,253

Non-financial liabilities

Other non-financial liabilities - - - - 56,661,089 56,661,089

Total liabilities 33,675,809 1,215,714,655 107,954,217 380,735,117 92,652,544 1,830,732,342

Net on-SOFP gap 281,187,966 (534,540,000) 665,507,747 (325,736,796) 222,874,375 309,293,292

Net off-SOFP gap - - 38,433,366 - - 38,433,366

Total interest sensitivity gap 281,187,966 (534,540,000) 703,941,113 (325,736,796) 222,874,375 347,726,658



Over 5 Fixed& Nov- <1 mth 1-12 mth 1-5 Years Years interest bearing TOTAL Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000

31 December 2015

Financial assets

Cash and short-term funds - - - - 176,919,896 176,919,896

Due from other banks 81,933,951 - - - 10,588,976 92,522,927

Investments 67,777,422 373,175,635 - - - 440,953,057

Loans and advances to customers 11,761,829 255,438,624 471,382,697 52,953,389 228,690,813 1,020,227,352

Other financial assets - - - - 26,616,926 26,616,926

Total financial assets 161,473,202 628,614,259 471,382,697 52,953,389 442,816,611 1,757,240,158

Non-financial assets

Property & Equipment and intangible assets - - - - 199,318,526 199,318,526

Other assets - - - - 17,841,671 17,841,671

Total non-financial assets - - - - 219,160,197 217,160,197

Total assets 161,473,202 628,614,259 471,382,697 52,953,389 659,976,808 1,974,400,355

Financial Liabilities

Due to customers and other banks 20,249,258 1,072,048,661 732,145 - 294,241,303 1,387,271,367

Managed/ borrowed funds - - 102,045,663 - 10,284,689 112,330,352

Other liabilities - - - - 17,252,167 17,252,167

Total financial liabilities 20,249,258 1,072,048,661 102,777,807 - 321,778,159 1,516,853,886

Non-financial liabilities

Other non-financial liabilities - - - - 56,921,336 56,921,336

Total liabilities 20,249,258 1,072,048,661 102,777,807 - 378,699,495 1,573,775,222

Net on-SOFP gap 141,223,944 (443,434,402) 368,604,890 52,953,389 121,038,452 240,386,273

Net off-SOFP gap - - 37,451,805 - - 37,451,805

Total interest sensitivity gap 141,223,944 (443,434,402) 406,056,695 52,953,389 121,038,452 277,838,078



>3months >6months Within 3 but within 6 but within After 12 months months 12 months months Shs million Shs million Shs million Shs million

2016

Interest rate sensitivity gap 751,120 170,559 327,209 828,110

Cumulative interest rate sensitivity gap (751,120) (580,561) (253,353) 574,757Cumulative interest rate sensitivitygap as a percentage of total assets (32%) (25%) (11%) 25%

2015

Interest rate sensitivity gap 745,335 131,323 311,802 523,604

Cumulative interest rate sensitivity gap (745,335) (614,012) (302,210) 221,393Cumulative interest rate sensitivitygap as a percentage of total assets (38%) (31%) (15%) 11%

The re-pricing gaps for the Bank’s portfolios are shown below. Positions are managed by currency to take account of the fact that interest rates are unlikely to move together. All assets and liabilities are sited in gap intervals based on their re-pricing characteristics. Assets and liabilities, for which no specific contractual re-pricing or maturity dates exist are placed in gap intervals based on management judgment, where appropriate, based on the most likely re-pricing behavior. The gap is the difference between the rate sensitivity of each asset and the rate sensitivity of each liability.

Interest sensitivity analysis

The table below shows the increase / (decline) in 12-month earnings for upward and downward instantaneous parallel rate shocks.

Impact on profit before tax 2016 2015 Shs million Shs million+ 500 bps rate shock 92,422 16,125- 500 bps rate shock (92,422) (16,125)+ 100 bps rate shock 18,484 3,225- 100 bps rate shock (18,484) (3,225)

Assuming no management intervention, a parallel 500bps increase in all yield curves would increase the forecast net interest income for the next financial year by Shs 92,422 million. A parallel decrease in all yield curves would decrease the forecast net interest income for the next financial year by Shs 92,422 million. Whilst a parallel 100bps increase in all yield curves would increase the forecast net interest income for the next financial year by Shs 18,484 million. A parallel decrease in all yield curves would decrease the forecast net interest income for the next financial year by Shs 18,484 million.

Impact on equity 2016 2015 Shs million Shs million+ 500 bps rate shock 24,295 20,031- 500 bps rate shock (24,295) (20,031)+ 100 bps rate shock 4,859 4,006- 100 bps rate shock (4,859) (4,006)



Assuming no management intervention, a parallel 500bps increase in all yield curves would increase the equity for the next financial year by Shs 24,295 million. A parallel decrease in all yield curves would decrease the equity for the next financial year by Shs 24,295 million. Whilst a parallel 100bps increase in all yield curves would increase the equity for the next financial year by Shs 4,859 million. A parallel decrease in all yield curves would decrease the equity for the next financial year by Shs 4,859 million.

(ii) Currency risk

The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Asset and Liability Committee sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The table below summarizes the Bank’s exposure to foreign currency exchange rate risk at 31 December 2016 and 31 December 2015. Included in the table are the Bank’s assets and liabilities at carrying amounts, categorized by currency.

EUROS GBP USD TZ & Kshs TOTAL31 December 2016 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Assets

Cash and balances at the Central Bank 1,188,582 11,286,970 2,800,142 15,275,694

Due from other banks 35,966 22,316,153 5,939,610 28,291,729

Investments - - 18,834,466 18,834,466

Loans and advances to customers - 36,009,216 - 36,009,216

Other accounts receivable 29,139 1,613,333 11,779 1,654,251

Total assets 1,253,687 71,225,672 27,585,997 100,065,356

Liabilities

Cuustomer deposits and balances due to other banks 620,746 67,474,291 16,530,004 84,625,041

Managed funds

Other accounts payable 2,487 1,679,168 19,292 1,700,947

Total liabilities 623,233 69,153,459 16,549,296 86,325,988

Net on-SOFP position 630,454 2,072,213 11,036,701 13,739,368

Net off-SOFP position - 10,922,416 - -

Overall net position 630,454 12,994,629 11,036,701 24,661,784

% of Net position over core capital 0.16 3.26 2.77 6.19

GBP USD OTHERS TOTAL31 December 2015 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Total assets 2,460,695 52,953,457 10,869,187 66,283,339

Total liabilities 1,286,449 53,709,967 11,949,843 66,946,259

Net on-SOFP position 1,174,246 (756,510) (1,080,656) (662,920)

Net off-SOFP position 168,986 7,192,088 146,776 7,507,850

Overall net position 1,343,232 6,435,578 (933,880) 6,844,930

% of Net position over core capital 0.42 2.03 (0.30) 2.16



The table below shows the increase (decline) in 12 month earnings for upward (appreciation) and downward (de-preciation) of the shilling on all foreign currencies on instantaneous parallel rate changes over the next 12 months.

Parallel rate shocks: 2016 2015 Shs million Shs million+500bps exchange rate change 587 331-500bps exchange rate change (587) (331)+100bps exchange rate change 117 66-100bps exchange rate change (117) (66)

Assuming no management intervention, a parallel appreciation of the shilling by 500bps on all foreign currencies would increase the forecast earnings by Shs 587 million whilst a fall or depreciation would reduce forecast earn-ings by Shs 587 million.

A 100bps appreciation of the shilling on all currencies would increase forecast earnings for the next financial year by Shs 117 million whilst a full or depreciation shall reduce forecast earnings by Shs 117 million.

a. Liquidity Risk

Liquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its financial liabilities as they fall due and to replace funds when they are withdrawn.

The Bank is exposed to daily calls on its available cash resources from overnight deposits, current accounts, ma-turing deposits, and calls on cash settled contingencies. The Bank does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. Bank of Uganda requires that the Bank maintain a cash reserve ratio of 8.0% of total deposits. In addition, Bank of Uganda sets limits on the minimum proportion of liquid funds available to meet such calls at 20% and other borrowing facilities that should be in place to cover withdraws at unexpected levels of demand. The treasury department monitors liquidity ratios on a daily basis

The Bank incorporates the following elements as part of a cohesive liquidity management process:

• Short term and long term cash flow managements

• Maintaining a structurally sound financial position

• Foreign currency liquidity management

• Preserving a diversified funding base

• Undertaking regular liquidity stress testing

• Maintaining adequate liquidity contingency plan



The table below presents the undiscounted cash flows of the bank’s financial assets and liabilities by remaining contractual maturities at the reporting date.

2016 <1month 1-12 months 1-5 years over 5 years Total Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Assets

Cash and short-term funds 314,099,382 - - - 314,099,382

Due from other banks 56,630,549 - - - 56,630,549

Investments 120,977,569 306,948,073 - - 427,925,642

Loans and advances at amortized cost 18,778,631 471,684,290 958,854,965 182,598,049 1,631,915,935

Other assets 16,949,685 18,130 20,038,372 - 37,006,187

527,435,816 778,650,493 978,893,337 182,598,049 2,467,577,695

Liabilities

Due to customers and other banks 1,504,429,690 125,695,891 350,778 - 1,630,476,359

Managed funds - - 10,431,212 - 10,431,212

Borrowed funds - 10,478,570 81,080,038 16,044,832 107,603,439

Other liabilities 2,707,500 2,170,713 20,682,029 - 25,560,242

1,507,137,190 138,345,174 112,544,057 16,044,832 1,774,071,252

Liquidity gap (979,701,374) 640,305,319 866,349,280 166,553,217 693,506,443

Off balance sheet items - - 38,433,366 - 38,433,366

Net liquidity gap (979,701,374) 640,305,319 904,782,646 166,553,217 731,939,809

The table below presents the maturity analysis of the bank’s assets and liabilities at their carrying amounts.


Assets



Investments 67,777,422 373,175,635 - - 440,953,057

Loans and advances at amortized cost 18,646,871 404,965,169 747,339,479 83,928,124 1,254,879,643

Other assets 9,413,115 826,664 16,377,147 - 26,616,926

365,280,231 778,967,468 763,716,626 83,928,124 1,991,892,449

Liabilities


Managed/Borrowed Funds - - 10,284,689 - 10,284,689

Other liabilities - - 65,411,310 36,634,352 102,045,662

Capital and Reserves - 262,291 16,989,876 - 17,252,167

1,281,084,057 105,717,456 93,418,020 36,634,352 1,516,853,885

Liquidity gap (915,803,826) 673,250,012 670,298,606 47,293,772 475,038,564

Off balance sheet items 14,123,870 21,998,716 1,329,219 - 37,451,805




The table below presents the cash flows of the bank’s financial assets and liabilities at the net carrying amounts by remaining contractual maturities at the reporting date.


Assets



Investments 120,977,569 306,948,073 - - 427,925,642

Loans and advances at amortised cost 15,267,180 383,483,163 779,556,882 69,395,560 1,247,702,785

Other assets 27,642,547 27,061,828 214,686,578 - 269,390,953

534,617,227 717,493,064 994,243,460 69,395,560 2,315,749,311

Liabilities

Due to customers and other banks 33,675,809 1,215,714,655 350,778 380,735,117 1,630,476,359

Managed funds - - 10,431,212 - 10,431,212

Borrowed funds - 10,478,570 81,080,038 16,044,832 107,603,439


42,385,204 1,233,175,902 158,391,288 396,779,949 1,830,732,342

Net liquidity gap 492,232,023 (515,682,838) 835,852,172 (327,384,389) 485,016,969

Off balance sheet gap - - 38,433,366 - 38,433,366

Net liquidity gap 492,232,023 (515,682,838) 874,285,538 (327,384,389) 523,450,335


Assets



Investments 67,777,422 373,175,635 - - 440,953,057

Loans and advances at amortised cost 15,160,058 329,239,975 607,593,072 68,234,247 1,020,227,352

Other assets 20,029,196 19,094,369 126,798,109 77,855,449 243,777,123

372,409,499 721,509,979 734,391,181 146,089,696 1,974,400,355

Liabilities


Managed funds - - 10,284,689 - 10,284,689

Borrowed funds - - 65,411,310 36,634,352 102,045,662


1,288,940,976 111,754,377 136,445,517 36,634,352 1,573,775,222


Off balance sheet gap 14,123,870 21,998,716 1,329,219 - 37,451,805




Fair value measurement

Fair value versus carrying amounts of financial assets and liabilities carried at amortized cost. The fair values of financial assets and liabilities together with the carrying value shown in the statement of financial position are analyzed as follows:

31 December 2016 31 December 2015

Carrying Amount Fair Value Carrying Amount Fair Value

Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000Assets Cash and short-term funds 314,099,382 314,099,382 176,919,896 176,919,896Due from other banks 56,630,549 56,630,549 92,522,927 92,522,927Investments 427,925,642 427,925,642 440,953,057 440,953,057Loans and advances at amortized cost 1,247,702,785 1,631,915,935 1,020,227,352 1,280,635,278Other assets 37,006,187 45,140,224 26,616,926 32,765,779 2,083,364,545 2,475,711,732 1,757,240,158 2,023,796,937

Liabilities Due to customers and other banks 1,630,476,359 1,630,618,748 1,387,271,367 1,387,519,869Managed funds 10,431,212 14,665,481 10,284,689 13,775,486Borrowed funds 107,603,439 151,282,153 102,045,662 153,336,422Other financial liabilities 25,560,242 33,955,554 17,252,167 72,628,067 1,774,071,252 1,830,521,936 1,516,853,885 1,627,259,844

Fair value hierarchy

At 31 December 2016 Level 1 Level 2 Level 3 Total

Shs‘000 Shs‘000 Shs‘000 Shs‘000Assets measured at fair value - - Government securities at fair value - 90,784,201 - 90,784,201

Assets and liabilities not measured at fair value for which fair values have been disclosed Loans and advances - - 1,631,915,935 1,631,915,935Government securities held to maturity - 337,141,441 - 337,141,441Other Assets - - 45,140,224 45,140,224Managed funds - - 14,665,481 14,665,481Borrowed funds - - 151,282,153 151,282,153Other liabilities - - 33,955,554 33,955,554

At 31 December 2015 Level 1 Level 2 Level 3 Total

Shs‘000 Shs‘000 Shs‘000 Shs‘000Assets at fair value - - Government securities at fair value - 31,885,743 - 31,885,743

Assets and liabilities not measured at fair value for which fair values have been disclosed Loans and advances - - 1,280,635,278 1,280,635,278Government securities held to maturity - 409,067,314 - 409,067,314Other Assets 32,765,779 32,765,779Managed funds - - 13,775,486 13,775,486Borrowed funds - - 153,336,422 153,336,422Other liabilities - - 72,628,067 72,628,067



The fair value of the financial assets and liabilities is included at the price that would be received to sell an asset or paid. The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

• Long-term fixed-rate and variable-rate receivables/borrowings are evaluated by the Bank based on param-eters such as interest rates, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken into account for the expected losses of these receivables.

• Fair value of the treasury bonds is based on price quotations at the reporting date. The fair value of unquoted instruments, loans from banks and other financial liabilities, as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.

• Fair values of the Bank’s interest-bearing borrowings and loans are determined by using DCF method using discount rate that reflects the issuer’s borrowing rate as at the end of the reporting period. The own non-performance risk as at 31 December 2015 was assessed to be insignificant.

b. Financial instruments not measured at fair value

i. Loans and advances The estimated fair value of loans and advances represents the discounted amount of estimated future cash

flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value.

ii. Government securities and investments held-to-maturity The fair value for these held-to-maturity assets is based on market prices. Where this information is not avail-

able, fair value is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics. The carrying amount of investment securities is a reasonable approximation of fair value.

iii. Deposits due to customers and other banks The estimated fair value of deposits with no stated maturity, which includes non-interest bearing deposits, is

the amount repayable on demand and this is the carrying amount. The estimated fair value of interest-bearing deposits not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar remaining maturity. The carrying amounts are a reasonable approximation of this.

iv. Borrowings and managed funds The interest rates charged on borrowings held by the bank based on WACC or other bases for determining

market interest rates. The interest rates are variable and in line with market rates for similar facilities. The fair values of such interest bearing borrowings not quoted in an active market is based on discounted cash flows using interest rates for similar facilities.

The significant unobservable inputs used in the fair value measurement categorized within Level 3 of the fair value hierarchy are as shown below:

Valuation technique Significant Range (weighted average) unobservable inputs 2016 2015

Loans and advances DCF method WACC 24.5% 21.8%

Managed funds and borrowed funds DCF method WACC 9.9% 10.3%

Other assets DFC method WACC 14.6% 12.4%



Current and Non-Current Assets and Liabilities

The tables below show the current and non-current assets and liabilities as at 31 December 2016 and 2015 respectively:

Current and non-current assets and liabilities as at 31 December 2016

Not more than 12 More than 12 Note months after the months after the Total

reporting period reporting period Shs ‘000

Assets

Cash and balances with Bank of Uganda 15 314,099,382 - 314,099,382

Placements with other banks 16 56,630,549 - 56,630,549

Government securities –held for trading 17(a) 79,390,295 11,393,906 90,784,201

Government securities –held to maturity 17(b) 337,141,441 - 337,141,441

Loans and advances to customers 18 492,612,877 818,089,908 1,247,702,785

Other assets 19 30,781,697 23,483,382 54,256,079

Deferred capital expenditure 20 1,902,568 - 1,902,568

Finance lease on leasehold land 21(a) - 2,134,831 2,134,831

Property and equipment 21(b) - 202,988,247 202,988,247

Intangible assets 21(c) - 4,219,989 4,219,989

Deferred income tax asset 22 - 3,880,239 3,880,239

Total assets 1,249,558,809 1,066,190,502 2,315,749,311

Liabilities

Customer deposits 23 1,504,429,690 122,184,475 1,626,614,165

Deposits from other banks 24 3,862,194 - 3,862,194

Inter-bank borrowing 25 - - -

Managed funds 26 657,000 9,774,212 10,431,212

Borrowed funds 27 12,942,864 94,660,575 107,603,439

Current income tax payable 14 6,607,864 - 6,607,864

Deferred grants 30 144,855 246,877 391,732

Other liabilities 28 69,888,036 2,347,078 72,235,114

Provision for litigation 29 2,986,622 - 2,986,622

Total liabilities 1,601,519,125 229,213,217 1,830,732,342



Current and non-current assets and liabilities as at 31 December 2015

Not more than 12 More than 12 Note months after the months after the Total

Shs ‘000 reporting period reporting period Shs ‘000

Assets

Cash and balances with Bank of Uganda 15 176,919,896 - 176,919,896

Placements with other banks 16 92,522,927 - 92,522,927

Government securities –held for trading 17(a) 10,882,881 21,002,862 31,885,743

Government securities –held to maturity 17(b) 409,067,314 - 409,067,314

Loans and advances to customers 18 290,939,908 729,289,444 1,020,227,352

Other assets 19 19,182,826 18,747,988 37,930,814

Deferred capital expenditure 20 1,801,287 - 1,801,287

Finance lease on leasehold land 21(a) - 2,178,446 2,178,446

Property and equipment 21(b) - 197,655,135 197,655,135

Intangible assets 21(c) - 1,663,391 1,663,391

Deferred income tax asset 22 - 2,548,050 2,548,050

Total assets 1,001,317,039 973,083,316 1,974,400,355

Liabilities

Customer deposits 23 1,276,519,446 103,674,409 1,380,193,855

Deposits from other banks 24 3,071,430 - 3,071,430

Inter-bank borrowing 25 4,006,082 - 4,006,082

Managed funds 26 647,771 9,636,918 10,284,689

Borrowed funds 27 12,274,358 89,771,304 102,045,662

Current income tax payable 14 5,137,889 - 5,137,889

Deferred grants 30 198,420 338,167 536,587

Other liabilities 28 64,686,030 2,172,377 66,858,407

Provision for litigation 29 1,640,621 - 1,640,621

Total liabilities 1,368,182,047 205,593,175 1,573,775,222

c. Capital Management

The Bank monitors the adequacy of its capital using ratios established by Bank of Uganda, which ratios are broadly in line with those for the Bank for International Settlements (BIS). These ratios measure capital adequacy by comparing the Bank’s eligible capital with its statement of financial position assets, off-statement of financial position commitments and market and other risk positions at weighted amounts to reflect their relative risk.

The market risk approach covers the general market risk and the risk of open positions in currencies and debt and equity securities. Assets are weighted according to the amount of capital deemed to be necessary to support them. Four categories



of risk weights (0%, 20%, 50%, 100%) are applied; for example, cash and money market instruments have a zero risk weighting which means that no capital is required to support the holding of these assets. Property and equipment carries a 100% risk weighting, meaning that it must be supported by capital equal to 100% of the carrying amount. Certain asset categories have intermediate weightings. Off-statement of financial position credit related commitments and forwards are taken into account by applying different categories of credit conversion factors, designed to convert these items into balance sheet equivalents. The resulting credit equivalent amounts are then weighted for credit risk using the same percentages as for statement of financial position assets.

The Bank’s objectives when managing capital, which is broader than the equity on the face of the statement of financial position, are:• To comply with the capital requirement set by Bank of Uganda;• To safeguard the Bank’s ability to continue as a going concern so that it can continue to provide returns to the shareholders and;• To maintain a strong capital base to support the development of the Bank’s business.

Capital adequacy and the use of regulatory capital are monitored monthly by management, employing techniques based on guidelines developed by Basel committee as implemented by Bank of Uganda, for supervisory purposes. The required information is filled with Bank of Uganda on a quarterly basis.

Bank of Uganda requires each bank to:

a. Hold the minimum level of the regulatory capital of UGX 25,000,000,000 (Twenty-five billion);b. Maintain a ratio of total regulatory capital to the risk –weighted assets of not less than 12.0%; andc. Maintain core capital of not less than 8.0% of risk weighted assets. The Bank’s regulatory capital is divided into

two tiers:

Tier 1 capital (core capital): Share capital, share premium, retained earnings and reserves created by appropriations of retained earnings. The book value of goodwill, current year losses, prohibited loans to insiders; investments in un- consolidated financial statements, deficiencies in provisions for losses and other deductions determined by BOU are deducted in arriving at tier 1 capital.

Tier 2 capital (Supplementary Capital): Revaluation reserves, unidentified impairment allowance, statutory regulatory reserves (reserves created by appropriations of retained earnings), subordinated debt and hybrid capital instruments.

The table below summaries the composition of regulatory capital and the ratios of the Bank, for the years ended 31 December 2016 and 2015. During those two years, the Bank complied with all of the externally imposed capital re-quirements.

2016 2015 Shs 000 Shs 000Core Capital (Tier 1) Permanent equity 25,116,624 25,116,624Share premium 1,138,927 1,138,927Retained earnings 422,951,664 343,613,277 449,207,215 369,868,828Core Banking System-WIP (43,013,433) (48,728,661)Computer software (4,219,989) (1,663,391)Deferred income tax asset (3,880,239) (2,548,050)Fair value gain on held for trading gains (2,396,994) -Unrealized foreign exchange gains - (377,366)Tier 1 Capital 395,696,560 316,551,360Supplementary Capital (Tier 2) Unencumbered general provisions for losses 13,097,163 10,796,131Tier 2 Capital 13,097,163 10,796,131Total Capital (Tier 1+Tier 2) 408,793,723 327,347,491

The increase of the regulatory capital in the year 2016 is mainly due to the contribution of the current-year profit.



The risk–weighted assets are measured by means of hierarchy of four risk weights classified according to the nature of portfolio holding and reflecting an estimate of credit and market risks associated with each asset and counterparty, tak-ing into account any eligible collateral or guarantees. A similar treatment is adopted for off-statement of financial position exposure, with some adjustments to reflect the more contingent nature of potential losses.

The table on the next page summarizes the composition of the risk weighted assets of the Bank for the years ended 31 December 2016 and 31 December 2015.

Statement of financial position Nominal amounts Risk weighted amounts 2016 2015 2016 2015

Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Assets

Notes, coins & other cash assets 87,179,184 79,704,028 0% - -

Balances with Bank of Uganda 226,920,198 97,215,868 0% - -

Due from commercial banks in Uganda 20,013,356 76,058,502 20% 4,002,671 15,211,700

Due from commercial banks outside Uganda

(1) Rated AAA to AA (-) - - 20% - -

(2) Rated A (+) to A (-) 25,584,306 16,281,447 50% 12,792,153 8,140,724

(3) Rated A (-) and non-rated 11,032,887 182,978 100% 11,032,887 182,978

Investment securities 427,925,642 440,953,057 0% - -

Loans and advances to customers 1,270,718,858 1,041,300,492 100% 1,270,718,858 1,041,300,492

(net of those secured by cash)

Other accounts receivable 58,302,478 41,910,547 100% 58,302,478 41,910,547

Property and equipment 202,988,247 197,655,135 100% 202,988,247 197,655,135

Off-statement of financial position items

Contingencies secured by cash collateral 8,654,347 6,407,205 0% - -

Guarantees & acceptances 9,726,846 11,937,764 100% 9,726,846 11,937,764

Performance bonds 3,568,036 8,317,813 50% 1,784,018 4,158,907

Documentary credits (trade related) 8,229,101 4,460,935 20% 1,645,820 892,187

Other commitments 8,255,036 6,328,088 50% 4,127,519 3,164,044

Total risk-weighted assets 2,369,098,522 2,028,713,859 1,577,121,497 1,324,554,478

2016 Ratio 2015 Ratio Shs ’000 Shs ‘000

Capital ratios

Tier 1 Capital (Core) 395,696,560 25.09% 316,551,360 23.9%

Tier 1 + Tier 2 Capital (Total) 408,793,723 25.92% 327,347,491 24.7%

FIA 2004 minimum ratio capital requirement

Core capital 8% 8%

Total capital 12% 12%

The Bank’s total capital adequacy ratio improved slightly from 24.7% as at December 2015 to 26.0% as at December 2016 mainly due to less cost incured on the new core banking system in the year 2016. Most of the cost were paid for in the year 2015.



Tier 1 capital decreased from 28.5% to 24.3% as at 31 December 2015 showing that the Bank is well capitalised. The drop was due to deduction of costs related to the new Core banking system.

The Bank’s total capital adequacy ratio went down from 25.3% as at December 2015 to 26.5% as at December 2016 mainly due to less costs incurred on the New Core banking system in the year 2016. Most of the costs were paid for in the year 2015.

The analysis of Loans and advances to customers (net of those secured by cash) is as below;

2016 2015 Shs 000 Shs 000Loans and advances to customers Overdrafts 36,025,021 35,545,430Commercial loans 469,621,690 352,872,208Micro finance loans 706,234,139 591,373,020Finance leases 26,118,092 28,298,614Staff loans 33,627,398 31,876,148Gross loans and advances 1,271,626,340 1,039,965,420

Add/(Less): Off-market loan Discount 19,035,552 16,377,147Cash secured loans (900,705) (860,769)Specific provisions (15,070,799) (10,674,838Interest in suspense (3,971,530) (3,506,468)Net loans and advances 1,270,718,858 1,041,300,492

Trend in risk-weighted assets

Shs million 2012 2013 2014 2015 2016

Total assets 1,122,296 1,451,040 1,635,071 1,974,000 2,315,749

Risk-weighted assets 725,911 862,538 1,029,819 1,324,554 1,577,121

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2010 2011 2012 2013 2014 2015 2016

Shs

Mill

ion

Total Assets

Risk-weighted assets

Trends in Risk Weighted Assets



5 Turnover

The Bank’s turnover is derived substantially from the business of banking and related activities and comprises net interest income, fees and commission income, trading income and other income. These revenues are shown in the statement of comprehensive income and accompanying notes and represent the most appropriate equivalent of turn-over compared with other forms of business enterprise.

6(a) Interest income 2016 2015 Shs ‘000 Shs ‘000Interest on loans 287,573,689 238,991,345Interest on treasury bills held to maturity 63,289,753 60,477,780Interest on treasury bills held for trading 4,504,958 738,291Interest on treasury bonds 2,282,474 3,008,090Interest on inter-bank placements 7,542,782 3,569,226 365,193,656 306,784,732

The interest on impaired loans as at 31 December 2016 was Ushs 3.971 billion (2015: Ushs 3.506 billion).

6(b) Gain/Loss from financial instruments at fair value

2016 2015 Shs ‘000 Shs ‘000Fair value gain/loss on held for trading securities 2,396,994 (1,457,185) 2,396,994) (1,457,185)

7. Interest expense 2016 2015 Shs ‘000 Shs ‘000Savings accounts 18,082,515 16,139,076Current accounts 832,720 527,676Fixed deposit accounts 16,675,854 11,423,325Managed/borrowed funds 10,218,134 9,276,729Other financial costs 106,373 109,117Inter-bank borrowings 901,688 1,633,050 46,817,284 39,108,973

8 Fee and commission income

2016 2015 Shs ‘000 Shs ‘000Loan processing fees and Commitment fees on overdrafts 18,903,526 16,319,536Ledger fees 23,870,187 19,059,069Other commissions and fees 33,432,653 31,612,061 76,206,366 66,990,666



9 Foreign exchange income 2016 2015 Shs ‘000 Shs ‘000Foreign currency trading commission 4,670,640 3,907,899Revaluation gain 2,607,332 5,583,071Unrealized revaluation (loss)/gain (220,146) 377,386 7,057,826 9,868,336

10 Other operating income

2016 2015 Shs ‘000 Shs ‘000Income from bullion van hire 80 1,021Recovery of written off loans 4,469,236 4,063,117Sale of ATM cards & banking stationery 5,485,366 4,703,874Release of unutilized accruals 1,486,789 948,778Grant income 144,855 631,176Uncollected ATM cards 498,265 526,601Other income* 917,319 839,530 13,001,910 11,714,097

*Other income 2016 2015 Shs ‘000 Shs ‘000Fees on current accounts 79,487 51,238Gain on sale of securities 51,061 285Penalties 31,918 37,058Profit on sale of assets 100,907 230,470Cash overages 216,660 174,645Miscellaneous income 97,382 -Early redemption fees 339,904 345,834 917,319 839,530

11 Employee benefits expense 2016 2015 Shs ‘000 Shs ‘000Staff salaries 80,580,373 73,986,655Staff bonuses 19,630,928 17,397,398NSSF contributions 9,373,656 8,202,860Retirement plan contributions 6,442,052 5,596,838 116,027,009 105,183,751

12 Impairment losses on loans and advances

2016 2015 Shs ‘000 Shs ‘000Credit losses impairment-Identified 13,670,175 5,463,883Credit losses impairment-Unidentified 1,313,338 1,408,975 14,983,513 6,872,858



13 Operating expenses 2016 2015 Shs ‘000 Shs ‘000Auditors’ remuneration and expenses 364,006 317,402Software costs 13,194,017 5,362,638Premises cost 17,279,188 14,474,801Insurance 9,193,702 7,785,244Security 3,942,822 3,580,718Office expenses 16,611,555 12,139,803Equipment lease expenses 5,182,384 3,940,760Motor vehicle expenses 2,605,923 2,361,766Telephone, telex and postage 7,875,797 6,309,518Corporate Social Investment (CSI) 952,797 636,156Advertising and marketing 6,591,992 5,057,486Directors’ fees and other expenses 3,644,606 3,572,454Consultancy and legal fees 1,749,141 2,368,438Recruitment and training 3,440,460 2,039,755Staff transfer 1,053,688 1,118,832Seminars & conferences 262,801 480,889Subscription 752,680 616,491Stationery 5,185,546 4,778,976Transport & travel 7,546,797 6,225,974Bank charges 886,093 664,606Long-term rental amortization 43,615 45,532Cash shortages and other losses 3,054,679 831,760Other operating expenses* 1,714,494 1,067,499 113,128,783 85,777,498

*Other operating expenses 2016 2015 Shs ‘000 Shs ‘000Foreign exchange loss 5,949 117,840Funeral expenses 64,920 81,303Business promotion account 576,184 246,741Annual General Meeting expenses 100,233 83,052Licence (Bank) 12,909 18,762Cashiers allowance 263,210 249,863Loss on sale of assets 10,370 19Management fees expense 220,071 25,660Meeting expenses 351,663 231,093Financial card fees expenses 84,178 1,995Debt Collection Expenses 24,807 11,171 1,714,494 1,067,499

14 Income tax expense 2016 2015 Shs ‘000 Shs ‘000Current income tax 25,272,441 23,821,612Withholding tax expense 14,015,437 12,844,832Prior year over provision (527,277) 1,092,795Current year deferred tax credit - (1,805,059)Prior year under provision – deferred tax (804,912) (1,043,397) 37,955,689 34,910,783



The tax on the Bank’s profit before tax differs from the theoretical amount that would arise using the basic tax rate as follows:

2016 2015 Shs ‘000 Shs ‘000Profit before income tax 147,864,461 136,512,031Tax calculated at 30.0% (2015: 30.0%) 44,359,338 40,953,609Tax effect of: - Expenses not deductible for tax 689,363 767,348- Income not subject to tax (21,023,156) (19,267,248)- Prior year under provision – deferred tax (804,912) (1,043,397)- Prior year over provision – current tax - 1,092,795- 20% final tax on treasury bills 14,015,437 12,844,832Adjustment to under taxation on revalued assets not recognized 719,619 (437,156)Income tax expense 37,955,689 34,910,783

Movement in current tax payable is as follows:- 2016 2015 Shs ‘000 Shs ‘000At 1 January 5,137,889 5,259,400Over provision in prior years- tax - 1,092,795Current income tax expense 39,287,878 36,666,444Tax paid during year (37,817,903) (37,880,750)At 31 December 6,607,864 5,137,889

15. Cash and balances with Bank of Uganda 2016 2015 Shs ‘000 Shs ‘000Cash in hand – Uganda Shillings 76,872,793 66,937,234Cash in hand – Foreign Currency 10,306,391 12,766,794Bank of Uganda clearing account 86,780,472 97,215,868Bank of Uganda Repo 140,139,726 -` 314,099,382 176,919,896Due within < 1 month 314,099,382 176,919,896

Balances on hand and with the Central Bank are non-interest bearing and include the minimum cash reserve requirement. The balance as at 31 December 2016 was Shs 226.9 (2015: Shs 97.2 billion). The mandatory reserve is based on the value of deposits as adjusted in accordance with Bank of Uganda Regulations.

Banks are required to maintain a prescribed minimum cash reserve comprising cash in hand and balances with Bank of Uganda. This reserve is available to finance the Bank’s day-to-day activities; however, there are restrictions as to its use and sanctions for noncompliance. The amount is determined as a percentage of the average outstanding customer depos-its over a cash reserve cycle period of fourteen days.Bank of Uganda Repo and deposit auction is a form of short-term borrowing for Bank of Uganda in government securities. Bank of Uganda sells the government securities to commercial banks, usually on an overnight basis, and buys them back the following day.



16. Placements with other banks 2016 2015 Shs ‘000 Shs ‘000Balances with local banks - 3,242Balances with foreign banks 17,782,727 10,585,734Placements with local banks 20,013,356 76,055,260Placements with foreign banks 18,834,466 5,878,691 56,630,549 92,522,927Due within < 1 month 56,630,549 92,522,927

The weighted average effective interest rate on placement with other banks was 12.0% (2015:12.2%)

17 Government securities

(a) Government securities held for trading 2016 2015 Shs ‘000 Shs ‘000

Government Treasury bills 10,882,881 21,002,862Government bonds 79,390,295 11,393,906 90,784,201 31,885,743

(b) Government securities held to maturity

2016 2015 Shs ‘000 Shs ‘000Government treasury bills 337,141,441 409,067,314 337,141,441 409,067,314

Treasury bills are debt securities issued by the Central Bank for a term of three months, six months and twelve months, whilst bonds are also issued for a term of two years, three years, five years and ten years.

The weighted average effective interest rate on treasury bills and bonds was 16.7% (2015: 18.2%) and 17.4% (2015:14.2%) respectively.

Maturity analysis of government securities held-to-maturity

2016 2015 Shs ‘000 Shs ‘000Short Term (1-3 months) 92,924,383 137,119,628Medium Term (3-6 months) 131,800,796 115,037,292Long Term (Over 6 months and within 12 months) 112,416,262 156,910,394 337,141,441 409,067,314



18(a) Loans and advances to customers 2016 2015 Shs ‘000 Shs ‘000Overdrafts 36,025,021 35,545,430Commercial loans 469,621,690 352,872,208Micro finance loans 706,234,139 591,373,020Finance leases (18b) 26,118,092 28,298,614Staff loans 33,627,398 31,876,148Gross loans and advances 1,271,626,340 1,039,965,420Provision for loan impairment – identified losses (15,764,514) (12,892,365)Provision for loan impairment – unidentified losses (8,159,041) (6,845,703)Net loans and advances 1,247,702,785 1,020,227,352

Maturity analysis of loans and advances 2016 2015 Shs ‘000 Shs ‘000Short Term (1-3 Months) 115,338,916 42,769,615Medium Term (3-6 Months) 87,563,674 21,622,424Long Term (Over 6 Months and within 12 months) 250,633,842 246,285,937Long Term (Over 12 months) 818,089,908 729,287,444 1,271,626,340 1,039,965,420

% 2016 % 2015 Shs ‘000 Shs ‘000Sector Analysis Agriculture 17.2 218,648,695 17.3 180,047,716Manufacturing 0.7 8,292,795 0.8 7,890,510Trade and Commerce 18.2 231,312,941 19.8 205,952,558Transport and Utilities 2.0 25,593,245 2.2 22,443,306Building and Construction 20.1 303,136,043 23.6 245,999,992Other Services 38.1 484,642,621 36.3 377,631,338 100 1,271,626,340 100 1,039,965,420

18 (b) Finance leases 2016 2015 Shs ‘000 Shs ‘000Gross investments in finance leases No later than 1 year 7,651,716 713,943Later than 1 year but no later than 5 years 23,196,188 30,678,922Later than 5 years 635,733 4,314,451 31,483,637 35,707,316

Unearned future finance income on finance leases (5,365,545) (7,408,702)Net investment in finance leases 26,118,092 28,298,614

Analysis of net investment in finance leases No later than 1 year 6,121,998 674,936Later than 1 year but no later than 5 years 19,606,620 24,898,041Later than 5 years 389,474 2,725,637 26,118,092 28,298,614



This is a form of financing an asset where the asset serves as the main security. The leases are offered for a period between 1 to 7 years depending on the type of equipment financed and the anticipated cash flows. The average interest rate on these facilities for 2016 was 22.0% for Ushs facilities and 9.0% for USD facilities (2015: 20.8% and 9.09% respectively).

19 Other assets 2016 2015 Shs ‘000 Shs ‘000Cheques in transit - 89,441Staff advances 18,130 16,113Accrued late fee payment 1,002,820 826,664Accounts receivable 1,408,655 135,537Prepaid expenses10,318,676 7,057,838Sundry stationery stock 967,534 912,957Western Union commission receivable 414,531 418,015Outward clearing 1,124,409 843,897Mobile E-money 14,241,764 9,397,002Deferred staff loan off market discount 19,035,552 16,377,147Unsettled interbank trading deals 2,707,921 -Value Added Tax recoverable 839,661 38,684Other sundry assets 2,185,426 1,817,519 54,265,079 37,930,814

All other assets are due within one year.

20 Deferred Capital expenses 2016 2015 Shs ‘000 Shs ‘000At start of year 1,801,287 9,233,400Additions 17,256,950 21,105,223Transfer to property and equipment, and operating expenses (17,155,669) (28,537,336)At end of year 1,902,568 1,801,287

The closing balance includes capital expenses incurred but for which assets are not yet put to use. The transfers to property and equipment and operating expenses are analyzed in the table below;

2016 2015 Shs ‘000 Shs ‘000Computer equipment & accessories 5,370,269 6,430,575Furniture, fixtures & equipment 10,048,780 11,089,681Intangible assets - 678,671Motor vehicles 868,826 391,210Work in progress-core banking system - 9,488,732Operating expenses 867,794 458,467 17,155,669 28,537,336

21(a) Finance lease on leasehold land 2016 2015 Shs ‘000 Shs ‘000CostAt 1 January and 31 December 2,536,543 2,536,543AmortizationAt 1 January 358,097 312,566Charge for the year 43,615 45,531At 31 December 401,712 358,097Net carrying amount 2,134,831 2,178,446



The finance lease relates to costs incurred when acquiring the leasehold land on plot 44-46 Kampala Road. The costs are being amortized on a straight line basis over the life of the lease agreement. The lease agreement for plot 44 – 46 Kampala Road became effective November 2009 for ninety-nine years. As at 31st December 2015 the remaining lease period is 92 years.

At the inception of the lease, the obligations associated with the acquisition was all paid up front in full as required by the local laws. Therefore, all the lease payments/installments were paid upfront at the beginning of the lease and as at 31 December 2016 there were no other lease obligations outstanding.

21(b) Property and Equipment

At 31 December 2016 Computer Work In Buildings Motor Equipment & Furniture Work In Progress Vehicles & Accessories Fixtures & Progress Core Banking Total Cycles Equipment Mapeera System

Cost

At 1 Jan 2016 83,311,505 10,607,443 47,664,773 97,512,698 - 48,728,661 287,825,080

Additions - - - - 4,440,956 13,400,729 17,841,685

Transfers from 868,826 5,370,269 10,048,781 16,287,876

Deferred Expenses

Disposals - (449,864) (1,690,675) (1,355,576) - - (3,496,115)

Transfer from WIP 4,440,985 - 12,916,026 - (4,440,956) (19,115,957) (6,199,902)

(Note 21 ( c) & 13)

Reclassification 14,291,026 - (3,104,846) (11,186,180) - - -

At 31 Dec 2016 102,043,516 11,026,405 61,155,547 95,019,723 - 43,013,433 312,258,624

Depreciation

At 1 January 2016 5,456,084 8,820,884 34,569,729 41,323,248 - - 90,169,945

Charge for the Period 1,943,994 1,202,067 7,824,700 11,976,366 - - 22,947,127

On disposals - (449,864) (1,672,028) (1,344,694) - - (3,466,586)

Reclassification 476,020 - (344,983) (511,146) - - (380,109)

At 31 Dec 2016 7,876,098 9,573,087 40,377,418 51,437,774 - - 109,270,377

Net Carrying Amount

At 31 Dec 2016 94,167,418 1,453,318 20,778,129 43,575,949 - 43,013,433 202,988,247

At 1 Jan 2015 82,720,610 10,981,966 38,433,275 61,830,063 11,418,222 - 205,384,136

Additions 590,895 391,210 9,969,319 24,756,807 - 48,728,661 84,436,892

Disposals - ( 765,733) (737,821) (492,394) - - (1,995,948)

Transfer from WIP - - - 11,418,222 (11,418,222) - -

At 31 Dec 2015 83,311,505 10,607,443 47,664,773 97,512,698 - 48,728,661 287,825,080

Depreciation

At 1 Jan 2015 3,803,566 7,882,183 29,820,220 31,402,223 - - 72,908,192

Charge for the year 1,652,518 1,694,149 5,483,357 10,413,271 - - 19,243,295

On disposals - (755,448) (733,848) (492,246) - - (1,981,542)

At 31 Dec 2015 5,456,084 8,820,884 34,569,729 41,323,248 - - 90,169,945

Net Carrying Amount

At 31 Dec 2015 77,855,420 1,786,558 13,095,044 56,189,450 - 48,728,661 197,655,135



At 31 December 2016 Computer Work In Buildings Motor Equipment & Furniture Work In Progress Vehicles & Accessories Fixtures & Progress Core Banking Total Cycles Equipment Mapeera System

Cost

At 1 Jan 2016 83,311,505 10,607,443 47,664,773 97,512,698 - 48,728,661 287,825,080

Additions - - - - 4,440,956 13,400,729 17,841,685

Transfers from 868,826 5,370,269 10,048,781 16,287,876

Deferred Expenses

Disposals - (449,864) (1,690,675) (1,355,576) - - (3,496,115)

Transfer from WIP 4,440,985 - 12,916,026 - (4,440,956) (19,115,957) (6,199,902)

(Note 21 ( c) & 13)

Reclassification 14,291,026 - (3,104,846) (11,186,180) - - -

At 31 Dec 2016 102,043,516 11,026,405 61,155,547 95,019,723 - 43,013,433 312,258,624

Depreciation

At 1 January 2016 5,456,084 8,820,884 34,569,729 41,323,248 - - 90,169,945

Charge for the Period 1,943,994 1,202,067 7,824,700 11,976,366 - - 22,947,127

On disposals - (449,864) (1,672,028) (1,344,694) - - (3,466,586)

Reclassification 476,020 - (344,983) (511,146) - - (380,109)

At 31 Dec 2016 7,876,098 9,573,087 40,377,418 51,437,774 - - 109,270,377

Net Carrying Amount

At 31 Dec 2016 94,167,418 1,453,318 20,778,129 43,575,949 - 43,013,433 202,988,247

At 1 Jan 2015 82,720,610 10,981,966 38,433,275 61,830,063 11,418,222 - 205,384,136

Additions 590,895 391,210 9,969,319 24,756,807 - 48,728,661 84,436,892

Disposals - ( 765,733) (737,821) (492,394) - - (1,995,948)

Transfer from WIP - - - 11,418,222 (11,418,222) - -

At 31 Dec 2015 83,311,505 10,607,443 47,664,773 97,512,698 - 48,728,661 287,825,080

Depreciation

At 1 Jan 2015 3,803,566 7,882,183 29,820,220 31,402,223 - - 72,908,192

Charge for the year 1,652,518 1,694,149 5,483,357 10,413,271 - - 19,243,295

On disposals - (755,448) (733,848) (492,246) - - (1,981,542)

At 31 Dec 2015 5,456,084 8,820,884 34,569,729 41,323,248 - - 90,169,945

Net Carrying Amount

At 31 Dec 2015 77,855,420 1,786,558 13,095,044 56,189,450 - 48,728,661 197,655,135

The reclassifications relate to property and equipment that had been wrongly classified. This led to an over deprecia-tion and thus the reversal of Ushs 380 million. Transfers from Work in Progress relate to items that have now been capitalized amounting to Ushs 16.3 billion and license fees that had been wrongly capitalized and are now expensed amounting to Ushs 2.8 billion.

21(c) Intangible assets

Deferred income taxes are calculated on all temporary differences under the liability method at the applicable rate of 30.0%. The movement on the deferred income tax account is as follows:

2016 2015 Shs ‘000 Shs ‘000CostAt 1 January 9,015,178 8,146,907Additions 1,289,830 868,270Transfers from WIP 3,355,342 -At 31 December 13,660,350 9,015,177

AmortisationAt 1 January 7,351,786 6,149,546Charge for the year 2,088,575 1,202,240At 31 December 9,440,361 7,351,786

Net Carrying Amount At 31 December 4,219,989 1,663,391

22 Deferred income tax asset

Deferred income taxes are calculated on all temporary differences under the liability method at the applicable rate of 30.0%. The movement on the deferred income tax account is as follows:

2016 2015 Shs ‘000 Shs ‘000At 1 January (2,548,050) 300,406Prior year understatement (804,912) (1,043,436)Credit to statement of comprehensive income (Note 14) (527,277) (1,805,020)At 31 December (3,880,239) (2,548,050)

1 Jan 2016 Movement 31 Dec 2016 Shs’000 Shs’000 Shs’000

Deferred income tax liability Accelerated tax depreciation 5,493,095 (171,683) 5,321,412 Fair value adjustments (561,058) 719,098 158,040

4,932,037 547,415 5,479,452 Deferred income tax asset Provisions (2,545,897) (797,801) (3,343,698 )Deferred income (4,934,190) (1,081,803) (6,015,993 )

(7,480,087) (1,879,604) (9,359,691)

Net deferred tax asset (2,548, 050) (1,332,189) (3,880,239)

( Other Assets continued...)



1 Jan 2015 Movement 31 Dec 2015 Shs’000 Shs’000 Shs’000Deferred income tax liability Accelerated tax depreciation 6,131,942 (638,847) 5,493,095Fair value adjustments (123,902) (437,156) (561,058)

6,008,040 (1,076,003) 4,932,037Deferred income tax asset Provisions (1,804,631) (741,266) (2,545,897)Deferred income (3,903,003) (1,031,187) (4,934,190)

(5,707,634) (1,772,453) (7,480,087)

Net deferred income tax liability 300,406 (2,848,456) (2,548,050)

23 Customer deposits 2016 2015 Shs ‘000 Shs ‘000Current accounts 376,871,220 291,169,869Savings accounts 1,090,019,614 966,593,498Time deposits 159,723,331 122,430,488 1,626,614,165 1,380,193,855

The weighted average effective interest rate on customer deposits was 2.2% (2015: 2.0%). Customer deposit bal-ances are due within one year.

24 Deposits and balances due to banks and other financial institutions

2016 2015 Shs ‘000 Shs ‘000Deposits and balances due to banks and other financial institutions Balances from local banks 2,655,771 395,748Other finance institutions 1,206,423 2,675,682 3,862,194 3,071,430

Deposits and balances due to banks and other financial institutions are due within one year. The average interest rate on the deposits and balances due to banks and other financial institution was 11.8% (2015: 11.5%)

25 Inter-bank borrowing 2016 2015 Shs ‘000 Shs ‘000Borrowings from banks - 4,006,082 - 4,006,082

Interbank borrowings by close of year 2015 were from Equity bank Uganda at an interest rate of 18.5% for 7 days. The bank had no Interbank borrowings by close of year 2016.

(Deferred income tax asset continued...)



26 Managed funds

2016 2015 Shs ‘000 Shs ‘000Agricultural Credit Facility-Bank of Uganda 612,187 760,618Rural Electrification Fund - 74,855Youth Venture capital fund 5,688,249 6,068,778KCCA Fund 3,126,505 3,180,438Managed Funds UECCC & WENRECCO 1,004,271 200,000 10,431,212 10,284,689

ACF-BOU

The Government of Uganda through the central bank in partnership with commercial banks, Uganda Develop-ment Bank Ltd and micro-deposit taking institutions (MDIs) created the Agricultural Credit Facility. The facility was created for the provision of medium term credit facilities to agriculture and agro-processing projects on more favorable terms as opposed to the open market. The credit facilities are advanced to customers at an interest rate of 12%. The other objectives of the facility include the promotion of commercial agriculture, increasing access to finance by agribusinesses, increased agricultural production thus food security as well as boosting the confidence of financial institution in lending to agriculture.

Rural Electrification Fund

On 8 August 2011, the Bank signed a Memorandum of Understanding with the Government of Uganda to improve and increase the provision of energy in the rural sector in Uganda. The project was closed during the year 2016. The funds not utilized by then returned to the Government of Uganda.

Government of Uganda Youth Venture Capital Fund

The Bank is a participating partner in the Government of Uganda (GoU) revolving Youth Venture Capital Fund (YVCF) established in Financial Year 2011/12 to facilitate job creation and employment generation targeted at ad-dressing the rampant unemployment problem among the Ugandan youth by supporting financially viable start-up micro, Small and Medium Enterprises operated by Youth Entrepreneurs. Under the scheme the bank makes an equal contribution to the revolving fund and as at 31 December 2016 the fund stood at Shs 5.7 billion (31 December 2015: Shs 6.1 billion).

KCCA Youth Venture Capital Fund

The Bank in collaboration with Kampala Capital City Authority signed a Memorandum of Understanding on 30 October 2012 to take custody and on-lend the authority’s Youth Venture Capital funds worth Shs 3.3 billion to eli-gible youth as per criteria set out and agreed upon. The fund is for 5 years subject to renewal terms and conditions acceptable to both parties. The funds are to support expansion of business ventures owned by the youth residing and working in Kampala District.

UECCC and WENRECO

On 13th June 2014, the Bank signed a Memorandum of Understanding with West Nile Rural Electrification Com-pany Limited (WENERECO) in partnership with Uganda Energy Credit Capitalization Company (UECCC) to col-laborate in financing hydro power connections UECC to avail Shs 200 Million at a zero cost for on lending and to share risk by offering a default risk cover of up to 10%.



WENRECO to participate in mobilization of potential applicants for the power connection loan. The project targets West Nile sub regions that can be effectively served by Koboko, Paidha, Nebbi and Arua branches.

In 2016 the bank received an additional funding of USD 650,000 an equivalent of Shs.1.0billion. The facility is a line of credit to commercial enterprises and household (sub-borrowers) interested in connecting to any electricity dis-tribution network anywhere in Uganda. The principle will be refunded back to UECCC in five equal instalments. By close of December 2016 the bank had made one installment as per required terms and conditions.

27 Borrowed funds 2016 2015 Shs ‘000 Shs ‘000 European Investment Bank (EIB PEFF) 3,973,006 10,395,870Solar loan (UECCC) 439,680 512,846Agribusiness Business Initiative Trust 27,495,332 29,224,623EAC MF loan (EIB) 20,536,153 25,253,696EIB ECA PEFF 55,159,268 36,658,627 107,603,439 102,045,662

EIB PEFF (Private Enterprise Finance Facility) I & II

This was a global loan facility extended to a group of financial institutions in Uganda from Cotonuo Investment facil-ity resources. The availability of this line of credit expired in 2012; the outstanding amount is principal plus interest of already drawn funds.

The facility was used to finance private enterprises in agro industry, fishing, construction, food processing, and manufacturing, tourism and services provided to these sectors and in health and education sectors. Repayments are made semiannually and interest is computed on reducing balance. The interest rate charged on this facility was not fixed or uniform but was dependent on the tenure of the loan for which it was disbursed.In 2016, the EURO equivalent of UGX 6BN was paid off (2015: EURO equivalent of UGX 4BN was paid off).

EIB EAC (European Investment Bank, East African Community) Microfinance facility

This is a Global Facility from the Cotonou Investment Facility which is used by East African Community banks for the financing of micro credit projects. This was a bullet disbursement (in 2014) of the UGX equivalent of EURO 8 million. The loan tenure is 7 years at a fixed interest rate of 10.008%.

EIB ECA PEFF (European Investment Bank, East and Central Africa Private En-terprise Finance Facility)

The loan agreement was signed in December 2014 for an agreed maximum amount of the UGX equivalent of EURO 20M. The first tranche was disbursed in 2015 and as at December 2016, EURO 9.1M had been drawn down. The loan agreement allows for minimum and maximum tenures of 4 years and 7 years respectively. Rates vary by tenure but not exceeding 10%. In 2016, the bank utilized approximately the UGX equivalent of Euro 6M of the available amount of Euros 20M. The facility expired in December 2016



Solar Loan

Centenary Bank signed a Solar Refinance facility of USD 250,000 with Uganda Energy Credit Capitalization Compa-ny on 12th July 2012. The refinance facility is denominated in Uganda Shillings and the Shilling liability is determined at the exchange rate applicable on every release of funds. The Bank drew down Shs 128.8 million in October 2012. The refinance interest rate is 8.15% per annum fixed. The repayment of the principal borrowed is in 18 equal half yearly installments commencing 12 months after draw down. The funds are applied exclusively for the purpose of provision of solar loans to rural households. The loans are secured by promissory notes.

In 2014 there was an additional funding of Shs 255.9 million. In 2015 there was no additional funding received. The Bank expected to sign a new contract of USD 150,000 in 2016 however by close of year 2016 this had not yet been effected.

Agri Business Initiative (aBi) Trust

In the year 2015, two facilities were secured i.e. UGX 3.9BN and 5BN priced at 12.5% and 11.25% respectively. The bank has 5 lines of credit from aBi Trust totaling to UGX 28.9BN (gross with accrued interest) maturing be-tween 2017 and 2022. These lines target mainly the agribusiness sector and SMEs. Interest rate on these facilities range between 11.25% - 12.5%

28 Other liabilities 2016 2015 Shs ‘000 Shs ‘000Bills payable 1,083,120 959,645Clearing suspense 64,984 259,138Unearned fees on late payments 628,720 542,573Deferred fee income 20,053,309 16,447,303Guarantees - Cash collateral 2,170,713 262,291Contract staff (Terminal benefits) 954,154 790,748Accrued expenses 12,495,505 9,644,100PAYE payable 4,665,983 3,863,049N.S.S.F payable 2,285,319 1,906,661Centemobile service charge 2,915,119 1,507,648Unsettled Interbank Trading Deals 2,707,500 -Accounts payable 2,801,249 5,354,691Uganda Revenue Authority collections 13,557,586 19,157,389Unclaimed balances (Nostro A/cs) 9,784 8,863Excise duty on bank charges 507,681 439,528Real Time Gross Settlement 132,970 949,402Withholding tax payable 1,371,929 1,245,485Other payables 3,829,489 3,519,893 72,235,114 66,858,407

29 Provisions for litigation 2016 2015 Shs ‘000 Shs ‘000Legal cases 1,437,954 1,520,636 Defalcations 1,548,668 119,985 2,986,622 1,640,621



The Bank is a litigant in several cases which arise from normal day-to-day banking activities. The Directors and Management believe the Bank has strong grounds for success in majority of them and are confident that they should get a ruling in their favor and none of the cases individually or in aggregate would have a significant impact on the Bank’s operations. Management carried out an assessment of all the cases outstanding as at 31 December 2016 and where considered necessary, provisions were made as indicated above.

30 Deferred Grants 2016 2015 Shs ‘000 Shs ‘000At start of year 536,587 746,576Additions - 421,187Transfers to Statement of Comprehensive Income (144,855) (631,176)At end of year 391,732 536,587 The bank did not receive any additional grants in the year 2016:

Additional Grants 2016 2015 Shs ‘000 Shs ‘000ABI Trust - 390,816ILO - 16,967GIZ - 13,404Agrifin - - 421,187

GIZ Financial Systems Development Program

GIZ Financial Systems development Programme (FSD), through the support of the German Development Coop-eration of the German Government, supported the Bank in financing a baseline survey on SACCOs, Village Savings and Loan Association(VSLAs) and farming groups based in Karamoja to inform whether the groups are bankable and investigate the most effective, impactful financial products and appropriate channels of delivering such products to the sub-region. The Bank, under the same programme, was supported to install solar systems in the service outlets located in Moroto and Kotido. There is no unfulfilled condition as at the year end.

aBi Trust

In July 2015, the bank partnered with Abi Trust to set up a service centre in Adjumani. The aim of this was to trans-form the social and economic livelihoods of Adjumani district through offering affordable financial services to the people in the West Nile and the surrounding areas. The agreement was to support the bank with a total contribu-tion of Shs.403.8 million. This was 47% of the total budget cost of Shs.851.5million.

ILO

The bank received financial support of USD 4,700 (equivalent of UGX 16.9 million) from International Labour Organisation (ILO) under the Women Entrepreneurship Development and Economic Empowerment (WED-EE) Project to organize and conduct a training of trainers on gender sensitive financial services.

22 staff were trained on how to use the FAMOS guide tool kit which kit enables the institution to build a business case of ‘why targeted and holistic interventions for women’ is beneficial and promotes a win-win situation for a better served woman and an expanded client base for the financial institution.



31 Earnings per ordinary share

Basic earnings per share are calculated by dividing the profit attributable to the ordinary equity holders of the Bank by the weighted average number of ordinary shares in issue during the year

2016 2015 Shs ‘000 Shs ‘000Net income 109,908,772 101,601,248Dividends to preference shareholders (116,624) (116,624)Net income attributable to ordinary shareholders 109,792,148 101,484,624Weighted average number of ordinary shares (No.) 25,000,000 25,000,000

Basic earnings per ordinary share (shillings per share) 4.392 4.059

There were no potentially dilutive shares outstanding at 31 December 2016 or 2015. Diluted earnings per share are therefore the same as basic earnings per share.

32 Share capital 2016 2015 Shs ‘000 Shs ‘000Authorized28,825,356 ordinary shares (2015: 28,825,356) of Shs 1,000 each 28,825,356 28,825,356150,000 non-redeemable preference shares of Shs 1,000 each 150,000 150,000 28,975,356 28,975,356

Issued and fully paid25,000,000 ordinary shares (2014:25,000,000)of Shs 1,000 each 25,000,000 25,000,000116,624 preference shares (2014: 116,624) of Shs 1,000 each 116,624 116,624 25,116,624 25,116,624

The issued number of shares as at year end was 25,000,000 ordinary shares and 116,624 preference shares (2015: 25,000,000 ordinary shares and 116,624 preference shares). All issued shares are fully paid.

There was no movement in share capital and share premium in 2016 and 2015. All amounts are in Ushs ‘000.

Share Premium Preference OrdinaryAt 1 January and 31 December 2015 1,138,927 116,624 25,000,000

Share Premium Preference OrdinaryAt 1 January and 31 December 2016 1,138,927 116,624 25,000,000

The holders of ordinary shares are entitled to receive dividend from time to time and are entitled to one vote per share at meetings of the Bank. Holders of preference shares receive a non-cumulative coupon of 100.0% and they do not carry the right to vote. All shares rank equally with regards to the Bank’s residual assets except that the preference shareholders have priority over ordinary shareholders but participate only to the extent of the face value of the shares.



33 Proposed dividends 2016 2015 Shs ‘000 Shs ‘000Preference – 100.0% 116,624 116,624Ordinary - 25% of NPAT (2015: 16.6%) 27,447,193 25,400,312 27,593,817 25,516,936Dividend per ordinary share (Shs) 1,099.09 1,016.01

The directors recommend the payment of a dividend of Shs 1,099.09 per share (2015: 1,061.01per share) totaling Shs 27.5BN (2015: Shs 25.5BN). Dividends are subject to withholding tax at rates which vary depending on the tax residence status of the recipient and double tax agreements in place.

34 Regulatory reserve 2016 2015 Shs ‘000 Shs ‘000At start of year 5,239,369 3,377,657Transfer from/to retained earnings during the year 2,976,568 1,861,712At end of year 8,215,937 5,239,369

The regulatory reserve represents amounts by which provisions for impairment of loans and advances determined in accordance with the Financial Institutions Act 2004 exceed those determined in accordance with International Fi-nancial Reporting Standards. These amounts are appropriated from retained earnings in accordance with the Bank’s accounting policy and are not distributable.

2016 2015 Shs ‘000 Shs ‘000Provisions as per FIA Specific provisions 19,042,329 14,181,306General provisions 13,097,163 10,796,131 32,139,492 24,977,437

Provisions as per IFRS Individual impairment 15,764,514 12,892,365Collective impairment 8,159,041 6,845,703 23,923,555 19,738,068 Credit risk reserve 8,215,937 5,239,369

35 Cash and cash equivalents 2016 2015 Shs ‘000 Shs ‘000Unrestricted Cash and balances with Bank of Uganda 185,169,382 72,109,896Balances with other financial institutions (Note 16) 56,630,549 92,522,927Treasury bills and other eligible bills < 91 days (Note 17) 92,924,383 137,119,628Government securities held for trading (Note 17) 90,784,201 31,885,743 425,508,515 333,638,194

For the purposes of the statement of cash flows, cash and cash equivalents comprise balances with less than 90 days maturity from the date of acquisition including: cash and balances with Banks, Treasury bills and other eligible bills, and amounts due from other banks and net of amounts due to other banks. Cash and cash equivalents exclude the cash reserve requirement held with the Bank of Uganda.



Banks are required to maintain a prescribed minimum cash balance with the Bank of Uganda that is not available to finance the bank’s day-to-day activities. The amount is determined by Bank of Uganda as a percentage of the aver-age outstanding customer deposits over a cash reserve cycle period of 2 weeks. Whilst it’s available for use in the bank’s activities and may fall to 50% of the margin on a given day there are sanctions for non-compliance. As at 31 December, the reserve requirement was Ushs 128,930 million (2015: Ushs 104,810 million).

36. Off-statement of financial position financial instruments and capital commitments

36.1 Guarantees and performance bonds

2016 2015 Shs ‘000 Shs ‘000Acceptances and letters of credit 8,229,101 4,460,935Performance bonds 6,315,138 12,332,041Bid securities bond guarantees 15,634,091 14,330,741Commitments to extend credit 8,255,036 6,328,088 38,433,366 37,451,805

36.2 Capital Commitments 2016 2015 Shs ‘000 Shs ‘000Capital expenditure authorized and contracted - 12,160,569 - 12,160,569

In 2013, the Bank embarked on Phase three construction of its new headquarters on Plot 44-46 Kampala Road and this was estimated to cost USD 16.3m. In 2013 USD 3.0 million was advanced, by 2014 a total of USD 9.2m and by close of year 2015 a total of USD 12.8 million had been made. By close of December 2016, the project was complete and handed to the bank with an outstanding amount of USD 3.5 million related to defect liability. This was paid in the year 2016 and outstanding by close of year 2016 was USD172, 000.

36.3 Operating lease commitments - Bank as a lessee

The Bank entered into commercial leases for motor vehicles and photocopiers. These leases have an average life of two years with a renewal option included in the contracts. There are no restrictions placed upon the lessee by en-tering into these leases. Future minimum lease payments under non–cancellable operating leases as at 31 December are, as follows:

2016 2015 Shs ‘000 Shs ‘000Within one year 5,182,384 3,940,760

37 Related party transactions and balances 2016 2015 Shs ‘000 Shs ‘000Directors’ remunerationFees to Non-Executive Directors 726,311 654,866Emoluments to Executive Directors 2,334,117 2,163,873Emoluments to directors 3,060,428 2,818,739Other expenses – Non-Executive Directors 584,178 740,081Other expenses - Executive Directors 132,976 13,634 3,777,582 3,572,454



Loans and advances to related parties At 1 January 39,603,797 32,167,147Advanced during the year 16,305,812 20,316,458Repaid during the year (16,159,432) (12,879,808)At 31 December 39,750,177 39,603,797

Key Management Compensation Short-term employee benefits 6,195,519 5,457,181NSSF Contribution 736,495 564,278Gratuity 1,169,430 1,050,837 8,101,444 7,072,296 The loans and advances to related parties are credit faculties issued to shareholders and key management personnel of the bank.

The value of security pledged for the above loans amounts to Ushs 326.0 billion as at 31 December 2016 (2015: Ushs 180.7 billion). The average period of the loans is 48 months.

(iii) Substantial shareholders (>5% of shareholding)

Shareholder name 2016 2015 % %Catholic Archdiocese of Kampala 5.3 5.3Registered Trustees of the Uganda Episcopal Conference 31.3 31.3SIDI (France) 11.6 11.6Stiching Hivos Triodos 18.3 18.3Total 66.5 66.5

(iv) Loans to shareholders and guarantees by shareholders

Shareholder 2016 2015 Shs ‘000 Shs ‘000Catholic Diocese of Soroti 262,449 -Catholic Diocese of Kabale 1,093,273 346,257Catholic Archdiocese of Kampala 16,326,094 21,237,875Catholic Diocese of Lugazi 2,372,280 2,375,227Catholic Diocese of Hoima 2,420,692 1,581,009Catholic Diocese of Gulu 33,573 39,033Catholic Diocese of Jinja 286,002 349,063Catholic Diocese of Arua 1,043,266 1,276,729Catholic Archdiocese of Lira 469,310 717,612Catholic Diocese of Masaka 6,227,598 6,518,389Catholic Archdiocese of Tororo 88,825 178,292Catholic Diocese of Fort Portal 322,231 628,687Catholic Archdiocese of Mbarara 1,707,809 2,063,385Catholic Diocese of Kasana, Luweero 594,730 566,259Catholic of Diocese Kasese 17,362 30,000Catholic Diocese of Mityana 127,720 137,963Catholic Diocese of Kotido 30,000 -Total 33,423,214 38,045,780

(Related party transactions and balances continued...)



Executive Directors 369,288 260,716Non-Executive Directors 5,132,022 45,607EXCO members 825,654 1,251,694 6,326,964 1,558,017Total 39,750,178 39,603,797

Below is a table showing the collateral, interest income, average tenor and provisions for bad and doubtful debts as at 31 December 2016 and 31 December 2015 for;

(i) Loans and advances to shareholders:

2016 2015Average interest rates (%) 21.5 20.2Collateral (Shs’000) 319,051,562 248,428,200Interest income (Shs’000) 7,335,631 6,352,189Average Tenor (months) 53 44 Provisions for bad and doubtful debts - At year end 87,652 105,748- (Credit) / Charge for the year (18,096) 105,748

(ii) Loans and advances to key management personnel

2016 2015Average interest rates (%) 9.5 11.8Collateral (Shs’000) 6,054,000 5,979,000Interest income (Shs’000) 164,829 156,874Average Tenor (months) 48 48 Provisions for bad and doubtful debts - At year end - -- Charge for the year - -

(Loans to shareholders and guarantees by shareholders continued...)



We put in place a comprehensive customer service strategy and customer service standards that drive the

Bank’s service deliverys.

BRANCH AND ATM NETWORK


BRANCH NETWORK

Mapeera House BranchPlot 44/46, Kampala RoadPlot 2, Burton StreetP. O. Box 1892 KampalaTel: +256 317 202287

Apac BranchPlot 22 Akokoro RoadApac TownTel: +256 414 663211

Arua BranchPlot 3, Avenue RoadP. O. Box 246 AruaTel: +256 476-420013 +256 372-260001

Adjumani BranchLRV 3176 Folio 18Plot 20 Manyi RoadAdjumani

Bugiri BranchPlot 117, Grant StreetIganga-Tororo HighwayP. O. Box 137 BugiriTel: +256 434-250074

Bundibugyo BranchPlot II, Block D, Bundibujyo Town Council, Fort Portal Road Highway

Bwaise BranchPlot 526 Bwaise- Kawempe Bombo RoadP .O. Box 1982 KampalaTel: +256 414-566096

Bwera BranchPlot 102, Bukonjo BlockTel: +256 712 751729Bwera Town

Entebbe Road BranchPlot 7, Entebbe Road Talenta HouseP. O. Box 1892 KampalaTel: +256 414 506009

Entebbe Road AnnexPlot 18/20, Entebbe Road AnnexP. O. Box 1892 KampalaTel: +256 414 506009

Fort Portal BranchGolden Jubilee BuildingFort Portal- Kasese RoadP. O. Box 124 Fort portalTel: +256 483-422791/8

Gulu BranchPlot 426, Gulu StreetP. O. Box 957 GuluTel: +256 471-432572

Gulu Market BranchPlot 2 Oliya RoadGulu TownP.O Box 1892

Hoima BranchPax Arcade, Fort Portal RoadP. O. Box 472 HoimaTel: +256 465-440193+256 392-751733

Ibanda BranchPlot 4, Main StreetP. O. Box 395IbandaTel: +256 485-426998

Iganga BranchPlot 43 Main StreetIganga townPO Box 101 IgangaTel: +256 434242143

Isingiro BranchPlot 17A, High StreetIsingiro Town CouncilP. O. Box 1892 KampalaTel: +256 414 663235

Ishaka BranchPlot 9, Cell C – Ward IV, Rukungiri Road, Ishaka Town

Jinja BranchPlot 6, Nizam West Road(Opp. Uganda Telecom Office)P. O. Box 1767 JinjaTel: +256 434-122007

Kabalagala BranchBlock 245, Plot 551, Kabalagala Town,P. O. Box 1892 KampalaTel: +256 414-501490

Kabale BranchPlot 129, Kabale RoadP. O. Box 385KabaleTel: +256 486 423671

Kagadi BranchPlot 69 Prime HouseFort Portal- Kyenjojo RoadKagadi Town CouncilP.O. Box 35 KagadiTel: +256 392 892372

Kamuli BranchPlot 4, Kitimbo RoadKamuli Town CouncilP. O. Box 168Tel:+256 414 663226

Kanungu BranchKanungu – Kihihi RoadKanungu Town CouncilP.O. Box 20 Tel: +256 414 663194

Kasese BranchPlot 213, Portal StreetP. O. Box 87 KaseseTel: +256 483 444041Kapchorwa BranchPlot 1, Market StreetP. O. Box 286 KapchorwaTel: +256 414 663208

Kawuku BranchPlot 309, Immaculate Heart ofMary Reparatrix BuildingTel.: 0417 206281

Kawempe BranchPlot 125, Block 204Kawempe TownP.O Box 1892 KAMPALATel. 031720

Kayabwe BranchPlot 64, KayabweMasaka RoadP.O Box 1063 MasakaTel: +256 414 663223

Kayunga BranchBlock 123, Plot 300, Main Street, Kayunga CentralP.O Box 18257, KayungaTel: +256 414 663207

Kiboga BranchPlot 101, Hoima RoadP. O. Box 28 KibogaTel: +256 414 663224

Kikuubo Branch1st Floor, Unifam PlazaPlot 15, Nakivubo RoadP. O. Box 1892 KampalaTel: +256 414 258795/91

Kireka BranchPlot 1653, KirekaTel: +256 414 663193

BRANCH AND ATM NETWORK (continued...)


Kitgum BranchPlot 7/8, Ogwok RoadP. O. Box 147 KitgumTel: +256 414 663200

Kisoro BranchPlot 27 Kisoro- Kabale RoadPO Box 10Tel: +256 486 430026

Koboko BranchPlot 19, Central Road, Koboko TownP. O. Box 194 KampalaTel: +256 414598648

Kotido BranchBlock 20, Moroto Road, Kotido TownP.O Box 88 KotidoTel: +256 392751796

Kumi BranchPlot 39, Ngora Road, KumiPO Box 1892, KampalaTel: +256 414 663222

Kyenjojo BranchPlot 2/6, Nyantungo RoadP. O. Box 1077 KyenjojoTel: +256 414 663196

Kyotera BranchPlot 6, Kyotera RoadP. O. Box 116 KyoteraTel: +256 481-432676

Lira BranchObote AvenuePlot 4-7, Soroti RoadP. O. Box 817 LiraTel: +256 473-420124

Lugogo BranchPlot 3A2 & 3A3 Sports LaneForest Mall, Ground Floor, Unit G3 LugogoP. O. Box 1892 KampalaTel: 0414 663220

Lyantonde BranchPlot 226, Lyantonde Town CouncilP. O. Box 49, LyantodeTel: 0382280689

Makerere BranchSt. Augatine’s Student CentreP. O. Box 1892 KampalaTel: +256 (0) 414 535750

Masaka BranchPlot 6, Edward AvenueP. O. Box 1063. MasakaTel: +256 481-420406

Mbale BranchPlot 54, Republic StreetP. O. Box 818 MbaleTel: +256 454-434002

Mbarara BranchPlot 25/27, High StreetP. O. Box 1352 MbararaTel: +256 485 421540

Masindi BranchPlot 59/61, Masindi Port RoadP. O. Box 5 MasindiTel: +256 465-420000

Mityana BranchPlot 50, Corner HouseP. O. Box 156 MityanaTel: +256 464-442791

Moroto BranchPlot 25, Lira Street. Moroto TownTel: +256 414 663202

Mpigi BranchPlot 106, Butambala RoadMpigi TownTel: +256 414 664508

Mubende BranchPlot 20, Main Street, Mubende TownP. O. Box 332 MubendeTel: +256 464-444059

Mukono BranchJinja RoadP. O. Box 790 MukonoTel: +256 414-291618/9

Najjanankumbi BranchPlot 1032, Entebbe RoadFreedom City Mall, Entebbe RoadP. O. Box 1892 KampalaTel: +256 414 501222

Nakivubo Road BranchMukwano Arcade(Opposite St. BalikudembeMarket)P. O. Box 6171KampalaTel: +256 414-507047/6

Namirembe Road BranchPlot 16, Namirembe RoadP. O Box 25229. KampalaTel: +256 414-345295

Nansana BranchPlot 2536, Nansana TownWakiso District

Nateete BranchPlot 3, Old Masaka RoadP. O. Box 1892 KampalaTel: +256 414-660637/1

Ntinda BranchPlot 36 - 38Ntinda Capital Shoppers BuildingNtinda-Nakawa RoadTel: +256 414289844

Ntungamo BranchPlot 4C, New Mbarara-Kabale RoadP. O. Box 136 NtungamoTel: +256 485 424012

Nebbi BranchPlot 1/3/5, Bishop Orombi RoadP. O. Box 179 NebbiTel: +256 414598643

Paidha BranchPlot 16, Arua RoadTel:+256 716 420013

Pallisa BranchPlot 38, Outa Road, Paliisa Town Council

Rubaga BranchRubaga CathedralAdmission blockPO Box 1892 KampalaTel:+256 414 271453

Rukungiri BranchPlot 13 Republic Road RukungiriP. O. Box 353 RukungiriTel: +256 486-442177

Soroti BranchPlot 36, Gweri RoadP. O. Box 420 SorotiTel: +256 414 663205

Tororo BranchPlot 3, Uhuru DriveP. O. Box 1146 TororoTel: +256 454-445018

Wakiso BranchPlot 249, Wakiso District Headquaters RoadP. O. Box 69 WakisoTel: +256 414-380501

Wobulenzi BranchKasana Luweero Diocese(KALUDO) HousePlot 249, Gulu RoadP. O. Box 186 WobulenziTel: +256 414 620006




OFF SITE ATMs

AruaCatholic Center Building,Near Christ the King Church, Avenue Road

BugolobiSpring Road,Middle East Hospital & shopping complex building Bugolobi

BugembeBugembe Town Council

BusiaCustoms Road, Busia town

Bweyogerere UPET Petrol stationBweyogerere town, Kampala-Mukono highway

DokoloAngwenchibange ParishAkaidebe Zone, ParcelDokolo Town

Entebbe –KitooroKitooro Trading Centre

GgabaGgaba Trading Centre

Gulu Lacor Hospital, Juba Road

Gulu Gulu University

GuluAndrea Olal Road Opposite Shell petrol Station

GayazaNear Mirembe Supermarket,Gayaza Road

IgangaMain Street, Iganga town

Jinja RoadCoffee Development building, Kampala

Kasubi Petrol City Fuelling Station Kasubi town

KabalagalaShell Petrol Station, Kabalagala, Kampala

KabwoheSheema Kabwohe, Bushenyi district

KajjansiOpp. Kajjansi market

Kakiri Kakiri Town

KalerweGayaza Road next to Pearl Micro Finance

KalisizoZiladamu building, New Masaka Road

KamwokyaBoxing Supermarket Kamwokya Market

Kasana LuweeroGulu highway next toDiocesan Cathedral

KatweKibugaOpposite Total Petrol Station, Katwe

KisenyiMwanga II Road, Kisenyi, Kampala.

KirinyaKirinya Trading Centre

KyabakuzaKyabakuza Trading Centre

KyengeraDevine Mercy Arcade, Masaka Road

LiraGapco Petrol stationOlwol Roads

Lugazi Jinja Road. Lugazi

Lukaya Mutuba IIBuddu, Lukaya

Luwum Street (3 ATMs)JBK Plaza

Luzira Next to Bishop Cyprian Kihangire SS, Port Bell Road

MakindyeSIM Towers, Makindye opposite Makindye Military Barracks

Makerere HillHam Towers, Tuskys Shopping MallNear Wandegeya Trading Centre

MatuggaSt. Francis of Assis Catholic Parish

Mbale (2 ATMs)Canos Guest House, Naboa Road

MbararaMasaka RoadMbarara Town

Mengo Masengere Mengo, Kampala

MpigiMpigi Town CouncilButabala RoadPark village, Mpigi

Mulago Business Centre near Hospital Chapel, Mulago Hospital

Mini Price (2 ATMs)Ben Kiwanuka Street

Mukwano Shopping Mall (3 ATMs)Mukwano Arcade Buiding

NajeeraNajeera II Stage

NakawaJinja RoadShell Petrol station

Nakawa MUBSQuality Supermarket

NakulabyeRoad Master Hotel,Balintuma Road

NalumunyeLebron Supermarket

NamugongoNamugongo Road towards the Uganda Martyrs Catholic Shrine

NdeebaNsike at Christine Motel

NtindaNtinda Road Trading Centre, Opposite the mosque

NyendoJOBASCA Building, Next to St. Joseph’s Nyendo Catholic ChurchKitovu Road, Nyendo Masaka

Oasis MallNakumatt Shopping Mall,Yusuf Lule Road, Kampala

RusherePlot 18 Rushere, Kiruhura

RwebikonaFort Portal Road

SeetaSeeta Trading Centre, Mukono District.

SironkoKapchorwa RoadSironko town

Wandegeya (2 ATMs)Next to Hotel Catherine Wandegeya. Kampala


Centenary Rural Development Bank Limited. Head Office: Mapeera House,Plot 44-46, Kampala Road, P. O. Box 1892 Kampala

Tel: +256 414-251276/7 Toll free line: 0800 200555Fax: +256 414-251273/4 E-mail: [email protected]

Website; http://www.centenarybank.co.ug

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