Nedbank Group Ltd.
Annual Report 2014

Plain-text annual report

NEDBANK LIMITED AnnuAl report for the year ended 31 December 2014 annual report2014 HIGHLIGHTS HEADLINE EARNINGS ▲12,4% R8 077m NIR/ExpENSES RATIo 73,5% 2013: 76,6% RETURN oN EQUITY 12,5% 2013: 12,2% CoMMoN- EQUITY TIER 1 RATIo 11,0% 2013: 10,7% CREDIT LoSS RATIo 82 bps 2013: 110 bps RETURN oN ASSETS 1,11 % 2013: 1,06% ContentS Financial highlights Ten-year review: Consolidated statement of comprehensive income Ten-year review: Consolidated statement of financial position Directors' responsibility Company Secretary's Certification Report from our Group Audit Committee Report from our directors Independent auditors' report to the shareholders of Nedbank Limited Consolidated financial statements Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cashflows Segmental reporting Notes to the consolidated financial statements Additional information not covered by the auditors' report Compliance with IFRS – financial statement notes Report from Group Remuneration Committee Chair Reporting back on remuneration Worldclass at managing risk Board of directors Information to our shareholders Notice of our annual general meeting Form of proxy Notes to form of proxy Terms used in our report Abbreviations, acronyms and initialisms used in our report Codes for our financial instruments Notes Contact details 2 4 6 8 9 10 12 15 16 17 18 20 21 24 119 120 122 152 166 170 173 174 175 179 182 183 184 1 2014 2013 7 998 (79) (96) 17 7 152 (37) (55) 18 8 077 7 189 3,37 0,82 42,7 58,1 52 236 12,5 644 737 753 444 1,11 368 823 11,0 12,1 14,7 27,2 358,3 27,2 29 650 75,62212 36,86072 38,76140 72,56847 975 1 056 925 59,5 3,40 1,10 43,3 56,6 47 973 12,2 595 249 699 155 1,06 336 858 10,7 12,1 14,5 27,2 358,3 27,2 26 390 70,83331 35,12556 35,70775 70,95205 1 037 1 090 1 040 72,3 Rm Rm Rm Rm Rm % % % % Rm % Rm Rm % Rm % % % m m m cents cents cents cents cents cents cents cents m FINANCIAL HIGHLIGHTS for the year ended 31 December Headline earnings reconciliation profit attributable to equity holders of the parent Non-headline earnings items Non-headline earnings items Taxation on non-headline earnings items Headline earnings Key ratios Net interest income to average interest-earning banking assets Credit loss ratio – banking advances Non-interest revenue to total income Efficiency ratio Total equity attributable to equity holders of the parent Return on ordinary shareholders’ equity Average interest-earning banking assets Total assets Return on total assets Total risk-weighted assets Bank capital adequacy ratios (including unappropriated profits): – Common-equity tier 1 – Tier 1 – Total Share statistics Number of shares in issue: – ordinary shares – preference shares Weighted average number of ordinary shares Headline earnings per ordinary share Dividends per preference share: – Declared per share Interim Final – paid per share – preference share traded price Closing High Low – Number of preference shares traded 2 HEADLINE EARNINGS % EXPENSES AND EFFICIENCY RATIO 2 3 4 3 1 1 7 3 6 5 6 5 9 6 4 5 3 2 8 3 8 3 8 3 1 3 5 5 8 8 4 6 9 8 1 7 7 7 0 8 4 9 4 0 1 5 2 7 1 1 8 6 7 2 1 1 7 6 2 1 2 9 7 3 1 3 8 9 4 1 5 5 9 6 1 5 6 5 8 1 9 9 1 0 2 1 3 0 2 2 , 0 6 5 5 , 1 6 , 8 4 5 , 4 0 5 , 3 3 5 , 3 6 5 , 8 6 5 , 3 6 5 , 6 6 5 1 , 8 5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2007 2006 2005 2008 2011 ■ Expenses (Rm) ■ Efficiency ratio (%) 2009 2010 2012 2013 2014 TOTAL EQUITY Rbn TOTAL ASSETS AND RETURN ON TOTAL ASSETS , 4 4 2 1 , 8 2 1 , 3 3 , 4 6 3 , 0 8 3 , 4 8 3 , 0 3 4 7 , 1 5 , 0 6 5 , 0 6 5 7 2 3 2 0 4 1 6 4 7 4 5 5 4 5 6 7 5 4 1 6 5 4 6 9 9 6 3 5 7 1 , 1 0 , 1 3 , 1 1 , 1 , 7 0 , 7 0 , 9 0 0 , 1 1 , 1 1 , 1 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2007 2006 2005 ■ Total assets (Rbn) ■ Return on total assets (%) 2008 2009 2010 2012 2011 2013 2014 NET INTEREST INCOME TO AVERAGE INTEREST-EARNING BANKING ASSETS % NON-INTEREST REVENUE TO TOTAL INCOME 0 4 , 1 , 4 1 , 4 8 3 , 5 3 , 2 3 , 2 3 , 4 3 , 4 3 , 4 3 , 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 , 2 6 4 , 0 5 4 8 , 1 4 , 3 9 3 , 0 0 4 , 4 0 4 1 , 2 4 , 9 2 4 , 3 3 4 , 7 2 4 4 5 4 7 6 6 5 8 5 2 7 9 7 7 8 9 8 3 3 0 1 1 4 7 0 1 5 5 5 2 1 1 5 1 4 1 6 6 4 5 1 6 9 1 6 1 2007 2006 2005 ■ Non-interest revenue (NIR) (Rm) ■ NIR to total income (%) 2008 2009 2014 2010 2012 2013 2011 3 NedbaNk LIMITed annual report                   TEN-YEAR REVIEW rm 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Consolidated statement of comprehensive income Interest and similar income Interest expense and similar charges net interest income Impairments charge on loans and advances Income from lending activities Non-interest revenue operating income Total operating expenses Indirect taxation profit from operations before non-headline earnings items Non-headline earnings items profit from operations Share of (losses)/profits of associate companies and joint arrangements profit before direct taxation Direct taxation profit for the year profit attributable to: – ordinary and preference equity holders – Non-controlling interest – ordinary shareholders – Non-controlling interest – preference shareholders Headline earnings 50 075 28 322 21 753 4 478 17 275 16 196 33 471 22 031 522 10 918 (96) 10 822 12 10 834 2 786 8 048 7 998 50 8 048 8 077 44 107 23 873 20 234 5 529 14 705 15 466 30 171 20 199 480 9 492 (55) 9 437 28 9 465 2 297 7 168 7 152 16 7 168 7 189 42 900 24 102 18 798 5 239 13 559 14 151 27 710 18 601 460 8 649 (49) 8 600 8 600 2 159 6 441 6 410 31 6 441 6 460 41 417 24 119 17 298 5 321 11 977 12 555 24 532 16 955 413 7 164 (48) 7 116 7 116 1 610 5 506 5 483 23 5 506 5 531 43 421 27 556 15 865 6 360 9 505 10 741 20 246 14 983 387 4 876 (103) 4 773 4 773 983 3 790 3 737 53 3 790 3 838 49 332 33 795 15 537 6 659 8 878 10 338 19 216 13 792 402 5 022 (32) 4 990 (1) 4 989 960 4 029 3 790 224 15 4 029 3 823 55 154 39 874 15 280 4 755 10 525 9 877 20 402 12 671 356 7 375 745 8 120 9 8 129 1 791 6 338 6 106 217 15 6 338 5 469 40 185 26 631 13 554 2 115 11 439 9 725 21 164 12 768 298 8 098 25 8 123 54 8 177 2 185 5 992 5 681 298 13 5 992 5 656 27 089 16 600 10 489 1 465 9 024 8 566 17 590 11 725 334 5 531 183 5 714 68 5 782 1 669 4 113 3 870 243 4 113 3 711 22 574 13 878 8 696 987 7 709 7 454 15 163 10 494 213 4 456 833 5 289 67 5 356 935 4 421 4 228 193 4 421 3 432 4 rm 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 Consolidated statement of comprehensive income Interest and similar income Interest expense and similar charges net interest income Impairments charge on loans and advances Income from lending activities profit from operations before non-headline earnings items Share of (losses)/profits of associate companies and joint arrangements Non-interest revenue operating income Total operating expenses Indirect taxation Non-headline earnings items profit from operations profit before direct taxation Direct taxation profit for the year profit attributable to: – ordinary and preference equity holders – Non-controlling interest – ordinary shareholders – Non-controlling interest – preference shareholders Headline earnings 50 075 28 322 21 753 4 478 17 275 16 196 33 471 22 031 522 10 918 (96) 10 822 12 10 834 2 786 8 048 7 998 50 8 048 8 077 44 107 23 873 20 234 5 529 14 705 15 466 30 171 20 199 480 9 492 (55) 9 437 28 9 465 2 297 7 168 7 152 16 7 168 7 189 42 900 24 102 18 798 5 239 13 559 14 151 27 710 18 601 460 8 649 (49) 8 600 8 600 2 159 6 441 6 410 31 6 441 6 460 41 417 24 119 17 298 5 321 11 977 12 555 24 532 16 955 413 7 164 (48) 7 116 7 116 1 610 5 506 5 483 23 5 506 5 531 43 421 27 556 15 865 6 360 9 505 10 741 20 246 14 983 387 4 876 (103) 4 773 4 773 983 3 790 3 737 53 3 790 3 838 49 332 33 795 15 537 6 659 8 878 10 338 19 216 13 792 402 5 022 (32) 4 990 (1) 4 989 960 4 029 3 790 224 15 4 029 3 823 55 154 39 874 15 280 4 755 10 525 9 877 20 402 12 671 356 7 375 745 8 120 9 8 129 1 791 6 338 6 106 217 15 6 338 5 469 40 185 26 631 13 554 2 115 11 439 9 725 21 164 12 768 298 8 098 25 8 123 54 8 177 2 185 5 992 5 681 298 13 5 992 5 656 27 089 16 600 10 489 1 465 9 024 8 566 17 590 11 725 334 5 531 183 5 714 68 5 782 1 669 4 113 3 870 243 4 113 3 711 22 574 13 878 8 696 987 7 709 7 454 15 163 10 494 213 4 456 833 5 289 67 5 356 935 4 421 4 228 193 4 421 3 432 5 NedbaNk LIMITed annual reportTEN-YEAR REVIEW (continued) rm 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 10 757 56 322 15 644 26 828 17 467 35 004 13 811 31 279 603 329 566 047 5 393 236 2 369 16 1 158 165 7 459 4 409 14 843 4 516 4 204 340 2 932 12 1 098 69 87 6 571 2 847 13 199 4 188 12 587 37 575 14 660 26 194 520 116 4 528 241 2 832 508 1 029 362 84 6 171 1 992 12 641 3 830 11 514 31 715 14 314 29 991 493 107 3 989 629 3 549 8 565 66 488 6 082 2 027 11 862 3 634 753 444 699 155 645 350 613 540 576 490 544 990 547 132 460 627 401 888 326 980 27 17 422 34 787 52 236 3 561 27 17 422 30 524 47 973 3 561 27 17 422 26 140 43 589 3 561 27 14 422 24 856 39 305 3 561 183 141 136 121 55 980 15 479 634 623 8 404 35 287 3 002 35 634 697 464 753 444 51 675 16 588 585 497 10 016 13 297 1 804 33 265 647 480 699 155 47 286 13 475 542 671 9 273 67 36 367 1 880 30 295 598 064 645 350 42 987 13 791 516 540 8 286 27 997 1 473 29 439 570 553 613 540 471 447 446 428 436 420 321 724 250 410 7 469 21 955 14 077 31 667 3 613 440 2 999 5 933 48 82 5 394 1 965 11 068 3 328 27 14 422 20 281 34 730 3 560 110 38 400 11 930 491 038 6 179 76 1 358 1 408 26 101 538 090 576 490 6 823 14 408 12 871 35 754 3 917 580 3 012 12 922 36 102 4 754 1 783 10 437 3 151 27 14 422 18 174 32 623 3 483 1 796 91 37 993 10 799 467 924 5 218 162 1 514 1 298 20 082 506 997 544 990 7 638 10 411 23 114 41 834 4 731 314 2 743 10 913 71 104 4 124 1 667 10 061 2 977 27 14 422 16 927 31 376 3 122 1 644 300 36 442 23 077 464 082 6 145 117 1 982 1 227 14 060 510 690 547 132 9 545 11 775 9 924 29 271 375 421 4 920 29 2 739 735 65 75 3 757 1 305 8 351 2 715 27 14 422 13 954 28 403 3 122 1 307 300 33 132 10 336 391 526 10 419 275 1 470 1 145 12 324 427 495 460 627 11 165 13 855 10 314 22 031 5 120 138 2 385 41 690 48 66 3 323 1 357 7 026 2 605 27 14 422 9 583 24 032 2 770 955 300 28 057 11 549 341 708 9 098 338 1 410 1 210 8 518 373 831 401 888 10 586 9 496 12 534 22 505 5 088 119 2 419 66 397 626 87 3 039 1 225 5 732 2 651 27 14 422 6 263 20 712 2 770 872 24 354 15 463 272 492 5 224 333 774 1 067 7 273 302 626 326 980 Consolidated statement of financial position Assets Cash and cash equivalents other short-term securities Derivative financial instruments Government and other securities Loans and advances other assets Current taxation assets Investment securities Non-current assets held for sale Investments in private-equity associates, associate companies and joint arrangements Deferred taxation assets Investment property property and equipment Long-term employee benefit assets Mandatory reserve deposits with central banks Intangible assets total assets equity and liabilities ordinary share capital ordinary share premium Reserves total equity attributable to equity holders of the parent preference share capital and premium Non-controlling interest attributable to: – ordinary shareholders – preference shareholders total equity Derivative financial instruments Amounts owed to depositors provisions and other liabilities Current taxation liabilities other liabilities held for sale Deferred taxation liabilities Long-term employee benefit liabilities Long-term debt instruments total liabilities total equity and liabilities 6 Investments in private-equity associates, associate companies and joint rm Assets Consolidated statement of financial position Cash and cash equivalents other short-term securities Derivative financial instruments Government and other securities Loans and advances other assets Current taxation assets Investment securities Non-current assets held for sale Long-term employee benefit assets Mandatory reserve deposits with central banks arrangements Deferred taxation assets Investment property property and equipment Intangible assets total assets equity and liabilities ordinary share capital ordinary share premium Reserves total equity attributable to equity holders of the parent preference share capital and premium Non-controlling interest attributable to: – ordinary shareholders – preference shareholders total equity Derivative financial instruments Amounts owed to depositors provisions and other liabilities Current taxation liabilities other liabilities held for sale Deferred taxation liabilities Long-term employee benefit liabilities Long-term debt instruments total liabilities total equity and liabilities 603 329 566 047 10 757 56 322 15 644 26 828 5 393 236 2 369 16 1 158 165 7 459 4 409 14 843 4 516 27 17 422 34 787 52 236 3 561 55 980 15 479 634 623 8 404 35 287 3 002 35 634 697 464 753 444 17 467 35 004 13 811 31 279 4 204 340 2 932 12 1 098 69 87 6 571 2 847 13 199 4 188 27 17 422 30 524 47 973 3 561 51 675 16 588 585 497 10 016 13 297 1 804 33 265 647 480 699 155 12 587 37 575 14 660 26 194 520 116 4 528 241 2 832 508 1 029 362 84 6 171 1 992 12 641 3 830 27 17 422 26 140 43 589 3 561 47 286 13 475 542 671 9 273 67 36 367 1 880 30 295 598 064 645 350 11 514 31 715 14 314 29 991 493 107 3 989 629 3 549 8 565 66 488 6 082 2 027 11 862 3 634 27 14 422 24 856 39 305 3 561 42 987 13 791 516 540 8 286 27 997 1 473 29 439 570 553 613 540 183 141 136 121 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 7 469 21 955 14 077 31 667 6 823 14 408 12 871 35 754 7 638 10 411 23 114 41 834 471 447 446 428 436 420 3 613 440 2 999 5 933 48 82 5 394 1 965 11 068 3 328 3 917 580 3 012 12 922 36 102 4 754 1 783 10 437 3 151 4 731 314 2 743 10 913 71 104 4 124 1 667 10 061 2 977 9 545 11 775 9 924 29 271 375 421 4 920 29 2 739 735 65 75 3 757 1 305 8 351 2 715 11 165 13 855 10 314 22 031 10 586 9 496 12 534 22 505 321 724 250 410 5 120 138 2 385 41 690 48 66 3 323 1 357 7 026 2 605 5 088 119 2 419 66 397 626 87 3 039 1 225 5 732 2 651 753 444 699 155 645 350 613 540 576 490 544 990 547 132 460 627 401 888 326 980 27 14 422 20 281 34 730 3 560 110 38 400 11 930 491 038 6 179 76 1 358 1 408 26 101 538 090 576 490 27 14 422 18 174 32 623 3 483 1 796 91 37 993 10 799 467 924 5 218 162 1 514 1 298 20 082 506 997 544 990 27 14 422 16 927 31 376 3 122 1 644 300 36 442 23 077 464 082 6 145 117 1 982 1 227 14 060 510 690 547 132 27 14 422 13 954 28 403 3 122 1 307 300 33 132 10 336 391 526 10 419 275 1 470 1 145 12 324 427 495 460 627 27 14 422 9 583 24 032 2 770 955 300 28 057 11 549 341 708 9 098 338 1 410 1 210 8 518 373 831 401 888 27 14 422 6 263 20 712 2 770 872 24 354 15 463 272 492 5 224 333 774 1 067 7 273 302 626 326 980 7 NedbaNk LIMITed annual reportDIRECToRS’ RESpoNSIBILITY The directors are responsible for the preparation and fair presentation of the consolidated financial statements of Nedbank Limited (comprising the statement of financial position at 31 December 2014, the statement of comprehensive income, the statement of changes in equity and statement of cashflows for the year then ended), the segmental reporting and the notes to the financial statements (including a summary of significant accounting policies and other explanatory notes) in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IAS), the SAICA Financial Reporting Guides as issued by the Accounting practices Committee, the requirements of the Companies Act, 71 of 2008 (as amended) and the JSE listings requirements. In addition, the directors are responsible for the preparation of the directors’ report. The directors are also responsible 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 and for maintaining adequate accounting records and an effective system of risk management as well as the preparation of the supplementary schedules included in these financial statements. The directors have made an assessment of the ability of the company and its subsidiaries to continue as going concerns and there is no reason to believe that the business will not be a going concern in the year ahead. The auditors are responsible for reporting on whether the consolidated financial statements are fairly presented in accordance with the applicable financial reporting framework. APPROVAL OF CONSOLIDATED ANNUAL FINANCIAL STATEMENTS The consolidated annual financial statements of Nedbank Limited, as identified in the first paragraph, were approved by the Nedbank board of directors on 20 February 2015 and are signed on its behalf by: Dr rJ Khoza Chairman Sandown 20 February 2015 MWt Brown Chief Executive 8 CoMpANY SECRETARY’S CERTIFICATIoN In terms of section 88(2)(e) of the Companies Act, 71 of 2008 (as amended), I certify that, to the best of my knowledge and belief, Nedbank Limited has filed with the Commissioner all such returns and notices as are required by the Companies Act, 71 of 2008 (as amended), and that all such returns and notices are true, correct and up to date. tSB Jali Company Secretary Sandown 20 February 2015 9 NedbaNk LIMITed annual reportREpoRT FRoM oUR GRoUp AUDIT CoMMITTEE Overview The Nedbank Group Audit Committee (GAC) assists the board in fulfilling its oversight responsibilities, in particular with regard to evaluation of the adequacy and efficiency of accounting policies, internal controls and financial reporting processes. In addition the GAC assesses the effectiveness of the internal auditors and the, independence and effectiveness of the external auditors. Composition The GAC consists of four members, all of whom are independent non- executive directors, and is chaired by Malcolm Wyman. The GAC met five times during the year at times which were aligned with the group's financial reporting cycle. The Chief Executive (CE), the Chief Financial officer (CFo), the Chief operating officer (Coo), the Chief Risk officer (CRo), the Chief Internal Auditor (CIA), the Chief Governance and Compliance officer and representatives of the external auditors are invited to attend all GAC meetings. GAC members Malcolm Wyman (Chairman) Nomavuso Mnxasana paul Makwana Tom Boardman (appointed 12 May 2014) Scheduled meeting attendance 5/5 5/5 5/5 2/2 Committee governance and effectiveness The legal responsibilities of the GAC are governed by the Companies Act, 71 of 2008 ('Companies Act'), and the Banks Act, 94 of 1990 (as  amended) ('Banks Act'). These responsibilities, and compliance with appropriate governance and international best practice, are dealt with in the committee's charter, which is reviewed annually and was approved by the board. The chairman of the committee reports to the board on the matters discussed at each committee meeting and the minutes of each meeting are circulated to all boardmembers. The GAC Chairman has regular contact with the management team, including the CEo, the Coo, the CRo, the CIA and the CFo, to address relevant matters directly. The CIA and the external auditors have direct access including closed sessions without management, on any matter that they regard as relevant to the fulfilment of the committee's responsibilities. the committee, to New members of the GAC undergo an induction programme, which includes briefings on matters relevant to the responsibilities of the committee, and meet with the finance executive. on going training is provided to committee members on a range of financial, regulatory and other compliance matters. During 2014 training was conducted on the investor relations function and JSE reporting requirements; non-interest income key drivers and areas of judgement; integrated reporting framework and developments; and global mega trends within the taxation environment. The performance of the committee is reviewed annually through a self- assessment questionnaire. The 2014 review concluded that the committee continued to operate effectively and meet its objectives. Internal control The GAC monitored the effectiveness of the group's internal controls and compliance with the Enterprisewide Risk Management Framework (ERMF). The emphasis on risk governance is based on three lines of defence and the GAC uses the regular reports received from the three lines of defence to evaluate the effectiveness of the internal controls. The ERMF places weight on accountability, responsibility, independence, reporting, communication and transparency, both internally and with all Nedbank's key external stakeholders. The functions of the three lines of defence, as well as the principal responsibilities that extend across the group, are set out in the Risk and Balance Sheet Management Review available at nedbankgroup.co.za. For the period under review the GAC monitored management's effectiveness at: ■ creating and maintaining an effective internal control environment throughout the group; ■ demonstrating the necessary respect for the control environment; and 10 ■ identifying and correcting weaknesses in systems and internal controls. The GAC received regular reports from the Group Information Technology Committee regarding the monitoring of the adequacy and efficiency of the group's information systems and from the Group Credit Committee regarding its oversight of the adequacy and efficiency of the credit monitoring processes and systems. The GAC received regular reports on issues in the group's key issues control log from the CRo and regular reports regarding governance and compliance matters (including the Companies Act and Banks Act) from the Chief Governance and Compliance officer. As required by King III the GAC received confirmation from the CIA regarding the effectiveness of internal financial controls, internal controls and risk management. Having considered, analysed, reviewed and debated information provided by management as well as Internal Audit and the external auditors, the GAC considered that the internal controls of the group had been effective in all material aspects throughout the year under review. Financial reporting process The GAC received regular reports from the CFo regarding the financial performance of the group, the tracking and monitoring of key performance indicators, details of budgets, forecasts, long-term plans and capital expenditures, financial reporting controls and processes, and the adequacy and reliability of management information used during the financial reporting process. The GAC reviewed and approved the accounting policies of the group as reported in the annual financial statements, monitoring the consistency of application and compliance with accounting standards. The GAC also reviewed and approved the related group policies (Finance and Accounting Risk policy, Taxation policy and Regulatory Reporting policy). The GAC further assessed and confirmed the appropriateness of the going-concern assumption used in the annual financial statements, taking into account management budgets and the capital and the liquidity profiles. The GAC also: ■ received a summary of the key technical accounting matters from the CFo for consideration as well as a summary of critical accounting judgements and estimates made during the financial reporting process; ■ received input where there have been substantive discussions between management and the external auditors; and ■ discussed all key areas of judgement with management and the external auditors. The GAC satisfied itself as to the expertise, resources and experience of the finance function, as well as the appropriateness of the expertise and experience of the CFo in terms of the JSE Listings Requirements. over the past year and a half, there have been significant changes in reporting by audit committees in the United Kingdom, driven by regulatory and stakeholder requirements for greater transparency from audit committees in reporting the matters that the audit committee considered to be significant to the financial statements and how they addressed these matters. The GAC considered the UK audit committee reporting developments to be best practice and have chosen to adopt them in the current year. Key areas of management judgement applied in the preparation of the financial statements and assessed by the GAC in the current year are: ■ Fair value of financial instruments – The GAC reviewed reports from the CFo regarding the Investment Committee review of investment valuations and details of critical valuation judgements applied to the valuation of group treasury and trading instruments. Financial instruments and investments are disclosed in notes 35 and 36 to the financial statements and in the accounting policy discussed in note 1.5 to the financial statements. ■ taxation-related matters – The GAC reviewed reports from the CFo regarding the tax computation and, where applicable, levels of judgement in determining tax accrual and the deferred tax balance. The taxation expense and related balances are disclosed in note 11. ■ Credit risk provisions – The GAC reviewed reports from the Group Credit Committee regarding the level and appropriateness of impairments, provisioning methodologies, and related key judgements in determining the impairment balances.  ■ Impairment considerations for goodwill, intangible assets and associate investments – The GAC reviewed reports from the CFo regarding the annual goodwill impairment assessment, the consideration of impairment applied to certain intangible assets, and related assumptions and judgements and the consideration of the indicators of impairment for associate investments. The methodology used by the group for goodwill impairment testing is set out in note 1.7 to the financial statements. ■ employee benefits – The GAC reviewed reports from the CFo regarding the valuation of postretirement medical aid and pension fund obligations by independent actuaries and the level of judgement applied in those actuarial valuations. Details of the key assumptions used are set out in note 3.6 to the financial statements. In future, our external auditors will be required to report key audit matters in their report, those matters that in the auditors’ judgement were of most significance in their audit. Those key audit matters may include the key areas of management judgement described above or may extend to other matters. The GAC will continue to provide information in their report to allow users of the financial statements to understand how the GAC considered and evaluated the significant matters described by the external auditors. Regulatory reporting process The GAC reviewed the adequacy of the regulatory reporting processes as required by the Banks Act, which includes evaluation of the quality of reporting and the adequacy of systems and processes, and consideration of any findings regarding the regulatory reports by the external auditors. The GAC also hosts an annual trilateral meeting with representatives of the Bank Supervision Department of the South African Reserve Bank (SARB) where, among other things, key external audit findings, internal audit matters and reporting responsibilities in terms of the regulations are discussed and the SARB provides feedback on industry-related issues. Internal Audit Internal Audit performs an independent assurance function and forms part of the third line of defence as set out in the ERMF in the integrated report. The CIA has a functional reporting line to the committee chairman and an operational reporting line to the CEo. The GAC, with respect to its evaluation of the adequacy and effectiveness of internal controls, receives reports from the CIA, assesses the effectiveness of the group internal audit function and reviews and approves the Group Internal Audit plan. In particular the GAC: ■ ensured that the CIA has a direct reporting line to the chairman of the GAC; ■ reviewed and recommended the Internal Audit Charter for approval by the board of directors; ■ monitored the effectiveness of the internal-audit function in terms of its scope, execution of its plan, coverage, independence, skills, staffing, overall performance and position within the organisation; and ■ monitored and challenged, where appropriate, action taken by management with regard to adverse internal-audit findings. External auditors The group's external auditors are Deloitte & Touche and KpMG. The GAC has a well-established policy on auditor independence and audit effectiveness. During the period the GAC: ■ recommended to the board the selection of the external auditors and the approval of their audit fees for the year under review; ■ approved the external auditors' annual plan and related scope of work, confirming suitable reliance on Group Internal Audit and the appropriateness of key audit risks identified and related audit effort; and ■ monitored the effectiveness of the external auditors in terms of their skills, independence, execution of the audit plan, reporting and overall performance. ■ further annual review of the quality of the audit and the performance of the joint external auditors was performed by Internal Audit by analysing critical competencies expected of the external auditors through interviews with and the responses to questionnaires by key finance staff, Group Internal Audit members central to the assessment process and members of the GAC. However, the external auditors may provide non-audit services that do not interfere with their independence and where their skills and experience make them a logical supplier, subject to preapproval by the committee. The GAC received regular reports as to the scope and quantum of non-audit services proposed and delivered and confirmation from the external auditors that their independence (in respect of audit services and non-audit services) has not been impaired. Fees paid to the auditors are disclosed in note 8 to the annual financial statements. During the period under review Nedbank Group's ultimate holding company, old Mutual plc, invited tenders for its external audit. Although the Nedbank Group audit was not itself required to be the subject of a tender, the GAC did support the old Mutual plc process by evaluating, in respect of Nedbank Group, the tender participants determined by old Mutual plc and reporting observations for consideration to old Mutual plc. old Mutual plc subsequently confirmed that KpMG had been retained as their external auditors and therefore, since KpMG is one of our joint external auditors, there were no implications for Nedbank Group. The GAC considered the independence of the joint external auditors on an ongoing basis during the year. The GAC also examined the auditors' proposed audit plan in July and assessed their skills, reporting and overall performance based on a formal review following the year end audit. It was confirmed that the joint external auditors were effective, and they were recommended to the board for reappointment in 2015. Key focus areas for 2015 ■ Review and consideration of management plans in respect of future changes to the International Financial Reporting Standards (IFRS), most notably: … IFRS 9: Financial Instruments, which comprises three main sections, namely classification and measurement of financial assets and financial liabilities, impairment methodology and hedge accounting. This standard will be effective from 1 January 2018 and is expected to have a significant impact on impairment methodologies in banking across the globe. … IFRS 15: This standard relates to revenue from contracts with clients and although significant and very relevant to the group, it is not expected to bring material changes when it becomes effective on 1 January 2017. ■ Monitoring of major technology implementations, the largest of which was the SAp ERp program undertaken in 2014 and implemented early in 2015, impacting the entire financial accounting control environment. ■ Continued focus on ensuring that the group's financial systems, processes and controls are operating effectively, are consistent with the group's complexity and are responsive to changes in the environment and industry. Annual financial statements and integrated reporting process The GAC reviewed and discussed the audited annual financial statements with the CFo, the CE, the CRo, Internal Audit and the external auditors. The GAC assessed, and found to be effective and appropriate, the financial reporting process and controls that led to the compilation of the annual financial statements as well as the presentation and disclosure in the annual financial statements with regard to the approved accounting policies, IFRS and the requirements for fair presentation of the Companies Act. The GAC reviewed and discussed the integrated report reporting process, governance and financial information included in the integrated report after considering recommendations received from the Group Transformation, Social and Ethics Committee, the Group Remuneration Committee, the Group Risk and Capital Management Committee and the Group Directors' Affairs Committee. The GAC recommended to the board that the annual financial statements and the financial information included in the integrated report be approved. The board subsequently approved the annual financial statements and the integrated report, which will be open for discussion at the forthcoming annual general meeting. The GAC also approved the Non-audit Services policy that specifies that the external auditors are precluded from engaging in non-audit services that would compromise their independence or violate any professional requirements or regulations affecting their appointment as auditors. Malcolm Wyman Group Audit Committee Chairman 20 February 2015 11 NedbaNk LIMITed annual reportREpoRT FRoM oUR DIRECToRS for the year ended 31 December 2014 The board of directors have pleasure in presenting the annual financial statements of Nedbank Limited for the year ended 31 December 2014. During the period under review, and also subsequent to year-end, the following changes occurred to the Nedbank Board: Nature of business Nedbank Limited ('Nedbank' or 'the company') is a registered bank that, through its subsidiaries, provides a wide range of banking and financial services. Nedbank maintains a primary listing of its non- redeemable, non-cumulative, non-participating preference shares under 'preference Shares' on JSE Ltd (the JSE). Annual financial statements Details of the financial results are set out on pages 16 to 118 of the annual financial statements, which have been prepared under the supervision of the Nedbank Chief Financial officer, Mrs RK Morathi, and audited in compliance with the Financial Reporting Guides as issued by the Accounting practices Committee, and the requirements of the Companies Act, 71 of 2008 (as amended) and the JSE Listings Requirements. Year under review The year under review is fully covered in the Chairman's Review, Chief Executive's Review and the Chief Financial officer's Review in the 2014 Nedbank Group Integrated Report. Share capital Details of the authorised and issued share capital, together with details of shares issued during the year, appear in note 29 to the annual financial statements. Ownership The holding company of Nedbank is Nedbank Group Ltd (‘Nedbank Group’), whose holding company is old Mutual Life Assurance Company (SA) Limited and associates. Nedbank Group holds 100% of the issued ordinary shares of the company. The ultimate holding company is old Mutual plc, incorporated in England and Wales. Further details of shareholders appear in note 52 to the annual financial statements. Dividends Details of the dividends appear in note 13 to the annual financial statements. Directors Biographical details of the current directors appear in the Board of directors section. Details of directors' and prescribed officers’ remuneration and Nedbank Group shares and Nedbank non- redeemable, non-cumulative, non-participating preference shares issued to directors and prescribed officers appear in the Reporting back on remuneration section. ■ David Adomakoh was appointed as a non-executive director on 21 February 2014; ■ Mantsika Matooane was appointed as a non-executive director on 15 May 2014; ■ Brian Dames was appointed as a non-executive director on 30 June 2014; ■ paul Hanratty was appointed as a non-executive director on 8 August 2014; ■ Mfundo Nkuhlu was appointed as an executive director and Chief operating officer on 1 January 2015; ■ Graham Dempster stood down as the Chief operating officer on 1 January 2015, but remained on the board as an executive director; and In terms of Nedbank’s memorandum of incorporation, not less than one-third of the directors are required to retire at each Nedbank annual general meeting and may offer themselves for election or reelection. The directors so retiring are firstly those directors appointed by the Nedbank board since the last annual general meeting, and thereafter those longest in office since their last election. Brian Dames, paul Hanratty, Mantsika Matooane, Mfundo Nkuhlu and Vassi Naidoo were appointed by the board of directors since the previous Nedbank annual general meeting and, in terms of the  memorandum of incorporation, their appointments terminate at the close of the meeting. They are available for election. Nomavuso Mnxasana and Mpho Makwana are also required to seek reelection at the annual general meeting. The aforementioned directors make themselves available for reelection and separate resolutions will be submitted for approval at the annual general meeting to be held on 7 May 2015. In terms of Nedbank Group policy, as applied by Nedbank, non- executive directors and independent non-executive directors of Nedbank who have served on the board for a period longer than nine years are required to retire. Reuel Khoza, Mustaq Enus-Brey and Gloria Serobe were appointed to the Nedbank board on 16 August 2005 and they will retire at the close of the Nedbank Group annual general meeting on 11 May 2015. The board has resolved to elect Vassi Naidoo as Chairman of Nedbank immediately after the close of the Nedbank Group annual general meeting, subject to Nedbank shareholders having elected him as a non-executive director. Graham Dempster has reached the retirement age for executive directors and he also retires from the Nedbank board at the close of the Nedbank Group annual general meeting. 12 Details of the members of the board who served during the year and at the reporting date are given below: Name Position as director Date appointed as director DKT Adomakoh Non-executive director 21 February 2014 Date resigned/retired as director (where applicable) TA Boardman MWT Brown BA Dames GW Dempster MA Enus-Brey ID Gladman pB Hanratty RJ Khoza pM Makwana MA Matooane Np Mnxasana RK Morathi JK Netshitenzhe MC Nkuhlu Non-executive director Chief Executive Non-executive director Executive director Non-executive director Non-executive director Non-executive director Chairman and non-executive director Non-executive director Non-executive director Non-executive director Chief Financial officer and executive director 1 November 2002 (1 March 2010 as non-executive) 17 June 2004 30 June 2014 5 August 2009 16 August 2005 7 June 2012 8 August 2014 16 August 2005 17 November 2011 15 May 2014 1 october 2008 1 September 2009 Non-executive director 5 August 2010 Chief operating officer and executive director JVF Roberts (British) Non-executive director GT Serobe Non-executive director 1 January 2015 1 December 2009 16 August 2005 MI Wyman (British) Senior independent director 1 August 2009 Vassi Naidoo was appointed as a non-executive director and Chairman designate with effect from 1 May 2015. Directors' interests Nedbank Group holds the issued ordinary shares. The directors' interests in ordinary shares in Nedbank Group and non- redeemable, non-cumulative preference shares in Nedbank at 31 December 2014 are set out in the Reporting back on remuneration section. The directors had no interest in any third party or company responsible for managing any of the business activities of the group. Banking transactions with directors are entered into in the normal course of business under terms that are no more favourable than those arranged with third parties. The Company Secretary’s addresses and the registered office are as follows: Business address Registered address Postal address Nedbank Limited 135 Rivonia Road Nedbank Limited Nedbank 135 Rivonia Campus Sandown, Sandton 2196 po Box 1144 Johannesburg, 2000 135 Rivonia Road SA SA Sandown, Sandton, 2196 SA Audit Committee and Group Transformation, Social and Ethics Committee Reports Property and equipment The report from our Group Audit Committee appears on pages 10 and 11 and the Report from Group Transformation, Social and Ethics Committee Chair appears in the Nedbank Group Integrated Report. There was no material change in the nature of the fixed assets of Nedbank or its subsidiaries or in the policy regarding their use during the year. Company Secretary and registered office The board of directors have conducted an assessment of the Company Secretary and is satisfied that Mr Jali is suitably competent, qualified and experienced and has adequately and effectively performed the role and duties of a company secretary. Mr Jali has direct access to, and ongoing communication with, the Chairman of the board. Mr Jali is not a director of the company and the board is satisfied that as far as is reasonably possible, an arms-length relationship between the Company Secretary and the board is intact. Political donations Nedbank Group has an established policy of not making donations to any political party. Contracts and matters in which directors and officers of the company have an interest No contracts in which directors and officers of the company had an interest and that significantly affected the affairs or business of the company or any of its subsidiaries were entered into during the year. Details of Mr Jali’s qualifications and experience appear in the Established and admired leadership teams section of the 2014 Nedbank Group Integrated Report. In 2005 the WIpHoLD Consortium and the Brimstone Consortium were chosen as active black business partners to assist in growing and repositioning the Nedbank Group business and driving its internal 13 NedbaNk LIMITed annual reportREpoRT FRoM oUR DIRECToRS (continued) transformation. Consequently, performance agreements were entered into between Nedbank Group and the aforementioned parties, which govern, inter alia, the setting of the performance criteria, their evaluation and the resultant performance fees in respect of the black business partners. Mrs GT Serobe is founder, executive director and 9% shareholder of Women Investment portfolio Holdings Limited (WIpHoLD) and Chief Executive of Wipcapital (proprietary) Limited, a wholly owned subsidiary of WIpHoLD. Mr MA Enus-Brey is Chief Executive officer and 8,83% shareholder of Brimstone Investment Corporation Limited and a director of various Brimstone subsidiary companies. The WIpHoLD Financial Services Number Two Trust and the Brimstone-Mtha Financial Services Trust matured on 1 January 2015. Also in 2005, Aka Capital (pty) Limited (‘Aka Capital’), in which Dr  RJ  Khoza is a director and 27% shareholder, was appointed as business development partner of Nedbank Group and a performance agreement was similarly entered into between Nedbank Group and Aka Capital. The Aka-Nedbank Eyethu Trust subsequently matured on 1 January 2011. Mr JK Netshitenzhe is an executive director of the Mapungubwe Institute for Strategic Reflection (Mistra). In 2014 Mistra, received a grant of R1m (2013: R2m) from the Nedbank Eyethu Community Trust (formed in 2005 as part of Nedbank Group’s BEE transaction). The Nedbank Eyethu Community Trust provides funding to charitable or non–profit organisations that qualify. The grant to Mistra was evaluated against the normal criteria for funding by the trust. Directors' and prescribed officers’ service contracts There are no service contracts with the directors of the company, other than for the chairman and executive directors as set out below. The directors who entered into these service contracts remain subject to retirement by rotation in terms of Nedbank’s memorandum of incorporation. The key responsibilities relating to Reuel Khoza's position as Chairman of Nedbank Group, and similarly for Vassi Naidoo who is the Chairman- designate, are encapsulated in contracts. Service contracts have been entered into for Messrs MWT Brown, GW Dempster, MC Nkuhlu and Ms RK Morathi. These service contracts are effective until the executive directors reach the normal retirement age and stipulate a maximum notice period of six months (12 months for Mr Brown) under most circumstances. Details relating to the service contracts of prescribed officers are incorporated in the Reporting back on remuneration section. Insurance The group has placed cover in the London insurance market for up to R2.55bn for losses in excess of R50m. Group captive insurers provide cover for total losses below the R50m level engagement point, retaining R100m, in any one year. Selected insurance covers are placed with the old Mutual Group. Subsidiary companies Details of principal subsidiary companies are reflected in note 52 to the annual financial statements at nedbankgroup.co.za. Special resolutions by subsidiaries: ■ 6 March 2014 by Depfin Investments (pty) Ltd for the creation and allotment of 90 Class E and 287 Class F cumulative non- convertible no par value preference shares. ■ 17 March 2014 by Fidelity Nominees (RF) (pty) Ltd for the adoption of a new memorandum of incorporation, conversion to a private company, and adding (RF) to the company’s name. ■ 24 March 2014 by Morened (pty) Ltd for the adoption of a new memorandum of incorporation and conversion to a private company. ■ 4 April 2014 by Bene Inventa (pty) Ltd for the adoption of a new memorandum of incorporation. ■ 6 June 2014 by Nedcor Investments Ltd for the adoption of a new memorandum of incorporation. ■ 6 June 2014 by Nedgroup Investment 102 Ltd for the adoption of a new memorandum of incorporation. ■ 11 August 2014 by Depfin Investments (pty) Ltd for the subdivision of 400 Class C cumulative non-convertible no par value preference shares into 400 000 Class C cumulative non-convertible no par value preference shares and for the subdivision of 400 Class D cumulative non-convertible no par value preference shares into 400 000 Class D cumulative non-convertible no par value preference shares. ■ 3 June 2014 by Nedcor Bank Nominees (RF) (pty) Ltd for the adoption of a new memorandum of incorporation, conversion to a private company and adding (RF) to the company’s name. ■ 18 June 2014 by BoE Holdings (pty) Ltd for the adoption of a new memorandum of incorporation and conversion to a private company. ■ 10 November 2014 by Eighty one Main Street Nominees (RF) (pty) Ltd for the adoption of a new memorandum of incorporation, conversion to a private company and adding (RF) to the company’s name. ■ 8 December 2014 by The Board of Executors Mortgages (pty) Ltd for the adoption of a new memorandum of incorporation. ■ 22 December 2014 by Depfin Investments (pty) Ltd for the creation and allotment of 600 Class H cumulative non-convertible no par value preference shares and for the creation and allotment of 100 Class I cumulative non-convertible no par value preference shares. Acquisition of shares No shares in Nedbank were acquired by Nedbank or by a Nedbank subsidiary during the financial year under review. Events after the reporting period on 15 January 2015 Nedbank Limited's unsecured subordinated NEDH1A and NEDH1B notes were redeemed and R225m of new-style tier 2 debt instruments issued. A further R5,4bn of senior unsecured debt was issued on 12 February 2015. 14 INDEpENDENT AUDIToRS’ REpoRT To THE SHAREHoLDERS oF NEDBANK LIMITED We have audited the consolidated financial statements of Nedbank Limited set out on pages 16 to 118, which comprise the statement of financial position as at 31 December 2014, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and the notes, comprising a summary of significant accounting policies and other explanatory information. DIRECTORS’ RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS The company’s directors are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. AUDITORS’ RESPONSIBILITY our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. OPINION In our opinion, these consolidated financial statements present fairly, in all material respects, the consolidated financial position of Nedbank Limited at 31 December 2014, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. OTHER REPORTS REQUIRED BY THE COMPANIES ACT As part of our audit of the consolidated financial statements for the year ended 31 December 2014, we have read the Directors’ Report, the Audit Committee’s Report and the Company Secretary’s Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited consolidated financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies between these reports and the audited consolidated financial statements. However, we have not audited these reports and accordingly do not express an opinion on these reports. KpMG Inc. Registered Auditor per Heather Berrange Chartered Accountant (SA) Director KpMG Crescent 85 Empire Road parktown, Johannesburg 2193 Deloitte & touche Registered Auditor per Mgcinisihlalo Jordan Chartered Accountant (SA) partner Building 8, Deloitte place The Woodlands, Woodlands Drive Woodmead, Sandton 2128 The company’s principal place of business is at KpMG Crescent, 85 Empire Road, parktown, where a list of the directors’ names is available for inspection. A full list of partners and directors is available on request. Sandown 20 February 2015 15 NedbaNk LIMITed annual reportCoNSoLIDATED STATEMENT oF CoMpREHENSIVE INCoME for the year ended 31 December Interest and similar income Interest expense and similar charges net interest income Impairments charge on loans and advances Income from lending activities Non-interest revenue operating income Total operating expenses Indirect taxation profit from operations before non-trading and capital items Non-trading and capital items Fair-value adjustments of investment properties profit from operations Share of profits of associate companies and joint arrangements profit before direct taxation Direct taxation profit for the year other comprehensive income net of taxation Items that may be reclassified subsequently to profit or loss – Exchange differences on translating foreign operations – Fair-value adjustments on available-for-sale assets Items that may not be reclassified subsequently to profit or loss – Gains on property revaluations – Remeasurements on long-term employee benefit assets total comprehensive income for the year profit attributable to: – ordinary and preference equity holders – Non-controlling interest – ordinary shareholders total comprehensive income attributable to: – ordinary and preference equity holders – Non-controlling interest – ordinary shareholders total comprehensive income for the year Accounting policy 1.23 1.23 1.5 1.21, 1.23 1.23 1.10 1.3 1.6 1.4 1.5 1.9 1.8 1.3 1.3 1.3 1.3 Notes 5 6 19.1 7 8 9 10 25.1 11.1 2014 rm 50 075 28 322 21 753 4 478 17 275 16 196 33 471 22 031 522 10 918 (96) 10 822 12 10 834 2 786 8 048 126 14 (113) 163 62 8 174 7 998 50 8 048 8 123 51 8 174 2013 Rm 44 107 23 873 20 234 5 529 14 705 15 466 30 171 20 199 480 9 492 (59) 4 9 437 28 9 465 2 297 7 168 932 96 (108) 218 726 8 100 7 152 16 7 168 8 084 16 8 100 16 CoNSoLIDATED STATEMENT oF FINANCIAL poSITIoN at 31 December 2014 ASSetS Cash and cash equivalents other short-term securities Derivative financial instruments Government and other securities Loans and advances¹ other assets Current taxation assets Investment securities Non-current assets held for sale Investments in private-equity associates, associate companies and joint arrangements Deferred taxation assets Investment property property and equipment Long-term employee benefit assets Mandatory reserve deposits with central banks Intangible assets total assets equIty AnD lIABIlItIeS ordinary share capital ordinary share premium Reserves total equity attributable to equity holders of the parent preference share capital and premium Non-controlling interest attributable to ordinary shareholders total equity Derivative financial instruments Amounts owed to depositors² provisions and other liabilities Current taxation liabilities Deferred taxation liabilities Long-term employee benefit liabilities Long-term debt instruments total liabilities total equity and liabilities ¹ Included in loans and advances are loans to fellow subsidiaries amounting to R18.6bn (2013: R17.0 bn). ² Included in amounts owed to depositors are deposits from fellow subsidiaries amounting to R11.4bn (2013: R8.5bn). Accounting policy 1.5, 1.25 1.5 1.5 1.5 1.5 1.5 1.6 1.5 1.11 1.3, 1.5 1.6 1.10 1.9, 1.19 1.8 1.5, 1.25 1.3, 1.7, 1.12 1.15, 1.16 1.15 1.4, 1.14 1.15 1.3 1.5 1.5 1.5, 1.13 1.6 1.6 1.8 1.5 Notes 14 15 16 17 18 20 21 23 22 24 25 26 27 14 28 29.1 29.2 16 30 31 24 27 32 2014 rm 10 757 56 322 15 644 26 828 2013 Rm 17 467 35 004 13 811 31 279 603 329 566 047 5 393 236 2 369 16 1 158 165 7 459 4 409 14 843 4 516 4 204 340 2 932 12 1 098 69 87 6 571 2 847 13 199 4 188 753 444 699 155 27 17 422 34 787 52 236 3 561 183 55 980 15 479 634 623 8 404 35 287 3 002 35 634 697 464 753 444 27 17 422 30 524 47 973 3 561 141 51 675 16 588 585 497 10 016 13 297 1 804 33 265 647 480 699 155 17 NedbaNk LIMITed annual reportCoNSoLIDATED STATEMENT oF CHANGES IN EQUITY for the year ended 31 December number of ordinary shares ordinary share capital rm ordinary share premium rm Foreign currency translation reserve1 rm property revaluation reserve2 rm 27 241 024 27 17 422 87 1 346 96 (35) 218 (27) 27 241 024 27 17 422 148 1 537 3 561 14 163 (36) Balance at 31 December 2012 preference share dividend Dividend to shareholders Total comprehensive income for the year Transfer (from)/to reserves Share-based payments reserve movement Disposal of subsidiary Regulatory risk reserve provision other movements Balance at 31 December 2013 preference share dividend Dividend to shareholders Total comprehensive income for the year Transfer (from)/to reserves Share-based payments reserve movement Regulatory risk reserve provision other movements Balance at 31 December 2014 27 241 024 27 17 422 162 1 664 16 33 380 52 236 3 561 183 55 980 ¹  This represents the cumulative foreign exchange differences that arise on the translation of an entity with a different functional currency compared with the presentation currency of the parent company. The cumulative reserve relating to a subsidiary that is disposed of is included in the determination of profit/loss on disposal of the subsidiary. ²  This represents the cumulative amounts that have been recognised on the revaluation of group properties net of deferred taxation. When the property is disposed of, the cumulative revaluation surplus is transferred directly to retained income. ³  All share-based payment expenses are recognised in the statement of comprehensive income, with the corresponding amount recognised in share-based payment reserves. Any excess tax benefit over the relative tax on the share-based payments expense is recognised directly in this reserve. On the expiry or exercise of a share-based instrument the cumulative amount recognised in this respect is transferred directly to other distributable reserves. The negative share-based payment reserve arises from the grants paid by Nedbank Limited to various share schemes to acquire Nedbank Group Limited shares, which is recognised directly in equity. The reconciliation shown in this note is the cumulative share-based payment charge for all share schemes. ⁴ Represents other non-distributable revaluation surplus on capital items and non-distributable reserves transferred from other distributable reserves in order to comply with various banking regulations. ⁵  This comprises all fair-value adjustments, net of the related tax on all financial assets that have been classified as available for sale. On the disposal or impairment of available-for-sale financial assets the cumulative gains and the associated tax recognised on these instruments are recognised in profit and loss for the period and are not included in the determination of headline earnings per share. ⁶ Represents the accumulated profits after distributions to shareholders and appropriation of retained earnings to other non-distributable earnings. All movements are reflected net of taxation. reserves Share-based payments reserve3 rm (401) distributable Available-for- distributable equity holders reserves4 sale reserve5 reserves6 of the parent total equity other attributable to non-controlling interest attributable to ordinary shareholders total equity preference share capital and premium rm 3 561 other non- rm 73 11 (4) 80 (7) 7 80 (11) 49 (363) (7) (145) (515) rm 237 (108) 129 (113) rm 24 798 (292) (3 450) 7 878 62 (3) 28 993 (323) (3 400) 8 059 50 1 rm 43 589 (292) (3 450) 8 084 49 (4) (3) 47 973 (323) (3 400) 8 123 (145) 7 1 rm 136 (8) 16 (3) 141 (9) 51 rm 47 286 (292) (3 458) 8 100 49 (3) (4) (3) 51 675 (323) (3 409) 8 174 (145) 7 1 18 number of share capital share premium reserve1 ordinary ordinary translation ordinary shares 27 241 024 rm 27 rm 17 422 27 241 024 27 17 422 148 1 537 Foreign currency rm 87 96 (35) property revaluation reserve2 rm 1 346 218 (27) 14 163 (36) reserves Share-based payments reserve3 rm (401) (11) 49 (363) (7) (145) (515) other non- distributable reserves4 rm Available-for- sale reserve5 rm other distributable reserves6 rm total equity attributable to equity holders of the parent rm preference share capital and premium rm non-controlling interest attributable to ordinary shareholders rm total equity rm 73 11 (4) 80 (7) 7 80 237 (108) 129 (113) 24 798 (292) (3 450) 7 878 62 (3) 28 993 (323) (3 400) 8 059 50 1 43 589 (292) (3 450) 8 084 49 (4) (3) 47 973 (323) (3 400) 8 123 (145) 7 1 3 561 136 (8) 16 (3) 141 (9) 51 3 561 47 286 (292) (3 458) 8 100 49 (3) (4) (3) 51 675 (323) (3 409) 8 174 (145) 7 1 16 33 380 52 236 3 561 183 55 980 Balance at 31 December 2012 preference share dividend Dividend to shareholders Total comprehensive income for the year Transfer (from)/to reserves Share-based payments reserve movement Disposal of subsidiary Regulatory risk reserve provision other movements Balance at 31 December 2013 preference share dividend Dividend to shareholders Total comprehensive income for the year Transfer (from)/to reserves Share-based payments reserve movement Regulatory risk reserve provision other movements Balance at 31 December 2014 27 241 024 27 17 422 162 1 664 ¹  This represents the cumulative foreign exchange differences that arise on the translation of an entity with a different functional currency compared with the presentation currency of the parent company. The cumulative reserve relating to a subsidiary that is disposed of is included in the determination of profit/loss on disposal of the subsidiary. ²  This represents the cumulative amounts that have been recognised on the revaluation of group properties net of deferred taxation. When the property is disposed of, the cumulative revaluation surplus is transferred directly to retained income. ³  All share-based payment expenses are recognised in the statement of comprehensive income, with the corresponding amount recognised in share-based payment reserves. Any excess tax benefit over the relative tax on the share-based payments expense is recognised directly in this reserve. On the expiry or exercise of a share-based instrument the cumulative amount recognised in this respect is transferred directly to other distributable reserves. The negative share-based payment reserve arises from the grants paid by Nedbank Limited to various share schemes to acquire Nedbank Group Limited shares, which is recognised directly in equity. The reconciliation shown in this note is the cumulative share-based payment charge for all share schemes. ⁴ Represents other non-distributable revaluation surplus on capital items and non-distributable reserves transferred from other distributable reserves in order to comply with various banking regulations. ⁵  This comprises all fair-value adjustments, net of the related tax on all financial assets that have been classified as available for sale. On the disposal or impairment of available-for-sale financial assets the cumulative gains and the associated tax recognised on these instruments are recognised in profit and loss for the period and are not included in the determination of headline earnings per share. ⁶ Represents the accumulated profits after distributions to shareholders and appropriation of retained earnings to other non-distributable earnings. All movements are reflected net of taxation. 19 NedbaNk LIMITed annual reportCoNSoLIDATED STATEMENT oF CASHFLoWS for the year ended 31 December Cash generated by operations Cash received from clients Cash paid to clients, employees and suppliers Dividends received on investments Recoveries on loans previously written off Change in funds for operating activities Increase in operating assets Increase in operating liabilities net cash from operating activities before taxation Taxation paid Cashflows (utilised by)/from operating activities Cashflows utilised by investing activities Acquisition of property and equipment, computer software and development costs and investment property Disposal of property and equipment, computer software and development costs and investment property Net movement on non-current assets held for sale Disposal of investment banking assets Acquisition of private-equity associates, associate companies and joint arrangements Disposal of private-equity associates, associate companies and joint arrangements Acquisition of other investments Disposal of other investments Cashflows utilised by financing activities Issue of long-term debt instruments Redemption of long-term debt instruments Dividends paid to ordinary shareholders preference share dividends paid effects of exchange rate changes on opening cash and cash equivalents (excluding foreign borrowings) net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year² Cash and cash equivalents at the end of the year² ¹ Represents amounts less than R1m. ² Including mandatory reserve deposits with central banks. Notes 33.1 33.2 33.3 33.4 33.5 33.6 33.7 14 2014 rm 18 386 66 220 2013 Rm 17 772 59 522 (48 803) (42 665) 40 929 (16 624) (64 065) 47 441 1 762 (3 463) (1 701) (2 011) 37 878 (7 076) (53 704) 46 628 10 696 (3 059) 7 637 (1 427) (2 439) (1 678) 45 (4) 11 (181) 133 (174) 598 (1 354) 7 004 (4 635) (3 400) (323) 6 496 14 (121) 80 (1 142) 918 (772) 8 785 (5 815) (3 450) (292) 1 1 (5 066) 30 666 25 600 5 438 25 228 30 666 20 SEGMENTAL REpoRTING for the year ended 31 December The group’s identification of its segments and the measurement of segment results are based on the group’s internal management reporting as used for day-to-day decisionmaking and as reviewed by the chief operating decisionmaker, which in Nedbank Limited’s case is the Group Executive Committee. The segments have been identified according to the nature of their respective products and services and their related target markets. Nedbank Capital Nedbank Capital comprises the group’s investment banking businesses that together manage the structuring, lending, underwriting and trading businesses. Nedbank Capital seeks to provide seamless specialist advice, debt and equity raising and execution and trading capabilities in all the major SA business sectors. Nedbank Corporate Nedbank Corporate comprises the client-focused businesses of Corporate Banking, property Finance as well as the specialist support areas of Transactional Banking and Corporate Shared Services. These businesses focus mainly on providing lending, deposit-taking, commercial property finance and transactional banking to large corporates, financial institutions, the public sector and government clients. Corporate Banking engages with companies that have annual turnovers exceeding R700m (with strategic exceptions) and lending requirements greater than R50m. This target market also includes the public sector and strategic BEE partnerships. property Finance specialises in providing specifically structured property finance solutions to commercial, industrial, retail, residential and affordable housing developments as well as partnerships through joint ventures or minority equity investments. Transactional Banking supports the wholesale clusters and segments of retail with business solutions, transactional product solutions and innovation, and is also responsible for managing our correspondent banking relationships. Corporate Shared Services is the delivery and service centre for transactional processing. It also houses Nedbank Investor Services (NIS) through which it provides custodial services and secured lending to the collective investments industry. Nedbank Retail Nedbank Retail serves the financial needs of all individuals (excluding high-net-worth individuals) and small businesses with a turnover of up to R10m, to whom it offers a full spectrum of banking and assurance products and services. The Nedbank Retail product portfolio includes transactional accounts, home loans, vehicle and asset finance [including Motor Finance Corporation], card (both card-issuing and merchant-acquiring services), personal loans and investments. Nedbank Business Banking Nedbank Business Banking offers the full spectrum of commercial banking products and related services to companies with an annual turnover of up to R700m. Nedbank Wealth Nedbank Wealth provides a range of financial services through three divisions of Wealth Management, Asset Management and Insurance. The cluster has operations in SA, London, on the Isle of Man, Jersey, Guernsey and the UAE. Nedbank Wealth creates, manages and protects the wealth of a wide spectrum of clients ranging from high-net-worth individuals all the way through to the entry level market. Rest of Africa Division The Rest of Africa Division is responsible for the group’s banking operations and expansion activities in the rest of Africa. The Rest of Africa Division has client-facing subsidiaries (retail and wholesale banking) in Lesotho, Malawi, Namibia, Swaziland and Zimbabwe and an investment, with management control, in a bank in Mozambique. The division also holds the 20,7% investment in Ecobank Transnational Incorporated, manages the Ecobank-Nedbank alliance and facilitates investments in other countries in Africa. Centre The centre is an aggregation of business operations that provide various support services to Nedbank Group Ltd, which includes the following clusters: Group Finance, Group Technology, Group Strategic planning and Economics, Group Human Resources, Enterprise Governance and Compliance, Group Risk and Group Marketing, Communications and Corporate Affairs. The centre also includes Group Balance Sheet Management which is responsible for capital management, liquidity and funding management, the management of banking book interest rate risk, margin management and strategic portfolio management. 21 NedbaNk LIMITed annual reportSEGMENTAL REpoRTING (continued) for the year ended 31 December Statement of financial position (Rm) Cash and cash equivalents other short-term securities Derivative financial instruments Government and other securities Loans and advances other assets Intergroup assets total assets equity and liabilities Total equity Derivative financial instruments Amounts owed to depositors provisions and other liabilities Long-term debt instruments Intergroup liabilities total equity and liabilities Statement of comprehensive income (Rm) Net interest income Impairments charge on loans and advances Income from lending activities Non-interest revenue operating income Total operating expenses Indirect taxation profit/(loss) from operations Share of profits/(losses) of associate companies and joint arrangements profit/(loss) before direct taxation Direct taxation profit/(loss) after direct taxation profit attributable to non-controlling interest: - ordinary shareholders - preference shareholders Headline earnings/(loss) Selected ratios nedbank ltd Fellow subsidiaries nedbank Capital nedbank Corporate Banking nedbank retail Banking nedbank Wealth rest of Africa Division Centre 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 total nedbank retail and nedbank Business nedbank Business 25 600 56 322 15 644 26 828 30 666 35 004 13 811 31 279 (2 650) (10 912) 71 (349) (3 407) (7 447) 421 (812) 2 619 10 986 3 435 2 755 2 932 2 616 2 932 2 616 29 414 30 969 15 551 10 084 13 327 9 635 (52) 5 926 (52) 6 117 – – – – 377 379 377 379 603 329 566 047 (9 692) (13 325) 105 601 109 549 199 557 175 274 268 882 258 220 203 063 195 435 65 819 62 785 14 073 14 700 25 721 22 348 (32 337) (25 869) 4 903 6 242 4 203 4 269 – – 753 444 699 155 (55 869) (50 439) 168 172 180 708 213 069 188 363 323 840 302 371 211 904 203 155 111 936 57 609 50 911 27 428 20 117 19 195 7 124 5 888 45 761 5 014 36 142 5 532 4 725 356 45 761 289 36 142 99 216 55 980 15 479 51 675 16 588 (14 931) (12 661) 6 891 5 863 10 606 8 514 27 565 26 683 22 109 21 903 5 456 4 780 2 830 2 487 3 549 1 998 19 470 18 791 7 8 15 429 16 546 – – 634 623 585 497 (18 827) (17 455) 137 391 106 226 182 009 176 234 224 103 201 928 118 134 107 931 105 969 93 997 11 728 12 130 (22 114) (20 328) 35 634 33 265 (4) (3) – – 6 626 1 159 676 6 372 1 051 1 558 2 042 44 650 18 896 1 573 3 373 1 775 3 002 1 994 2 862 1 775 2 563 1 994 67 024 68 764 67 024 68 764 511 439 753 444 699 155 (55 869) (50 439) 168 172 180 708 213 069 188 363 323 840 302 371 211 904 203 155 111 936 99 216 57 609 934 9 943 1 1 706 6 847 2 24 819 21 912 22 082 20 274 3 328 1 849 24 336 2 779 958 20 709 15 002 26 028 10 454 49 89 13 231 3 677 93 15 251 (453) (45 761) (36 142) 7 818 951 13 334 11 467 1 47 27 (8) 6 21 704 16 560 10 159 50 911 17 058 14 406 66 767 82 454 876 4 5 894 27 428 566 3 783 3 916 4 32 700 30 219 3 116 (103 517) (128 262) 20 117 19 195 7 124 21 753 4 478 17 275 16 196 33 471 22 031 522 20 234 (1 208) 5 529 14 705 15 466 30 171 20 199 480 (28) (1 180) (4 116) (5 296) (2 503) (113) (986) (36) (950) (3 895) (4 845) (2 220) (121) 10 918 9 492 (2 680) (2 504) 12 10 930 2 803 8 127 28 9 520 2 315 7 205 (149) 1 (2 829) (2 503) (684) (2 145) (718) (1 785) 50 – 16 – (19) (323) 8 077 7 189 (1 803) (12) (292) (1 481) 1 937 106 1 831 3 206 5 037 2 256 68 2 713 2 713 572 2 141 1 608 306 1 302 3 078 4 380 2 156 36 2 188 2 188 473 1 715 13 (11) 3 982 400 3 582 2 256 5 838 2 408 6 3 525 385 3 140 1 944 5 084 2 169 32 3 424 2 883 12 3 436 837 2 599 26 2 909 664 2 245 2 128 1 726 2 599 2 245 4 031 3 468 2 937 2 539 1 094 929 1 042 900 357 173 Average interest-earning banking assets (Rm) 644 737 595 249 (7 457) 534 117 151 97 506 193 751 173 642 306 401 289 113 198 343 193 027 108 058 96 086 32 351 27 455 18 920 17 207 (16 380) (10 208) Return on total assets (%) Return on ordinary shareholders' equity (%) Net interest income to average interest- earning banking assets (%) Non-interest revenue to total income (%) Non-interest revenue to total operating expenses (%) Credit loss ratio - banking advances (%) Efficiency ratio Effective taxation rate (%) Contribution to group economic profit Number of employees ¹ Includes all group eliminations. 1,11 12,5 3,37 42,7 73,5 0,82 11,7 25,6 1 215 1,06 12,2 3,40 43,3 76,6 1,10 8,7 24,3 1 136 28 872 27 875 1,18 30,9 1,65 62,3 142,1 0,14 43,9 21,1 1 198 665 1,11 29,4 1,65 65,7 142,7 0,51 46,0 21,6 963 683 1,30 24,5 2,06 36,2 93,7 0,21 38,5 24,4 1 167 2 123 1,25 26,4 2,03 35,5 89,7 0,23 39,5 22,8 1 138 2 186 (897) (1 627) (978) (1 638) The 2013 comparative results for the segmental reporting have been restated. The Rest of Africa Division is now reported separately, and Central Management and Shared Services are collectively reported as the Centre. The restatement has had no effect on the group results and ratios, and only affects segment results and ratios. Depreciation costs of R906m (2013: R841m) and amortisation costs of R644m (2013: R566m) for property, equipment, computer software and capitalised development are charged on an activity-justified transfer pricing methodology by the segment owning the assets to the segment utilising the benefits thereof. 22 15 216 3 771 11 445 10 530 21 975 16 076 243 5 656 – 5 656 1 562 4 094 14 314 4 765 9 549 10 380 19 929 14 824 242 4 863 – 4 863 1 357 3 506 11 720 3 500 8 220 8 820 17 040 12 689 215 4 136 11 206 4 355 6 851 8 651 15 502 11 705 217 3 580 4 136 1 136 3 000 3 580 1 003 2 577 – 63 – 38 63 38 1,24 14,6 4,97 40,9 65,5 1,39 62,4 27,6 310 1,16 13,0 4,95 42,0 70,0 1,80 60,0 27,9 – 1,42 13,3 5,91 42,9 69,5 1,70 61,8 27,5 (48) 1,27 11,6 5,81 43,6 73,9 2,16 58,9 28,0 (308) 17 153 3 496 271 3 225 1 710 4 935 3 387 28 1 520 1 520 426 1 094 1,01 20,1 3,24 32,9 50,5 0,42 65,1 28,0 358 3 108 410 2 698 1 729 4 427 3 119 25 1 283 1 283 354 929 0,96 19,4 3,24 35,7 55,4 0,65 64,5 27,6 308 300 153 147 153 300 54 186 60 60 73 (13) 4 260 (277) 441 441 203 644 (74) 160 558 2 560 149 411 (1) 254 158 4 26 122 17 626 11 027 628 41 587 3 399 3 986 2 484 102 1 400 1 400 358 1 042 1,91 36,8 1,94 84,4 0,17 61,7 25,6 660 2 119 52 40 531 59 472 3 081 3 553 2 218 108 1 227 (1) 1 226 326 900 1,95 36,2 1,93 85,3 0,28 61,4 26,6 577 2 056 898 35 863 768 1 631 1 256 30 345 149 494 85 409 1,58 10,1 4,75 46,1 61,2 0,23 69,2 17,2 (122) 1 605 801 50 751 675 1 426 1 126 23 277 277 64 213 0,90 8,7 4,66 45,7 59,9 0,37 76,3 23,1 (87) 1 501 136,9 138,9 20 373 19 499 18 026 2 347 2 346 (1 101) 3 614 (477) 3 588  nedbank ltd Fellow subsidiaries nedbank Capital nedbank Corporate total nedbank retail and nedbank Business Banking nedbank retail nedbank Business Banking nedbank Wealth rest of Africa Division Centre 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 25 600 56 322 15 644 26 828 30 666 35 004 13 811 31 279 (2 650) (10 912) 71 (349) (3 407) (7 447) 421 (812) 29 414 30 969 15 551 10 084 13 327 9 635 (52) 5 926 (52) 6 117 25 721 22 348 (32 337) (25 869) 4 903 6 242 4 203 4 269 2 619 10 986 3 435 2 755 2 932 2 616 2 932 2 616 – – – – 377 379 377 379 603 329 566 047 (9 692) (13 325) 105 601 109 549 199 557 175 274 268 882 258 220 203 063 195 435 65 819 62 785 753 444 699 155 (55 869) (50 439) 168 172 180 708 213 069 188 363 323 840 302 371 211 904 203 155 111 936 5 888 45 761 5 014 36 142 5 532 4 725 356 45 761 289 36 142 99 216 934 9 943 1 1 706 6 847 2 24 819 21 912 22 082 20 274 3 328 1 849 24 336 2 779 958 20 709 14 073 14 700 15 002 26 028 49 10 454 89 13 231 3 677 93 15 251 (453) 7 818 951 13 334 11 467 (45 761) (36 142) 57 609 50 911 27 428 20 117 19 195 7 124 (14 931) (12 661) 6 891 5 863 10 606 8 514 27 565 26 683 22 109 21 903 5 456 4 780 2 830 2 487 3 549 1 998 19 470 18 791 7 8 15 429 16 546 – – 634 623 585 497 (18 827) (17 455) 137 391 106 226 182 009 176 234 224 103 201 928 118 134 107 931 105 969 93 997 11 728 12 130 (22 114) (20 328) 35 634 33 265 (4) (3) 1 558 2 042 – – 44 650 18 896 1 573 3 373 1 775 3 002 1 994 2 862 1 775 2 563 1 994 67 024 68 764 67 024 68 764 511 439 4 26 122 17 626 11 027 753 444 699 155 (55 869) (50 439) 168 172 180 708 213 069 188 363 323 840 302 371 211 904 203 155 111 936 99 216 57 609 1 47 27 (8) 6 21 704 16 560 10 159 50 911 17 058 14 406 66 767 82 454 876 4 5 894 27 428 566 3 783 3 916 4 32 700 30 219 3 116 (103 517) (128 262) 20 117 19 195 7 124 – – 55 980 15 479 51 675 16 588 15 216 3 771 11 445 10 530 21 975 16 076 243 5 656 – 5 656 1 562 4 094 14 314 4 765 9 549 10 380 19 929 14 824 242 4 863 – 4 863 1 357 3 506 11 720 3 500 8 220 8 820 17 040 12 689 215 4 136 11 206 4 355 6 851 8 651 15 502 11 705 217 3 580 4 136 1 136 3 000 3 580 1 003 2 577 – 63 – 38 63 38 3 496 271 3 225 1 710 4 935 3 387 28 1 520 1 520 426 1 094 3 108 410 2 698 1 729 4 427 3 119 25 1 283 1 283 354 929 628 41 587 3 399 3 986 2 484 102 1 400 1 400 358 1 042 531 59 472 3 081 3 553 2 218 108 1 227 (1) 1 226 326 900 898 35 863 768 1 631 1 256 30 345 149 494 85 409 801 50 751 675 1 426 1 126 23 277 277 64 213 52 40 8 077 7 189 (1 803) 2 128 1 726 2 599 2 245 4 031 3 468 2 937 2 539 1 094 929 1 042 900 357 173 300 153 147 153 300 54 186 60 60 73 (13) 4 260 (277) 441 441 203 644 (74) 160 558 2 560 149 411 (1) 254 158 Average interest-earning banking assets (Rm) 644 737 595 249 (7 457) 534 117 151 97 506 193 751 173 642 306 401 289 113 198 343 193 027 108 058 96 086 32 351 27 455 18 920 17 207 (16 380) (10 208) 1,24 14,6 4,97 40,9 65,5 1,39 62,4 27,6 310 1,16 13,0 4,95 42,0 70,0 1,80 60,0 27,9 – 1,42 13,3 5,91 42,9 69,5 1,70 61,8 27,5 (48) 20 373 19 499 18 026 1,27 11,6 5,81 43,6 73,9 2,16 58,9 28,0 (308) 17 153 1,01 20,1 3,24 32,9 50,5 0,42 65,1 28,0 358 0,96 19,4 3,24 35,7 55,4 0,65 64,5 27,6 308 2 347 2 346 1,91 36,8 1,94 84,4 1,95 36,2 1,93 85,3 136,9 138,9 0,17 61,7 25,6 660 2 119 0,28 61,4 26,6 577 2 056 1,58 10,1 4,75 46,1 61,2 0,23 69,2 17,2 (122) 1 605 0,90 8,7 4,66 45,7 59,9 0,37 76,3 23,1 (87) 1 501 (1 101) 3 614 (477) 3 588 23 Statement of financial position (Rm) Cash and cash equivalents other short-term securities Derivative financial instruments Government and other securities Loans and advances other assets Intergroup assets total assets equity and liabilities Total equity Derivative financial instruments Amounts owed to depositors provisions and other liabilities Long-term debt instruments Intergroup liabilities total equity and liabilities Impairments charge on loans and advances Income from lending activities Non-interest revenue operating income Total operating expenses Indirect taxation Share of profits/(losses) of associate companies and joint arrangements profit/(loss) before direct taxation Direct taxation profit/(loss) after direct taxation profit attributable to non-controlling interest: - ordinary shareholders - preference shareholders Headline earnings/(loss) Selected ratios Return on total assets (%) Return on ordinary shareholders' equity (%) Net interest income to average interest- earning banking assets (%) Non-interest revenue to total income (%) Non-interest revenue to total operating expenses (%) Credit loss ratio - banking advances (%) Efficiency ratio Effective taxation rate (%) Contribution to group economic profit Number of employees ¹ Includes all group eliminations. affects segment results and ratios. the benefits thereof. Statement of comprehensive income (Rm) Net interest income 20 234 (1 208) profit/(loss) from operations 10 918 9 492 (2 680) (2 504) 3 424 2 883 6 626 1 159 676 1 937 106 1 831 3 206 5 037 2 256 68 2 713 2 713 572 2 141 1,18 30,9 1,65 62,3 142,1 0,14 43,9 21,1 1 198 665 6 372 1 051 1 608 306 1 302 3 078 4 380 2 156 36 2 188 2 188 473 1 715 1,11 29,4 1,65 65,7 142,7 0,51 46,0 21,6 963 683 3 982 400 3 582 2 256 5 838 2 408 6 12 3 436 837 2 599 1,30 24,5 2,06 36,2 93,7 0,21 38,5 24,4 1 167 2 123 3 525 385 3 140 1 944 5 084 2 169 32 26 2 909 664 2 245 1,25 26,4 2,03 35,5 89,7 0,23 39,5 22,8 1 138 2 186 21 753 4 478 17 275 16 196 33 471 22 031 522 12 10 930 2 803 8 127 5 529 14 705 15 466 30 171 20 199 480 (28) (1 180) (4 116) (5 296) (2 503) (113) (986) (36) (950) (3 895) (4 845) (2 220) (121) 28 9 520 2 315 7 205 (149) 1 (2 829) (2 503) (684) (2 145) (718) (1 785) 1,11 12,5 3,37 42,7 73,5 0,82 11,7 25,6 1 215 1,06 12,2 3,40 43,3 76,6 1,10 8,7 24,3 1 136 28 872 27 875 (897) (1 627) (978) (1 638) 50 – 16 – (19) (323) (12) (292) (1 481) 13 (11) The 2013 comparative results for the segmental reporting have been restated. The Rest of Africa Division is now reported separately, and Central Management and Shared Services are collectively reported as the Centre. The restatement has had no effect on the group results and ratios, and only Depreciation costs of R906m (2013: R841m) and amortisation costs of R644m (2013: R566m) for property, equipment, computer software and capitalised development are charged on an activity-justified transfer pricing methodology by the segment owning the assets to the segment utilising NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS for the year ended 31 December 1 1.1 pRINCIpAL ACCoUNTING poLICIES The group applies the following accounting policies in preparing the consolidated financial statements of Nedbank Limited. Basis of preparation The financial statements have been prepared on a going-concern basis and have been prepared on a consistent basis with the prior year, except as detailed in note 2.2. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board, the South African Institute of Chartered Accountants (SAICA) Financial Reporting Guides as issued by the Accounting practices Committee, Financial pronouncements as issued by the Financial Reporting Standards Council, the requirements of the Companies Act, 71 of 2008 (as amended) and the JSE Listings Requirements. The financial information presented in the consolidated financial statements comprises that of the parent company, Nedbank Limited, together with its subsidiaries, including consolidated structured entities, joint arrangements and associates, presented as a single entity ('the group'). Separate financial statements for the company are available at the company’s head office at Nedbank 135 Rivonia Road Campus, 135 Rivonia Road, Sandown, 2196, Johannesburg. The financial statements are presented in SA rand, the functional currency of Nedbank Limited, and are rounded to the nearest million rands. The statements are prepared on the accrual and historical cost basis of accounting, except for: ■ non-current assets and disposal groups held for sale, which are all stated at the lower of the carrying amount and the fair value less costs to sell; ■ employee benefit liabilities, valued using the projected-unit credit method, less the net total fair value of the plan assets; and ■ the following assets and liabilities, which are stated at their fair value: … financial assets and financial liabilities classified as at fair value through profit or loss; … financial assets classified as available for sale; and … investment properties and owner-occupied properties. 1.2 Accounting policy elections The following accounting policy elections have been made by the group: property and equipment ■ Land and buildings are stated at revalued amounts. ■ Revaluation surpluses are recognised directly in equity, through other comprehensive income. Investment in venture capital divisions ■ In venture capital divisions the group has elected to carry associate and joint-venture entities at fair value through profit and loss. Financial instruments ■ The group has elected to designate certain fixed-rate financial assets and liabilities at fair value through profit and loss to reduce the accounting mismatch. ■ Regular way purchases or sales of financial assets are recognised and derecognised using trade date accounting. Investment properties ■ The group has elected to recognise all investment properties at fair value, with changes in Investments in subsidiaries, associate companies and joint arrangements fair value being recognised in profit and loss for the period. ■ The group has elected to recognise these investments at cost in the company financial statements. 1.3 Group accounting The group has adopted IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in other Entities, as well as the consequential amendments to International Accounting Standard (IAS) 28 Investments in Associates and Joint Ventures (2011), with effect from 1 January 2013. Subsidiary undertakings and consolidated structured entities Subsidiary undertakings are those entities, including unincorporated entities such as trusts and partnerships that are controlled by the group. The group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The group is considered to have power over an entity when it has existing rights that give it the current ability to direct the relevant activities of the entity. The group is exposed, or has rights, to variable returns from its involvement with the entity when the investor’s returns from its involvement have the potential to vary as a result of the entity’s performance. The group considers all facts and circumstances relevant to its involvement with an entity to evaluate whether control exists. The group assesses any changes to the facts and circumstances relevant to the entity and reassesses the consolidation requirements on a continuous basis. The group financial statements include the assets, liabilities and results of the company plus subsidiaries, including consolidated structured entities from the date control is established until the date that control ceases. Where a subsidiary has a reporting period that is different from that of the group, the results of the subsidiary are adjusted to reflect a reporting period consistent with the group’s reporting period. Where necessary, adjustments are made to the financial statements of subsidiaries to align any difference in accounting policies with those of the group. Subsidiaries include structured entities that are designed so that its activities are not governed by way of voting rights. In assessing whether the group has power over such investees in which it has an interest, the group considers factors such as the purpose and design of the investee; its practical ability to direct the relevant activities of the investee; the nature of its relationship with the investee; and the size of its exposure to the variability of returns of the investee. Intragroup balances, transactions, income and expenses, and profits and losses are eliminated in preparation of the group financial statements. Unrealised losses are not eliminated to the extent that they provide objective evidence of impairment. 24 Associates An associate is an entity, including an unincorporated entity, over which the group has the ability to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investment (that is neither a subsidiary nor an investment in a joint arrangement). This is generally demonstrated by the group holding in excess of 20%, but no more than 50%, of the voting rights. The profit or loss of the associate and assets and liabilities, including goodwill identified on acquisition, net of any accumulated impairment losses, are included in the group financial statements using the equity method of accounting from the date significant influence commences until the date significant influence ceases. Where an associate has a reporting period that is different from that of the group, the results of the associate are adjusted to reflect a reporting period consistent with the group’s reporting period. The carrying amount of such investments is reduced to recognise any impairment in the value of individual investments. When the group’s share of losses exceeds the carrying amount of the associate, the carrying amount is reduced to nil, inclusive of any long-term debt outstanding. The recognition of further losses is discontinued, except to the extent that the group has incurred or guaranteed obligations in respect of the associate. Where an entity within the group transacts with an associate of the group, unrealised profits and losses are eliminated to the extent of the group’s interest in the associate. At each reporting date the group determines whether there is objective evidence that the investments in associates are impaired. The carrying amounts of such investments are then reduced to recognise any impairment by applying the impairment methodology described in 1.12. Investments in associates that are held with the intention of disposing thereof within 12 months are accounted for and classified as noncurrent assets held for sale in accordance with the methodology described in 1.11. Joint arrangements Joint arrangements are those entities over which the group has joint control, established by contractual agreements requiring unanimous consent for decisions about activities that significantly affect the arrangements’ returns. They are classified and accounted as follows: ■ Joint operation – when the group has rights to the assets, and obligations for the liabilities, relating to an arrangement, it accounts for its assets, liabilities and transactions, including its share of those held or incurred jointly, in relation to the joint operation. ■ Joint venture – when the group has rights only to the net assets of the arrangement, it accounts for its interest using the equity method. The carrying amount of such investments is reduced to recognise any impairment in the value of individual investments, by applying the impairment methodology described in 1.12. Where an entity within the group transacts with a joint arrangement of the group, unrealised profits and losses are eliminated to the extent of the group’s interest in the joint arrangement. When the group’s share of losses exceeds the carrying amount of the joint arrangement, the carrying amount is reduced to nil. The recognition of further losses is discontinued, except to the extent that the group has incurred or guaranteed obligations in respect of the joint arrangement. Investments in joint arrangements that are held with the intention of disposing thereof within 12 months are accounted for and classified as non-current assets held for sale in accordance with the methodology described in 1.11. Common control transactions For transactions in which combining entities are controlled by the same party or parties before and after the transaction and where that control is not transitory are referred to as common-control transactions. The group’s accounting policy for the acquiring entity would be to account for the transaction at book values as reflected in the consolidated financial statements of the selling entity. The excess of the cost of the transaction over the acquirer’s proportionate share of the net assets value acquired in common control transactions, will be allocated to the common control reserve in equity. Investments held by venture-capital divisions Where the group has an investment in an associate or joint-venture company held by a venture-capital division, whose primary business is to purchase and dispose of minority stakes in entities, the investment is classified as designated at fair value through profit or loss, as the divisions are managed on a fair-value basis. Changes in the fair value of these investments are recognised in non-interest revenue in profit or loss in the period in which they occur. Acquisitions and disposals of stakes in group companies Acquisitions of subsidiaries (entities acquired) and businesses (assets and liabilities acquired) are accounted for using the acquisition method. The cost of a business combination is measured as the aggregate of the fair values (at the acquisition date) of assets given, liabilities incurred or assumed, and equity instruments issued by the group in exchange for control of the acquiree. For all transactions subsequent to 31 December 2008 acquisition-related costs are recognised in profit or loss as incurred. prior to this date all acquisition-related costs were capitalised to the cost of the acquisition. Where the cost of acquisition includes any asset or liability resulting from a contingent consideration arrangement, that asset or liability is measured at the acquisition date at fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of a contingent consideration classified as an asset or liability are accounted for in accordance with the relevant IFRSs. Changes in the fair value of a contingent consideration that has been classified as equity are not recognised. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value at the date of acquisition, except: ■ deferred-taxation assets or liabilities, which are recognised and measured in accordance with IAS 12 Income Taxes, and liabilities or assets related to employee benefit arrangements, which are recognised and measured in accordance with IAS 19 Employee Benefits; ■ liabilities or equity instruments that relate to the replacement, by the group, of an acquiree’s share-based payment awards, which are measured in accordance with IFRS 2 Share-based payments; and ■ assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and discontinued operations, which are measured in accordance with that standard. 25 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December pRINCIpAL ACCoUNTING poLICIES (continued) 1 1.3 Group accounting (continued) If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the group reports provisional amounts for the items for which the accounting is incomplete. Where provisional amounts were reported, these are adjusted during the measurement period (see below). Additional assets or liabilities are recognised to reflect any new information obtained about the facts and circumstances that existed at the date of acquisition, which, if known, would have affected the amounts recognised on that date. The measurement period is the period from the date of acquisition to the date the group receives complete information about the facts and circumstances that existed at the acquisition date. This measurement period is subject to a maximum of one year after the acquisition date. Where a business combination is achieved in stages, the group’s previously held interests in the acquired entity are remeasured to fair value at the acquisition date on the date the group attains control, and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income (oCI) are reclassified to profit or loss, where such treatment would be appropriate if that interest were disposed of. Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the group’s equity therein. The interest of non-controlling shareholders is initially measured either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. The choice of measurement basis is made on an acquisition-by-acquisition basis. Subsequent to the acquisition, non-controlling interests consist of the amount attributed to such interests at initial recognition and the non-controlling interest’s share of changes in equity since the date of the combination. The difference between the proceeds from the disposal of a subsidiary, the fair value of any retained investment and its carrying amount at the date of disposal, including the cumulative amount of any exchange differences recognised in the statement of changes in equity that relate to the subsidiary, is recognised as a gain or loss on the disposal of the subsidiary in the group profit or loss for the period. All changes in the group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions (transactions with owners). Any difference between the amount by which the non-controlling interests are increased or decreased and the fair value of the consideration paid or received is recognised directly in equity and attributed to the group. Goodwill Goodwill arising on the acquisition of a subsidiary is recognised as an asset on the date that control is acquired, being the acquisition date. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest (if any) in the entity over the net fair value of the identifiable net assets recognised. If, after reassessment, the group’s interest in the net fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred plus the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest (if any), this excess is recognised immediately in profit or loss as a bargain purchase gain. Goodwill is not amortised, but is tested for impairment at least once a year. Any impairment loss is recognised immediately in profit or loss and is not subsequently reversed. on disposal of a subsidiary the goodwill attributable to the subsidiary is included in the determination of the profit or loss on disposal. 1.4 Foreign currency translation Foreign currency transactions Individual entities within the group may use a different functional currency than that of the group, being the currency of the primary economic environment in which the respective entities operate. Transactions in foreign currencies are translated into the functional currency of the individual entities in the group at the date of the transaction by applying the spot exchange rate ruling at the transaction date to the foreign currency amounts. Monetary assets and liabilities in foreign currencies are translated into the functional currency of the respective entities of the group at the spot exchange rate ruling at the reporting date. Exchange differences that arise on the settlement or translation of monetary items at rates that are different from those at which they were translated on initial recognition during the period or in previous financial statements are recognised in profit or loss in the period that they arise. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated into the respective functional currencies of the group entities using the foreign exchange rates ruling at the dates when the fair values were determined. Non-monetary assets and liabilities denominated in foreign currencies that are measured in terms of historical cost are converted into the functional currency of the respective group entities at the rate of exchange ruling at the date of the transaction and are not subsequently retranslated. Exchange differences on non-monetary items are recognised consistently with the gains and losses that arise on such items. For example, exchange differences relating to an item for which gains and losses are recognised directly in equity are generally recognised in equity. Conversely, exchange differences for non-monetary items for which gains and losses are recognised in profit or loss are recognised in profit or loss in the period in which they arise. Investments in foreign operations Nedbank Limited’s presentation currency is SA rand. The assets and liabilities, including goodwill, of those entities that have functional currencies other than that of the group (SA rand) are translated at the closing exchange rate. Income and expenses are translated using the average exchange rate for the period. The differences that arise on translation of these entities are recognised in other comprehensive income (oCI) in the statement of comprehensive income. The cumulative exchange differences are recognised as a separate component of equity and are represented by the balance in the foreign currency translation reserve. 26 on disposal of a foreign operation the cumulative amount in the foreign currency translation reserve related to that operation is transferred to profit or loss for the period when the gain or loss on the disposal of the foreign operation is recognised. The primary and major determinants for non-rand functional currencies are the economic factors that determine the sales price for goods and services as well as costs. Additional supplementary factors to be considered are funding, autonomy and cashflows. 1.5 Financial instruments Financial instruments, as recognised in the statement of financial position, include all financial assets and financial liabilities, including derivative instruments, but exclude investments in subsidiaries, associate companies and joint arrangements (other than investments held by venture capital divisions) and employee benefit plans. Financial instruments are accounted for under IAS 32 Financial Instruments: presentation, IAS 39 Financial Instruments: Recognition and Measurement, IFRS 7 Financial Instruments: Disclosures and IFRS 13 Fair Value Measurement. The group commenced hedge accounting during the 2014 financial period. This is neither a change in accounting policy nor as a result of the adoption of a new or amended standard, but merely the first-time application of an accounting treatment currently permitted under existing and currently effective IFRS. This accounting policy should be read in conjunction with the group’s categorised statement of financial position, the group’s risk management policies and note 35.1. Initial recognition Financial instruments are recognised in the statement of financial position when the group becomes a party to the contractual provisions of a financial instrument. All purchases of financial assets that require delivery within the timeframe established by regulation or market convention (‘regular-way’ purchases) are recognised at the trade date, which is the date on which the group commits to purchase the financial asset. The liability to pay for ‘regular-way’ purchases of financial assets is recognised on the trade date, which is when the group becomes a party to the contractual provisions of the financial instrument. Contracts that require or permit net settlement of the change in the value of the contract are not considered ‘regular-way’ contracts and are treated as derivatives between the trade and settlement dates of the contract. Initial measurement Financial instruments that are categorised and designated at initial recognition as being at fair value through profit or loss are recognised at fair value. Transaction costs, which are directly attributable to the acquisition or on issue of these financial instruments, are recognised immediately in profit and loss. Financial instruments that are not carried at fair value through profit or loss are initially measured at fair value plus transaction costs that are directly attributable to the acquisition or issue of the financial instruments. Where the transaction price in a non-active market is different to the fair value from other observable current market transactions in the same instrument or based on a valuation technique, the variables of which include only data from observable markets, the group defers such differences (day-one gains or losses). Day-one gains or losses are amortised on a straight-line basis over the life of the financial instrument. To the extent that the inputs determining the fair value of the instrument become observable, or on derecognition of the instrument, day-one gains or losses are recognised immediately in profit or loss. Categories of financial instruments Subsequent to initial recognition, financial instruments are measured at fair value or amortised cost, depending on their classification and whether fair value can be measured reliably: ■ Financial instruments at fair value through profit or loss Financial instruments at fair value through profit or loss consist of instruments that are held for trading and instruments that the group has designated, at the initial recognition date, as at fair value through profit or loss. The group classifies instruments as held for trading if they have been acquired or incurred principally for the purpose of sale or repurchase in the near term, they are part of a portfolio of identified financial instruments for which there is evidence of a recent actual pattern of short-term profittaking or they are derivatives. The group’s derivative transactions include foreign exchange contracts, interest rate futures, forward rate agreements, currency and interest rate swaps, and currency and interest rate options (both written and purchased). Financial instruments that the group has elected, at the initial recognition date, to designate as at fair value through profit or loss are those that meet any one of the following conditions: … the fair value-through-profit-or-loss designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on assets and liabilities on different bases; … the instrument forms part of a group of financial instruments that is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to key management personnel, using a fair value basis; or … a contract contains one or more embedded derivatives that require separation from the host contract or a derivative that significantly modifies the cashflows of the host contract. Gains or losses on financial instruments at fair value through profit or loss (excluding interest income and interest expense calculated on the amortised-cost basis relating to interest-bearing instruments that have been designated as at fair value through profit or loss) are reported in non-interest revenue in the period in which they arise. Interest income and interest expense calculated in accordance with the effective- interest method are reported in interest income and expense, except for interest income and interest expense on instruments held for trading, which are recognised in non-interest revenue. 27 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 1 1.5 pRINCIpAL ACCoUNTING poLICIES (continued) Financial instruments (continued) ■ Non-trading financial liabilities All financial liabilities, other than those at fair value through profit or loss, are classified as non-trading financial liabilities and are measured at amortised cost. The interest expense is recorded in interest expense and similar charges. ■ Held-to-maturity financial assets Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and a fixed maturity that the group has the positive intention and ability to hold to maturity, other than those that meet the definition of loans and receivables or those that were designated as at fair value through profit or loss or available for sale. Held-to-maturity financial assets are measured at amortised cost, with interest income recognised in interest and similar income. Gains or losses arising on disposal of held-to-maturity financial assets are recognised in non-interest revenue. ■ Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those financial assets classified by the group on initial recognition as at fair value through profit or loss, available for sale or loans and receivables that are held for trading. Financial assets that are classified as loans and receivables are carried at amortised cost, with interest income recognised in interest and similar income. Gains or losses arising on disposal are recognised in non-interest revenue. The majority of the group’s advances are included in the loans and receivables category. ■ Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that the group has designated as available for sale or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets as at fair value through profit or loss. Available-for-sale financial assets are measured at fair value, with fair-value gains or losses recognised in other comprehensive income, unless the asset has been designated as a hedged item in a fair-value hedging relationship subject to hedge accounting. In a fair-value hedging relationship, the portion of the fair-value gain or loss of the asset attributable to the hedged risk is recorded in profit and loss to offset changes in the fair value of the hedging instrument. Any other changes in the fair value of the asset attributable to aspects other than the hedged risk, is recognised in other comprehensive income. Foreign currency translation gains or losses on monetary items, impairment losses and interest income calculated using the effective- interest-rate method, is reported in profit or loss. Derivative financial instruments and hedge accounting Derivatives are classified as assets when their fair value is positive or as liabilities when their fair value is negative, subject to the offsetting principles as described under ‘offsetting financial instruments and related income’. The method of recognising fair-value gains and losses depends on whether derivatives are held for trading or are designated as hedging instruments, and if the latter, the nature of the risks being hedged. ■ Derivatives that qualify for hedge accounting The group applies hedge accounting when transactions meet the criteria set out in IAS 39. When derivatives are designated as hedging instruments, the group classifies them as either: … hedges of the change in fair value of recognised assets or liabilities or firm commitments (‘fair-value hedges’); … hedges of the variability in highly probable future cashflows attributable to a recognised asset or liability, or a forecast transaction (‘cashflow hedges’); or … a hedge of a net investment in a foreign operation (‘net investment hedges’). Cashflow hedges and hedges of net investments in foreign entities do not currently form part of the group’s hedging strategy. At the inception of a hedging relationship, the group designates and documents the relationship between the hedging instrument and the hedge item as well as its risk management objective and strategy for undertaking the hedging transactions, and the nature of the risk being hedged. The group also documents its assessment of whether the hedging instrument is effective in offsetting changes in fair value or cashflow of the hedged item attributable to the hedged risk. Hedge effectiveness is assessed at inception and throughout the term of each hedging relationship. Each hedge must be expected to be highly effective (prospective effectiveness), and demonstrates actual effectiveness (retrospective effectiveness) on an ongoing basis. For prospective effectiveness, the hedging instrument must be expected to be highly effective in offsetting changes in fair value or cash flows attributable to the hedges risk during the period for which the hedge is designated. For actual effectiveness to be achieved, the changes in fair value or cashflows must offset each other in the range of 80% to 125%. Interest on designated qualifying hedges is included in net interest income. ■ Fair-value hedges Where a hedging relationship is designated as a fair-value hedge, the hedged item is adjusted for the change in fair value in respect of the risk being hedged. Fair-value gains and losses arising on the remeasurement of both the hedging instrument and the hedged item are recognised in ‘net interest income’, for so long as the hedging relationship is effective. Any hedge ineffectiveness is recognised in profit and loss in non-interest revenue. If the derivative expires, is sold, terminated, exercised, no longer meets the criteria for fair-value hedge accounting, or the designation is revoked, then hedge accounting is discontinued. 28  ■ Derivatives that do not qualify for hedge accounting All gains and losses from changes in the fair value of derivatives that do not qualify for hedge accounting are recognised immediately in non-interest revenue. Embedded derivatives Derivatives in a host contract that is a financial or non-financial instrument, such as an equity-conversion option in a convertible bond, are separated from the host contract when all of the following conditions are met: ■ the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract; and ■ a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and ■ the combined contract is not measured at fair value, with changes in fair value recognised in profit or loss. The host contract is accounted for: ■ under IAS 39 if it is a financial instrument; and ■ in accordance with other appropriate accounting standards if it is not a financial instrument. If an embedded derivative is required to be separated from its host contract, but it is not possible to separately measure the fair value of the embedded derivative, either at acquisition or at a subsequent financial reporting date, the entire hybrid instrument is categorised as at fair value through profit or loss and measured at fair value. Measurement basis of financial instruments There are two bases of measurement, namely amortised cost and fair value: ■ Amortised cost The amortised cost of a financial instrument is the amount at which the financial instrument is measured on initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective-interest method of any difference between the initial contractual amount and the maturity amount, less any cumulative impairment losses. The effective-interest method is a method of calculating the amortised cost of a financial instrument and of allocating the interest income and expense over the relevant period. The effective-interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial instrument. When calculating the effective interest rate, cashflows are estimated considering all contractual terms of the financial instrument, but future credit losses are not considered. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. ■ Fair value The fair value of a financial instrument is the amount that would be received to sell the asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of instruments that are quoted in an active market is determined using quoted prices where they represent those at which regularly and recently occurring transactions take place. The group uses valuation techniques to establish the fair value of instruments where quoted prices in active markets are not available. For a detailed discussion of the fair value of financial instruments refer to note 35.1. Impairment of financial assets The group assesses at each reporting date whether there is objective evidence that a financial asset or 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 the initial recognition of the asset (a loss event) and that loss event has (or events have) an impact on the estimated future cashflows 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 group about the following loss events: ■ significant financial difficulty of the issuer or obligor; ■ a breach of contract, such as a default or delinquency in respect of interest or principal payments; ■ the group granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty, a concession that the group would not otherwise consider; ■ it becoming probable that the borrower will enter bankruptcy or other financial reorganisation; ■ 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 cashflows 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. Loans that would otherwise be past due or impaired and whose terms have been renegotiated and display the characteristics of a performing loan are reset to performing status. Loans whose terms have been renegotiated continue to be monitored to determine whether they are considered to be impaired or past due. 29 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 1 1.5 pRINCIpAL ACCoUNTING poLICIES (continued) Financial instruments (continued) ■ Assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity financial assets carried at amortised cost has been incurred, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cashflows (excluding future credit losses that have not been incurred) discounted at the financial asset’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. The group first assesses whether there is objective evidence of impairment individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the group determines that there is no objective evidence of impairment 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. 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 reversal may not result in a carrying amount of the financial asset that exceeds what the amortised cost would have been had the impairment not been recognised at the date on which the impairment is reversed. The amount of the reversal is recognised in profit or loss for the period. ■ Available-for-sale financial assets When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity, in the statement of comprehensive income, and there is objective evidence that the asset is impaired, the cumulative loss that has been recognised directly in equity, in the statement of comprehensive income, is removed from equity and recognised in profit or loss. The amount of the cumulative loss that is removed from equity and recognised in profit or loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that financial asset previously recognised in profit or loss. Impairment losses recognised in profit or loss for an investment in an equity instrument classified as available for sale are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed, with the amount of the reversal recognised in profit or loss for the period. ■ Maximum credit risk Credit risk arises principally from loans and advances to clients, investment securities, derivatives and irrevocable commitments to provide facilities. The maximum credit risk is typically the gross carrying amount, net of any amounts offset and impairment losses. The maximum credit exposure for loan commitments is the full amount of the commitment if the loan cannot be settled net in cash or using another financial asset. Derecognition The group derecognises a financial asset (or group of financial assets) or a part of a financial asset (or part of a group of financial assets) when, and only when: ■ the contractual rights to the cashflows arising from the financial asset have expired; or ■ it transfers the financial asset, including substantially all the risks and rewards of ownership of the asset; or ■ it transfers the financial asset, neither retaining nor transferring substantially all the risks and rewards of ownership of the asset, but no longer retaining control of the asset. A financial liability (or part of a financial liability) is derecognised when, and only when, the liability is extinguished, ie when the obligation specified in the contract is discharged, cancelled or has expired. The difference between the carrying amount of a financial asset or financial liability (or part thereof) that is derecognised and the consideration paid or received, including any non-cash assets transferred or liabilities assumed, is recognised in non-interest revenue for the period. Securitisations The group securitises various consumer and commercial financial assets, generally resulting in the sale of these assets to structured entities, which in turn issue securities to investors. Interests in the securitised financial assets may be retained in the form of senior or subordinated tranches, interest-only strips or other residual interests (retained interests). Retained interests are primarily recorded in available-for-sale investment securities and carried at fair value. Gains or losses on securitisation, if the financial assets or liabilities are derecognised, depend in part on the carrying amount of the transferred financial assets, allocated between the financial assets derecognised and the retained interests based on their relative fair values at the date of transfer. Gains or losses on securitisation are recorded in non-interest revenue for the period. Offsetting financial instruments and related income Financial assets and liabilities are offset and the net amount reported in the statement of financial position only when the group has a legally enforceable right to set off the financial asset and financial liability and the group has an intention of settling the asset and liability on a net basis or realising the asset and settling the liability simultaneously. Income and expense items are offset only to the extent that their related instruments have been offset in the statement of financial position. Collateral Financial and non-financial assets are held as collateral in respect of recognised financial assets. Such collateral, except cash collateral, is not recognised by the group, as the group does not retain the risks and rewards of ownership, and is obliged to return such collateral to counterparties on settlement of the related obligations. Should a counterparty be unable to settle its obligations, the group takes possession 30 of collateral or calls on other credit enhancements as full or part-settlement of such amounts. These assets are recognised when the applicable recognition criteria under IFRS are met, and the group’s accounting policies are applied from the date of recognition. Cash collateral is recognised when the group receives the cash and is reported as amounts received from depositors. Collateral is also given to counterparties under certain financial arrangements, but such assets are not derecognised where the group retains the risks and rewards of ownership. Such assets are at risk to the extent that the group is unable to fulfil its obligations to counterparties. For a detailed discussion on collateral see note 47. Sale and repurchase agreements and lending of securities Securities sold subject to linked repurchase agreements are retained in the financial statements, as the group retains all risks and rewards of ownership of the securities. The securities are recorded as trading or investment securities and the counterparty liability is included in amounts owed to other depositors, deposits from other banks, or other money market deposits, as appropriate. Securities purchased under agreements to resell are recorded as loans and advances to other banks or clients, as appropriate. The difference between the sale and repurchase price is treated as interest and recognised over the duration of the agreements using the effective-interest method. Securities lent to counterparties are also retained in the financial statements and any interest earned is recognised in profit or loss using the effective-interest-rate method. Securities borrowed are not recognised in the financial statements, unless these are sold to third parties, in which case the purchase and sale are recorded with the gain or loss included in non-interest revenue. The obligation to return them is recorded at fair value as a trading liability. Acceptances Acceptances comprise undertakings by the group to pay bills of exchange drawn on clients. The group expects most acceptances to be settled simultaneously with the reimbursement from clients. Acceptances are recorded as liabilities within amounts owed to depositors, with the corresponding asset recorded in the statement of financial position within loans and advances. Financial guarantee contracts Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument. Issued financial guarantee contracts are recognised as insurance contracts and are measured at the best estimate of the expenditure required to settle any financial obligation as of the reporting date. Liability adequacy testing is performed to ensure that the carrying amount of the liability for issued financial-guarantee contracts is sufficient. Any increase in the liability relating to guarantees is recognised in profit or loss. 1.6 Taxation Taxation expense, recognised in the statement of comprehensive income, comprises current and deferred taxation. Current or deferred taxation is recognised in profit or loss, except to the extent that it relates to items recognised directly in equity, in which case it too is recognised in equity and to the extent that it relates to items recognised in oCI, in which case it too is recognised in oCI. Current taxation Current taxation is the expected tax payable on the taxable income for the year, using taxation rates enacted or substantively enacted at the reporting date, and any adjustment to taxation payable in respect of previous years (prior-period tax paid). Deferred taxation Deferred-taxation is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences are differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective taxation bases. The amount of deferred taxation provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, and is measured at the taxation rates (enacted or substantively enacted at the reporting date) that are expected to be applied to the temporary differences when they reverse. Deferred taxation is recognised in profit or loss for the period, except to the extent that it relates to a transaction that is recognised directly in equity or in oCI, or a business combination that is accounted for as an acquisition. The effect on deferred taxation of any changes in taxation rates is recognised in profit or loss for the period, except to the extent that it relates to items previously charged or credited directly to equity. Deferred taxation liabilities are generally recognised for all taxable temporary differences, and deferred-taxation assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Deferred taxation is not recognised for the following temporary differences: ■ the initial recognition of goodwill; ■ the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit; and ■ differences relating to investments in subsidiaries and jointly controlled entities to the extent that they will not reverse in the foreseeable future. Deferred-taxation assets are recognised to the extent that it is probable that future taxable income will be available against which the unutilised taxation losses and deductible temporary differences can be used. Deferred taxation assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related taxation benefits will be realised. Deferred-taxation assets and liabilities are offset if there is a legally enforceable right to offset current taxation liabilities against current taxation assets, and they relate to income taxes levied by the same taxation authority on the same taxable entity, or on different taxation entities, but they intend to settle current tax liabilities and assets on a net basis or their taxation assets and liabilities will be realised simultaneously. Deferred-taxation assets and liabilities are not discounted. 31 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December pRINCIpAL ACCoUNTING poLICIES (continued) 1 1.7 Goodwill and intangible assets Goodwill and goodwill impairment Goodwill arises on the acquisition of subsidiaries, associates and joint arrangements. Goodwill is measured at cost less accumulated impairment losses. In respect of equity-accounted investments the carrying amount of goodwill is included in the carrying amount of the investment. Goodwill is allocated to one or more cash-generating units (CGUs), being the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill is allocated to the CGUs in which the synergies from the business combinations are expected. Each CGU containing goodwill is annually tested for impairment. An impairment loss is recognised whenever the carrying amount of an asset or its CGU exceeds its recoverable amount. Impairment losses that are recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to a CGU and then to reduce the carrying amount of the other assets in the CGU on a pro rata basis. However, the carrying amount of these other assets may not be reduced below the highest of its fair value less costs to sell, its value in use and zero. Impairment testing procedures The recoverable amount of a CGU is the higher of its fair value less cost to sell and its value in use. The fair value less cost to sell is determined by ascertaining the current market value of an asset (or the CGU) and deducting any costs related to the realisation of the asset. In assessing value in use the expected future cashflows from the CGU are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the particular CGU. Impairment losses relating to goodwill are not reversed and all impairment losses are recognised in capital and non-trading items for the period. Computer software and capitalised development costs Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, and expenditure on internally generated goodwill and brands are recognised as an expense in profit or loss for the period. If costs can be reliably measured and future economic benefits are available, expenditure on computer software and other development activities, whereby set procedures and processes are applied to a project for the production of new or substantially improved products and processes, is capitalised if the computer software and other developed products or processes are technically and commercially feasible and the group has intention and sufficient resources to complete development. The expenditure capitalised includes the cost of materials and directly attributable employee and other direct costs. Computer development expenditure is amortised only once the relevant software is available for use in the manner intended by management. Capitalised software is stated at cost less accumulated amortisation and impairment losses. Expenditure for the development of computers that are not yet available for use is not amortised and is stated at cost less impairment losses. Amortisation of computer software and development costs is charged to profit or loss on a straight-line basis over the estimated useful lives of these assets, which do not exceed five years and are reviewed annually. Subsequent expenditure relating to computer software is capitalised only when it increases the future economic benefits embodied in the specific asset, in its current condition, to which it relates. All other subsequent expenditure is recognised as an expense in the period in which it is incurred. The profit or loss on the disposal of computer software is recognised in non-trading and capital items (in profit or loss). The profit or loss on disposal is the difference between the net proceeds received and the carrying amount of the asset. The amortisation methods and residual values of these intangible assets are reviewed on an annual basis. Contractual client relationships Contractual client relationships, including the present value of in-force business in insurance businesses, acquired in a business combination are recognised at fair value at the date of acquisition. The contractual client relationships have a finite useful life and are carried at cost less accumulated amortisation. The useful lives of these client relationships are reviewed on an annual basis. Amortisation is calculated using the straight-line method over the expected life of the client relationship. 1.8 Employee benefits The group operates a number of defined-benefit and defined-contribution plans for eligible employees. The assets of these plans are generally held in separate trustee-administered funds. These benefits are accounted for in accordance with IAS 19. Defined-benefit plans The liability recognised in the statement of financial position in respect of defined-benefit pension plans is the present value of the defined- benefit obligation at the reporting date less the fair value of plan assets. The defined-benefit obligation is calculated annually by independent actuaries using the projected-unit credit method. The present value of the defined-benefit obligation is determined by discounting the estimated future cash outflows using yields for government bonds that have maturity dates approximating the terms of the group’s obligations. Gains or losses resulting from remeasurements are recognised immediately in other comprehensive income. Remeasurements include actuarial gains and losses, return on plan assets and the asset ceiling. Current service costs and net interest on the defined-benefit liability are recognised immediately as an expense in profit or loss. past service costs are recognised in profit or loss on the earlier of the date of the plan amendment or curtailment, and the date the group recognises related restructuring costs. plan assets are only offset against plan liabilities where they are assets held by long-term employee benefit funds or qualifying insurance policies. Qualifying insurance policies exclude any policies held by the group’s holding or subsidiary companies. 32 Defined-contribution plans Contributions to defined-contribution plans are recognised as an expense in profit or loss in the periods during which services are rendered by employees. Postemployment benefit plans The group provides postretirement medical benefits and disability cover for eligible employees. The non-pension postemployment benefits are accounted for, in accordance with their nature, as either a defined-contribution plan or a defined-benefit plan. Similarly, the expected costs associated with such benefits are accounted for in a manner consistent with their classification. Short-term employee benefits Short-term employee benefits include salaries, accumulated leave payments, bonuses and non-monetary benefits such as medical aid contributions. Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount to be paid under short-term cash-bonus plans or accumulated leave if the group has a present, legal or constructive obligation to pay this amount as a result of past services provided by the employee and the obligation can be estimated reliably. 1.9 Property and equipment Items of property and equipment are initially recognised at cost if it is probable that any future economic benefits associated with the items will flow to the group and they have a cost that can be measured reliably. Certain items of property and equipment that had been revalued to fair value on 1 January 2004, the date of transition to IFRS, are measured on the basis of deemed cost, being the revalued amount at the date of that revaluation. Subsequent expenditure is capitalised to the carrying amount of items of property and equipment if it is measurable and it is probable that it increases the future economic benefits associated with the asset. All other expenses are recognised in profit or loss as an expense when incurred. Subsequent to initial recognition, computer equipment, vehicles and furniture and other equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Land and buildings, the fair values of which can be reliably measured, are carried at revalued amounts, being the fair value at the date of revaluation less any subsequent accumulated depreciation and impairment losses. Revaluation increases are credited directly to equity in ‘other comprehensive income’ under the heading ‘Revaluation reserve’. However, revaluation increases are recognised in profit or loss to the extent that they reverse a revaluation decrease of the same asset previously recognised in profit or loss. Revaluation decreases are recognised in profit or loss. However, decreases are debited directly to equity to the extent of any credit balance existing in the revaluation surplus in respect of the same asset. Land and buildings are revalued on the same basis as investment properties. This accounting policy should be read in conjunction with note 26. Depreciation Each part of an item of property and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. Items of property and equipment that are classified as held for sale in terms of IFRS 5 are not depreciated. The depreciable amounts of property and equipment are recognised in profit or loss on a straight-line basis over the estimated useful lives of the items of property and equipment, unless they are included in the carrying amount of another asset. The useful lives, residual values and depreciation methods for property and equipment are assessed and adjusted (where required) on an annual basis. on revaluation any accumulated depreciation at the date of the revaluation is eliminated against the gross carrying amount of the item concerned and the net amount restated to the revalued amount. Subsequent depreciation charges are adjusted based on the revalued amount and residual values. Any difference between the depreciation charge on the revalued amount and that which would have been charged under historic cost is transferred net of any related deferred taxation between the revaluation reserve and retained earnings as the property is utilised. Land is not depreciated. The maximum initial estimated useful lives are as follows: Computer equipment Motor vehicles Fixtures and furniture Leasehold property Significant leasehold property components Freehold property Significant freehold property components 5 years 6 years 10 years 20 years 10 years 50 years 5 years Derecognition Items of property and equipment are derecognised on disposal or when no future economic benefits are expected from their use or disposal. The gain or loss on derecognition is recognised in profit or loss and is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. on derecognition any surplus in the revaluation reserve in respect of an individual item of property and equipment is transferred directly to retained earnings in the statement of changes in equity. Compensation from third parties for items of property and equipment that were impaired, lost or given up is included in profit or loss when the compensation becomes receivable. 33 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 1 1.10 pRINCIpAL ACCoUNTING poLICIES (continued) Investment properties Investment properties comprise real estate held for earning rentals and/or for capital appreciation. This does not include real estate held for  use in the supply of services or for administrative purposes. Investment properties are initially measured at cost plus any directly attributable expenses. Investment properties are stated at fair value. Internal professional valuers perform valuations annually. For practical reasons valuations are carried out over a cyclical basis over a 12-month period due to the large number of investment properties involved. External valuations are obtained once every three years on a rotational basis. In the event of a material change in market conditions between the valuation date and reporting date an internal valuation is performed and adjustments made to reflect any material changes in value. The valuation methodology applied is dependent on the nature of the property. Income-generating assets are valued using discounted cashflows. Vacant land, land holdings and residential flats are valued according to sales of comparable properties. Near-vacant properties are valued at land value less the estimated cost of demolition. Surpluses and deficits arising from changes in fair value are recognised in profit or loss for the period in the statement of comprehensive income. For properties reclassified during the year from property and equipment to investment properties any revaluation gain arising is initially recognised in profit or loss to the extent of previously charged impairment losses. Any residual excess is taken to the revaluation reserve. Revaluation deficits are recognised in the revaluation reserve to the extent of previously recognised gains and any residual deficit is accounted for in profit or loss for the period. Investment properties that are reclassified to owner-occupied properties are revalued at the date of transfer, with any difference being taken to profit or loss. This accounting policy should be read in conjunction with note 25. 1.11 Non-current assets held for sale and discontinued operations Non-current assets (or disposal groups) are classified as held for sale when their carrying amount will be recovered principally through sale rather than use. The asset or disposal group must be available for immediate sale in its present condition and the sale should be highly probable, with an active programme to find a buyer and the appropriate level of management approving the sale. Immediately before classification as held for sale, all assets and liabilities are remeasured in accordance with the group’s accounting policies. Non-current assets (or disposal groups) held for sale are measured at the lower of the carrying amount and fair value less incremental directly attributable cost to sell (excluding taxation and finance charges) and are not depreciated. Gains or losses recognised on initial classification as held for sale and subsequent remeasurement are recognised in profit or loss, regardless of whether the assets were previously measured at revalued amounts. The maximum gains that can be recognised are the cumulative impairment losses previously recognised in profit or loss. A disposal group continues to be consolidated while classified as held for sale. Income and expenses continue to be recognised in profit or loss. Non-current assets (or disposal groups) are reclassified from held for sale to held for use if they no longer meet the held-for-sale criteria. on reclassification the non-current asset (or disposal group) is remeasured at the lower of its recoverable amount and the carrying amount that would have been recognised had the asset (or disposal group) never been classified as held for sale. Any gains or losses are recognised in profit or loss, unless the asset was carried at a revalued amount prior to classification as held for sale. A discontinued operation is a clearly distinguishable component of the group’s business that has been disposed of or is held for sale, which: ■ represents a separate major line of business or geographical area of operations; ■ is part of a single coordinated plan to dispose of a major line of business or geographical area of operations; or ■ is a subsidiary acquired exclusively with a view to resale. This accounting policy should be read in conjunction with note 23. 1.12 Impairment (all assets other than financial assets, deferred taxation assets and investment property) The group assesses all assets (other than financial assets, deferred taxation assets and investment property) for indications of impairment or the reversal of a previously recognised impairment at each reporting date. These impairments (where the carrying amount of an asset exceeds its recoverable amount) or the reversal of a previously recognised impairment is recognised in profit or loss for the period. Intangible assets not yet available for use are tested, at least on an annual basis, for impairment. An impairment loss is recognised in profit or loss whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount of an asset is the higher of its fair value less cost to sell and its value in use. The fair value less cost to sell is determined by ascertaining the current market value of an asset and deducting any costs related to the realisation of the asset. In assessing value in use the expected future pretax cashflows from the asset are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset the cashflows of which are largely dependent on those of other assets the recoverable amount is determined for the CGU to which the asset belongs. A previously recognised impairment loss will be reversed if the recoverable amount increases as a result of a change in the estimates used previously to determine the recoverable amount, but not to an amount higher than the carrying amount that would have been determined, net of depreciation or amortisation, had no impairment loss been recognised in prior periods. 34 1.13 Other provisions provisions are recognised when the group has a present legal or constructive obligation as a result of a past event, in respect of which it is probable that an outflow of economic benefits will occur and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the reasonable estimate of the expenditure required to settle the obligation at the reporting date. Where the effect of discounting is material, the provision is discounted. The discount rate reflects current market assessments of the time-value of money and, where appropriate, the risks specific to the liability. Gains from the expected disposal of assets are not taken into account in measuring provisions. provisions are reviewed at each reporting date and adjusted to reflect the current reasonable estimate. If it is no longer probable that an outflow of resources will be required to settle the obligation, the provision is reversed. Reimbursements Where some or all of the expenditure required to settle a provision is expected to be reimbursed by a party outside the group, the reimbursement is recognised when it is virtually certain that it will be received if the group settles the obligation. The reimbursement is recorded as a separate asset at an amount not exceeding the related provision. The expense for the provision is presented net of the reimbursement in profit or loss. Specific policies include: ■ onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the group from a contract are lower than the unavoidable cost of meeting the obligations under the contract. ■ Restructuring A provision for restructuring is recognised when the group has a detailed formal plan for restructuring and has raised a valid expectation, among those parties directly affected, that the plan will be carried out, either by having begun implementation or by publicly announcing the plan’s main features. Restructuring provisions include only those costs that arise directly from restructuring that is not associated with the ongoing activities of the group. Future operating costs or losses are not provided for. 1.14 Share-based payments Equity-settled share-based payment transactions with employees The services received in an equity-settled share-based payment transaction with employees are measured at the fair value of the equity instruments granted. The fair value of the equity instruments is measured at the grant date and is not subsequently remeasured. If the equity instruments granted vest immediately and an employee is not required to complete a specified period of service before becoming unconditionally entitled to the instruments, the services received are recognised in profit or loss for the period in full on the grant date with a corresponding increase in equity. Where the equity instruments do not vest until the employee has completed a specified period of service, it is assumed that the services rendered by the employee, as consideration for the equity instruments, will be received in the future during the vesting period. The services are accounted for in profit or loss in the statement of comprehensive income as they are rendered during the vesting period, with a corresponding increase in equity. The amount recognised as an expense is adjusted to reflect the number of share awards for which the related service and non-market performance vesting conditions are expected to be met such that the amount ultimately recognised as an expense is based on the number of share awards that do meet the related-service and non-market performance conditions at the vesting date. Where the equity instruments are no longer outstanding, the accumulated share-based payment reserve in respect of those equity instruments is transferred to retained earnings. Cash-settled share-based payment transactions with employees The cost of cash-settled transactions is measured initially at fair value at the grant date. The fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is remeasured to fair value at each reporting date up to and including the settlement date with changes in fair value recognised in the statements of comprehensive income as staff costs. Measurement of fair value of equity instruments granted The equity instruments granted by the group are measured at fair value at the measurement date using standard-option pricing-valuation models. The valuation technique is consistent with generally acceptable valuation methodologies for pricing financial instruments and incorporates all factors and assumptions that knowledgeable, willing market participants would consider in setting the price of the equity instruments. Vesting conditions, other than market conditions, are not taken into account in determining fair value. Vesting conditions are taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount. Share-based payment transactions with persons or entities other than employees Transactions in which equity instruments are issued to historically disadvantaged individuals and organisations in SA for less than fair value are accounted for as share-based payments. Where the group has issued such instruments and expects to receive services in return for equity instruments, the share-based payments charge is spread over the related vesting (ie service) period. In instances where such services could not be identified the cost has been expensed with immediate effect. The valuation techniques are consistent with those mentioned above. 1.15 Share capital ordinary share capital, preference share capital or any financial instrument issued by the group is classified as equity when: ■ payment of cash, in the form of a dividend or redemption, is at the discretion of the group; ■ the instrument does not provide for the exchange of financial instruments under conditions that are potentially unfavourable to the group; ■ settlement in the group’s own equity instruments is for a fixed number of equity instruments at a fixed price; and ■ the instrument represents a residual interest in the assets of the group after deducting all its liabilities. 35 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December pRINCIpAL ACCoUNTING poLICIES (continued) 1 1.15 Share capital (continued) Consideration paid or received for equity instruments is recognised directly in equity. Equity instruments are initially measured at the proceeds received, less incremental directly attributable issue costs, net of any related income tax benefits. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the group’s equity instruments. When the group issues a compound instrument, ie an instrument that contains a liability and an equity component, the fair value of the liability component is calculated first and the equity component is treated as a residual. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds. Distributions to holders of equity instruments are recognised as distributions in the statement of changes in equity in the period in which they are payable. Dividends for the year that are declared after the reporting date are disclosed in the notes to the financial statements. 1.16 Treasury shares When the group acquires its own share capital, the amount of the consideration paid, including directly attributable costs, net of any related tax benefit, is recognised as a change in equity. Shares repurchased by the issuing entity are cancelled. Shares repurchased by group entities are classified as treasury shares and are held at cost. These shares are treated as a deduction from the issued and weighted-average number of shares and the cost price of the shares is presented as a deduction from total equity. The par value of the shares is presented as a deduction from ordinary share capital and the remainder of the cost is presented as a deduction from ordinary share premium. Dividends received on treasury shares are eliminated on consolidation. 1.17 Investment contracts Investment-contract liabilities Liabilities for unit-linked and market-linked contracts are reported at fair value. For unit-linked contracts the fair value is calculated as the account value of the units, ie the number of units held multiplied by the bid-price value of the assets in the underlying fund (adjusted for taxation). For market-linked contracts the fair value of the liability is determined with reference to the fair value of the underlying assets. This fair value is calculated in accordance with the financial soundness valuation basis, except that negative rand reserves arising from the capitalisation of future margins are not permitted. The fair value of the liability, at a minimum, reflects the initial deposit of the client, which is repayable on demand. Investment-contract liabilities (other than unit-linked and market-linked contracts) are measured at amortised cost. Embedded derivatives included in investment contracts are separated out and measured at fair value. The host contract liability is measured on an amortised-cost basis. Revenue on investment management contracts Fees charged for investment management services in conjunction with investment management contracts are recognised as revenue as the services are provided. Initial fees that exceed the level of recurring fees and relate to the future provision of services are deferred and amortised over the projected period over which services will be provided. Contribution income relating to investment contracts Contribution income includes lump sums received in respect of linked businesses with retirement funds and are accounted for when due. The contribution income is set off directly against the liability under investment contracts. Benefits relating to investment contracts policyholder benefits are accounted for when claims are intimated directly against the liability under investment contracts. 1.18 Insurance contracts Contracts under which the scheme accepts insurance risk from another party by agreeing to compensate such party or other beneficiaries if a specified uncertain future event adversely affects the party or other beneficiaries are classified as insurance contracts. Policy liabilities The policy liabilities under unmatured policies, including unintimated claims, are computed at the reporting date by pC Falconer, the statutory actuary, according to the financial-soundness valuation method as set out in the guidelines issued by the Actuarial Society of SA in professional Guidance Note (pGN) 104. Claims intimated but not paid, are provided for. The actuarial statement of financial position is included as a separate item in the group’s annual financial statements. The group performs a liability adequacy test on its liabilities in line with IFRS 4 Insurance Contracts. Linked products Linked products are investment-related products where the risk and reward of the underlying investment portfolio accrues to the policyholder. Linked products, which provide for returns based on the change in the value of the underlying instruments and market indicators, are initially recorded at cost. These products are revalued at year-end using discounted-cashflow analysis, closing market values and index values based on the observation dates stated in the underlying investment agreements. Valuations are adjusted for the effects of changes in foreign exchange rates. Actuarial liabilities of these linked products are stated at the same value as the underlying investments. 36 1.19 Leases The group as lessee Leases in respect of which the group bears substantially all risks and rewards incidental to ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the lease property and the present value of the minimum lease payments. Directly attributable costs, such as commission paid, incurred by the group are added to the carrying amount of the asset. Each lease payment is allocated between the liability and finance charges to achieve a constant periodic rate of interest on the balance outstanding. Contingent rentals are expensed in the period they are incurred. The depreciation policy for leased assets is consistent with that of depreciable assets owned. If the group does not have reasonable certainty that it will obtain ownership of the leased asset by the end of the lease term, the asset is depreciated over the shorter of the lease term and its useful life. Leases that are not classified as finance leases are classified as operating leases. payments made under operating leases, net of any incentives received from the lessor, are recognised in profit or loss on a straight-line basis over the term of the lease. When another systematic basis is more representative of the time pattern of the user’s benefit, then that method is used. The group as lessor Where assets are leased out under a finance lease arrangement, the present value of the lease payments is recognised as a receivable and included under loans and advances in the statement of financial position. Initial direct costs are included in the initial measurement of the receivable. The difference between the gross receivable and unearned finance income is recognised under loans and advances in the statement of financial position. Finance lease income is allocated to accounting periods to reflect a constant periodic rate of return on the group’s net investment outstanding in respect of the leases. Assets leased out under operating leases are included under property and equipment in the statement of financial position. Initial direct costs incurred in negotiating and arranging the lease are added to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis as the rental income. Leased assets are depreciated over their expected useful lives on a basis consistent with similar assets. Rental income, net of any incentives given to lessees, is recognised on a straight-line basis over the term of the lease. When another systematic basis is more representative of the time pattern of the user’s benefit, then that method is used. Recognition of lease of land Leases of land and buildings are classified as operating or finance leases in the same way as leases of other assets. However, when a single lease covers both land and a building, the minimum lease payments at the inception of the lease (including any upfront payments) are allocated between the land and the building in proportion to the relative fair values of the respective leasehold interests. Any upfront premium allocated to the land element that is normally classified as an operating lease represents prepaid lease payments. These payments are amortised over the lease term in accordance with the time pattern of benefits provided. If the lease payments cannot be allocated reliably between these two elements, the entire lease is classified as a finance lease, unless it is clear that both elements are operating leases. 1.20 Borrowing costs Borrowing costs directly attributable to the acquisition, construction and production of qualifying assets are capitalised as part of the costs of these assets. Qualifying assets are assets that necessarily take a substantial period of time to prepare for their intended use or sale. Capitalisation of borrowing costs continues up to the date when the assets are substantially ready for their use or sale. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs capitalised are disclosed in the notes by asset category and are calculated at the group’s average funding cost, except to the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset. Where this occurs, actual borrowing costs incurred less any investment income on the temporary investment of those borrowings are capitalised. 1.21 Government grants Government grants are recognised when there is reasonable assurance that they will be received and that the group will comply with the conditions attached to them. Grants that compensate the group for expenses or losses already incurred or for purposes of giving immediate financial support to the entity with no future-related costs are recognised as income in the period it becomes receivable. Grants that compensate the group for expenses to be incurred are recognised as revenue in profit or loss on a systematic basis in the same periods in which the expenses will be incurred. Grants that compensate the group for the cost of an asset are recognised in profit or loss as revenue on a systematic basis over the useful life of the asset. 1.22 Client loyalty When a cardholder makes a purchase that is regarded as eligible spend, the person/company will be granted points that can be redeemed at a later date for goods or services. points do not expire, unless a client is delinquent or dormant, in which case the points accrued are forfeited as stated in the terms and conditions. The fair value of the consideration received or receivable in respect of the initial sale is allocated between the award credits and the other components of the sale. The award credits are recognised as deferred revenue until the entity fulfils its obligations to deliver awards to customers. The consideration allocated to the award credits will be measured by reference to the fair value thereof, ie the amount for which the award credits could be sold separately and the expected manner by which the points will be utilised. Adjustments are made for the expected utilisation and non-utilisation of the points awarded. 37 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December pRINCIpAL ACCoUNTING poLICIES (continued) 1 1.23 Revenue and expenditure Interest income and expense Interest income and expense are recognised in profit or loss using the effective-interest method taking into account the expected timing and amount of cashflows. The effective-interest method is a method of calculating the amortised cost of a financial asset or financial liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period. Interest income and expense include the amortisation of any discount or premium or other differences between the initial carrying amount of an interest-bearing financial instrument and its amount at maturity calculated on an effective-interest-rate basis. Non-interest revenue ■ Fees and commissions The group earns fees and commissions from a range of services it provides to clients and these are accounted for as follows: … Income earned on the execution of a significant act is recognised when the significant act has been performed. … Income earned from the provision of services is recognised as the service is rendered by reference to the stage of completion of the service. … Income that forms an integral part of the effective interest rate of a financial instrument is recognised as an adjustment to the effective interest rate and recorded in interest income. ■ Dividend income Dividend income is recognised when the right to receive payment is established on the ex dividend date for equity instruments and is included in dividend income under non-interest revenue. ■ Net trading income Net trading income comprises all gains and losses from changes in the fair value of financial assets and financial liabilities held for trading, together with the related interest, expense, costs and dividends. Interest earned while holding trading securities and interest incurred on trading liabilities are reported within non-interest revenue. ■ Income from investment contracts Refer to 1.17 for non-interest revenue arising on investment management contracts. ■ other Exchange and securities trading income, from investments and net gains on the sale of investment banking assets, is recognised in profit or loss when the amount of revenue from the transaction or service can be measured reliably, it is probable that the economic benefits of the transaction or service will flow to the group and the costs associated with the transaction or service can be measured reliably. Fair-value gains or losses on financial instruments at fair value through profit or loss, including derivatives, are included in non-interest revenue. These fair-value gains or losses are determined after deducting the interest component, which is recognised separately in interest income and expense. Gains or losses on derecognition of any financial assets or financial liabilities are included in non-interest revenue. 1.24 Segmental reporting An operating segment is a component of an entity that engages in business activities from which it may earn revenues, the operating results of which component are regularly reviewed by the group’s chief operating decisionmakers to make decisions about resources to be allocated and to assess its performance, and for which financial information is available. The group’s identification of its segments and the measurement of segment results are based on the group’s internal reporting to management. The segments have been identified according to the nature of their respective products and services and their related target markets, the detail of which can be found in the segmental reporting section. The segments identified are complemented by the Centre, which provides support in the areas of finance, human resources, governance and compliance, risk management and information technology. Additional information relating to major clients and other performance measures is provided. The group accounts for intersegment revenues and transfers as if the transactions were with third parties at current market prices. 1.25 Cash and cash equivalents Cash and cash equivalents comprise balances with a maturity of less than 90 days from the date of acquisition, including cash and balances with central banks that are not mandatory, other eligible bills and amounts due from other banks. 38 2 2.1 STANDARDS AND INTERpRETATIoNS Standards and interpretations issued and not yet effective IFRS 9 Financial Instruments IFRS 9 Financial Instruments was issued in its entirety in July 2014. The final version of the standard incorporates amendments to the classification and measurement guidance as well as the accounting requirements for the impairment of financial assets measured at amortised cost. These elements of the final standard are discussed in detail below: ■ Financial assets are to be classified and measured based on the business model for managing the financial asset and the cashflow characteristics of the financial asset. There are two measurement approaches, namely fair value and amortised cost. The financial asset is carried at amortised cost if it is the business model of the entity to hold that asset for the purpose of collecting contractual cashflows and if those cashflows comprise principal repayments and interest. ■ For financial liabilities designated as at fair value through profit or loss a further requirement is that all changes in the fair value of financial liabilities attributable to credit risk be transferred to other comprehensive income with no recycling through profit or loss on disposal. ■ Impairments in terms of IFRS 9 will be determined based on an expected-loss model that considers the significant changes to the asset’s credit risk and the expected loss that will arise in the event of default. ■ IFRS 9 allows financial liabilities not held for trading to be measured at either amortised cost or fair value. If fair value is elected, then changes in the fair value as a result of changes in own credit risk should be recognised in other comprehensive income. ■ The hedge accounting requirements under IFRS 9 are closely aligned with how entities undertake risk management activities when hedging financial and non-financial risk exposures. Hedge effectiveness will now be proved based on management’s risk management objectives rather than the 80% to 125% band that was previously stipulated. IFRS 9 also allows for rebalancing of the hedge and the deferral of hedging costs. The group has initiated a process to determine the impact of the standard on the group’s statement of financial position and performance. Until the process has been completed the group is unable to quantify the expected impact. The standard is effective for financial years commencing on or after 1 January 2018. IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a five-step model that will apply to revenue earned from a contract with a client (with limited exceptions), regardless of the type of revenue transaction or the industry. The standard’s requirements will also apply to the recognition and measurement of gains and losses on the sale of some non-financial assets that are not outputs of the entity’s ordinary activities (eg the sale of property, plant and equipment or intangibles). Extensive disclosures will be required, including disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods, and key judgements and estimates. The standard is effective for financial years commencing on or after 1 January 2017. The group has initiated a process to determine the impact of the standard on the group’s statement of financial position and performance. Until the process has been completed the group is unable to quantify the expected impact. Amendment to IAS 19 Employee Benefits: Defined Benefit Plans – Employee Contributions The amendment applies to contributions from employees or third parties and simplifies the accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. The amendment is effective for the group for the financial year commencing 1 January 2015. The group is evaluating the impact of this standard on the group financial statements. Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets The amendments to IAS 16 and IAS 38 are to clarify the basis for the calculation of depreciation and amortisation as being the expected pattern of consumption of the future economic benefits of an asset. The amendments prohibit the use of revenue-based depreciation for property, plant and equipment and significantly limit the use of revenue-based amortisation for intangible assets. As a result the ratio of revenue generated to total revenue expected to be generated 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 effective for the group for the financial year commencing 1 January 2016 and are not expected to have an effect on the group’s financial statements. Amendment to IFRS 11 Joint Arrangements on Acquisition of an Interest in a Joint Operation This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendment specifies the appropriate accounting treatment for such acquisitions. The amendment is effective for the group for the financial year commencing 1 January 2016 and is not expected to have an effect on the group’s financial statements. Amendments to IAS 16 Property, Plant and Equipment and IAS 41 Agriculture – Regarding Bearer Plants These amendments change the financial reporting for bearer plants, such as grape vines, rubber trees and oil palms. The International Accounting Standards Board (IASB) decided that bearer plants should be accounted for in the same way as property, plant and equipment because their operation is similar to that of manufacturing. Consequently, the amendments include bearer plants in the scope of IAS 16, instead of IAS 41. The produce growing on bearer plants will remain within the scope of IAS 41. The amendments are effective for the group for the financial year commencing 1 January 2016 and are not expected to have an effect on the group’s financial statements. 39 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 2 2.1 STANDARDS AND INTERpRETATIoNS (continued) Standards and interpretations issued and not yet effective (continued) IFRS 14 Regulatory Deferral Accounts The standard IFRS 14 Regulatory Deferral Accounts permits first-time adopters to continue to recognise amounts related to rate regulation in accordance with their previous Generally Accepted Accounting practices (GAAp) requirements when they adopt IFRS. However, to enhance comparability with entities that already apply IFRS and do not recognise such amounts, the standard requires that the effect of rate regulation must be presented separately from other items. The standard is effective for the group for the financial year commencing 1 January 2016 and is not expected to have an effect on the group’s financial statements. Amendments to IAS 27 Separate Financial Statements on the equity method These amendments allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. The amendments are effective for the group for the financial year commencing 1 January 2016 and are not expected to have a significant effect on the group’s financial statements. Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures These amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28 for dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The amendments are effective for the group for the financial year commencing 1 January 2016 and are not expected to have an effect on the group’s financial statements. IASB Annual Improvement Project The IASB issued annual improvements to IFRS cycles 2010 to 2012 and 2011 to 2013, and for 2014. The improvements focus on areas of inconsistency in IFRSs or where clarification of wording is required. As a consequence, the improvements are either clarifying or correcting in nature, and do not propose new principles or changes to existing ones. The amendments are effective for the group for the financial year commencing 1 January 2015 and are not expected to have a material impact on the group’s financial statements. 2.2 Standards and interpretations adopted in the current year The following standards and interpretations, or amendments thereto, effective for the financial year-end commencing 1 January 2014, have been adopted by the group: IFRIC 21 Levies International Financial Reporting Interpreting Committee (IFRIC) 21 is an interpretation of IAS 37 provisions, Contingent Liabilities and Contingent Assets and considers how an entity should account for liabilities to pay levies imposed by governments, other than income taxes, in its financial statements. IFRIC 21 clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. The amendment did not have a material effect on the group’s financial statements. Revised standards Amendments to IFRS 10, IFRS 12 and IAS 27 – Investment Entities The amendments define an investment entity and introduce an exception to consolidating particular subsidiaries for that investment entity. These amendments require an investment entity to measure those subsidiaries at fair value through profit or loss in accordance with IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement in its consolidated and separate financial statements. The amendments also introduce new disclosure requirements for investment entities in IFRS 12 Disclosure of Interests in other Entities and IAS 27 Separate Financial Statements. The amendments did not have an effect on the group’s financial statements. Amendment to IAS 32 Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities The amendment to IAS 32 clarifies offsetting by explaining: ■ when an entity currently has a legally enforceable right of setoff; and ■ when gross settlement is equivalent to net settlement. The adoption of the amendment did not have an impact on the group’s financial statements. Amendment to IAS 36 Impairment of Assets Recoverable Amounts Disclosures for Non-financial Assets The amendment removes certain disclosures required in respect of the recoverable amount of declined-value cash-generating units, which had previously been included in IAS 36 by the issue of IFRS 13 Fair value Measurement. The amendment did not have a material effect on the group’s financial statements. 40 Amendment to IAS 39 Financial Instruments: Recognition and Measurement The IASB made a narrow-scope amendment to IAS 39 to permit the continuation of hedge accounting in certain circumstances in which the counterparty to a hedging instrument changes in order to achieve clearing for that instrument. The amendment covers novations in the following circumstances: ■ as a consequence of laws or regulations, or the introduction of laws or regulations; ■ where the parties to the hedging instrument agree that one or more clearing counterparties replace their original counterparty to become the new counterparty to each of the parties; and ■ where it did not result in changes to the terms of the original derivative other than changes directly attributable to the change in counterparty to achieve clearing. All of the above criteria must be met to continue hedge accounting under this exception. The amendment did not have an effect on the group’s financial statements. 3 KEY ASSUMpTIoNS CoNCERNING THE FUTURE AND KEY SoURCES oF ESTIMATIoN The group’s accounting policies are set out in note 1 of the annual financial statements. Certain of these policies, as well as estimates made by management, are considered to be important to an understanding of the group’s financial condition since they require management to make difficult, complex or subjective judgements and estimates, some of which may relate to matters that are inherently uncertain. The following accounting policies include estimates that are particularly sensitive in terms of judgements and the extent to which estimates are used. other accounting policies involve significant amounts of judgements and estimates, but the total amounts involved are not significant to the financial statements. Management has agreed the accounting policies and critical accounting estimates with the board and Nedbank Group Audit Committee. 3.1 Allowances for loan impairment and other credit risk provisions Allowances for loan impairment represent management’s estimate of the losses incurred in the loan portfolios at the reporting date. The group assesses its loan portfolios for impairment at each reporting date. In determining whether an impairment loss should be recorded in the statement of comprehensive income, the group makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cashflows from a portfolio of loans before the decrease can be allocated to an individual loan in that portfolio. Estimates are made of the duration between the occurrence of a loss event and the identification of a loss on an individual basis. The impairment for performing loans is calculated on a portfolio basis, based on historical loss ratios, adjusted for national and industry- specific economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio. These include early arrears and other indicators of potential default, such as changes in macroeconomic conditions and legislation affecting credit recovery. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated loss emergence period. Within the Nedbank Retail, Nedbank Wealth and Nedbank Business Banking portfolios, which comprise large numbers of small homogeneous assets with similar risk characteristics where credit-scoring techniques are generally used, statistical techniques are used to calculate impairment allowances on the portfolio, based on historical recovery rates and assumed emergence periods. These statistical analyses use as primary inputs the extent to which accounts in the portfolio are in arrears and historical information on the eventual losses encountered from such delinquent portfolios. There are many such models in use, each tailored to a product, line of business or client category. Judgement and knowledge are needed in selecting the statistical methods to be used when the models are developed or revised. The impairment allowance reflected in the financial statements for these portfolios is therefore considered to be reasonable and supportable. For larger exposures impairment allowances are calculated on an individual basis and all relevant considerations that have a bearing on the expected future cashflows are taken into account, for example the business prospects for the client, the realisable value of collateral, the group’s position relative to other claimants, the reliability of client information and the likely cost and duration of the workout process. The level of the impairment allowance is the difference between the value of the discounted expected future cashflows (discounted at the loan’s original effective interest rate) and its carrying amount. Subjective judgements are made in the calculation of future cashflows. Furthermore, judgements change with time as new information becomes available or as workout strategies evolve, resulting in frequent revisions to the impairment allowance as individual decisions are taken. Changes in these estimates would result in a change in the allowances and have a direct impact on the impairments charge. 3.2 Fair value of financial instruments Certain of the group’s financial instruments are carried at fair value through profit or loss, such as those held for trading, designated by management under the fair value option and non-cashflow hedging derivatives. other non-derivative financial assets may be designated as available for sale. Available-for-sale financial investments are initially recognised at fair value and are subsequently held at fair value. Gains and losses arising from changes in fair value of such assets are included as a separate component of other comprehensive income and presented in equity. The fair value of a financial instrument is the amount that would be received to sell the asset or paid to transfer the liability in an orderly transaction at the measurement date between knowledgeable, willing parties, other than in a forced or liquidation sale. Financial instruments entered into as trading transactions, together with any associated hedging, are measured at fair value and the resultant profits and losses are included in net trading income, along with interest and dividends arising from long and short positions and funding costs relating to trading activities. Assets and liabilities resulting from gains and losses on financial instruments held for trading are reported gross in trading portfolio assets and liabilities or derivative financial instruments, reduced by the effects of netting agreements where there is an intention to settle net with counterparties. 41 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 3 3.2 KEY ASSUMpTIoNS CoNCERNING THE FUTURE AND KEY SoURCES oF ESTIMATIoN (continued) Fair value of financial instruments (continued) Details of the processes, procedures and assumptions used in the determination of fair value are discussed in note 35.1 to the financial statements. In particular, the areas that involve the greatest amount of judgement and complexity include the following: ■ assessing whether instruments are trading with sufficient frequency and volume, that they can be considered liquid; ■ the inclusion of a measure of the counterparties non-performance risk in the fair value measurement of loans and advances, which involves the modelling of dynamic credit spreads; ■ the inclusion of credit valuation adjustment (CVA) and debit valuation adjustment (DVA) in the fair value measurement of derivative instruments, with particular emphasis on DVA; and ■ the inclusion of own-credit risk in the calculation of the fair value of financial liabilities. These concepts are continuously developing and evolving within the context of the SA market and therefore changes in these assumptions will arise as the market develops. 3.3 Derecognition, securitisations and structured entities The group enters into transactions that may result in the derecognition of certain financial instruments. Judgement is applied as to whether these financial instruments are derecognised from the group’s statement of financial position. The group sponsors the formation of structured entities primarily for the purpose of allowing clients to hold investments, for asset securitisation transactions, for asset financing and for buying or selling credit protection. The group consolidates structured entities it controls in terms of IFRS guidance. Where it is difficult to determine whether the group controls a structured entity, the group makes judgements, in terms of IFRS guidance, about its exposure to the risks and rewards, as well as about its ability to make operational decisions for the structured entity in question. In arriving at judgements, these factors are considered both jointly and separately. Further information in respect of those securitisations, consolidated into the group financial statements, can be found in note 43 to the financial statements. 3.4 Goodwill Management considers at least annually whether the current carrying value of goodwill is to be impaired. The first step of the impairment review process requires the identification of independent CGUs by segmenting the group business into as many largely independent income streams as is reasonably practicable. The goodwill is then allocated to these independent units. The first element of this allocation is based on the areas of the business expected to benefit from the synergies derived from the acquisition. The second element reflects the allocation of the net assets acquired and the difference between the consideration paid for those net assets and their fair value. This allocation is reviewed following business reorganisation. The carrying value of the unit, including the allocated goodwill, is compared with its fair value or value in use to determine whether any impairment exists. If the recoverable amount of a unit is less than its carrying value, goodwill will be impaired. Detailed calculations may need to be carried out, taking into consideration changes in the market in which a business operates (eg competitive activity and regulatory change). In the absence of readily available market-price data this calculation is based on discounting expected pretax cashflows at a risk-adjusted interest rate appropriate to the operating unit, the determination of both of which requires the exercise of judgement. The estimation of pretax cashflows is sensitive to the periods for which detailed forecasts are available and to assumptions regarding the long-term sustainable cashflows. While forecasts are compared with actual performance and external economic data, expected cashflows naturally reflect management’s view of future performance. The most significant amount of goodwill relates to Nedbank Limited. The goodwill impairment testing performed in 2014 indicated that none of the goodwill was impaired in the year under review. Management believes that reasonable changes in key assumptions used to determine the recoverable amount of Nedbank Limited’s goodwill would not result in impairment. Further information in respect of goodwill recognised in the statement of financial position can be found in note 28 to the financial statements. 3.5 Intangible assets An internally generated intangible asset, specifically internally developed software generated during the development phase, is recognised as an asset if certain conditions are met. These conditions include technical feasibility, intention to complete the development, ability to use the asset under development and demonstration of how the asset will generate probable future economic benefits. The cost of a recognised internally generated intangible asset comprises all costs directly attributable to making the asset capable of being used as intended by management. Conversely, all expenditures arising during the research phase are expensed as incurred. The decision to recognise internally generated intangible assets requires significant judgement, particularly in the following areas: ■ evaluation of whether or not activities should be considered research activities or development activities; ■ assumptions about future market conditions, client demand and other developments; ■ assessment of whether completing an asset is technically feasible. The term ‘technical feasibility’ is not defined in the accounting standards, and therefore requires a group-specific and necessarily judgemental approach; ■ evaluation of the future ability to use or sell the intangible asset arising from the development and the assessment of probability of future benefits from sale or use; and ■ evaluation of whether or not a cost is directly or indirectly attributable to an intangible asset and whether or not a cost is necessary for completing a development. 42 All intangible assets of the group have finite useful lives. Consequently, the depreciable amount of the intangible assets is allocated on a systematic basis over their useful lives. Judgement is applied to the following: ■ determining the useful life of an intangible asset, based on estimates regarding the period over which the intangible asset is expected to produce economic benefits to the group; and ■ determining the appropriate amortisation method. Accounting standards require that the straight-line method be used, unless management can reliably determine the pattern in which the future economic benefits of the asset are expected to be consumed by the group. Both the amortisation period and the amortisation method have an impact on the amortisation expenses recorded in each period. In making impairment assessments for the group’s intangible assets, management uses certain complex assumptions and estimates about future cashflows, which require significant judgement and assumptions about future developments. These assumptions are affected by various factors, including changes in the group’s business strategy, internal forecasts and estimation of the group’s weighted average cost of capital. Due to these factors, actual cashflows and values could vary significantly from the forecast future cashflows and related values derived using the discounted-cashflow method. Further information in respect of intangible assets recognised in the statement of financial position can be found in note 28. 3.6 Employee benefits The group provides pension plans for employees in most parts of the world. Arrangements for staff retirement benefits vary from country to country and are made in accordance with local regulations and customs. For defined-benefit schemes, including postretirement medical aid schemes, actuarial valuation of each of the scheme’s obligations using the projected-unit credit method and the fair valuation of each of the scheme’s assets are performed annually in accordance with the requirements of IAS 19. The actuarial valuation is dependent on a series of assumptions, the key ones being interest rates, mortality, investment returns and inflation. Mortality estimates are based on standard industry and national mortality tables, adjusted where appropriate to reflect the group’s own experience. The returns on fixed-interest investments are set to market yields at the valuation date (less an allowance for risk) to ensure consistency with the asset valuation. The returns on equities are based on the long-term outlook for global equities at the calculation date, having regard to current market yields and dividend growth expectations. The inflation assumption reflects long-term expectations of both earnings and retail price inflation. Further information on employee benefit obligations, including assumptions, is set out in note 27 to the annual financial statements. 3.7 Income taxes The group is subject to direct taxation in a number of jurisdictions in which it operates. There may be transactions and calculations for which the ultimate tax determination has an element of uncertainty during the ordinary course of business. The group recognises liabilities based on objective estimates of the quantum of taxes that may be due. Where the final tax determination is different from the amounts that were initially recorded, such differences will impact the income tax and deferred taxation provisions in the period in which such determination is made through profit and loss for that period. 3.8 Financial risk management The group’s risk management policies and procedures are disclosed in the Worldclass at Managing Risk section. These risk management procedures include, but are not limited to, credit risk, securitisation risk, liquidity risk, interest rate risk in the banking book and market risk. 4 CApITAL MANAGEMENT Nedbank Group’s Capital Management Framework reflects the integration of risk, capital, strategy and performance measurement across the group and contributes significantly to the Enterprisewide Risk Management Framework (ERMF). A board-approved Solvency and Capital Management policy requires Nedbank Group to be capitalised at the greater of Basel III regulatory capital and economic capital. The Group Capital Management division is housed within the Balance Sheet Management cluster that reports to the Chief operating officer and is mandated with the implementation of the Capital Management Framework and the Internal Capital Adequacy Assessment process (ICAAp) across the group. The capital management (incorporating ICAAp) responsibilities of the board and management are incorporated in their respective terms of reference as contained in the ERMF and are assisted by the board’s Group Risk and Capital Management Committee, and Group ALCo and Executive Risk Committee (Group ALCo), respectively. Capital, reserves and long-term debt instruments The group’s capital management framework, policies and processes cover the group’s capital and reserves as per the consolidated statement of changes in equity, as well as the long-term debt instruments per note 32. Further details on the ERMF, capital management and regulatory requirements are disclosed in the Worldclass at Managing Risk section which is unaudited, unless stated otherwise. 43 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 5 INTEREST AND SIMILAR INCoME Home loans (including properties in possession) Commercial mortgages Finance lease and instalment debtors Credit cards overdrafts Term loans and other Government and other securities Interest on government and other securities Fair value adjustments on hedged items (refer to note 16.5) Fair value adjustments on hedging instruments (refer to note 16.5) Short-term funds and securities Interest and similar income may be analysed as follows: – Interest and similar income from financial instruments not at fair value through profit and loss – Interest and similar income from financial instruments at fair value through profit or loss 6 INTEREST ExpENSE AND SIMILAR CHARGES Deposit and loan accounts Current and savings accounts Negotiable certificates of deposit other liabilities Long-term debt instruments Interest expense and similar charges may be analysed as follows: – Interest expense and similar charges from financial instruments not at fair value through profit and loss – Interest expense and similar charges from financial instruments at fair value through profit or loss 2014 rm 10 333 9 798 8 807 1 710 1 204 12 393 3 521 3 521 (3) 3 2 309 50 075 41 747 8 328 50 075 18 203 628 4 919 1 729 2 843 28 322 26 183 2 139 28 322 2013 Rm 9 463 8 108 7 662 1 473 1 061 11 293 3 531 3 531 1 516 44 107 36 459 7 648 44 107 14 581 551 4 985 1 401 2 355 23 873 19 719 4 154 23 873 An unaudited margin analysis of the interest income and interest expense by asset and liability category is presented as additional financial information in the Nedbank Group Limited integrated report. 44 7 NoN-INTEREST REVENUE Commission and fee income Administration fees Cash-handling fees Insurance commission Exchange commission other fees Guarantee income Card income Service charges other commission Insurance income Fair value adjustments (note 7.1) Fair value adjustments Fair value adjustments – own debt Net trading income Foreign exchange Debt securities Equities Commodities private-equity income Securities dealing – realised Securities dealing – unrealised Dividends received from unlisted investments Investment income Dividends received from unlisted investments Long-term-asset sales Net sundry income Rents received Rental income from properties in possession other sundry income 7.1 Analysis of fair value adjustments Fair value adjustments can be analysed as follows: – Held for trading – Designated as at fair value through profit or loss 7.2 Government grants 2014 rm 12 591 121 819 613 379 921 168 2 969 3 467 3 134 284 35 73 (38) 2 394 1 148 1 194 27 25 411 350 (22) 83 51 40 11 430 61 2 367 2013 Rm 12 193 253 791 604 343 929 164 2 735 3 577 2 797 289 40 46 (6) 2 331 1 134 1 146 28 23 224 33 33 158 51 37 14 338 41 1 296 16 196 15 466 146 (111) 35 2 186 (2 146) 40 The group receives various government grants, from SA and foreign governments. The government grants take a variety of forms, including interest rate subsidies on loans advanced to clients and payment in respect of previously writtenoff advances in respect of qualifying deceased estates. The government grants that are received by the group are recognised when the conditions of the government grant have been fulfilled and the grant is due to the group. Certain government assistance is directed towards the group’s clients, including grants made to clients as first-time homeowners. Although  the group may assist the client in obtaining the grant, these grants do not qualify as government grants as envisaged by the accounting standard. The group receives certain SA government grants in the form of refunds for Skills Development Levies and they pertain to prior training that has been facilitated by the group on behalf of its employees. No assistance has been received by the group from any government or government organisation in respect of any troubled asset or financial- crisis-related programme. 45 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 8 opERATING ExpENSES Staff costs Remuneration and other staff costs Short-term incentives Long-term employee benefits (note 27.2)² Share-based payments expense – employees BEE transaction expenses³ BEE share-based payments expenses Fees Computer processing Depreciation for computer equipment Amortisation of computer software operating lease charges for computer equipment Development costs other computer-processing expenses Communication and travel Depreciation for vehicles other communication and travel occupation and accommodation Depreciation for owner-occupied land and buildings operating lease charges for land and buildings other occupation and accommodation expenses Marketing and public relations Fees and assurances Auditors’ remuneration Statutory audit – current year – prior year Non-audit services – other services other fees and assurance costs Furniture, office equipment and consumables Depreciation for furniture and other equipment operating lease charge for furniture and other equipment other office equipment and consumables other operating expenses Amortisation of intangible assets other sundries 2014 rm 12 550 9 971 1 945 27 607 46 21 25 2 902 396 644 281 169 1 412 756 4 752 1 637 131 718 788 1 472 1 757 103 84 1 18 2013 Rm 11 513 9 193 1 656 114 550 56 33 23 2 553 345 566 238 184 1 220 745 3 742 1 502 126 646 730 1 391 1 627 90 83 1 6 1 654 1 537 631 375 7 249 280 280 595 367 6 222 217 1 217 22 031 20 199 Certain expenses incurred by the company on behalf of subsidiary companies are recovered from subsidiary companies. Refer to the Remuneration Report for a detailed breakdown of directors’ and prescribed officers’ remuneration. 1 Represents amounts less than R1m. 2  Includes contributions to defined-benefit and pension funds and postretirement medical aid funding and any adjustments for defined benefit obligations together with any fair value adjustments of plan assets held. See note 27. 3 See note 49 for a description of the BEE schemes. 46 9 INDIRECT TAxATIoN Value-added taxation other transaction taxes Value-added taxation comprises the VAT incurred that is irrecoverable in respect of the making of exempt supplies as defined in the Value-Added Tax Act, No 89 of 1991. 10 NoN-TRADING AND CApITAL ITEMS profit on sale of subsidiaries and investments Impairment of property and equipment, and capitalised development costs 11 DIRECT TAxATIoN Charge for the year 11.1 SA normal taxation: – Current charge – Capital gains taxation – deferred – Deferred taxation Foreign taxation Current and deferred taxation on income prior-year overprovision/(underprovision) – current taxation prior-year (underprovision)/overprovision – deferred taxation Total taxation on income Taxation on non-headline earnings items 11.2 Taxation rate reconciliation Standard rate of SA normal taxation Non-taxable dividend income Capital items other Effective taxation rate 2014 rm 396 126 522 (96) (96) 2 785 (29) 2 85 2 843 221 (261) 2 803 (17) 2 786 2014 % 28,0 (2,6) 0,1 0,1 25,6 2013 Rm 379 101 480 5 (64) (59) 2 493 (33) (178) 66 2 348 (135) 102 2 315 (18) 2 297 2013 % 28,0 (3,2) (0,3) (0,2) 24,3 11.3 Income tax recognised in other comprehensive income 2014 Exchange differences on translating foreign operations Fair value adjustments on available-for-sale assets Remeasurements on long-term employee benefit assets Gains on property revaluations 2013 Exchange differences on translating foreign operations Fair value adjustments on available-for-sale assets Remeasurements on long-term employee benefit assets Gains on property revaluations Gross Taxation Net of taxation 14 (113) 86 195 96 (109) 1 010 316 (24) (32) 1 (284) (98) 14 (113) 62 163 96 (108) 726 218 11.4 Future taxation relief The group has estimated taxation losses of R167,6m (2013: R217,6m) that can be set off against future taxable income, of which R30,9m (2013: R76,8m) has been applied to the deferred taxation balance. 47 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 12 EARNINGS Headline earnings reconciliations 2014 2013 rm Gross net of taxation Gross Net of taxation profit attributable to ordinary and preference equity holders Less: Non-trading and capital items (96) 7 998 (79) Loss on sale of subsidiaries, investments and property and equipment Net impairment of investments, property and equipment and capitalised development costs Fair value adjustments of investment properties Headline earnings attributable to ordinary and preference equity holders (96) (79) 8 077 (55) 5 (64) 4 13 DIVIDENDS 13.1 Ordinary shares 2014 Final declared for 2013 – paid 2014 Interim declared for 2014 ordinary dividends paid 2014 Final ordinary dividend declared for 2014 1 Total dividend declared for 2014 = 11 013 cents per share. 2013 Final declared for 2012 – paid 2013 Interim declared for 2013 ordinary dividends paid 2013 Final ordinary dividend declared for 2013 2 Total dividend declared for 2013 = 14 500 cents per share. Millions of shares Cents per share 27 27 27 27 9 544 2 9371 12 481 8 0761 7 709 4 9562 12 665 9 5442 7 152 (37) 6 (46) 3 7 189 rm 2 600 800 3 400 2 100 1 350 3 450 48 13.2 Preference shares 2014 number of shares Cents per share Amount rm Nedbank Limited – Final declared for 2013 – paid March 2014 Nedbank Limited – Interim declared for 2014 – paid September 2014 358 277 491 358 277 491 35,70775 36,86072 Nedbank Limited – Final declared for 2014 – payable March 2015 358 277 491 38,76140 128 132 260 139 Dividends declared calculations 2014 Nedbank Limited 1 July 2014 – 31 December 2014 1 July 2014 – 17 July 2014 18 July 2014 – 31 December 2014 Total declared Days 184 17 167 rate % Amount rm 7,500 7,708 138,9 12,5 126,4 138,9 Number of shares Cents per share Amount Rm 2013 Nedbank Limited – Final declared for 2012 – paid March 2013 Nedbank Limited – Interim declared for 2013 – paid August 2013 358 277 491 358 277 491 35,82649 35,12556 Nedbank Limited – Final declared for 2013 – payable March 2014 358 277 491 35,70775 128 126 254 128 Dividends declared calculations 2013 Nedbank Limited 1 July 2013 – 31 December 2013 Total declared Dividends paid calculations 2013 (paid March 2014) Nedbank – 1 July 2013 – 31 December 2013 1 July 2013 – 31 December 2013 2014 (paid Sept 2014) nedbank – 1 January 2014 – 30 June 2014 1 January 2014 – 29 January 2014 30 January 2014 – 30 June 2014 Nedbank (MFC) – participating preference shares profit attributable to preference shareholders 2012 (paid March 2013) nedbank – 1 July 2012 – 31 December 2012 1 July 2012 – 19 July 2012 20 July 2012 – 31 December 2012 2013 (paid September 2013) Nedbank – 1 January 2013 – 30 June 2013 Nedbank (MFC) – participating preference shares profit attributable to preference shareholders Days Rate % Amount Rm 184 7,083 Days 184 184 181 29 152 184 19 165 181 rate % 7,083 7,083 7,083 7,500 7,500 7,083 7,083 127,9 127,9 Amount rm 127,9 127,9 132,1 20,2 111,9 63,2 323,2 128,4 14,0 114,4 125,8 37,7 291,9 49 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 14 CASH AND CASH EQUIVALENTS Coins and bank notes Money at call and short notice Balances with central banks – other than mandatory reserve deposits Cash and cash equivalents excluding mandatory reserve deposits with central banks Mandatory reserve deposits with central banks Money at call and short notice constitutes amounts withdrawable in 32 days or less. Mandatory reserve deposits are not available for use in the group’s day-to-day operations. Cash on hand and mandatory reserve deposits are non-interest bearing. 15 oTHER SHoRT-TERM SECURITIES 15.1 Analysis Negotiable certificates of deposit Treasury bills and other bonds 15.2 Sectoral analysis Banks Government and public sector other services 2014 rm 6 437 3 890 430 10 757 14 843 25 600 7 277 49 045 56 322 8 410 47 491 421 56 322 2013 Rm 5 428 11 819 220 17 467 13 199 30 666 8 944 26 060 35 004 10 018 24 661 325 35 004 16 DERIVATIVE FINANCIAL INSTRUMENTS These transactions have been entered into in the normal course of business and are carried at fair value. The principal types of derivative contracts into which the group enters are described below. ■ Swaps These are over the counter (oTC) agreements between two parties to exchange periodic payments of interest, or payments for the change in value of a commodity, or related index, over a set period based on notional principal amounts. The group enters into swap transactions in several markets. Interest rate swaps exchange fixed rates for floating rates of interest based on notional amounts. Basis swaps exchange floating or fixed interest calculated using different bases. Cross-currency swaps are the exchange of interest based on notional values of different currencies. ■ options options confer the right, but not the obligation, on the buyer to receive or pay a specific quantity of an asset or financial instrument for a specific price on or before a specified date. options may be exchange-traded or oTC agreements. The group principally buys and sells currency, interest rate and equity options. ■ Futures and forwards Short-term interest rate futures, bond futures, financial futures, equity and commodity futures and forward foreign exchange contracts are all agreements to deliver, or take delivery of, a specified amount of an asset or financial instrument based on a specified rate, price or index applied against the underlying asset or financial instrument, at a specified date. Futures are exchange-traded at standardised amounts of the underlying asset or financial instrument. Forward contracts are oTC agreements and are principally dealt in by the group, in interest rates as forward rate agreements and in currency as forward foreign exchange contracts. Collateral The group may require collateral in respect of the credit risk present in derivative transactions. The amount of credit risk is principally the positive fair value of the contract. Collateral may be in the form of cash or in the form of a lien over a client’s assets, entitling the group to make a claim for current and future liabilities. 16.1 Total carrying amount of derivative financial instruments Gross carrying amount of assets Gross carrying amount of liabilities Net carrying amount 2014 rm 15 644 (15 479) 165 2013 Rm 13 811 (16 588) (2 777) A detailed breakdown of the carrying amount (fair value) and notional principal of the various types of derivative financial instruments held by the group is presented in the following tables in notes 16.2 to 16.5. 50 16.2 Notional principal of derivative financial instruments This represents the gross notional amounts of all outstanding contracts at year-end. This gross notional amount is the sum of the absolute amount of all purchases and sales of derivative instruments. The notional amounts do not represent amounts exchanged by the parties and therefore represent only the measure of involvement by the group in derivative contracts and not its exposure to market or credit risks arising from such contracts. The amounts actually exchanged are calculated on the basis of the notional amounts and other terms of the derivative, which relate to interest rates, exchange rates, securities or commodity prices or financial and other indices. notional principal rm 2014 positive value rm negative value rm Notional principal Rm 2013 Positive value Rm Negative value Rm Hedging derivatives Interest rate derivatives Interest rate swaps other derivatives Equity derivatives options written options purchased Futures¹ Commodity derivatives Futures Exchange rate derivatives Forwards Futures Currency swaps options purchased options written Interest rate derivatives Interest rate swaps Forward rate agreements options purchased Futures Caps Floors Credit default swaps 275 275 8 266 2 541 2 541 3 184 1 957 1 957 303 944 242 209 1 214 49 331 5 244 5 946 682 767 515 712 121 404 – 6 160 2 169 650 36 672 3 317 2 541 776 1 173 1 173 142 695 115 300 108 22 043 5 244 344 379 256 677 65 300 1 696 900 650 19 156 4 949 2 541 2 408 784 784 161 249 126 909 1 106 27 288 5 946 338 388 259 035 56 104 4 464 1 269 9 250 2 856 2 860 3 534 1 285 1 285 181 986 156 023 379 21 075 2 329 2 180 757 808 469 770 242 827 723 7 705 307 150 4 141 2 860 1 281 92 979 81 678 336 8 593 2 329 43 379 037 238 133 120 100 723 1 884 17 516 36 326 18 197 5 109 2 856 2 253 1 285 1 285 89 007 74 345 43 12 482 2 137 378 771 231 637 122 727 5 821 307 150 18 129 total notional principal 997 209 491 839 505 370 950 329 476 157 474 172 1 Includes contracts for difference with positive notionals of R45m (2013: R342m) and negative notionals of R1 677m (2013: R2 014m). 51 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 16 DERIVATIVE FINANCIAL INSTRUMENTS (continued) 16.3 Carrying amount of derivative financial instruments The amounts disclosed represent the fair value of all derivative instruments held at year-end. The fair value of a derivative financial instrument is the amount at which it could be exchanged in a current transaction between willing parties, other than a forced liquidation or sale. Fair values are obtained from quoted market prices, discounted cashflow models and market-accepted option-pricing models. 2014 Carrying amount of assets rm net carrying amount rm Carrying amount of liabilities rm Net carrying amount Rm 2013 Carrying amount of assets Rm Carrying amount of liabilities Rm Hedging derivatives Interest rate derivatives Interest rate swaps other derivatives Equity derivatives options written options purchased Futures¹ Commodity derivatives Futures Exchange rate derivatives Forwards Futures Currency swaps options purchased options written Interest rate derivatives Interest rate swaps Forward rate agreements Futures Caps Floors Credit default swaps total carrying amount 2 8 (352) 360 9 9 1 129 1 320 (3) (263) 234 (159) (983) (1 190) 19 (2) (8) 4 194 165 2 372 360 12 10 10 6 645 3 089 3 322 234 8 615 7 534 56 4 4 1 017 15 644 364 352 12 1 1 5 516 1 769 3 3 585 159 9 598 8 724 37 2 12 823 15 479 390 (538) 928 (9) (9) (911) 5 1 (817) 200 (300) (2 247) (2 337) 14 (2) (1) 2 77 (2 777) 945 928 17 4 076 2 432 1 1 443 200 8 790 7 505 101 2 1 182 13 811 555 538 17 9 9 4 987 2 427 2 260 300 11 037 9 842 87 2 1 1 105 16 588 1  Includes contracts for difference and an equity forward agreement. The fair value of the contracts for difference is zero as the variation margin is settled at the end of every day. The equity forward agreement is an asset with a fair value of R2m (2013: R17m.). 52 16.4 Analysis of derivative financial instruments Rm Derivative assets 2014 Maturity analysis Under one year one to five years over five years 2013 Maturity analysis Under one year one to five years over five years Derivative liabilities 2014 Maturity analysis Under one year one to five years over five years 2013 Maturity analysis Under one year one to five years over five years notional principal of derivatives 2014 Maturity analysis Under one year one to five years over five years 2013 Maturity analysis Under one year one to five years over five years Hedging derivatives other derivatives Interest rate derivatives equity derivatives Commodity derivatives exchange rate derivatives Interest rate derivatives total 1 1 2 260 112 372 736 209 945 252 112 364 346 209 555 10 10 1 1 9 9 3 425 1 932 1 288 6 645 2 328 1 173 575 4 076 2 385 1 653 1 478 5 516 2 757 1 013 1 217 4 987 75 200 275 6 513 1 753 1 957 257 249 28 404 18 291 8 266 1 957 303 944 4 111 2 083 3 056 9 250 1 285 1 285 153 865 19 067 9 054 181 986 787 3 154 4 674 8 615 417 4 026 4 347 8 790 632 3 097 5 869 9 598 533 4 331 6 173 11 037 224 932 255 640 202 195 682 767 290 206 304 406 163 196 757 808 4 482 5 199 5 963 15 644 3 481 5 408 4 922 13 811 3 270 4 862 7 347 15 479 3 645 5 553 7 390 16 588 490 651 285 872 220 686 997 209 449 467 325 556 175 306 950 329 16.5 Derivatives designated as fair-value hedges As part of the group’s hedging activities, it enters into transactions which are designated as fair-value hedge transactions. Cashflow hedges and hedges of net investments in foreign entities do not currently form part of the Group’s hedging strategy. Fair-value hedges are used by the group to mitigate the risk of changes in fair value of financial instruments due to movements in market interest rates. Derivatives that are designated by the group to form part of these fair-value hedge transactions principally consist of interest rate swaps. The corresponding hedged items forming part of these fair-value hedge transactions primarily consist of fixed rate government bonds (refer to note 25). For qualifying fair-value hedges, all changes in the fair value of the derivative and in the fair value of the hedged item in relation to the risk being hedged are recognised in profit and loss. If the hedge relationship is terminated, the fair-value adjustment to the hedged item continues to be reported as part to the basis of the item and is amortised to profit and loss as a yield adjustment over the remainder of the hedging period. 53 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 16 DERIVATIVE FINANCIAL INSTRUMENTS (continued) 16.5 Derivatives designated as fair-value hedges (continued) The group recognised the following gains and losses on hedging instruments and hedged items: Rm Losses on hedged items (assets) (note 5) Gains on hedging instruments (assets) (note 5) 17 GoVERNMENT AND oTHER SECURITIES 17.1 Analysis Government and government-guaranteed securities other dated securities¹ 17.2 Sectoral analysis Financial services, insurance and real estate Banks Manufacturing Transport, storage and communication Government and public sector other sectors 1 Includes securitised assets. See note 43. 18 LoANS AND ADVANCES 2014 2013 (3) 3 – 13 839 12 989 26 828 2 516 2 897 1 882 694 17 571 1 268 26 828 17 324 13 955 31 279 2 628 3 026 2 171 1 082 20 487 1 885 31 279 The group extends advances to individuals and to the corporate, commercial and public sectors. Advances made to individuals are mostly in the form of mortgages, instalment credit, overdrafts, personal loans and credit card borrowings. The group’s main activity is in the corporate and commercial sectors where advances are made to a large cross-section of businesses, predominantly in the finance and service area, manufacturing and building and property finance sectors. This note should be read in conjunction with note 19 ‘Impairment of loans and advances’, as this represents the gross exposure before any impairment provision. Specific impairments have been raised against those loans identified as impaired, and the analysis per product type can be found in note 19.2. portfolio impairments are recognised against loans and advances classified as ‘neither past due nor impaired’ or ‘past due but not impaired’. 54 18.1 Categories of loans and advances Mortgage loans Home loans Commercial mortgages Net finance lease and instalment debtors (note 18.4) Gross investment Unearned finance charges Credit cards other loans and advances properties in possession overdrafts Term loans personal loans other term loans overnight loans other loans to clients Foreign client lending Remittances in transit other loans¹ preference shares and debentures Factoring accounts Deposits placed under reverse repurchase agreements Trade, other bills and bankers’ acceptances Impairment of loans and advances (note 19) Comprises: Loans and advances to customers Loans and advances to banks 1 Represents clients’ indebtedness for acceptances and other loans. 18.2 Sectoral analysis Individuals Financial services, insurance and real estate Banks Manufacturing Building and property development Transport, storage and communication Retailers, catering and accommodation Wholesale and trade Mining and quarrying Agriculture, forestry and fishing Government and public sector other services 18.3 Geographical analysis SA Rest of Africa Europe Asia United States other 2014 rm 252 098 128 889 123 209 92 487 115 877 (23 390) 13 376 256 316 596 13 214 103 820 17 457 86 363 21 638 75 488 12 314 156 63 018 17 995 4 986 18 291 288 614 277 (10 948) 603 329 594 771 19 506 614 277 219 820 152 858 19 506 40 397 8 878 23 696 23 444 17 456 25 009 4 283 21 551 57 379 614 277 579 634 10 735 12 473 3 754 2 961 4 720 2013 Rm 234 424 128 505 105 919 83 810 104 806 (20 996) 11 428 247 717 773 12 622 95 602 20 419 75 183 17 926 71 306 12 255 100 58 951 18 855 4 796 25 796 41 577 379 (11 332) 566 047 552 122 25 257 577 379 211 433 132 394 25 257 44 353 7 626 23 845 16 686 12 833 27 958 4 346 21 621 49 027 577 379 543 273 12 908 13 114 1 781 1 226 5 077 614 277 577 379 55 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 18 LoANS AND ADVANCES (continued) 18.4 Net finance lease and instalment debtors rm No later than one year Later than one year and no later than five years Later than five years 18.5 Classification of loans and advances 2014 unearned finance charges (5 977) (16 350) (1 063) Gross 29 912 80 762 5 203 115 877 (23 390) 2013 Unearned finance charges (5 520) (14 533) (943) Gross 27 712 72 451 4 643 104 806 (20 996) net 23 935 64 412 4 140 92 487 Net 22 192 57 918 3 700 83 810 total neither past due nor impaired past due but not impaired rm 2014 2013 2014 2013 Mortgage loans¹ 252 098 234 424 235 721 216 945 Net finance lease and instalment debtors¹ Credit cards properties in possession overdrafts Term loans overnight loans other loans to clients¹ preference shares and debentures Factoring accounts Deposits placed under reverse repurchase agreements Trade, other bills and bankers’ acceptances 92 487 13 376 596 13 214 103 820 21 638 75 488 17 995 4 986 83 810 11 428 773 12 622 95 602 17 926 71 306 18 855 4 796 84 624 11 394 76 567 9 744 12 058 98 679 21 638 74 878 17 995 4 574 11 084 89 611 17 920 70 501 18 855 4 492 18 291 25 796 18 291 25 796 288 41 288 41 2014 8 870 5 530 1 080 505 1 962 219 2013 8 911 4 829 856 675 2 504 6 161 298 204 Defaulted 2014 7 507 2013 8 568 2 333 2 414 902 596 651 828 773 863 3 179 3 487 391 114 644 100 614 277 577 379 580 140 541 556 18 464 18 146 15 673 17 677 Loans and advances defaulted – not impaired Loans and advances defaulted – impaired¹ 1 2013 comparatives have been restated due to reclassifications of restructures in MFC as defaulted advances. 345 15 328 15 673 436 17 241 17 677 56 18.6 Age analysis of loans and advances total <1 month >1 month <3 months >3 months <6 months >6 months <12 months >12 months rm 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 Neither past due nor impaired 580 140 541 556 580 140 541 556 Mortgage loans 235 721 216 945 235 721 216 945 Net finance lease and instalment debtors Credit cards overdrafts Term loans 84 624 76 567 84 624 76 567 11 394 9 744 11 394 9 744 12 058 11 084 12 058 11 084 98 679 89 611 98 679 89 611 overnight loans 21 638 17 920 21 638 17 920 other loans to clients 74 878 70 501 74 878 70 501 preference shares and debentures 17 995 18 855 17 995 18 855 Factoring accounts 4 574 4 492 4 574 4 492 Deposits placed under reverse repurchase agreements Trade, other bills and bankers’ acceptances past due but not impaired 18 291 25 796 18 291 25 796 288 41 288 41 18 464 18 146 10 558 10 366 Mortgage loans 8 870 8 911 5 670 5 740 7 866 3 178 7 665 3 160 Net finance lease and instalment debtors Credit cards overdrafts Term loans 5 530 1 080 505 856 675 1 962 2 504 overnight loans other loans to clients¹ Factoring accounts – 219 298 6 161 204 4 829 2 311 2 532 3 214 2 291 739 434 890 216 298 81 630 341 58 679 43 1 040 1 072 1 464 6 133 204 3 28 40 22 5 13 115 11 6 96 2 Subtotal Defaulted 598 604 559 702 590 698 551 922 7 866 7 665 40 115 – – – – 15 673 17 677 Mortgage loans¹ 7 507 8 568 Net finance lease and instalment debtors¹ Credit cards properties in possession overdrafts Term loans other loans to clients¹ Factoring accounts 2 333 2 414 902 828 596 651 773 863 3 179 3 487 391 114 644 100 total loans and advances 614 277 577 379 1 2013 comparatives have been restated due to reclassifications of restructures in MFC as defaulted advances. 57 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 18 LoANS AND ADVANCES (continued) 18.7 Credit quality of loans and advances rm 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 total nGr 1-12 nGr 13-20 nGr 21-25 np 1-3 unrated Neither past due nor impaired Mortgage loans Net finance lease and instalment debtors Credit cards overdrafts Term loans overnight loans other loans to clients preference shares and debentures Factoring accounts Deposits placed under reverse repurchase agreements Trade, other bills and bankers’ acceptances past due but not impaired Mortgage loans¹ Net finance lease and instalment debtors¹ Credit cards overdrafts Term loans overnight loans other loans to clients¹ Factoring accounts Defaulted Mortgage loans¹ Net finance lease and instalment debtors¹ Credit cards properties in possession overdrafts Term loans other loans to clients¹ Factoring accounts Total loans and advances 580 140 541 556 220 377 203 057 309 817 235 721 216 945 57 518 291 713 49 959 165 436 152 722 22 614 8 839 19 667 6 887 – – 27 332 3 928 27 119 7 377 84 624 11 394 12 058 98 679 21 638 74 878 76 567 9 744 11 084 89 611 17 920 70 501 4 344 1 099 3 314 73 127 16 834 35 243 4 958 1 328 3 278 59 199 13 815 32 921 72 674 8 714 8 256 20 427 4 800 19 896 65 945 6 824 7 327 24 469 3 918 19 049 6 929 1 581 247 4 787 4 227 4 902 1 592 249 5 679 187 171 17 995 4 574 18 855 4 492 11 401 143 15 828 281 3 958 4 431 2 901 4 211 18 291 25 796 17 354 21 452 937 4 344 288 41 38 288 3 18 464 8 870 18 146 8 911 2 2 1 1 2 672 1 467 3 192 1 244 15 647 7 363 14 638 7 530 5 530 1 080 505 1 962 – 219 298 15 673 7 507 2 333 902 596 651 3 179 391 114 4 829 856 675 2 504 6 161 204 17 677 8 568 2 414 828 773 863 3 487 644 100 726 230 26 222 1 110 168 195 474 1 1 4 760 835 479 1 720 192 298 34 3 678 676 471 1 946 6 127 204 34 677 762 241 338 230 264 19 512 18 360 2 636 126 26 2 9 15 100 11 1 12 9 67 117 36 35 20 26 215 125 40 17 33 13 937 7 103 16 283 8 028 1 702 404 1 394 540 2 295 902 2 353 828 38 61 644 2 546 333 114 856 3 483 635 100 596 7 633 24 773 7 4 9 614 277 577 379 220 379 203 058 312 489 294 905 38 295 34 305 13 963 16 383 29 151 28 728 1 2013 comparatives have been restated due to reclassifications of restructures in MFC as defaulted advances. The group uses a master rating scale for measuring credit risk, which measures borrower risk excluding the effect of collateral and any credit mitigation (ie probability of default only). The comprehensive probability of default rating scale, which is mapped to default probabilities and external rating agency scales, enables the group to measure credit risk consistently and accurately across its entire portfolio. A brief explanation of the scale follows: NGR 1-12: Represents borrowers who demonstrate a strong capacity to meet financial obligations, and who have a negligible or low probability of default. This category comprises, but is not limited to, the group’s large corporate clients, including financial institutions, parastatals and other government-related institutions. NGR 13-20: Represents borrowers who demonstrate a satisfactory ability to make payments and who have a low or moderate probability of default. This category comprises, but is not limited to, small and medium businesses, medium-sized corporate clients and individuals. NGR 21-25: Represents borrowers who are of higher risk. This category comprises higher-risk individuals or small businesses, as well as borrowers that were rated higher on inception but have since migrated down the rating scale as a result of poor financial performance. However, the borrower has not defaulted and is continuing to make repayments. Np 1-3: Represents clients who have defaulted. Where this rating appears in the ‘past due but not impaired’ category, the borrowers are continuing to make repayments against their obligation and are being closely monitored. 58 19 IMpAIRMENT oF LoANS AND ADVANCES 19.1 Impairment of loans and advances Balance at the beginning of the year Impairments charge Statement of comprehensive income charge net of recoveries: – Loans and advances¹ – Advances designated as at fair value through profit or loss (see note 36.1) Recoveries Amounts written off against the impairment/ other transfers Impairment of loans and advances total impairments Specific impairments portfolio impairments 2014 rm 11 332 5 407 4 478 4 476 2 929 2013 Rm 10 778 6 407 5 529 5 503 26 878 2014 rm 7 476 5 059 4 130 4 128 2 929 2013 Rm 7 397 5 940 5 062 5 036 26 878 2014 rm 3 856 348 348 348 2013 Rm 3 381 467 467 467 (5 791) 10 948 (5 853) 11 332 (5 777) 6 758 (5 861) 7 476 (14) 4 190 8 3 856 1 2013 comparatives have been restated due to reclassifications of restructures in MFC as defaulted advances. 19.2 Impairments of loans and advances by classification total impairments – 2014 Home loans Commercial mortgages properties in possession Credit cards overdrafts other loans to clients Net finance lease and instalment debtors preference shares and debentures Trade, other bills and bankers’ acceptances Balance at the beginning of the year rm Impairments charge/(release) rm Amounts written off against the impairments/ other transfers rm 2 861 785 18 888 492 3 739 2 549 (1) 1 253 304 19 800 180 2 786 1 065 (674) (181) 15 (702) (236) (2 743) (1 271) 1 Impairment of loans and advances 11 332 5 407 (5 791) Total impairments – 2013 Home loans Commercial mortgages properties in possession Credit cards overdrafts other loans to clients Net finance lease and instalment debtors preference shares and debentures Trade, other bills and bankers’ acceptances Impairment of loans and advances 3 278 854 23 702 522 3 231 2 167 1 10 778 total rm 2 440 908 52 986 436 3 782 2 343 1 10 948 2 861 785 18 888 492 3 739 2 549 (1) 1 529 337 (7) 713 189 3 592 1 054 (946) (406) 2 (527) (219) (3 084) (672) (1) 6 407 (5 853) 11 332 59 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 19 19.2 IMpAIRMENT oF LoANS AND ADVANCES (continued) Impairments of loans and advances by classification (continued) Balance at the beginning of the year rm Impairments charge/(release) rm Amounts written off against the impairments/ other transfers rm Specific impairments – 2014 Home loans Commercial mortgages properties in possession Credit cards overdrafts other loans to clients Net finance lease and instalment debtors preference shares and debentures Specific impairment of loans and advances Specific impairments – 2013 Home loans Commercial mortgages properties in possession Credit cards overdrafts other loans to clients Net finance lease and instalment debtors¹ preference shares and debentures Specific impairment of loans and advances portfolio impairments – 2014 Home loans Commercial mortgages Credit cards overdrafts other loans to clients Net finance lease and instalment debtors Trade, other bills and bankers’ acceptances portfolio impairment of loans and advances portfolio impairments – 2013 Home loans Commercial mortgages Credit cards overdrafts other loans to clients Net finance lease and instalment debtors¹ Trade, other bills and bankers’ acceptances portfolio impairment of loans and advances 1 912 476 18 775 369 2 315 1 612 (1) 7 476 2 492 569 23 605 396 2 028 1 284 7 397 949 309 113 123 1 424 937 1 3 856 786 285 97 126 1 203 883 1 3 381 314 248 19 791 166 2 615 906 5 059 354 281 (7) 697 192 3 375 1 048 5 940 (61) 56 9 14 171 159 348 175 56 16 (3) 217 6 467 (674) (184) 15 (702) (236) (2 725) (1 272) 1 (5 777) (934) (374) 2 (527) (219) (3 088) (720) (1) (5 861) 3 (18) 1 (14) (12) (32) 4 48 8 1 2013 comparatives have been restated due to reclassifications of restructures in MFC as defaulted advances. 60 total rm 1 552 540 52 864 299 2 205 1 246 6 758 1 912 476 18 775 369 2 315 1 612 (1) 7 476 888 368 122 137 1 577 1 097 1 4 190 949 309 113 123 1 424 937 1 3 856 19.3 Sectoral analysis total impairments Specific impairments portfolio impairments Individuals¹ Financial services, insurance and real estate Manufacturing Building and property development Transport, storage and communication Retailers, catering and accommodation Wholesale and trade Mining and quarrying Agriculture, forestry and fishing Government and public sector other services 2014 rm 7 588 1 314 501 101 175 29 131 157 40 58 854 10 948 2013 Rm 8 184 975 276 112 185 49 244 189 159 60 899 11 332 19.4 Geographical analysis SA¹ other African countries Europe Asia United States other 10 554 10 934 75 282 – 37 – 101 155 2 130 10 2014 rm 4 979 488 339 41 69 4 78 47 18 47 648 6 758 6 444 45 232 37 2013 Rm 5 600 426 90 63 94 6 213 132 140 47 665 7 476 7 180 32 136 128 2014 rm 2 609 826 162 60 106 25 53 110 22 11 206 4 190 4 110 30 50 2013 Rm 2 584 549 186 49 91 43 31 57 19 13 234 3 856 3 754 69 19 2 2 10 1 2013 comparatives have been restated due to reclassifications of restructures in MFC as defaulted advances. 10 948 11 332 6 758 7 476 4 190 3 856 19.5 Interest on specifically impaired loans and advances 876 965 Interest on specifically impaired loans and advances is determined for the period for which the loan and advance was classified as specifically impaired. The amount is calculated by multiplying the discounted expected recovery by the effective interest rate for the specifically impaired loan and advance. The interest on specifically impaired loans and advances reflects the unwinding of the time value of money for the expected discounted recovery. Interest on specifically impaired loans and advances does not represent the contractual interest that has been earned on the outstanding balance of a loan and advance. 20 oTHER ASSETS Sundry debtors and other accounts 21 INVESTMENT SECURITIES Listed investments at market value private-equity portfolio other Unlisted investments at directors’ valuation Strate Ltd private-equity portfolio other Total listed and unlisted investments 2014 rm 5 393 5 393 624 624 1 745 51 1 195 499 2 369 2013 Rm 4 204 4 204 941 818 123 1 991 43 1 506 442 2 932 61 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 22 SUMMARISED FINANCIAL INFoRMATIoN oF INVESTMENTS IN pRIVATE EQUITY ASSoCIATES, ASSoCIATE CoMpANIES AND JoINT ARRANGEMENTS profit/(loss) from continuing operations posttax profit/ (loss) from discontinued operations other comprehensive income/(loss) total comprehensive income 2014 rm 2013 Rm 2014 rm 2013 Rm 2014 rm 2013 Rm 2014 rm 2013 Rm Comprehensive income Associates private-equity associates (manufacturing, industrial, leisure and other) private-equity associates (property investment associates) other Joint arrangements 248 130 141 75 (4) 460 116 116 (16) 346 5 (4) 1 1 1 162 6 176 104 (52) (7) 135 67 116 116 103 6 378 336 22.1 Movement in carrying amount Carrying amount at the beginning of the year Share of associate companies’ and joint arrangements’ profit after taxation for the current year Net movement of associate companies and joint arrangements at cost¹ Fair value movements Carrying amount at end of year 22.2 Analysis of carrying amount Associate investments – on acquisition: Net asset value Share of retained earnings since acquisition Fair value movements 22.3 Valuation Directors’ valuation 1 These amounts include movements due to acquisitions and disposals. 2014 rm 1 098 12 10 38 1 158 730 39 389 1 158 1 158 1 158 2013 Rm 1 029 28 61 (20) 1 098 705 28 365 1 098 1 098 1 098 Refer to note 51 for further information in respect of investments in private-equity associates, associate companies and joint arrangements. 23 NoN-CURRENT ASSETS HELD FoR SALE non-current assets held for sale properties sold not yet transferred¹ previously included in: property and equipment 2014 rm 16 16 2013 Rm 12 12 Non-current assets and liabilities held for sale are measured at the lower of the carrying amount and fair value less incremental directly attributable costs of disposal and are not depreciated. In accordance with IFRS 13 Fair value Measurement, the measurement of the group’s non-current assets and liabilities are considered to be non-recurring. Non-recurring fair value measurements are those that IFRS requires or permits to be recognised in the statement of financial position in particular circumstances. Furthermore, the group classifies these assets and liabilities into level 3 of the fair value hierarchy. Level 3 fair value measurements are those that include the use of significant unobservable inputs. 1  Commitments for the sale of properties had been entered into at year-end by the group. Transfer of which had not been effected at year-end. Transfer of the properties is expected to take place during the following year. 62 24 DEFERRED TAxATIoN 24.1 Reconciliation of deferred taxation balance Deferred taxation assets Balance at the beginning of the year Current year temporary differences recognised in the statement of comprehensive income Capital gains taxation Client credit agreements Deferred acquisition costs Deferred fee income Depreciation Fair value adjustments of financial instruments Impairment of loans and advances other income and expense items Share-based payments Taxation losses recognised Recognised directly in equity other movements Balance at the end of the year Deferred taxation liabilities Balance at the beginning of the year Current year temporary differences recognised in the statement of comprehensive income Capital gains taxation Client credit agreements Deferred acquisition costs Deferred fee income Depreciation Fair value adjustments of financial instruments Impairment of loans and advances other income and expense items property revaluations Share-based payments Taxation losses recognised Recognised directly in equity other movements Balance at the end of the year 2014 rm 69 307 20 (5) (37) 15 (17) (32) 114 241 21 (13) (25) (186) 165 297 19 9 4 12 (6) (29) 287 2013 Rm 362 (25) 1 (28) 2 (268) 69 367 (153) (26) (3) 64 (39) 85 (31) (4) (174) (10) (63) 48 376 (293) 297 63 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 24 DEFERRED TAxATIoN (continued) 24.2 Analysis of deferred taxation Deferred taxation assets Capital gains taxation Client credit agreements Deferred acquisition costs Deferred fee income Depreciation Fair-value adjustments of financial instruments Impairment of loans and advances other income and expense items property revaluations Share-based payments Taxation losses Deferred taxation liabilities Capital gains taxation Client credit agreements Deferred acquisition costs Deferred fee income Depreciation Fair value adjustments of financial instruments Impairment of loans and advances other income and expense items property revaluations Share-based payments 25 INVESTMENT pRopERTY 25.1 Fair value Fair value at the beginning of the year Transfers to non-current assets held for sale (note 23) Net profit/(loss) from fair value adjustments other movements Fair value at the end of the year 25.2 Fair value of investment property 2014 rm (184) (16) (396) 272 (408) 78 1 249 31 (443) (27) 9 165 52 28 88 119 287 87 (87) – 2013 Rm 11 36 22 69 231 11 358 (257) 391 (94) (1 116) 188 531 54 297 84 4 (1) 87 Investment properties are freehold and are either held to earn rentals or for capital appreciation. Internal professional valuers perform valuations on an annual basis. External valuers are obtained once every three years on a rotational basis in accordance with the group’s policies for the valuation of properties. The internal and external valuers are members or associates of the Institute of Valuers (SA) or a local equivalent in the case of foreign subsidiaries. The carrying amount of these properties is the fair value of the property as determined by registered independent valuers who have recent experience in the location and category of the property being valued. In determining the fair value of these investment properties, the following factors were considered: Type of property Valuation method Significant inputs Parameters Commercial property Discounted cashflow Income capitalisation rates 10,0% Total investment properties measured at fair value 2014 rm – 2013 Rm 87 87 In accordance with IFRS 13 Fair value Measurement, the measurement of the group’s investment properties are considered to be recurring. Recurring fair value measurements are those that IFRS requires or permits to be recognised in the statement of financial position at the end of each reporting period. Furthermore, the group classifies its investment properties into level 3 of the fair-value hierarchy. Level 3 fair-value measurements are those that include the use of significant unobservable inputs. 64 25.3 Rental income and operating expenses from investment property Rental income from investment property Direct operating expense arising from investment property that generated rental income 25.4 Minimum contractual lease rental income from investment property 2014 2014 rm 4 6 – 2013 Rm 13 20 12 12 26 pRopERTY AND EQUIpMENT land Buildings Computer equipment Furniture and other equipment Vehicles total 2014 rm 2013 Rm 2014 rm 2013 Rm 2014 rm 2013 Rm 2014 rm 2013 Rm 2014 rm 2013 Rm 2014 rm 2013 Rm Gross carrying amount Balance at 1 January Acquisitions Increases arising from revaluations¹ Transfers to non-current assets held for sale Disposals Writeoff of accumulated depreciation on revaluations Transfers to software (note 28) Effect of movements in foreign exchange rates and other movements Balance at 31 December Accumulated depreciation and impairment losses Balance at 1 January Depreciation charge for the year Writeoff of accumulated depreciation on revaluations Disposals Transfers to software (note 28) Effect of movements in foreign exchange rates and other movements Balance at 31 December Carrying amount At 1 January At 31 December 220 347 (4) (759) (8) (297) (85) (132) (60) 787 4 005 180 3 725 92 2 897 728 2 591 432 3 294 745 3 065 437 24 3 23 4 11 009 1 658 10 191 965 789 2 83 7 137 340 (1) (3) (3) (3) (15) (5) (1) (542) (128) (198) (162) (4) (3) (85) (132) (13) (47) 1 2 (1) 2 (1) 1 873 789 4 221 4 005 3 083 2 897 3 840 3 294 371 388 2 154 1 931 1 898 1 686 131 126 396 345 375 367 1 24 15 4 2 3 24 12 041 11 009 15 4 438 4 020 3 906 841 (85) (15) (132) (10) (511) (123) (147) (149) (4) (3) (6) (85) (677) (132) (275) (16) (1) 1 402 371 2 039 2 154 2 126 1 898 789 873 787 789 3 634 3 819 3 337 3 634 743 1 044 660 743 1 396 1 714 1 379 1 396 15 9 9 15 4 582 4 438 8 9 6 571 7 459 6 171 6 571 1 Gains on property revaluations are recognised in profit or loss to the extent that they reverse a revaluation decrease of the same asset previously recognised in profit or loss. 65 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 26 pRopERTY AND EQUIpMENT (continued) Equipment (principally computer equipment, motor vehicles, fixtures and furniture) is stated at cost less accumulated depreciation and impairment losses. Land is recognised at the revalued amount, which is based on external valuations obtained every three years on a rotation basis for all properties in accordance with the group’s accounting policy. The valuers are members or associates of the Institute of Valuers (SA) or a local equivalent in the case of foreign subsidiaries. An annual internal review is also done on those properties not subject to external valuation. The carrying amount of properties is the fair value as determined by the valuers less subsequent accumulated depreciation and impairment losses. Adjustments in the valuation of the properties are recorded in the revaluation reserve, which is amortised over the remaining useful life of the property. In determining the fair value of properties, the following factors are considered: Type of property Valuation method Significant inputs Parameters Commercial property Market comparable approach and discounted cashflow Income capitalisation rates 11,0% – 13,5% (2013: 10,0% – 13,0%) Residential property Market comparable approach and replacement value price per square metre total land and buildings land Buildings 2014 rm 2013 Rm 2014 rm 2013 Rm 868 783 3 809 3 629 5 5 10 8 873 788 3 819 3 637 In accordance with IFRS 13 Fair value Measurement,the measurement of the group’s properties are considered to be recurring. Recurring fair-value measurements are those that IFRS requires or permits to be recognised in the statement of financial position at the end of each reporting period. Furthermore, the group classifies its properties measured at fair value into level 3 of the fair-value hierarchy. Level 3 fair-value measurements are those that include the use of significant unobservable inputs. In respect of certain properties there are restrictions of title in terms of regulatory restrictions such as servitudes. This does not have a material effect on the ability of the group to transfer these properties. No material plant and equipment have been pledged as security for liabilities. If land and buildings were carried under the cost and not the revaluation model, the carrying amount would have been R2 444m (2013: R2 349m). 27 LoNG-TERM EMpLoYEE BENEFITS The group has a number of defined-benefit and defined-contribution plans in terms of which it provides pension, postretirement medical aid and long-term disability benefits to employees and their dependants on retirement, death or disability. All eligible employees and former employees are members of trustee-administered or underwritten schemes within the group, financed by company and employee contributions. All SA retirement plans are governed by the pension Funds Act of 1956. The defined-benefit funds are actuarially valued using the projected-unit credit method. Any deficits are funded to ensure the ongoing financial soundness of the funds. The benefits provided by the defined-benefit schemes are based on years of membership and/or salary levels. These benefits are provided from contributions by employees, the group, and income from the assets of these schemes. The benefits provided by the defined-contribution schemes are determined by the accumulated contributions and investment earnings. At the dates of the latest valuations, the defined-benefit plans were in a sound financial position in terms of section 16 of the pensions Funds Act. During 1998 active members in the Nedgroup pension Fund (defined-benefit) were granted a further option to transfer to one of the defined-contribution funds and approximately three quarters of the then valuation surplus was allocated to members and pensioners. The funds that constitute the assets and liabilities that the group has recognised in the statement of financial position in respect of its defined-benefit plans are listed below. The latest actuarial valuations were performed at 31 December 2014. Postemployment benefits Defined-benefit pension funds Nedgroup pension Fund (including the optiplus policy). BoE Funds, which consist of BoE Ltd pension Fund (1969), pension Fund of BoE Bank: Business Division. Nedbank UK pension Fund. other funds consisting of Nedbank Swaziland Ltd pension Fund and Nedbank Lesotho pension Fund. Defined-benefit medical aid schemes Nedgroup Medical Aid Scheme for Nedbank employees and pensioners. Nedgroup Medical Aid Scheme for past BoE employees and pensioners. Other long-term employee benefits Disability fund Nedbank Group Disability Fund [including the old Mutual Alternative Risk Transfer Fund (oMART) policy]. Insurance policies held with related parties optiplus (Nedgroup pension Fund) and oMART (Nedbank Group Disability Fund) are insurance policies, the proceeds of which can only be used to pay or fund the employee benefits under the specific funds. However, these policies are not qualifying insurance policies in terms of IAS 19 Employee Benefits since they are held with related parties. These rights to reimbursement are therefore recognised as separate assets and in all other respects are treated in the same way as other plan assets. 66 27.1 Analysis of long-term employee benefits assets and liabilities rm 2014 postemployment benefits other long-term employee benefits – disability fund 2013 postemployment benefits other long-term employee benefits – disability fund Assets liabilities net asset 4 035 374 4 409 2 527 320 2 847 (2 628) (374) (3 002) (1 484) (320) (1 804) 1 407 1 407 1 043 1 043 The group’s defined-benefit obligation in terms of the Nedbank Group Disability Fund is recognised together with the fair value of the assets held in oMART. oMART is a structured entity controlled by the group and was established to fund this defined-benefit obligation. The value of the oMART asset held by the group is R374m (2013: R320m). 27.2 Postemployment benefits rm Analysis of postemployment benefit assets and liabilities 2014 pension funds Nedgroup Fund Nedbank UK Fund other funds Medical aid funds Nedgroup scheme for Nedbank employees Nedgroup scheme for BoE employees Total 2013 pension funds Nedgroup Fund Nedbank UK Fund other funds Medical aid funds Nedgroup scheme for Nedbank employees Nedgroup scheme for BoE employees Total present value of obligation Fair value of plan asset Surplus/ (Deficit) unrecognised due to paragraph 64 limit net asset/ (liability) 5 024 4 460 395 169 1 772 1 644 128 6 796 4 781 4 267 352 162 1 571 1 481 90 6 352 7 053 6 488 384 181 1 170 1 170 8 223 6 520 6 017 332 171 893 893 7 413 2 029 2 028 (11) 12 (602) (474) (128) 1 427 1 739 1 750 (20) 9 (678) (588) (90) 1 061 (20) (20) (20) (18) (18) (18) 2 009 2 028 (11) (8) (602) (474) (128) 1 407 1 721 1 750 (20) (9) (678) (588) (90) 1 043 67 NedbaNk LIMITed annual reportpension and provident funds Medical aid funds 4 781 34 382 10 138 (335) 14 5 024 4 784 32 312 10 (155) 74 (276) 4 781 6 520 528 290 38 10 (335) (11) 13 7 053 5 635 368 690 32 10 (275) (8) 68 6 520 1 571 68 151 42 (60) 1 772 1 584 65 132 (148) (62) 1 571 893 92 (24) 265 (56) 1 170 854 68 28 (57) 893 total 6 352 102 533 10 180 (395) 14 6 796 6 368 97 444 10 (303) 74 (338) 6 352 7 413 620 266 303 10 (391) (11) 13 8 223 6 489 436 718 32 10 (332) (8) 68 7 413 NoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 27 LoNG-TERM EMpLoYEE BENEFITS (continued) 27.2 Postemployment benefits (continued) rm present value of defined-benefit obligation 2014 Balance at the beginning of the year Current service cost Interest cost Contributions by plan participants Actuarial losses Benefits paid Impact of foreign currency exchange rate changes Balance at the end of the year 2013 Balance at the beginning of the year Current service cost Interest cost Contributions by plan participants Actuarial gains Impact of foreign currency exchange rate changes Benefits paid Balance at the end of the year Fair value of plan assets 2014 Balance at the beginning of the year Expected return on plan assets Actuarial gains Contributions by the employer Contributions by plan participants Benefits paid Scheme-settled administration costs Impact of foreign currency exchange rate changes Balance at the end of the year 2013 Balance at the beginning of the year Expected return on plan assets Actuarial gains Contributions by the employer Contributions by plan participants Benefits paid Scheme-settled administration costs Impact of foreign currency exchange rate changes Balance at the end of the year 68 rm net asset/(liability) recognised 2014 present value of defined-benefit obligation Fair value of plan assets Funded status Unrecognised due to paragraph 64 limit Asset Liability 2013 present value of defined-benefit obligation Fair value of plan assets Funded status Unrecognised due to paragraph 64 limit Asset Liability net (income)/expense recognised 2014 Current service cost Interest cost Scheme-settled plan administration costs 2013 Current service cost Interest cost Scheme-settled plan administration costs Movements in net asset/(liability) recognised 2014 Balance at the beginning of the year Net income/(expense) recognised in the statement of comprehensive income Net remeasurements – credit for the year Contributions paid by the employer Impact of foreign currency exchange rate changes Balance at the end of the year 2013 Balance at the beginning of the year Net income/(expense) recognised in the statement of comprehensive income Net remeasurements – credit/(debit) for the year Contributions paid by the employer Impact of foreign currency exchange rate changes Balance at the end of the year pension and provident funds Medical aid funds total (6 796) 8 223 1 427 (20) 1 407 4 035 (2 628) (6 352) 7 413 1 061 (18) 1 043 2 527 (1 772) 1 170 (602) (602) (602) (1 571) 893 (678) (678) (678) (1 484) 68 59 127 65 65 130 (678) (127) (66) 269 102 (86) 11 27 97 9 8 114 1 043 (27) 85 307 (1) (5 024) 7 053 2 029 (20) 2 009 4 035 (2 026) (4 781) 6 520 1 739 (18) 1 721 2 527 (806) 34 (145) 11 (100) 32 (56) 8 (16) 1 721 100 151 38 (1) 2 009 (602) 1 407 842 16 836 32 (5) 1 721 (730) (130) 175 7 112 (114) 1 011 39 (5) (678) 1 043 69 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 27 LoNG-TERM EMpLoYEE BENEFITS (continued) 27.2 Postemployment benefits (continued) Distribution of plan assets (%) 2014 Equity instruments Debt instruments property Cash International 2013 Equity instruments Debt instruments property Cash International Actual return on plan assets (rm) 2014 2013 pension and provident funds Medical aid funds total 34,18 28,74 4,89 6,32 25,87 100,00 31,81 28,03 4,39 5,87 29,90 100,00 818 1 058 25,00 17,00 43,00 15,00 100,00 25,00 17,00 43,00 15,00 100,00 68 96 32,88 27,07 4,19 11,54 24,32 100,00 31,00 26,70 3,86 10,34 28,10 100,00 886 1 154 Principal actuarial assumptions (%) range used in valuation 2014 Discount rates Expected rates of return on plan assets Inflation rate Expected rates of salary increases pension increase allowance Annual increase to medical aid subsidy Average expected retirement age (years) 2013 Discount rates Expected rates of return on plan assets Inflation rate Expected rates of salary increases pension increase allowance Annual increase to medical aid subsidy Average expected retirement age (years) 3,60 – 8,10 3,60 – 8,10 2,25 – 5,90 6,90 – 7,10 0,53 – 5,90 55 to 65 4,40 – 8,50 4,40 – 8,50 2,50 – 6,10 7,00 – 7,10 0,57 – 6,10 55 to 65 9,1 9,1 6,5 6,5 7,5 60 9,4 9,4 6,8 6,8 7,8 60 Pension funds The expected long-term return is a function of the expected long-term returns on equities, cash and bonds. In setting these assumptions the asset splits at the latest available date were used and adjustments were made to reflect the effect of expenses. Weighted average assumptions: Discount rate Expected return on plan assets Future salary increases Future pension increases 70 2014 % 7,86 7,86 6,34 5,53 2013 % 8,30 8,30 6,55 5,74 Medical aid funds The overall expected long-term rate of return on plan assets is 9,4%. The expected rate of return is based on market expectations, at the beginning of the period, for returns over the entire life of the related obligation. The expected rate of return is based on the expected performance of the entire portfolio. experience adjustments on present value of defined-benefit obligation for past five years 2014 2013 2012 2011 2010 2009 experience adjustments on fair value of plan assets for past five years 2014 2013 2012 2011 2010 2009 estimate of future contributions Contributions expected for ensuing year Fund surplus/(deficit) for past five years 55 229 10 (106) 30 192 (30) 95 185 36 (42) 148 18 153 48 (98) (24) 28 18 (2) (10) 27 13 377 28 47 78 94 (24) 28 18 (32) 85 212 36 present value of obligation Fair value of plan asset Surplus/ (Deficit) pension funds 2014 2013 2012 2011 2010 2009 Medical aid funds 2014 2013 2012 2011 2010 2009 effect of 1% change in assumed medical cost trend rates (rm) 1% increase – effect on current service cost and interest cost 1% increase – effect on accumulated benefit obligation 1% decrease – effect on current service cost and interest cost 1% decrease – effect on accumulated benefit obligation 5 024 4 781 4 784 4 191 3 917 3 432 1 772 1 571 1 584 1 482 1 222 1 085 7 053 6 520 5 635 5 115 4 908 4 633 1 170 893 854 830 810 790 2014 50 274 (20) (222) 2 029 1 739 851 924 991 1 201 (602) (678) (730) (652) (412) (295) 2013 36 228 (29) (186) 71 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 28 INTANGIBLE ASSETS Goodwill Software Software development costs 1 633 6 859 241 761 (33) (198) (1) 1 633 7 629 224 224 1 409 1 409 1 633 4 897 644 (198) 1 5 344 1 962 2 285 5 884 263 669 (5) (15) 60 3 1 633 6 859 224 4 330 566 (17) 16 2 224 4 897 1 409 1 409 1 554 1 962 952 804 (761) (38) 957 135 135 817 822 1 001 678 (669) (59) 1 952 134 ¹ 1 135 867 817 total 9 444 1 045 – (71) (198) (1) 10 219 5 256 644 (198) 1 5 703 4 188 4 516 8 518 941 – (64) (15) 60 4 9 444 4 688 566 (17) 16 3 5 256 3 830 4 188 rm 2014 Cost Balance at the beginning of the year Acquisitions Development costs commissioned to software Impairment losses Disposals and retirements Foreign currency translation and other movements Balance at the end of the year Accumulated amortisation Balance at the beginning of the year Amortisation charge Disposals and retirements Foreign currency translation and other movements Balance at the end of the year Carrying amount At the beginning of the year At the end of the year 2013 Cost Balance at the beginning of the year Acquisitions Development costs commissioned to software Impairment losses Disposals and retirements Transfers from property and equipment (note 26) Foreign currency translation and other movements Balance at the end of the year Accumulated amortisation Balance at the beginning of the year Amortisation charge Disposals and retirements Transfers from property and equipment (note 26) Foreign currency translation and other movements Balance at the end of the year Carrying amount At the beginning of the year At the end of the year 1 Represents amounts less than R1m. 72 28.1 Analysis of goodwill rm original subsidiary companies peoples Mortgage Ltd IBL Asset Finance and Services Ltd old Mutual Bank Capital one American Express Nedbank Limited – BoE Ltd Visigro Investments (pty) Ltd other Cost 198 285 206 82 81 757 19 5 1 633 2014 Accumulated impairment losses Carrying amount (198) (25) (1) (224) – 260 206 82 81 757 19 4 2013 Accumulated impairment losses (198) (25) (1) (224) Carrying amount – 260 206 82 81 757 19 4 1 409 Cost 198 285 206 82 81 757 19 5 1 409 1 633 Goodwill is allocated to individual CGUs based on business activity. Impairment testing is done on a regular basis by comparing the net carrying value of the CGUs to the estimated value in use. The value in use is determined by discounting estimated future cashflows of each CGU. The discounted cashflow calculations have been performed using Nedbank’s cost of equity, which is calculated using the Capital Asset pricing Model. No impairments resulting from impairment testing have been effected for the reporting periods presented. Management regards the useful lives of all CGUs to be indefinite. See note 3 for key assumptions used when assessing goodwill impairment. The value in use of the various CGUs was based on the following assumptions: Risk-free rate (%) Beta range Equity risk premium (%) Terminal growth rate range (%) Cashflow projection (years) Discount rate range (%) Goodwill on a geographical basis relates to SA in total and is as follows: Carrying amount Estimated value in use Net estimated recoverable amounts 29 SHARE CApITAL 29.1 Ordinary share capital Authorised 30 000 000 (2013: 30 000 000) ordinary shares of R1 each Issued 27 241 024 (2013: 27 241 024) fully paid ordinary shares of R1 each 2014 7,98 2013 8,23 0,21 – 0,89 0,15 – 0,81 6,00 6,00 0,00 – 5,80 0,00 – 5,00 3 3 9,08 – 12,81 9,06 – 13,06 1 409 100 801 99 392 1 409 109 509 108 100 2014 rm 30 27 2013 Rm 30 27 Subject to the restrictions imposed by the Companies Act, 2008 (as amended), the unissued shares are under the control of the directors until the forthcoming annual general meeting. 73 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 29 SHARE CApITAL (continued) 29.2 Preference share capital and premium Nedbank Limited preference share capital and premium Authorised 1 000 000 000 (2013: 1 000 000 000) non-redeemable non-cumulative preference shares of R0,001 each 5 000 Class A redeemable cumulative preference shares of R0,0001 each 5 000 Class B redeemable cumulative preference shares of R0,0001 each Issued 358 277 491 (2013: 358 277 491) non-redeemable non-cumulative preference shares of R0,001 each 100 Class A redeemable cumulative preference shares of R0,0001 each 100 Class B redeemable cumulative preference shares of R0,0001 each preference share premium 1 Represents amounts less than R1m. 2014 rm 2013 Rm 1 1 1 1 1 1 1 1 1 1 3 561 3 561 3 561 3 561 preference shares are classified as equity instruments by Nedbank Limited (the company). Each preference share confers on the holder the right to capital of the company in the form of a cash dividend prior to payment of dividends to any other class of shareholder. The rate is limited to 83,33% of the prevailing prime rate on a deemed value of R10 and is never compounded. The dividends, if declared, accrue half-yearly on 30 June and 31 December and are payable within 120 days of these dates respectively. If a preference dividend is not declared, the dividend will not accumulate and will never become payable by the company, whether in preference to payments to any other class of share or otherwise. Each preference share confers on the holder the right to a return of capital on the winding up of the company prior to any payment to any other class of share, but holders are not entitled to any further participation in the profits, assets or any surplus assets of the company in such circumstances. The holders of this class of share are not entitled to be present or vote (even by proxy) at any meeting of the company except when a declared dividend or part thereof remains in arrears and unpaid after six months from the due date or a resolution is proposed that directly affects the rights attached to the preference share or the interests of the holder, including resolutions to wind up the company or in the reduction of its share capital. At every general meeting where the preference shareholder is entitled to vote, the voting rights are restricted to the holder’s nominal value in proportion to the total nominal value of all shares issued by the company. No shares in the capital of the company, in priority to the preference shares, can be created or issued without prior sanction of the holders of preference shares by way of a resolution passed at a separate class meeting properly constituted in terms of the provisions set out in the articles of association of the holders of preference shares. 74 30 AMoUNTS oWED To DEpoSIToRS 30.1 Classifications Current accounts Savings deposits other deposits and loan accounts Call and term deposits Fixed deposits Cash management deposits other deposits and loan accounts Foreign currency liabilities Negotiable certificates of deposit Deposits received under repurchase agreements¹ Comprises: – Amounts owed to depositors – Amounts owed to banks 2014 rm 62 385 9 649 453 350 252 157 41 264 60 025 99 904 29 807 66 849 12 583 2013 Rm 56 139 9 408 409 320 232 382 36 879 55 943 84 116 13 799 84 573 12 258 634 623 585 497 586 058 48 565 634 623 540 238 45 259 585 497 Deposit products include current accounts, savings accounts, call and notice deposits, fixed deposits and negotiable certificates of deposit. Term deposits vary from six months to five years in both the wholesale and retail markets. Foreign currency liabilities are either matched by advances to clients or hedged against exchange rate fluctuations. 1  Government and other securities (note 17) and negotiable certificates of deposit (note 15) amounting to R11 525m (2013: R12 258m) have been pledged as collateral for deposits received under repurchase agreements. These amounts represent assets that have been transferred but that do not qualify for derecognition under IAS 39. 30.2 Sectoral analysis Banks Government and public sector Individuals Business sector 30.3 Geographical analysis SA Rest of Africa Europe Asia United States 31 pRoVISIoNS AND oTHER LIABILITIES Creditors and other accounts Deferred revenue: customer loyalty programmes Short-trading securities and spot positions Leave pay accrual (note 31.1) 31.1 Leave pay accrual Balance at the beginning of the year Recognised in profit or loss Utilised during the year Balance at the end of the year 2014 rm 48 565 46 652 154 520 384 886 634 623 2013 Rm 45 259 47 029 141 811 351 398 585 497 613 638 569 220 6 956 13 865 164 5 704 8 360 165 2 048 634 623 585 497 6 668 258 767 711 8 404 676 386 (351) 711 7 206 277 1 857 676 10 016 635 367 (326) 676 75 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 31 pRoVISIoNS AND oTHER LIABILITIES (continued) 31.2 Day-one gains and losses The group enters into transactions where the fair value of the financial instruments are determined using valuation models for which certain inputs are not based on market-observable prices or rates. Such financial instruments are initially recognised at the transaction price, which is the best indicator of fair value. The transaction price may differ from the valuation amount obtained, giving rise to a day-one profit or loss. The difference between the transaction price and the valuation amount, commonly referred to as ‘day-one profit or loss’, is deferred and either amortised over the life of the transaction, deferred until the instrument’s fair value can be determined using market-observable inputs, or realised when the financial instrument is derecognised. The group’s day-one profits are attributable to commodity financial instruments. Balance at the beginning of the year Loss recognised in the statement of comprehensive income Balance at the end of the year 32 LoNG-TERM DEBT INSTRUMENTS Nominal value Instrument terms rm 1 700 8,90% per annum¹ 2 000 JIBAR + 0,47% per annum² 1 000 10,54% per annum¹ 1 800 JIBAR + 2,75% per annum² 1 200 JIBAR + 2,55% per annum² 450 10,49% per annum¹ 1 737 JIBAR + 2,55% per annum² 300 uS$m JIBAR + 2,75% per annum² 100 Three month USD LIBoR² rm 487 15,05% per annum¹ 1 265 JIBAR + 4,75% per annum² rm 480 JIBAR + 1,1% per annum² 336 JIBAR + 1,25% per annum² 900 JIBAR + 1,54% per annum² 110 JIBAR + 1,90% per annum² Subordinated debt rand-denominated Callable notes repayable on 8 February 2019 (NED8) (a) Callable notes repayable on 6 July 2022 (NED9) (c) Callable notes repayable on 17 September 2020 (NED11) (b) Callable notes repayable on 25 July 2023 (NED13) (g) Callable notes repayable on 29 November 2023 (NED14) (g) Callable notes repayable on 8 April 2024 (NED15) (h) Callable notes repayable on 8 April 2024 (NED16) (g) Callable notes repayable on 14 october 2024 (NED17) (g) uS dollar-denominated Callable notes repayable on 3 March 2022 (EMTN01) (e) Hybrid subordinated debt – Rand-denominated Callable notes repayable on 20 November 2018 (NEDH1A) (d) Callable notes repayable on 20 November 2018 (NEDH1B) (d) Securitised liabilities – Rand-denominated Callable notes repayable on 25 october 2039 (GRH1A1) (f) Callable notes repayable on 25 october 2039 (GRH1A2) (f) Callable notes repayable on 25 october 2039 (GRH1A3) (f) Callable notes repayable on 25 october 2039 (GRH1B) (f) ¹ Interest on these notes is payable biannually. ² Interest on these notes is payable quarterly. 76 2014 rm – 2014 rm 9 813 8 654 2 031 1 048 1 828 1 209 461 1 771 306 1 159 1 159 1 900 575 1 325 1 395 32 340 912 111 2013 Rm 33 (33) – 2013 Rm 8 946 7 895 1 765 2 026 1 070 1 826 1 208 1 051 1 051 1 831 552 1 279 1 593 232 340 910 111 Senior unsecured debt – Rand-denominated Senior unsecured notes repayable on 15 September 2015 (NBK2A) Senior unsecured notes repayable on 15 September 2015 (NBK2B) Senior unsecured notes repayable on 9 September 2019 (NBK3A) Senior unsecured notes repayable on 28 october 2024 (NBK4) Senior unsecured notes repayable on 19 April 2015 (NBK6A) Senior unsecured notes repayable on 19 April 2015 (NBK6B) Senior unsecured notes repayable on 19 April 2020 (NBK7B) Senior unsecured notes repayable on 24 March 2014 (NBK8A) Senior unsecured notes repayable on 24 March 2014 (NBK8B) Senior unsecured notes repayable on 23 March 2016 (NBK9A) Senior unsecured notes repayable on 23 March 2016 (NBK9B) Senior unsecured notes repayable on 25 July 2016 (NBK10A) Senior unsecured notes repayable on 21 April 2014 (NBK10B) Senior unsecured notes repayable on 28 November 2020 (NBK11A) Senior unsecured notes repayable on 27 october 2014 (NBK11B) Senior unsecured notes repayable on 19 March 2021 (NBK12A) Senior unsecured notes repayable on 20 February 2015 (NBK12B) Senior unsecured notes repayable on 19 March 2024 (NBK13A) Senior unsecured notes repayable on 21 February 2017 (NBK13B) Senior unsecured notes repayable on 28 November 2016 (NBK14A) Senior unsecured notes repayable on 27 August 2015 (NBK14B) Senior unsecured notes repayable on 27 August 2017 (NBK15B) Senior unsecured notes repayable on 25 July 2016 (NBK16B) Senior unsecured notes repayable on 28 November 2016 (NBK17B) Senior unsecured notes repayable on 20 March 2017 (NBK18B) Senior unsecured notes repayable on 26 June 2017 (NBK19B) Senior unsecured notes repayable on 25 June 2021 (NBK20B) Senior unsecured notes repayable on 10 November 2017 (NBK21B) Other – Rand-denominated Unsecured debentures repayable on 30 November 2029 total long-term debt instruments in issue ¹ Interest on these notes is payable biannually. ² Interest on these notes is payable quarterly. Nominal value Instrument terms rm 3 244 10,55% per annum¹ 1 044 JIBAR + 2,20% per annum² 1 273 11,39% per annum¹ 660 Zero coupon¹ 478 9,68% per annum¹ 2014 rm 2013 Rm 22 511 20 882 3 347 1 054 1 385 263 487 3 347 1 053 1 397 236 487 1 027 JIBAR + 1,75% per annum² 1 043 1 041 80 JIBAR + 2,15% per annum² 81 450 8,39% per annum¹ 988 JIBAR + 1,05% per annum² 81 460 869 1 137 9,36% per annum¹ 1 166 1 166 677 JIBAR + 1,25% per annum² 151 6,91% per annum¹ 678 154 500 JIBAR + 1,00% per annum² 1 888 8,92% per annum¹ 1 903 1 075 JIBAR + 0,94% per annum² 855 9,38% per annum¹ 1 297 JIBAR + 1,00% per annum² 391 9,73% per annum¹ 405 JIBAR + 1,30% per annum² 500 9,29% per annum¹ 250 JIBAR + 1,00% per annum² 786 JIBAR + 1,31% per annum² 878 1 307 402 408 501 252 700 678 155 455 1 903 1 086 1 306 408 251 730 3 056 JIBAR + 0,8% per annum² 3 068 3 074 694 JIBAR + 0,75% per annum² 1 035 JIBAR + 0,85% per annum² 806 JIBAR + 0,9% per annum² 650 JIBAR + 1,3% per annum² JIBAR + 1,12% per annum² 241 rm 200 Zero coupon 698 1 037 806 650 243 15 15 699 13 13 35 634 33 265 77 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 32 LoNG-TERM DEBT INSTRUMENTS (continued) During the year there were no defaults or breaches of principal, interest or any other terms and conditions of long-term debt instruments. Coupon holders are entitled, in the event of interest default, to put the coupon covering such interest payments to Nedbank Limited. The US dollar subordinated-debt instruments are either matched by advances to clients or covered against exchange rate fluctuations. In accordance with the group’s memorandum of incorporation the borrowing powers of the group are unlimited. (a) Callable by the issuer, Nedbank Limited, after seven years from the date of issue, being 20 September 2006 and 8 February 2007 (ie 20 September 2013 and 8 February 2014), at which time the interest converts to a floating three-month JIBAR rate, plus a spread of 2,05% and 2,17% respectively. (b) Callable by the issuer, Nedbank Limited, after eight years from the date of issue, being 17 September 2007 (ie 17 September 2015), at which time the interest converts to a floating three-month JIBAR rate, plus a spread of 2,85%. (c) Callable by the issuer, Nedbank Limited, after 10 years from the date of issue, being 6 July 2007 (ie 6 July 2017), at which time the interest converts to a floating three-month JIBAR rate, plus a spread of 2,20%. (d) Callable by the issuer, Nedbank Limited, after ten and a half years from the date of issue, being 20 May 2008 (ie 20 November 2018), at which time the interest converts to a floating three-month JIBAR rate plus 712,5 bps in perpetuity unless called. (e) Callable by the issuer, Nedbank Limited, after eight years from the date of issue 3 March 2009 (ie 3 March 2017), at which time the interest rate converts to a floating three-month USD LIBoR rate, plus a spread of 3,00%. (f) Callable by the issuer, Greenhouse Funding (RF) Ltd, after approximately five years from the date of issue, being 19 November 2012 (ie 25 october 2017), at which time the interest rate on the notes (GRH1A1, GRH1A2, GRH1A3, GRH1B) will step up to three-month JIBAR rate, plus a spread of 1,49%, 1,69%, 2,08% and 2,57% respectively. (g) Callable by the issuer, Nedbank Limited, after five years from the date of issue, 24 July 2013, 28 November 2013, 7 April 2014 and 13 october 2014 (ie 25 July 2018, 29 November 2018, 8 April 2019 and 14 october 2019), at which time the interest remains at a floating three-month JIBAR rate, plus a spread of 2,75%, 2,55%, 2,55% and 2,75% respectively. (h) Callable by the issuer, Nedbank Limited, after five years from the date of issue, 7 April 2014 (ie 8 April 2019), at which time the interest remains at a fixed rate of 10,49%. 33 CASHFLoW INFoRMATIoN 33.1 Reconciliation of profit from operations to cash generated by operations profit from operations Adjusted for: – Depreciation (note 8) – Amortisation: computer software and intangible assets (note 8) – Movement in impairment of loans and advances – Net income on investment banking assets – Impairment losses on investments, property and equipment, and capitalised development costs (note 10) – Loss on sale of subsidiaries, investments and property and equipment (note 10) – Fair value adjustments of investment properties (note 25) – Indirect taxation (note 9) Cash generated by operations 33.2 Cash received from clients Interest and similar income (note 5) Commission and fees (note 7) Net trading income (note 7) other income 33.3 Cash paid to clients, employees and suppliers Interest expense and similar charges (note 6) Staff costs (note 8) other operating expenses 78 2014 rm 10 822 906 644 5 407 (11) 96 522 18 386 50 075 12 591 2 394 1 160 66 220 2013 Rm 9 437 841 566 6 407 (14) 64 (5) (4) 480 17 772 44 107 12 193 2 331 891 59 522 (28 322) (12 550) (7 931) (48 803) (23 873) (11 513) (7 279) (42 665) 33.4 Increase in operating assets other short-term securities Government and other securities Loans and advances and other operating assets 33.5 Increase in operating liabilities Current and savings accounts other deposits, loan accounts and foreign currency liabilities Negotiable certificates of deposit Deposits received under repurchase agreements Creditors and other liabilities 33.6 Taxation paid Amounts receivable at the beginning of the year Statement of comprehensive income charge (excluding deferred taxation) other taxation received/(paid) Amounts receivable at the end of the year Total indirect taxation (note 9) Taxation paid 33.7 Dividends paid 2014 rm (21 318) 4 451 (47 198) (64 065) 6 487 60 038 (17 724) 325 (1 685) 47 441 327 (3 074) 7 (201) (2 941) (522) (3 463) 2013 Rm 2 571 (5 085) (51 190) (53 704) 2 791 34 479 9 859 (4 303) 3 802 46 628 174 (2 424) (2) (327) (2 579) (480) (3 059) Recognised in the consolidated statement of changes in shareholders’ equity (3 400) (3 450) 79 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 34 CoNSoLIDATED STATEMENT oF FINANCIAL poSITIoN – CATEGoRIES oF FINANCIAL INSTRUMENTS At fair value through profit or loss notes total rm Held for trading rm Designated1 rm Available-for-sale Held-to-maturity loans and Financial liabilities assets, liabilities financial assets investments receivables at amortised cost and equity rm rm rm rm rm non-financial 8 447 15 644 5 229 26 306 18 15 282 8 603 58 431 383 2 352 898 10 757 56 322 15 644 26 828 603 329 5 393 236 2 369 16 1 158 165 7 459 4 409 14 843 4 516 32 593 2 653 9 245 17 10 757 1 098 518 592 4 992 14 843 753 444 55 644 85 949 2 670 41 838 550 282 27 17 422 34 787 52 236 3 561 183 55 980 15 479 634 623 8 404 35 287 3 002 35 634 697 464 753 444 15 479 77 201 902 93 582 93 582 39 437 2 040 41 477 41 477 236 16 260 165 7 459 4 409 4 516 17 061 27 17 422 34 787 52 236 3 561 183 55 980 35 287 3 002 3 324 59 304 517 985 7 502 33 594 559 081 559 081 2014 Assets Cash and cash equivalents other short-term securities Derivative financial instruments Government and other securities Loans and advances other assets Current taxation assets Investment securities Non-current assets held for sale Investments in private-equity associates, associate companies and joint arrangements Deferred taxation assets Investment property property and equipment Long-term employee benefit assets Mandatory reserve deposits with central bank Intangible assets total assets equity and liabilities ordinary share capital ordinary share premium Reserves total equity attributable to equity holders of the parent preference share capital and premium Non-controlling interest attributable to: – ordinary shareholders total equity Derivative financial instruments¹ Amounts owed to depositors provisions and other liabilities Current taxation liabilities Deferred taxation liabilities Long-term employee benefit liabilities Long-term debt instruments total liabilities total equity and liabilities 1 Refer to note 36 in respect of financial instruments designated as at fair value through profit or loss. 14 15 16 17 18 20 21 23 22 24 25 26 27 14 28 29.1 29.2 16 30 31 24 27 32 80 34 CoNSoLIDATED STATEMENT oF FINANCIAL poSITIoN – CATEGoRIES oF FINANCIAL INSTRUMENTS At fair value through profit or loss notes rm rm rm total Held for trading Designated1 Available-for-sale financial assets rm Held-to-maturity investments rm loans and receivables rm Financial liabilities at amortised cost rm non-financial assets, liabilities and equity rm 32 593 2 653 9 245 17 10 757 1 098 518 592 4 992 14 843 753 444 55 644 85 949 2 670 41 838 550 282 Non-current assets held for sale Investments in private-equity associates, associate companies Long-term employee benefit assets Mandatory reserve deposits with central bank 2014 Assets Cash and cash equivalents other short-term securities Derivative financial instruments Government and other securities Loans and advances other assets Current taxation assets Investment securities and joint arrangements Deferred taxation assets Investment property property and equipment Intangible assets total assets equity and liabilities ordinary share capital ordinary share premium Reserves preference share capital and premium Non-controlling interest attributable to: – ordinary shareholders total equity Derivative financial instruments¹ Amounts owed to depositors provisions and other liabilities Current taxation liabilities Deferred taxation liabilities Long-term employee benefit liabilities Long-term debt instruments total liabilities total equity and liabilities total equity attributable to equity holders of the parent 1 Refer to note 36 in respect of financial instruments designated as at fair value through profit or loss. 14 15 16 17 18 20 21 23 22 24 25 26 27 14 28 29.1 29.2 16 30 31 24 27 32 10 757 56 322 15 644 26 828 603 329 5 393 236 2 369 16 1 158 165 7 459 4 409 14 843 4 516 27 17 422 34 787 52 236 3 561 183 55 980 15 479 634 623 8 404 35 287 3 002 35 634 697 464 753 444 8 447 15 644 5 229 26 306 18 15 282 8 603 58 431 383 2 352 898 15 479 77 201 902 93 582 93 582 39 437 2 040 41 477 41 477 236 16 260 165 7 459 4 409 4 516 17 061 27 17 422 34 787 52 236 3 561 183 55 980 35 287 3 002 3 324 59 304 517 985 7 502 33 594 559 081 559 081 81 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 34 CoNSoLIDATED STATEMENT oF FINANCIAL poSITIoN – CATEGoRIES oF FINANCIAL INSTRUMENTS (continued) At fair value through profit or loss Notes Total Rm Held for trading Rm Designated1 Rm Available-for-sale Held-to-maturity Loans and Financial liabilities assets, liabilities financial assets investments receivables at amortised cost and equity Rm Rm Rm Rm Rm Non-financial 10 376 13 811 5 423 31 783 20 5 11 293 9 897 59 332 335 2 781 860 17 467 35 004 13 811 31 279 566 047 4 204 340 2 932 12 1 098 69 87 6 571 2 847 13 199 4 188 13 335 2 027 12 033 146 17 467 1 899 474 932 3 849 13 199 699 155 61 418 84 498 2 173 25 368 511 346 27 17 422 30 524 47 973 3 561 141 51 675 16 588 585 497 10 016 13 297 1 804 33 265 647 480 699 155 16 588 57 482 1 970 89 762 76 040 76 040 3 778 93 540 93 540 340 12 238 69 87 6 571 2 847 4 188 14 352 27 17 422 30 524 47 973 3 561 141 51 675 13 297 1 804 2 114 53 789 438 253 8 046 29 487 475 786 475 786 2013 Assets Cash and cash equivalents other short-term securities Derivative financial instruments Government and other securities Loans and advances other assets Current taxation assets Investment securities Non-current assets held for sale Investments in private-equity associates, associate companies and joint arrangements Deferred taxation assets Investment property property and equipment Long-term employee benefit assets Mandatory reserve deposits with central bank Intangible assets total assets Equity and liabilities ordinary share capital ordinary share premium Reserves total equity attributable to equity holders of the parent preference share capital and premium Non-controlling interest attributable to: – ordinary shareholders total equity Derivative financial instruments Amounts owed to depositors provisions and other liabilities Current taxation liabilities other liabilities held for sale Deferred taxation liabilities Long-term employee benefit liabilities Long-term debt instruments total liabilities total equity and liabilities 1 Refer to note 36 in respect of financial instruments designated as at fair value through profit or loss. 14 15 16 17 18 20 21 23 22 24 25 26 27 14 28 29.1 29.2 16 30 31 23 24 27 32 82 34 CoNSoLIDATED STATEMENT oF FINANCIAL poSITIoN – CATEGoRIES oF FINANCIAL INSTRUMENTS (continued) At fair value through profit or loss Notes Rm Rm Rm Total Held for trading Designated1 Available-for-sale financial assets Rm Held-to-maturity investments Rm Loans and receivables Rm Financial liabilities at amortised cost Rm Non-financial assets, liabilities and equity Rm 13 335 2 027 12 033 146 17 467 1 899 474 932 3 849 13 199 699 155 61 418 84 498 2 173 25 368 511 346 Non-current assets held for sale Investments in private-equity associates, associate companies 2013 Assets Cash and cash equivalents other short-term securities Derivative financial instruments Government and other securities Loans and advances other assets Current taxation assets Investment securities and joint arrangements Deferred taxation assets Investment property property and equipment Intangible assets total assets Equity and liabilities ordinary share capital ordinary share premium Reserves Long-term employee benefit assets Mandatory reserve deposits with central bank total equity attributable to equity holders of the parent preference share capital and premium Non-controlling interest attributable to: – ordinary shareholders total equity Derivative financial instruments Amounts owed to depositors provisions and other liabilities Current taxation liabilities other liabilities held for sale Deferred taxation liabilities Long-term employee benefit liabilities Long-term debt instruments total liabilities total equity and liabilities 1 Refer to note 36 in respect of financial instruments designated as at fair value through profit or loss. 14 15 16 17 18 20 21 23 22 24 25 26 27 14 28 29.1 29.2 16 30 31 23 24 27 32 17 467 35 004 13 811 31 279 566 047 4 204 340 2 932 12 1 098 69 87 6 571 2 847 13 199 4 188 27 17 422 30 524 47 973 3 561 141 51 675 16 588 585 497 10 016 13 297 1 804 33 265 647 480 699 155 10 376 13 811 5 423 31 783 20 5 11 293 9 897 59 332 335 2 781 860 16 588 57 482 1 970 89 762 76 040 76 040 3 778 93 540 93 540 340 12 238 69 87 6 571 2 847 4 188 14 352 27 17 422 30 524 47 973 3 561 141 51 675 13 297 1 804 2 114 53 789 438 253 8 046 29 487 475 786 475 786 83 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 35 FAIR VALUE MEASUREMENT – FINANCIAL INSTRUMENTS 35.1 Valuation of financial instruments Background Information obtained from the valuation of financial instruments is used by the group to assess the performance of the business and, in particular, provide assurance that the risk and return measures that the business has taken are accurate and complete. It is important that the valuation of financial instruments accurately represents the financial position of the group while complying with the requirements of the applicable accounting standards. The fair value of a financial instrument is the amount that would be received to sell the asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Underlying the definition of fair value is a presumption that an entity is a going concern without any intention or need to liquidate, to curtail materially the scale of its operations or to undertake a transaction on adverse terms. Fair value is not, therefore, the amount that an entity would receive or pay in a forced transaction, involuntary liquidation or distressed sale. Control environment Validation and approval The business unit entering into the transaction is responsible for the initial determination and recording of the fair value of the transaction. There are normalised review protocols for the independent review and validation of fair values separate from the business unit entering into the transaction. These include, but are not limited to: ■ daily controls over the profit or loss recorded by trading and treasury frontoffice traders; ■ specific controls to ensure consistent pricing policies and procedures are adhered to; ■ independent valuation of structures, products and trades; and ■ periodic review of all elements of the modelling process. The validation of pricing and valuation methodologies is verified by a specialist team that is part of the group’s risk management function and that is independent of all the business units. A specific area of focus is the marking-to-model of illiquid and/or complex financial instruments. The review of the modelling process includes approval of model revisions, vetting of model inputs, review of model results and more specifically the verification of risk calculations. All valuation techniques are validated and reviewed by qualified senior staff and are calibrated and back-tested for validity by using prices from any observable current market transaction in the same instrument (ie without modification or repackaging) or based on any observable market data. The group obtains market data consistently in the same market where the instrument was originated or purchased. If the fair value calculation deviates from the quoted market value due to inaccurate observed market data, these deviations in the valuation are documented and presented at a review committee, which is independent of both the business unit and the specialist team, for approval. The committee will need to consider both the regulatory and accounting requirements in arriving at an opinion on whether the deviation is acceptable. The group refines and modifies its valuation techniques as markets and products develop and as the pricing for individual products becomes more or less readily available. While the group believes its valuation techniques are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions may result in different estimates of fair value at the different reporting dates. Stress testing and sensitivity measures Comprehensive stress testing is conducted by the group, in which the following, at a minimum, are considered: ■ anticipated future projected trading positions; ■ historical events; ■ scenario testing to evaluate plausible future events; and ■ specific testing to supplement the value at risk (VaR) methodology (ie one-day holding period and 99% confidence interval). For further discussion in respect of stress testing and sensitivity measures refer to note 35.7. Valuation methodologies The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. A fair value measurement includes, but is not limited to, consideration of the following: ■ the particular asset or liability that is being measured (consistently with its unit of account); ■ the principal (or most advantageous) market for the asset or liability; and ■ the valuation technique(s) appropriate for the measurement, considering the availability of data with which to develop inputs that represent the assumptions that market participants would use when pricing the asset or liability and the level of the fair-value hierarchy within which the inputs are categorised. quoted price A financial instrument is regarded as quoted in an active market if quoted prices are readily available from an exchange, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The appropriate quoted market price for an asset held or a liability to be issued is usually the current bid price and, for an asset to be acquired or a liability held, the asking price. The objective of determining fair value is to arrive at the transaction price of an instrument on the measurement date (ie without modifying or repackaging the instrument) in the principal (or most advantageous) active market to which the business has immediate access. 84 The existence of published price quotations in an active market is the most reliable evidence of fair value and, when they exist, they are used without adjustment to measure the financial asset or financial liability. A market is considered to be active if transactions occur with sufficient volume and frequency to provide pricing information on an ongoing basis. These quoted prices would generally be classified as level 1 in terms of the fair value hierarchy prescribed by IFRS 13 Fair value Measurement. Valuation techniques If the market for a financial instrument is not active, the group establishes fair value by using various valuation techniques. These valuation techniques may include: ■ using recent arm’s length market transactions between knowledgeable, willing parties; ■ reference to the current fair value of another instrument that is substantially of the same in nature; ■ reference to the value of the net asset of the underlying business; ■ earnings multiples; ■ discounted-cashflow analysis; and ■ various option pricing models. If there is a valuation technique that is commonly used by market participants to price the financial instrument and that technique has been demonstrated to provide reasonable estimates of prices obtained in actual market transactions, the group will use that technique. In applying valuation techniques, and to the extent possible, the group maximises the use of relevant observable inputs and minimises the use of unobservable inputs. The objective of using a valuation technique is to establish what the transaction price would have been on the measurement date in an arm’s length exchange and motivated by normal business considerations. In applying valuation techniques, the group uses estimates and assumptions that are consistent with available information about the estimates and assumptions that market participants would use in setting a price for the financial instrument. Fair value is therefore estimated on the basis of the results of a valuation technique that makes maximum use of market inputs and relies as little as possible on entity-specific inputs. A valuation technique would be expected to arrive at a realistic estimate of the fair value if: ■ it reasonably reflects how the market could be expected to price the instrument; and ■ the inputs to the valuation technique reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument. Therefore, a valuation technique: ■ will incorporate all relevant factors that market participants would consider in determining a price; and ■ is consistent with accepted economic methodologies for pricing financial instruments. If a published price quotation in an active market does not exist for a financial instrument in its entirety, but active markets exist for its component parts, fair value is determined on the basis of the relevant market prices for the various component parts. If a rate (rather than a price) is quoted in an active market, the group uses that market-quoted rate as an input into a valuation technique to determine fair value. If the market-quoted rate does not include credit risk or other factors that market participants would include in valuing the instrument, the group adjusts for these factors. Valuation techniques applied by the group would generally be classified as level 2 or level 3 in terms of the fair value hierarchy prescribed by IFRS 13 Fair value Measurement. The determination of whether an instrument is classified as level 2 or level 3 is dependent on the significance of observable inputs versus unobservable inputs in relation to the fair value of the instrument. Observable markets Quoted market prices in active markets are the best evidence of fair value and are used as the basis of measurement, if available. A determination of what constitutes ‘observable market data’ will necessitate significant judgement. It is the group’s belief that ‘observable market data’ comprises, in the following hierarchical order: ■ prices or quotes from an exchange or listed markets in which there are sufficient liquidity and activity; ■ proxy observable market data that is proven to be highly correlated and has a logical, economic relationship with the instrument that is being valued; and ■ other direct and indirect market inputs that are observable in the marketplace. Data is considered by the group to be ‘observable’ if the data is: ■ verifiable; ■ readily available; ■ regularly distributed; ■ from multiple independent sources; ■ transparent; and ■ not proprietary. Data is considered by the group to be ‘market-based’ if the data is: ■ reliable; ■ based on consensus within reasonable narrow, observable ranges; ■ provided by sources that are actively involved in the relevant market; and ■ supported by actual market transactions. It is not intended to imply that all of the above characteristics must be present to conclude that the evidence qualifies as observable market data. Judgement is applied based on the strength and quality of the available evidence. 85 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 35 FAIR VALUE MEASUREMENT – FINANCIAL INSTRUMENTS (continued) 35.1 Valuation of financial instruments (continued) Inputs to valuation techniques An appropriate valuation technique for estimating the fair value of a particular financial instrument would incorporate observable market data about the market conditions and other factors that are likely to affect the instrument’s fair value. Inputs are selected on a basis that is consistent with the characteristics of the instrument that market participants would take into account in a transaction for that instrument. principal inputs to valuation techniques applied by the group include, but are not limited to, the following: ■ Discount rate: Where discounted-cashflow techniques are used, estimated future cashflows are based on management’s best estimates and the discount rate used is a market rate at the reporting date for an instrument with similar terms and conditions. ■ The time value of money: The business may use well-accepted and readily observable general interest rates, such as the Johannesburg Interbank Agreed Rate (SA), London Interbank offered Rate (UK) or an appropriate swap rate, as the benchmark rate to derive the present value of a future cashflow. ■ Credit risk: Credit risk is the risk of loss associated with a counterparty’s failure or inability to fulfil its contractual obligations. The valuation of the relevant financial instrument takes into account the effect of credit risk on fair value by including an appropriate adjustment for the risk taken. ■ Foreign currency exchange prices: Active currency exchange markets exist for most major currencies, and prices are quoted daily on various trading platforms and in financial publications. ■ Commodity prices: observable market prices are available for those commodities that are actively traded on exchanges in SA, London, New York, Chicago and other commercial exchanges. ■ Equity prices: prices (and indices of prices) of traded equity instruments are readily observable on the JSE Ltd or any other recognised international exchange. present value techniques may be used to estimate the current market price of equity instruments for which there are no observable prices. ■ Volatility: Measures of the volatility of actively traded items can be reasonably estimated by the implied volatility in current market prices. The shape and skew of the volatility curve is derived from a combination of observed trades and doubles in the market. In the absence of an active market, a methodology to derive these volatilities from observable market data will be developed and utilised. ■ Recovery rates/Loss given default: These are used as an input to valuation models as an indicator of the severity of losses on default. Recovery rates are primarily sourced from market data providers or inferred from observable credit spreads. ■ prepayment risk and surrender risk: Expected repayment patterns for financial assets and expected surrender patterns for financial liabilities can be estimated on the basis of historical data. ■ Servicing costs: If the cost of servicing a financial asset or financial liability is significant and other market participants would face comparable costs, the issuer would consider them in determining the fair value of that financial asset or financial liability. ■ Dividends: Consistent consensus dividend forecasts adjusted for internal investment analysts’ projections can be applied to each share. Forecasts are usually available for the current year plus one additional year. Thereafter, a constant growth rate would be applied to the specific dates into the future for each individual share. ■ Inception profit (day-one gain or loss): The best evidence of the fair value of a financial instrument at initial recognition is the transaction price (ie the fair value of the consideration given or received), unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (ie without modification or repackaging) or based on a valuation technique, the variables of which include data from observable markets only. Valuation adjustments To estimate a reliable fair value, where appropriate, the group applies certain valuation adjustments to the pricing information derived from the above sources. In making appropriate adjustments, the group considers certain adjustments to the modelled price that market participants would make when pricing that instrument. Factors that would be considered include, but are not limited to, the following: ■ own credit on financial liabilities: The carrying amount of financial liabilities held at fair value is adjusted to reflect the effect of changes in the group’s own credit spreads. As a result, the carrying value of issued bonds and subordinated-debt instruments that have been designated at fair value through profit or loss is adjusted by reference to the movement in the appropriate spreads. The resulting gain or loss is recognised in profit and loss in the statement of other comprehensive income. ■ Counterparty credit spreads: Adjustments are made to market prices when the creditworthiness of the counterparty differs from that of the assumed counterparty in the market price (or parameter). Valuation techniques by instrument other short-term securities and government and other securities The fair value of these instruments is based on quoted market prices from an exchange dealer, broker, industry group or pricing service, when available. When they are unavailable, the fair value is determined by reference to quoted market prices for similar instruments, adjusted as appropriate for the specific circumstances of the instruments. Where these instruments include corporate bonds, the bonds are valued using observable active quoted prices or recently executed transactions, except where observable price quotations are not available. Where price quotations are not available, the fair value is determined based on cashflow models, where significant inputs may include yield curves and bond or single-name credit default swap spreads. Derivative financial instruments Derivative contracts can either be traded via an exchange or over the counter (oTC) and are valued using market standard models and quoted parameter inputs. parameter inputs are obtained from pricing services, consensus pricing services and recently occurring transactions in active markets, whenever possible. Certain inputs may not be observable in the market directly, but can be determined from observable prices via model calibration procedures. other inputs are not observable, but can generally be estimated from historical data or other sources. 86 loans and advances Loans and advances include mortgage loans (home loans and commercial mortgages), other asset-based loans, including collateralised debt obligations, and other secured and unsecured loans. In the absence of an observable market for these instruments, the fair value is determined by using internally developed models that are specific to the instrument and that incorporate all available observable inputs. These models involve discounting the contractual cashflows by using an at-inception credit-adjusted zero-coupon curve. Loans and advances are reviewed for observed and verified changes in credit risk and the credit spread is adjusted at subsequent dates if there has been an observable change in credit risk relating to a particular loan or advance. Investment securities Investment securities include private-equity investments, listed investments and unlisted investments. The fair value of listed investments is determined with reference to quoted bid prices at the close of business on the relevant securities exchange. Where private-equity investments are involved, the exercise of judgement is required due to uncertainties inherent in estimating the fair value. The fair value of private-equity is determined using appropriate valuation methodologies that, dependent on the nature of the investment, may include an analysis of the investee’s financial position and results, risk profiles and prospects, discounted-cashflow analysis, enterprise value comparisons with similar companies, price/earnings comparisons and earnings multiples. For each investment the relevant methodology is applied consistently over time and may be adjusted for changes in market conditions relative to that instrument. The fair value of unlisted investments is determined using appropriate valuation techniques that may include, but are not limited to, discounted-cashflow analysis, net asset value calculations and directors’ valuations. other assets Short positions or long positions in equities arise in trading activities where equity shares, not owned by the group, are sold in the market to third parties. The fair value of these instruments is determined by reference to the gross short/long position valued at the offer rate. Investments in instruments that do not have a quoted market price in an active market and the fair value of which cannot be reliably measured, as well as derivatives that are linked to and have to be settled by delivery of such unquoted equity instruments, are measured at fair value, using models considered to be appropriate by management. Amounts owed to depositors Amounts owed to depositors include deposits under repurchase agreements, negotiable certificates of deposit and other deposits. These instruments incorporate all market risk factors, including a measure of the group’s credit risk relevant for that financial liability when designated at fair value through profit or loss. The fair value of these financial liabilities is determined by discounting the contractual cashflows using a Nedbank Limited-specific credit- adjusted yield curve that reflects the level at which the group would issue similar instruments at the reporting date. The market risk parameters are valued consistently to similar instruments held as assets. The fair value of a financial liability with a demand feature is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid. When the fair value of a financial liability cannot be reliably determined, the liability is recorded at the amount due. Fair value is considered reliably measurable if: ■ the variability in the range of reasonable fair value estimates is not significant for that instrument; or ■ the probabilities of the various estimates within the range can be reasonably assessed and used in estimating fair value. Investment contract liabilities The fair value of investment contract liabilities is determined by reference to the fair value of the underlying assets. long-term debt instruments The fair value of long-term debt instruments is determined by reference to published market values on the relevant exchange, when they are: ■ available; and ■ considered to be trading with sufficient volume and frequency. When the above conditions are not met, the fair value is determined using models considered to be appropriate by management. As far as possible, inputs to these models will leverage observable inputs for similar instruments with similar coupons and maturities. Complex instruments These instruments are valued by using internally developed models that are specific to the instrument and that have been calibrated to market prices. In less active markets, data is obtained from less frequent market transactions, broker quotes and through extrapolation and interpolation techniques. Where observable prices or inputs are not available, other relevant sources of information such as historical data, fundamental analysis of the economics of the transaction and proxy information from similar transactions are used. These models are continually reviewed and assessed to ensure that the best available data is being utilised in the determination of fair value. other liabilities Short positions or long positions in equities arise in trading activities where equity shares, not owned by the group, are sold in the market to third parties. The fair value of these instruments is determined by reference to the gross short/long position valued at the offer rate. Where the group has assets and liabilities with offsetting market risks, it may use mid-market prices as a basis for establishing fair values for the offsetting risk positions and apply the bid or asking price to the net open position, as appropriate. 87 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 35 FAIR VALUE MEASUREMENT – FINANCIAL INSTRUMENTS (continued) 35.1 Valuation of financial instruments (continued) Summary of principal valuation techniques – level 2 instruments The following table sets out the group’s principal valuation techniques used in determining the fair value of financial assets and financial liabilities classified as level 2 in the fair-value hierarchy: Valuation technique Key inputs Assets other short-term securities Discounted cashflow model Derivative financial instruments Discounted cashflow model Discount rates Discount rates Black-Scholes model Risk-free rate and volatilities Government and other securities Discounted cashflow model Multiple valuation techniques Discounted cashflow model Valuation multiples Discount rates Interest rate curves Discounted cashflow models Money market rates and interest rates Adjusted net asset value Dividend yield method Underlying price of market-traded instruments Dividend growth rates Loans and advances Investment securities liabilities Derivative financial instruments Discounted cashflow model Discount rates Black-Scholes model Risk-free rate and volatilities Multiple valuation techniques Valuation multiples Amounts owed to depositors provisions and liabilities Discounted cashflow model Discounted cashflow model Long-term debt instruments Discounted cashflow model Discount rates Discount rates Discount rates Summary of principal valuation techniques – level 3 instruments The summary of the valuation techniques applicable to those financial assets and financial liabilities classified as level 3 in the fair value hierarchy is set out in note 35.7. 35.1.1 Financial assets Total financial assets recognised at amortised cost Total financial assets recognised at fair value Total financial assets Note Held for trading Designated at fair value through profit or loss Available for sale Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 736 383 592 120 144 263 4 618 51 026 4 550 79 668 1 731 2 381 289 25 600 32 593 25 600 56 322 15 644 23 729 8 447 459 14 823 15 644 10 15 634 26 828 10 343 16 485 4 590 639 3 084 5 519 2 381 272 603 329 518 592 84 737 26 306 58 398 33 5 393 4 992 401 18 383 898 2 369 684 803 30 666 35 004 13 811 536 714 30 666 13 335 898 2 369 148 089 4 710 56 703 5 624 928 5 852 76 927 898 800 1 719 2 027 17 146 21 669 10 376 358 10 935 13 811 58 13 753 31 279 13 932 17 347 4 632 791 4 341 5 556 1 898 129 566 047 474 932 4 204 3 849 91 115 355 20 31 783 59 299 33 335 860 2 932 860 2 932 5 818 1 137 860 826 129 17 14 15 16 17 18 20 22 21 14 15 16 17 18 20 22 21 rm 2014 Cash and cash equivalents other short-term securities Derivative financial instruments Government and other securities Loans and advances other assets Investments in private-equity associates, associate companies and joint arrangements Investment securities 2013 Cash and cash equivalents other short-term securities Derivative financial instruments Government and other securities Loans and advances other assets Investments in private-equity associates, associate companies and joint arrangements Investment securities 88 Summary of fair value hierarchies total financial assets recognised at fair value total financial assets classified as level 1 total financial assets classified as level 2 total financial assets classified as level 3 rm 2014 2013 other short-term securities Derivative financial instruments Government and other securities Loans and advances other assets Investments in private-equity associates, associate companies and joint arrangements Investment securities 23 729 15 644 16 485 84 737 401 21 669 13 811 17 347 91 115 355 898 2 369 860 2 932 2014 459 10 2013 358 58 10 055 10 871 401 355 2014 2013 2014 2013 23 270 15 634 6 430 21 311 13 753 6 476 84 704 91 082 33 33 624 947 945 1 154 144 263 148 089 11 549 12 589 130 983 133 776 reconciliation to categorised statement of financial position rm Level 1 Level 2 Level 3 Held for trading Designated at fair value through profit or loss 2014 4 618 51 026 2013 4 710 2014 4 550 56 703 79 668 5 1 731 2013 5 852 76 927 1 719 898 800 1 731 860 831 1 724 Available for sale 2014 2 381 289 2013 2 027 146 reconciliation to statement of financial position rm Total financial assets Total non-financial assets Total assets 35.1.2 Financial liabilities 55 644 61 418 85 949 84 498 2 670 2 173 Note 2014 2013 34 34 736 383 684 803 17 061 14 352 753 444 699 155 Total financial liabilities recognised at amortised cost Total financial liabilities recognised at fair value Total financial liabilities Note Held for trading Designated at fair value through profit or loss Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Rm 2014 Derivative financial instruments Amounts owed to depositors provisions and other liabilities Long-term debt instruments 2013 Derivative financial instruments Amounts owed to depositors provisions and other liabilities Long-term debt instruments 16 30 31 32 16 30 31 32 694 140 559 081 135 059 772 92 810 – 575 40 902 15 479 634 623 517 985 8 404 35 634 7 502 33 594 15 479 116 638 5 15 474 77 201 902 767 135 39 437 2 040 575 1 465 645 366 475 786 169 580 1 869 74 171 – 2 317 91 223 16 588 16 588 12 16 576 585 497 438 253 147 244 57 482 89 762 10 016 33 265 8 046 29 487 1 970 3 778 1 857 113 2 317 1 461 – – 89 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 35 FAIR VALUE MEASUREMENT – FINANCIAL INSTRUMENTS (continued) 35.1 Valuation of financial instruments (continued) 35.1.2 Financial liabilities (continued) Summary of fair-value hierarchies total financial liabilities recognised at fair value total financial liabilities classified as level 1 total financial liabilities classified as level 2 total financial liabilities classified as level 3 rm 2014 2013 2014 2013 2014 2013 2014 2013 Derivative financial instruments 15 479 16 588 Amounts owed to depositors 116 638 147 244 provisions and other liabilities Long-term debt instruments 902 2 040 1 970 3 778 5 – 767 575 135 059 169 580 1 347 12 15 474 16 576 116 638 147 244 135 1 465 113 1 461 133 712 165 394 – – 1 857 2 317 4 186 reconciliation to categorised statement of financial position Held for trading Designated at fair value through profit or loss rm Level 1 Level 2 reconciliation to statement of financial position rm Total financial liabilities Total equity and non-financial liabilities Total equity and liabilities 2014 772 92 810 2013 1 869 74 171 2014 575 2013 2 317 40 902 91 223 93 582 76 040 41 477 93 540 Note 2014 2013 34 34 694 140 645 366 59 304 53 789 753 444 699 155 The tables presented above analyse the financial assets and financial liabilities that are measured at fair value by level of fair-value hierarchy as required by IFRS 13 Fair value Measurement. The levels of the hierarchy are defined as follows: Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. Level 2: Valuation techniques using market data, that is either directly or indirectly observable. Various factors influence the availability of observable data and these may vary from product to product and change over time. Factors include, for example, the depth of activity in the relevant market, the type of product, whether the product is new and not widely traded in the market, the maturity of market modelling and the nature of the transaction (bespoke or generic). Level 3: Valuation techniques that include significant inputs that are unobservable. To the extent that a valuation is based on inputs that are not market-observable, the determination of the fair value can be more subjective, dependent on the significance of the unobservable inputs to the overall valuation. Unobservable inputs are determined based on the best information available and may include reference to similar instruments, similar maturities, appropriate proxies or other analytical techniques. 35.2 Details of changes in valuation techniques There have been no changes to valuation techniques during the current year. 35.3 Significant transfers between level 1 and level 2 There were no significant transfers between level 1 and level 2 during the current year. 90 35.4 Level 3 reconciliation Assets rm 2014 opening balance at 1 January Gains in profit for the year Gains in other comprehensive income for the year purchases and issues Sales and settlements transfers from level 2 transfers to level 2 Closing balance at 31 December Held for trading Investment securities 5 5 (5) (5) Designated as at fair value 1 719 250 169 (407) 860 33 826 42 208 142 (146) 27 (261) 1 724 250 169 (412) Opening balance at 1 January Gains/ (losses) in1 profit for the year Gains in other comprehensive income for the year Purchases and issues Sales and settlements Transfers from level 2 Transfers to level 2 Closing balance at 31 December Investments in private-equity associates, associate companies and joint arrangements Loans and advances Investment securities total financial assets classified as level 3 Rm 2013 Investments in private-equity associates, associate companies and joint arrangements Loans and advances Investment securities total financial assets classified as level 3 Held for trading Investment securities 21 21 2 2 Designated as at fair value 2 077 (45) 1 000 117 960 (22) (23) (18) (18) (572) (177) (84) (311) 259 59 200 1 731 898 33 800 1 731 5 5 1 719 860 33 826 1 724 2 098 (43) 259 (590) Gains and losses include, but are not limited to, fair value gains or losses, translation gains or losses and trading gains or losses. liabilities Rm 2013 Opening balance at 1 January (Gains)/1 losses in profit for the year Losses in other comprehensive income for the year Purchases and issues Sales and settlements Transfers from level 2 Transfers to level 2 Closing balance at 31 December Held for trading Derivative financial instruments total financial liabilities classified as level 3 1 1 1 (1) (1) (1) Gains and losses include, but are not limited to, fair value gains or losses, translation gains or losses and trading gains or losses. 91 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 35 FAIR VALUE MEASUREMENT – FINANCIAL INSTRUMENTS (continued) 35.5 Unrealised gains and losses The unrealised gains or losses arising on instruments classified as level 3 include the following: Trading income private-equity gains/(losses) 2014 rm 193 193 2013 Rm 2 (45) (43) 35.6 Effect of changes in significant unobservable assumptions to reasonable possible alternatives The fair value measurement of financial instruments are, in certain circumstances, measured using valuation techniques that include assumptions that are not market observable. Where these scenarios apply, the group performs stress testing on the fair value of the relevant instruments. In performing the stress testing, appropriate levels for the unobservable input parameters are chosen so that they are consistent with prevailing market evidence and in line with the group’s approach to valuation control. The sensitivity of the fair value measurement is determined on the unobservable market inputs. Significant changes to the unobservable inputs in isolation will have either a positive or negative impact on the fair value. The following information is intended to illustrate the potential impact of the relative uncertainty in the fair value of financial instruments for which valuation is dependent on unobservable input parameters and which are classified as level 3 in the fair-value hierarchy. However, it is unlikely in practice that all unobservable parameters would simultaneously be at the extremes of their ranges of reasonably possible alternatives. Furthermore, the disclosure is neither predictive nor indicative of future movements in fair value. The following table shows the effect on fair value of changes in unobservable input parameters to reasonably possible alternative assumptions: Valuation technique principle assumption stressed Amount recognised in the statement of financial position Favourable change in value due to stress test unfavourable change in value due to stress test rm rm rm Stress parameters % 2014 Assets Loans and advances Discounted cashflows Credit spreads and discount rates between (13) and 13 33 3 (4) Investment securities Discounted cashflows, adjusted net asset value, earnings multiples, third-party valuations, dividend yields Valuation multiples, correlations, volatilities and credit spreads between (13) and 13 Investments in private- equity associates, associate companies and joint arrangements total financial assets classified as level 3 2013 Assets Discounted cashflows, earnings multiples Valuation multiples between (16) and 16 800 76 (95) 898 1 731 124 203 (134) (233) Loans and advances Discounted cashflows Credit spreads and discount rates between (14) and 14 33 3 (4) Investment securities Discounted cashflows, adjusted net asset value, earnings multiples, third-party valuations, dividend yields Valuation multiples, correlations, volatilities and credit spreads between (25) and 25 Investments in private- equity associates, associate companies and joint arrangements total financial assets classified as level 3 Discounted cashflows, earnings multiples Valuation multiples between (11) and 11 831 81 (96) 860 1 724 83 167 (93) (193) 92 35.7 Fair value approximates carrying value Certain financial instruments of the group are not carried at fair value, including those categorised as held to maturity, loans and receivables, and other financial assets and financial liabilities at amortised cost. The calculation of the fair value of these financial instruments incorporates the group’s best estimate of the value at which these financial assets could be exchanged, or financial liabilities transferred, between market participants at the measurement date. The group’s estimate of what fair value is does not necessarily represent what it would be able to sell the asset for transfer the respective financial liability for in an involuntary liquidation or distressed sale. The fair values of these respective financial instruments at the reporting date detailed below are estimated only for the purpose of IFRS disclosure, as follows: loans and advances Loans and advances, recognised in note, that are not recognised at fair value, principally comprise variable-rate financial assets. The interest rates on these variable rate-financial assets are adjusted when the applicable benchmark interest rate changes. Loans and advances are not actively traded in most markets and it is therefore not possible to determine the fair value of these loans and advances using observable market prices and market inputs. Due to the unique characteristics of the loans and advances portfolio and the fact that there have been no recent transactions involving the disposals of such loans and advances, there is no basis to determine a price that could be negotiated between market participants in an orderly transaction. The group is not currently in the position of a forced sale of such underlying loans and advances and it would therefore be inappropriate to value the loans and advances on a forced-sale basis. For specifically impaired loans and advances, the carrying value as determined after consideration of the group’s IAS 39 credit impairments, is considered the best estimate of fair value. The group has developed a methodology and model to determine the fair value of the gross exposures for the performing loans and advances measured at amortised cost. This model incorporates the use of average interest rates and projected monthly cashflows per product type. Future cashflows are discounted using interest rates at which similar loans would be granted to borrowers with similar credit ratings and maturities. Methodologies and models are updated on a continuous basis for changes in assumptions, forecasts and modelling techniques. Future forecasts of the group’s probability of default (pDs) and loss-given defaults (LGDs) for periods 2014 to 2016 (2012: for periods 2013 to 2015) are based on the latest available internal data and applied to the first three years’ projected cashflows. Thereafter, pDs and LGDs are gradually reverted to their long-run averages and are applied to the remaining projected cashflows. Inputs into the model include various assumptions utilised in the pricing of loans and advances. The determination of such inputs is highly subjective and therefore any change to one or more of the assumptions may result in a significant change in the determination of the fair value of loans and advances. The results of these fair value calculations are summarised below: positive scenario (%) Base scenario (%) Mild-risk scenario (%) 2014 0,28 (0,09) (0,62) 2013 (0,88) (1,27) (1,83) The table above indicates the differential between the fair value of performing loans and advances and the carrying value thereof. The scenarios are based on the group’s assessment of future economic developments. positive percentages (without brackets) indicate that the fair value of the performing loans and advances is greater than the carrying value. Similarly, negative percentages (included in brackets) indicate that the fair value of the performing loans and advances is less than its carrying value. In the current year under review, the current carrying value of the loans and advances is greater than the calculated fair value. Loans and advances granted in prior periods, which are still performing, were priced at lower contractual interest rates compared to the higher pricing that loans and advances are currently contracted at within current circumstances. The estimated cashflows on the prior period underlying loans and advances are thus discounted at a higher rate to determine the fair value, compared to the lower contractual rate at inception date, resulting in a lower fair value than the current carrying value. The group is of the opinion that the carrying value of loans and advances approximates fair value. Loans and advances would be classified into level 3 of the fair-value hierarchy. Government and other securities The fair value of government and other securities are determined based on available market prices and directors’ valuations where appropriate. See note 17 for further detail. Government and other securities would be classified into level 1 (available market prices) and level 2 (directors’ valuation) of the fair-value hierarchy. other financial assets (excluding government and other securities and loans and advances) and financial liabilities (excluding amounts owed to depositors and long-term debt instruments) The carrying values of cash and cash equivalents, other assets, mandatory deposits with central banks and provisions and other liabilities are considered a reasonable approximation of their respective fair values, as they are either short term in nature or are repriced to current market rates at frequent intervals. other financial assets and other financial liabilities would be classified into level 1 of the fair value hierarchy. Cash and cash equivalents and mandatory deposits with central banks would be classified into level 1 of the fair-value hierarchy. other assets and provisions and other liabilities would be classified into level 3 of the fair-value hierarchy. Amounts owed to depositors The group is of the opinion that the carrying value of variable-rate amounts owed to depositors approximates fair value. Amounts owed to depositors would be classified into level 3 of the fair-value hierarchy. long-term debt instruments The group is of the opinion that the carrying value of variable-rate long-term debt instruments approximates fair value. Long-term debt instruments would generally be classified into level 1 or level 2 of the fair-value hierarchy. 93 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 36 FINANCIAL INSTRUMENTS DESIGNATED AS AT FAIR VALUE THRoUGH pRoFIT oR LoSS The group has satisfied the criteria for designation of financial instruments as at fair value through profit or loss in terms of the accounting policies. Various fixed-rate advances and liabilities are entered into by the group. The overall interest rate risk of the group is economically hedged by way of interest rate swaps and managed by the Group ALCo. The interest rate risk is then traded to the market through the central trading desk. The swaps and frontdesk trading instruments meet the definition of ‘derivatives’, and are measured at fair value in terms of IAS 39. Fixed- rate advances and liabilities, however, do not meet this definition. Therefore, to avoid any accounting mismatch of holding the advances at amortised cost and the hedging instruments at fair value, the advances and liabilities are designated as at fair value through profit or loss and are held at fair value. Various instruments are designated as at fair value through profit or loss, which is consistent with the group’s documented risk management or investment strategy. The fair value of the instruments is managed and reviewed on a regular basis by the risk/investment functions of the group. The risk of the portfolio is measured and monitored on a fair value basis. 36.1 Financial assets designated as at fair value through profit or loss Maximum exposure to credit risk Change in fair value due to change in credit risk¹ Current period Cumulative rm 2014 2013 2014 2013 2014 2013 Negotiable certificates of deposit purchased Treasury bills Government guaranteed other dated securities Mortgage loans Instalment credit Leases and debentures preference shares Loans and advances (secured and unsecured) Foreign correspondents other loans Debtors and accruals private-equity associates, associate companies and joint arrangements Listed investments Unlisted investments 15 282 2 794 5 809 20 785 19 030 44 2 012 5 588 3 990 6 982 383 898 624 1 728 11 293 3 612 6 285 19 698 17 169 26 2 522 7 400 5 837 6 680 335 860 818 1 963 2 26 (2) (4) 1 Positive amounts represent gains while negative amounts represent losses. See note 18.1. 85 949 84 498 2 26 (2) (4) Nedbank Limited has estimated the change in credit risk as being the amount arising from the change in fair value of the financial instrument that is not attributable to changes in market conditions that give rise to market risk. Individual credit spreads for loans or receivables that have been designated as at fair value through profit or loss are determined at inception of the deal. The credit spread is calculated as the difference between the benchmark interest rate and the interest rate charged to the client. Subsequent changes in the benchmark interest rate and the credit spread give rise to changes in fair value in the financial instrument. Loans and advances are reviewed for observable changes in credit risk and the credit spread is adjusted at subsequent dates if there has been an observable change in credit risk relating to a particular loan or advance. No credit derivatives are used to hedge the credit risk on any of the financial assets designated as at fair value through profit or loss. A breakdown of the financial assets which are designated as at fair value through profit or loss can be found in note 34. A detailed explanation of how each financial asset is valued can be found in note 35. 94 36.2 Financial liabilities designated as at fair value through profit or loss rm 2014 Long-term debt instruments Call and term deposits Foreign currency liabilities Negotiable certificates of deposit 2013 Long-term debt instruments Call and term deposits Fixed deposits Foreign currency liabilities Negotiable certificates of deposit Contractually payable at maturity Fair value Change in fair value due to change in credit risk1 Current period Cumulative 2 040 20 964 8 060 10 413 41 477 3 778 36 079 2 229 8 604 42 850 93 540 1 909 20 955 8 061 10 408 41 333 3 645 36 073 2 229 8 603 42 812 93 362 38 (16) (16) 6 (6) 1 (11) (16) 48 (39) (54) (45) 10 (23) (38) (51) 1 Positive amounts represent losses while negative amounts represent gains. The change in fair value due to credit risk has been determined as the difference between fair values determined using a credit-adjusted liability curve and a risk-free liability curve. The curves are constructed using a standard ‘bootstrapping’ process to derive a zero-coupon yield curve. The credit-adjusted curve was based on offer rates of negotiable certificates of deposit and promissory notes with maturity periods of up to five years, and thereafter the offer rates of issued Nedbank Limited bonds are applied. 37 oFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES In accordance with the requirements of IFRS 7 Financial Instruments: Disclosures, the table below sets out the impact of: ■ recognised financial instruments that are set off in the statement of financial position in accordance with the requirements of IAS 32 Financial Instruments: presentation; and ■ financial instruments that are subject to an enforceable master netting arrangement or similar agreement that covers similar financial instruments and transactions that did not qualify for presentation on a net basis. The group reports financial assets and financial liabilities on a net basis in the statement of financial position only if there is a legally enforceable right to set off the recognised amounts and there is intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. Certain master netting arrangements may not meet the criteria for offsetting in the statement of financial position because: ■ these agreements create a right of setoff that is enforceable only following an event of default, insolvency or bankruptcy; and ■ the group and its counterparties do not intend to settle on a net basis or to realise the assets and settle the liabilities simultaneously. Master netting arrangements and similar agreements include derivative clearing agreements, global master repurchase agreements and global master securities lending agreements. Similar financial instruments include derivatives, sales and repurchase agreements, reverse sale and repurchase agreements, and securities borrowing and lending agreements. Financial instruments such as loans and deposits are not disclosed in the table below unless they are offset in the statement of financial position. 95 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 37 oFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES (continued) 2014 effects of netting on the statement of financial position related amounts not set off in the statement of financial position Amounts set off in the statement of financial position in accordance with IAS 32 net amounts included in the statement of financial position¹ Amounts that may be netted off on the occurrence of a future event Gross amounts net amounts reflecting the effect of master netting arrangements Amounts not subject to IFrS 7 offsetting disclosure² Financial collateral total amounts recognised in the statement of financial position (2 812) 2 787 (25) 15 395 (15 420) 5 386 5 386 (2 874) (2 874) 2 512 2 512 (88 695) 29 516 (59 179) 25 – – 190 249 165 15 644 (59) (15 479) – – 2 512 2 512 600 817 600 817 603 329 603 329 (59 179) (575 444) (634 623) (88 695) 29 516 (59 179) (59 179) (575 444) (634 623) Effects of netting on the statement of financial position Related amounts not set off in the statement of financial position Amounts set off in the statement of financial position in accordance with IAS 32 Net amounts included in the statement of financial position¹ Amounts that may be netted off on the occurrence of a future event Net amounts reflecting the effect of master netting arrangements Amounts not subject to IFRS 7 offsetting disclosure² Financial collateral Total amounts recognised in the statement of financial position (3 320) 12 627 (15 947) 509 (2 811) 543 1 184 (2 777) 13 811 (641) (16 588) Gross amounts (3 320) 2 885 2 885 (831) (831) 2 054 2 054 (71 322) 16 187 (55 135) – – – – 2 054 2 054 563 993 563 993 566 047 566 047 (55 135) (530 362) (585 497) (71 322) 16 187 (55 135) (55 135) (530 362) (585 497) rm Derivative financial instruments – Assets – Liabilities Assets excluding derivative financial instruments – Loans and advances Liabilities excluding derivative financial instruments – Amounts owed to depositors 2013 rm Derivative financial instruments³ – Assets – Liabilities Assets excluding derivative financial instruments³ – Loans and advances Liabilities excluding derivative financial instruments³ – Amounts owed to depositors 1  Includes the net amount of financial assets and financial liabilities where offsetting has been applied in terms of IAS 32 and financial instruments that are subject to master netting agreements but where no offsetting has been applied. Excludes financial instruments that are neither subject to setoff nor master netting agreements. ² Includes financial instruments that are neither subject to setoff nor master netting agreements. ³  During 2014 the group enhanced its accounting processes and management information and expanded the disclosure relating to the offsetting of financial assets and liabilities in its consolidated financial statements. This expanded disclosure resulted in a restatement to 2013 comparative information. 96 38 CREDIT ANALYSIS oF oTHER SHoRT-TERM SECURITIES, AND GoVERNMENT AND oTHER SECURITIES Credit ratings other short-term securities Negotiable certificates of deposit Treasury bills and other Government and other securities Government and government- guaranteed securities other dated securities Investment grade Subinvestment grade not rated 2014 rm 2013 Rm 2014 rm 2013 Rm 2014 rm 2013 Rm total 2014 rm 2013 Rm 54 895 34 122 1 333 795 94 87 56 322 35 004 7 213 8 944 64 7 277 8 944 47 682 25 178 1 269 25 138 29 668 1 294 13 220 11 918 16 887 12 781 600 694 795 1 611 437 1 174 80 033 63 790 2 627 2 406 94 396 19 377 490 87 49 045 26 060 26 828 31 279 13 839 12 989 17 324 13 955 87 83 150 66 283 All debt securities that are purchased by the group are rated using an internal rating system, being the Nedbank Group Rating (NGR) scale. The group requires that all investments be rated using the NGR scale to ensure that credit risk is measured consistently and accurately across the group. This ensures compliance with the group’s policy surrounding the rating of investments. The NGR scale has been mapped to the Standard & poor’s credit rating system. According to the NGR scale investment grade can be equated to a Standard & poor’s rating of above BBB-. All government and other short-term securities are current and not impaired. Investment grade includes credit ratings from NGR01 to NGR11 and subinvestment grade includes credit ratings from NGR12 to NGR25. 97 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December Derivative financial instruments 1 962 406 902 460 177 46 894 47 966 4 862 68 894 7 347 10 692 39 LIQUIDITY GAp rm 2014 Cash and cash equivalents (including mandatory reserve deposits with central banks) other short-term securities Derivative financial instruments Government and other securities Loans and advances other assets Total equity Amounts owed to depositors provisions and other liabilities Long-term debt instruments net liquidity gap 2013 Cash and cash equivalents (including mandatory reserve deposits with central banks) other short-term securities Derivative financial instruments Government and other securities Loans and advances other assets Total equity Amounts owed to depositors provisions and other liabilities Long-term debt instruments <3 months >3 months <6 months >6 months <1 year >1 year <5 years >5 years non-deter- mined total 25 280 24 408 2 746 550 220 13 593 555 290 100 15 974 1 181 3 855 2 347 5 199 16 609 5 963 5 524 127 412 21 759 39 889 255 399 158 870 25 600 56 322 15 644 26 828 603 329 25 721 25 721 180 396 36 417 60 999 279 554 170 357 25 721 753 444 55 980 11 728 55 980 15 479 634 623 11 728 35 634 1 354 1 576 5 706 22 328 4 670 463 493 48 876 54 574 96 084 22 709 67 708 753 444 (283 097) (12 459) 6 425 183 470 147 648 (41 987) – 30 666 11 408 1 288 4 452 11 020 953 791 9 946 1 240 3 063 2 630 5 407 18 251 4 923 4 722 122 260 21 277 38 252 231 472 152 786 30 666 35 004 13 811 31 279 566 047 22 348 22 348 170 074 34 041 52 501 257 760 162 431 22 348 699 155 Derivative financial instruments 1 607 937 1 101 409 233 47 331 53 758 5 553 69 770 3 106 454 1 082 25 002 413 946 48 722 55 941 100 325 7 390 5 405 3 621 16 416 51 675 12 130 51 675 16 588 585 497 12 130 33 265 63 805 699 155 net liquidity gap (243 872) (14 681) (3 440) 157 435 146 015 (41 457) – This note has been prepared on a contractual maturity basis. 98 40 CoNTRACTUAL MATURITY ANALYSIS FoR FINANCIAL LIABILITIES Statement of financial position amount <3 months >3 months <6 months >6 months <1 year >1 year < 5 years >5 years non- deter- minable maturity total rm 2014 Long-term debt instruments 35 634 1 891 Amounts owed to depositors 634 623 463 512 2 026 49 126 6 934 50 916 27 312 75 009 5 298 10 905 43 461 – 649 468 11 728 11 728 – – 62 386 9 650 461 297 29 808 73 732 12 595 15 479 11 728 720 136 22 807 3 248 102 968 129 023 40 928 599 827 56 140 9 408 417 163 13 800 91 051 12 265 16 588 12 130 669 473 35 013 3 178 93 670 131 861 Current accounts Savings deposits other deposits and loan accounts 62 385 9 649 62 386 9 650 453 350 336 760 Foreign currency liabilities 29 807 25 313 31 436 2 315 31 209 1 160 50 987 1 020 10 905 Negotiable certificates of deposit Deposits received under repurchase agreements Derivative financial instruments – liabilities provisions and other liabilities 66 849 16 808 15 375 18 547 23 002 12 583 12 595 15 479 11 728 1 962 406 902 4 862 7 347 697 464 467 365 51 558 58 752 107 183 23 550 Guarantees on behalf of clients 22 807 22 807 Confirmed letters of credit and discounting transactions 3 248 3 248 Unutilised facilities and other 102 968 102 968 129 023 129 023 – – – – 2013 Long-term debt instruments 33 265 3 641 810 Amounts owed to depositors 585 497 412 464 49 922 56 139 9 408 56 105 9 408 5 2 145 56 885 30 215 75 018 30 4 117 5 538 Foreign currency liabilities 13 799 12 195 1 605 409 320 300 554 22 546 35 044 53 481 5 538 84 573 21 937 27 371 20 236 21 507 12 258 12 265 Current accounts Savings deposits other deposits and loan accounts Negotiable certificates of deposit Deposits received under repurchase agreements Derivative financial instruments – liabilities provisions and other liabilities 16 588 12 130 647 480 1 607 937 1 101 5 553 7 390 417 712 35 013 3 178 93 670 131 861 51 669 60 131 110 786 17 045 12 130 12 130 – – – – – Guarantees on behalf of clients 35 013 Confirmed letters of credit and discounting transactions Unutilised facilities and other 3 178 93 670 131 861 provisions and other liabilities are included in this table in order to provide a reconciliation with the statement of financial position. 99 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 41 HISToRICAL VALUE AT RISK (99%, oNE-DAY) BY RISK TYpE rm Foreign exchange Interest rate Credit Commodity Diversification Total VAR exposure 2014 2013 Average Minimum Maximum year-end Average Minimum Maximum Year-end 3,7 7,7 3,8 0,3 (5,7) 9,8 0,6 5,2 2,7 10,7 12,5 5,3 0,9 6,7 14,8 0,9 5,6 5,3 0,9 (3,8) 8,9 2,2 4,6 3,2 0,4 (3,8) 6,5 0,6 2,6 2,4 9,4 10,9 4,7 3,0 3,6 11,8 1,4 10,9 2,8 0,1 (4,8) 10,5 The Worldclass at Managing Risk section contains information on the group trading book VAR and the comparison of trading VAR. 42 INTEREST RATE REpRICING GAp rm 2014 Total assets Total equity and liabilities Interest rate hedging activities Repricing profile Cumulative repricing profile Expressed as a percentage of total assets 2013 Total assets Total equity and liabilities Interest rate hedging activities Repricing profile Cumulative repricing profile Expressed as a percentage of total assets <3 months >3 months <6 months >6 months <1 year >1 year <5 years >5 years trading and non-rate total 22 551 26 122 7 628 4 057 56 201 7,5 18 351 34 424 27 391 11 318 498 952 471 251 24 443 52 144 52 144 6,9 488 123 439 867 (9 091) 39 165 39 165 5,6 22 788 26 798 44 265 16 317 15 880 149 008 753 444 4 289 208 667 753 444 1 215 (25 199) (8 087) – – 3 504 (59 659) 59 659 7,9 2 749 56 155 7,5 44 187 17 082 (2 795) 53 407 7,1 7 015 26 455 18 045 (1 395) 18 050 123 429 3 816 177 511 699 155 699 155 (24 486) (11 859) 2 619 51 707 7,4 2 375 (54 082) 54 082 7,7 – – 50 483 49 088 7,2 7,0 The Worldclass at Managing Risk section contains information on interest rate risk in the banking book. 43 SECURITISATIoNS Nedbank Limited uses securitisation primarily as a funding diversification tool and to add flexibility in mitigating structural liquidity risk. The group currently has three active traditional securitisation transactions: ■ Synthesis Funding Ltd (Synthesis), an asset-backed commercial paper (ABCp) programme launched in 2004; ■ GreenHouse Funding (RF) Ltd, Series 2 (GreenHouse), a residential mortgage-backed securitisation programme; ■ GreenHouse Funding III (RF) Ltd, Series 3 (GreenHouse 3), a residential mortgage-backed securitisation programme; and ■ precinct Funding 1 (RF) Ltd (precinct), a commercial mortgage-backed securitisation programme. Synthesis primarily invests in long-term rated bonds and offers capital market funding to SA corporates. These assets are funded through the issuance of short-dated investment-grade commercial paper to institutional investors. All the commercial paper issued by Synthesis is assigned the highest short-term RSA local-currency credit rating by Fitch, and is listed on the JSE Ltd. Greenhouse 1 securitised R2bn of home loans originated Nedbank Retail in 2007. The notes issued to finance the purchase of the home loan portfolio were assigned credit ratings by both Fitch and Moody’s and listed on the JSE Ltd. Greenhouse 1 was restructured and refinanced on 19 November 2012 as a static amortising structure. The proceeds from the refinance of this transaction, through the issuance of new notes and subordinated loans, was utilised to repay the R1,3bn existing notes and subordinated loans upon their scheduled maturity, and to acquire additional home loans. The senior notes, which are rated by Fitch and listed on the JSE Ltd, were placed with third party investors and the junior notes and subordinated loans retained by the group. The home loans transferred to Greenhouse have continued to be recognised as financial assets. Greenhouse III, a second standalone RMBS programme was implemented during 2014. In anticipation of issuance of notes to the capital markets, a portfolio of R962m eligible residential mortgages originated by Nedbank Retail were sold to the vehicle and funded by way of a warehousing facility from Nedbank. It is anticipated that the notes will be issued in 2015. precinct is a commercial mortgage-backed securitisation programme. The originator, seller and servicer of the commercial property loan portfolio is Nedbank Corporate property Finance, the market leader in commercial property finance in South Africa, with a portfolio of R109,1bn. The precinct structure takes the form of a static pool of small commercial property loans with limited substitution and redraws/further advance capabilities. The pool of assets at 31 December 2012 (provisional pool of assets prior to inception) had an outstanding balance of R2,5bn with an open market value of the associated properties of R5,3bn. 100 precinct has issued notes rated by Moody’s Investors Service and listed on the JSE Ltd. The A and B notes were placed to third party investors and the junior notes and subordinated loan retained by the group. The following table shows the carrying amount of securitised assets, stated at the amount of the group’s continuing involvement where appropriate, together with the associated liabilities, for each category of asset in the statement of financial position:¹ rm loans and advances to customers – Residential mortgage loans Less: Impairments – Commercial mortgage loans Less: Impairments other financial assets Corporate and bank paper other securities Commercial paper Total 2014 2013 Carrying amount of assets Associated liabilities Carrying amount of assets Associated liabilities 2 520 (24) 1 586 (4) 1 989 1 295 7 362 2 743 2 309 3 285 8 337 1 762 (26) 1 959 (6) 2 809 2 286 8 784 1 994 2 551 5 096 9 641 This table presents the gross balances within the securitisation schemes and does not reflect any eliminations of intercompany and cash balances held by the various securitisation vehicles. 1 The value of any derivative instruments taken out to hedge any financial asset or liability is adjusted against such instrument in this disclosure. 44 FoREIGN CURRENCY CoNVERSIoN GUIDE Monetary figures in these financial statements are expressed in SA rand to the nearest million. The approximate value of the SA rand as at 31 December against the following currencies was: United States dollar pound sterling Euro 2014 Actual 0,08638 0,05544 0,07108 2013 Actual 0,09524 0,05759 0,06915 45 CoNTINGENT LIABILITIES AND UNDRAWN FACILITIES Guarantees on behalf of clients Letters of credit and discounting transactions Irrevocable unutilised facilities and other 2014 Average 0,09202 0,05593 0,06973 2014 rm 22 807 3 248 102 968 129 023 2013 Average 0,10289 0,06590 0,07752 2013 Rm 35 013 3 178 93 670 131 861 The group, in the ordinary course of business, enters into transactions that expose it to tax, legal and business risks. provisions are made for known liabilities that are expected to materialise (refer to note 40). possible obligations and known liabilities where no reliable estimate can be made or it is considered improbable that an outflow would result are reported as contingent liabilities. This is in accordance with IAS 37: provisions, Contingent Liabilities and Contingent Assets. There are a number of legal or potential claims against Nedbank Limited and its subsidiary companies, the outcome of which cannot at present be foreseen. As disclosed in the group’s 2009 annual financial statements, the largest of these potential actions are claims in the High Court against Nedbank Limited by certain shareholders in pinnacle point Group Ltd, alleging that Nedbank Limited had a legal duty of care to them arising from a share swap transaction. In 2013 two of these claims of R147m and of R802m were dismissed by the North Gauteng High Court. The only claim remaining is for R355m. originally these shareholders and others lodged proceedings with the Securities Regulation panel (SRp) for an order declaring that an affected transaction took place. The SRp ruled that no affected transaction took place. The last remaining claimant brought an application to the South Gauteng High Court for the review of the SRp ruling. This application was dismissed with costs on 15 November 2013. The applicant filed a notice to apply for leave to appeal this judgment, and on 16 July 2014 the Supreme Court of Appeal ruled in Nedbank’s favour by refusing the application. During 2011 further actions were instituted against Nedbank Limited by other stakeholders for R210m, and by Absa Bank Limited for R773m. In both these actions Nedbank have filed exceptions against the claims. on 25 August 2014, the R210m claim was withdrawn. Nedbank Limited and its legal advisers remain of the opinion that the remaining claims are ambitious, and that the remaining claimants will have great difficulty succeeding. 101 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 46 CoMMITMENTS 46.1 Capital expenditure approved by directors Contracted Not yet contracted 2014 rm 1 292 1 278 2 570 2013 Rm 247 856 1 103 Funds to meet capital expenditure commitments will be provided from group resources. In addition, capital expenditure is incurred in the normal course of business throughout the year. 46.2 Operating lease commitments Companies in the group have entered into leases over fixed property, furniture and other equipment for varying periods. The group is a major lessor of properties, which are subject to individual contracts that specify the group’s option to renew leases, escalation clauses and purchase options, if applicable. Due to the large number of lease agreements entered into by the group, this information has not been provided in the annual financial statements, but is available from the group on request. The following are the minimum lease payments under non-cancellable leases: 2014 Land and buildings1 Furniture and equipment 2013 Land and buildings1 Furniture and equipment 2015 rm 2015 – 2019 rm Beyond 2019 rm 690 286 976 1 705 173 1 878 940 940 2014 rm 2014 – 2018 Rm Beyond 2018 Rm 664 246 910 1 663 410 2 073 1 020 2 1 022 1 The group may from time to time enter into subleases of properties where it is the lessee. These subleases are considered to be immaterial in the context of the group’s overall leasing arrangements. The terms of renewal and escalation clauses are as follows: The majority of material leases entered into by the group include an option to renew the lease. If the rental for the renewal period has not been agreed on or determined by the commencement date of the renewal period, the tenant must continue to pay the existing monthly rental. once the rental is determined, cumulative adjustments will be made to the amount payable for the following month. Escalation clauses for major leases entered into by the group range between 6% and 10% per annum. For all major lease agreements entered into, there is no requirement to pay contingent rent or purchase options. 46.3 Commitments under derivative instruments The group enters into option contracts, financial futures contracts, forward-rate and interest-rate swap agreements and other financial agreements in the normal course of business (note 16). 47 CoLLATERAL 47.1 Collateral pledged The group has pledged government and other securities (note 17) and negotiable certificates of deposit (note 15) amounting to R11 525m (2013: R12 258m) as collateral for deposits received under repurchase agreements. These amounts represent assets that have been transferred, but that do not qualify for derecognition under IAS 39. These transactions are entered into under terms and conditions that are standard industry practice to securities borrowing and lending activities. 47.2 Collateral held to mitigate credit risk Credit risk mitigation refers to the actions that can be taken by the group to manage its exposure to credit risk so as to align such exposure to its risk appetite. This action can be proactive or reactive and the level of mitigation that a bank desires may be influenced by external factors such as the economic cycle or internal factors such as a change in risk appetite. References to credit risk mitigation normally focus on the taking of collateral as well as the management of such collateral. While collateral is an essential component of credit risk mitigation there are a number of other methods used for mitigating credit risk. The group’s credit risk policy acknowledges the role to be played by credit risk mitigation in the management of credit risk, but emphasises that collateral on its own is not necessarily a justification for lending. The primary consideration for any lending opportunity should rather be the borrower’s financial position and ability to repay the facility from its own resources and cashflow. 102 The group generally segregates collateral received into the following two classes: (i) Financial collateral: The group takes financial collateral to support credit exposures in the trading book. This includes cash and debt securities in respect of derivative transactions. These transactions are entered into under terms and conditions that are standard industry practice to securities borrowing and lending activities. (ii) Non-financial collateral: In secured financial transactions, the group takes other physical collateral to recover outstanding exposure in the event of the borrower being unable or unwilling to fulfil its obligations. This includes mortgages over property (both residential and commercial), liens over business assets (including, but not limited to, plant, vehicles, aircraft, inventories and trade debtors) and guarantees from parties other than the borrower. Should a counterparty be unable to settle its obligations, the group takes possession of collateral as full or part settlement of such amounts. In general, the group seeks to dispose of such property and other assets that are not readily convertible into cash as soon as the market for the relevant asset permits. The group monitors the concentration levels of collateral to ensure that it is adequately diversified. In particular, the following collateral types are common in the marketplace: (i) Retail portfolio: ■ mortgage lending secured by mortgage bonds over residential property; ■ instalment credit transactions secured by the assets financed; and ■ overdrafts that are either unsecured or secured by guarantees, suretyships or pledged securities. (ii) Wholesale portfolio: ■ commercial properties are supported by the property financed and a cession of the leases; ■ instalment credit type of transactions that are secured by the assets financed; ■ working capital facilities when secured usually by either a claim on specific assets (fixed assets, inventories or trade debtors) or other collateral such as guarantees; ■ term and structured lending which usually relies on guarantees or credit derivatives (where only internationally recognised and enforceable agreements are used); and ■ credit exposure to other banks where the risk is commonly mitigated through the use of financial control and netting agreements. The valuation and management of collateral across all business units of the group are governed by the Group Credit policy. Management considers collateral held in the retail portfolio to be homogenous by nature and therefore more reliably identifiable. Generally, valuations in respect of mortgage portfolios are updated using statistical index models, published data by service providers are used for motor vehicles and physical inspection is performed for other types of collateral. physical valuations are performed six monthly on the defaulted book. At 31 December 2014 management considered R137 042m (2013: R132 268m) to be a reasonable estimate of the collateral held in the retail portfolio. Management considers collateral held in the wholesale portfolio to be non-homogenous and often exhibiting illiquid characteristics and therefore valuing collateral of this nature requires a significant level of judgement. Collateral of this nature is valued at the inception of a transaction and at least annually during the life of the transaction usually as part of the facility review, which includes a review of the security structure and covenants to ensure that proper title is retained over the relevant collateral. At 31 December 2014 management considered R173 627m to be a reasonable estimate of the collateral held in the wholesale portfolio. A further consideration with regard to the valuation and management of collateral is that when credit intervention is required, or in the case of default, all items of collateral relating to that particular client portfolio are immediately revalued. In such instances physical inspection by an expert valuer is required. This process also ensures that an appropriate impairment is evaluated timeously. The group does not hold any collateral (financial or non-financial) that it is permitted to sell or repledge in the absence of defaulting by its owner. 47.3 Collateral taken possession of and recognised in the statement of financial position Included in properties in possession (note 18.1) is an amount of R241m (2013: R555m), which represents assets the group has acquired during the year by taking possession of collateral held as security. 103 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 48 MANAGED FUNDS 48.1 Fair value of funds under management SA unit trusts 48.2 Reconciliation of movement in funds under management Balance at 31 December 2012 Inflows outflows Mark-to-market value adjustment Balance at 31 December 2013 Inflows outflows Mark-to-market value adjustment Balance at 31 December 2014 2014 rm 128 394 128 394 2013 Rm 115 235 115 235 SA unit trusts Rm 87 250 162 320 (145 606) 11 271 115 235 204 436 (197 862) 6 585 128 394 The group, through a number of subsidiaries, operates unit trusts. Commissions and fees earned in respect of trust and management activities performed are included in the consolidated statement of comprehensive income as non-interest revenue. 49 SHARE-BASED pAYMENTS Nedbank Group Limited shares, share options over Nedbank Group Limited shares and equity instruments in respect of Nedbank Group Limited shares are granted to employees as part of their remuneration package as services are rendered, as well as to clients, business partners and affinity groups as an incentive to retain business and develop growth within the group. The following are the share and share option schemes that have been in place during the year. All schemes are equity-settled at group level, except the Nedbank UK schemes and the Nedbank Wealth Management International schemes, both of which are cash-settled. As the group cannot estimate reliably the fair value of services received nor the value of additional business received, the group rebuts the presumption that such services and business can be measured reliably. The group therefore measures their fair value by reference to the fair value of the shares, share options or equity instruments granted, in line with the group’s accounting policy. The fair value of such shares, share options and equity instruments is measured at the grant date utilising the Black-Scholes valuation model. 49.1 Description of arrangements Scheme trust/Special-purpose vehicle (SpV) Description traditional employee schemes Nedbank Group (2005) Share option and Restricted Share Scheme Nedbank Group (2005) Share Scheme Trust Nedbank Group (2005) Matched Share Scheme Nedbank Group (2005) Share Scheme Trust Restricted Shares are granted to key personnel to motivate senior employees to remain with the group. The granting of Restricted Shares is based on job level, merit and performance, and is entirely at the discretion of the trustees acting on recommendations of executive management. Grants are made twice a year for new appointments and annually for existing staff, on a date determined by the trustees. All employees of the group are eligible to participate in the scheme. An amount of not more than 50% of their after-tax bonus can be invested, which will be matched by the group with shares. Maximum term 3 years Vesting requirements 2012, 2013 and 2014 grants: Three years’ service and achievement of performance targets based on average return on equity and Nedbank Group Limited share price performance against the financial index. Where the performance target is not met, 50% will vest, provided that the three years’ service has been achieved. 3 years Three years’ service and achievement of Nedbank Group Limited performance target. Where this performance targets is not met, 50% will vest provided that the three years’ service has been achieved. 104 Scheme trust/Special-purpose vehicle (SpV) Description Nedbank UK long term incentive plan (LTIp) n/a Nedbank UK Matched Scheme n/a n/a Nedbank Wealth Management International long term incentive plan (LTIp) n/a Nedbank Wealth Management International Matched Scheme nedbank eyethu Bee schemes – employees Black Executive Scheme Nedbank Eyethu Black Executive Trust Black Management Scheme Nedbank Eyethu Black Management Trust Employees who perform services in the United Kingdom on behalf of the group will be considered for participation in the UK LTIp. Selected employees will be granted share appreciation rights (SARs). SARs are similar to options in that SARs are granted at a predetermined exercised price vesting and expiry date. When the participant elects to exercise SARs, the employer settles the difference between the current market price and the exercise price in cash. All UK employees of the group are eligible to participate in the scheme. An amount of not more than 50% of their after-tax bonus can be invested, which will be matched by the group with shares. Restricted Shares are granted to key Nedbank Wealth Management International personnel to motivate senior employees to remain with the group. The granting of Restricted Shares is based on job level, merit and performance, and is entirely at the discretion of the trustees acting on recommendations of executive management. Grants are made twice a year for new appointments and annually for existing staff, on a date determined by the trustees. All Nedbank Wealth Management International employees of the group are eligible to participate in the scheme. An amount of not more than 50% of their after-tax bonus can be invested, which will be matched by the group with shares. Restricted shares and share options were granted to certain black employees at a senior-management level. The beneficial ownership of the shares resides with the participants, including the voting and dividend rights. Restricted shares and share options were granted to certain black employees at a middle- and senior- management level. The beneficial ownership of the shares resides with the participants, including the voting and dividend rights. nedbank Swaziland Sinakekelwe Schemes – Bee and ltIp Swaziland Broad- based Employee Scheme Nedbank Sinakekelwe Trust Broad-based Employee Scheme Restricted shares were granted to qualifying non-managerial employees who do not participate in any other incentive schemes within the group. The beneficial ownership of the shares lies with the participants, including dividend rights. Vesting requirements Completion of three years’ service, from grant date subject to corporate performance targets being met. Maximum term 3 years Completion of three years’ service, from grant date subject to corporate performance targets being met. Completion of three years’ service, from grant date subject to corporate performance targets being met. 3 years 3 years Completion of three years’ service, from grant date subject to corporate performance targets being met. 3 years participants must remain in service for four, five and six years, after each of which one third of the shares become unrestricted and one third of the options vest. participants must remain in service for four, five and six years, after each of which one third of the shares become unrestricted and one third of the options vest. 7 years 7 years No dealing in these shares during the restricted period of five years. 5 years 105 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 49 SHARE-BASED pAYMENTS (continued) 49.1 Description of arrangements (continued) Scheme trust/Special-purpose vehicle (SpV) Description Swaziland Management Scheme Nedbank Sinakekelwe Trust Management Scheme Swaziland Trust Long-term Incentive Scheme Sinakekelwe Trust Long-term Incentive Scheme Restricted shares and share options were granted to key Management personnel as an incentive to remain within the group. Grants are allocated on the basis of job level, performance, potential and skills and competencies portrayed by the employee, entirely at the discretion of the trustees and are allocated under recommendation of the group’s executive management team. The beneficial ownership of the shares lie with the participants, including dividend rights. Restricted shares and share options to be granted to key management personnel as an incentive to remain within the group. Grants will be allocated on the basis of job level, performance, potential and skills and competencies portrayed by the employee, entirely at the discretion of the group’s executive management team. The beneficial ownership of the shares will lie with the participants, including dividend rights. Grants to staff have yet to be made. Maximum term 5 years Vesting requirements participants must remain in service for three, four and five years, after each of which one third of the shares become unrestricted and one third of the options vest. participants must remain in service for three, four and five years, after each of which one third of the shares become unrestricted and one third of the options vest. 5 years No numerical information has been included in either the share-based payment expense or reserve in respect of these schemes, as the cumulative amount is less than R1m. 49.2 Effect on profit and financial position traditional employee schemes Nedbank Group (2005) Share option and Restricted Share Scheme Nedbank Group (2005) Matched Share Scheme Nedbank UK long-term incentive plan1 Nedbank UK Matched Share Scheme1 Nedbank Wealth Management International long-term incentive plan1 Nedbank Wealth Management International Matched Share Scheme1 nedbank eyethu Bee schemes Black Executive Scheme Black Management Scheme 1 This scheme is cash settled and therefore creates a liability. Share-based payments expense Share-based payments reserve/liability 2014 rm 607 517 79 9 2 21 14 7 628 2013 Rm 550 493 51 7 1 (3) 1 33 17 16 583 2014 rm 1 138 939 148 16 19 13 3 82 42 40 2013 Rm 988 850 93 33 2 9 1 98 38 60 1 220 1 086 106 49.3 Movements in number of instruments nedbank Group (2005) Share option Scheme outstanding at the beginning of the year Granted Forfeited Exercised outstanding at the end of the year Exercisable at the end of the year Weighted average exercise price R 2014 2013 Weighted average exercise price r number of instruments 10 710 356 3 444 280 (719 950) (3 566 309) 9 868 377 Number of instruments 11 321 761 3 500 768 (411 640) (3 700 533) 10 710 356 Weighted-average share price for options exercised (R) 196,76 192,45 nedbank Group (2005) Matched Share Scheme outstanding at the beginning of the year Granted Forfeited Exercised outstanding at the end of the year Exercisable at the end of the year 1 274 585 732 501 (104 291) (252 822) 1 649 973 Weighted-average share price for options exercised (R) 222,54 nedbank uK long-term Incentive plan outstanding at the beginning of the year Granted Forfeited Exercised outstanding at the end of the year Exercisable at the end of the year Weighted average share price for options exercised (GBp) nedbank uK Matched Share Scheme outstanding at the beginning of the year Granted other outstanding at the end of the year Exercisable at the end of the year Weighted average share price for options exercised (GBp) nedbank Wealth Management International long-term incentive plan outstanding at the beginning of the year Granted Forfeited Exercised outstanding at the end of the year Exercisable at the end of the year Weighted average share price for options exercised (GBp) nedbank Wealth Management International Matched Share Scheme outstanding at the beginning of the year Granted Forfeited outstanding at the end of the year Exercisable at the end of the year Weighted average share price for options exercised (GBp) 198 960 52 336 (9 414) (44 594) 197 288 16 099 2 811 (1 483) 17 427 83 254 20 708 (30 740) 73 222 12 643 7 613 (49) 20 207 917 581 626 785 (168 694) (101 087) 1 274 585 263 972 38 084 (58 708) (44 388) 198 960 66 196 7 856 7 584 659 16 099 99 349 22 812 (21 135) (17 772) 83 254 6 612 6 690 (659) 12 643 189,01 17,84 51,47 107 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 49 SHARE-BASED pAYMENTS (continued) 49.3 Movements in number of instruments (continued) 2014 2013 Weighted average exercise price r number of instruments Weighted average exercise price R Number of instruments Black executive Scheme outstanding at the beginning of the year 1 251 781 101,73 1 244 440 Granted Forfeited Exercised outstanding at the end of the year Exercisable at the end of the year Weighted average share price for options exercised (R) Black Management Scheme outstanding at the beginning of the year Forfeited Exercised other movements Expired outstanding at the end of the year Exercisable at the end of the year Weighted average share price for options exercised (R) (59 335) (178 127) 1 014 319 641 2 710 812 (220 356) (964 666) 23 526 (3 432) 1 545 884 262 053 158 276 (10 880) (140 055) 1 251 781 10 788 121,08 223,06 105,23 3 992 039 (304 510) (990 044) 17 040 (3 713) 2 710 812 338 429 107,36 227,59 95,45 129,34 78,38 78,93 101,73 144,30 202,25 88,01 106,55 97,43 123,33 110,98 105,23 118,69 191,04 49.4 Instruments outstanding at the end of the year by exercise price 2014 2013 nedbank Group (2005) Share option Scheme 0,00 nedbank Group (2005) Matched Share Scheme 0,00 nedbank uK long-term incentive plan 0,00 nedbank uK Matched Share Scheme 0,00 nedbank Wealth Management International long-term incentive  plan 0,00 nedbank Wealth Management International Matched Share  Scheme 0,00 Weighted average remaining contractual life (years) 1,2 1,2 1,4 1,4 1,1 1,1 1,3 1,3 number of instruments 9 868 377 9 868 377 1 649 973 1 649 973 197 288 197 288 17 427 17 427 73 223 73 223 20 207 20 207 Weighted average remaining contractual life (years) 1,2 1,2 1,5 1,5 0,4 0,4 1,7 1,7 0,9 0,9 1,8 1,8 Number of instruments 10 710 356 10 710 356 1 274 585 1 274 585 198 960 198 960 16 099 16 099 83 255 83 255 12 643 12 643 108 49.4 Instruments outstanding at the end of the year by exercise price 2014 2013 Weighted average remaining contractual life (years) number of instruments Weighted average remaining contractual life (years) Number of instruments Black executive Scheme 0,00 75,74 104,51 120,62 121,08 128,44 132,18 140,00 144,30 161,88 182,98 189,90 Black Management Scheme 0,00 75,74 104,51 108,45 120,62 121,08 128,44 132,18 134,30 139,69 144,30 161,88 319 169 19 623 127 569 84 182 7 480 60 000 174 489 114 010 107 797 1 014 319 112 718 303 526 71 605 72 620 95 668 164 806 287 811 183 378 169 609 84 144 1 545 885 2,4 1,2 2,2 3,2 2,6 1,6 4,2 4,6 5,2 3,2 1,3 1,2 0,6 1,6 0,2 2,2 3,2 2,5 1,6 4,2 2,0 390 541 38 669 22 341 12 435 189 445 84 182 11 163 60 000 10 788 210 410 114 010 107 797 1 251 781 207 111 593 412 222 144 138 836 230 188 296 582 339 237 265 306 69 438 186 886 63 865 97 807 2 710 812 2,9 2,2 1,6 1,2 3,2 4,2 3,6 2,6 0,2 5,2 5,6 6,2 3,8 1,3 2,2 1,6 2,6 1,2 3,2 4,2 3,5 0,6 2,6 0,2 5,2 2,5 109 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 49 SHARE-BASED pAYMENTS (continued) 49.5 Instruments granted during the year The weighted average fair value of instruments granted during the year has been calculated using the Black-Scholes option pricing model, using the following inputs and assumptions. nedbank Group (2005) Share option Scheme nedbank Group (2005) Matched Share Scheme nedbank uK long-term incentive plan nedbank uK Matched Scheme nedbank Wealth Management International long-term incentive plan nedbank Wealth Management International Matched Scheme Black executive Scheme 2014 Number of instruments granted 3 440 886 731 882 52 336 2 811 20 708 7 613 Weighted average fair value per instrument granted (R)³ Weighted average share price (R) Weighted average expected volatility (%)¹ Weighted average life (years) Weighted average risk-free interest rate (%) Number of participants Weighted average vesting period (years) possibility of not vesting (%) Expectation of meeting performance criteria (%) 2013 203,61 188,72 181,75 188,72 215,58 224,01 210,25 223,03 215,77 224,04 23,0 3,0 7,2 1 615 3,0 10,0 90,0 22,0 3,0 6,8 668 3,0 7,0 22,00 3,00 22,00 3,00 6,8 11 3,0 10,0 6,8 24 3,0 10,0 5,0 13 3,0 10,0 11 3,0 10,0 93,0 90,0 90,0 90,0 90,0 95,0 Number of instruments granted 3 491 184 626 280 38 084 7 584 22 812 6 690 158 276 Weighted average fair value per instrument granted (R)³ Weighted average share price (R) Weighted average expected volatility (%)¹ Weighted average life (years) Weighted average expected dividends (%)² Weighted average risk-free interest rate (%) Number of participants Weighted average vesting period (years) possibility of not vesting (%) Expectation of meeting performance criteria (%) 187,76 169,98 171,36 173,25 171,58 169,98 92,40 197,02 190,53 197,21 190,53 197,21 190,53 198,50 20,0 3,0 5,3 1 792 3,0 10,0 20,0 3,0 5,3 559 3,0 7,0 20,0 3,0 5,3 13 3,0 10,0 20,0 2,5 5,3 11 3,0 10,0 22,0 3,0 5,3 12 3,0 10,0 22,0 3,0 5,3 15 3,0 10,0 90,0 93,0 90,0 90,0 90,0 90,0 20,0 5,7 2,6 6,1 7 5,0 95,0 1 Expected volatility is determined based on the historical average volatility for shares over their vesting periods. Volatility is determined using expected volatility for all shares listed on the JSE. ² The dividend yield used for grants made has been based on forecast dividends. ³ Fair value per instrument has been recalculated in line with a change in the valuation methodology for shares linked to the Financial Index. 110 50 RELATED pARTIES 50.1 Relationship with parent, ultimate controlling party and investees The group’s parent company is Nedbank Group Limited, which holds 100% (2013: 100%) of Nedbank Limited’s ordinary shares. The ultimate controlling party is old Mutual plc, incorporated in the United Kingdom. Material subsidiaries of the group are identified in note 52 and associate companies and joint arrangements of the group are identified in note 51. 50.2 Key management personnel compensation Key management personnel are those persons who have authority and responsibility for planning, directing and controlling the activities of the group, directly or indirectly, including all directors of the company and its parent, as well as members of the Executive Committee who are not directors, as well as close members of the family of any of these individuals. Details of the compensation paid to the board of directors and prescribed officers and details of their shareholdings in the company are disclosed in the Remuneration Report. Compensation paid to the board of directors and compensation paid to other key management personnel, as well as the number of share instruments held, are shown below: Directors Key management personnel Compensation (rm) 2014 Directors’ fees Remuneration – paid by subsidiaries Short-term employee benefits Gain on exercise of share instruments 2013 Directors’ fees Remuneration – paid by subsidiaries Short-term employee benefits Gain on exercise of share instruments number of share instruments 2014 outstanding at the beginning of the year Granted Forfeited Exercised outstanding at the end of the year 2013 outstanding at the beginning of the year Granted Forfeited Exercised 14 84 47 37 98 11 78 43 35 89 571 714 173 902 (7 965) (159 183) 578 468 645 194 165 168 total 14 286 167 119 300 11 229 161 68 240 202 120 82 202 151 118 33 151 1 666 293 2 238 007 456 115 (91 879) (455 540) 1 574 989 1 686 127 441 334 (11 541) 630 017 (99 844) (614 723) 2 153 457 2 331 321 606 502 (11 541) (688 275) (238 648) (449 627) outstanding at the end of the year 571 714 1 666 293 2 238 007 111 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 50 RELATED pARTIES (continued) 50.3 Related-party transactions Transactions between Nedbank Limited and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between Nedbank Limited and its other related parties are disclosed below. All of these transactions were entered into in the normal course of business. Due from/(owing to) outstanding balances (rm) parent/ultimate controlling party Deposits owing to old Mutual Life Assurance Company (SA) Ltd Bank accounts owing to Nedbank Group Ltd Bank balances owing to old Mutual Life Assurance Company (SA) Ltd Account payable owing to old Mutual plc Forward exchange rate contracts with old Mutual plc Fellow subsidiaries Loans due from Nedgroup Securities (pty) Ltd Loans owing to Nedbank Malawi Ltd Loans due from other fellow subsidiaries Deposits owing to old Mutual Asset Managers (SA) (pty) Ltd Bank balances owing to old Mutual Asset Managers (SA) (pty) Ltd Deposits owing to Nedgroup Securities (pty) Ltd Deposits owing to Syfrets Securities Ltd Deposits due owing to other fellow subsidiaries Bank balances owing to other fellow subsidiaries Equity derivatives with fellow subsidiaries Forward exchange rate contracts with fellow subsidiaries Interest rate contracts with various fellow subsidiaries Associates Loans due from associates Deposits owing to associates Bank balances owing to associates Key management personnel Mortgage bonds due from key management personnel Deposits owing to key management personnel Deposits owing to entities under the influence of key management personnel Bank balances due from key management personnel Bank balances owing to key management personnel Bank balances due from entities under the influence of key management personnel Bank balances owing to entities under the influence of key management personnel The WIpHoLD and Brimstone consortia and Aka Capital (pty) Ltd are related parties since certain key management personnel of the company have significant influence over these entities. These entities are participants in the Nedbank Eyethu BEE schemes and the share-based payments reserve recognised in respect of these entities and key management personnel is detailed below: WIpHoLD consortium Brimstone consortium Key management personnel – directors Key management personnel – other Share-based payments reserve performance fees are paid to the WIpHoLD and Brimstone consortia in terms of the Nedbank Eyethu BEE scheme: WIpHoLD consortium Brimstone consortium performance fee liability at year-end long-term employee benefit plans Bank balances owing to Nedgroup Medical Aid Fund Bank balances owing to Nedgroup pension Fund Bank balances and deposits owing to other funds 112 2014 (14) (146) (237) (1) (4) 951 (74) 6 904 (24) (15) (768) (1 424) 1 642 (1 841) (24) 1 (1) 1 692 (47) (5) 27 (33) (1 099) 4 (43) 1 (179) (154) (147) (52) (129) (482) (12) (12) (24) (1) (100) (73) 2013 (749) (482) (5 970) (1) 7 141 (60) 2 326 (60) (5) (1 339) (1 881) 194 (1 212) (6) 7 1 492 (12) (9) 32 (33) (1 398) 4 (40) 35 (362) (108) (107) (48) (113) (376) (64) (275) transactions (rm) parent/ultimate controlling party Interest income from old Mutual plc Interest expense to old Mutual Life Assurance Company (pty) Ltd Dividend declared to Nedbank Group Ltd Fellow subsidiaries Interest income from old Mutual Asset Managers (SA) (pty) Ltd Interest income from fellow subsidiaries Interest income from Syfrets Securities Ltd Interest income from Nedgroup Securities (pty) Ltd Interest expense to Syfrets Securities Ltd Interest expense to other fellow subsidiaries Interest expense to old Mutual Asset Managers (SA) (pty) Ltd Interest expense to Nedgroup Securities (pty) Ltd Management and project fee income from fellow subsidiaries Associates Interest expense to associates Key management personnel Interest income from key management personnel Interest income from entities under the influence of key management personnel Interest expense to key management personnel Interest expense to entities under the influence of key management personnel The share-based payments charge in respect of the entities that are participants in the Nedbank Eyethu BEE schemes and key management personnel is detailed below: Key management personnel – other Share-based payments expense (included in BEE transaction expenses) Key management personnel – directors Key management personnel – other Share-based payments expense (included in staff costs) performance fees are also paid to the WIpHoLD and Brimstone consortia in terms of the Nedbank Eyethu BEE scheme. WIpHoLD consortium Brimstone consortium performance fee expense long-term employee benefit plans Interest expense to Nedgroup pension Fund Interest expense to other funds The Nedbank Group pension Fund has an insurance policy (optiplus policy) with a fellow subsidiary, old Mutual Life Assurance Company (SA) Ltd, in respect of its pension plan obligations. Nedbank Limited has an insurance policy (Symmetry policy) with a fellow subsidiary, old Mutual Life Assurance Company (SA) (pty) Ltd, in respect of its postretirement medical aid obligations. The group has an interest in the oMART cell captive within a fellow subsidiary in respect of its disability plan obligations. The value of this policy and this interest are shown as reimbursement rights, with a corresponding liability. In the case of the interest in the cell captive, the group recognises the surplus in the cell captive. The amounts included in the financial statements in respect of this policy and this interest are as follows: optiplus policy reimbursement right Symmetry policy reimbursement right oMART policy reimbursement right (note 27.1) Included in long-term employee benefit assets optiplus policy obligation postretirement medical aid obligation Disability obligation Included in long-term employee benefit liabilities Income/(expense) 2014 2013 (342) (2 200) (344) (2 600) 27 860 506 26 (666) (353) (41) (877) 164 (22) 4 348 (31) (227) (5) (5) (17) (60) (77) (4) (25) 827 1 179 511 2 517 (827) (1 179) (374) (2 380) 30 369 255 (656) (413) (25) (716) 17 (11) 1 316 (17) (227) (5) (5) (7) (24) (31) (14) (13) (27) (4) (12) 777 453 1 230 (777) (320) (1 097) 113 NedbaNk LIMITed annual reportAcquisition date Year-end 2014 rm 2013 Rm 2014 rm 2013 Rm 2014 rm 2013 Rm Carrying amount (from) associates Dividends received Group net indebtedness of loans to/ Dec 2010 Jul 2007 Mar 2005 Aug 2002 Aug 2005 Aug 2007 Dec Feb Feb Feb Feb Feb 39 55 63 85 125 57 373 123 235 42 55 57 40 83 83 79 342 125 227 7 5 43 38 49 235 1 270 (4) 55 5 2 43 14 43 242 1 103 5 35 1 492 1 158 1 098 1 691 39 17 3 20 NoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 51 ANALYSIS oF INVESTMENTS IN pRIVATE EQUITY ASSoCIATES, ASSoCIATE CoMpANIES AND JoINT ARRANGEMENTS percentage holding 2014 % 2013 % Measurement method 50 35 20 35 49 50 35 30 20 35 49 Fair value Fair value Fair value Fair value Fair value Fair value Century City JV Erf 7 Sandown (pty) Ltd Falcon Forest Trading 85 (pty) Ltd Friedshelf 113 (pty) Ltd property development property development property development property development Masingita property Investment Holdings (pty) Ltd property development odyssey Developments (pty) Ltd¹ property development other individually immaterial associates² private-equity associates (Manufacturing, industrial, leisure and other) private-equity associates (property investment associates) other Individually immaterial joint arrangements¹ Various Various All investments in associate companies and joint arrangements are unlisted. There are no regulatory constraints, apart from the provisions of the Companies Act, 71 of 2008 (as amended) that restrict the distribution of funds to the shareholders. Distribution of funds may, however, be restricted by loan agreements that the entities have entered into. All associates and joint arrangements are considered to be strategic to the group’s activities. Unless otherwise stated, all entities are domiciled and incorporated in SA. The group has the same proportion of voting rights as its proportion of ownership interest, unless stated otherwise and has not incurred any contingent liabilities with regard to the associates or joint arrangements listed above. No significant judgement or assumptions were applied in concluding that the group has significant influence over the associates mentioned above or that the group has joint control over the joint arrangements mentioned above. ¹ The group’s proportion of ownership in the entity is 49% while its voting right equates to 35%. ² Represents various investments that are not individually material. 52 ANALYSIS oF INVESTMENTS IN SUBSIDIARY CoMpANIES Banking² Nedbank (Lesotho) Ltd Nedbank (Swaziland) Ltd other companies³ BoE Holdings (pty) Ltd, formerly BoE Holdings Ltd IBL Asset Finance and Services Ltd Depfin Investments (pty) Ltd⁴ Nedcor Trade Services Ltd (Mauritius) Nedgroup Investment 102 Ltd Nedcor Investments Ltd peoples Mortgage Ltd Group Issued capital effective holding 2014 rm 2013 Rm 2014 % 2013 % 20 12 2 4 ¹ 3 6 28 45 20 12 2 4 ¹ 3 6 28 45 100 65 100 100 100 100 100 100 100 100 65 100 100 100 100 100 100 100 1 Represents amounts less than R1m. ² The banking subsidiary companies are restricted in terms of Basel regulations and prudential requirements with regard to the distributions of funds to their holding company. ³ These entities are free of any restrictions imposed on the distribution of funds, save for compliance with any local regulations. ⁴  The entity is considered to be consolidated structured entity. Put options exist between the group and subscribers of issued preference shares of the entity. These options can be excercised if the entity breaches the terms of the preference share subscription agreement. The group has not provided financial or any other support to the entity without the contractual obligation to do so. The group has no current intention to provide financial or other support to the entity without the contractual obligation to do so. 114 51 ANALYSIS oF INVESTMENTS IN pRIVATE EQUITY ASSoCIATES, ASSoCIATE CoMpANIES AND JoINT ARRANGEMENTS percentage holding 2014 2013 Measurement % 50 35 20 35 49 % 50 35 30 20 35 49 method Fair value Fair value Fair value Fair value Fair value Fair value Century City JV Erf 7 Sandown (pty) Ltd Falcon Forest Trading 85 (pty) Ltd Friedshelf 113 (pty) Ltd property development property development property development property development Masingita property Investment Holdings (pty) Ltd property development odyssey Developments (pty) Ltd¹ property development other individually immaterial associates² private-equity associates (Manufacturing, industrial, private-equity associates (property investment leisure and other) associates) other Individually immaterial joint arrangements¹ Various Various All investments in associate companies and joint arrangements are unlisted. There are no regulatory constraints, apart from the provisions of the Companies Act, 71 of 2008 (as amended) that restrict the distribution of funds to the shareholders. Distribution of funds may, however, be restricted by loan agreements that the entities have entered into. All associates and joint arrangements are considered to be strategic to the group’s activities. arrangements listed above. Unless otherwise stated, all entities are domiciled and incorporated in SA. The group has the same proportion of voting rights as its proportion of ownership interest, unless stated otherwise and has not incurred any contingent liabilities with regard to the associates or joint No significant judgement or assumptions were applied in concluding that the group has significant influence over the associates mentioned above or that the group has joint control over the joint arrangements mentioned above. ¹ The group’s proportion of ownership in the entity is 49% while its voting right equates to 35%. ² Represents various investments that are not individually material. Acquisition date Dec 2010 Jul 2007 Mar 2005 Aug 2002 Aug 2005 Aug 2007 Carrying amount net indebtedness of loans to/ (from) associates Dividends received Group Year-end 2014 rm 2013 Rm 2014 rm 2013 Rm 2014 rm 2013 Rm Dec Feb Feb Feb Feb Feb 55 63 85 125 57 373 123 235 42 55 57 40 83 83 79 342 125 227 7 5 43 38 49 235 1 270 (4) 55 1 158 1 098 1 691 5 2 43 14 43 242 1 103 5 35 1 492 39 39 17 3 20 Unless otherwise stated, all entities are domiciled in SA. Unless otherwise stated, the financial statements of the subsidiaries used in the preparation of consolidated financial statements are as of the same date or same period than that of the consolidated financial statements. Unless otherwise stated, there are no significant restrictions (eg statutory, contractual and regulatory restrictions) on the group’s ability to access or use the assets and settle the liabilities of the group. Headline earnings from subsidiaries (after eliminating intercompany transactions): Aggregate headline earnings attributable to equity holders Aggregate headline losses attributable to equity holders 2014 rm 8 079 (2) 2013 Rm 7 232 (43) General information required in terms of the Companies Act, 71 of 2008 (as amended), is detailed in respect of only those subsidiaries where the financial position or results are material to the group. It is considered that the disclosure in these statements of such information in respect of the remaining subsidiaries would entail expenses out of proportion to the value to members. other subsidiaries consist of nominees, property-owning and financial holding companies acquired in the course of lending activities. Nedbank Group Limited will ensure that, except in the case of political risk, and unless specifically excluded by public notice in a country where a subsidiary is domiciled, its banking subsidiaries, and its principal non-banking subsidiaries, are able to meet their contractual liabilities. 115 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 52 ANALYSIS oF INVESTMENTS IN SUBSIDIARY CoMpANIES (continued) 52.1 Material non-controlling interests The table below provides detail of non-wholly owned subsidiaries of the group that have material non-controlling interests: Financial position Total assets Total liabilities Accumulated non-controlling interests at the end of the year Comprehensive income Income from lending activities Non-interest revenue profit from continuing operations Total comprehensive income profit allocated to non-controlling interests during the year Cashflows Cashflows from/(utilised by) operating activities Cashflows utilised by investing activities Cashflows utilised by financing activities Net increase/(decrease) in cash and cash equivalents nedbank (Swaziland) ltd 2014 rm 3 596 3 122 165 149 139 97 98 38 62 (8) (25) 29 2013 Rm 2 845 2 444 136 119 131 112 78 27 (493) (13) (23) (529) 52.2 Significant judgement and assumptions in the assessment of control No significant judgements and assumptions were used in determining whether the group has control over another entity except for the following: Judgements and assumptions applied in concluding that the group has control over another entity: Securitisation The group originated and sponsors certain securitisation vehicles and acts in various capacities with regard to these structures. The group controls these entities and have been consolidating these structures since its inception. These securitisation structures include the following: Synthesis Funding Ltd (Synthesis), an asset-backed commercial paper (ABCp) programme; invests in long-term rated bonds and offers capital market funding to SA corporates which is funded through the issuance of short-dated investment-grade commercial paper. The group acts in various capacities with regard to this vehicle which includes the role of master liquidity facility provider, programme-wide credit enhancement provider, administrator, dealer, paying and settlement agent, custodian and hedge counterparty. The group is involved in the day-to-day activities of the vehicle. Although the activities and decisionmaking rights are predetermined and restricted; the group exercises a significant degree of discretion in its decisionmaking regarding investments, funding and risk management. Industry knowledge and experience of the group are crucial to successful operation of Synthesis. The group is exposed to variable returns from the entity in the form of fees and interest income as well as residual income subsequent to certain distributions through the provisioning of credit enhancement. As a result, the group has concluded that it controls the entity. other securitisation vehicles consist of GreenHouse Funding (RF) Ltd, Series 1 (GreenHouse), a residential mortgage-backed securitisation programme, and precinct Funding 1 (RF) Ltd, a commercial mortgage-backed securitisation programme. The activities of these vehicles are predetermined and restricted in terms of the programme documentation established at its inception. The group does however exercise some discretion in its decisionmaking which includes the selection and transfer of assets and the management of defaulted assets. Through the provision of administration services, the interest rate hedge, and credit enhancement; Nedbank Limited has rights to the residual return of the vehicle. The group has concluded that it controls these entities. Refer to note 43 for further information on the securitisation activities of the group. Employee share schemes Employee share schemes were established by the group (or any of its subsidiaries) in terms of a trust deed for the benefit of its employees in return for their employment services rendered. Funding is provided by the group or its subsidiaries to acquire shares that are beneficially held on behalf of the beneficiaries of the trust. The beneficiaries of the trust are specified by group or its subsidiaries. The trustees have limited rights and act within narrowly defined parameters in terms of the trust deed. The trustees receive limited remuneration (if any) for their services rendered in terms of the trust. The group has concluded that the trustees merely act in an agent capacity and that the group has control over the trust. 116 Dr Holsboer Benefit Fund Nedbank Limited is the founder of the trust. The fund was established in terms of a trust deed for the benefit of employees of Nedbank Limited. The beneficiaries of the trust include employees, contractors and pensioners as nominated by the trustees in their sole discretion. The trustees have the right to vest or distribute net income of the trust in their discretion. All trustees are required to act in accordance with trust deed. The founder, Nedbank Limited, reserves the right to terminate the appointment of any of the trustees. In terms of the trust deed, the trustees are not entitled to remuneration for their services unless the founder and all the trustees unanimously agree. The group has concluded that the trustees merely act in an agent capacity and that the group has control over the trust. Judgements and assumptions applied in concluding that the group does not have control over another entity: Investment funds The group acts as fund manager to a number of investment funds. Determining whether the group controls such an investment fund usually focuses on the assessment of decisionmaking rights as fund manager, the investor’s rights to remove the fund manager and the aggregate economic interests of the group in the fund in the form of interest held and management fees. In most instances the group’s decisionmaking authority, in capacity as fund manager, with regard to these funds is regarded to be well- defined. Discretion is however exercised when decisions regarding the relevant activities of these funds are being made. For all funds managed by the group, the investors have the right to remove the group as fund manager without cause. Fees earned by the group, in its capacity as fund manager, are considered to be market related, commensurate with the services provided and includes only terms, conditions or amounts that are customarily present in arrangements for similar services and level of skills negotiated on an arm’s length basis. As a result, the group has concluded that it acts as agent on behalf of the investors in all instances. The group does therefore not control these funds and has not consolidated these funds. Investment holding entities The group provides funding to various investment-holding entities in the form of preference shares. The group’s rights relating to these investment-holding entities, through the subscription of preference shares, are considered to be protective rather than substantive. As a result, the group has concluded that it does not have power nor control over these entities. 53 UNCoNSoLIDATED STRUCTURED ENTITIES The group considers an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, to be structured entities. The relevant activities of structured entities are normally directed by means of contractual arrangements and often have some or all of the following features or attributes: ■ restricted activities; ■ a narrow and well-defined objective; ■ insufficient equity to permit the structured entity to finance its activities without subordinated financial support; and ■ financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches). However, interests in unconsolidated structured entities that result from typical customer-supplier relationships are not regarded as exposures that are required to be disclosed in terms of IFRS 12 with specific reference to unconsolidated structured entities. The group evaluates the nature of its involvement with all unconsolidated structured entities to determine whether it is based on a typical customer supplier relationship. This assessment includes consideration of the following: ■ the typical operations and business model of the business unit involved; ■ the risk and variability of return the group is exposed to; ■ the purpose and design of the structured entity and/or the instrument the group is exposed to; and ■ the level of subordination of rights and concentration of risk relating to the exposure. The group has various involvements in and exposures towards unconsolidated structured entities which include: ■ certain investments in exchange-traded funds and securitisation structures; ■ certain funding structures; ■ certain management and fiduciary functions performed in terms of trusts and partnerships; and ■ security SpVs. Through careful assessment, these involvements and exposure are regarded to be typical customer-supplier relationships and are therefore not required to be disclosed in terms of IFRS 12. 54 EVENTS AFTER THE REpoRTING pERIoD Refer to the directors’ report for information on these events. 117 NedbaNk LIMITed annual reportNoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS (continued) for the year ended 31 December 55 pREFERENCE SHAREHoLDERS’ ANALYSIS 2 January 2015 1 000 000 000 shares 358 277 491 shares number of shareholdings 172 2 353 3 083 432 41 6 081 2 60 58 3 811 32 5 11 86 1 773 35 162 5 41 6 081 13 1 9 3 6 068 6 081 Register date: Authorised share capital: Issued share capital: Shareholder spread 1 – 1 000 shares 1 001 – 10 000 shares 10 001 – 100 000 shares 100 001 – 1 000 000 shares 1 000 001 shares and over Total Distribution of shareholders Banks Close corporations Endowment funds Individuals Insurance companies Investment companies Medical aid schemes Mutual funds Nominees and trusts other corporations private companies public companies Retirement funds Total public/non-public shareholders Non-public shareholders Directors and associates of the company old Mutual Life Assurance Company (South Africa) Ltd and associates Nedbank Group Ltd and associates public shareholders Total Beneficial shareholders holding 5% or more Coronation Fund Managers Total Major managers Coronation Asset Management (pty) Ltd (SA) Sanlam Investment Management (SA) Various retail holders (SA) Investec Asset Management (SA) STANLIB Asset Management (SA) Nedgroup private Wealth (pty) Ltd (SA) Grindrod Asset Management (SA) outsurance Insurance Company Ltd (SA) pSG Konsult (SA) Abax Investments (SA) Melville Douglas Investment Management (SA) 118 % number of shares % 2,83 38,69 50,70 7,10 0,68 94 421 14 724 872 102 264 535 102 875 203 138 318 460 0,03 4,11 28,54 28,71 38,61 100,00 358 277 491 100,00 0,03 0,99 0,95 62,67 0,53 0,08 0,18 1,41 29,16 0,58 2,66 0,08 0,68 13 3 628 152 7 005 883 97 329 296 33 583 795 7 208 828 883 649 87 813 188 81 597 594 1 263 914 26 911 145 2 310 100 8 741 934 1,01 1,96 27,17 9,38 2,01 0,25 24,51 22,77 0,35 7,51 0,64 2,44 100,00 358 277 491 100,00 0,21 0,02 0,15 0,05 99,79 14 797 951 158 000 4 640 245 9 999 706 343 479 540 100,00 358 277 491 33 605 476 33 605 476 Dec 2014 % holding 13,30 6,93 6,23 4,24 3,32 2,91 2,63 2,12 1,96 1,95 1,38 number of shares 47 663 326 24 816 052 22 321 552 15 188 033 11 893 305 10 413 523 9 405 990 7 586 720 7 031 446 7 000 000 4 934 503 4,13 0,04 1,30 2,79 95,87 100,00 9,38 9,38 Dec 2013 % holding 11,81 7,29 6,89 3,38 3,00 2,63 2,16 2,12 2,08 2,01 1,92 CoMpLIANCE WITH IFRS¹ - FINANCIAL STATEMENT NoTES note number note description 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 pRINCIpAL ACCoUNTING poLICIES STANDARDS AND INTERpRETATIoNS KEY ASSUMpTIoNS CoNCERNING THE FUTURE AND KEY SoURCES oF ESTIMATIoN CApITAL MANAGEMENT INTEREST AND SIMILAR INCoME INTEREST ExpENSE AND SIMILAR CHARGES NoN-INTEREST REVENUE opERATING ExpENSES INDIRECT TAxATIoN NoN-TRADING AND CApITAL ITEMS DIRECT TAxATIoN EARNINGS DIVIDENDS CASH AND CASH EQUIVALENTS oTHER SHoRT-TERM SECURITIES DERIVATIVE FINANCIAL INSTRUMENTS GoVERNMENT AND oTHER SECURITIES LoANS AND ADVANCES IMpAIRMENT oF LoANS AND ADVANCES oTHER ASSETS INVESTMENT SECURITIES INVESTMENTS IN pRIVATE ASSoCIATES, ASSoCIATE CoMpANIES AND JoINT ARRANGEMENTS NoN-CURRENT ASSETS AND LIABILITIES HELD FoR SALE DEFERRED TAxATIoN INVESTMENT pRopERTY pRopERTY AND EQUIpMENT LoNG-TERM EMpLoYEE BENEFITS INTANGIBLE ASSETS SHARE CApITAL AMoUNTS oWED To DEpoSIToRS pRoVISIoNS AND oTHER LIABILITIES LoNG-TERM DEBT INSTRUMENTS CASHFLoW INFoRMATIoN CoNSoLIDATED STATEMENT oF FINANCIAL poSITIoN - CATEGoRIES oF FINANCIAL INSTRUMENTS FAIR-VALUE MEASUREMENT - FINANCIAL INSTRUMENTS FINANCIAL INSTRUMENTS DESIGNATED AS AT FAIR VALUE THRoUGH pRoFIT oR LoSS oFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES CREDIT ANALYSIS oF oTHER SHoRT-TERM SECURITIES, AND GoVERNMENT AND oTHER SECURITIES LIQUIDITY GAp CoNTRACTUAL MATURITY ANALYSIS FoR FINANCIAL LIABILITIES HISToRICAL VALUE AT RISK (99%, oNE-DAY ) BY RISK TYpE INTEREST RATE REpRICING GAp SECURITISATIoNS FoREIGN CURRENCY CoNVERSIoN GUIDE CoNTINGENT LIABILITIES AND UNDRAWN FACILITIES CoMMITMENTS CoLLATERAL MANAGED FUNDS SHARE-BASED pAYMENTS RELATED pARTIES ANALYSIS oF INVESTMENTS IN pRIVATE EQUITY ASSoCIATES, ASSoCIATE CoMpANIES AND JoINT ARRANGEMENTS ANALYSIS oF INVESTMENTS IN SUBSIDIARY CoMpANIES UNCoNSoLIDATED STRUCTURED ENTITIES WoRLDCLASS AT MANAGING RISK IFrS required IAS² 1 IAS 1 and IAS 8 IAS 1 IAS 1 IAS 18, IAS 32, IAS 39, IFRS 7 and IFRS 13 IAS 18, IAS 32, IAS 39, IFRS 7 and IFRS 13 IAS 18, IAS 20, IAS 32, IAS 39, IFRS 4, IFRS 7, IFRS 8 and IFRS 13 IAS 1, IAS 19, IFRS 2 and IFRS 8 IAS 1 IAS 1, IAS 16, IAS 36 and IFRS 10 IAS 12 IAS 33 IAS 1 and IAS 10 IAS 1, IAS 7 and IFRS 7 IAS 1, IAS 39, IFRS 7, IFRS 8 and IFRS 13 IAS 32, IAS 39, IFRS 7 and IFRS 13 IAS 1, IAS 32, IAS 39, IFRS 7; IFRS 8 and IFRS 13 IAS 17, IAS 39, IFRS 7, IFRS 8 and IFRS 13 IAS 39, IFRS 7 and IFRS 8 IAS 1, IAS 39, IFRS 7 and IFRS 13 IAS 32, IAS 39, IFRS 7 and IFRS 13 IAS 28, IFRS 11, IFRS 12 and IFRS 13 IFRS 5 and IFRS 13 IAS 12 IAS 40 and IFRS 13 IAS 16, IAS 36 and IFRS 13 IAS 19, IAS 26 and IFRIC³ 14 IAS 38 and IAS 36 IAS 1 IAS 1, IAS 39, IFRS 7, IFRS 8 and IFRS 13 IAS 37, IAS 32, IAS 39, IFRS 7 and IFRS 13 IAS 32, IAS 39, IFRS 7 and IFRS 13 IAS 7 IAS 39 and IFRS 7 IAS 39, IFRS 7 and IFRS 13 IAS 32, IAS 39, IFRS 7 and IFRS 13 IFRS 7, IFRS 13 and IAS 32 IFRS 7 IFRS 7 IFRS 7 IFRS 7 IFRS 7 IAS 39, IFRS 7 and IFRS 13 IAS 21 IAS 37 and IAS 10 IAS 37, IAS 10, IAS 17 and IFRS 7 IFRS 7 IFRS 7 and IFRS 13 IFRS 2 IAS 24 IAS 28, IFRS 11, IFRS 12 and IFRS 13 IAS 27, IFRS 10 and IFRS 12 IFRS 12 IFRS 7 and IFRS 13 ¹ International Financial Reporting Standards (IFRS). ² International Accounting Standards (IAS). ³ International Financial Reporting Interpretations Committee (IFRIC). 119 NedbaNk LIMITed annual reportREpoRT FRoM Group reMunerAtIon CoMMIttee CHAIR We have, over several years, kept our core remuneration policy and principles largely consistent. In 2014 we conducted an appropriateness and fit-for-purpose review for all key elements of our variable remuneration, including our short-term incentive (STI) and deferral arrangements, and the structure of our long-term incentives (LTIs). our STI and deferral arrangements were deemed to meet all of the relevant governance and design requirements, and therefore remained unchanged. our LTI arrangements were also found to be fit for purpose. However, it was decided to increase group and cluster executive committee (Exco) members’ proportion of LTIs that are subject to corporate performance targets by including an element for the delivery of strategic initiatives as agreed by the Group Remuneration Committee (Remco) from time to time. In line with the objective of increasing the levels of collaboration within the broader old Mutual Group, and as indicated in our 2013 Remuneration Report, Africa collaboration has been selected as the strategic initiative for 2015 LTI issuance, in support of the target of achieving R1bn of pretax synergies across the old Mutual Group by the end of 2017. As a result 20% of all LTI awards made to members of the Group Exco and the cluster excos in 2015 will be subject to an Africa Collaboration performance condition, which will be standard across the three old Mutual entities (old Mutual Emerging Markets, Mutual & Federal and Nedbank). This will not increase the overall quantum of the LTI awards, but will rather change the proportion of the awards subject to the various performance conditions. It is important, however, to note that awards made to Nedbank employees will be in Nedbank shares and not in old Mutual plc shares, as was previously contemplated, and will be subject to a minimum amount of the R1bn synergy target accruing to Nedbank. Details are set out on page 138 of this Remuneration Report. Nedbank produced a strong set of results for 2014, which are set out in other sections of the integrated report. Given the continued improvement in our performance, the STI pool earned and approved by the Remco has continued to grow. In addition, LTI awards continue to vest, although this vesting has been moderated downwards based on performance according to the corporate performance targets. There have been no material changes to our Remuneration policy following the comprehensive review conducted in 2013. The policy is set out in full on pages 122 to 125 of the Remuneration Report, and shareholders will, as required by King III, be requested to vote on this on a non-binding advisory basis at the annual general meeting on 11 May 2015. I have no reservation in recommending, on behalf of the Nedbank Group Remuneration Committee, that shareholders vote positively in this regard. on pages 122 to 151 we present to our stakeholders the 2014 Nedbank Group Remuneration Report, containing our Remuneration policy and details of the implementation and governance of our remuneration practices during the 2014 financial year. Executive remuneration and remuneration governance continued to feature prominently in 2014 and, at an individual level, the focus remained on executive remuneration (notably that of Chief Executives). A primary consideration in this regard remains the issue of pay for sustainable performance. We set out in detail in this Remuneration Report the processes that we follow in Nedbank to ensure that our compensation practices are sustainable and that we reward both short- and long-term performance. As far as that is concerned, we place a large proportion of executive compensation at risk through the implementation of deferral of short- term incentives with appropriate forfeiture provisions, and through corporate performance long-term remuneration. targets on deferred and King III and the principles for Sound Compensation practice published by the Financial Stability Board are the key governance frameworks for remuneration in banking in SA. The SA Banks Act, 94 of 1990 was, however, amended in late 2013, setting out in section 64C the specific requirements that must be met with regard to the establishment and functioning of remuneration committees in banks. I am pleased to confirm that Nedbank remains fully compliant with the relevant regulatory and statutory provisions remuneration governance. We are also proud to have been given the Remuneration Report of the Year award by the South African Reward Association for our 2013 Remuneration Report. related to Remuneration governance remains a key focus abroad. Measures have been implemented in European banks to restrict levels of bonus payments as a multiple of guaranteed pay. In some instances, alternative remuneration structures have been implemented, which resulted in increases in fixed remuneration, albeit in the form of standalone ‘allowances’. These measures continue to be monitored by the relevant governance authorities to ensure that they do not circumvent the regulatory intentions, but also to ensure that they do not in moral hazard. The counterargument advanced by banks is that increased regulation in Europe may reduce the competitiveness of the employment market in the region, with highly qualified and skilled individuals migrating to other, less onerous jurisdictions, and that the increase in fixed remuneration increases business risk and earnings volatility. This debate will likely continue into the future. inadvertently lead to an increase It is clear that the regulation and the associated responses serve to increase, rather than decrease, the complexity of remuneration design. This will require greater transparency in reporting so that shareholders and other stakeholders can make informed judgements on the appropriateness of pay. This issue of transparent and standardised reporting is also a key issue for SA. 120 In our reportback on remuneration in 2013 the Remco identified several key matters to be considered in 2014. These and the progress made are set out below: Issues raised in the 2013 remuneration report Conclusion of the performance management review project Improved shareholder engagement through our governance roadshows conducted annually by the Chairman of the board Review of the structure, composition and effectiveness of our employee benefits suite Consideration of the possible implementation of a focused LTI programme for a limited number of senior executives in the group Actions taken in 2014 The group’s decision to implement SAp-HCM (along with the finance and procurement modules) as its core human resources system, supplemented by the SuccessFactors modules on compensation, performance, talent and learning, resulted in a full review of the approach to performance management to enable the group to benefit from the best-practice solution in SuccessFactors. This will be rolled out during 2015, for implementation in the 2016 performance year. our governance roadshows, which are outlined in more detail online in the integrated report, were very successful. There were very few material issues raised regarding our Remuneration policy and practices. Nedbank received the Remuneration Report of the Year award for 2013 by the South African Reward Association in recognition of the contribution made to reporting on remuneration in a trustworthy and transparent manner. The Group Exco and the trustees of the two Nedbank Group defined-contribution retirement funds agreed, following an extensive due-diligence exercise, to the transition of these standalone funds to the old Mutual SuperFund umbrella fund. This transition took place on 1 January 2015, following a communication process with members of the funds during the second half of 2014. The Nedgroup Defined-Benefit pension Fund, which is closed to new members, will remain a standalone fund. Further work is scheduled for 2015 to review the Nedgroup Medical Aid Scheme. This arrangement was not implemented in 2014 following extensive engagement in this regard between the Remco, old Mutual and other stakeholders. It has, however, been decided to increase the proportion of LTIs in 2015 for Group Exco and cluster exco members that are subject to performance targets by including an element for the delivery of strategic initiatives as agreed by the Remco from time to time. Details are set out on page 129 of this Remuneration Report. This will form part of, and not be in addition to, the overall LTI arrangements. The Remco continues to function effectively and efficiently. I remain grateful to my fellow Remco members for the way in which they continue to engage on the important issues related to remuneration. Mpho Makwana Group Remuneration Committee Chair 9 March 2015 2015 FoCUS AREAS In 2015 the committee will focus on: ■ launching an updated approach to performance management in the group; ■ reviewing our variable pay arrangements; and ■ focusing on fitness for purpose of our employee benefit suite. 121 NedbaNk LIMITed annual reportREpoRTING BACK oN reMunerAtIon in jurisdictions. These its various operating Remuneration governance The group complies with the relevant remuneration governance codes include that apply groupwide compliance with the Financial Stability Board’s (FSB’s) principles for Sound Compensation practice. In SA the group complies with the provisions of King III and the requirements of regulations 39 and 43 of the Banks Act and section 64C of the Banks Amendment Act. For group operations domiciled in the UK, the provisions of the prudential Regulatory Authority (previously the Financial Services Authority) Remuneration Code apply. The Nedbank Group Remuneration Committee (‘Group Remco’) is mandated by the group’s board to oversee and govern all aspects of remuneration and operates according to an approved charter. outcomes of Group Remco meetings are reported to the board. Group Remco also conducts an annual self-assessment of its effectiveness. Group Remco has independent advisers, both in SA and internationally, who provide strategic input and advice on international and local best practice and benchmarking. Group Remco is further supported by the Group Reward and performance function. Group Remco works closely with the Group Risk and Capital Management Committee (GRCMC) to ensure a comprehensive approach to risk and reward. The group publishes its comprehensive annual Remuneration Report as part of its overall governance requirements. Performance management The group’s performance management process ensures appropriate alignment of individual, team, business unit and cluster performance objectives with those of the group. This enables translation of the group’s strategic focus areas into individual action plans. The core principles of the group’s performance management process are as follows: ■ performance management is consistently applied across the group to ensure effective alignment of strategic objectives and individual outputs. ■ performance objectives are based on a scorecard of metrics featuring both financial and non-financial indicators that align with the group’s strategic imperatives. ■ performance management is an ongoing process rather than an event. ■ performance outcomes are appropriately differentiated to reflect the different levels of the contribution made by employees to the success of the group. Where performance deficits are identified, these are dealt with actively, with the primary objective of returning the employee to full performance. ■ performance management is a primary input into the group’s remuneration programmes, with the aim, among others, of ensuring appropriate differentiation in remuneration based on contribution. REMUNERATIoN poLICY The group defines total reward as a combination of various types of rewards, including financial and non-financial, indirect and direct, and intrinsic and extrinsic rewards. The Remuneration policy provides a framework for the management of total reward in the group, and supports the Nedbank employee value proposition (EVp). Scope of the Nedbank Group Remuneration Policy The Nedbank Group Remuneration policy (‘the remuneration policy’) is board-approved and forms part of the group’s operating philosophy, policies and standards. It sets out how total remuneration is to be managed in the group, and is supported by detailed operating policies, procedures and practices at business unit level. The policy applies to all entities in Nedbank Group, including wholly owned subsidiaries and subsidiaries or joint ventures in which Nedbank has a majority interest, and excludes companies in which the group has only a private-equity investment. The policy applies uniformly in all such jurisdictions, except where it is in conflict with local statutes or regulations, in which case such statutes or regulations will apply. Where a particular operating jurisdiction has a more onerous regulatory or statutory framework, the local standards of governance in that jurisdiction will apply. Aims of the policy The group’s reward arrangements should: ■ enable it to attract, motivate and retain people of high calibre, with the right mix of experience, skills and knowledge to deliver on the strategy; ■ support and reinforce its desired culture and encourage behaviour consistent with its values, thereby stimulating employee engagement; ■ create appropriate balance and alignment between the needs, expectations and risk exposures of its stakeholders, including our staffmembers, clients, shareholders, regulators and communities, to ensure the creation of sustainable long-term value for each of these; ■ incentivise employees to deliver sustained high levels of performance and excellent execution of its strategic priorities, while being cognisant of the impact this delivery has on the risk profile and exposure of the organisation; ■ enable appropriate transparency in the development of remuneration programmes and the allocation of individual remuneration to ensure equity and fairness based on valid and appropriate external and internal benchmarks; and ■ align with the principles of good corporate and compensation governance, ensuring an appropriate share of value for the relevant stakeholders in its business. In the above regard, Nedbank’s fixed and variable remuneration is aimed at enabling it to remain competitive. In this context ‘competitive’ relativity, sustainability and commercial encompasses market sensibility in the allocation and delivery of remuneration. 122 Components of Nedbank’s Total Remuneration Framework RECoGNITIoN LoNG-TERM INCENTIVES EMpLoYEE oWNERSHIp pLAN Long-term focus, ownership orientation GUARANTEED pACKAGE Short-term focus, day-to-day orientation pERFoRMANCE MANAGEMENT SpECIAL- pURpoSE SHoRT-TERM ARRANGEMENTS SHoRT-TERM INCENTIVES (INCLUDING DEFERRAL AND FoRFEITURE) Short-to-medium-term focus, performance orientation Guaranteed remuneration Guaranteed remuneration comprises salary and employee benefits and is delivered to employees in a form determined by local market conditions. Guaranteed remuneration usually reflects the prevailing ‘rate for the role’ within a remuneration range, with actual remuneration being distributed about the median of the range. competitiveness. The combination of distribution of guaranteed remuneration within the earnings ranges and the market relativity of the group’s guaranteed remuneration is a primary input into the annual salary review process, but in all instances this is subject to affordability and appropriate consideration of the sustainability of the group’s remuneration practices. In SA, and in some non-SA operations, this will take the form of a guaranteed package (Gp). This represents the fixed cost of employment and, depending on local market practice, comprises a combination of the following: In support of remuneration benchmarking there is a robust process of job profiling and evaluation. This enables consistency in the evaluation and sizing of roles, and the associated benchmarking of guaranteed- remuneration levels. ■ Cash salary. ■ Retirement benefits. ■ Medical benefits. ■ Death and disability benefits. ■ Contributions towards postretirement medical funding, where applicable. ■ Motor vehicle benefits. A core principle under a Gp model is that changes to benefit contribution levels are typically cost neutral to the group: changes to benefit pricing result in a corresponding increase or decrease in the monthly cash salary for the individual. Where appropriate, local market conditions may necessitate a basic- salary-plus-add-on benefit approach. In these instances the salary is typically fixed, with benefit costs being a function of utilisation (that is, if the benefit is not used, there is no cash compensation in lieu of the benefit). The group carries the upside risk of increases in the cost of benefits. The primary determinant of guaranteed remuneration is market- relatedness. The group conducts annual benchmarking against comparable firms in the relevant jurisdictions to assess market At an individual decisionmaking level performance is used as a determinant of the extent of an individual’s progression within an earnings range. Thus, performance and individual market position are used concurrently when remuneration increases are determined. Adjustments to guaranteed remuneration outside of the annual review process are typically exceptional, linked to changes in responsibility or the intention to retain specific talent. These are subject to appropriate approval based on the relevant delegations of authority. All employee benefits, whether offered on a cost-to-company or a basic-salary-plus-add-on basis, are subject to appropriate oversight and governance to ensure that the financial and reputational risks associated with the provision of employee benefits are effectively and prudently managed. Short-term incentives, including deferrals Short-term incentives (STIs) are delivered primarily through the group’s discretionary STI arrangements. Where appropriate, and subject to the appropriate governance and approval, bespoke plans may be implemented, subject to Group Remco oversight. As a general rule, all STI plans are funded from the group’s overall STI pool. Bespoke plans will therefore result in a ‘drawdown’ on the pool. 123 NedbaNk LIMITed annual reportREpoRTING BACK oN REMUNERATIoN (continued) Where there is a specific dispensation to exclude a bespoke plan from the overall STI pool (usually in cases of low-guaranteed/high-variable remuneration models), Group Remco approval for such exclusion is required. The group does not operate any individual ‘line of sight’ schemes that could be deemed to encourage inappropriate risktaking or increase the risk of moral hazard. Where commission-type arrangements operate (usually in respect of income-generating sales roles), appropriate safeguards are included to mitigate any potential moral hazard. low-risk STI participation is discretionary, and therefore there is no right to a performance incentive award in any given year. STIs are, at an individual level, determined primarily on the basis of performance, with the overall objective of exceptional reward for exceptional performance. Differentiation of awards based on the range of performance outcomes in the group is therefore a core principle. Furthermore, employees performing below a minimum acceptable level are not typically eligible for consideration for an STI award. STIs are typically in the form of cash and the employee must be in service on the date of payment. However, in accordance with global financial services governance and prudent risk management principles, the group has introduced an arrangement of compulsory deferral into shares of STI awards paid in excess of a threshold approved by Group Remco from time to time, which has been effective from 2010 onwards. Where deferral applies under this arrangement, any awards made are subject to specific release from forfeiture criteria and are subject to forfeiture at the discretion of Group Remco. Where forfeiture applies, the group will not retest conditions or extend the period over which shares must be held. Group Remco approval is required for all individual STI awards that exceed 200% of guaranteed remuneration. The group may, as a component of its approved long-term incentive (LTI) programme, offer a share-matching arrangement on compulsory STI deferrals, subject to the participant’s retention of the award in the plan for a minimum period of 36 months (which is longer than the standard deferral timeframe), and subject to the release of the awards from potential forfeiture. Additional matching is further subject to the fulfilment of a specific group performance condition. Special-purpose short-term variable remuneration arrangements The group uses, on an exceptional basis, special-purpose short-term variable remuneration arrangements to assist in the attraction and retention of key talented employees and holders of scarce skills. These include signon awards and deferred short-term incentive (DSTI) arrangements, both of which are subject to individual performance and time-based conditions to ensure an appropriate return on the remuneration investment. The group is cognisant of the regulatory concerns raised regarding so- called ‘guaranteed variable remuneration’, and the potential downside of such payments. A high level of governance is therefore applied to both the operation of the respective programmes and the actual inclusion of individuals. In this regard a specified pool is approved by Group Remco for each financial year for each of the programmes. This pool is placed under the direct control of the Chief Executive (CE) and is subject to review by Group Remco at each meeting. As a core principle, guaranteed variable remuneration awards are highly exceptional and are utilised primarily in the context of the appointment or retention of key, critical talent. Furthermore, participants are typically able to receive an award under the respective plans only once during their tenure with the group. Broad-based schemes operate in jurisdictions where local regulations or statutes require specific economic participation by employees, usually by means of ownership of a stake in the business. In most (but not necessarily all) instances these plans are put in place to redress past imbalances in participation in the particular country’s economy. participation in such plans may therefore be limited to certain employees, based on demographic specifications. Further, failure to adhere to the requirements may have material legal or regulatory implications for the relevant business. Broad-based schemes are typically implemented at zero cost to employees. Employee subscription arrangements are typically voluntary and give employees the opportunity to invest in Nedbank, currently on a posttax basis, over a stipulated period. This allows the employee to participate in both potential share price appreciation and the application of matching arrangements if the shares are retained in the plan for a prespecified period of 36 months. In this regard the group operates a voluntary STI deferral scheme, which allows eligible participants to receive matching shares, provided such shares remain in the programme for a stipulated period. All employee ownership plans are subject to board or Group Remco approval (and may, subject to the nature of the transaction, require regulatory, stock exchange or shareholder approval). Accordingly, strict governance and approval processes apply in every instance. Long-term incentive plans The group’s shareholders have approved the implementation of a restricted-share-plan (RSp) arrangement, through which LTI awards are made. Where deemed necessary to address local taxation and exchange control issues, cash-settled phantom RSp arrangements have been implemented to ensure that operations outside SA may also participate in LTI arrangements linked to the group’s share price performance, and therefore ensure appropriate alignment of the interests of executives based abroad with those of the group’s shareholders. LTI awards are based on the following considerations: ■ Strategy and individuals key to driving the business strategy. ■ Talent management strategy and succession planning. ■ Retention of key talent and scarce skills. ■ Transformation objectives. ■ potential and performance. ■ Leadership. The following are the core principles applicable to the group RSp arrangements, including phantom restricted share plans (RSps): ■ Awards under the relevant RSps may typically be made at only two intervals per year – the annual pay review (typically March) and one off-cycle award (typically August). All awards are subject to the necessary governance and approval processes. ■ All plans are subject to corporate performance targets (CpTs) on at least 50% of the total award (with awards for executive directors being subject to performance conditions on 100% of the award). ■ Awards subject to performance conditions may be lapsed in full or in part in the event that the conditions are not met. There is also appropriate upward leverage to a maximum of 130% in the event that conditions are exceeded. Where awards are lapsed because of non-fulfilment of the performance conditions, the conditions will not be retested. ■ Awards are subject to vesting over a period of no less than three years from the date of the grant. The group does not award guaranteed bonuses. ■ Where awards are lapsed, there is no replacement compensation Employee ownership plans The group offers two broad types of employee ownership plans: broad- based participation based on local statutory or regulatory requirements (these include BBBEE arrangements and ‘indigenisation’ or ‘localisation’ programmes) and employee subscription arrangements, in terms of which employees may invest a portion of their after-tax STI in Nedbank shares, with the possibility of matched shares. issued. ■ Employees may not take steps to hedge or otherwise insure themselves against potential losses in respect of their LTI participation prior to vesting. ■ The pool available for allocation under the group’s LTI arrangements is approved in advance by Group Remco. 124  ■ Group Remco assesses and confirms the CpT outcomes, ensuring that the interests of all stakeholders are appropriately considered. Changes to remuneration arrangements The group reserves the right, subject to compliance with the relevant legislation or collective agreements, to change or withdraw any aspect of its total remuneration framework. All programmes are subject to the applicable rules from time to time. Recognition In addition to the core remuneration elements set out above, the group also prides itself on the recognition of excellence among employees. To this end the group operates a comprehensive recognition programme comprising both formal and informal recognition. The core principles of the recognition process are as follows: ■ Recognition should be timely and spontaneous. ■ Recognition should be specific in that employees must know what behaviours were found desirable and what actions should be repeated. ■ Business units determine how recognition will be conducted in their area within specified guidelines. ■ The recognition programme incorporates both informal and formal processes. These processes run concurrently throughout the year and support the achievement of the group’s business objectives. ■ Any awards made under the recognition programme are compliant with the relevant tax legislation. Non-executive directors’ remuneration The fees of non-executive directors are reviewed annually. In accordance with the relevant corporate governance requirements, these are subject to approval in advance by shareholders at the annual general meeting. Changes to fees, where approved, become applicable on 1 July of each year. REMUNERATIoN REpoRT The Remuneration policy is enabled and supported by decisions made by Group Remco, which is informed by internal rules, procedures and processes. These ensure that the group’s predominant approach remains one of consistency and stability, while being cognisant of evolving legislation and remuneration practice. Any changes made are considered carefully to mitigate any unintended consequences or negative effects on the group’s stakeholders. LTI awards made to executive directors are, from 2014, subject to performance conditions on 100% of the award, up from 50% in previous award cycles. With the introduction of the Strategic Initiatives element into our LTI programme, awards made to qualifying executives in 2015 will now include specific performance conditions related to African Collaboration initiatives across the old Mutual Group. Further details of this arrangement are set out on pages 129 to 138 of this report. This Remuneration Report sets out the consistent implementation of the Remuneration policy within the group during 2014, as well as subsequent events in 2015, where applicable. Group Remco receives regular updates from either its external advisers or the Group Reward and performance team on the evolving regulatory environment to ensure that it is able to respond appropriately and timeously to changes in this regard. There have also, for the past three years, been dedicated training sessions, to which all boardmembers are invited, dealing in depth with the issues of remuneration. Interaction with regulators During 2014 the group confirmed to SARB that it continues to comply with the IFSB principles and the associated implementation standards. The promulgation of section 64C of the Banks Act, in respect of which the group confirmed its full compliance and its intention to ensure continued compliance, was an issue raised by SARB this year. The group also continues to be fully compliant with regard to its practices relating to the alignment of remuneration to the long-term risks of the business. Composition of Group Remco Group Remco currently consists of four members, the majority of whom are independent non-executive directors. The committee has an independent chairman. Group Remco met five times during 2014. Details of attendance at the meetings are set out online in the integrated report. The CE, Chief operating officer (Coo) and Group Executive: Human Resources are permanent invitees to Group Remco meetings. However, none of these attendees are present at discussions on their own remuneration. The meetings are also attended by the executive responsible for the reward and performance function in the group, as well as any external advisers whom Group Remco may deem necessary from time to time. All members of Group Remco act as trustees of the Nedbank Group (2005) Employee Share Trust. The trustee meeting for this scheme was held on 24 November 2014. Group Remco appointed pricewaterhouseCoopers Inc. (pwC) to conduct an independent review of the group’s Remuneration policy as well as the implementation of the group’s remuneration practices. No material issues were raised in this regard. The group is pleased with the results of the review and will continue to consider ways in which to improve its remuneration practices. Functioning of Group Remco Group Remco is delegated by the board to discharge its corporate governance duties related to remuneration strategy, policy and practices. The board ensures that Group Remco is: ■ constituted in a way that enables it to exercise competent and independent judgement on remuneration policy and practices, while also considering the management of related risk; ■ independently engaged by the GRCMC for specific risk-related decisions; ■ functioning in compliance with statutory requirements, codes of relevant best remuneration practice as well as applicable regulatory requirements and its board-approved charter; and ■ remaining responsive in terms of risk-adjusted remuneration practices. REMUNERATION GOVERNANCE Remuneration regulation Group Remco recognises that, globally, the remuneration environment remains highly regulated. This requires that Group Remco members keep abreast of the changing regulatory landscape, as well as prevailing stakeholder sentiment regarding remuneration matters, and take proactive steps to ensure that the group continues to meet its regulatory obligations in this regard. Group Remco’s responsibilities, which are groupwide in their application, are set out in the Group Remco Charter. The charter has been amended and approved to take into account section 64C of the Banks Act and is available online. Group Remco applies the guiding principles of the Remuneration policy as far as is feasible, but retains the right to apply discretion to deviate from this policy in exceptional circumstances. There were no requirements for such deviation in 2014. Group Remco membership in 2014 was as follows: Name Directorship status paul Mpho Makwana (Chairman) Nomavuso patience Mnxasana Julian Victor Frow Roberts Malcolm Ian Wyman Independent non-executive director Independent non-executive director Non-executive director Lead independent non-executive director Current membership Current member Current member Current member Current member 125 NedbaNk LIMITed annual reportREpoRTING BACK oN REMUNERATIoN (continued) RoLES AND ACCoUNTABILITIES GRoUp REMUNERATIoN CoMMITTEE oversight and approval of Remuneration policy and reward programmes. Approval of senior executive remuneration. GRoUp ExCo proposal of reward programmes and structures to Group Remco. oversight and implementation of approved remuneration programmes. GRoUp REWARD AND pERFoRMANCE Develop reward strategy and supporting policies and programmes. Execution of reward initiatives. BoArD Accountable for organisational governance. Provides mandate to Group Remco. GRoUp RISK AND CApITAL MANAGEMENT CoMMITTEE oversight and input regarding risk and remuneration. Works with Group Remco to ensure appropriate risk adjustment in remuneration structures. INDEpENDENT ADVISERS Independent advice on best practice, benchmarking and remuneration governance issues. LINE MANAGEMENT Implementation of reward programmes, with employees adhering to reward policies and processes. EMpLoYEES Adherence to reward policies and processes. HUMAN RESoURCES Implementation of reward policy and strategy with line management support and advice. 126 Group Remco’s self-assessment, conducted in the last quarter of 2014, to evaluate its effectiveness against the objectives of its charter revealed no material issues. Advice to Group Remco Group Remco has full access to independent executive remuneration consultants, and has utilised the services of Vasdex Associates proprietary Limited and pwC during 2014. Group Remco is provided, through the group reward and performance function, with market-related remuneration information based on a number of independent remuneration surveys in which we participate. These include the pwC Remchannel surveys, the Global Remuneration Solutions/Mercer Top Executive Remuneration Survey, the LMo Executive Remuneration Survey and a number of smaller niche or bespoke remuneration surveys. REMUNERATIoN ELEMENTS: MATERIAL pRoGRAMMES The group’s remuneration elements are set out in detail in the Remuneration policy on pages 122 to 125 of this Remuneration Report. In this section material remuneration programmes or practices are highlighted. Total remuneration mix The Nedbank total remuneration mix is depicted as follows: GuArAnteeD reMunerAtIon Guaranteed package oR Salary plus benefits Details of the items in the diagram set out below are included in the Remuneration policy on pages 122 to 125 of this Remuneration Report. However, in some instances, further details are provided on the pages that follow to ensure greater understanding of Nedbank’s approach. Retirement schemes our principal position on retirement schemes remains that these should be of a defined-contribution nature, with appropriate employee involvement in the governance of these schemes through representation on boards of trustees. We are, however, cognisant of the fact that the scheme design and governance will be largely influenced by local statutory and regulatory conditions. Detailed financial disclosures are set out in the consolidated annual financial statements available online. SA employees (part of guaranteed package) The majority of SA employees (and specifically all appointees since 1  January 1994) are members of the Nedgroup Defined-Contribution pension or provident Fund. Both include flexible contribution levels and  member investment choice. At 31 December 2014 a total of 9 665 employees were members of the Defined-Contribution pension Fund and 17 988 employees were members of the Defined-Contribution provident Fund. The group has taken a decision to transition both of its defined- contribution funds into the old Mutual SuperFund, which is an umbrella fund. This transition was effective 1 January 2015, and is envisaged to be concluded during the course of the first quarter of 2015. VArIABle reMunerAtIon Short-term incentives Cash award and deferral (subject to forfeiture) Long-term incentives Matched shares and LTI awards We also have the closed Nedgroup Defined-Benefit pension Fund, with 244 active members and 2 967 pensioners at 31 December 2014. The Nedgroup Defined-Benefit pension Fund is fully funded, with an actuarial surplus. This fund will remain standalone. Employees outside SA (either provided as part of the guaranteed package or as a standalone employee benefit) our non-SA operations run a variety of defined-contribution and legacy defined-benefit schemes for the benefit of employees. These are all governed in accordance with the local regulatory environment. Where defined-benefit plans are in deficit, appropriate steps are in place to manage the financial impact of such deficits. Existing defined-benefit- plan deficits are not regarded as posing any material risk to the financial sustainability of the group. Postretirement medical aid fund subsidisation A postretirement medical aid fund exists, which provides qualifying employees in SA with a postretirement medical aid subsidy promise. Approximately 78% of active employees participate in the benefit. This promise is contingent on the employee actually retiring from the bank, and is not transferable or encashable. The fund is currently fully provided for. The postretirement medical aid prefunding reserve has been migrated to a policy held with old Mutual and is managed by a joint Nedbank/ old Mutual Management Committee to ensure that it continues to meet its primary purpose of providing a postretirement medical subsidy for Nedbank retirees. 127 NedbaNk LIMITed annual reportREpoRTING BACK oN REMUNERATIoN (continued) Short-term incentive schemes STIs aim to drive the achievement of sustainable results within an agreed risk appetite framework and to encourage behaviours that are consistent with our values and are aligned with the best interests of our stakeholders. our STI schemes are structured to support collaborative work across different clusters. Group Remco has agreed a set of principles and all group and cluster incentive schemes are designed according to those principles. performance is measured at a group, cluster and business unit level against preagreed financial and non-financial targets after the finalisation of the audited year-end results. In the income-generating clusters incentive pools are structured with a weighting linked to the group, cluster and, where appropriate, divisional performance. The five income-generating clusters within the group (Capital, Corporate, Business Banking, Retail and Wealth), together with the Rest of Africa Division, are measured against a combination of performance targets, namely economic profit (Ep), headline earnings (HE) and a set of non-financial targets. The incentive pool for all central clusters are based on a combination of group performance relative to the targets in respect of Ep, HE and cluster-specific non-financial performance scorecards. The detailed process for setting the STI pools is outlined on page 137 of this Remuneration Report. Distribution of the STI pools at an individual level is on a discretionary basis, is aligned with market practice and utilises individual performance relative to the agreed to deliverables in the performance management process. In  view of the importance of long-term sustainability of performance, a portion of the STI earned above a predetermined threshold is deferred, and remains at risk over a future settlement period. The total STI pool approved for distribution by Group Remco in respect of the 2014 financial year was R2 100m (2013: R1 825m). Furthermore, in accordance with the provisions of its charter, Group Remco approved 26 individual STI payments (2013: 31) in excess of 200% of Gp in respect of the 2014 financial year. Deferral of short-term incentives STIs above R1m are subject to deferral into the Compulsory Bonus Share Scheme (CBSS), which operates under the terms of the Nedbank Group (2005) Matched Share Scheme. This arrangement has been in place since 2010. Deferral takes place in respect of 50% of any amount over R1m, and applies on a posttax basis. Amounts are deferred over a period of 30 months, with releases from forfeiture taking place in equal proportions at six months, 18 months and 30 months from the date of award. However, to be eligible for a match on these shares the individual must retain the shares full period of 36 months. This is addressed in further detail below. in the scheme for a Awards in each tranche are subject to a formal release-from-forfeiture decision, which is subject to board approval and dependent on there having been no material events that would, at the absolute discretion of Group Remco, warrant forfeiture of the particular tranche of the individual awards. If a forfeiture event is declared, the awards for the applicable tranche lapse in part or full, without any option for retesting. Awards are subject to forfeiture in the event of resignation or dismissal for cause (a so-called ‘fault’ termination). Employees may also elect to defer a portion of their posttax STI voluntarily into the Matched Share Scheme, subject to the total deferral (including compulsory deferral) not exceeding 50% of the total posttax STI award. Any voluntary deferral must similarly be held in the scheme for 36 months to qualify for the match, as set out below. Matching of deferred short-term performance incentive awards In terms of the Matched Share Scheme rules, should there be no forfeiture of awards as outlined above and the employee retains the shares in the scheme for a period of 36 months, he or she may receive matched shares of either 50% or 100% of the number of shares held by him or her in the scheme for the relevant allocation year. The former is based on the employee remaining in the scheme for the stipulated period, whereas the latter is based on both time and the achievement of a predefined corporate performance target (CpT). In practice, this means that where the employee is at the current highest marginal tax rate and the full after-tax amount of the STI is committed to the Matched Share Scheme for 36 months and the performance condition is met, the STI can increase by 30% on its original value, before taking account of any movement in the share price. A cash-settled compulsory STI deferral is used for all employees employed in the UK who earned an STI in excess of £150 000. No (2013: two) UK-based employees earned STIs in excess of the threshold for financial year 2014 (payable in 2015). Special-purpose short-term variable remuneration In exceptional circumstances, typically in the context of hiring senior and key employees, we use preapproved special-purpose short-term variable remuneration arrangements. Scheme type Scheme description Scheme governance Group Remco approves an annual pool from which the CE may allocate awards. Recommendations are received from Group Exco members. Awards are subject to clawback provisions in respect of termination of services before a prestipulated timeframe. Number of awards 12 awards (2013:10) totalling R6,23m (2013: R2,86m). Signon bonuses Cash awards made to DSTI awards prospective employees on joining the group, typically awarded to compensate for loss of certain accrued benefits or to make them whole in terms of existing contractual obligations. DSTI awards are cash- based awards, comprising an upfront payment (typically 40% of the award), with a deferred component (the remaining 60%) payable subject to a minimum time-based condition. The group does not, as a matter of course, award guaranteed bonuses. 128 Group Remco approves an annual pool for DSTIs. Motivations for awards are made by Group Exco members and approved by the CE. Awards may not be considered for the current CE or for existing members of Group Exco, but may be considered on a highly exceptional basis as part of the total remuneration package in the event of appointment of new Group Exco members from outside the group. Awards are subject to clawback (for the component already paid) and to forfeiture of the remaining portion in the event that the recipient leaves the employ of the group during the tenure of the award. Awards are also subject to an ongoing minimum individual performance requirement, which, if not met, may result in the lapse of the deferred tranche in full. 19 awards (2013: 6) totalling R16,4m (2013: R6,1m). The increase in the number and value of awards approved is in relation to a number of senior and highly specialist appointments made in 2014, and the need to implement specific retention initiatives in certain scarce skills environments. Long-term incentives LTIs are awarded with the joint aims of aligning performance with the interests of stakeholders and of retaining key employees. Criteria and the quantum of allocations are benchmarked to the market annually. The allocation of LTIs is discretionary and is based on the following key eligibility criteria: ■ Strategy and individuals key to driving the business strategy. ■ Talent management strategy and succession planning. ■ Retention of key talent and scarce skills. ■ Transformation objectives. ■ potential and performance. ■ Leadership. All LTI allocations are motivated by Group Exco and approved by Group Remco members in their capacity as trustees of the Nedbank (2005) Employee Share Scheme Trust. Specific approval is also required for all LTI awards greater than 100% of Gp. The various LTI schemes are indicated below. The operation of the international Long-term Incentive plan (LTIp) has been brought in line with the Nedbank Group (2005) scheme, but on a phantom basis. Overview of the group’s long-term incentive arrangements under the Nedbank (2005) Employee Share Scheme the option Scheme No awards have been made in terms of this section of the scheme since 2007 and there are no unvested awards in this scheme. restricted Share Scheme: annual allocations Group Remco issued restricted shares with a three-year vesting period to eligible participants on the following basis: ■ At least 50% performance shares: restricted shares with CpTs, but with a higher percentage applying for executive directors (100%) and members of Group Exco and cluster executive committees (60%). ■ Balance as retention shares: restricted shares without CpTs. All awards made to executive directors are subject to CpTs on 100% of the award. restricted Share Scheme: on-appointment allocations on-appointment, restricted-share allocations with a three-year vesting period are offered at the discretion of Group Remco to new senior managers and also on an exceptional basis to employees who have been appointed to more senior positions and have been recommended for an allocation by Group Exco. on-appointment allocations take place biannually (and by exception on the date of appointment, with specific approval), three trading days after the announcement of the annual or interim financial results. Allocations are made on the following basis: ■ At least 50% performance shares: restricted shares with CpTs, but with a higher percentage for executive directors and members of Group Exco and cluster excos, as set out above. ■ Balance as retention shares: restricted shares without CpTs. All on-appointment awards made to executive directors (including on appointment to an executive director role) are subject to CpTs on 100% of the award. Strategic Initiative element in the nedbank long-term incentive plan ■ It was agreed by the Remuneration Committee that 20% of the total LTI award made to members of Group Exco and cluster excos will be subject to a broader Strategic Initiative performance condition. In 2015 this will be aligned to the delivery of the combined target of R1bn of pretax synergies by the end of 2017 across the old Mutual Group and will be standard across all three Africa-based entities in the old Mutual Group. The award will be delivered in Nedbank shares and will be subject to a stipulated minimum amount of the R170m of the R1bn in synergies accruing to Nedbank. For executive directors this changes the mix of performance conditions (since they are already subject to 100% CpTs) and for the remainder of the participants this increases the proportion of LTIs subject to CpTs. LTI awards will be subject to performance conditions on the following basis in 2015: Metric % of award vesting with CpTs RoE (excl goodwill) vs CoE Share price vs Fini 15 Strategic Initiative % of award vesting with no target Further details of the actual CpTs are set out on page 138 of this Remuneration Report. Executive directors Group and cluster exco members All other Nedbank LTIP participants 40% 40% 20% – 20% 20% 20% 40% 25% 25% – 50% Matched Share Scheme The Matched Share Scheme provides a vehicle for the compulsory deferral of STI awards in excess of R1m. There is also an opportunity for employees to participate in the  scheme by way of a voluntary investment. The details applicable to deferral and potential matching of deferred awards are set out on pages 128 to 129 of this Remuneration Report. In this regard employees also have a voluntary opportunity to allocate a portion of their STI, to a maximum of 50% of their total after-tax STI (inclusive of any compulsory deferral), towards the acquisition of Nedbank Group shares. Employees may also deposit personally held Nedbank Group shares to the equivalent value into the trust that administers this scheme. The incentive to do so is a matching of this investment, to a maximum equivalent value on a one-for-one basis. The scheme’s obligation to deliver or procure the delivery of the matched shares in both the compulsory and voluntary arrangements rests on two conditions, namely that: ■ for 50% of the matched shares, employees are still in the service of the group on the vesting date three years after allocation under the Matched Share Scheme; and ■ for the remaining 50% of the matched shares, the group has met an agreed performance target over a three-year period. This is currently that the return on equity (RoE) (excluding goodwill) must equal or exceed the cost of equity (CoE) plus 2% 129 NedbaNk LIMITed annual reportREpoRTING BACK oN REMUNERATIoN (continued) Other long-term incentive schemes in operation phantom Cash-settled restricted Share plan During 2007 Group Remco approved the phantom Cash-settled Restricted Share Group plan (the Nedbank UK LTIp) for key employees in the UK. The design principles and structure mirror the Nedbank (2005) Group Employee Share Scheme. From 2015 LTI awards made to employees in the rest of Africa subsidiaries will be made from the phantom plan to address taxation and exchange control issues that have been identified. Nedbank Africa subsidiary schemes There are approved schemes in Nedbank Namibia, Nedbank Swaziland and Nedbank Malawi. Full details of the number and value of awards granted during the year in terms of our share-based plans are included in the Consolidated Annual Financial Statements, which are available at nedbankgroup.co.za. Corporate performance targets Vesting of share awards in 2015 Group Remco approved the use of a combination of appropriately weighted internal absolute and external relative CpTs for the performance shares awarded in 2014, which have remained unchanged since these targets were originally set in 2010. The details of these targets are set out on page 138 of this Remuneration Report. The introduction of the Strategic Initiative element into the plan will change the proportion of awards subject to CpTs, as set out on page 129 of this Remuneration Report. CpTs may not be altered once they have been set. This is in accordance with global best practice and the provisions of the relevant remuneration regulations. Nedbank Group issued restricted shares in March and August 2012, with vesting thereof linked in equal proportions to a combination of time and the group’s meeting certain performance conditions. In respect of the time-based awards vesting took place at 100% and in respect of the  performance-condition-based awards vesting took place at 37,9% of the award. In 2012 the same vesting arrangements applied in respect of the awards issued to all employees who participate in the scheme with the increased element of the LTI having CpTs for executive directors only being introduced in 2014. Where necessary, in the case of executive directors and the Company Secretary, the necessary Securities Exchange News Service (SENS) announcements were issued at the prescribed times in this regard. Nedbank Eyethu employee schemes We implemented our black economic empowerment staff schemes in August 2005. The following employee schemes were approved at that time: Scheme name New awards during 2014 Black Executive Trust Black Management Scheme Evergreen Trust1 Broad-based Scheme Total beneficiaries at 31 December 2014 42 (2013:53) 680 (2013:1038) 0 0 Total number of shares at 31 December 2014 1 109 967 2 690 516 923 342 0 (2013:1 123) 4 788 (once-off awards are made) Fully vested on 27 July 2010 508 318 (held by a beneficiary) 1  The Evergreen Trust was created with the specific purpose of improving the living standards and personal circumstances of black permanent employees at the lower-income levels by providing grants and/or benefits to qualifying employees. Share and share option allocations may be made to new and internally appointed employees, in accordance with the scheme rules and the respective trust deeds. Rest of Africa empowerment schemes No allocations were made under the Nedbank Swaziland Sinakekelwe Employee Share Scheme and the Nedbank Namibia ofifiya Black Management Scheme in 2014. Empowerment or ‘indigenisation’ schemes were approved during 2013 for the group’s subsidiaries in Lesotho, Malawi and Zimbabwe. These are currently being implemented. Collective bargaining regarding remuneration increases Certain categories of employees in SA are covered under collective bargaining agreements with Sasbo: The Finance Union and the Insurance and Banking Staff Association (IBSA). At 31 December 2014 a total of 68% of our employees constituted the bargaining unit. In April 2014 a total pool of 8,1% of the guaranteed-remuneration bill for employees in the bargaining unit was made available for annual increases and approximately 5,5% and 5% for the non-bargaining unit and executives respectively. The minimum Gp for permanent, fulltime employees in SA was increased by 9,1% to R120 000 per annum. Collective bargaining arrangements also exist in our Rest of Africa subsidiaries in Lesotho, Namibia, Swaziland and Zimbabwe. Care is taken that salary increase settlements in respect of these are appropriate within the context of local market and economic conditions. ExECUTIVE DIRECToRS AND pRESCRIBED oFFICERS Prescribed officers The managing executives of the four frontline, income-generating clusters are included in the disclosures set out on the next page. The board has approved the executives to be regarded as prescribed officers. During 2014 Ingrid Johnson ceased to be a prescribed officer on 30 June and philip Wessels was appointed as a prescribed officer as of 1 August. Increase in guaranteed package The remuneration for the CE, executive directors and prescribed officers are adjusted with effect from 1  April  2015. Increases for executive directors and prescribed officers take into account market benchmarks, performance and remuneration levels relative to those of peers. There is also appropriate consideration of calls for restraint in regard to remuneration. The Gps of the CE and other executive directors were considered and recommended to the board by Group Remco, with a further approval by old Mutual plc for the CE. 130 The following adjustments to Gp were approved by Group Remco for implementation on 1 April 2015 (unless otherwise indicated): Mike Brown Graham Dempster Raisibe Morathi Ingrid Johnson1 Brian Kennedy Dave Macready Mfundo Nkhulu2 philip Wessels3 * Audited *Guaranteed package Yoy movement New GP effective April 2015 (R000) GP at April 2014 (R000) GP at April 2013 2014–2015 % change 2013–2014 % change 7 500 5 250 4 200 4 200 3 940 5 000 4 650 7 200 5 000 3 900 4 650 4 000 3 750 3 750 6 600 4 435 3 570 4 200 3 780 3 300 3 500 4,2 5,0 7,7 5,0 5,1 33,0 9,1 12,7 9,2 10,7 5,8 13,6 7,1 1 Ingrid Johnson joined Old Mutual plc on 1 July 2014. 2 New GP, effective 1 January 2015, to coincide with appointment as Chief Operating Officer and to the board. No April 2015 increase applied. 3 New GP, effective 1 August 2014, to coincide with appointment as Group Managing Executive, Retail and Business Banking. No increase applied in April 2015. The 2014 increases to Gp were informed by an extensive role evaluation and multiple remuneration benchmarking exercises, including that conducted with GRS/Mercer SA in respect of each individual executive director and prescribed officer. This alignment to market has ensured that we were appropriately placed in 2015, necessitating only standard adjustments to ensure Gp levels did not lag. Appointment increases were also approved for those appointed to new roles on Group Exco, with the result that no April 2015 increase will apply for these members. Retirement schemes All executive directors and prescribed officers are members of the Nedgroup Defined-Contribution pension or provident Fund. There are no defined-benefit liabilities in respect of the executive directors and prescribed officers. Contributions to the retirement funds form part of the Gp. Service contracts Service contracts of executive directors and prescribed officers are aligned with the general conditions of service applicable to all group employees based in SA, except for specific provisions relating to notice periods. Service contracts are subject to the following notice and retirement conditions: Chief Executive Executive directors prescribed officers Notice period Retirement age 12 months 6 months 1 to 3 months 60 60 60 New appointments to Group Exco will be placed on a standard six- month notice period. Termination arrangements Executive directors and prescribed officers are entitled to severance pay equal to two weeks’ Gp per completed year of service if their services are terminated by the company on a no-fault basis. Contractual notice (where applicable) and accrued leave will also be paid out in the normal course. Treatment of any unpaid bonus, unvested deferrals or unvested LTI awards will be dealt with in accordance with the rules of the various schemes, and will in all instances be subject to Group Remco and board oversight and approval. There are no special termination arrangements or golden-parachute agreements in place. Ingrid Johnson moved from Nedbank to old Mutual plc as the Group Finance Director. It was agreed that she would be granted eligible- leaver status for all historic LTI awards, except the award made in March 2014, which was forfeited in full. Eligible-leaver treatment was also approved in respect of all deferred STI awards not yet released from forfeiture. All awards will remain subject to the relevant rules in this regard, with no early vesting applying, other than in the case of death. Short-term incentive scheme targets STI amounts awarded for 2014 to all executive directors and prescribed officers were based on a combination of performance against preagreed targets in respect of the level of group and respective cluster Ep, headline earnings and performance against their individual performance scorecards, incorporating financial and non-financial measures. A summary of our 2014 financial and non-financial performance can be found online in the integrated report. 131 NedbaNk LIMITed annual reportREpoRTING BACK oN REMUNERATIoN (continued) The dimensions used to measure individual performance were: Theme Broad objectives Financial and business Delivering sustainable financial outperformance. Client and relationships Management and internal processes organisational learning, leadership and transformation Investing for growth by expanding into the entry-level and middle markets, the public sector and business banking, and implementing the Rest of Africa strategy; improving our client relations by empowering our clients through delivery of affordable banking; and leading as a corporate citizen. Enhancing productivity and execution; managing risk as an enabler; growing regulatory and government relationships; and growing stakeholder relations. Accelerating transformation in support of achieving our transformation targets, objectives and behaviours; and building an innovative and differentiated culture and becoming an employer of choice by creating a great place to work. Linkage to strategic focus areas optimise to invest. Strategic portfolio tilt. pan-African banking network. Client-centred innovation. Grow transactional banking franchise. pan-African banking network. Strategic portfolio tilt. optimise to invest. For more information on progress made on the group’s strategic focus areas refer to our integrated report online. These are broadly consistent with the dimensions applied in 2013, except that certain metrics will have been updated to include the evolving group strategy. The following table presents the way in which the STI awards have been determined, based on the assessment of the group and respective cluster headline earnings and Ep performance as well as the performance of each executive director and prescribed officer against his or her agreed individual performance scorecard: Ontarget STI % of GP Maximum target STI % of GP % of GP achieved for group and cluster financial measures % of GP achieved for individual performance and based on discretion executive directors Mike Brown Graham Dempster Raisibe Morathi prescribed officers Brian Kennedy Dave Macready Mfundo Nkuhlu A 150 150 150 250 150 150 250 250 250 400 250 250 B 162 162 162 283 155 158 philip Wessels* (Rounded) *  Calculation for Philip Wessels is based on a blend of his GP levels, given his appointment as Group Managing Executive: Retail and Business Banking in August 2014. 250 150 162 C 32 48 37 117 38 62 36 Final STI as % of GP D=B+C Final STI as % of ontarget STI E=D/A 194 210 199 400 193 220 198 129 140 133 160 129 147 132 132 Minimum shareholding requirements In November 2012 Group Remco approved a minimum shareholding policy, which will apply to all current and future members of Group Exco, including executive directors and prescribed officers. In terms of these arrangements the following minimum shareholding levels must be reached within five years from the date of the March 2013 LTI awards or five years from the date of appointment to Group Exco, if later: Chief Executive Executive directors and prescribed officers other members of Group Exco 2 times guaranteed package 1,5 times guaranteed package 1 times guaranteed package The CE and outgoing Coo have already reached the required holding level, and have maintained compliance with the requirements. ToTAL REMUNERATIoN oF ExECUTIVE DIRECToRS AND pRESCRIBED oFFICERS (AUDITED*) Executive directors R000 Cash portion of package other benefits Defined-contribution retirement fund Guaranteed remuneration Cash performance incentive Deferred performance incentive (delivered in shares) total StI1 total remuneration2 Value of share-based awards made in the financial year (face value at award) total direct remuneration3 other payments4 Mike Brown* Graham Dempster* Raisibe Morathi* 2014 6 056 130 864 7 050 8 000 2013 5 614 118 800 6 532 7 000 7 000 15 000 22 050 6 000 13 000 19 532 % change 7,9 15,4 12,9 2014 3 862 141 855 4 858 5 750 4 750 10 500 15 358 13 000 35 050 13 000 32 532 8 750 24 108 7,7 % change 10,9 18,0 15,6 6,1 12,0 2014 3 177 91 550 3 818 4 375 3 375 7 750 11 568 2013 2 953 142 432 3 527 3 950 2 950 6 900 10 427 7 000 18 568 7 000 17 427 % change 8,2 12,3 10,9 6,5 2013 3 521 129 732 4 382 4 950 3 950 8 900 13 282 8 250 21 532 21 133 NedbaNk LIMITed annual reportREpoRTING BACK oN REMUNERATIoN (continued) Prescribed Officers R000 Cash portion of package other benefits Defined-contribution retirement fund Guaranteed remuneration Cash performance incentive Deferred performance incentive (delivered in shares) total StI1 total remuneration2 Value of share-based awards made in the financial year (face value at award)10 total direct remuneration3 other payments4 Ingrid Johnson5* Brian Kennedy* Dave Macready* Philip Wessels6* Mfundo Nkuhlu* % change June 2014 1 846 40 333 2 219 2 219 2 219 2013 3 462 63 625 4 150 4 250 3 250 7 500 11 650 10 00011 21 650 2014 3 346 323 276 3 945 8 500 7 500 16 000 19 945 9 5009 29 445 2013 3 381 93 261 3 735 7 000 6 000 13 000 16 735 7 000 23 735 % change 5,6 23,1 19,2 35,7 24,0 % change 2013 % change 2014 2 926 164 547 3 637 4 250 3 250 7 500 11 137 6 500 17 637 2013 2 573 166 485 3 224 4 000 3 000 7 000 10 224 6 750 16 974 2014 1 775 55 144 1 974 4 500 3 500 8 000 9 974 12,8 7,1 8,9 (3,7) 3,9 10 5007 20 474 2014 3 124 112 452 3 688 4 625 3 625 8 250 11 938 11 7508 23 688 2013 2 931 102 423 3 456 4 250 3 250 7 500 10 956 8 500 19 456 % change 6,7 10,0 9,0 38,2 21,8 * Audited 1 In terms of the rules of the Matched Share Scheme, this amount may increase by up to 30% (before share price movement), subject to fulfilment of the corporate performance target, and the amount remaining invested in the scheme for 36 months. 2 Total remuneration is the sum of guaranteed remuneration and total STI. 3 Total direct remuneration is the sum of total remuneration and the value of share-based awards made in the financial year. 4 Other payments are typically non-recurring payments and include leave pay and special payments, but excludes gains from vesting share awards, which are set out in the table on pages 144 to 151 of this report. 5 Ingrid Johnson joined Old Mutual plc on 1 July 2014. Payments reflect part-year of service. 6 Philip Wessels became a prescribed officer on 1 August 2014. Guaranteed remuneration payments are prorated to reflect this. Variable remuneration (STI and LTI) is reported on a full-year basis. 7 R5 000 000 of this award was awarded in November 2014, to coincide with Mr Wessels’ appointment as Group Managing Executive: Retail and Business Banking. This portion of the award will apply in respect of the 2014–2016 financial years. 8 R5 000 000 of this award is an on-appointment award to coincide with Mr Nkuhlu’s appointment as COO. 9 R4 000 000 of this award is an on-appointment award to coincide with Mr Kennedy’s appointment as Group Managing Executive: Corporate and Investment Banking. 10 Awards listed under 2014 were granted in March 2015 and apply in respect of the 2015–2017 financial years. Awards listed under 2013 were granted in March 2014 and apply in respect of the 2014–2016 financial years. 11 The R10 000 000 award was forfeited in full by Ingrid Johnson upon her joining Old Mutual Plc. 134 Ingrid Johnson5* Brian Kennedy* Dave Macready* Philip Wessels6* Mfundo Nkuhlu* 2014 2 926 164 547 3 637 4 250 3 250 7 500 11 137 6 500 17 637 2013 2 573 166 485 3 224 4 000 3 000 7 000 10 224 6 750 16 974 % change 12,8 7,1 8,9 2014 1 775 55 144 1 974 4 500 3 500 8 000 9 974 (3,7) 3,9 10 5007 20 474 2013 % change 2014 3 124 112 452 3 688 4 625 3 625 8 250 11 938 11 7508 23 688 2013 2 931 102 423 3 456 4 250 3 250 7 500 10 956 8 500 19 456 % change 6,7 10,0 9,0 38,2 21,8 Prescribed Officers R000 Cash portion of package other benefits Defined-contribution retirement fund Guaranteed remuneration Cash performance incentive Deferred performance incentive (delivered in Value of share-based awards made in the shares) total StI1 total remuneration2 financial year (face value at award)10 total direct remuneration3 other payments4 * Audited scheme for 36 months. % change June 2014 1 846 40 333 2 219 2 219 2 219 2013 3 462 63 625 4 150 4 250 3 250 7 500 11 650 10 00011 21 650 2014 3 346 323 276 3 945 8 500 7 500 16 000 19 945 9 5009 29 445 2013 3 381 93 261 3 735 7 000 6 000 13 000 16 735 7 000 23 735 % change 5,6 23,1 19,2 35,7 24,0 1 In terms of the rules of the Matched Share Scheme, this amount may increase by up to 30% (before share price movement), subject to fulfilment of the corporate performance target, and the amount remaining invested in the 2 Total remuneration is the sum of guaranteed remuneration and total STI. 3 Total direct remuneration is the sum of total remuneration and the value of share-based awards made in the financial year. 4 Other payments are typically non-recurring payments and include leave pay and special payments, but excludes gains from vesting share awards, which are set out in the table on pages 144 to 151 of this report. 5 Ingrid Johnson joined Old Mutual plc on 1 July 2014. Payments reflect part-year of service. 6 Philip Wessels became a prescribed officer on 1 August 2014. Guaranteed remuneration payments are prorated to reflect this. Variable remuneration (STI and LTI) is reported on a full-year basis. 7 R5 000 000 of this award was awarded in November 2014, to coincide with Mr Wessels’ appointment as Group Managing Executive: Retail and Business Banking. This portion of the award will apply in respect of the 2014–2016 financial years. 8 R5 000 000 of this award is an on-appointment award to coincide with Mr Nkuhlu’s appointment as COO. 9 R4 000 000 of this award is an on-appointment award to coincide with Mr Kennedy’s appointment as Group Managing Executive: Corporate and Investment Banking. 10 Awards listed under 2014 were granted in March 2015 and apply in respect of the 2015–2017 financial years. Awards listed under 2013 were granted in March 2014 and apply in respect of the 2014–2016 financial years. 11 The R10 000 000 award was forfeited in full by Ingrid Johnson upon her joining Old Mutual Plc. 135 NedbaNk LIMITed annual report REpoRTING BACK oN REMUNERATIoN (continued) Deferred short-term incentive awards There are no outstanding DSTI awards in respect of current executive directors and prescribed officers, who are not eligible for these awards. RISK AND REMUNERATIoN We have an integrated process of managing the relationship between risk and remuneration. The board has ensured that there is cooperation between Group Remco and the GRCMC to ensure appropriate consideration of risk environment when making remuneration decisions. Key matters related to risk aspects of remuneration are discussed with the GRCMC. This reflects our commitment to achieving a balance between the prudent management of remuneration within the context of both our risk appetite and risk profile, and the need to attract, retain and motivate key talent to enable the delivery of our strategic objectives. the overall Taking account of future and current risks in the remuneration process The STI scheme has been designed to incentivise a combination of profitable returns, appropriate risktaking and growth. It is driven from an Ep and headline earnings basis, using risk-based economic capital allocation as set out in the Risk and Balance Sheet Review available online. We operate a comprehensive internal capital adequacy assessment process blueprint that addresses the nature and type of risk incorporated into the overall framework. The framework integrates with our STI pool arrangements and individual performance scorecard assessments, which in turn inform the distribution of STIs from the derived business STI pools. As in previous years, the STI pools incorporate ex ante or ‘before the fact’ risk adjustments. This is built into the pool allocation process, which is set out on page 137. ■ Group Remco approves an ontarget STI pool at the beginning of the year. At year-end 50% of the overall group pool is based on performance versus headline earnings targets and 50% on performance against Ep targets, together with a non-financial modifier, as set out below. ■ prior to distribution, the cluster pools may be adjusted (either up or down) by a maximum of 15% by using the relevant Group Exco member’s individual non-financial scorecard assessment, which itself incorporates further risk assessment metrics. ■ Altogether 50% of each cluster STI pool is determined by using performance versus headline earnings targets and 50% is based on performance versus Ep targets (for line clusters there is a 30/70 split between group and cluster performance, except for Nedbank Capital, where the split is 15/85). ■ Ep per cluster is determined by using economic capital allocated to each cluster, incorporating the various risk elements described in the Group ERMF. ■ These mechanical calculations and adjustments (which include the application, where appropriate, of a group-level non-financial modifier) are presented to Group Remco (tasked with assisting the board), which then ratifies a final set of cluster pools (the group bottomup cluster pools), which may not differ more than 10% from the total STI pool determined based on group Ep and headline earnings alone (the group topdown pool). ■ The total allocated STIs (for all employees across all jurisdictions and including the pools for stockbrokers and analysts mentioned below) must stay within the totals approved by Group Remco. ■ Any individual STI payment in excess of 200% of Gp must be individually motivated and approved by Group Remco. The following categories of employees are excluded from the distribution process outlined above: ■ Stockbrokers, since they are paid on a six-monthly basis from a bespoke STI arrangement based on predetermined contractual arrangements (certain business risk elements are included in the formulaic determination for the stockbrokers’ pool). The pool allocated is included in the overall Nedbank Wealth pool. 136 ■ Analysts in Nedbank Capital, since their STIs are predominantly determined using Financial Mail-published ratings. ■ participants in the private-equity ‘locked box’ remuneration scheme, which is the market norm for private-equity collective- investment performance-based remuneration, based on a sharing of ‘carried interest’ on realised investments. We utilise a three-year budgeting, forecasting and planning process, which is fully cognisant of projected risk parameters, capital buffers and impairment provisions, and the likely impact thereof on future remuneration practices. There have been no material changes in the measures used over the past year. Mitigating the effect of inappropriate performance metrics Inappropriate performance metrics would typically manifest when the year-on-year change in remuneration is seen to be abnormal (either too high or too low relative to performance and market benchmarks) or is unduly volatile. The current STI scheme was implemented in 2009 and ensures a balanced approach to the determination of the STI pool. To avoid the consequences of inappropriate performance metrics, which include extended periods in which no LTI vesting takes place, awards made from 2010 onwards are subject 50% to performance conditions and 50% to time-based vesting. For members of Group Exco and cluster excos this will change to 60% of the total award being subject to performance conditions. All LTI awards made to executive directors are subject to performance conditions on 100% of the award. Changes that will apply from 2015 in terms of the applicable proportionality of the CpTs are set out on page 129 of this Remuneration Report. Managing the franchise risk inherent in reward programmes inappropriate performance metrics on reward The impact of is programmes has a material franchise risk exacerbated when deferred or LTI remuneration lapses, in spite of highly competitive business results, shareholder returns or share price performance. This risk manifests in increased turnover of skilled employees, the erosion of perceptions of the competitiveness of the firm’s remuneration offering (and in ‘discounting’ of the value of LTI awards by participants), a reduction in external perceptions of the firm’s being a preferred employer and an increase in hiring cost (and the associated opportunity cost of getting employees to full performance in a new role). implication. This It is a key principle of our Remuneration policy that there should be appropriate sharing of value among stakeholders. Therefore, while employees should not suffer material disadvantage or prejudice because of remuneration design issues, we are cognisant of the fact that remuneration programmes should equally not be designed to favour or benefit employees at the expense of other stakeholders. Key considerations regarding the ongoing appropriateness of our LTI scheme includes: ■ Exposure of remuneration programmes to the group’s share price is inherently risk-adjusted. The experience of participants in the share plans (for whom awards are part of annual remuneration, which is deferred over a prespecified period) therefore mirrors that of shareholders in terms of share price movements. ■ The component of our LTI programme that is subject to performance conditions is not highly leveraged. Significant outperformance against the measures results in a maximum upside of 130% for performance shares. Downside risk, on the other hand, could see performance share awards reduced to zero in instances of material underperformance. This provides protection against inappropriate windfall. ■ our ‘value at award’ for LTIs is not adjusted or grossed up for projected vesting probability. This means that awards are made with a reasonable assumption that full vesting may be likely. This risk is, for us, an inherent consequence of participation in the scheme. Linking performance and reward The annual STI process is indicated in the diagram below, which describes the process of STI pool creation and distribution based on individual performance and discretion, using both quantitative and qualitative steps in the process. quAntItAtIVe ApproACH StepS quAlItAtIVe ApproACH StepS oNE FoUR Total group pool The overall group pool is approved by Group Remco relative to benchmarks. The allocation of the Group Remco- approved group pool to each cluster for ontarget performance is done by the CE, with input from Group Exco. Bonus pool adjustments The CE makes discretionary adjustments to quantitatively determined cluster pools based on judgement and non-quantifiable metrics. Group Remco makes discretionary adjustments to the group pool to effect any required corrections based on non- quantifiable metrics, including risk assessment. TWO Headline earnings and EP performance A total of 50% of the year-end cluster pools is determined based on year-end Ep performance relative to target. A total of 50% of the year-end cluster pools is determined based on year-end headline earnings performance relative to target. There is a 10% limit set for the bottomup cluster pools relative to the overall group pool. THREE Balanced scorecard The financially determined pools (topdown and bottomup) are adjusted by a maximum of ±15% based on the non- financial elements of relevant Group Exco members’ scorecards. Risk metrics are included in the relevant scorecards and aligned with the group three-year plan and risk frameworks. FIVE Individual bonus proposals Individual bonus proposals are discretionary and no fixed formulaic approach is used by the bank. All cluster executive bonus proposals are analysed by Group Exco and the necessary adjustments made to ensure appropriate consistency across the bank. All Group Exco bonus proposals are individu- ally motivated and recommended by Group Remco to the board. The CE bonus requires Nedbank board approval and approval by the old Mutual plc Remco. All senior functional bonuses (including risk and finance) are reviewed and ratified by the relevant Group Exco member. All proposed bonuses in excess of 200% of Gp require motivation and Group Remco approval. 137 NedbaNk LIMITed annual reportREpoRTING BACK oN REMUNERATIoN (continued) ■ The component of awards made under the retention share element of the plan is a powerful retention mechanism for key talent and scarce skills. We have one of the lowest levels of employee turnover in the financial services sector and have received positive commentary on the stability and combined experience in the group of our leadership team. Awards are also typically made only to individuals who are meeting the requisite minimum performance standards. ■ our Matched Share Scheme introduces a strong incentive for our leadership team to co-invest in the group. The requirement to remain in the Matched Share Scheme for a minimum of 36 months (against the backdrop of releases from forfeiture – and therefore entitlement to encash the deferrals – at six, 18 and 30 months) assists in creating a longer-term focus for our senior leadership. The performance condition attached to one half of the match also ensures that there is a minimum return before any such benefit accrues to participants. In practice this means that, where the employee is at the highest marginal tax rate and the full after-tax amount of the STI is committed to the Matched Share Scheme for 36 months and the performance condition is met, the STI can increase by 30% on its original value, before taking account of any movement in the share price. ■ Malus provisions are in place in respect of deferred STI awards to enable mitigation of inappropriate risktaking and an appropriate penalty in instances of malus or misconduct. ■ We acknowledge that there are many different aspects that could be considered in terms of what metrics are used in setting performance conditions. Having considered various alternatives, we are comfortable that the absolute internal measure of RoE (excluding goodwill) versus CoE and the relative external measure of the performance of the Nedbank Group share relative to the Fini 15 Index remain fit for purpose, and enable the necessary focus on delivering competitive and sustainable returns to shareholders and associated benefits to other stakeholders. We have also been unequivocal about our adherence to other aspects of good corporate governance in relation to share plans. In this regard share awards in either the Restricted Share plan or the Matched Share Scheme are not, under any circumstances, backdated. Further, no retrospective adjustments are made to performance conditions to mitigate the impact of weak performance. Therefore, we are of the view that our remuneration practices, and the levels at which these occur, are appropriately competitive relative to those of our peer group. Adjustments to remuneration based on long-term performance We are involved in retail banking, wholesale banking and investment banking operations, as well as wealth management and other financial services. The forward-looking business model is based on a rolling three-year plan approach. The mandatory deferral of STIs for up to 30 months and three-year vesting of LTI share allocations (with at least half of the award subject to CpTs) align with this forward-looking business cycle. The deferral period provides for risk-based outcomes to be monitored over the three-year period subsequent to the deferral and enables clawback to be applied where appropriate. The compulsory deferral of STIs continues for awards made in respect of financial year 2014 performance on a basis consistent with that  previously applied. The  structure and vesting profile applicable to  the  deferral of STI awards are set out on page 128 of this Remuneration Report. Conditional vesting of long-term incentives The performance share element of the LTI allocation is aligned with both the group three-year medium-to-long-term published RoE (excluding goodwill) target of CoE plus 5% (absolute internal target) and the relative performance of the share price (relative external target). From 2015 onwards the Strategic Initiatives element outlined in this report will be included in the LTI arrangements. The targets used for awards made from 2015 onwards are as follows: ■ For the RoE (excluding goodwill) versus CoE target, vesting will be based on the simple-average published RoE (excluding goodwill) over a three-year period, compared with the simple-average CoE over the same timeframe, according to the following sliding scale (that is, there is a straight-line vesting arrangement based on the actual performance relative to the target): Vesting ratios based on RoE (excluding goodwill): COE +0% or worse 0% COE COE COE +1,25% +2,5% +3,75% COE +5% 25% 50% 75% 100% COE +6% 110% COE COE +7% +8% or better 120% 130% ■ For the Nedbank share versus FIN 15 Index, vesting will be based on the relative performance of the Nedbank share price versus the Fini 15 Index over the same three-year period, where the starting and end values of the Nedbank share price are calculated based on a 30-day volume- weighted average price (VWAp) and the Fini 15 Index is based on a 30-day simple average. Vesting ratios based on share price relative to the Fini 15 Index: Fini 15 -20% or worse 0% Fini 15 Fini 15 Fini 15 Fini 15 Fini 15 Fini 15 Fini 15 -15% 25% -10% 50% -5% 75% 100% +10% 110% +20% +30% or better 120% 130% As with the CoE target, there is a straight-line vesting (on a basis of actual achievement along the continuum as set out in the tables above, rather than on a ‘hurdle’ basis) arrangement based on the actual performance relative to the target. ■ The Strategic Initiatives element in respect of awards to be made in 2015 has been aligned to an African Collaboration target which will be standard across the old Mutual Group. The performance conditions set out below will be applicable: A single measure of the run rate on benefits realised in regard to Africa Collaboration will be used as the CpT for the Strategic Initiatives component of the 2015 LTI awards. This target has been selected in support of achieving a target of R1bn pretax synergies across the old Mutual Group by the end of 2017. The target will be evaluated on a run rate basis at the end of 2017. This will be as follows: Total Africa Collaboration synergy benefit (applicable to LTI awards in 2015 vesting in 2018) Total benefits realised Africa Collaboration Synergy Target (Rm) % of this portion of the award vesting Linear interpolation will apply between the points in the above table. 138 Minimum Target Maximum 600 0% 1 000 100% 1 200 130% The combined vesting percentage, based on achievement relative to the target, will be applied to units vesting in March and August 2018. This is consistent with the evaluation time horizons of both current CpT metrics outlined above. The evaluation of the total synergies achieved is, however, subject to a precondition that Nedbank achieves benefits of at least R170m. Should Nedbank not achieve benefits equal to or better than this threshold, this portion of the award will not vest, irrespective of the total synergies achieved. Release from forfeiture of short-term incentive deferral The deferral and release from forfeiture process is described on page 128 of this Remuneration Report. The board has absolute discretion as to the quantum and nature of any forfeiture or malus triggers related to the compulsory deferral of STI awards. In this regard the deferred amount will be forfeited should the employee resign or be dismissed for cause before the end of the release of the outstanding forfeiture obligations, as well as in cases where, irregularities or at  the sole discretion of the board, material misrepresentation of financial results come to light during the deferral period. The board has absolute discretion as to the nature of any action to be taken against the individual, or group of individuals, who may have transgressed. The deferral policy is reviewed annually. This category of deferred compensation allows any adverse business deals or intentional misrepresentation to come to light in the three years subsequent to the allocation and appropriate action to be taken by the board if deemed necessary. ADDITIoNAL REGULATIoN 43/pILLAR 3 DISCLoSURES The disclosure requirements of regulation 43 of the Banks Act set out extensive quantitative and qualitative disclosures that are required to help stakeholders understand the approaches adopted by financial services organisations in respect of risk and remuneration. The majority of these disclosures are addressed elsewhere in this Remuneration Report. Specific disclosures relating to senior managers and material risk- takers, the quantum of remuneration paid in the year, signon awards, guaranteed bonuses, severance payments and the amount of remuneration subject to adjustment are set out below. Aggregate remuneration of senior managers and material risk-takers The tables below set out the aggregate 2014 (and comparative 2013) remuneration of those employees regarded as senior managers and material risk-takers. Senior managers include executive directors and prescribed officers, members of Group Exco, as well as other members of the group’s senior management with executive responsibility for a material part of the group’s business. Material risk-takers include employees whose individual actions have a material impact on the risk exposure of the group, as well as those responsible for setting and monitoring trader mandates and risk and stop-loss limits. Included in this category are the heads of risk and finance, heads of major trading functions and those responsible for material investment decisions within the group. These criteria have not changed from those applied in 2013. For 2014 a total of 48 (2013: 41) individuals were in roles classified as senior managers and a further 32 (2013: 35) were in roles classified as material risk-takers. There was, however, some movement within the categories and the actual individuals for whom amounts are reported may therefore be different from those in the prior year. In some instances amounts may also be prorated due to part-year service in designated roles. Total value of remuneration in the 2014 financial year1 unrestricted Deferred unrestricted Deferred 2014 Senior managers Material risk-takers Fixed remuneration (Rm) Variable remuneration – cash award (Rm) Variable remuneration – deferred performance incentive (Rm) Variable remuneration – long-term incentive awards (Rm) 116,2 122,3 total 2014 remuneration (unrestricted and deferred remuneration) (rm) 238,5 total number of employees Value of outstanding deferred remuneration at 31 December 2014 Compulsory bonus share scheme (Rm) Restricted share scheme (Rm) total deferred remuneration outstanding (rm) Value of deferred remuneration paid out during 2014 (rm) Value of deferred remuneration forfeited during 20142 (rm) 71,0 55,0 126,0 80,3 166,0 246,3 48 27,0 47,0 74,0 32 Senior managers Material risk-takers 130,2 543,3 673,5 180,8 11,7 40,2 157,0 197,2 67,0 4,6 139 NedbaNk LIMITed annual reportREpoRTING BACK oN REMUNERATIoN (continued) Total value of remuneration in the 2013 financial year1 Unrestricted Deferred Unrestricted Deferred 2013 Senior managers Material risk-takers Fixed remuneration (Rm) Variable remuneration – cash award (Rm) Variable remuneration – deferred performance incentive (Rm) Variable remuneration – long-term incentive awards (Rm) total 2013 remuneration (unrestricted and deferred remuneration) (rm) total number of employees 108,3 105,4 213,7 64,4 136,9 201,3 41 71,5 51,8 123,3 21,6 37,6 59,2 35 Value of outstanding deferred remuneration at 31 December 20131 Compulsory bonus share scheme (Rm) Restricted share scheme (Rm) total deferred remuneration outstanding (rm) Value of deferred remuneration paid out during 2013 (rm) Value of deferred remuneration forfeited during 20132 (rm) 1 The amounts reflected in the tables above relate to actual awards made or remuneration received in the period from 1 January to 31 December. 2 Forfeiture of deferred remuneration due to non- or partial fulfilment of performance conditions on share awards. Senior managers Material risk-takers 86,7 468,1 554,8 180,2 27,0 25,6 143,7 169,3 60,3 8,0 Remuneration subject to adjustment in 2014 The total amount of outstanding deferred remuneration exposed to after explicit and/or implicit adjustments is indicated in the following table: Year Fy2014 FY2013 Amount r2 575m1 R2 347m1 1 Based on the 30-day VWAP to 31 December. This is a combination, at 31 December of each year, of the following: ■ All unvested RSp awards ■ All unvested CBSS awards The total amount of reductions during the financial year due to after explicit adjustments (adjustments as a consequence of non-fulfilment of specified performance conditions) is indicated in the following table: Year Fy2014 FY2013 Amount r59,1m1 R97,1m1 Value of RSp awards lapsed due to non-fulfilment or partial fulfilment of CpT conditions 1 Based on the share price at the scheduled vesting date. The total amount of clawbacks of reductions during the financial year due to after implicit adjustments (adjustments as a consequence of specific clawback decisions, either based on individual or group considerations) is indicated in the following table: Year Fy2014 FY2013 Amount r0m No forfeitures or clawbacks were applied in the normal course. R0m Remuneration of risk and compliance specialists Consistent with good corporate governance and the requirements of the various regulations dealing with international remuneration in financial services firms, special attention is paid to the process of remunerating risk and compliance specialists within the group. This serves to ensure that individuals in these functions remain sufficiently independent from the functions or businesses they service. local and The remuneration of senior risk and compliance specialists is not determined within the relevant business unit alone. Initial proposals are made by the business unit management; however, Group Exco members with overall accountability for the specific control function (the Chief Risk officer and the Chief Governance and Compliance officer) have scope to influence the performance and remuneration outcomes for senior employees within the respective control functions. The final outcomes are presented to Group Remco, thereby providing an addition layer of oversight. This ensures appropriate independence in setting remuneration for the applicable senior control function employees. 140 Other remuneration disclosures Further disclosures specifically required in terms of regulation 43 of the Banks Act are set out below: Other remuneration disclosures Number of employees who received variable remuneration during the year Total guaranteed bonuses Total signon awards Total severance awards1 1 For the purpose of this disclosure, severance payments mean payments that exceed the bank’s contractual redundancy payment. 2014 rm – 6,23 2,12 n 24 636 – 12 5 2013 Rm 2,86 3,73 N 23 706 – 10 7 our policy is not to award guaranteed bonuses. Where specific compensation is indicated for new employees for the loss of an accrued benefit, the forfeiture of a performance bonus or in respect of a specific outstanding contractual obligation, a signon or DSTI award may be made. This is subject to time and, in the case of DSTI awards, ongoing individual performance conditions. NoN-ExECUTIVE DIRECToRS The terms of engagement of the non-executive directors (excluding the Group Chairman) cover a period of three years, as determined by the rotation requirements of our memorandum of incorporation. A non- executive director is required to retire at age 70, unless the board determines otherwise. Any non-executive director serving for a period in excess of nine years is required to retire from the board at the first annual general meeting after the end of this period. In terms of the memorandum of incorporation the Group Chairman is reelected annually by the board. Remuneration The fees of the Group Chairman and the non-executive directors reflect the specific responsibilities relating to their membership of the board and, where applicable, board committees. The Group Chairman receives a single fee for his role. Non-executive directors are paid a fixed fee for board membership and receive additional fees for their participation in board committees. premiums are paid to the chairmen of all board committees, with the exception of the Group Directors’ Affairs Committee, which is currently chaired by the Group Chairman. Neither the Group Chairman nor boardmembers receive any performance-related pay or any benefits. Non-executive directors’ remuneration for the years ended 31 December 2014 and 31 December 2013 was as follows: NoN-ExECUTIVE DIRECToRS’ REMUNERATIoN (AUDITED*) Termination date Committee fees Board fees Note David Adomakoh Tom Boardman Thenjiwe Chikane Brian Dames Mustaq Enus-Brey Ian Gladman paul Hanratty Don Hope Reuel Khoza Mpho Makwana Mantsika Matooane Nomavuso Mnxasana Joel Netshitenzhe Julian Roberts Gloria Serobe Malcolm Wyman total August 2013 June 2013 3, 3a 5, 5a, 5b 8 6, 6a 9 7, 9 1 4 2 9 307 986 191 355 355 152 4 350 355 233 355 355 355 355 355 53 780 110 555 327 16 651 53 429 206 164 391 921 9 059 4 656 1 Mpho Makwana was appointed as a member of the Group Directors’ Affairs Committee on 1 January 2014. 2 Joel Netshitenzhe was appointed as a member of the Group IT Committee on 17 January 2014. 3 David Adomakoh was appointed as a director of Nedbank Group Limited and Nedbank Limited on 21 February 2014. 3a David Adomakoh was appointed as a member of the Group Transformation, Social and Ethics Committee on 13 May 2014. 4 Mantsika Matooane was appointed as a director of Nedbank Limited and Nedbank Group Limited, and a member of the Group IT Committee on 15 May 2014. 5 Tom Boardman was appointed as a member of the Group Audit Committee on 13 May 2014. 5a Tom Boardman resigned as a member of the Group Transformation, Social and Ethics Committee on 13 May 2014. 5b Tom Boardman sits on the board of Nedbank Private Wealth (Isle of Man) Ltd. His board fees are therefore inclusive of the Nedbank Private Wealth (Isle of Man) Ltd fees. 6 Brian Dames was appointed as a director of Nedbank Limited and Nedbank Group Limited on 30 June 2014. 6a Brian Dames was appointed as a member of the Group Credit and Group IT Committees on 30 July 2014. 7 Paul Hanratty was appointed as a director of Nedbank Limited and Nedbank Group Limited on 8 August 2014. 8 Thenjiwe Chikane resigned from the Nedbank Limited and Nedbank Group Limited and board committees on 13 August 2013. 9 Fees for Julian Roberts, Paul Hanratty and Ian Gladman were paid to Old Mutual (SA) Ltd. *2014 (r000) 360 1 766 301 910 682 168 4 350 1 006 286 784 561 519 746 1 276 13 715 2013 (R000) 933 617 820 611 273 4 100 661 703 448 460 686 1 099 11 411 141 NedbaNk LIMITed annual reportREpoRTING BACK oN REMUNERATIoN (continued) Non-executive directors are accountable for decisions made regardless of attendance at meetings. Non-executive directors are also required, as a matter of course, to represent stakeholders and to make the necessary preparations for meetings and other engagements. Group Remco is satisfied that the fee structure applied in respect of non- executive directors remains appropriate. Non-executive directors’ fees An independent subcommittee, consisting of Mike Brown and Julian Roberts, evaluated the respective committee fees from a number of perspectives, including peer group comparisons, effective rates per committee and year-on-year increases. have been recommended for the  Group Audit Committee, GRCMC, Group Credit Committee, the Remuneration Committee and the Directors Affairs Committee. These increases are proposed to ensure that for these committees remain appropriately market competitive. fees The Lead Independent Director will chair the DAC from 11  May 2015 and therefore a Chairman’s fee for this Committee has been proposed at twice the member fee. This role had previously been fulfilled by the Group Chairman with no additional fee being applicable. The proposed increases to board fees represent a total increase in the cost of operating the board of 7,6%. Increases to the Chairman’s fee, board fees and several committees have been proposed at between 5,6% and 6,6%. Special increases The board and committee fees proposed for non-executive directors and for committee membership are as follows: NoN-ExECUTIVE DIRECToRS’ REMUNERATIoN (AUDITED) 2015 (R) Proposed 2014 (r) Boards Chairman of the board1 Lead Independent Non-executive Director premium Nedbank Group Ltd Nedbank Ltd Committees Group Audit Committee Chairman Member Group Finance and oversight Committee Chairman Member Group remuneration Committee Chairman Member Group risk and Capital Management Committee Chairman Member Group Credit Committee Chairman Member Group Directors’ Affairs Committee Chairman Member Group It Committee Chairman Member Group transformation, Social and ethics Committee Chairman Member 1 The Group Chairman’s fee includes fees for board, subsidiary board and committee memberships. 2 On a like-for-like basis, this represents a year-on-year increase of 7,6%. 3 The Lead Independent Director will chair the Group Directors’ Affairs Committee from 11 May 2015. 4 750 000 4 500 000 40% of board fee 40% of board fee 220 555 184 525 206 900 173 100 562 500 225 000 55 000 27 500 312 500 125 000 387 500 155 000 475 000 190 000 500 000 200 000 52 000 26 000 275 000 110 000 350 000 140 000 437 500 175 000 %2 5,6 6,6 6,6 12,5 12,5 5,8 5,8 13,6 13,6 10,7 10,7 8,6 8,6 140 0003 part of Group Chairman’s fees 70 000 61 000 14,8 180 000 90 000 180 000 90 000 170 000 85 000 170 000 85 000 5,9 5,9 5,9 5,9 The above increases are effective from 1 July 2015, subject to shareholders’ approval at the 11 May 2015 annual general meeting. 142 DIRECToRS’ INTERESTS (AUDITED) At 31 December 2014 the directors’ interests in ordinary shares in Nedbank Group Limited and preference shares in Nedbank Limited were as follows: number of shares David Adomakoh Tom Boardman Tom Boardman (preference shares) Mike Brown Brian Dames Graham Dempster Mustaq Enus-Brey Ian Gladman paul Hanratty Reuel Khoza Mpho Makwana Mantsika Matooane Nomavuso Mnxasana Raisibe Morathi Joel Netshitenzhe Julian Roberts Gloria Serobe Malcolm Wyman total ordinary shares total preference shares Beneficial direct 2014 Beneficial direct 2013 Beneficial indirect 2014 Beneficial indirect 2013 4 012 4 012 55 049 55 049 17 822 17 822 18 593 158 000 334 552 137 515 2 113 28 593 243 000 288 108 134 273 2 113 7 800 7 800 6 974 6 974 176 20 023 12 615 11 620 191 314 11 620 160 887 104 882 97 298 702 681 158 000 632 568 243 000 143 NedbaNk LIMITed annual reportREpoRTING BACK oN REMUNERATIoN (continued) SHARE-BASED pAYMENTS To ExECUTIVE DIRECToRS AND pRESCRIBED oFFICERS (AUDITED) payments from prior years’ deferred bonuses, LTIs and outstanding share plan awards, including participation in the group’s empowerment arrangements: Number Number of of restricted restricted Closing balance as at 31 December 2014 Dividends Total value of dividends Number 5Notional paid in of 20 071 23 357 3 286 2011/03/07 2011/03/08 128,44 128,44 215,77 215,77 4 330 648 (709 091) 5 039 740 Opening balance at 1 January 2014 Awards made during 2014 Awards vesting/lapsing during 2014 Number of restricted shares/ options Date of issue/ inception Issue price (R) Vesting date Number of restricted shares/ options Date of issue/ inception Issue price (R) Final vesting/ exercise date shares/ options released shares/ options Date of issue/ lapsed inception Issue price (R) Vesting/ Value value of respect of restricted exercise gained on (R) date vesting loss on lapsing all plans7 R shares/ options Market price at vesting End of perfor- mance period Final vesting/ exercise date 23 357 23 3572 32 431 32 4312 28 962 28 9622 2011/03/07 2011/03/08 2012/03/07 2012/03/08 2013/03/07 2013/03/08 128,44 128,44 161,88 161,88 189,90 189,90 2014/03/08 2014/03/09 2015/03/08 2015/03/09 2016/03/08 2016/03/09 10 584 15 192 16 099 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 own Shares own Shares own Shares 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 15 571 15 571 27 798 27 798 18 430 18 430 2011/03/07 2011/03/082 2012/03/07 2012/03/082 2013/03/07 2013/03/082 128,44 128,44 161,88 161,88 189,90 189,90 2014/03/08 2014/03/09 2015/03/08 2015/03/09 2016/03/08 2016/03/09 5 292 10 477 10 426 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 own Shares own Shares own Shares 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 62 200 2014/03/06 209,00 2017/03/07 10 584 2014/04/01 222,50 2014/04/01 21 1683 2011/03/31 141,72 222,50 2014/04/01 4 709 880 16 141 2014/03/31 223,03 2017/04/01 2 116 2014/04/01 222,50 2014/04/01 2 1163 2014/04/01 141,72 222,50 2014/04/01 470 810 own Shares 2014/03/31 223,03 2017/04/01 13 380 15 571 2 191 2011/03/07 2011/03/08 128,44 128,44 215,77 215,77 2 887 037 3 359 755 (472 717) 14 551 078 (709 091) 2 515 594 2 515 594 39 472 2014/03/06 209,00 2017/03/07 5 292 2014/04/01 222,50 2014/04/01 10 5843 2011/03/31 141,72 222,50 2014/04/01 2 354 940 10 626 2014/03/31 223,03 2017/04/01 2 116 2014/04/01 222,50 2014/04/01 2 1163 2014/04/01 141,72 222,50 2014/04/01 470 810 own Shares 2014/04/01 223,03 2017/04/02 9 072 542 (472 717) 1 604 085 1 604 085 32 431 2014/12/31 2015/03/08 32 431 2014/12/31 2015/03/09 28 962 2015/12/31 2016/03/08 28 962 2015/12/31 2016/03/09 62 200 2016/12/31 2017/03/07 15 192 2014/12/31 2015/04/01 16 099 2015/12/31 2016/04/01 16 141 2016/12/31 2017/04/01 27 798 2014/12/31 2015/03/08 27 798 2014/12/31 2015/03/09 18 430 2015/12/31 2016/03/08 18 430 2015/12/31 2016/03/09 39 472 2016/12/31 2017/03/07 10 477 2014/12/31 2015/04/01 10 426 2015/12/31 2016/04/01 10 626 2016/12/31 2017/04/01 Executive directors Mike Brown Nedbank Restricted Shares Compulsory Bonus Share Scheme1 Voluntary Bonus Share Scheme4 Total value of dividends total Graham Dempster Nedbank Restricted Shares Compulsory Bonus Share Scheme1 Voluntary Bonus Share Scheme4 Total value of dividends total 144 SHARE-BASED pAYMENTS To ExECUTIVE DIRECToRS AND pRESCRIBED oFFICERS (AUDITED) arrangements: payments from prior years’ deferred bonuses, LTIs and outstanding share plan awards, including participation in the group’s empowerment Number of restricted shares/ options Date of issue/ inception Issue price (R) Vesting date Number of restricted shares/ options Date of issue/ inception Issue price (R) Final vesting/ exercise date 23 357 23 3572 32 431 32 4312 28 962 28 9622 2011/03/07 2011/03/08 2012/03/07 2012/03/08 2013/03/07 2013/03/08 128,44 128,44 161,88 161,88 189,90 189,90 2014/03/08 2014/03/09 2015/03/08 2015/03/09 2016/03/08 2016/03/09 10 584 15 192 16 099 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 own Shares own Shares own Shares 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 15 571 15 571 27 798 27 798 18 430 18 430 2011/03/07 2011/03/082 2012/03/07 2012/03/082 2013/03/07 2013/03/082 128,44 128,44 161,88 161,88 189,90 189,90 2014/03/08 2014/03/09 2015/03/08 2015/03/09 2016/03/08 2016/03/09 5 292 10 477 10 426 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 own Shares own Shares own Shares 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 62 200 2014/03/06 209,00 2017/03/07 16 141 2014/03/31 223,03 2017/04/01 own Shares 2014/03/31 223,03 2017/04/01 39 472 2014/03/06 209,00 2017/03/07 10 626 2014/03/31 223,03 2017/04/01 own Shares 2014/04/01 223,03 2017/04/02 Executive directors Mike Brown Nedbank Restricted Shares Compulsory Bonus Share Scheme1 Voluntary Bonus Share Scheme4 Total value of dividends total Graham Dempster Nedbank Restricted Shares Compulsory Bonus Share Scheme1 Voluntary Bonus Share Scheme4 Total value of dividends total Opening balance at 1 January 2014 Awards made during 2014 Awards vesting/lapsing during 2014 Number of restricted shares/ options released Number of restricted shares/ options lapsed Date of issue/ inception Issue price (R) Market price at vesting (R) Vesting/ exercise date Value gained on vesting 5Notional value of loss on lapsing 20 071 23 357 3 286 2011/03/07 2011/03/08 128,44 128,44 215,77 215,77 4 330 648 5 039 740 (709 091) Dividends Total value of dividends paid in respect of all plans7 R Closing balance as at 31 December 2014 Number of restricted shares/ options End of perfor- mance period Final vesting/ exercise date 10 584 2014/04/01 222,50 2014/04/01 21 1683 2011/03/31 141,72 222,50 2014/04/01 4 709 880 2 116 2014/04/01 222,50 2014/04/01 2 1163 2014/04/01 141,72 222,50 2014/04/01 470 810 13 380 15 571 2 191 2011/03/07 2011/03/08 128,44 128,44 215,77 215,77 2 887 037 3 359 755 (472 717) 14 551 078 (709 091) 2 515 594 2 515 594 5 292 2014/04/01 222,50 2014/04/01 10 5843 2011/03/31 141,72 222,50 2014/04/01 2 354 940 2 116 2014/04/01 222,50 2014/04/01 2 1163 2014/04/01 141,72 222,50 2014/04/01 470 810 9 072 542 (472 717) 1 604 085 1 604 085 32 431 2014/12/31 2015/03/08 32 431 2014/12/31 2015/03/09 28 962 2015/12/31 2016/03/08 28 962 2015/12/31 2016/03/09 62 200 2016/12/31 2017/03/07 15 192 2014/12/31 2015/04/01 16 099 2015/12/31 2016/04/01 16 141 2016/12/31 2017/04/01 27 798 2014/12/31 2015/03/08 27 798 2014/12/31 2015/03/09 18 430 2015/12/31 2016/03/08 18 430 2015/12/31 2016/03/09 39 472 2016/12/31 2017/03/07 10 477 2014/12/31 2015/04/01 10 426 2015/12/31 2016/04/01 10 626 2016/12/31 2017/04/01 145 NedbaNk LIMITed annual reportREpoRTING BACK oN REMUNERATIoN (continued) Opening balance at 1 January 2014 Awards made during 2014 Awards vesting/lapsing during 2014 Number of restricted shares/ options Date of issue/ inception 15 571 15 571 13 899 13 899 15 797 15 797 2011/03/07 2011/03/082 2012/03/07 2012/03/082 2013/03/07 2013/03/082 Issue price (R) 128,44 128,44 161,88 161,88 189,90 189,90 Vesting date 2014/03/08 2014/03/09 2015/03/08 2015/03/09 2016/03/08 2016/03/09 3 175 6 636 7 666 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 own Shares own Shares own Shares 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 6 600 6 600 6 800 2010/03/03 2010/03/03 2010/03/03 19 800 19 800 20 400 2010/03/03 2010/03/03 2010/03/03 121,08 121,08 121,08 121,08 121,08 121,08 2014/03/04 2015/03/04 2016/03/04 2014/03/04 2015/03/04 2016/03/04 Executive directors raisibe Morathi Nedbank Restricted Shares Compulsory Bonus Share Scheme1 Voluntary Bonus Share Scheme4 Eyethu Restricted Shares Eyethu Restricted options6 Total value of dividends total Number of restricted shares/ options Date of issue/ inception Issue price (R) Final vesting/ exercise date shares/ options released shares/ options Date of issue/ lapsed inception Issue price (R) Vesting/ Value value of respect of restricted exercise gained on loss on all plans7 (R) date vesting lapsing R shares/ options Market price at vesting End of perfor- mance period Final vesting/ exercise date Number Number of of restricted restricted 13 380 15 571 2 191 2011/03/07 2011/03/08 128,44 128,44 215,77 215,77 2 887 037 3 359 755 (472 717) 33 492 2014/03/06 209,00 2017/03/07 3 175 2014/04/01 222,50 2014/04/01 6 3503 2011/03/31 141,72 222,50 2014/04/01 1 412 875 7 936 2014/03/31 223,03 2017/04/01 2 116 2014/04/01 222,50 2014/04/01 2 1163 2014/04/01 141,72 222,50 2014/04/01 470 810 own Shares 2014/04/01 223,03 2017/04/02 6 600 2010/03/03 121,08 214,19 2014/03/04 1 413 654 19 800 2010/03/03 121,08 207,82 2014/03/27 1 717 452 11 261 583 (472 717) 1 343 641 1 343 641 Closing balance as at 31 December 2014 Dividends Total value of dividends Number 5Notional paid in of 13 899 2014/12/31 2015/03/08 13 899 2014/12/31 2015/03/09 15 797 2015/12/31 2016/03/08 15 797 2015/12/31 2016/03/09 33 492 2016/12/31 2017/03/07 6 636 2014/12/31 2015/04/01 7 666 2015/12/31 2016/04/01 7 936 2016/12/31 2017/04/01 6 600 6 800 19 800 20 400 2015/03/04 2016/03/04 2015/03/04 2016/03/04 146  Number of restricted shares/ options Date of issue/ inception 15 571 15 571 13 899 13 899 15 797 15 797 2011/03/07 2011/03/082 2012/03/07 2012/03/082 2013/03/07 2013/03/082 Issue price (R) 128,44 128,44 161,88 161,88 189,90 189,90 Vesting date 2014/03/08 2014/03/09 2015/03/08 2015/03/09 2016/03/08 2016/03/09 3 175 6 636 7 666 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 own Shares own Shares own Shares 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 6 600 6 600 6 800 2010/03/03 2010/03/03 2010/03/03 19 800 19 800 20 400 2010/03/03 2010/03/03 2010/03/03 121,08 121,08 121,08 121,08 121,08 121,08 2014/03/04 2015/03/04 2016/03/04 2014/03/04 2015/03/04 2016/03/04 Executive directors raisibe Morathi Nedbank Restricted Shares Compulsory Bonus Share Scheme1 Voluntary Bonus Share Scheme4 Eyethu Restricted Shares Eyethu Restricted options6 Total value of dividends total Number of restricted shares/ options Date of issue/ inception Issue price (R) Final vesting/ exercise date 33 492 2014/03/06 209,00 2017/03/07 7 936 2014/03/31 223,03 2017/04/01 own Shares 2014/04/01 223,03 2017/04/02 Opening balance at 1 January 2014 Awards made during 2014 Awards vesting/lapsing during 2014 Number of restricted shares/ options released Number of restricted shares/ options lapsed Date of issue/ inception Issue price (R) Market price at vesting (R) Vesting/ exercise date Value gained on vesting 5Notional value of loss on lapsing 13 380 15 571 2 191 2011/03/07 2011/03/08 128,44 128,44 215,77 215,77 2 887 037 3 359 755 (472 717) Dividends Total value of dividends paid in respect of all plans7 R Closing balance as at 31 December 2014 Number of restricted shares/ options End of perfor- mance period Final vesting/ exercise date 3 175 2014/04/01 222,50 2014/04/01 6 3503 2011/03/31 141,72 222,50 2014/04/01 1 412 875 2 116 2014/04/01 222,50 2014/04/01 2 1163 2014/04/01 141,72 222,50 2014/04/01 470 810 6 600 2010/03/03 121,08 214,19 2014/03/04 1 413 654 19 800 2010/03/03 121,08 207,82 2014/03/27 1 717 452 11 261 583 (472 717) 1 343 641 1 343 641 13 899 2014/12/31 2015/03/08 13 899 2014/12/31 2015/03/09 15 797 2015/12/31 2016/03/08 15 797 2015/12/31 2016/03/09 33 492 2016/12/31 2017/03/07 6 636 2014/12/31 2015/04/01 7 666 2015/12/31 2016/04/01 7 936 2016/12/31 2017/04/01 6 600 6 800 19 800 20 400 2015/03/04 2016/03/04 2015/03/04 2016/03/04 147 NedbaNk LIMITed annual reportREpoRTING BACK oN REMUNERATIoN (continued) Number Number of of restricted restricted Closing balance as at 31 December 2014 Dividends Total value of dividends Number 5Notional paid in of 16 725 19 464 2 739 2011/03/07 2011/03/08 128,44 128,44 215,77 215,77 3 608 843 (590 904) 4 199 747 Opening balance at 1 January 2014 Awards made during 2014 Awards vesting/lapsing during 2014 Number of restricted shares/ options Date of issue/ inception Issue price (R) Vesting date Number of restricted shares/ options Date of issue/ inception Issue price (R) Final vesting/ exercise date shares/ options released shares/ options Date of issue/ lapsed inception Issue price (R) Vesting/ Value value of respect of restricted exercise gained on (R) date vesting loss on lapsing all plans7 R shares/ options Market price at vesting End of perfor- mance period Final vesting/ exercise date 19 464 19 464 24 709 24 709 21 063 21 063 2011/03/07 2011/03/082 2012/03/07 2012/03/082 2013/03/07 2013/03/082 128,44 128,44 161,88 161,88 189,90 189,90 2014/03/08 2014/03/09 2015/03/08 2015/03/09 2016/03/08 2016/03/09 5 292 10 477 9 966 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 own Shares own Shares 2011/03/31 2013/03/31 141,72 195,66 2014/04/01 2016/04/01 15 571 15 571 18 532 18 532 15 797 15 797 2011/03/07 2011/03/082 2012/03/07 2012/03/082 2013/03/07 2013/03/082 128,44 128,44 161,88 161,88 189,90 189,90 2014/03/08 2014/03/09 2015/03/08 2015/03/09 2016/03/08 2016/03/09 4 022 6 548 15 026 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 own Shares own Shares own Shares 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 23 923 23 923 2014/03/06 2014/03/072 209,00 209,00 2017/03/07 2017/03/08 23 923 23 923 229,17 229,17 (5 482 434) (5 482 434) 5 292 2014/04/01 222,50 2014/04/01 10 5843 2011/03/31 141,72 222,50 2014/04/01 2 354 940 8 743 2014/03/31 223,03 2017/04/01 2 116 2014/04/01 222,50 2014/04/01 2 1163 2014/04/01 141,72 222,50 2014/04/01 470 810 own Shares 2014/04/01 223,03 2017/04/02 10 634 340 (11 555 772) 1 616 151 1 616 151 13 380 15 571 2 191 2011/03/07 2011/03/08 128,44 128,44 215,77 215,77 2 887 037 3 359 755 (472 717) 16 746 16 746 2014/03/06 2014/03/072 209,00 209,00 2017/03/07 2017/03/08 4 022 2014/04/01 222,50 2014/04/01 8 0443 2011/03/31 141,72 222,50 2014/04/01 1 789 790 16 141 2014/03/31 223,03 2017/04/01 2 116 2014/04/01 222,50 2014/04/01 2 1163 2014/04/01 141,72 222,50 2014/04/01 470 810 own Shares 2014/04/01 223,03 2017/04/02 8 507 392 (472 717) 1 457 378 1 457 378 24 709 2014/12/31 2015/03/08 24 709 2014/12/31 2015/03/09 21 063 2015/12/31 2016/03/08 21 063 2015/12/31 2016/03/09 2016/12/31 2017/03/07 2016/12/31 2017/03/08 10 477 2014/12/31 2015/04/01 9 966 2015/12/31 2016/04/01 8 743 2016/12/31 2017/04/01 18 532 2014/12/31 2015/03/08 18 532 2014/12/31 2015/03/09 15 797 2015/12/31 2016/03/08 15 797 2015/12/31 2016/03/09 16 746 2016/12/31 2017/03/07 16 746 2016/12/31 2017/03/08 6 548 2014/12/31 2015/04/01 15 026 2015/12/31 2016/04/01 16 141 2016/12/31 2017/04/01 Prescribed officers Ingrid Johnson Nedbank Restricted Shares Compulsory Bonus Share Scheme1 Voluntary Bonus Share Scheme4 Total value of dividends total Brian Kennedy Nedbank Restricted Shares Compulsory Bonus Share Scheme1 Voluntary Bonus Share Scheme4 Total value of dividends total 148 Prescribed officers Ingrid Johnson Nedbank Restricted Shares Compulsory Bonus Share Scheme1 Voluntary Bonus Share Scheme4 Total value of dividends total Brian Kennedy Nedbank Restricted Shares Compulsory Bonus Share Scheme1 Voluntary Bonus Share Scheme4 Total value of dividends total 19 464 19 464 24 709 24 709 21 063 21 063 2011/03/07 2011/03/082 2012/03/07 2012/03/082 2013/03/07 2013/03/082 128,44 128,44 161,88 161,88 189,90 189,90 2014/03/08 2014/03/09 2015/03/08 2015/03/09 2016/03/08 2016/03/09 5 292 10 477 9 966 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 own Shares own Shares 2011/03/31 2013/03/31 141,72 195,66 2014/04/01 2016/04/01 15 571 15 571 18 532 18 532 15 797 15 797 2011/03/07 2011/03/082 2012/03/07 2012/03/082 2013/03/07 2013/03/082 128,44 128,44 161,88 161,88 189,90 189,90 2014/03/08 2014/03/09 2015/03/08 2015/03/09 2016/03/08 2016/03/09 4 022 6 548 15 026 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 own Shares own Shares own Shares 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 Opening balance at 1 January 2014 Awards made during 2014 Awards vesting/lapsing during 2014 Number of restricted shares/ options Date of issue/ inception Issue price (R) Vesting date Number of restricted shares/ options Date of issue/ inception Issue price (R) Final vesting/ exercise date Number of restricted shares/ options released Number of restricted shares/ options lapsed Date of issue/ inception Issue price (R) Market price at vesting (R) Vesting/ exercise date Value gained on vesting 5Notional value of loss on lapsing 16 725 19 464 2 739 2011/03/07 2011/03/08 128,44 128,44 215,77 215,77 3 608 843 4 199 747 (590 904) Dividends Total value of dividends paid in respect of all plans7 R Closing balance as at 31 December 2014 Number of restricted shares/ options End of perfor- mance period Final vesting/ exercise date 23 923 23 923 2014/03/06 2014/03/072 209,00 209,00 2017/03/07 2017/03/08 23 923 23 923 229,17 229,17 (5 482 434) (5 482 434) 5 292 2014/04/01 222,50 2014/04/01 10 5843 2011/03/31 141,72 222,50 2014/04/01 2 354 940 8 743 2014/03/31 223,03 2017/04/01 own Shares 2014/04/01 223,03 2017/04/02 2 116 2014/04/01 222,50 2014/04/01 2 1163 2014/04/01 141,72 222,50 2014/04/01 470 810 10 634 340 (11 555 772) 1 616 151 1 616 151 13 380 15 571 2 191 2011/03/07 2011/03/08 128,44 128,44 215,77 215,77 2 887 037 3 359 755 (472 717) 16 746 16 746 2014/03/06 2014/03/072 209,00 209,00 2017/03/07 2017/03/08 16 141 2014/03/31 223,03 2017/04/01 own Shares 2014/04/01 223,03 2017/04/02 4 022 2014/04/01 222,50 2014/04/01 8 0443 2011/03/31 141,72 222,50 2014/04/01 1 789 790 2 116 2014/04/01 222,50 2014/04/01 2 1163 2014/04/01 141,72 222,50 2014/04/01 470 810 8 507 392 (472 717) 1 457 378 1 457 378 24 709 2014/12/31 2015/03/08 24 709 2014/12/31 2015/03/09 21 063 2015/12/31 2016/03/08 21 063 2015/12/31 2016/03/09 2016/12/31 2017/03/07 2016/12/31 2017/03/08 10 477 2014/12/31 2015/04/01 9 966 2015/12/31 2016/04/01 8 743 2016/12/31 2017/04/01 18 532 2014/12/31 2015/03/08 18 532 2014/12/31 2015/03/09 15 797 2015/12/31 2016/03/08 15 797 2015/12/31 2016/03/09 16 746 2016/12/31 2017/03/07 16 746 2016/12/31 2017/03/08 6 548 2014/12/31 2015/04/01 15 026 2015/12/31 2016/04/01 16 141 2016/12/31 2017/04/01 149 NedbaNk LIMITed annual reportREpoRTING BACK oN REMUNERATIoN (continued) Opening balance at 1 January 2014 Awards made during 2014 Awards vesting/lapsing during 2014 Number of restricted shares/ options Date of issue/ inception Issue price (R) Vesting date Number of restricted shares/ options Date of issue/ inception Issue price (R) Final vesting/ exercise date shares/ options released shares/ options Date of issue/ lapsed inception Issue price (R) Vesting/ Value value of respect of restricted exercise gained on (R) date vesting loss on lapsing all plans7 R shares/ options Market price at vesting End of perfor- mance period Final vesting/ exercise date 15 571 15 571 15 443 15 443 15 797 15 797 2011/03/07 2011/03/082 2012/03/07 2012/03/082 2013/03/07 2013/03/082 128,44 128,44 161,88 161,88 189,90 189,90 2014/03/08 2014/03/09 2015/03/08 2015/03/09 2016/03/08 2016/03/09 3 704 6 548 6 899 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 16 148 16 148 2014/03/06 2014/03/072 209,00 209,00 2017/03/07 2017/03/08 3 7043 2014/04/01 222,50 2014/04/01 7 408 2011/03/31 141,72 222,50 2014/04/01 1 648 280 Number Number of of restricted restricted Closing balance as at 31 December 2014 Dividends Total value of dividends Number 5Notional paid in of 13 380 15 571 2 191 2011/03/07 2011/03/08 128,44 128,44 215,77 215,77 2 887 037 3 359 755 (472 717) own Shares 2013/03/31 195,66 2016/04/01 own Shares 2014/04/01 223,03 2017/04/02 8 070 2014/03/31 223,03 2017/04/01 19 464 19 464 15 443 15 443 19 747 19 747 2011/03/07 2011/03/082 2012/03/07 2012/03/082 2013/03/07 2013/03/082 128,44 128,44 161,88 161,88 189,90 189,90 2014/03/08 2014/03/09 2015/03/08 2015/03/09 2016/03/08 2016/03/09 6 985 7 666 2012/03/31 2013/03/31 171,79 195,66 2015/04/01 2016/04/01 20 335 20 335 2014/03/06 2014/03/072 209,00 209,00 2017/03/07 2017/03/08 8 743 2014/03/31 223,03 2017/04/01 own Shares 2013/03/31 195,66 2016/04/01 own Shares 2014/04/01 223,03 2017/04/02 3 960 4 080 2009/03/03 2009/03/03 75,74 75,74 2014/03/04 2015/03/04 11 880 12 240 2009/03/03 2009/03/03 75,74 75,74 2014/03/04 2015/03/04 Prescribed officers Dave Macready Nedbank Restricted Shares Compulsory Bonus Share Scheme1 Voluntary Bonus Share Scheme Total value of dividends total Mfundo nkuhlu Nedbank Restricted Shares Compulsory Bonus Share Scheme1 Voluntary Bonus Share Scheme Eyethu Restricted Shares Eyethu Restricted options6 Total value of dividends total 1 Matching on the Compulsory Bonus Share Scheme occurs only on shares in the scheme as at the vesting date. If corporate performance targets are met, 100% matching occurs, otherwise a 50% matching occurs. 2 Restricted share awards with time-based vesting only. 3 Match occurred at one share for each in the Compulsory Bonus Share Scheme and Voluntary Bonus Share Scheme as at the vesting date. 4 For the Voluntary Bonus Scheme employees invest their own Nedbank Shares into the scheme. After three years, if the corporate targets are met, a 100% matching occurs, otherwise a 50% matching occurs. 5 Value determined based on number of shares lapsing multiplied by the market share price on scheduling vesting date. 6 Eyethu Restricted Options have a lifespan of seven years from the date of issue. 7 Plans excludes Voluntary Bonus Share Scheme which are own shares. 150 15 443 2014/12/31 2015/03/08 15 443 2014/12/31 2015/03/09 15 797 2015/12/31 2016/03/08 15 797 2015/12/31 2016/03/09 16 148 2016/12/31 2017/03/07 16 148 2016/12/31 2017/03/08 6 548 2014/12/31 2015/04/01 6 899 2015/12/31 2016/04/01 8 070 2016/12/31 2017/04/01 15 443 2014/12/31 2015/03/08 15 443 2014/12/31 2015/03/09 19 747 2015/12/31 2016/03/08 19 747 2015/12/31 2016/03/09 20 335 2016/12/31 2017/03/07 20 335 2016/12/31 2017/03/08 4 656 2014/12/30 2015/03/31 5 111 2015/12/31 2016/04/01 8 743 2016/12/31 2017/04/01 4 080 2015/03/04 12 240 2015/03/04 16 725 19 464 2 739 2011/03/07 2011/03/08 128,44 128,44 215,77 215,77 3 608 843 4 199 747 (590 904) 7 895 072 (472 717) 1 140 933 1 140 933 2 329 2 555 2012/03/31 2013/03/31 171,79 195,66 226,50 2014/11/04 226,50 2014/11/04 527 519 578 708 3 960 2009/03/03 75,74 215,31 2014/03/04 852 628 11 880 2009/03/03 75,74 215,31 2014/03/04 1 658 092 11 425 535 (590 904) 1 474 566 1 474 566  Number of restricted shares/ options Date of issue/ inception Issue price (R) Vesting date Number of restricted shares/ options Date of issue/ inception Issue price (R) Final vesting/ exercise date 15 571 15 571 15 443 15 443 15 797 15 797 2011/03/07 2011/03/082 2012/03/07 2012/03/082 2013/03/07 2013/03/082 128,44 128,44 161,88 161,88 189,90 189,90 2014/03/08 2014/03/09 2015/03/08 2015/03/09 2016/03/08 2016/03/09 16 148 16 148 2014/03/06 2014/03/072 209,00 209,00 2017/03/07 2017/03/08 3 704 6 548 6 899 2011/03/31 2012/03/31 2013/03/31 141,72 171,79 195,66 2014/04/01 2015/04/01 2016/04/01 own Shares 2013/03/31 195,66 2016/04/01 own Shares 2014/04/01 223,03 2017/04/02 8 070 2014/03/31 223,03 2017/04/01 20 335 20 335 2014/03/06 2014/03/072 209,00 209,00 2017/03/07 2017/03/08 8 743 2014/03/31 223,03 2017/04/01 own Shares 2013/03/31 195,66 2016/04/01 own Shares 2014/04/01 223,03 2017/04/02 19 464 19 464 15 443 15 443 19 747 19 747 2011/03/07 2011/03/082 2012/03/07 2012/03/082 2013/03/07 2013/03/082 128,44 128,44 161,88 161,88 189,90 189,90 2014/03/08 2014/03/09 2015/03/08 2015/03/09 2016/03/08 2016/03/09 6 985 7 666 2012/03/31 2013/03/31 171,79 195,66 2015/04/01 2016/04/01 3 960 4 080 2009/03/03 2009/03/03 75,74 75,74 2014/03/04 2015/03/04 11 880 12 240 2009/03/03 2009/03/03 75,74 75,74 2014/03/04 2015/03/04 Prescribed officers Dave Macready Nedbank Restricted Shares Compulsory Bonus Share Scheme1 Voluntary Bonus Share Scheme total Total value of dividends Mfundo nkuhlu Nedbank Restricted Shares Compulsory Bonus Share Scheme1 Voluntary Bonus Share Scheme Eyethu Restricted Shares Eyethu Restricted options6 Total value of dividends total 1 Matching on the Compulsory Bonus Share Scheme occurs only on shares in the scheme as at the vesting date. If corporate performance targets are met, 100% matching occurs, otherwise a 50% matching occurs. 2 Restricted share awards with time-based vesting only. 3 Match occurred at one share for each in the Compulsory Bonus Share Scheme and Voluntary Bonus Share Scheme as at the vesting date. 4 For the Voluntary Bonus Scheme employees invest their own Nedbank Shares into the scheme. After three years, if the corporate targets are met, a 100% matching occurs, otherwise a 50% matching occurs. 5 Value determined based on number of shares lapsing multiplied by the market share price on scheduling vesting date. 6 Eyethu Restricted Options have a lifespan of seven years from the date of issue. 7 Plans excludes Voluntary Bonus Share Scheme which are own shares. Opening balance at 1 January 2014 Awards made during 2014 Awards vesting/lapsing during 2014 Number of restricted shares/ options released Number of restricted shares/ options lapsed Date of issue/ inception Issue price (R) Market price at vesting (R) Vesting/ exercise date Value gained on vesting 5Notional value of loss on lapsing 13 380 15 571 2 191 2011/03/07 2011/03/08 128,44 128,44 215,77 215,77 2 887 037 3 359 755 (472 717) Dividends Total value of dividends paid in respect of all plans7 R Closing balance as at 31 December 2014 Number of restricted shares/ options End of perfor- mance period Final vesting/ exercise date 3 7043 2014/04/01 222,50 2014/04/01 7 408 2011/03/31 141,72 222,50 2014/04/01 1 648 280 16 725 19 464 2 739 2011/03/07 2011/03/08 128,44 128,44 215,77 215,77 3 608 843 4 199 747 (590 904) 7 895 072 (472 717) 1 140 933 1 140 933 2 329 2 555 2012/03/31 2013/03/31 171,79 195,66 226,50 2014/11/04 226,50 2014/11/04 527 519 578 708 3 960 2009/03/03 75,74 215,31 2014/03/04 852 628 11 880 2009/03/03 75,74 215,31 2014/03/04 1 658 092 11 425 535 (590 904) 1 474 566 1 474 566 15 443 2014/12/31 2015/03/08 15 443 2014/12/31 2015/03/09 15 797 2015/12/31 2016/03/08 15 797 2015/12/31 2016/03/09 16 148 2016/12/31 2017/03/07 16 148 2016/12/31 2017/03/08 6 548 2014/12/31 2015/04/01 6 899 2015/12/31 2016/04/01 8 070 2016/12/31 2017/04/01 15 443 2014/12/31 2015/03/08 15 443 2014/12/31 2015/03/09 19 747 2015/12/31 2016/03/08 19 747 2015/12/31 2016/03/09 20 335 2016/12/31 2017/03/07 20 335 2016/12/31 2017/03/08 4 656 2014/12/30 2015/03/31 5 111 2015/12/31 2016/04/01 8 743 2016/12/31 2017/04/01 4 080 2015/03/04 12 240 2015/03/04 151 NedbaNk LIMITed annual reportWoRLD CLASS AT MAnAGInG rISK STRIVING To BE WoRLDCLASS AT MANAGING RISK ACRoSS NEDBANK The business of banking fundamentally involves the management of risk. The primary function of a bank in an economy is to transform the maturity of funds. We lend out money, which gives rise to credit risk. We also take in money to fund our lending, and that results in asset and liability mismatches, as well as interest rate risk and liquidity risk. In addition, we trade and invest in financial markets that drive other market risks, and all these business activities are potentially prone to operational risk, reputational risk and other risks. Collectively there are 17 key risks that make up the risk universe in Nedbank’s Enterprisewide Risk Management Framework (ERMF). Accordingly, one of Nedbank’s five Deep Green aspirations is to be worldclass at managing risk. Ultimately, we seek to optimise risk versus return on a sustainable basis, and risk management is therefore approached across three integrated core dimensions: ■ Managing risk as a THREAT – to minimise and protect against downside risk, and against material unforeseen losses. ■ Managing risk as an UNCERTAINTY – to eliminate excessive earnings volatility and minimise material negative surprises. ■ Managing risk as an oppoRTUNITY – to maximise financial performance through the application of superior risk and business intelligence, risk-based performance measurement, managing for value, strategic portfolio management and client value management. A critical success factor in achieving Nedbank’s 2020 vision and related financial aspirations is for Nedbank’s risk management, risk culture and risk infrastructure, together, to become a clearly distinctive competitive differentiator. Adding to the importance of excellence in risk management has been the persistent volatile, uncertain, complex and ambiguous (VUCA) macroeconomic and geopolitical environments, both globally and locally. our regulatory landscape has changed significantly, impacted by ongoing Basel III implementation from 2013 to 2019, anti-money- laundering (AML) and combating the financing of terrorism (CFT), Solvency 2/SAM, Twin peaks (in 2016), the Financial Sector Regulation Bill and market conduct risk and regulation (eg Treating Customers Fairly), amendments to the National Credit Act as well as other consumer protection legislation. This means that it can no longer just be a Deep Green aspiration to be worldclass at managing risk. Rather, it has become an imperative to survive and thrive. Nedbank embraces these significant regulatory changes as they help us enhance our clients’ experience and the bank’s relationship with and service to them, and also strengthen the safety and soundness of our organisation and country. We approach these regulations as a lever to elevate our risk management further in an integrated manner, through our client- centred, strategic emphasis, the improvement of the onboarding of our clients and the ‘know your client’ (KYC) initiative. While regulation has indeed changed banking over the past five years, and continues to do so, technological advancement, together with rapid innovation, is likely to see information technology reshaping banking for the next five to 10 years, leading to heightened key risk focuses, such as cybercrime, but also to strategic opportunities. As in the case of regulatory and conduct risks, we are giving much greater focus to IT risk and strategic risk in our risk plans for 2015 to 2017. Additionally, with our expansion and strategic intent of building a pan- African banking network, we are enhancing our risk management focus and capability in the rest of Africa, addressing the related risk appetite holistically. of course, our more traditional major risks of credit and liquidity remain, as always, a key focus, and we will leverage the implementation of the International Financial Reporting Standard (IFRS) 9 and Basel III to elevate credit and liquidity risk measurement and management to an even higher level than today. Nedbank has a sound risk culture that has generally served us well over the past several years. However, with the continuing VUCA, the highly competitive environment, extensive regulation, the zero tolerance of regulators, technological advancement and innovation, and in view of our fundamental business of managing risk, risk management will have to become a competitive differentiator for Nedbank if we want to achieve our 2020 vision on a sustainable basis. We must truly be worldclass at managing risk. Therefore, the vision for risk at Nedbank is to be admired as Africa’s leading bank in risk management by both our internal and external stakeholders, being a core strategic and competitive differentiator that helps make Nedbank’s 2020 aspirations happen in a sustainable manner. A synopsis of the business profiles of the group as well as our strategic focus areas can be found online in the integrate report. These represent the core activities that give rise to Nedbank’s risk universe. our risk management is underpinned by a comprehensive, best- practice ERMF, which we are constantly evolving and enhancing so it remains relevant and most effective in these VUCA environments and changing times and risks. The ERMF, fully embedded in business and central functions across Nedbank Group, is supplemented by individual frameworks such as those for credit risk, market risk, liquidity risk, operational risk, capital risk and a comprehensive stress and scenario testing framework. Coupled with these is a complete set of risk policies, practices and procedures that operate within specific limits. These include the role of the board, the setting and monitoring of the group’s risk appetite and risk limits, and oversight of the ERMF, duly assisted by its seven board committees. At executive management level the Group Executive Committee (Exco) is assisted with its risk, strategic and operational responsibilities by six main committees. The ERMF facilitates effective challenge and debate at executive management and board levels, and strong interaction across the group between the clusters and central group services. This requires a continuous process of risk identification, measurement, management, monitoring and formal review and assessment by our external auditors. Within the ERMF processes and integrated with the group’s strategic and business planning, new and/or emerging risks are identified, captured and addressed. A  residual-heat map is used to support the iterative reassessment of the 17 key risks. Escalation criteria have been defined and significant risks/issues and limit breaches are raised and recorded in the Key Issues Control Log, which is a fundamental tool of 152 THE oRIGINS oF RISK WITHIN NEDBANK Nedbank is made up of four client-facing clusters (five before the merger of Nedbank Capital and Corporate into a single, fully integrated corporate and investment bank business) and our Rest of Africa Division. NEDBANK BUSINESS BANKING Holistic financial solutions for businesses and their owners. REST oF AFRICA DIVISIoN NEDBANK WEALTH offers retail, small and medium enterprise (SME), business and corporate banking services across the rest of Africa. Wealth management, asset management and insurance solutions for clients of Nedbank Group. NEDBANK CApITAL Investment banking and markets solutions for institutional and corporate clients. NEDBANK CoRpoRATE Lending, deposit-taking, transactional banking and commercial-property finance to large corporates, financial institutions, the public sector and government clients. NEDBANK RETAIL Holistic financial solutions for individuals, startups and small businesses, as well as corporate card and merchant solutions. the ERMF and risk reporting across Nedbank Group, and is reviewed by executive management and the board. A formal process for purposes of the ERMF is followed in an annual review of risk policies, limits and frameworks. The ERMF remained resilient in 2014 and will undergo a refresh in 2015, with a focus on: ■ Simplifying and revisiting the key risks comprising Nedbank’s risk universe. ■ Enabling innovation, new-product development and regulatory compliance with a strong focus on ’know your client‘ client- centredness. ■ Ensuring best-practice risk management and leveraging the extensive regulatory developments to make this happen. ■ Structural changes following the creation of the integrated corporate and investment business and more integration of the Retail and Business Banking business. Sustaining a strong risk culture Nedbank Group has a strong risk culture. This is achieved through following best-practice enterprisewide risk management practices, a strong tone from the top from the Chief Executive, top management and the board, and ongoing risk leadership by the Chief Risk officer. our approach aligns strategy, policies, people, processes, technology and business intelligence to measure, evaluate, manage and optimise the opportunities, threats and uncertainties we face every day as a major financial institution. In this way the group is able to maximise sustainable shareholder value within the group’s clearly defined risk appetite. 153 NedbaNk LIMITed annual reportWoRLDCLASS AT MANAGING RISK (continued) ERMF Accounting and taxation risks Information technology risk RISK UNIVERSE operational risk Insurance and assurance risk* New business risk Liquidity risk Capital risk Market risk** Credit risk Strategic risk Compliance risk Reputational risk Transforma- tion risk Social and environmen- tal risk Investment risk people risk FIRST LINE OF DEFENCE * Underwriting insurance risk and corporate insurance ** Trading book and banking book BOARD COMMITTEES – board of directors Group Finance and Oversight Committee Group Audit Committee Group Risk and Capital Management Committee Group Information Technology Committee Group Credit Committee Large- exposure Approval Committee Directors’ Affairs Committee Transforma- tion, Social and Ethics Committee Group Remu- neration Committee GROUP EXCO COMMITTEES – Group Executive Committee (Group Exco) CFo Forum Executive Taxation Committee Group operational Risk Committee Group ALCo and Executive Risk Management Committee property Strategy Committee Group procurement Committee Executive Information Technology Committee Divisional Credit Committee Business Risk Management Forum Brand Risk Management Forum Brand and Client Committee Nedbank Employee Equity Forum Group Transforma- tion Forum Transformation and Human Resources Executive Committee BUSINESS CLUSTERS’ RISK GOVERNANCE – Group Operational Committee (Opcom) For Nedbank Business Banking, Nedbank Corporate, Nedbank Capital, Nedbank Retail and Nedbank Wealth: ■ Cluster and business unit excos, divisional credit committees (DCCs), Trading Risk Committee, Investment Committee and enterprise risk committees (ERCos) and other specialist committees, with representation from the relevant independent group functions. Heads of risk and risk functions, independent of business origination, report directly to business cluster heads. ■ CENTRAL FINANCIAL RISK AND BALANCE SHEET MANAGEMENT – Group Finance Chief Financial Officer – Raisibe Morathi Balance Sheet Management Managing Executive: Balance Sheet Management – Michael Davis SECOND LINE OF DEFENCE INDEPENDENT GROUP RISK AND COMPLIANCE CLUSTERS Group Risk Chief Risk Officer – Trevor Adams Group Enterprise Governance and Compliance Chief Governance and Compliance Officer – Thabani Jali THIRD LINE OF DEFENCE INDEPENDENT ASSURANCE – Internal Audit and external auditors Group Internal Audit External auditors Independent actuaries 154 Across the ERMF Nedbank applies the three-lines-of-defence model in its risk governance. Three-lines-of-defence model First line The board and management of Nedbank Group are ultimately responsible for the implementation and management of risk. Group Risk and Enterprise Governance and Compliance perform a policy-setting and monitoring role to ensure implementation of best-practice risk management principles, methodologies, practices, systems and processes, lead by the Chief Risk officer. Second line Third line Group Internal Audit, external auditors and independent actuaries provide additional assurance on the effectiveness of risk management across the organisation. Nedbank embraces risk management as a core competency that allows the business to optimise risktaking and is objective and transparent. This ensures that the business prices for risk appropriately, linking risk to return. The importance attached to risk management and the attention given to it is deeply rooted in Nedbank’s culture. Being worldclass at managing risk is included as one of five Deep Green aspirations in the group’s strategic framework and this cascades down across the organisation. In Nedbank to be worldclass at managing risk means that understanding, measuring and managing risk are central to everything we do, and we have engrained risk management in our business. We understand that banking at Nedbank is about managing risk, not avoiding it. our risk management methodologies, risk culture and risk management infrastructure are worldclass. oUR AppRoACH To RISK AND BALANCE SHEET MANAGEMENT We approach our strategy development, business activities, risk appetite, risk and balance sheet management in a fully integrated manner. At the heart of the group’s business and management processes are risk and balance sheet management frameworks. integrated worldclass Nedbank’s Capital Management Framework is designed to meet our key external stakeholders’ needs, both those focused more on the adequacy of the group’s capital in relation to its risk profile (or risk versus solvency) and those focused more on the return or profitability of the group relative to the risk assumed (or risk versus return). The challenge for management and the board is to achieve an optimal balance between these two important dimensions. All Nedbank’s quantifiable risks across the 17 key risks of the ERMF are also captured in our Economic Capital Framework. Economic capital entails the sophisticated, consistent comparison of risks across business units and risk types, and the measurement of the risk involved in individual products or transactions. This enables a focus on both downside risk (risk protection) and upside potential (earnings growth). Nedbank assesses the internal requirements for capital using its proprietary economic capital methodology. All of these quantifiable risks, as measured by economic capital, are then allocated back to the businesses in the form of a capital allocation to where the assets or risk positions reside or originate. Nedbank’s economic capital and Internal Capital Adequacy Assessment process (ICAAp) methodology is constantly reviewed and updated, taking cognisance of regulatory developments such as Basel III and Solvency 2/SAM. Economic capital not only facilitates a like-for-like measurement and comparison of risk across businesses, but, by incorporating it into performance measurement, the performance of each business can be measured and compared on an absolute basis by using economic profit (Ep) and a relative percentage return basis, namely return on risk- adjusted capital (RoRAC) – the same as return on equity (RoE), by comparing these measures against the group’s cost of capital. ICAAp in Nedbank has been embedded across the organisation for several years. It is an integral component of the group’s ERMF, Capital Management Framework, strategy and business planning process, balance sheet management, remuneration and reward mechanisms, day-to-day business operations, pricing and lending decisions, and client-value management. Nedbank scores highly on the use test, because the group’s culture is one of understanding that the business of banking is fundamentally about managing risk, and risk drives capital and liquidity requirements against which return is measured (ie risk versus return) and rewarded. In view of the significance of liquidity risk in banking, Nedbank also has an Internal Liquidity Adequacy Assessment process (ILAAp). Embedded within Nedbank’s Liquidity Risk Management Framework is the group’s ILAAp. The ILAAp involves an ongoing and rigorous assessment of Nedbank Group’s liquidity self-sufficiency under a continuum of stress liquidity scenarios, taking cognisance of the board- approved risk appetite. The ILAAp also involves an ongoing review and assessment of all components that collectively make up and/or support the Liquidity Risk Management Framework. The objective of this review and assessment process is to ensure that the framework remains sound 155 NedbaNk LIMITed annual reportWoRLDCLASS AT MANAGING RISK (continued) At the heart of the group’s business and management processes are integrated wordclass risk and balance sheet management frameworks ERMF ■ Subframeworks (examples) … Group Credit Risk Management Framework … Group Market Risk Management Framework … Group operational Risk Management Framework … Group Liquidity Management Framework Capital Management Framework ■ ■ Solvency and Capital Management policy Economic Capital Framework Stress and scenario-testing framework Risk Appetite Framework Risk-adjusted Performance Measurement Framework in terms of measuring, monitoring, managing and mitigating liquidity risk, taking cognisance of best practise and regulatory developments. Risk-adjusted performance measurement, management and reward Economic capital, Ep and RoRAC (or RoE), as well as other important metrics such as return on assets (RoA), credit loss ratio (CLR), the ratio of non-interest revenue (NIR) to expenses and the efficiency ratio, are included in management performance scorecards across the group. Economic capital and Ep are comprehensively in use across the group, embedded within businesses on a day-to-day basis and in performance measurement and reward schemes, as discussed  above. This risk- adjusted performance measurement (RApM) has been applied across the group for many years now and helps ensure that excessive risktaking is mitigated and managed appropriately within the group. To align the group’s current short-term incentive (STI) scheme with the shareholder value drivers the STI scheme has been designed to incentivise a combination of profitable returns, risk and growth appropriately. It is driven from an Ep and headline earnings basis, using risk-based economic capital allocation, as discussed above. Risk is therefore an integral component of capital allocation and performance measurement (and reward) in Nedbank. improving The global financial crisis also precipitated a number of initiatives aimed at the governance and management of remuneration. Although the recommendations, guidance and practice notes are primarily aimed at the remuneration of senior and top management and those whose activities could have a material impact on the risk profile of the organisation, the underlying principles and statements of good practice can be applied to most incentive arrangements for the majority of staffmember. The group’s remuneration practices and public disclosures are compliant with the evolving principles, practices and governance codes released for the SA financial services industry. For further detail please refer to the group’s Remuneration Report. Nedbank Group continues to monitor the evolving governance environment to ensure appropriate compliance of the group’s risk- adjusted remuneration practices with the relevant regulatory and/or statutory requirements. 156 ■ ■ Internal Capital Adequacy Assessment process (ICAAp) Internal Liquidity Adequacy Assessment process (ILAAp) ■ Recovery plan Basel III Compliant ■ Group strategy and business plans Risk plan Nedbank’s recovery plan and stress testing The global financial crisis highlighted deficiencies in some banks, in regulators’ risk management and in supervisory frameworks. After the crisis, regulation – mainly in the form of Basel III and other regulation lead by the international Financial Stability Board at the Bank of International Settlements in Basel Switzerland – is to a large degree about three key themes (capital, liquidity and risk coverage). Resolution and recovery planning (RRp) is a fundamental part of this in: ■ reducing the risk of banks failing (recovery plans); ■ reducing the impact of failure (resolution plans); and ■ ring-fencing the state/taxpayers from any implicit support to the banking sector (resolution, bail-in). The Nedbank Recovery plan sets a framework for the bank to act quickly and decisively (eg selling businesses and significant assets) during a severe crisis to ensure that it is able to recover. The plan  describes the integration with existing contingency planning and the possible recovery options, including a detailed assessment of their likely effectiveness and the defined points at which they would be invoked. The recovery plan addresses stresses invoked by shortfalls in liquidity and capital, as well as significant operational failures that may jeopardise Nedbank’s ability to continue business operations. The recovery plan also covers the various options considered by senior management to mitigate stresses encountered by Nedbank. The recovery plan fits into Nedbank’s ERMF and complements the group’s existing capital, liquidity and stress-testing policies and procedures. Levels of low to severe stress, whereby recovery and resolution levels represent escalating degrees of stress that the group might encounter, are included in the plan. The ordered levels and early-warning indicators are designed to increase Nedbank’s ability to manage any potential crisis situation effectively and prepare itself for recovery. This is consistent with the Nedbank ERMF. These crisis levels allow Nedbank to assess the levels of stress appropriately and implement necessary responses. Nedbank’s response to crises will include identifying and executing … … 2015–2017 THREE-YEAR BUSINESS pLAN Group Executive Committee/ Group Asset and Liability Committee (ALCo) INTEGRATED STRESS/ SCENARIo/ CApITAL MoDELS Macro- economic Factor Model (MEFM) Capital Adequacy projection Model (CApM) (economic and regulatory capital) BUSINESS INpUT pillar 1 stress tests projected risk characteristics of credit portfolios (eg pD and LGD profiles) Stress- and Scenario-testing Framework Nedbank’s empirically derived macro- economic factors MACRo- SCENARIoS In cooperation with Group economic unit, Group AlCo and GrCMC Risk and capital analytics pDs, LGDs, EADs, impairments, loss rates, regulatory capital, economic capital, etc. Regression models Regression parameters Interest rate risk in the banking book Modelled by BSM Liquidity risk Modelled by BSM, including Basel III LCR SopHISTICATED MACRoECoNoMIC FACToR MoDEL ■ Multifactor, fully integrated ■ Incorporates current macroeconomic state as the starting point ■ Forecasts year by year over three-year business plan ■ Full, integrate d with the group’s finance and risk systems GRCMC – Group Risk and Capital Management Committee PD – probability at default LGD – loss given default EAD – exposure at default BSM – balance sheet management LCR – liquidity coverage ratio qualitative overlay of management experience, judgement, challenge and debate oUTpUT Three-year forecasts and stress/scenario analysis of: ■ Income statement ■ Balance sheet ■ Capital adequacy ■ Liquidity ■ Key financial ratios Varied by: ■ Three-year business plan base case ■ Management and board chosen macro scenarios and stress tests Also used in setting risk appetite, business strategy and capital buffers for: ■ Economic capital ■ Regulatory capital ■ Risk appetite 157 NedbaNk LIMITed annual reportWoRLDCLASS AT MANAGING RISK (continued) The stress test process STRESS TEST pHASE STRESS TEST pRoCESS GoVERNANCE Choice of scenarios Choice of scenarios, for example severe recession. The six scenarios of mild, high and severe inflation, severe deflation stress conditions low rate and positive scenario conditions are determined by the Group Economic Unit and endorsed by the Group ALCo and the board. Additional specific-event scenarios are added. The scenarios are updated regularly. Each scenario covers a three-year forward-looking period to capture a negative (or positive) phase of a business cycle. Group ALCo GRCMC GCC DCCs Macroeconomic forecasting Forecast macroeconomic variables (eg real gross domestic product (GDp) growth, household debt-to-income ratio, etc) for each scenario (mild, severe, etc). Translation of scenarios Impact on key risk drivers Holistic Macroeconomic Factor Model calculates the impact on the key risk drivers (pD, LGD, decline in income growth, etc) for each scenario. Group Economic Unit Stress test calculations on the basis of the current portfolio and the three-year business plan, the stress tests calculate the consequences of the individual scenarios for net profit, risk-weighted assets and so regulatory capital, economic capital, impairments charges and available capital resources. Risk types, for example credit risk, business risk and investment risk, are stressed within each scenario and consolidated. risk types Credit risk, business risk, operational risk, etc, calculation of risk-weighted assets (RWA), economic capital and expected losses. Capital requirements For each stress scenario based on the Macroeconomic Fact or Model. earnings Effect on earnings change in activity level, interest rate margins, credit impairments, etc. Impact on available capital resources For each stress scenario based on the macroeconomic factor model. Balance Sheet Management Group Risk Decision on required capital buffers Overall results of stress test Decision on capital levels and buffers is based on an overall assessment , including several factors such as probability of the scenario and strategic measures. Group ALCo and GRCMC GCC – Group credit committee DCC’s – Divisional credit committees 158 appropriate recovery options, proper escalation and communication within the organisation, and appropriate communication to external stakeholders (eg regulators, investors, rating agencies and the media). We conduct regular stress testing. The following are the framework and process that underpins this: Our risk appetite Risk appetite is an articulation and allocation of the risk capacity or quantum of risk Nedbank Group is willing to accept in pursuit of its strategy, duly set and monitored by Group Exco and ultimately the board, and integrated into our strategy, business, risk and capital plans. Nedbank Group measures and expresses risk appetite qualitatively and in terms of quantitative risk metrics. Nedbank Group’s risk appetite is defined across five broad categories as set out in the board-approved Risk Appetite Framework, namely: 1 Core risk appetite metrics Group metrics Earnings at risk (EaR) Chance of experiencing a loss Chance of regulatory insolvency Economic capital adequacy Total RWA to total assets Leverage ratio Definition percentage pretax earnings potentially lost over a one-year period. Event in which Nedbank Group experiences an annual loss. Event in which losses would result in Nedbank Group being undercapitalised relative to the minimum total regulatory capital ratio. Nedbank Group adequately capitalised on an economic basis to its current international foreign currency target debt rating. The average risk profile (risk weight) of Nedbank Group’s assets. The extent to which Nedbank Group is leveraged in terms of assets, including off- balace-sheet assets, per unit of qualifying tier 1 regulatory capital. 2 3 Specific risk-type limit setting [which clarify across the group’s businesses the mandate levels that are of an appropriate scale relative to the risk and reward of the underlying activities so as to minimise concentrations and other risks that could lead to unexpected losses (ULs) of a disproportionate scale]. Stakeholder targets (such as performance targets, regulatory capital targets and target debt rating for economic capital adequacy, economic capital allocations to business clusters, dividend policy, target credit impairment ratios and derisking the balance sheet of non-core assets). 4 policies, procedures and controls. 5 Zero-tolerance statements. Concentration risk appetite targets also exist in areas where Nedbank Group is materially exposed to concentration risk. The targets are revised and approved by senior management and the board annually as part of the three-year strategic business planning process, in line with the Basel III regulations and the board’s responsibilities. Qualitatively, the group also expresses risk appetite in terms of policies, processes, procedures, statements and controls meant to limit risks that may or may not be quantifiable. policies, processes and procedures relating to governance, effective risk management, adequate capital and internal control have board and senior management oversight and are governed by the three lines of defence. A key component of the ERMF is a comprehensive set of board-approved risk policies and procedures, which are updated annually. Nedbank Group has a cascading system of risk limits at all levels of the group and for all financial risks, which is a core component of the implementation of the Risk Appetite Framework. The size of the various limits is a direct reflection of the board’s risk appetite, given the business cycle, market environment, business plans, strategy and capital planning. Nedbank Group has cultivated and embedded a prudent and conservative risk appetite, focused on the basics and core activities of banking. favourable CURRENT KEY RISK AND BALANCE SHEET MANAGEMENT poSITIoNS AT YEAR-END 2014 Nedbank’s the year ended 31 December 2014 are underpinned by a strong balance sheet across all the core dimensions of capital adequacy, liquidity and funding, credit asset quality aided by the strategic portfolio tilt strategy and appropriately conservative provisioning, excellence in risk and balance sheet management, an enabling but prudent risk appetite framework, and a seamless implementation of Basel III. financial results for Credit risk The operating environment in 2014 remained challenging for consumers, with global markets reflecting a mixed performance, and the local economy remained under pressure from strike action and electricity supply constraints. SA’s GDp is forecast to have grown at 1,4% for 2014. According to the South African Reserve Bank (SARB) economic growth could have been 1% higher in the absence of strike action. overall, the credit environment remained muted, with wholesale credit demand continuing to outpace retail demand as poor employment prospects, high interest rates and weak levels weighed against consumers. Wholesale credit confidence demand was supported by renewable-energy projects, corporate action and increased dealflow from the rest of Africa. This is expected to moderate as corporates remain hesitant to make long-term investments and add on production capacity given the weak economic outlook. indebtedness, increased levels of The implementation of the strategic portfolio tilt strategy over the past four years has enabled Nedbank to maintain a sound balance sheet and good credit asset quality and reduce impairments, while strengthening balance sheet coverage ratios. The benefits from the early action taken in reducing our Home Loans and personal Loans portfolios are evident in our 2014 results. Nedbank has adopted a selective origination, client-centred growth emphasis as a core part of its strategic portfolio tilt strategy, as is evident in its higher-targeted-growth portfolio tilt areas such as commercial mortgages, Motor Finance Corporation (MFC), Card and Investment Banking, and the low or negative targeted growth areas of residential mortgages and personal loans. In managing its mortgages (or property portfolio) Nedbank takes a holistic approach across both residential and commercial mortgages, preferring a dominant market share in commercial mortgages, given the significantly better risk-based economics and returns. ■ over 2014 commercial-mortgage lending increased to 19,8% of gross loans and advances, and Nedbank Group has consequently grown its dominant local market share position to just above 40%. 159 NedbaNk LIMITed annual report  WoRLDCLASS AT MANAGING RISK (continued) % of total gross loans and advances by major credit portfolio % , 5 7 4 , 9 9 2 , 6 7 1 , 5 0 1 , 3 4 1 , 7 0 1 7 7 , , 7 2 6 , 1 2010 , 6 5 4 , 4 7 2 , 2 8 1 0 , 1 1 , 9 4 1 8 , 1 1 8 8 , 5 3 , 7 , 1 2011 , 5 3 4 , 3 5 2 , 2 8 1 2 , 1 1 , 4 4 1 4 , 1 1 1 , 9 , 3 4 8 , 1 2012 0 , 1 4 , 0 3 2 , 0 8 1 0 , 1 1 , 8 3 1 , 8 0 1 3 , 1 1 6 3 , 9 , 1 2013 Total residential mortgages Card Total commercial mortgages Corporate Banking advances Total mortgages Business Banking (SME) advances Total motor vehicle finance Investment Banking advances 8 , 1 4 , 0 2 2 , 8 9 1 6 , 1 1 , 0 4 1 , 8 0 1 8 , 1 1 9 2 , 1 , 2 2014 Total personal loans This potentially high concentration is mitigated by good-quality assets, high levels of collateral, a low average loans-to-value ratio (approximately 50%), the underpinning of corporate leases and a highly experienced management team that is considered to be the leader in property finance in SA. ■ While Nedbank has the smallest residential- mortgage portfolio among the local peer group at approximately 15%, the contribution of these advances as a percentage of total gross loans and advances is still substantial at 22% in 2014 (2010: 30%). ■ Since 2010 the focus in Home Loans has been on lending through our own channels and much less, compared with the industry, through mortgage originators. This enables a better-quality risk profile, more appropriate risk-based pricing, and therefore more appropriate returns, with a client-centred approach. ■ When combining commercial and residential mortgages, Nedbank’s total mortgage market share is in line with that of its peers at approximately 21%. Total retail motor vehicle finance exposure within Nedbank Group has increased from 10,5% in 2010 to 11,6% in 2014 of gross loans and advances, while current market share is approximately 29,5%. Sound risk management principles are consistently applied by an experienced management team. Given the current state of the market and the concerning health of the consumer, coupled with macroeconomic expectations, Nedbank’s personal Loans portfolio is expected to remain relatively flat over the medium term, and hence decrease further in terms of mix. personal loans as a percentage of total gross loans and advances have decreased to 2,9% over the last year (2013: 3,6%). As a percentage of total gross loans and advances: ■ Corporate Banking and Business Banking have not changed substantially since 2010; ■ Card advances have increased from 1,6% in 2010 to 2,2% in 2014; and ■ Investment Banking advances have increased from 7,7% in 2010 to 11,8% in 2014, underpinned by particularly successful growth in renewable energy. The defaulted advances continued the downward trend observed since 2010, decreasing by 11,2% in 2014 to R15 846m (2013: R17 848m), which was mainly driven by ongoing improvements in Nedbank Retail as well as Nedbank Capital. Consistently declining default advances as a percentage of gross loans and advances 9,09 9,02 5,48 3,17 5 6 7 6 2 3 8 4 5 2 7,50 7,25 4,55 2,85 0 1 2 3 2 5 8 4 1 2 6,27 5,58 3,58 1,99 3 7 2 9 1 6 6 6 6 1 5,603 4,673 3,023 1,64 3 8 4 8 7 1 3 0 2 0 5 1 1 282 1 725 2 607 2 828 4,83 3,97 2,54 1,30 (11,2%) 6 4 8 5 1 4 4 3 3 1 2 502 2010 Total Retail 2011 Total Retail (excluding Personal Loans1) 2012 Total Nedbank Group Total wholesale2 160 2013 Defaulted advances (excluding Personal Loans)1 (Rm) 2014 Personal Loans defaulted advances1 (Rm) The Group CLR decreased to 0,79% (2013: 1,06%) as a result of ongoing improvement in asset quality, prudent credit-granting and collections practices together with benefits from strategic portfolio tilt and therefore the change in advances mix. The Group CLR is below the lower end of the through-the-cycle (TTC) target range of 0,80% to 1,20%. ■ The CLRs across all the business clusters were either at the lower end of, or better than, their respective TTC target ranges. A strong risk management and collections focus resulted in improved impairments charges across the group to support the reduction in CLRs. ■ The R200m central portfolio impairment held in the Centre was increased to R350m in line with the group’s view of a further deteriorated macroeconomic environment as a result of the country’s power crisis and other factors. ■ Nedbank Retail contributes 77,7% to the group’s total impairments charge of R4 506m (2013: R5 565m), with the majority coming from personal Loans (41,7% of the group’s impairments charge). The reduction in the personal Loans impairments was the main contributor to the reduction in the impairments charge over the period and benefits were realised based on the early action taken in 2012. The total balance sheet impairment decreased to R11  095m (2013: R11 456m) and higher levels of postwriteoff recoveries were recorded at R941m (2013: R888m), while writeoffs and other transfers decreased to R5 809m (2013: R5 867m). The group total-coverage ratio strengthened to 70,0% (2013: 64,2%), with the specific-coverage ratio improving to 43,1% (2013: 42,3%) and the portfolio coverage on the performing portfolio increasing slightly to 0,70% (2013: 0,68%). Consistently improving Nedbank Group credit loss ratio % 1,36 1,32 0,04 2010 1,13 1,01 0,12 2011 1,05 0,91 0,14 2012 1,06 0,972 0,092 2013 0,79 0,72 0,07 2014 Total CLR Specific CLR Portfolio CLR CLR target range (0,8% – 1,2%)1 Previous CLR target range (0,6% – 1,0%)1 1 The Nedbank Group target range was revised from between 0,60% and 1,00% to between 0,80% and 1,20% in 2014. 2 Restated due to the reclassification of restructures in MFC as defaulted advances. Strengthening coverage ratios 1 Wholesale includes Nedbank Capital, Nedbank Corporate and Nedbank Business Banking. 2 Home Loans represents a specific business unit within Nedbank Retail. This excludes home loans in the Nedbank Retail Relationship Banking business unit. 3 Restated due to the reclassification of restructures in MFC as defaulted advances. 161 NedbaNk LIMITed annual report2014201320122011201020096 83211 0957 543311 4567 44310 8708 74911 4977 8309 7989 07211 22619,836,240,263,874,795,058,170,043,690,772,446,843,064,21 9682 1542 7483 4273 91334 263Wholesale total1Total RetailNedbank GroupSpecific impairments (Rm)Portfolio impairments (Rm)Home Loans2Personal Loans36,4%WoRLDCLASS AT MANAGING RISK (continued) Market risk Trading market risk arises through Nedbank Capital’s market-making activities and the facilitation of client business in the foreign exchange, interest rate, equity, credit and commodity markets. Nedbank has kept proprietary trading low and the focus remains mainly on flow trading in these markets, with only 1,2% of the total economic capital of the group consumed. Current risk levels are within the board-approved limits and risk appetite. The main development in 2014 was the major regulatory proposals, including the Fundamental Review of the Trading Book, as well as other derivative market reforms. The market risk associated with the group’s high-quality liquid-asset portfolio is well managed to minimise the effect of market volatility. Investment risk (also referred to as equity risk in the banking book), which is held at fair value, is relatively low at R4 761m, within the risk appetite and limits approved by the board. This risk primarily arises through the investment banking and private-equity activities of Nedbank Capital, as well as property finance activities of Nedbank Corporate. A total of R2 862m is held for capital gain within these portfolios, while the remaining R1 899m is held for operational requirements. The strategic acquisition of 36,6% in Banco Único held at R286m and the appropriate 20% stake in Ecobank Transnational Incorporated (ETI) held at R6 223m were major investments in 2014. These are accounted for under the equity method of accounting, totalling R6 509m. Interest rate risk in the banking book (IRRBB) is significant and arises from the group’s lending and funding activities, with assets and liabilities maturing or repricing at different times, or against different base rates. Nedbank’s IRRBB is largely in the short-end of the interest rate curve and results from assets predominantly pricing to the prime rate, whereas term deposits and fixed-rate advances are linked to the Johannesburg Interbank Agreed Rate (JIBAR) or hedged using JIBAR-linked swaps. Current exposures are within the board-approved limits and risk appetite. The net interest income sensitivity to a 1% change in interest rates is R1 019m (2013: R936m) over one year or 1,52% (2013: 1,54%) of capital. The current interest rate cycle in SA is at a historically low point and the group is well positioned for any upswings in interest rates. Foreign currency translation risk (FCTR) arises from changes in value of the group’s holdings of foreign capital due to shifts in exchange rates. Although the acquisitions in ETI and Banco Único in 2014 caused an increase in FCTR exposure, it is still in line with the group’s appropriate offshore capital structure and risk appetite. A 10% change in the value of the rand will have a 0,2% (2013: 0,1%) impact on the group’s total regulatory capital adequacy ratio (CAR). Operational risk During 2014 we focused our strategy on capitalising on our strengths in managing operational risk, concentrating on risk and internal control systems in all our businesses, while prioritising operational risk areas that offer opportunities to ensure that our businesses create and deliver value to our stakeholders. Despite the external headwinds and difficult macroeconomic and geopolitical environments, Nedbank achieved a stable operational risk environment. The group operated within board-approved operational risk appetite limits. Notwithstanding the above, the potential impact of operational risk within the group remains high. We are cognisant of the fact that, as the business evolves, the associated growth and level of operational complexity expose the group to additional operational risks. In response, we continued to focus on the improvement of the internal control environment to minimise potential for losses, and with an emphasis on making it easy to do business with Nedbank. In 2014 the group remained focused on initiatives to enhance process management governance aimed at optimising the risk and control identification and assessment process. 162 Regulatory non-compliance relating to AML continues to receive focus with a view to addressing the weaknesses identified. The fine of R25m that Nedbank received in 2014 (as did the rest of the big four South African banks) was publicly disclosed as a significant regulatory operational risk event during the year. Steps have been taken to enhance the group’s AML/CFT programme and the approach is now more strategic. The focus remains on enhancing Nedbank’s scenario analysis and governance process to ensure that the group continues to scan the operating environment and, where necessary, update scenario inputs to ensure the group remains adequately capitalised. New scenarios were identified or existing scenarios were updated to reflect changes in the operating environment. Identified control gaps were enhanced as part of the risk management process. In recognition of the increasing growth, diversity of activities and dynamism of the environment in which our businesses operate, the group continued to refine the operational Risk Management Framework (oRMF) to ensure that it is adaptive to the environment, is responsive to regulatory requirements, is in line with emerging leading practices and supports forward-looking and proactive risk identification and agility in response. The organisational transformation/restructure in the Corporate and Investment Banking (CIB) Cluster and the Retail and Business Banking Cluster may result in uncertainty and elevated people risk. This requires close change management to provide stability while addressing specific business requirements and ensuring that we deliver value to our clients and other stakeholders. No material spike in operational risk net losses (2014 versus 2013) was observed on the backdrop of global operational risk losses, which are still volatile, with strong and hostile regulatory actions being implemented. The independent testing of our systems of internal control (and use testing of frameworks) is a major focus requiring the combined efforts of our stakeholders in the three lines of defence. We continuously review our associated control frameworks and operating models to make enhancements where necessary. Capital adequacy Nedbank Group’s capital ratios are strong across all classes, above the mid-point of internal target ranges and above regulatory minimum requirements. Similarly, Nedbank Group economic capital adequacy is strong and ICAAp has been maintained. Nedbank’s ICAAp confirms that we are well capitalised above the current A or 99,93% target debt rating (solvency standard) in terms of the group’s proprietary economic capital methodology. Nedbank Group remains well capitalised, with a strong capital adequacy position at December 2014. This is supported by: ■ a strong capital structure, with 80% of the group’s capital comprising fully loss-absorbent common-equity tier 1 (CET1) capital; ■ additional tier 1 and tier 2 capital, in line with regulatory requirements, including the R5,5bn issued since the implementation of Basel III; ■ a conservative RWA density of 54% (RWA: total assets ratio), which compares favourably with that of local and international peers; and ■ significant capital buffers above regulatory requirements. Capital adequacy is strong relative to Nedbank’s business activities, strategy and risk profile, and the external environment in which it operates. Pro forma – with and without Africa expansion (ie ETI 20% transaction and Banco Único) regulatory capital Common-equity tier 1 (CET1) capital ratio Total capital ratio Dividend cover economic capital Available financial resources (AFR): Economic capital Cost of equity (Coe) Target ranges Dec 2014 % % 10,5 – 12,5 14,0 – 15,0 (times) 1,75 – 2,25 (%) % 11,6 14,6 2,07 41 448 140 13,5 Dec 2014 without Africa expansion 12,5 15,5 Dec 2013 12,5 15,7 2,11 35 939 151 13,0 The acquisitions of approximately 20% of Ecobank Transnational Incorporated (ETI) and 36,6% of Banco Único in 2014 have resulted in a 90 basis points reduction in the Nedbank Group Limited CET1 ratio. Furthermore, these acquisitions have resulted in an increase of the group’s exposure to rest of Africa to approximately 10,5% of ordinary shareholders’ equity (oSE). This is in line with the group’s strategy for the rest of Africa. Leverage ■ The leverage ratio is intended by the Basel Committee on Banking Supervision (Basel Committee) to serve as a simple, transparent, non-risk-based leverage ratio to supplement the Basel III risk- based capital requirements in order to help avoid the buildup of excessive leverage and to capture both on- and off-balance-sheet exposure. ■ SA banks, including Nedbank, compare favourably with most international banks on leverage. ■ Nedbank Group’s gearing under Basel III, which includes off- balance-sheet exposure and is based on the latest regulations, is 17,2 times (or 5,8%) at 2014 (2013: 16,8 times or 6,0%) against an internal risk appetite target of less than 20 times (or >5%), and well below the Basel III limit in accordance with the revised SA regulations of 25 times (or >4%), which is more prudent than Basel III at 33,3 times (or > 3%). The slight decline in the leverage position is largely as a result of the acquisition of the ETI stake and its associated capital and impairment. Liquidity risk Nedbank Group remains well funded with a strong liquidity position, underpinned by a significant quantum of long-term funding, an appropriately sized surplus liquid-asset buffer above the minimum Basel III liquidity coverage ratio (LCR) regulatory requirement, a strong loan- to-deposit ratio consistently below 100% and a low reliance on interbank and foreign-currency funding. The Basel Committee published a finalised net stable funding ratio (NSFR) standard in october 2014. While the gap to full compliance with the NSFR has substantially decreased, full SA banking industry compliance remains challenging, given the small retail deposit base. Consequently, Nedbank will continue to work closely with SARB, its peer group and the National Treasury in addressing the structural challenge ahead of the NSFR compliance date. Nedbank’s strong funding and liquidity position is illustrated by the following: ■ Nedbank has maintained significant sources of quick liquidity amounting to R121,1bn, which represents 15,0% of total assets. ■ Deposits grew 8,4% to R653,5bn from R603,0bn in 2013 as Nedbank continued to provide competitive and innovative transactional and investment products, with ongoing emphasis on meeting client needs. ■ In 2014 Nedbank successfully tilted its funding mix away from wholesale funding through proportionally higher growth in retail deposits, capital market issuance and foreign funding. Summary of Nedbank Group liquidity risk and funding profile total sources of quick liquidity Surplus statutory liquid assets Statutory liquid assets and cash reserves (ie SARB prudential minimum) other sources of quick liquidity1 Total sources of quick liquidity as a % of total assets long-term funding ratio (three-month average) Retail Savings Bond2 Senior unsecured debt Total capital market issuance reliance on negotiable certificates of deposit3 reliance on foreign funding3 loan-to-deposit ratio Basel III pro forma liquidity ratios Liquidity coverage ratio (effective date – 2015 to 2019)4 including targeted access to the committed liquidity facility (CLF) Net stable funding ratio (effective date – 2018)5 (Rm) (Rm) (Rm) (Rm) (%) (%) (Rm) (Rm) (Rm) (%) (%) (%) (%) (%) 2014 121 074 36 990 45 637 38 447 15,0 25,4 11 850 22 478 35 638 10,8 4,6 93,8 2013 107 252 27 965 41 734 37 553 14,3 26,2 9 638 20 850 33 268 14,5 2,3 96,1 >60 WIp6 >60 WIp6 1 This includes corporate bonds, listed equities and other marketable securities. 2  Nedbank has both Retail Savings Bonds and Green Retail Savings Bonds with tenures of two, three and five years. The proceeds of the Green Retail Savings Bonds are earmarked for renewable-energy projects, while the proceeds of ordinary Retail Savings Bonds are applied to the general funding pool. 3 As a % of total deposits. 4 A 60% minimum LCR is required from 2015, increasing 10% per annum to 100% by 2019. 5 The Basel Committee released its final version of the NSFR in October 2014. 6  WIP – work in progress. The SA banks are working with National Treasury and SARB to address the structural challenges of complying with the NSFR before the effective date of 1 January 2018. 163 NedbaNk LIMITed annual reportWoRLDCLASS AT MANAGING RISK (continued) NEDBANK’S EMERGING RISK THEMES AND RISK STRATEGY The top 10 key risks flowing from Nedbank’s three-year business plans, activities and risk strategy focus are set out below. Heightened macroeconomic and geopolitical risk 1 The continuation of the difficult macroeconomic environment, compounded by the prospect of an ongoing power crisis, labour unrest and slow gross domestic product (GDp) growth, will result in a more challenging and risky operating environment. For Nedbank to become a clearly distinctive competitive differentiator in this VUCA environment, we will continue to strive to achieve risk management of worldclass status. To survive in the current economic environment of potential low revenue growth, we need to manage expenses growth effectively by optimising efficiencies, as highlighted in Nedbank’s key strategic focus of strategic portfolio tilt, by continuing with the strategy of selective origination, by conducting ongoing close monitoring, deep dives and reviews in respect of the quality of our credit portfolios, and by ensuring adequate levels of credit impairments are maintained. Constraints on the electricity supply and prolonged blackouts have implications on business continuity planning for banks. Business continuity management capabilities are focusing on preparedness for an extended regional blackout and increased generator capacity. Further sovereign downgrades of SA’s credit rating will impact our pricing and our ability to issue new forms of funding and capital, particularly outside SA, impacting our margins and growth. Because we are capped at the sovereign ceiling, all SA banks will be downgraded in such an event. which Nedbank conducts itself, and consistently following responsible business practices. ■ Enhancing safety and soundness of the banking system, and balancing risk versus return. ■ Increasing the financial stability of the country, striving to minimise activities such as money laundering and combatting the financing of terrorism. SA’s financial services will experience major changes during the 2015– 2016 period that will be different to what had to be dealt with in the past. The Financial Sector Regulatory Bill (FSRB) will result in extensive changes (expected in 2016) to the current regulatory system and the manner in which the regulations are applied. It fundamentally changes the legal framework in which the financial services industry has operated until now. The main change brought about by the FSRB will be to create two distinct regulators: ■ a prudential regulator [prudential Authority (pA)]; and ■ a market conduct regulator [Financial Market Conduct Authority (FMCA)]. This system of dual regulation is known as the Twin peaks model. Twin peaks will be implemented in two phases. phase one will address ‘Who regulates?’ The pA will regulate (oversee) the safety and soundness of financial institutions that provide financial products. on the other hand, the FMCA will supervise the conduct of business of all financial institutions and the integrity of the financial markets. phase two will address the ‘How and what do they regulate?’ This phase will deal with: ■ the implementation process focused on creating new laws to underpin Twin peaks; and Nedbank’s comprehensive stress testing enables us to be proactive in managing extreme events and difficult environments, and provides important input into a three-year plan and risk strategy. ■ the repeal of current laws and introduction of new all-encompassing financial sector legislation – the Conduct of Financial Institutions Act (CoFI). 2 Credit risk (given above VUCA macroeconomic environment) Nedbank’s robust credit risk management continues to be essential in the current economic environment, especially with interest rates remaining flatter for longer, currency moves, job losses, increasing prices, a power crisis, etc. Traditional major risks of credit and liquidity are, as always, a key focus. With interest rates expected to remain unchanged at current levels until late in the year, the softer interest rate outlook and lower borrowing costs should support consumer credit demand and limit credit defaults in 2015, notwithstanding the weak job market and still high consumer debt levels. Retail banking conditions are therefore likely to improve modestly, but growth in wholesale banking may moderate from current levels as fixed- investment plans and credit demand may be limited by the severity and extent of infrastructure constraints, rising production costs, soft global demand and low international commodity prices. However, there is a downside risk to CLRs currently being below the TTC target range, with limited growth in the economy and in the VUCA macroeconomic environment. As part of our ongoing strategic portfolio tilt strategy, Nedbank will continue to focus on selective credit origination and client-centred growth, with strong focus on proactive credit risk management and collections across our businesses. It remains prudent to maintain close scrutiny of the VUCA macroeconomic environment and current consumer indebtedness, and to ensure that our risk appetite remains appropriate. We will leverage the IFRS 9 (credit) and Basel III implementations to elevate that risk measurement and management to an even higher level than today, and remain focused on changes to the National Credit Act and any strategic implications. 3 Regulatory risk Since the global financial crisis regulation has been fundamentally changing the shape of banking and financial services, these changes will continue unabated over the next three to five years to 2020. A highly efficient, effective, integrated and strategic-based regulatory change programme is a primary focus of Nedbank. We will use the extensive regulatory change requirements to leverage our risk management, balance sheet management and business practices to heightened levels, and we remain cognisant of the rationale underlying regulation, which is: ■ Client-centredness (‘know your client’) and Treating Customers Fairly, ensuring that clients are satisfied with the sound manner in 164 At the same time a market conduct framework will be introduced with the objective being, among others, the fair treatment of clients, designing products to meet clients’ needs and ensuring that clients are better informed about the products they purchase. Nedbank is launching a full Market Conduct Risk project early in 2015 as part of Nedbank’s new Regulatory Change programme, which will have as its aim the full understanding and implementation of the market conduct framework released by the National Treasury. Another change brought about by the bill provides for a framework for the supervision of financial conglomerates. To the extent that companies in the old Mutual Group and the Nedbank Group constitute a financial conglomerate, and important financial in addition a systemically institution (SIFI), we are at this stage unsure what will be required by the pA. Nedbank is providing its comments on the bill through the necessary industry bodies. 4 Rest of Africa strategy With the expansion and strategic intent of building a pan-African banking network, our risk management focus will be further enhanced in our investments and operations in the rest of Africa to address the related risk  appetite more holistically and to help elevate risk management infrastructures in these environments. The group’s risk plan contains extensive initiatives to support Nedbank’s pan-African strategy and the recent investments in Ecobank and Banco Único to assist in enhancing their risk governance. 5 IT risk including cybercrime and information security Clients naturally expect banks to prevent, quickly detect, isolate and contain security threats to their personal information, assets and other items of value in the care of the bank. Given the growing pervasiveness of the digital era, the growth in data drives higher potential vulnerability, which requires active monitoring. This presents a need for higher maturity in managing technology-related business risks against the background of increasing sophistication and prevalence of cybercrime. To ensure a safer banking environment, not only for our own clients but also for the SA banking sector as a whole, Nedbank is a participating member of the Cyber Security Incident Response Team (CSIRT) at the South African Banking Risk Information Centre (SABRIC), with a view to assisting with combatting cybercrime in the SA financial sector. Although cybercrime is very topical worldwide, there are no specific concerns in Nedbank. While fraud and criminality levels continue to increase globally and locally, Nedbank’s fraud experience (losses) has shown a year-on-year decrease. In a bid continuously to improve Nedbank’s capability to deal with the challenges in the areas of cybersecurity and information security, focus is placed on landing key enabling initiatives such as the formulation of a cybercrime risk management prevention programme and an integrated financial crime risk management framework. This strategic approach will enable Nedbank to become even more predictive on emerging risks and trends, both locally and internationally, to facilitate enhanced fraud detection capabilities and protection of valuable and sensitive data from external threats and malicious insiders. 6 Operational risk ongoing political, economic, social, environmental and technological developments are expected to continue challenging business operations. The macroeconomic environment, pressure on cost reduction and meeting revenue targets will likely increase the exposure to operational risk in 2015. This calls for enhanced awareness of the external business environment as well as anticipation of and proactive response to emerging risks. The levels of operational risk capital remain under close scrutiny by the regulators; however, Nedbank’s robust governance process ensures that the environment is continually scanned and scenario inputs are updated to ensure that the group remains adequately capitalised. The top five emerging operational risks are conduct risk, cybercrime, fraud, IT risk and the regulatory environment, and are core components of Nedbank’s 2015 risk plan. To ensure the successful execution of the operational risk strategy there is an ongoing investment in people, processes and technology in key areas across the group. 7 Concentration risk Unmanaged risk concentrations are traditionally a potential cause of major problems in banks. Concentration risk is therefore considered separately, as part of Nedbank’s Risk Appetite Framework, and monitored regularly. While Nedbank continues to grow wholesale advances faster than retail advances, growth remains within the risk appetite (such as CLR) and without excessive levels of single-name concentration risk. In line with the rest of the market Nedbank’s mortgage exposure is high, but is viewed holistically across both residential and commercial mortgages, preferring a dominant market share in commercial, given better risk-based economics and returns. 8 Strategic risk The bank’s strategic plan is chiefly dependent on the success of its ability to execute such plan. Because of this, Nedbank is acutely aware that strategy and execution are interdependent and failure of one will inevitably lead to the failure of the other. Strategic and execution risks are closely allied in any successful risk management programme and the one cannot be realised without the other being put into effect. In other words, the strategic plan must be done at a practical level to realise the strategy. Because of the close nature of the relationship between the two, it follows that execution risk in the Nedbank Group is a core focus at top management level. 9 Basel III strategic impacts In responding to Basel III, management continues to deliver, position and prepare Nedbank Group optimally for these regulatory changes. Risk principles have been incorporated in the group’s strategic portfolio tilt objectives, facilitating the strategic direction in respect of balance sheet portfolio growth, the consumption of capital, the use of long-dated liquidity and determining the size of the levels of high-quality liquid assets. Basel III is being phased in over several years, from 2013 until 2019, and as such there are several major Basel III items that are still work in progress: ■ Net stable funding ratio (NSFR) In october 2014 the Basel Committee announced minor changes to the NSFR. Even after these changes SA banks still have a significant NSFR gap to close. As SA banks look strategically to closing this gap, we must understand and respond to any unintended consequences. Nedbank will continue to work closely with SARB, its peer group and the National Treasury in addressing the structural challenge ahead of the NSFR compliance date, with implementation currently planned for 1 January 2018. ■ Balancing risk sensitivity, simplicity and comparability RWA levels are expected to be increased by the introduction of capital floors to advanced risk-based approaches (eg Advanced Internal Ratings- based Approach, Advanced Measurement Approach and Value at Risk), based on the Basel III Standardised Approach. ■ LCR transitional compliance with effect from 1 January 2015 The 60% compliance requirements for LCR came into effect on 1 January 2015 and will increase evenly by an additional 10% each year through to 2019, when banks must comply fully with this ratio. Nedbank has proactively responded to these requirements, building a strong compliant position before the end of 2014 that included the acquisition of additional high-quality liquid-asset buffers and the creation of a collateralised pool of commercial mortgage bonds that has been pledged against an approved appropriate-size committed liquidity facility provided by SARB as part of the group’s optimal compliance with these requirements. The group’s 2015 compliance level includes a conservative buffer designed to absorb any seasonal volatility during the year, and our funding and capital plans include a clear glide path of transitioning towards the higher requirements of 10% pa, ensuring that we accumulate additional high-quality liquid assets in line with these increasing requirements. 10 Regulatory capital, liquidity and funding risks The extensive transitional Basel III requirements through to 2022 and ongoing developments in work-in-progress items continue to create upside risk to banks’ capital requirements through either additional capital buffer requirements or more conservative measures of underlying risk-weighted assets. The Financial Stability Board (FSB) is nearing the finalisation of proposals for global systemically important banks (G-SIBs) to have total loss- absorbing capital (TLAC) of 16% to 20% before the inclusion of any relevant SIFI charge, capital conservation and countercyclical buffers. The overall aim of the proposal is to limit taxpayer exposure to failing banks, minimise the impact of resolution on financial stability and ensure the availability of sufficient loss-absorbing and recapitalising capacity. Although no SA bank is included on the list of current G-SIBs, local regulators might look to adopt some of the principles applicable in this proposal for domestic systemically important banks (D-SIBs), and Nedbank has been identified as such for SA, along with its peers. Domestically, raising new capital was adversely impacted by the curatorship of African Bank during 2014, whereby domestic investors’ appetite for new-style Basel III-compliant loss-absorbent capital declined. Although appetite for these instruments has returned in 2015, pricing of new-style capital instruments has become more expensive. Nedbank Group has detailed capital planning to optimally manage the redemption of old-style capital instruments, issue new-style capital instruments and structure its capital base across all tiers of capital. The group also performs ongoing active market sounding in order to meet investor demand and fill appetite at pricing levels that reflect true risk- based economics. ongoing regulatory liquidity developments have and will continue to play a significant role in shaping bank balance sheets through to 2020. The new regulatory liquidity ratios, including the LCR and NSFR introduced within Basel III, will have the most significant impact on regulatory liquidity and funding risk. Implications include: ■ Banks will continue to raise higher levels of low-yielding high-quality liquid assets to support compliance with the LCR transitional requirements, which will consume the liquidity otherwise available for credit extension. ■ Banks will diversify into funding pools in other jurisdictions where domestic pools cannot create adequate levels of long-dated funding to support the requirements of the NSFR. ■ Immature capital markets will be developed and evolve in which banks will look to create funding tenor to support the NSFR requirements. ■ Deleveraging out of suboptimal long-dated lending as long-dated funding is recognised as a true scarce commodity. ■ Development of originate-to-distribute business models. Compliance with these liquidity ratios will increase the cost of banking as the levels of liquidity transformation decline and liquid-asset buffer levels increase. The upside, however, is that liquidity risk will decline as banks’ liquidity profiles improve, with higher levels of liquidity to support short- dated cash outflows under stress and longer-dated cash inflows better matched against long-dated cash outflows. Risk-adjusted pricing and returns will need to be adjusted and banks will need to respond strategically. At Nedbank we are focused on proactively positioning ourselves. Conclusion Nedbank’s ERMF has remained resilient through 2014, with a prudent but enabling Risk Appetite Framework, comprehensive stress and scenario testing, a responsive Recovery plan under Basel III and a robust and strategic Risk plan for 2015. We  are well positioned to elevate risk management to become a competitive differentiator. 165 NedbaNk LIMITed annual reportBoARD oF DIRECToRS at 1 January 2015 DR REUEL KHoZA VASSI NAIDoo Effective 1 May 2015 MIKE BRoWN DAVID ADoMAKoH ESTABLISHED leADerSHIp teAMS Vassi was previously Chief Executive of Deloitte Southern Africa from 1998 to 2006, a member of the Deloitte UK Executive from 2006 to 2009 and a member of Deloitte Global Executive from 2007 to 2011, and thereafter Vice Chairman of Deloitte UK from 2009 to 2014. Vassi is a member of the South African Institute of Chartered Accountants, with honorary life membership granted in 2011 for his contribution to the development of the profession in SA. He is also a member of the Institute of Chartered Accountants in England and Wales. Committee membership: with effect from 1 May 2015: Group Directors’ Affairs Committee Mike Brown 48 Chief executive South African qualifications: BCom, DipAcc, CA (SA), CD (SA), AMp (Harvard Business School, USA) Mike was appointed as Chief Financial officer in June 2004 and as Chief Executive in March 2010. Mike was previously an executive director of BoE Limited and, after the merger between Nedbank Limited, BoE Limited, Nedbank Investment Bank Limited and Cape of Good Hope Bank Limited, was appointed Head of property Finance at Nedbank Limited. Committee membership: Large-exposure Approval Committee, Group Credit Committee, Group Risk and Capital Management Committee Holds 389 601 Nedbank Group Limited ordinary shares. David Adomakoh 49 non-executive Director Ghanaian qualifications: BSc (Econs)(Hons) (London School of Economics), Diplome de Langue et de Civilisation (La Sorbonne, Université de paris) David joined the board as an independent non-executive director on 21 February 2014. David is currently the Chairman of Tiso Investment Holdings (pty) Ltd and a cofounder of Tiso Group, where he served as Group Managing Director. He is a former director of Chase Manhattan Limited, London; Head of the Chase Manhattan Bank, Southern Africa; Executive Director of Robert Fleming SA; and Head of Africa Corporate Finance at Jp Morgan. He currently serves as a non-executive director of Kagiso Tiso Holdings (pty) Ltd, and the Chairman of the Investment Committee. He also serves as a non-executive director of Idwala Industrial Holdings, African Explosives Limited, Aveng (Africa) Limited and Trident Steel. His experience spans 25 years in executive management and investment banking, and includes principal investing, corporate and project finance advisory work, debt capital raising, and financial derivatives in a number of countries predominantly in Africa and Europe. He has also served on the boards of a number of SA, Nigerian and Ghanaian companies. He is a founding trustee of the Tiso Foundation, and a World Fellow of the Duke of Edinburgh’s International Award. Committee membership: Group Transformation, Social and Ethics Committee Reuel Khoza 65 non-executive Chairman South African qualifications: BA(Hons) psychology (University of Limpopo), MA Marketing Management (Lancaster, UK), EngD (Warwick, UK), IpBM-IMD (Lausanne, Switzerland), programme for Management Development (pMD) (Harvard Business School, USA), LLD(hc) Rhodes, CD (SA) Reuel joined the board as a non-executive director in August 2005 and was appointed as non-executive Chairman of the group in May 2006. Reuel is currently the Chairman of Aka Capital (pty) Ltd, and a non-executive director of Nampak Limited, protea Group Limited and old Mutual plc. He is president of the Institute of directors and, in this capacity, served on the King II and King III Committees on Corporate Governance. He is a founding director of the Black Management Forum and the former Chairman of Eskom Holdings Limited. Reuel is also the Chancellor of the University of Limpopo. Committee membership: Group Directors’ Affairs Committee (Chairman) Holds 14 774 Nedbank Group Limited ordinary shares. Vassi Naidoo 60 non-executive Director and Chairman designate with effect from 1 May 2015 South African qualifications: CA (SA), ACA and pMD (Harvard Business School, USA) Vassi has been appointed to the Nedbank Group Limited and Nedbank Limited boards as a non-executive director and Chairman designate with effect from 1 May 2015. Vassi has also been appointed as a non-executive director of old Mutual plc with effect from 1 May 2015. 166 ToM BoARDMAN BRIAN DAMES GRAHAM DEMpSTER MUSTAQ ENUS-BREY IAN GLADMAN Tom Boardman 65 non-executive Director South African qualifications: BCom, CA (SA) Tom was appointed to the board as an executive director in November 2002, and was Chief Executive from December 2003 to February 2010, after which he was appointed as a non-executive director. From 1 January 2014 Tom was classified as an independent non-executive director. Tom was previously Chief Executive and an executive director of BoE Limited, one of SA’s leading private and investment banking companies and which was acquired by Nedbank in 2002. He was the founding shareholder and Managing Director of retail housewares chain Boardmans, which he sold to pick n pay Stores Limited in 1986. Before this he was Managing Director of Sam Newman Limited and worked for Anglo American Corporation Limited for three years. He served his articles at Deloitte. He is also a non-executive director of Woolworths Holdings Limited, Royal Bafokeng Holdings (pty) Ltd and African Rainbow Minerals Limited. Tom has also been appointed as a non-executive director of Kinnevik, a listed Swedish investment company. He is a director of the peace parks Foundation and the Chairman of the David Rattray Foundation, and serves as a trustee on a number of other charitable foundations. Committee membership: Group Information Technology Committee (Chairman), Group Audit Committee, Group Credit Committee (Chairman), Large-exposure Approval Committee, Group Finance and oversight Committee, Group Directors’ Affairs Committee Holds 22 605 Nedbank Group Limited ordinary shares and 158 000 Nedbank Limited preference shares. Brian Dames 49 non-executive Director South African qualifications: BSc(Hons), MBA Brian joined the board as an independent non-executive director on 30 June 2014. previously Brian served as the Chief Executive of Eskom, the largest power utility in Africa and one of the largest utilities in the world and has extensive experience with global (and specifically with African and South African) energy and resource issues. Brian has demonstrated leadership in successful large-scale corporate turnaround management programmes, funding programmes, infrastructure build and deployment programmes, as well as in corporate governance and sustainability reporting. Brian is currently Chief Executive of African Rainbow Energy and power, serves as senior adviser to Mckinsey & Company and a member of the Sustainability Energy for All Executive Committee (UN and World Bank initiative) and serves as a non-executive director of the Industrial Development Corporation of South Africa Limited. Committee membership: Group Information Technology Committee, Group Credit Committee Graham Dempster 59 executive Director South African qualifications: BCom, CTA, CA (SA), AMp (Harvard Business School, USA) Graham was appointed Chief operating officer of Nedbank Group in August 2009 and became an executive director on the board. Graham joined the group in 1980 in the Corporate Finance Division of UAL Merchant Bank Limited. He was appointed General Manager in 1987 and Joint Head of the (UAL) Special Finance Division in 1989. In 1992 he was transferred to Nedbank Limited, and in 1998 he was appointed Head of the International Division. He assumed responsibility for the Corporate Banking Division in 1999 and was appointed Managing Director of Nedbank Corporate in 2003. Graham joined the Telkom board on 1 December 2014 and Imperial Holdings board on 24 February 2015 as a non- executive director. Holds 155 337 Nedbank Group Limited ordinary shares. Mustaq Enus-Brey 60 Non-executive Director South African qualifications: BCompt(Hons), CA (SA) Mustaq joined the board as a non-executive director in August 2005. He is also a director of Brimstone Investment Corporation Limited and oceana Group Limited, and the Chairman of Life Healthcare Limited. Committee membership: Group Risk and Capital Management Committee (Chairman), Group Credit Committee, Group Finance and oversight Committee, Large-exposure Approval Committee Holds 2 113 Nedbank Group Limited ordinary shares. Ian Gladman 50 non-executive Director British qualifications: BA(Hons) History (Christ’s College, Cambridge) Ian joined the board as a non-executive director in June 2002. Ian is currently the Group Strategy Director of old Mutual plc. previous positions held by him include Head of Corporate Finance (SA) and Joint Head: Financial Institutions Group, Europe, the Middle East and Africa (EMEA) at UBS, Investment Bank. Committee membership: Group Credit Committee, Group Risk and Capital Management Committee, Group Finance and oversight Committee, Large-exposure Approval Committee 167 annual reportNedbaNk LIMITedESTABLISHED LEADERSHIp TEAMS (continued) pAUL HANRATTY MpHo MAKWANA MANTSIKA MATooANE NoMAVUSo MNxASANA RAISIBE MoRATHI Paul Hanratty 53 non-executive Director Irish qualifications: BBusSci(Hons), Fellow of the Institute of Actuaries paul joined the board as a non-executive director on 8 August 2014. paul is an executive director and the Chief operating officer of old Mutual plc. He started his career with old Mutual South Africa (oMSA) and has held a number of roles at old Mutual. These included Head of product Development; General Manager: Finance and Actuarial; and Head of the Retail business. He joined the board of the oMSA life business (oMLACSA) in 2003 and became Managing Director of oMSA in 2006 and was appointed as Chairman of oMSA in September 2009. Committee membership: Group Transformation, Social and Ethics Committee Mpho Makwana 44 non-executive Director South African qualifications: BAdmin(Hons) Mpho joined the board as an independent non-executive director on 17 November 2011. Mpho is the immediate past Chairman of Eskom Holdings Limited, an independent director of Adcock Ingram Limited, and the Chairman of ArcelorMittal SA Limited. Committee membership: Group Remuneration Committee (Chairman), Group Transformation, Social and Ethics Committee, Group IT Committee, Group Audit Committee, Group Directors’ Affairs Committee Mantsika Matooane 39 non-executive Director South African qualifications: MBA (Henley Business School, UK), phD in Computer Science (University of Cambridge, UK) Mantsika joined the board as an independent non-executive director on 15 May 2014. Mantsika currently serves as Group Executive: Enterprise Information Management Services at Transnet SoC Limited, and serves as a non-executive director of JSE Limited and NMG Consultants and Actuaries (pty) Ltd. Committee membership: Group Information Technology Committee Holds 176 Nedbank Group Limited ordinary shares. Nomavuso Mnxasana 58 non-executive Director South African qualifications: BCompt(Hons), CA (SA) Nomavuso joined the board as an independent non-executive director in october 2008. She is currently a director at Winhold Limited, JSE Limited, Transnet SoC and Land and Agricultural Development Bank of SA Limited (Land Bank). She was a senior partner and member of the executive committee of SizweNtsaluba before serving as Group Audit and Risk Executive at Imperial Holdings Limited. Committee membership: Group Audit Committee, Group Remuneration Committee, Group Risk and Capital Management Committee. Holds 11 620 Nedbank Group Limited ordinary shares. Raisibe Morathi 45 Chief Financial officer South African qualifications: BCompt(Hons), CA (SA), HDip Tax, AMp (INSEAD) Raisibe was appointed as Chief Financial officer of the group in September 2009, and held senior positions in banking and insurance over the past 20 years. Before joining Nedbank Group Raisibe was an executive director of one of the listed insurance companies. She previously held several executive positions at the Industrial Development Corporation of SA Limited, the last position being Chief operating officer. Committee membership: Large-exposure Approval Committee, Group Credit Committee Holds 211 337 Nedbank Group Limited ordinary shares. Joel Netshitenzhe 58 non-executive Director South African qualifications: MSc in Financial Economics (University of London-SoAS, UK) Joel joined the board as an independent non-executive director in August 2010. He is currently an executive director of the Mapungubwe Institute for Strategic Reflection (Mistra) and a member of the National planning Commission. He has been a member of the National Executive Committee of the African National Congress since 1991, and serves on the African National Congress’s Economic Transformation and political Education subcommittees. He served as Head of policy Coordination and Advisory Services in the presidency from 2001 until December 2009. He was previously Chief Executive of the Government Communication and Information System and also served as Head of Communication in the president’s office. 168 JoEL NETSHITENZHE MFUNDo NKUHLU JULIAN RoBERTS GLoRIA SERoBE MALCoLM WYMAN He is a non-executive director on the board of Life Healthcare Group Holdings Limited. Committee membership: Group Risk and Capital Management Committee, Group Information Technology Committee Mfundo Nkuhlu 48 Chief operating officer South African qualifications: BA(Hons), Strategic Management in Banking (INSEAD), AMp (Harvard Business School, USA) Mfundo was appointed to the board as Chief operating officer in January 2015. Mfundo joined the group as Head of Nedbank Africa in 2004 and became Head of Corporate Banking in 2005. He became a member of the Group Executive Committee (Group Exco) in 2008 and Managing Executive Nedbank Corporate in 2009. As a member of the Group Exco, Mfundo was closely involved in the oversight of the business strategies across Nedbank and delivered strong and consistent performance in Nedbank Corporate. Before joining Nedbank, Mfundo was the executive responsible for strategy, revenue and economic analysis at the South African Revenue Service (SARS) and Chief Director in the dti responsible for Africa and NEpAD. Committee membership: Group Credit Committee Holds 129 305 Nedbank Group Limited ordinary shares. Julian Roberts 57 non-executive Director British qualifications: Fellow of Institute of Chartered Accountants, member of Association of Corporate Treasurers, Accountancy and Business Law (University of Stirling, Scotland) Julian joined the board as a non-executive director in December 2009. He was appointed as the Group Chief Executive of old Mutual plc in September 2008 and is also Chairman of New York Stock Exchange- listed old Mutual Asset Management. Before this he was Chief Executive of the old Mutual Group’s Skandia business. Julian originally joined old Mutual plc as Group Finance Director in August 2000. Before joining old Mutual plc, he was Group Finance Director of Sun Life & provincial Holdings plc (now part of AxA) and, prior to that, Chief Financial officer of AoN UK Holdings Limited. Committee membership: Group Directors’ Affairs Committee, Group Remuneration Committee Gloria Serobe 55 non-executive Director South African qualifications: BCom (Unitra), MBA (Rutgers, USA) Gloria joined the board as a non-executive director in August 2005. Gloria is currently the Chief Executive of Wipcapital and also founder and Executive Director of WIpHoLD. She was previously the Executive Director of Finance at Transnet SoC Limited. Gloria serves on several boards, including that of Sasol Mining and Ixia Coal. She is the Chairman of the board of the Independent ports Regulator. She is also a non-executive director of old Mutual Emerging Markets Limited. Committee membership: Group Transformation, Social and Ethics Committee (Chairman), Group Credit Committee, Large-exposure Approval Committee Malcolm Wyman 68 Senior Independent non-executive Director British qualifications: CA (SA), AMp (Harvard Business School, USA) Malcolm joined the board as an independent non-executive director in August 2009 and was appointed as the Senior Independent Director on 6 May 2011. Malcolm was previously an executive director and the Chief Financial officer of SABMiller plc until August 2011. He was also previously a non-executive director of Tsogo Sun Holdings Limited until August 2014. He is a non-executive director and Chairman of the Audit Committee of Imperial Tobacco Group plc as well as Serco Group plc, which are both listed on the London Stock Exchange. Committee membership: Group Audit Committee (Chairman), Group Risk and Capital Management Committee, Group Directors’ Affairs Committee, Group Remuneration Committee, Group Finance and oversight Committee (Chairman) 169 annual reportNedbaNk LIMITedNoTICE oF oUR ANNUAL GENERAL MEETING nedbank limited (Incorporated in the republic of South Africa) reg no 1951/000009/06 JSe share code: nBKp ISIn: ZAe0000043667 (‘nedbank’ or ‘the company’) This notice is sent to holders of Nedbank non-redeemable non-cumulative non-participating preference shares (‘perpetual preference shares’) and the holders of the Class A and Class B redeemable cumulative preference shares (collectively hereafter referred to as ‘the preference shares’) for information only. In terms of article 44.8 of the memorandum of incorporation of Nedbank, the holders of the perpetual preference shares will not be entitled to be present or to vote, either in person or by proxy, at any meeting of the company by virtue of or in respect of the perpetual preference shares, unless either or both of the following circumstances prevail at the date of the meeting: ■ the preference dividend or any part thereof remains in arrears and unpaid after six (6) months from the due date thereof; and ■ a resolution of the company is proposed (in which event the preference shareholders will be entitled to vote only on such resolution) that directly affects the rights attached to the preference shares or the interests of the holders thereof, including a resolution for the winding up of the company or for the reduction of its capital. In terms of articles 45.9 and 46.9 the holders of the Class A and Class B redeemable cumulative preference shares (‘redeemable preference shares’) respectively, are entitled to receive notice and attend the annual general meeting, but will not be entitled to speak or vote thereat, unless the circumstances as recorded in these articles prevail at the date of the meeting. Notice is hereby given to shareholders recorded in the securities register of Nedbank on Friday, 20 March 2015, that the annual general meeting of shareholders will be held in the Executive Boardroom, Ground Floor, Block A, Nedbank 135 Rivonia Campus, 135 Rivonia Road, Sandown, Sandton, on Thursday, 7 May 2015, at 15:00 to deal with such business as may lawfully be dealt with at the meeting and to consider and, if deemed fit, pass, with or without modification, the ordinary and special resolutions set out hereunder in the manner required by the Companies Act, 71 of 2008 (as amended) (‘the Companies Act’), as read with the Listings Requirements of JSE Ltd (’the JSE Listings Requirements‘), which meeting is to be participated in and voted at by shareholders recorded in the company’s securities register on the record date of Thursday, 30 April 2015. The quorum requirement for the ordinary and special resolutions set out below is sufficient persons being present to exercise, in aggregate, at least 25% of all voting rights that are entitled to be exercised on the resolutions, provided that at least three shareholders of the company are present at the annual general meeting. The percentage of voting rights required to pass the ordinary resolutions is more than 50% of the voting rights exercised, and the percentage of voting rights required to pass the special resolutions is at least 75% of the voting rights exercised thereon. Meeting participants (including proxies) will be required to provide reasonably satisfactory identification before being entitled to attend or participate in the meeting. Forms of identification include valid identity documents, driving licences and passports. AGENDA 1 Presentation of annual financial statements and reports The annual financial statements of the company, incorporating inter alia the Directors’ Report and the Auditors’ Report, for the financial year ended 31 December 2014, have been distributed as required and will be presented to the shareholders as required in terms of the Companies Act. The complete set of the consolidated audited annual financial statements, together with the reports, are contained in the annual report. 2 Ordinary dividends To note the dividends of R2 600 000 000,00 declared and paid on 31 March 2014 and R800 000 000,00 declared and paid on 2 September 2014 to the sole shareholder holding the issued ordinary shares for the period 1 January 2014 to 31 December 2014. 3 Dividends on perpetual preference shares To note preference dividend number 23 of 36,86072 cents per share declared for the period from 1 January 2014 to 30 June 2014, paid on Monday, 1 September 2014, to shareholders of the non-redeemable non-cumulative non-participating preference shares recorded in the books of the company at the close of business on Friday, 29 August 2014, and preference dividend number 24 of 38,76140 cents per preference share declared for the period from 1 July 2014 to 31 December 2014 and payable on Monday, 23 March 2015. 4 Dividends on Class A and Class B redeemable cumulative preference shares To note and confirm the preference dividend of R97 681,23 declared and paid on 19 February 2014 and R114 833,69 declared and paid on 30  July  2014 on the Class A redeemable cumulative preference shares and the preference dividend of R256 866,22 declared and paid on 19 February 2014 and R187 723,38 declared and paid on 30 July 2014 on the Class B redeemable cumulative preference shares, respectively in accordance with the terms of the preference share subscription and participation agreement entered into between Nedbank, IBL Asset Finance and Services Limited, Imperial Holdings Limited and Associated Motor Holdings proprietary, Limited to the shareholders respectively holding the Class A and Class B redeemable cumulative preference shares. 5 Retirement To note the retirement of those non-executive directors of Nedbank who have served on the board for a period longer than nine years and who therefore, in terms of Nedbank Group policy, are required to retire. Dr RJ Khoza (Chairman), Mr MA Enus-Brey and Mrs GT Serobe were appointed to the Nedbank board on 16 August 2005 and they will retire at the close of the Nedbank Group Limited annual general meeting on 11 May 2015. The board has resolved to elect Mr V Naidoo as Chairman of Nedbank immediately after the close of the Nedbank Group annual general meeting on 11 May 2015, subject to Nedbank shareholders electing him as a non-executive director in terms of ordinary resolution 7.4. Mr GW Dempster has reached the retirement age for executive directors and he retires from the board at the close of the Nedbank Group annual general meeting on 11 May 2015. 170 RESoLUTIoNS 6 Ordinary resolution 1 Reelection of directors of the Company To resolve to reelect those directors that will retire by rotation in terms of the memorandum of incorporation of the company and, being eligible, make themselves available for reelection as directors of the company, each by way of a separate vote. Biographical details of the directors to be reelected are set out on pages 166 to 169 of the 2014 Nedbank Annual Report available at nedbankgroup.co.za. 6.1 ‘To resolve that Mr PM Makwana be and is hereby reelected as a director of the company.’ 6.2 'To resolve that Mrs NP Mnxasana be and is hereby reelected as a director of the company.’ 7 Ordinary resolution 2 Election of directors of the company appointed during the year During the year the board of directors appointed Dr MA Matooane and Messrs BA Dames, pB Hanratty, V Naidoo and MC Nkuhlu as directors of the company. These directors retire in terms of the memorandum of incorporation of the company and, being eligible, make themselves available for election. Biographical details are set out on pages 166 to 169 of the 2014 Nedbank Annual Report. 7.1 ‘To resolve that Mr BA Dames be and is hereby elected as a director of the company.’ 7.2 ‘To resolve that Mr PB Hanratty be and is hereby elected as a director of the company.’ 7.3 ‘To resolve that Dr MA Matooane be and is hereby elected as a director of the company.’ 7.4 ‘To resolve that Mr V Naidoo be and is hereby elected as a director of the company.’ 7.5 ‘To resolve that Mr MC Nkuhlu be and is hereby elected as a director of the company.’ 8 Ordinary resolution 3 Reappointment of external auditors Following an evaluation of the performance of Deloitte & Touche and KpMG Inc., the Nedbank Group Audit Committee and board recommends the reappointment of the auditors on a joint basis. If either resolution 8.1 or resolution 8.2 is not passed, the resolution which is passed shall be effective. 8.1 ‘Resolved that Deloitte and Touche (with Mr M Jordan as designated registered auditor) be and are hereby reappointed as auditors to hold office from the conclusion of the annual general meeting until the conclusion of the next annual general meeting of Nedbank.’ 8.2 ‘Resolved that KPMG Inc (with Ms H Berrange as designated registered auditor) be and are hereby reappointed as auditors to hold office from the conclusion of the annual general meeting until the conclusion of the next annual general meeting of Nedbank.’ 9 Ordinary resolution 4 External auditors remuneration ‘To resolve that the Nedbank Group Audit Committee be and is hereby authorised to determine the remuneration and the terms of engagement of the auditors of the company. 10 Ordinary resolution 5 Control of authorised, but unissued shares ‘To resolve that the authorised, but unissued, shares in the authorised share capital of Nedbank be and are hereby placed under the control of the directors to issue these shares, in such numbers and on such terms and conditions and at such times and at such prices as they deem fit, subject to the provisions of the Companies Act, and the JSE Listings Requirements.’ 11 Advisory endorsement of remuneration policy ‘To endorse through a non-binding advisory vote that in terms of ‘The Revised King Code and Report on Governance for South Africa’ (King III), as published in September 2009, shareholders, as required, hereby approve the remuneration policy of the company and its implementation as adopted by the Nedbank Group’s Remuneration Report, a copy of which appears on pages 122 to 151 of the 2014 Nedbank Annual Report.’ 12 Special resolution 1 Remuneration of non-executive directors ‘To resolve that the non-executive directors’ fees for their services as directors, in accordance with the company’s remuneration policy, as set out in the Remuneration Report contained in the annual financial statements, be and are hereby approved’. 13 Special resolution 2 General authority to provide financial assistance to related and interrelated companies ‘To resolve that, subject to the provisions of the Companies Act, the shareholders of the company hereby approve, as a general approval, the company providing direct or indirect financial assistance (‘financial assistance’) as contemplated in sections 44 and 45 of the Companies Act, whether in the form of advances for expenses, assisting with administration of transactions, loans, loan facilities, extending credit, discharging debts, performing obligations, contractual undertakings, sureties, guarantees, guarantee facilities, mortgages, pledges, cessions, bonds, charges or otherwise, on such terms as may be authorised by the board of directors of the company having regard to the funding and commercial requirements of the Nedbank group of companies (the ‘ Group’) as contemplated in the Companies Act from time to time and in accordance with the following: 171 annual reportNedbaNk LIMITed NoTICE oF oUR ANNUAL GENERAL MEETING (continued) 1 2 3 4 5 6 the financial assistance can be provided to any company that is currently, or in the future, ‘related’ to ‘interrelated’ with the company (and any person ‘related’ to any of such companies) as contemplated by the Companies Act or any other person (a ‘recipient’) (which, for the avoidance of doubt, excludes financial assistance provided to any directors or prescribed officers of the company or of any such recipients); the financial assistance may be provided for the purpose of, or in connection with, the subscription to any option, or any securities, issued or to be issued by the company or a company related to or interrelated with the company or for the purchase of any securities of the company or a company or corporation that is related to or interrelated with the company as contemplated in section 44 of the Companies Act or any other purpose regulated by section 45 of the Companies Act; authorisation by the board of any financial assistance pursuant to this resolution must be provided within a period of two years following the date of the adoption of this special resolution; any related corporate action must be duly authorised in compliance with the JSE Listings Requirements and the Companies Act, and the Banks Act where applicable; this approval is subject to the board complying with sections 44 and 45 of the Companies Act; and nothing in these terms and conditions will limit the provision by the company of the financial assistance that does not require approval by way of a special resolution of the shareholders in terms of sections 44 and 45 of the Companies Act or falls within any exemption provided in these sections.’ This resolution, if adopted, will have the effect of authorising the provision of the described financial assistance by the company to companies ‘related’ to and ‘interrelated’ with the company and persons ‘related’ to such companies (subject to the conditions set out in the resolution) if the board of directors decides it is desirable to do so. The effects of providing such financial assistance will depend on the nature of the financial assistance and the purpose for which it is used. VoTING BY pRoxY A shareholder entitled to attend and vote at the annual general meeting may appoint a proxy or proxies to attend, speak and vote or abstain from voting in his/her/its/their stead. A proxy need not be a shareholder of the company. Completed proxy forms are requested to be received at the office of the transfer secretaries no later than 24 hours before the time appointed for the holding of the annual general meeting. By order of the board tSB Jali Company Secretary Sandown 20 February 2015 172 FoRM oF pRoxY Nedbank Limited (Incorporated in the Republic of South Africa) Reg No 1951/000009/06 JSE share code: NBKp ISIN” ZAE000043667 (‘the company’) To be used by the holders of voting rights on ordinary shares I/We of (address) being the holder(s) of ordinary shares in the company, appoint (see note 1): 1 2 or failing him/her or failing him/her the chairman of the annual general meeting as my/our proxy to act for me/us and on my/our behalf at the annual general meeting that will be held in the Executive Boardroom, Ground Floor, Block A, Nedbank 135 Rivonia Campus, 135 Rivonia Road, Sandown, Sandton, on Thursday, 7 May 2015, at 15:00, for the purpose of considering and, if deemed fit, passing with or without modification as ordinary and special resolutions to be proposed thereat and at any adjournment thereof, and to vote for and/or against such resolutions and/or to abstain from voting in respect of the ordinary shares registered in my/our name(s), in accordance with the following instructions: Number of votes (one vote per ordinary share) For Against Abstain Resolutions 1.1 1.2 2.1 2.2 2.3 Reelection as a director of Mr pM Makwana, who is retiring by rotation Reelection as a director of Mrs Np Mnxasana, who is retiring by rotation Election of Mr BA Dames, who was appointed as a non-executive director since the previous annual general meeting of shareholders Election of Mr pB Hanratty, who was appointed as a non-executive director since the previous annual general meeting of shareholders Election of Dr MA Matooane, who was appointed as a non-executive director since the previous annual general meeting of shareholders 2.4 Election of Mr V Naidoo, who was appointed as a non-executive director since the previous annual general meeting of shareholders 2.5 Election of Mr MC Nkuhlu, who was appointed as an executive director since the previous annual general meeting of shareholders 3.1 Reappointment of external auditors 4 5 6 7 8 Determination of the remuneration of the external auditors placing of unissued shares under the control of the directors Advisory endorsement of Remuneration policy Special Resolutions Remuneration of non-executive directors General authority to provide financial assistance to related and interrelated companies on a show of hands a person entitled to vote is only entitled to one vote irrespective of the number of the relevant Nedbank shares he/she holds or represents. on a poll, a person entitled to vote at the annual general meeting present in person or by proxy/proxies is entitled to that proportion of the total votes in the company that the aggregate amount of the nominal value of the Nedbank shares held or represented by him/her bears to the aggregate amount of the nominal value of all the Nedbank shares issued by the company and carrying the right to vote. A proxy/proxies may delegate his/her/their authority in terms of this proxy to another person. This proxy form will lapse and cease to be of force and effect immediately after the annual general meeting of the company to be held in the Executive Boardroom, Ground Floor, Block A, Nedbank 135 Rivonia Campus, 135 Rivonia Road, Sandown, Sandton on Thursday, 7 May 2015, at 15:00 or at any adjournment thereof, unless it is revoked earlier. Signed at (place) Signature Assisted by me (where applicable) please read the notes on the reverse side hereof. on (date) 2015 173 annual reportNedbaNk LIMITedNoTES To FoRM oF pRoxY SUMMARY oF RIGHTS oF A HoLDER To BE REpRESENTED BY pRoxY AS CoNTAINED IN SECTIoN 58 oF THE CoMpANIES ACT AND NoTES To FoRM oF pRoxY 1 Each holder entitled to attend and vote at the annual general meeting is entitled to appoint one or more individuals as proxy/proxies (who need not be person(s) entitled to vote at the annual general meeting) to attend, participate in, speak and vote or abstain from voting in place of that holder at the annual general meeting. 2 3 4 5 6 7 8 9 10 The proxy/proxies may delegate the authority received from the holder to a further person, subject to any restriction set out in this form of proxy. A proxy appointment must be in writing, dated and signed by the holder appointing the proxy/proxies. A holder may insert the name of a proxy or the names of two alternative proxies of the holder’s choice in the space provided, with or without deleting ‘the chairman of the annual general meeting’. The person whose name stands first on this form of proxy and who is present at the annual general meeting will be entitled to act as proxy to the exclusion of the persons whose names follow. Further, a holder may appoint more than one proxy to exercise voting rights attached to different securities held by that holder. A holder’s instructions to the proxy/proxies have to be indicated by the insertion of the relevant number of votes exercisable by that holder in the appropriate box provided. Failure to comply with this will be deemed to authorise the chairman of the annual general meeting, if the chairman is the authorised proxy, to vote in favour of the ordinary and special resolutions at the annual general meeting, or the appointed proxy/proxies to vote or to abstain from voting at the annual general meeting, without direction as he/she/they deem(s) fit, in respect of all the holder’s votes exercisable thereat. A holder or his/her proxy/proxies is/are not obliged to vote in respect of all the ordinary shares held by such holder or represented by such proxy/proxies, but the total number of votes for or against the ordinary and special resolutions and in respect of which any abstention is recorded may not exceed the total number of votes to which the holder or his/her proxy/proxies is/are entitled. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity has to be attached to this form of proxy, unless previously recorded by the company’s transfer secretaries or waived by the chairman of the annual general meeting. Examples of satisfactory identification include a valid identity document, a valid driver’s licence or a valid passport. Any alterations or corrections to this form of proxy shall be initialled by the signatory/signatories. The completion and lodging of this form of proxy shall not preclude the relevant holder from attending the annual general meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such holder wish to do so, in which case this proxy shall be suspended accordingly. Forms of proxy have to be lodged with or posted to the Company Secretary’s office (for the attention of Ms Jackie Katzin, Block A, Ground Floor, Nedbank 135 Rivonia Road Campus, 135 Rivonia Road, Sandown, Sandton, 2196 or po Box 1144, Johannesburg, 2000) or the company’s transfer secretaries in South Africa, namely Computershare Investor Services proprietary Limited (‘Computershare’), 70 Marshall Street, Johannesburg, 2001 (po Box 61051, Marshalltown, 2107). The forms of proxy are requested to be received no later than 15:00 on Wednesday, 6 May 2015. Forms of proxy can also be submitted by fax to Computershare (fax number +27 (0)11 688 5238), subject to the proxy instructions meeting all other criteria. Any form of proxy not received by the company or the company’s transfer secretaries in accordance with the above, must be handed to the Company Secretary at the annual general meeting before a proxy/proxies may exercise any voting rights of a holder at the annual general meeting. 11 This form of proxy may be completed by: 11.1 those holders who are holding Nedbank shares in a certificated form; or 11.2 those holders who are recorded in the subregister as holding Nedbank shares in dematerialised electronic form in their own name; or 11.3 persons who are not shareholders but who are entitled to exercise any voting rights (irrespective of the form, title or nature of the securities to which those voting rights are attached) as at the record date at this annual general meeting. 12 13 14 15 Holders of Nedbank ordinary shares (whether certificated or dematerialised) through a nominee should timeously make the necessary arrangements with that nominee or, if applicable, participant (previously referred to as central securities depository participant) or broker on how they wish their votes to be cast on their behalf at the annual general meeting. As far as holdings in a participant are concerned, these will be guided by the terms of the agreement entered into between shareholders and their participant or broker. Holders attending the annual general meeting will be afforded the opportunity of putting questions to the directors and management. A perforated question form has been included for this purpose. If this form of proxy has been delivered to the company in accordance with paragraph 10, as long as that appointment remains in effect, any notice that is required by the Companies Act or the company’s memorandum of incorporation to be delivered by the company to a holder must be delivered by the company to the holder or, alternatively, if a holder has directed the company to do so in writing and has paid any reasonable fees charged by the company for doing so, to such holder’s proxy/proxies. Save if a holder provides in this proxy form that a proxy appointment is irrevocable, a holder may revoke the proxy appointment by: (i) cancelling it in writing, or making a later inconsistent appointment of a proxy/proxies; and (ii) delivering a copy of the revocation instrument to the proxy/ proxies and to the Company Secretary’s office at Nedbank 135 Rivonia Campus, 135 Rivonia Road, Sandown, Sandton, 2196, for attention Jackie Katzin, to be received before the replacement proxy/proxies exercise(s) any rights of the holder at the annual general meeting of the company or any adjournment thereof. 16 The revocation of a proxy appointment constitutes a complete and final cancellation of the proxy’s/ proxies’ authority to act on behalf of the holder as of the later of: (i) the date stated in the revocation instrument, if any; or (ii) the date on which the revocation instrument was delivered as required in paragraph 15 above. 174 terMS uSeD In our report Advanced internal ratings-based approach The advanced Internal Ratings-Based (AIRB) Approach is subject to supervisory approval where a bank may use its internal developed credit risk measurement systems to calculate the capital requirements for credit risk. Advanced measurement approach The Advanced Measurement Approach (AMA) allows a bank to calculate its regulatory capital charge (using internal models) based on internal risk variables and profiles. This is the only risk-sensitive approach for operational risk allowed in Basel II. Assets under management These are assets managed by Nedbank Group, beneficially owned by clients and therefore not reported on the consolidated balance sheet; advances that have been either fully or partially utilised by a borrower. Automated teller machine An automated teller machine (ATM) is a cash machine or a free- standing cash dispensing device that may also provide other information or services for clients who have a card and a personal identification number, a password or other personal identification. Banks This asset class covers all exposures to counterparties treated as banks. Basel capital accord The new Basel Capital Accord (Basel II) of the Bank for International Settlements is an improved capital adequacy framework accomplished by closely aligning banks’ capital requirements with improved modern risk management practices and sophisticated risk assessment capabilities. It further ensures the risk sensitivity of the minimum capital requirements by including supervisory reviews and market discipline through enhanced disclosure. Basel asset classes (as categorised in the BA 200 return) Corporate Corporate exposures Corporate exposures are a debt obligation of a corporation, partnership or proprietorship. Banks are permitted to distinguish separately exposures to small and medium-sized enterprises. Specialised lending high-volatility commercial real estate High-volatility commercial real estate (HVCRE) lending is the financing of commercial real estate that exhibits higher-loss-rate volatility compared with other types of specialised lending. Specialised lending income-producing real estate Income-producing real estate (IpRE) refers to a method of providing funding for real estate (such as office buildings to let, retail space, multifamily residential buildings, industrial or warehouse space and hotels) where the prospects for repayment and recovery on the exposure depend primarily on the cashflows generated by the asset. The primary source of these cashflows would generally be lease or rental payments or the sale of the asset. Specialised lending object finance object finance (oF) refers to a method of funding the acquisition of physical assets (eg ships, aircraft, satellites, rolling stock, and fleets) where the repayment of the exposure is dependent on the cashflows generated by the specific assets that have been financed and pledged. Specialised lending commodities finance Commodities finance (CF) refers to structured short-term lending to finance reserves, inventories, or receivables of exchange-traded commodities (eg crude oil, metals or crops), where the exposure will be repaid from the proceeds of the sale of the commodity. Specialised lending project finance project finance (pF) is a method of funding where the lender looks primarily to the revenues generated by a single project, both as the source of repayment and as security for the exposure. This type of financing is usually for large, complex and expensive installations, for example power plants, chemical-processing plants and mines. Small and medium enterprises corporate This asset class covers all exposures to small and medium enterprises (SME) that are classified as corporate, based on criteria prescribed by the Regulator. Purchased receivables corporate This asset class covers all receivables classified as corporate exposures that are purchased for in asset-backed securitisation structures, but banks may also use this approach with the approval of national supervisors for appropriate on-balance-sheet exposures that share the same features. inclusion Public sector entities This asset class covers all exposures to enterprises that are wholly or majority owned by the central government, eg Eskom and Transnet. Local governments and municipalities This asset class covers all exposures to metropolitan councils, district councils and municipalities. Sovereign (including central government and central bank) This asset class covers all exposures to counterparties treated as central government. Securities firms This asset class covers all exposures to enterprises regulated by a recognised authority and trading in securities. Retail exposures Retail mortgages (including home equity line of credit) This asset class covers all mortgage advances or credit lines to individuals that are fully secured by a mortgage over residential property. Retail revolving credit This involves exposures to individuals that are revolving, unsecured, and committed (both contractually and in practice). In this context, revolving exposures may be defined as those in respect of which clients’ outstanding balances are permitted to fluctuate based on their decisions to borrow and repay up to a limit established by the bank. Retail other This asset class covers all non-revolving exposures (excluding mortgage advances) to individuals. Small and medium enterprises retail This asset class covers all exposures to SMEs that are classified as retail, based on criteria prescribed by the regulator. Purchased receivables – retail This asset class covers all receivables classified as retail exposures and are purchased for inclusion in asset-backed securitisation structures, but banks may also use this approach with the approval of national supervisors for appropriate on-balance-sheet exposures that share the same features. Black economic empowerment transaction Nedbank Group’s black economic empowerment (BEE)  transaction, which focused primarily on the issuing of shares to BEE partners for the purposes of broad-based black economic empowerment (BBBEE), equating to approximately 9,3% (43 618 748 shares) of total share capital and equating to black ownership of 11,5% of the value of Nedbank Group’s SA businesses in 2005. Nedbank Namibia’s BEE transaction, which focused primarily on the issuing of shares to BEE partners and affinity groups for the purposes of BEE in Namibia, equating to approximately 0,14% (665 680 shares) of total share 175 annual reportNedbaNk LIMITedTERMS USED IN oUR REpoRT (continued) capital of Nedbank Group Limited and equating to black ownership of 11,13% of the value of NedNamibia Holdings Limited, Nedbank Group’s Namibian business in 2006. Borrowing group A group of clients and their underlying loans and advances according to the per person definition of the ‘Regulations Related to Banks’. Capital adequacy ratio The capital adequacy of SA banks is measured in terms of the SA Banks Act requirements. one calculateds the ratio by dividing the primary (tier 1), secondary (tier 2) and tertiary (tier 3) capital by the risk- weighted assets. Group capital adequacy ratio Group capital adequacy is the ratio of group net qualifying capital and  reserve funds to total group risk-weighted assets as calculated according to the SA Banks Act requirements. Primary (tier 1) capital primary capital consists of issued ordinary share capital and perpetual preference share capital, qualifying perpetual callable hybrid capital, retained earnings and reserves, less regulatory deductions. Core tier 1 capital Core tier 1 capital is primary capital less any amount in non-core tier 1 capital, being perpetual preference share capital and qualifying, perpetual, callable hybrid capital. Secondary (tier 2) capital Secondary capital is made up of subordinated dated debt and certain types of perpetual callable debt, the excess amount in respect of eligible provisions, and 50% of any revaluation surplus less regulatory deductions. Tertiary (tier 3) capital Tertiary capital consists of capital obtained by way of unsecured subordinated loans, subject to any conditions that may be prescribed. CASHFLOW Financing activities Activities that result in changes to the capital structure of the group. Investment activities Activities relating to the acquisition, holding and disposal of property and equipment and long-term investments. Operating activities Activities that are not financing or investing activities and arise from the operations conducted by the group. Credit loss ratio Credit loss ratio is the impairments charge as a percentage of average advances. Defaulted advance This is any advance or group of advances that has triggered the relevant definition of default criteria for that portfolio that are in line with the amended Banks Act regulations relating to banks. For retail portfolios it is transaction-centred and therefore a default would be specific to an account (specific advance). For wholesale portfolios it is client- or borrower-centred, meaning that in the event any transaction within a borrowing group defaults, then all transactions within the borrowing group would be defaulted. Definition of default At a minimum, a default is deemed to have occurred where a material obligation is overdue for more than 90 days or an obligor exceeds an advised limit for more than 90 days. Deferred taxation assets Deferred taxation assets are the amounts of recoverable in future periods in respect of: income taxation Deferred taxation liabilities Deferred taxation liabilities are the amounts of income tax payable in future periods due to differences between the tax and accounting treatment of transactions. Direct taxation Direct taxation includes normal taxation on income, capital gains tax (CGT) and secondary tax on companies (STC). Dividend/Distribution cover Headline earnings per share divided by the dividend/distribution declared per share. Dividend/Distribution declared per share Dividend/Distribution declared per share is the actual interim dividend paid/capitalisation award issued and the final dividend declared/ capitalisation award declared for the period under consideration, expressed in cents. Dividend/Distribution paid/capitalised per share Dividend/Distribution paid/capitalised per share is the actual final dividend paid/capitalisation award issued for the prior year and the interim dividend paid/capitalisation award issued for the year under consideration, expressed in cents. Dividend yield Dividend/Capitalisation award declared per ordinary share as a percentage of the closing share price of ordinary shares. Downturn expected loss A stress-tested value for expected loss under downturn economic conditions that could have unfavourable effects on a bank’s credit exposures. dti codes The Codes of Good practice as promulgated on 9 February 2007 under section 9(1) of the Broad-based Black Economic Empowerment Act, 53 of 2003, establish the rules, targets and stipulations for the measurement of BBBEE within SA based on three scorecard classifications for organisations: emerging microenterprise (EME), qualifying small enterprise (QSE), or generic enterprise. Nedbank is scored as a generic enterprise under the published codes. Earnings per share Basic earnings basis Income attributable to equity holders for the period divided by the weighted average number of ordinary shares in issue (net of shares held by group entities) during the period. Headline earnings basis Headline earnings divided by the weighted average number of shares in issue (net of shares held by group entities) during the period. Fully diluted basis The relevant earnings figure is adjusted for the assumed adjustments to income that would have been earned on the issue of shares issued from dilutive instruments. The resultant earnings are divided by the weighted average number of ordinary shares and other dilutive instruments (ie potential ordinary shares) outstanding at the period- end, assuming they had been in issue for the period. Earnings yield Headline earnings per share as a percentage of the closing price of ordinary shares. Economic capital Economic capital (eCap) is the quantification of risk and an internal assessment of the amount of capital required to protect the group against economic losses with a desired level of confidence (solvency standard or default probability) over a one-year time horizon. In other words, it is the magnitude of economic losses the group could withstand while still remaining solvent. ■ deductible temporary differences due to differences between the taxation and accounting treatment of transactions; and Economic profit or loss Headline earnings after adjusting for cost of capital. ■ the carry forward of unused taxation losses. 176 Effective taxation rate The taxation charge in the income statement, excluding taxation relating to non-trading and capital items, as a percentage of profit before taxation. Efficiency ratio (cost-to-income ratio) Total expenses as a percentage of income from normal operations (net interest income plus non-interest revenue). Exposure at default Exposure at default (EAD) is an estimation of the extent to which a bank may be exposed to a counterparty in the event of, and at the time of, that counterparty’s default. Expected loss Expected loss (EL) is the expected value of portfolio losses due to default over a specified time horizon. Foreign exchange translation gains/losses The results and assets/liabilities of all foreign entities controlled by the group that have a rand-functional currency are translated at the closing exchange rate and the differences arising are recognised in the income statement as foreign exchange translation gains/losses. Headline earnings Headline earnings is not a measure of maintainable earnings. For purposes of the definition and calculation, the guidance given on headline earnings, as issued by the SA Institute of Chartered Accountants in circular 07/02 of December 2002, has been used. Headline earnings consist of the earnings attributable to ordinary shareholders excluding non-trading and capital items. International Financial Reporting Standards International Financial Reporting Standards (IFRS), as adopted by the International Accounting Standards Board (IASB), and interpretations issued by the Interpretations International Financial Reporting Committee (IFRIC) of the IASB. Nedbank Group’s consolidated financial results are prepared in accordance with IFRS. Impairments charge to average advances This is the impairments charge on loans and advances for the year divided by average advances; also known as the credit loss ratio or impairment ratio. Impairment of loans and advances Impairment of loans and advances arises where there is objective evidence that the group will not be able to collect an amount due. The impairment is the difference between the carrying amount and the estimated recoverable amount. Indirect taxation This is value-added tax (VAT) and other taxes, levies and duties paid to government, excluding direct taxation. ‘Jaws’ ratio This is the difference between the rate of growth in total income from normal operations and the rate of total expense growth. Johannesburg Interbank Agreed Rate The Johannesburg Interbank Agreed Rate (JIBAR) is the rate that SA banks charge each other for wholesale money. King II (the code) The King Report on Corporate Governance 2002 sets out principles of good corporate governance for SA companies and organisations. King III The revised King Code and Report on Corporate Governance for South Africa 2009 sets out revised principles of good corporate governance for SA companies. London Interbank Offered Rate The London Interbank offered Rate (LIBoR) is the rate that banks participating in the London money market offer each other for short- term deposits. Market capitalisation This is the group’s closing share price multiplied by the number of shares in issue including shares held by group entities. Net asset value per share This is total equity attributable to equity holders of the parent divided by the number of shares in issue, excluding shares held by group entities. Net interest income to average interest-earning assets (net interest margin) This is net interest income expressed as a percentage of average net interest-earning banking assets. Net interest-earning banking assets are used, as these closely resemble the quantum of assets earning income that is included in net margin. Non-interest revenue to total expenses This is non-interest revenue as a percentage of total expenses from normal operations. Non-interest revenue to total income This is non-interest revenue as a percentage of total income from normal operations. Non-trading and capital items These comprise the following: ■ surpluses and losses on disposal of long-term investments, subsidiaries, joint ventures and associates; ■ impairment of goodwill arising on acquisition of subsidiaries, joint ventures and associates; ■ surpluses and losses on the sale or termination of an operation; ■ capital cost of fundamental reorganisation or restructuring having a material effect on the nature and focus of the operations of the reporting entities; ■ impairment of investments, property and equipment, computer software and capitalised development costs; and ■ other items of a capital nature. Off-balance-sheet assets These are assets managed on behalf of third parties on a fully discretionary basis. Price/earnings ratio This is the closing price of ordinary shares divided by headline earnings (for the previous 12 months) per share. Properties in possession properties in possession (pIpS) are acquired through payment defaults on loans secured by properties. Return on ordinary shareholders’ equity Return on ordinary shareholders’ equity (RoE) is headline earnings expressed as a percentage of average equity attributable to equity holders of the parent. Return on ordinary shareholders’ equity excluding goodwill RoE excluding goodwill is headline earnings expressed as a percentage of average equity attributable to equity holders of the parent less goodwill. Return on total assets Return on total assets (RoA) is headline earnings expressed as a percentage of average total assets. Risk-weighted assets Risk-weighted assets (RWA) are determined through the application of risk weights to balance sheet assets and off-balance-sheet financial instruments according to the relative credit risk of the counterparty. The risk weighting for each balance sheet asset and off-balance-sheet financial instrument is regulated by the SA Banks Act or by regulations in the respective countries of the other banking licences. 177 annual reportNedbaNk LIMITedTERMS USED IN oUR REpoRT (continued) South African Reserve Bank regulations related to banks and the BA returns* The regulations relating to banks were amended with effect from 1 January 2008, based on the revised Basel Capital Accord (Basel II). The new Basel Capital Accord of the Bank of International Settlements is an improved capital adequacy framework accomplished by closely aligning banks’ capital requirements with improved modern risk management practices and sophisticated risk assessment capabilities. It further ensures the risk sensitivity of the minimum capital requirements by including supervisory reviews and market discipline through enhanced disclosure. * The new Banks Act regulatory returns. Segmental reporting Operational segment A distinguishable component of the group, based on the market on which each business area focuses, which is subject to risks and returns that are different from those of other operating segments. Geographical segment A distinguishable component of the group that is engaged in providing services within a particular economic environment and is subject to risks and returns that are different from those of components operating in other economic environments. Securitisation exposures This asset class covers all exposures to tradable, interest-bearing commercial paper, which is secured by an underlying asset, eg mortgage loans. Share-based payments These are the transfers of a company’s equity instruments by its shareholders to parties that have supplied goods or services to the company (including employees). Shares held by group entities (treasury shares) These are ordinary shares in Nedbank Group Limited acquired/held by group companies, including ordinary shares held in share trusts as part of the BEE transaction. Self-service terminal A self-service terminal (SST) is similar to an ATM, but is designed for non-cash transactions. The Standardised Approach The Standardised Approach (TSA) is an approach to calculating regulatory credit risk requirements that sets out specific risk weights specified by the Regulator in lieu of the AIRB Approach. Tangible net asset value per share This is total equity attributable to equity holders of the parent less goodwill, computer software and capitalised development costs, divided by the number of shares in issue, excluding shares held by group entities. Total collateral This is the total monetary value of all collateral held by a bank as security for an advance(s), limited to exposure. Total credit extended This is the total of all advances extended by a bank, including unutilised facilities and other off-balance-sheet exposures. Total equity attributable to equity holders of the parent This is ordinary share capital, share premium and reserves. Weighted average number of shares This is the number of shares in issue increased by shares issued during the period, weighted on a time basis for the period during which they participated in the income of the group, less shares held by group entities, weighted on a time basis for the period during which the entities held these shares. these definitions should be read in conjunction with the group’s accounting policies, which also clarify certain terms used. 178 ABBreVIAtIonS, ACronyMS AnD InItIAlISMS uSeD In our report ABASA Advancement of Black Accountants of Southern Africa CE Chief Executive ABCp Asset-backed Commercial paper Arts & Culture Trust Available Financial Resources Advanced Internal Ratings-based approach Asset and Liability Committee Advanced Measurement Approach Anti-money-laundering African National Congress CEM CET1 CF CFL CFT CGT CGU Current exposure method Common-equity tier 1 Commodities finance Compact fluorescent lamp Combating the financing of terrorists Capital gains tax Cash-generating unit CHoC Childhood Cancer Foundation South Africa Annualised premium Equivalent CLR Credit-loss ratio African Task Force Automated teller machine Assets Under Administration CMAT™ Customer Management Assessment Tool CNHR CoE Cost of non-hedgeable risk Cost of equity AWCA African Women Chartered Accountants CoID ACT Compensation for occupational Injuries and Diseases Act ACT AFR AIRB ALCo AMA AML ANC ApE ATF ATM AUA BA Banks Act BANKSETA Banking Sector Training Authority BASA BAU BBBEE BBp BCM BEE BES BESA Bo BRMF BRT BUSA BWA BWo CAGR CAR CBC CBSS CCB1 CCB2 CCMA CCR CDp The Banking Association South Africa Business as usual Broad-based Black Economic Empowerment Black Business partner Business Continuity Management Black Economic Empowerment Board Ethics Statement Bond Exchange of South Africa Black-owned Business Risk Management Forum Bus Rapid Transport Business Unity South Africa Businesswomen’s Association Black-women-owned Compound average growth rate Capital adequacy ratio Commonwealth Business Council Compulsory bonus share scheme Capital conservation buffer Countercyclical capital buffer Commission for Conciliation, Mediation and Arbitration Counterparty credit risk Carbon Disclosure project CpI CpT CSI CVA CWG DAC DBSA DEFRA dEL DEpS DIFR Consumer price index Corporate performance target Corporate social investment Credit valuation adjustment Cape Winemakers Guild Directors’ Affairs Committee Development Bank of Southern Africa Department for Environment, Food And Rural Affairs (UK) Downturn expected loss Diluted earnings per share Disability incident frequency rate DMTN Domestic medium-term note DoE DSTI Department of Energy Deferred short-term incentive DSTIS Deferred short-term incentive scheme DTI EAD EaR ED ECD EE EGC EL EME Department of Trade And Industry Exposure at default Earnings at risk Enterprise development Early-childhood development Employment equity Enterprise Governance and Compliance Expected loss Exempt microenterprise EMTN Euro Medium-term Note 179 annual reportNedbaNk LIMITedABBREVIATIoNS, ACRoNYMS AND INITIALISMS USED IN oUR REpoRT (continued) Ep EpS EpWp ERM ERMF ETI EV EVE Economic profit Earnings per share Expanded public Works programme Enterprisewide Risk Management Enterprisewide Risk Management Framework Ecobank Transnational Incorporated Embedded value Economic value of equity ExCo Executive Committee FAIS ACT Financial Advisory and Intermediary Services Act FATCA Foreign Account Tax Compliance Act FCT FCTR FIC FICA FRTB FSB FSC FSSS FTE Foreign currency translation Foreign currency translation reserves Financial Intelligence Centre Financial Intelligence Centre Act Fundamental review of the trading book Financial Services Board Financial Sector Charter Financial Services Sector Supplement Fulltime employee FVTpL Fair value through profit and loss GAC GCC GDp GDp GEF GFoC GHG GIA GLC GoRC GoRM Group Audit Committee Group Credit Committee Graduate development programme Gross domestic product Group Environmental Forum Group Finance and oversight Committee Greenhouse gas(es) Group Internal Audit Global Local Currency Group operational Risk Committee Group operational Risk Management GoRMF Group operational Risk Management Framework Gp GRC Guaranteed package Group Remuneration Committee GRCMC Group Risk and Capital Management Committee GRI GSC GTSC HEpS HQLA HR Global Reporting Initiative Group Sustainability Committee Group Transformation And Sustainability Committee Headline earnings per share High-quality liquid asset Human Resources HVCRE High-volatility commercial real estate IAS IASB International Accounting Standard(s) International Accounting Standards Board ICAAp Internal Capital Adequacy Assessment process Integrated Energy plan International Finance Corporation IEp IFC 180 IFRIC IFRS ILAAp IMA IpRE IR IRRBB IRp2 IT IBAR International Financial Reporting Interpretations Committee International Financial Reporting Standards Internal Liquidity Adequacy Assessment process Internal Model Approach Income-producing Real Estate Industrial Relations Interest rate risk in the banking book Integrated Resource plan 2 Information technology Johannesburg Interbank Agreed Rate JSE, THE JSE Limited KpI KRI KZN LCA LCR LFDG LGD LTI LTIp MDp MFC Key performance Indicator Key Risk Indicator Kwazulu-Natal Life cycle analysis Liquidity coverage ratio Leading for Deep Green Loss given default Long-term incentive Long-term Incentive plan Management Development programme Motor Finance Corporation MMFTp Matched maturity funds transfer pricing NBI NCA NEEF National Business Initiative National Credit Act Nedbank Employment Equity Forum NEpAD New partnership for Africa’s Development NGo NGR NII NIM NIR Non-government organisation Nedbank Group Rating Net interest income Net interest margin Non-interest revenue NMCF Nelson Mandela Children’s Fund NMF NMM NpAT Npo NSFR NSS oF oHS Nedbank Motor Finance Nelson Mandela Metro Net profit after tax Non-profit organisation Net stable funding ratio Nedbank Staff Survey object Finance occupational Health and Safety oHS ACT occupational Health and Safety Act oMART old Mutual Alternative Risk Transfer Fund oMG oMSA oRM oRMF old Mutual Group old Mutual (South Africa) operational Risk Management operational Risk Management Framework oSE oTC pF pGN pIIGS poS pVFp RApM RBB REDD REFIT RMBS RoA RoA RoE RRp RSp RWA SA™ SACCT SADC SAE4D SAM SApS SAR SARB SARS SBp SED SEMS ordinary shareholders’ equity over the counter project Finance professional Guidance Note SENS SIFE SIFI SME Securities Exchange News Service Students in Free Enterprise Systematically Important Financial Institution Small- and medium-sized enterprises portugal, Italy, Ireland, Greece And Spain SMME Small, medium and microenterprises point of sale present value of future profits pVNBp present value of new-business premiums pWD QASA QIS QSE people with disabilities Quadpara Association of South Africa Quantitative impact studies Qualifying small entity QRopS Qualifying recognised overseas pension funds Risk-adjusted performance Measurement Retail and Business Banking Reducing Emissions from Deforestation and Forest Degradation Renewable-energy feed-in tariff Residential mortgage-backed securitisation programme Rest of Africa Return on (total) assets Return on equity/return on ordinary shareholders’ funds SpE SpV SREp SRI SRp SST STC STI STR STT TB TCC TCTS Topp TpA TSA TTC UN Special-purpose entity Special-purpose vehicle Supervisory Review and Evaluation process Socially Responsible Index Securities Regulation panel Self-service terminal Secondary Tax on Companies Short-term incentive Suspicious-Transaction Reporting Securities Transfer Tax Tuberculosis Total cost to company Teach Children to Save Training outside of public practice Tonnes per annum The Standardised Approach Through-the-cycle United Nations Resolution and recovery plan UNEp United Nations Environment programme Restricted Share plan risk-weighted assets South Africa™ South African Children’s Charity Trust Southern African Development Community South African Employers 4 Disability Solvency Assessment and Management South African police Service Share Appreciation Right South African Reserve Bank South African Revenue Service Share-based payments Socioeconomic development Social and Environmental Management System UNEp FI United Nations Environment programme Finance Initiative UNISA University of South Africa VaR VAT VCT VIF (BUSINESS) VNB VYpD WWF Value at risk Value-added tax Voluntary counselling and testing Value of in-force (business) Value of new business Vezokuhle Youth Development project World Wide Fund for Nature WWF – SA World Wide Fund for Nature – South Africa Yoy YTD Year on year Year to date 181 annual reportNedbaNk LIMITedCoDeS For our FInAnCIAl InStruMentS NEDBANK LIMITED NoN-REDEEMABLE NoN-CUMULATIVE pREFERENCE SHARES JSE share code: NBKp ISIN code: ZAE000043667 NEDBANK LIMITED SENIoR UNSECURED DEBT Listed on the Bond Exchange of SA ISIN code: NBK1B NBK2A NBK2B NBK3A NBKI1 NBK4 NBKI1U NBK5B NBK6A NBK6B NBK7B ZAG000071366 ZAG000071341 ZAG000071358 ZAG000071408 ZAG000071374 ZAG000072729 ZAG000073792 ZAG000076613 ZAG000076639 ZAG000076621 ZAG000076647 NEDBANK LIMITED SUBoRDINATED DEBT Listed on the Bond Exchange of SA ISIN code: LISTED oN THE LoNDoN SToCK ExCHANGE USD100m 13 NC 8 (EMTN01) xS0415508307 IpB3 ZAG000062605 NEDBANK LIMITED SECURITISATIoN ISSUE Listed on the Bond Exchange of SA ISIN code: GR1A2A GRN1A1 GRN1B GRN1C GRN1D oCT1A1 oCT1A4 oCT1B1 oCT1C1 oCT1D1 oCT1E1 ZAG000047218 ZAG000047192 ZAG000047234 ZAG000047176 ZAG000047184 ZAG000040361 ZAG000040395 ZAG000040403 ZAG000040411 ZAG000040429 ZAG000040437 ZAG000029810 ZAG000033358 ZAG000036831 ZAG000036849 ZAG000041120 ZAG000043191 ZAG000044272 ZAG000047937 ZAG000047945 ZAG000053703 ZAG000053711 NED5 NED6 NED7 NED8 NED9 NED10 NED11 NED12A NED12B NEDH1A NEDH1B 182 Notes: 183 annual reportNedbaNk LIMITedContACt DetAIlS NEDBANK LIMITED Incorporated in the Republic of SA Reg No 1951/000009/06 Business address and registered office Nedbank 135 Rivonia Campus 135 Rivonia Road Sandown, Sandton, 2196, SA Postal address po Box 1144 Johannesburg, 2000, SA Tel: +27 (0)11 294 4444 Website: nedbankgroup.co.za TRANSFER SECRETARIES: SA: Computershare Investor Services Proprietary Limited Business address 70 Marshall Street Johannesburg, 2001, SA Postal address po Box 61051 Marshalltown, 2107, SA Tel: +27 (0)11 370 5000 Fax: +27 (0)11 688 5238 AUDITORS: Deloitte & Touche Postal address private Bag x6 Gallo Manor, 2052, SA Tel: +27 (0)11 806 5000 Fax: +27 (0)11 806 5003 KPMG Inc. Postal address private Bag x9 parkview, 2122, SA Tel: +27 (0)11 647 7111 Fax: +27 (0)11 647 8000 184 NEDBANK GROUP INTEGRATED REPORT 2014 Should you wish to engage on the content of this report or if you require an additional copy of the Nedbank Group Limited Integrated Report 2014, please email your address details to Nedbank Group Investor Relations at nedbankgroupir@nedbank.co.za or send a fax to +27 (0)11 294 6549. INVESTOR RELATIONS Alfred Visagie: Head of Investor Relations Tel: +27 (0)11 295 6249 Email: nedbankgroupir@nedbank.co.za COMPANY SECRETARY TSB Jali: Group Company Secretary Tel: +27 (0)11 295 9696 Fax: +27 (0)11 294 9696 Email: thabanij@nedbank.co.za n 1 M g r e b n y W Morningside Wendywood D A NIA Ro o RIV S o U T H Sandown MoRNING- SIDE CLINIC E R o M N E B MC DoNALD’S  F R E D M A N p W E S T M A U D E SANDToN CITY GRAYSTo N THE MAZLoW HILToN R I N E K A T H E SANDToN WYNBERG oFFRAMp 1 M Johannesburg S DISCLAIMER Nedbank has acted in good faith and has made every reasonable effort to ensure the accuracy and completeness of the information contained in this document, including all information that may be defined as ‘forward-looking statements’ within the meaning of US  securities legislation. Forward-looking statements may be identified by words such as ‘believe’, ‘project’, ‘plan’, ‘target’, ‘predict’ and ‘hope’. ‘anticipate’, ‘estimate’, ‘expect’, ‘intend’, Forward-looking statements are not statements of fact, but statements by the management of Nedbank based on its current estimates, projections, expectations, beliefs and assumptions regarding the group’s future performance. No assurance can be given that forward-looking statements will prove to be correct and undue reliance should not be placed on such statements. The risks and uncertainties inherent in the forward-looking statements contained in this document include, but are not limited to: changes to International Financial Reporting Standards and the interpretations, applications and practices subject thereto as they apply to past, present and future periods; domestic and international business and market conditions such as exchange rate and interest rate movements; changes in the domestic and international regulatory and legislative environments; changes to domestic and international operational, social, economic and political risks; and the effects of both current and future litigation. Nedbank does not undertake to update any forward-looking statements contained in this document and does not assume responsibility for any loss or damage whatsoever and howsoever arising as a result of the reliance by any party thereon, including, but not limited to, loss of earnings, profits, or consequential loss or damage. ABoUT THIS REpoRT This report is printed on Sappi Triple Green – a paper grade manufactured according to three environmental pillars: a minimum of 60% of the pulp used in the production of this paper is sugar cane fibre, which is the material remaining after raw sugar has been extracted from sugar cane; the bleaching process is elemental chlorine-free; and the remaining pulp used in the production process comprises wood fibre, which is obtained from sustainable and internationally certified afforestation, using independently audited chains of custody. The carbon emissions generated through the production of this report have been included in the calculation of Nedbank total 2014 carbon footprint that will be offset during 2015. 185 annual reportNedbaNk LIMITed

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