Download Standard Bank Group

Risk and capital management report
for the six months ended 30 June 2015
Standard Bank Group
Contents
Overview
1
Risk and capital reporting frameworks
6
Capital management
10
Risk appetite and stress testing
19
Credit risk
23
Compliance risk
49
Country risk
51
Funding and liquidity risk
Risk types
54
Market risk
61
Operational risk
70
Business risk
1
2
2
2
3
5
5
6
8
9
10
10
10
11
12
18
19
19
21
23
23
23
24
28
42
49
49
50
51
51
51
52
52
54
54
56
56
60
60
61
61
61
62
65
66
67
68
69
70
70
71
71
71
Risk and capital management report scope
Board responsibility
Risk types
Governance framework
Governance committees
Governance documents
Three lines of defence model
IFRS and Basel reporting frameworks
Reporting framework consolidation differences
Basel approaches adopted for regulatory capital purposes
Objectives
Governance
Capital transferability
Basel III capital requirements
Regulatory capital
Economic capital
Governance
Risk appetite
Stress testing
Definition
Approach to managing credit risk
Governance
Approved regulatory capital approaches
Credit portfolio characteristics and metrics in terms of Basel
Credit portfolio characteristics and metrics in terms of IFRS
Definition
Approach to managing compliance risk
Governance
Definition
Approach to managing country risk
Governance
Approved regulatory capital approaches
Country risk portfolio characteristics and metrics
Definition
Approach to managing liquidity risk
Governance
Liquidity characteristics and metrics
SBG’s credit ratings
Conduits
Definition
Governance
Approved regulatory capital approaches
Trading book market risk
Interest rate risk in the banking book
Equity risk in the banking book
Foreign currency risk
Own equity-linked transactions
Post-employment obligation risk
Definition
Approach to managing operational risk
Governance
Approved regulatory capital approach
Operational risk subtypes
77
78
82
85
86
92
93
Terms and conditions of capital instruments issued
Composition of capital – SBG
Composition of capital – SBSA
Leverage ratio – SBSA
Capital instruments: main features disclosure template
Liquidity coverage ratio (average) – SBSA
Acronyms and abbreviations
74
Reputational risk
75
Restatements
76
Additional information
77
Contact details
95
Overview
1
Risk and capital management report scope
2
Board responsibility
2
Risk types
2
Governance framework
3
4
4
Governance committees
• Board committees
• Management committees
5
Governance documents
5
Three lines of defence model
Risk and capital management
report scope
This risk and capital management report
covers the Standard Bank Group’s (SBG)
banking activities (group).
Refer to the SBG 2014 risk and capital
management report and annual financial
statements for information regarding the SBG
insurance operations.
The comparative period disclosures presented within this report
include the exposures from our global markets outside Africa
operations, which for financial reporting purposes have been
separately classified as non-current assets and liabilities held for sale
in the comparative period. The group’s controlling interest in
Standard Bank Plc, which included the group’s global markets outside
Africa operations, was disposed of to the Industrial and Commercial
Bank of China on 1 February 2015. Subsequent to the transaction
Standard Bank Plc has been renamed ICBC Standard Bank Plc and the
group’s remaining 40% interest has been included as an associate,
with equity accounted earnings included in the group’s continuing
operation’s results from the disposal date.
1
Risk and capital management report
Overview | continued
Board responsibility
The group’s board of directors (board) has
the ultimate responsibility for the oversight
of risk.
For the period ended 30 June 2015, the board is satisfied that the
group’s risk, compliance, treasury, capital management and group
internal audit (GIA) processes generally operated effectively, that the
group’s business activities have been managed within the boardapproved risk appetite, and that the group is adequately funded and
capitalised to support the execution of the group’s strategy.
In the instances where the group incurred losses, breached risk
appetite or was fined by its regulators, the board is satisfied that
management have taken appropriate remedial action.
Risk types
The group’s business activities give rise to various risks. These are:
credit risk
compliance risk
country risk
funding and liquidity risk
market risk
operational risk
business risk
reputational risk.
Each risk is defined within the relevant section, together with:
an explanation of the application of the group’s risk, compliance
and capital management (RCCM) governance framework to the
specific risk
the approved regulatory treatment for capital requirements to be
held against the specific risk in terms of Basel
a description of the relevant portfolio characteristics both in
terms of prescribed disclosure and the group’s business model.
2
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Governance framework
The group’s approach to managing risk and capital is set out in the
RCCM governance framework, which is approved by the group risk
and capital management committee (GRCMC). The framework has
two components:
governance committees
governance documents such as standards, frameworks and
policies.
Governance committees
Governance committees that operate within the RCCM governance framework are in place at both a board and management level. They have
mandates and delegated authorities that are reviewed regularly.
Standard Bank Group board
Management committees
Board committees
Group executive committee
Group risk and capital management
committee
Group management committee
Group IT committee
Group audit committee
Group model approval committee
Group risk
oversight
committee
Direct reporting line.
Indirect reporting line.
3
Risk and capital management report
Overview | Governance committees continued
Board committees
The group model approval committee
The board committees that are responsible for the oversight of the
group’s RCCM comprise the group audit committee (GAC), the
GRCMC, the group information technology (IT) committee, and the
group model approval committee. The key roles and responsibilities
of these committees, as they relate to the RCCM, are summarised in
the sections that follow.
The group model approval committee is designated by the board to
discharge the board’s regulatory responsibility of reviewing and
approving the group’s material risk models, as well as models used in
the calculation of regulatory capital. This committee is supported by
the Personal & Business Banking (PBB) and Corporate & Investment
Banking (CIB) model approval subcommittees, with the models being
assigned to these three committees for approval based on an
assessment of the materiality of each model.
Detailed information relating to these committees
can be found in the governance section of the
SBG 2014 annual integrated report.
The group risk and capital management committee
The GRCMC provides independent oversight of RCCM across the
group by:
ensuring adequate and effective implementation of risk
governance processes, standards, policies and frameworks
ensuring that the risk strategy is executed by management in
accordance with the board-approved risk appetite and risk,
compliance and capital management governance framework
considering the quarterly risk management report which includes
detailed updates on risk types, as well as the separate updates
from legal, compliance, capital and liquidity risk
reporting material risk and capital management matters to the
board.
The group IT committee
The group IT committee’s purpose is to assist the board in fulfilling
its corporate governance responsibilities with respect to IT and
reports to the board through its chairman. The committee has the
authority to review and provide guidance on matters related to the
group’s IT strategy, budget, operations, policies and controls, as well
as oversight of significant IT investments and expenditure.
The group audit committee
The GAC has oversight of the group’s financial position and makes
recommendations to the board on all financial matters, financial risks,
internal financial controls, fraud, compliance, IT risks and the impact
of IT on financial controls. In relation to the RCCM, the GAC plays a
role in assessing the adequacy and operating effectiveness of the
group’s internal financial controls.
A risk management report is tabled at the GAC meetings and the
group chief risk officer (CRO) provides the committee with an
overview of key issues raised at GRCMC. In order to ensure the
independence of the second line of defence functions, the chairman
of the GAC, who is also a member of the GRCMC, meets with the
group chief compliance officer (GCCO), the group CRO, the group
financial director, the group chief audit officer and the head of
operational risk management, who is responsible for financial crime
control, without management being present.
4
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Management committees
The group risk oversight committee
Executive management responsibility for all material risk types has
been delegated by the group management committee to the group
risk oversight committee (GROC) which, in turn, assists the GRCMC in
fulfilling its mandate.
As is the case with the GRCMC, GROC calls for and evaluates
in-depth investigations and reports based on its assessment of the
group’s risk profile and external factors.
GROC delegates authority to various subcommittees which deal with
specific risk types or oversight activities. Material matters are
escalated to GROC through reports or feedback from each
subcommittee chairman.
The GROC subcommittees are as follows:
CIB credit governance committee, chaired by the CIB CRO
PBB credit governance committee, chaired by the PBB CRO
group asset and liability committee (ALCO), chaired by the
group financial director
group compliance committee, chaired by the GCCO
group country risk management committee, chaired by the
group CRO
group equity risk committee (ERC), chaired by the CIB CRO
group internal financial control governance committee, chaired by
the group financial director
group operational risk committee, chaired by the group head
of operational risk management
group regulatory and legislative oversight committee, chaired by
the group chief executive
group sanctions review committee, chaired by the group
chief executive
group stress testing and risk appetite committee, chaired by
the group CRO
intragroup exposure committee, chaired by the group
financial director.
Governance documents
Governance documents within the RCCM governance framework
comprise standards, frameworks and policies which set out the
requirements for the identification, assessment, measurement,
monitoring, managing and reporting of risks and effective
management of capital.
Governance standards and frameworks are approved by the relevant
board committee.
Group policies are approved by the group management committee
or subcommittee, relevant GROC subcommittee, GROC itself or,
where regulations require board approval, by the board or relevant
board committee.
Business line and legal entity policies are aligned to these group
policies and are applied within their governance structures.
The second line of defence functions provide independent oversight
and assurance. They have resources at the centre and embedded
within the business lines. Central resources provide groupwide
oversight of risks, while resources embedded within the business
lines support management in ensuring that their specific risks are
effectively managed as close to the source as possible. Central and
embedded resources jointly oversee risks at a legal entity level. The
second line of defence functions develop and implement governance
standards, frameworks and policies for each material risk type to
which the group is exposed. This ensures consistency in approach
across the group’s business lines and legal entities. Compliance with
the standards and frameworks is ensured through annual selfassessments by the second line of defence and reviews by GIA.
The third line of defence is the provision of independent oversight
and assurance by GIA to the board and senior management of the
effectiveness of the first and second line of defence.
All three levels report through to the board, either directly or through
the GRCMC and GAC.
Three lines of defence model
The group uses the three lines of defence governance model which
promotes transparency, accountability and consistency through the
clear identification and segregation of roles.
The first line of defence is the responsibility of management to
identify and manage risks. This involves, at an operational level, the
day-to-day effective management of risk in accordance with agreed
risk policies, appetite and controls. Effective first line management
includes:
the pro-active self-identification of issues and risks, including
emerging risks
the design, implementation and ownership of appropriate controls
the associated operational control remediation
a strong control culture of effective and transparent risk
partnership.
5
Risk and
capital
reporting
frameworks
6
IFRS and Basel reporting frameworks
8
Reporting framework consolidation differences
9
Basel approaches adopted for regulatory capital purposes
IFRS and Basel reporting frameworks
Tables in this report have been labelled to identify content disclosed in terms of International Financial Reporting Standards (IFRS) or Basel
reporting frameworks.
The method of measurement in terms of Basel differs from the method of measurement in accordance with IFRS. The table below highlights the
principal differences between the IFRS and Basel reporting frameworks.
Principle
Basel
IFRS
Categorisation
of exposures
By Basel asset class which, under the internal
ratings-based (IRB) approach, is based on homogeneous
risk characteristics.
By class of financial instrument, taking into account the
nature of the information to be disclosed and the
characteristics of the underlying financial instruments.
Exposure
Credit exposure, for both IRB and standardised
portfolios, consists of on-balance sheet exposure,
off-balance sheet exposure, securities financing
exposure and derivatives exposure. These exposure
values are all gross exposures before the impact of
netting, collateral or expected recoveries have been
taken into account.
Balances reported per the statement of financial
position (SOFP) are determined according to applicable
IFRS requirements. Refer to annexure D in the SBG
2014 annual financial statements for further detail
regarding SBG’s accounting policies.
Certain revolving facilities are reported using month
average balances, per regulatory requirements.
Valuation
6
Fair value gains and losses attributable to own credit
risk are excluded when calculating regulatory capital.
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Assets on the group’s IFRS SOFP are reported net of
portfolio and specific impairment provisions.
Balances, per the SOFP, are reported based on month
end balances.
All changes in fair value (including fair value gains
and losses attributable to own credit risk) on financial
liabilities that, on meeting specific criteria, have been
designated to be measured at fair value as well as
held-for-trading liabilities, are recognised in profit
or loss.
Principle
Basel
IFRS
Impairment of assets
Impairment is based on the concepts of expected and
unexpected losses.
Expected losses are accounted for through the level
of impairments held against the underlying
exposure. Statistical modelling of expected losses is
required.
Unexpected losses are accounted for through
holding regulatory capital in relation to the size and
nature of the exposure held.
Assets measured at amortised cost and debt
instruments classified as available-for-sale are
specifically impaired and the resulting losses recognised
in the profit or loss only if:
there is objective evidence of impairment resulting
from one or more events that have occurred after
the initial recognition of the asset, and
that event has an impact on the estimated future
cash flows of assets that can be reliably measured.
The difference between the Basel and IFRS impairment
values produces a shortfall if the expected loss amount
under Basel exceeds total impairments under IFRS, or
an excess if total impairments exceed the expected loss
amount. The shortfall, if any, is to be deducted from
common equity tier I (CET I) capital.
To provide for latent losses in a portfolio of loans where
the loans have not yet been individually identified as
impaired, impairment for incurred but not reported
losses is recognised based on historic loss patterns and
estimated emergence periods.
Defines default as the obligor being 90 days past due
on the obligation (extended to 180 days for some
products).
Defines objective evidence of impairment as a result of
one or more events that occurred after the initial
recognition of the asset and that objective evidence of
impairment has an impact on the asset’s estimated
future cash flows.
Default
The use of statistical models is permitted, but an event
of default must occur before an impairment loss can be
recognised.
Examples of objective evidence of impairment include:
actual breach of contract
observable data indicating that there is a measurable
decrease in the estimated cash flows from a group
of assets since their initial recognition due to:
adverse changes in the payment status of the
borrowers in the group, or
a deterioration in national or local economic
conditions that correlate with defaults on the
assets in the group.
7
Risk and capital management report
Risk and capital reporting frameworks | continued
Reporting framework consolidation differences
In accordance with IFRS, all entities, regardless of the nature of their underlying activities, are either consolidated or equity accounted based on
the extent of control or influence that the group exerts over those entities. Basel differentiates entities based on the underlying activity of the
entity combined with the extent of control or influence that the group exerts over those entities. The different treatments for entities for
regulatory and accounting consolidation are explained in the table below.
Shareholding
Regulatory treatment
Banking,
financial entity
or securities firm1
<10%
Commercial entity
Insurance entity
Aggregate of investments are compared to a
threshold of 10% of the group’s CET I
capital. Amounts above the threshold are
deducted against the corresponding
component of capital and amounts below the
threshold are risk-weighted.
> 10% but
≤ 20%
Apply the deduction method2.
Aggregate of investments in tier I and tier
II instruments are deducted against the
corresponding component of capital.
> 20% but
≤ 50%
Other significant
shareholder:
Proportionately
consolidate.
No other
significant
shareholder: Apply
the deduction
method2.
Aggregate of
investments in tier
I and tier II
instruments are
deducted against
the corresponding
component of
capital.
>50%
IFRS treatment
Apply the
deduction
method2.
Aggregate of
investments in
tier I and tier II
instruments are
deducted
against the
corresponding
component of
capital.
Consolidated
Standardised
approach
Risk weight at no
less than 100%.
Individual
investments up
to 15% of the
group’s CET I,
additional tier I
and tier II: risk
weight at no less
than 100%.
Individual
investments in
excess of 15%
of the group’s
CET I, additional
tier I and tier II:
risk weight at
1 250%.
Aggregate of
investments
>60% of the
group’s CET I,
additional tier I
and tier II: risk
weight excess
above 60% at
1 250%.
IRB approach
Risk weight up to a
Typically treated as an
maximum of 1 250%. investment and is measured
at fair value (cost in certain
circumstances). Where the
group has significant
influence over that
investment, equity
accounting is applied unless
designated to be measured
at fair value through profit
or loss in terms of IFRS.
Individual
investments up
to 15% of the
group’s CET I,
additional tier I
and tier II: risk
weight at no less
than 100%.
Individual
investments in
excess of 15%
of the group’s
CET I, additional
tier I and tier II:
risk weight at
1 250%.
Equity accounting (unless
designated to be measured
at fair value through profit
or loss in terms of IFRS)
applied unless there is
evidence of control in which
case the group consolidates
the investment into its
results.
Consolidate unless there is
evidence to indicate that
the group does not have
control over that
investment in which case
equity accounting will
typically be applied unless
designated to be measured
at fair value through profit
or loss in terms of IFRS.
1For Basel purposes, financial entities other than financial entities acquired through realisation of security in respect of previously contracted debt (held temporarily) are subject to
other materially different rules and regulations or non-consolidation as required by law.
2Aggregate of investments compared to 10% of the group’s CET I capital and amounts above the 10% threshold are deducted against CET I capital. Amounts not deducted are
combined with mortgage servicing rights and deferred tax assets and compared to 15% of the group’s CET I capital. Amounts above the 15% threshold are deducted against CET I
capital and amounts below are risk-weighted at 250%.
8
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Basel approaches adopted for regulatory
capital purposes
Basel provides various approaches for the calculation of regulatory
capital to be held against credit, market and operational risk. In
general, there are three approaches:
a basic approach
an intermediate approach
an advanced approach.
The regulators approve the approach adopted on a case-by-case
basis, both at a solo regulated entity and consolidated regulated
entity level.
The group does not adopt advanced approaches for certain portfolios,
either because these methods are not yet recognised in a particular
jurisdiction or because the group has chosen, on a materiality basis,
to adopt the intermediate or basic approaches. In these cases, the
group nevertheless adopts practices similar to the advanced approach
for its internal economic capital, risk measurement and management
purposes where it is felt that these offer better information for
managing risks.
The approaches per risk type approved by regulators are specified
in the relevant credit, market and operational risk sections of
this report.
9
Risk and capital management report
Capital
management
10
Objectives
10
Governance
10
Capital transferability
11
Basel III capital requirements
12
Regulatory capital
18
18
18
Economic capital
• Risk-adjusted performance measurement
• Cost of equity
Objectives
The group’s capital management function
is designed to ensure that regulatory
requirements are met at all times and that
the group and its principal subsidiaries are
capitalised in line with the group’s risk
appetite and target ratios, both of which
are approved by the board.
The capital management division within treasury and capital
management comprises:
Strategic capital management function: Key responsibilities
include raising capital to enable growth opportunities and to
provide an optimal capital structure, advising on the dividend
policy, facilitating capital allocation and risk-adjusted performance
measurement (RAPM), and managing the internal capital
adequacy assessment process (ICAAP) and capital planning
process, including stress testing of capital supply and demand.
Portfolio analysis and reporting function: Key responsibilities
include the measurement and analysis of regulatory and economic
capital, internal and external reporting and implementation of
new regulatory requirements.
CIB and PBB capital management functions: Key
responsibilities include providing support on deal pricing,
balance sheet utilisation and management of capital consumption
against budgets.
Regional capital management function: Key responsibilities
include supporting the group’s operations in the rest of Africa.
Governance
The primary management level subcommittees that oversee the risks
associated with capital management are the group ALCO and its
subcommittee, the group capital management committee.
The principal governance documents are the capital management
governance framework and the model risk governance framework.
Capital transferability
Subject to compliance with the corporate laws of relevant jurisdictions
and appropriate motivation to and approval by exchange control
authorities, no significant restrictions exist on the transfer of funds
and regulatory capital within the group.
10
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Basel III capital requirements
The South African Reserve Bank (SARB) adopted the Basel III framework introduced by the Basel Committee on Banking Supervision (BCBS) from
1 January 2013. The group has been compliant with the minimum requirements from that date.
The group is well positioned to comply with the requirements that are subject to phase-in rules when they become effective.
Basel III aims to improve the quality of capital, increase capital levels and remove inconsistencies in the definition of capital across jurisdictions as
explained in the table below.
Objectives of Basel III
Increased quality,
quantity and
consistency of capital
increased focus on CET I
increased capital levels.
Increased risk coverage
credit valuation adjustment for over-the-counter derivatives, being the capital charge for potential mark-to-market
losses associated with the deterioration in counterparty creditworthiness
asset value correlation, being the increased capital charge on exposures to financial institutions
strengthened standards for collateral management, margin period of risk, management of general wrong-way risk and
stress testing.
Capital conservation
buffer
2.5% CET I capital buffer by 2019 to decrease pro-cyclicality
build up capital during favourable economic conditions that can be drawn on during times of stress.
Pillar 2a and domestic
systemically important
banks (D-SIB) buffer
up to 2% of pillar 2a buffer prescribed by the SARB to be held against systemic risk requirements
0 – 2.5% D-SIB buffer required for banks deemed by the SARB to be systemically important
the sum of the two requirements is limited to 3.5% and is split over all three tiers of capital.
Countercyclical buffer
0 – 2.5% CET I capital buffer deployed by national jurisdictions when system-wide risk builds up
ensures capital adequacy takes the macro-financial environment into account.
Leverage ratio
constrain build-up of leverage in the banking sector
the ratio is calculated as tier I qualifying capital/on- and off-balance sheet exposures, as defined by the BCBS, and is
measured against the SARB prescribed minimum ratio of 4%.
11
Risk and capital management report
Capital management | Basel III capital requirement continued
The graph below reflects the capital requirements and phase-in periods applicable to South Africa.
SARB ratios (capital as a % of riskweighted assets)1 effective 1 January each year (%)
14.00
14
13.01
12.00
12
2.75
10.00
10
2.00
8
3.25
3.00
11.01
2.50
1.50
1.38
0.63
6.50
2015
1.63
1.50
1.75
1.25
1.88
2.50
6.50
6.50
6.50
6.50
2016
2017
2018
2019
6
4
2
● CET I
● Conservation buffer
● Additional tier I
● Tier II
1Graph excludes countercyclical buffer and confidential bank-specific pillar 2b capital requirement, but includes maximum potential D-SIB requirement which is also bank specific and
therefore confidential.
The South African D-SIB framework assesses the systemic importance
of banks, controlling companies and branches of foreign banks
licensed to operate in South Africa. While the D-SIB loss-absorbency
requirement imposed on banks will only become effective on
1 January 2016, the SARB has advised banks of their bank-specific
loss-absorbency requirements in advance of the implementation date
to allow banks sufficient time to account for this requirement in their
capital planning and management processes.
Regulatory capital
The group manages its capital levels to support business growth,
maintain depositor and creditor confidence, create value for
shareholders, and ensure regulatory compliance.
The main regulatory requirements to be complied with are those
specified in the South African Banks Act 94 of 1990 (Banks Act) and
related regulations which are aligned with Basel III.
Regulatory capital adequacy is measured through the following three
risk‑based ratios:
CET I: Ordinary share capital, share premium, retained earnings
and qualifying non-controlling interest less impairments divided
by total risk-weighted assets.
Tier I: CET I and other qualifying non-controlling interest plus
perpetual, non-cumulative instruments with principal loss
absorption features issued under the Basel III rules divided by
total risk-weighted assets. Perpetual non-cumulative preference
shares issued under Basel I and Basel II are included in tier I
capital but are subject to regulatory phase-out requirements over
a 10-year period, which commenced on 1 January 2013.
Total capital adequacy: Tier I plus other items such as the
general allowance for credit impairments and subordinated debt
with principal loss-absorption features issued under Basel III
divided by total risk-weighted assets. Subordinated debt issued
under Basel I and Basel II is included in total capital but is subject
to regulatory phase-out requirements, over a 10-year period
which commenced on 1 January 2013.
The ratios are measured against internal targets and regulatory
minimum requirements.
12
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Capital adequacy1 (%)
SBG tier II instrument maturity profile (Rm)
18
6 000
16
5 000
14
12
4 000
10
3 000
8
6
2 000
4
1 000
2
FY10
● Tier I
FY11
● Tier II
FY12
Tier III
FY13
FY14
1H15
Required capital
2H15
2016
2017
2018
2019
2020
2022
● Callable date
12010 and 2011 are on a Basel II basis. Basel III was implemented 1 January 2013.
Risk-weighted assets and capital adequacy for 2012 are on a pro forma
Basel III basis.
Risk-weighted assets are calculated in terms of the Banks Act and
related regulations, which are aligned with Basel III.
The group complied with all regulatory capital requirements during
the current period and prior year.
The group’s CET I capital, including unappropriated profit, is R112,9 billion
as at 30 June 2015 (31 December 2014: R113,5 billion). The group’s
tier I capital, including unappropriated profit, is R116,9 billion as
at 30 June 2015 (31 December 2014: R118,0 billion) and total
capital, including unappropriated profit was R138,0 billion as at
30 June 2015 (31 December 2014: R142,0 billion).
The group has a balanced tier II subordinated debt maturity
profile. During the period ended 30 June 2015, the group
issued R2,8 billion Basel III compliant tier II instruments
(31 December 2014: R2,3 billion).
The SARB adopted the leverage framework that was issued by the
BCBS in January 2014, with final calibrations expected by 2017.
Formal disclosure requirements commenced from 1 January 2015 and
the ratio is expected to transition to a pillar 1 requirement by 2018.
The non-risk-based leverage measure is designed to complement the
Basel III risk-based capital framework. The group’s leverage ratio
inclusive of unappropriated profit was 6.7% as at 30 June 2015
(31 December 2014: 6.9%), in excess of the SARB minimum
requirement of 4%.
Basel: Leverage ratio
Tier I capital
(excluding unappropriated
profit)
Tier I capital
(including unappropriated
profit)
Total exposures
Leverage ratio
(excluding unappropriated
profits, %)
Leverage ratio
(including unappropriated
profits, %)
June
2015
Rm
December
2014
Rm
103 062
104 921
116 922
117 970
1 750 073
1 713 616
5.9
6.1
6.7
6.9
13
Risk and capital management report
Capital management | Regulatory capital continued
Basel III qualifying capital, excluding unappropriated profits
June
2015
Rm
December
2014
Rm
Normalised ordinary shareholders’ equity
Net IFRS adjustments
142 512
(1 042)
139 588
(2 603)
IFRS ordinary shareholders' equity
Qualifying non-controlling interest
Less: regulatory adjustments
141 470
4 968
(33 527)
136 985
4 159
(27 689)
Goodwill
Other intangible assets
Shortfall of credit provisions to expected future credit losses
Investments in financial, banking and insurance entities
Other adjustments
(3 573)
(16 579)
(2 156)
(9 919)
(1 300)
(3 711)
(15 850)
(2 054)
(4 074)
(2 000)
Less: unappropriated profit and regulatory exclusions
(13 860)
(13 049)
99 051
3 846
165
100 406
4 396
119
CET I capital
Qualifying perpetual preference shares
Qualifying non-controlling interest profit
Tier I capital
103 062
104 921
Tier II subordinated debt
General allowance for credit impairments
19 405
1 653
22 727
1 266
Tier II capital
21 058
23 993
Total regulatory capital
124 120
128 914
Total capital requirement
85 638
91 521
Total risk-weighted assets
856 380
915 213
14
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Basel III risk-weighted assets and associated capital requirements
December 20142
June 2015
Risk-weighted
assets
Rm
Capital
requirement1
Rm
Risk-weighted
assets
Rm
Capital
requirement1
Rm
Credit risk
627 153
62 714
623 931
62 392
Portfolios subject to the standardised approach3
232 784
23 278
231 670
23 167
99 880
69 170
12 523
9 787
41 132
292
9 988
6 917
1 252
979
4 113
29
99 468
66 184
8 791
12 601
44 361
265
9 947
6 618
879
1 260
4 436
27
Corporate
Sovereign
Banks
Retail mortgages
Retail other4
Securitisation exposure
Portfolios subject to the foundation internal ratings-based
(FIRB) approach
5 958
595
Corporate
Sovereign
Banks
2 834
1 491
1 633
283
149
163
Portfolios subject to the advanced internal ratings-based
(AIRB) approach
365 355
36 535
357 222
35 722
Corporate
Sovereign
Banks
Retail mortgages
Qualifying retail revolving exposure (QRRE)
Retail other4
Securitisation exposure
149 859
22 100
21 313
83 324
48 124
40 183
452
14 986
2 210
2 131
8 333
4 812
4 018
45
145 781
19 449
19 352
83 946
46 918
41 305
471
14 578
1 945
1 935
8 394
4 692
4 131
47
Other assets
29 014
2 901
29 081
2 908
Counterparty credit risk
20 819
2 082
47 026
4 703
Portfolios subject to the standardised approach3
3 944
394
4 434
444
Corporate
Sovereign
Banks
3 123
312
821
82
2 648
403
1 383
265
40
139
Portfolios subject to the FIRB approach
32 355
3 235
Corporate
Sovereign
Banks
21 129
243
10 983
2 113
24
1 098
Portfolios subject to the AIRB approach
16 875
1 688
10 237
1 024
Corporate
Sovereign
Banks
6 295
469
10 111
630
47
1 011
6 317
971
2 949
632
97
295
Footnotes on the following page.
15
Risk and capital management report
Capital management | Regulatory capital continued
Basel III risk-weighted assets and associated capital requirements continued
December 20142
June 2015
Risk-weighted
assets
Rm
Equity risk in the banking book
Capital
requirement1
Rm
Risk-weighted
assets
Rm
Capital
requirement1
Rm
12 596
1 261
14 469
1 447
Portfolios subject to the market-based approach
4 421
442
7 649
765
Listed
Unlisted
6
4 415
1
441
698
6 951
70
695
Portfolios subject to the probability of default (PD)/loss given
default (LGD) approach
8 175
819
6 820
682
Market risk
42 190
4 219
71 153
7 115
Portfolios subject to the standardised approach3
25 919
2 592
29 259
2 926
Interest rate risk
Equity position risk
Foreign exchange risk
Commodities risk
24 156
148
1 544
71
2 416
15
154
7
25 935
98
2 483
743
2 594
10
248
74
Portfolios subject to the internal models approach
16 271
1 627
41 894
4 189
Value-at-risk (VaR) based
16 271
1 627
29 978
2 997
Interest rate risk
Equity position risk
Foreign exchange risk
Commodities risk
Diversification benefit
6 030
6 630
12 668
20
(9 077)
603
663
1 267
2
(908)
21 823
8 891
7 570
8 922
(17 228)
2 182
889
757
892
(1 723)
11 916
1 192
Non-VaR-based
Operational risk
3
Portfolios subject to the standardised approach
Portfolios subject to the advanced measurement approach (AMA)
Risk-weighted assets for investments in financial entities
Total risk-weighted assets/capital requirement
126 380
12 638
131 459
13 146
80 884
45 496
8 088
4 550
82 931
48 528
8 293
4 853
27 242
2 724
27 175
2 718
856 380
85 638
915 213
91 521
1Capital requirement at 10.0% (December 2014: 10.0%) excludes confidential bank specific add-ons.
2 Restated. Refer to page 76.
3Portfolios on the standardised approach relate to the rest of Africa operations and, in addition, portfolios for which the application to adopt the internal models approach has not
yet been submitted, or for which an application has been submitted but approval has not yet been granted.
4 Retail other includes retail small and medium enterprises, vehicle and asset finance, and term lending exposures.
16
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Capital adequacy ratios
2015 SARB
minimum
regulatory
requirement
%
Total capital adequacy ratio
Tier I capital adequacy ratio
CET I capital adequacy ratio
10.0
8.0
6.5
Internal1
target
ratios
%
14.0 – 15.0
11.0 – 12.0
10.0 – 11.0
Including
unappropriated profits
Excluding
unappropriated profits
June 2015
%
December 2014
%
June 2015
%
December 2014
%
16.1
13.7
13.2
15.5
12.9
12.4
14.5
12.0
11.6
14.1
11.5
11.0
1Following an internal review and taking into account global trends, the group’s CET internal target range (including unappropriated profits) has been revised from 9.5% – 10.5%
to 10.0% – 11.0%.
Capital adequacy ratios of banking subsidiaries
Host tier I
regulatory
requirements
%
Standard Bank Group
The Standard Bank of
South Africa Group3
Rest of Africa
CfC Stanbic Bank (Kenya)
Stanbic Bank Botswana
Stanbic Bank Ghana
Stanbic Bank Tanzania
Stanbic Bank Uganda
Stanbic Bank Zambia
Stanbic Bank Zimbabwe
Stanbic IBTC Bank (Nigeria)
Standard Bank de Angola
Standard Bank Malawi
Standard Bank Mauritius
Standard Bank Mozambique
Standard Bank Namibia
Standard Bank RDC
(Democratic Republic of Congo)
Standard Bank Swaziland
Standard Lesotho Bank
Outside Africa
Standard Bank Isle of Man
Standard Bank Jersey
Host total
regulatory
requirements
%
December 20142
June 2015
Tier I capital
%
Total capital
%
Tier I capital
%
Total capital
%
8.01
10.01
13.7
16.1
12.9
15.5
8.01
10.01
12.4
15.8
12.3
15.8
10.5
7.5
6.7
12.5
8.0
5.0
8.0
5.0
5.0
10.0
7.5
4.0
7.0
14.5
15.0
10.0
14.5
12.0
10.0
12.0
10.0
10.0
15.0
10.0
8.0
10.0
15.7
13.9
12.5
15.8
15.2
16.5
20.1
10.6
16.3
17.8
21.1
12.3
10.3
18.9
22.9
12.7
17.7
17.0
19.8
23.2
13.9
22.4
20.5
29.0
12.6
13.9
16.9
11.7
13.1
17.4
18.1
20.0
20.6
10.9
12.8
17.5
12.9
9.3
10.9
20.5
20.0
14.0
19.4
19.8
23.5
23.7
14.4
18.1
20.3
18.5
9.7
13.0
5.0
4.0
4.0
10.0
8.0
8.0
17.3
11.5
15.2
26.4
15.6
16.1
16.9
11.9
10.1
24.8
16.5
10.9
10.0
11.0
11.9
9.2
13.7
13.2
10.6
9.7
12.5
14.0
1Represents 2015 SARB Basel III minimum capital requirements.
2 Restated. Refer to page 76.
3Incorporating:
– The Standard Bank of South Africa Limited (SBSA).
17
Risk and capital management report
Capital management | continued
Economic capital
Economic capital adequacy is the internal basis for measuring and
reporting all quantifiable risks on a consistent risk-adjusted basis. The
group assesses its economic capital adequacy by measuring its risk
profile under both normal and stress conditions.
ICAAP considers the qualitative capital management processes within
the organisation and includes the organisation’s governance, risk
management, capital management and financial planning standards
and frameworks. Furthermore, the quantitative internal assessments
of the organisation’s business models are used to assess capital
requirements to be held against all risks the group is or may become
exposed to, in order to meet current and future needs as well as to
assess the group’s resilience under stressed conditions.
Economic capital by risk type at end of the period
June
2015
Rm
December
2014
Rm
Credit risk
Equity risk
Market risk
Operational risk
Business risk
Interest rate risk in the
banking book
58 972
8 403
1 089
8 815
3 910
62 780
5 286
1 373
9 520
5 844
3 375
3 324
Economic capital requirement
84 564
88 127
135 128
131 257
1,6
1,5
Available financial resources
Economic capital
coverage ratio (times)
18
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Economic capital of R84,6 billion (31 December 2014: R88,1 billion)
is the amount of capital that is required to support the group’s
banking operations’ economic risk profile. For potential losses arising
from risk types that are statistically quantifiable, economic capital
reflects the worst-case loss commensurate with a confidence level of
99.92%.
Available financial resources refer to capital supply as defined by the
group for economic capital purposes and includes capital and reserve
funds after adjusting for certain non-qualifying items.
The available financial resources exceed the minimum economic
capital requirement by 160% (31 December 2014: 149%).
Risk-adjusted performance measurement
RAPM supports the maximisation of shareholder value by optimally
managing financial resources within the board-approved risk appetite.
Capital is centrally monitored and allocated, based on usage and
performance, in a manner that enhances overall group economic
profit and return on equity. Business units are held accountable for
achieving their RAPM targets. RAPM is calculated on both regulatory
and economic capital measures.
Cost of equity
The group’s rand-based cost of equity (CoE) is estimated using the
capital asset pricing model. CoE is recalibrated twice a year using the
latest estimates of risk-free rate, beta and equity risk premium.
The group applied a CoE of 13.0% as at 30 June 2015
(31 December 2014: 13.2%).
Risk appetite and
stress testing
Risk appetite is set, and stress testing
activities are undertaken, at a group level,
in business lines and at a legal entity level
within the risk appetite and stress testing
governance frameworks.
Governance
19
Governance
19
19
21
Risk appetite
• Risk appetite governance framework
• Risk appetite statement
21
21
21
Stress testing
• Stress testing governance framework
• Stress testing programme
The primary management level governance committee overseeing
risk appetite and stress testing is the group risk appetite and stress
testing committee. It is chaired by the group CRO and is a
subcommittee of GROC.
The principal governance documents are the risk appetite governance
framework and the stress testing governance framework.
Risk appetite
Risk appetite governance framework
The risk appetite governance framework provides guidance on
the following:
setting and cascading of risk appetite by group, business line
and legal entity
measurement and methodology
governance
monitoring and reporting of the risk profile.
The group has adopted the following definitions, where entity refers
to a business line or legal entity within the group, or the group itself:
Risk appetite: An expression of the amount or type of risk an
entity is generally willing to take in pursuit of its financial and
strategic objectives, reflecting its capacity to sustain losses and
continue to meet its obligations as they fall due, under both
normal and a range of stress conditions. The metric is referred to
as a risk appetite trigger.
Risk tolerance: The maximum amount of risk an entity is
prepared to tolerate above risk appetite. The metric is referred to
as a risk tolerance limit.
Risk capacity: The maximum amount of risk the entity is able to
support within its available financial resources.
Risk appetite statement (RAS): The documented expression of
risk appetite and risk tolerance which have been approved by the
entity’s relevant governance committee. The RAS is reviewed and
revised, if necessary, on an annual basis.
Risk profile: The risk profile is defined in terms of three
dimensions, namely
current risk profile or forward risk profile
unstressed or stressed risk profile
pre- or post-management actions.
19
Risk and capital management report
Risk appetite and stress testing | Risk appetite continued
The current risk profile is the amount or type of risk to which the entity is currently exposed. The unstressed forward risk profile is the forwardlooking view of how the entity’s risk profile is expected to evolve under expected conditions. The effectiveness of available management actions
can be assessed through an analysis of pre- and post-management action risk profiles against risk appetite triggers and tolerance limits.
The diagram below provides a schematic view of the three levels of risk appetite and the integral role that risk types play in the process
of cascading risk appetite from dimensions such as regulatory capital, economic capital, stressed earnings and liquidity to more granular
portfolio limits.
Risk appetite
Level 1
Risk appetite dimensions (quantitative)
Regulatory
capital
Economic
capital
Stressed
earnings
Liquidity
Credit and equity
risk
Operational
risk
Market
risk
Interest rate
risk
Business
risk
Liquidity
risk
Business
risk e.g.
Liquidity
risk e.g.
Capital demand/earnings at risk utilisation per risk type
Level 3
Portfolio limits by risk type
Credit and
equity risk e.g.
Credit loss ratio
Non-performing
loan %
Concentrations
20
Operational
risk e.g.
Operational
losses % to
total income
Market
risk e.g.
Normal and
stressed
value-at-risk
(SVaR) limits
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Interest rate
risk e.g.
Interest rate
sensitivity
Cost-to-income
ratio
Net stable funding
ratio (NSFR)
RAS
Level 2
Risk appetite dimensions by risk type
Risk appetite statement
Executive management is responsible for recommending the group’s
RAS, which is then approved by the GRCMC on behalf of the board.
In developing the RAS, executive management considers the group’s
strategy and the desired balance between risk and return. The
GRCMC reviews the group’s current risk profile on a quarterly basis
and forward risk profile (both stressed and unstressed) at least
annually.
Level 1 risk appetite dimensions can be either qualitative or
quantitative. Quantitative level 1 risk appetite dimensions relate to
available financial resources and earnings volatility. The standardised
quantitative dimensions used by the group, as well as legal entities
and business lines, are:
stressed earnings
economic capital
regulatory capital
liquidity (short-term liquidity and term liquidity).
Level 2 risk appetite represents the allocation of level 1 risk appetite
to risk types. Specifically, the contribution of individual risk types to
earnings volatility and overall capital demand (both economic and
regulatory) is controlled through triggers and limits.
Level 3 consists of key metrics used to monitor the portfolio.
Portfolio triggers and limits are required to be broadly congruent with
level 1 and level 2 triggers and limits. These metrics are regularly
monitored at a risk type level and ensure proactive risk management.
Stress testing
Stress testing governance framework
Stress testing is a key management tool within the group and is used
to evaluate the sensitivity of the current and forward risk profile
relative to risk appetite. Stress testing supports a number of business
processes, including:
strategic planning and financial budgeting
the ICAAP, including capital planning and management, and the
setting of capital buffers
liquidity planning and management
informing the setting of risk appetite triggers and risk
tolerance limits
identifying and proactively mitigating risks through actions such
as reviewing and changing limits, limiting future and reducing
current exposures, and hedging thereof
facilitating the development of risk mitigation or contingency
plans, including recovery plans, across a range of stressed
conditions
supporting communication with internal and external
stakeholders.
Stress testing within the group is broadly aligned and subject to the
group’s stress testing governance framework which sets out the
responsibilities for and approaches to stress testing activities. Stress
tests are conducted at group, business line, material legal entity and
risk type level. Fit-for-purpose stress testing programmes are
implemented for the group to ensure appropriate coverage of the
different risks.
Stress testing programme
The group’s stress testing programme uses one or a combination of
stress testing techniques, including scenario analysis, sensitivity
analysis and reverse stress testing to perform stress testing for
different purposes.
Routine groupwide macroeconomic stress testing
Routine macroeconomic stress testing is conducted across all major
risk types on an integrated basis for a range of economic scenarios
varying in severity from mild to very severe but plausible
macroeconomic shocks. The impact, after consideration of mitigating
actions, on the group’s income statement, SOFP and capital demand
and supply of the group is measured against risk appetite.
Groupwide macroeconomic stress testing for the group and SBSA is
performed, as a minimum, once a year for selected scenarios that are
specifically designed by a scenario working group targeting the
group’s risk profile, geographical presence and strategy.
The results of the groupwide macroeconomic stress testing are
presented at a board level for the group and SBSA in order to
consider whether the group’s risk profile is consistent with the
group’s risk appetite and to set the capital buffer. Groupwide
macroeconomic stress testing results are submitted as part of the
annual ICAAP.
Additional stress testing
Groupwide macroeconomic stress testing results are supplemented
with additional ad hoc stress testing at the group, legal entity,
business line, or risk type level that may be required from time-totime for risk management or planning purposes. The purpose of this
stress testing is to inform management of risks that may not yet form
part of routine stress testing or where the focus is on a specific
portfolio or business unit. Additional stress testing can take the form
of either scenario analysis or sensitivity analysis. This type of stress
testing will be performed and governed at the appropriate group,
legal entity, business line, or risk type level. The focus of additional
stress tests for 2015 include various commodity-related stress tests,
the impact of infrastructure challenges and interest rate scenarios.
Supervisory stress tests
Regulators may call for the group or a legal entity to run a
supervisory stress test using a common scenario with prescribed
assumptions and methodologies.
21
Risk and capital management report
Risk appetite and stress testing | Stress testing continued
Business model stress testing
Business model stress testing utilises the reverse stress testing
technique to explore vulnerabilities in a particular strategy or
business model. The outcome does not necessarily target business or
bank failure, but rather seeks to inform what could have a severe
impact, given a plausible but in most cases highly improbable event
within a given set of circumstances and assumptions.
The purpose of business model stress testing is to identify potential
vulnerabilities by:
assuming the business model is severely impacted
identifying potential circumstances/scenarios that could have led
to this impact
identifying vulnerabilities in the business model, human capital,
infrastructure and control framework, as and when highlighted by
underlying failures
reviewing the existing risk mitigants
supplementing risk mitigants if considered necessary.
Stress testing for the recovery plan
As part of the annual review of the group’s recovery plan, the
group’s procedures require the execution of stress tests in order to
test the effectiveness of the recovery options proposed in the
recovery plan, and to provide guidance on the selection of early
warning indicators. The range of scenarios that are considered include
both systemic, group-specific and combination events as well as
fast- and slow-moving scenarios.
Risk type stress testing
Risk type stress tests apply to individual risk types. Risk type stress
testing could take the form of scenario or sensitivity analysis.
22
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Credit risk
Definition
Credit risk is the risk of loss arising out
of the failure of counterparties to meet
their financial or contractual obligations
when due. Credit risk comprises
counterparty (i.e. obligor)1 risk and
concentration risk.
23
Definition
23
Approach to managing credit risk
23
Governance
24
24
24
27
27
Approved regulatory capital approaches
• Standardised approach
• Internal ratings-based approach
• Equity portfolio
• Use of internal estimates
28
Credit portfolio characteristics and metrics
in terms of Basel
• Credit portfolio analysis
• Credit risk mitigation
• Counterparty credit risk
• Securitisation
28
36
38
40
42
42
42
Credit portfolio characteristics and metrics
in terms of IFRS
• Analysis of loans and advances
• Maximum exposure to credit risk
Approach to managing credit risk
The group’s credit risk comprises mainly wholesale and retail loans
and advances, underwriting and guarantee commitments together
with the counterparty credit risk arising from derivative and securities
financing contracts entered into with our customers, clients and
market counterparties.
The group manages credit risk through:
maintaining a culture of responsible lending and a robust risk
policy and control framework
identifying, assessing and measuring credit risk across the group,
from the level of individual facilities up to the total portfolio
defining, implementing and continually re-evaluating our risk
appetite under actual and stressed conditions
monitoring the group’s credit risk exposure relative to limits
ensuring that there is expert scrutiny and approval of credit risks
and its mitigation independently of the business functions.
Primary responsibility for credit risk management resides with the
business lines within the group’s business units. This is complemented
by an independent credit risk function embedded within the business
units, which is in turn supported with standards and oversight
provided through the group risk function.
Governance
The primary management level governance committees overseeing
credit risk are the CIB and PBB credit governance committees, the
group ERC and the intragroup exposure committee, which are all
GROC subcommittees. These committees are responsible for credit
risk and credit concentration risk decision-making, and delegation
thereof to credit officers and committees within defined parameters.
The PBB, CIB and group model approval committees approve key
aspects of rating systems and credit risk models.
Regular model validation and reporting to these committees is
undertaken by the central validation function that is independent of
the credit risk function.
The principal governance documents are the group credit risk
governance standard and the model risk governance framework.
1As distinct from ‘counterparty credit risk’ which is specific to the bilateral credit risks arising between trading counterparties.
23
Risk and capital management report
Credit risk | Governance continued
Approved regulatory capital approaches
The group has approval from the SARB to adopt the AIRB approach
for most credit portfolios in SBSA. The group has adopted the
standardised approach for its rest of Africa portfolios and for some of
its less material subsidiaries and portfolios. The group has approval
from the SARB to adopt the market-based and PD/LGD approaches
for material equity portfolios.
Standardised approach
The calculation of regulatory capital is based on a risk weighting and
the net counterparty exposures after recognising a limited set of
qualifying collateral. The risk weighting is based on the exposure
characteristics and, in the case of corporate, bank and sovereign
exposures, the external agency credit rating of the counterparty. In
the case of counterparties for which there are no credit ratings
available, exposures are classified as unrated for determining
regulatory capital requirements.
Basel: Exposure subject to the standardised approach per risk weighting
June 2015
Exposure
Rm
Mitigation1
Rm
Exposure after
mitigation
Rm
December
2014
Exposure after
mitigation
Rm
Based on risk weights
0% – 35%
50%
33 081
62 956
33 081
62 956
55 239
27 913
Rated
Unrated
3 819
59 137
3 819
59 137
340
27 573
75%
100% and above
56 588
198 455
249
14 381
56 339
184 074
31 554
210 046
Rated
Unrated
3
198 452
14 381
3
184 071
36
210 010
Total
351 080
14 630
336 450
324 752
1Constitutes eligible financial collateral.
Internal ratings-based approach
Introduction
Under the IRB regulatory capital approaches the calculation of
regulatory capital is based on an estimate of exposure at default (EAD)
and a risk weighting. The risk weighting is based on asset class,
and estimates of PD, LGD, and maturity. Under the AIRB approaches
all the parameters need to be estimated internally, while only PD is
estimated internally under the FIRB approach. EAD, LGD and maturity
are regulatory-prescribed under the FIRB approach. All IRB models
are managed under model development and validation policies that
set out the requirements for model governance structures and
processes, and the technical framework within which model
performance and appropriateness is maintained. The models are
developed using internal historical default and recovery data. In
low-default portfolios, internal data is supplemented with external
24
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
benchmarks and studies. Models are assessed frequently to ensure
ongoing appropriateness as business environments and strategic
objectives change, and are recalibrated annually using the most
recent internal data.
IRB risk components
Probability of default
The group uses a 25-point master rating scale to quantify the credit
risk for each borrower (corporate asset classes) or facility (retail asset
classes), as illustrated in the table on the next page. Ratings are
mapped to PDs by means of calibration formulae that use historical
default rates and other data from the applicable portfolio. The group
distinguishes between through-the-cycle PDs and point-in-time PDs,
and utilises both measures in decision-making, managing credit risk
exposures and measuring impairments against credit exposures.
Credit rating scales1
Group master rating
scale
Grading
Moody’s
Investor
Services
Standard &
Poor’s
Fitch
Aaa, Aa1, Aa2, Aa3
AAA, AA+, AA, AA-
AAA, AA+, AA, AA-
A1, A2, A3
A+, A, A-
A+, A, A-
Baa1, Baa2, Baa3
BBB+, BBB, BBB-
BBB+, BBB, BBB-
Ba1, Ba2, Ba3,
B1, B2, B3
BB+, BB, BB-,
B+, B, B-
BB+, BB, BB-,
B+, B, B-
Close monitoring
Caa1, Caa2,
Caa3, Ca
CCC+, CCC, CCC-
CCC+, CCC, CCC-
Default
C
D
D
Credit quality
1–4
5–7
Investment grade
Normal monitoring
8 – 12
13 – 21
22 – 25
Default
Sub-investment
grade
Default
1The table describes the internally defined relationship between the group master rating scale, generally accepted defined investment gradings, the group’s credit quality
definitions (as described and disclosed further on page 42 – 47) and external rating scales.
Loss given default
LGD measures are a function of customer type, product type,
seniority of loan, country of risk and level of collateralisation.
LGDs are estimated based on historic recovery data per category of
LGD. A downturn LGD is used in the estimation of the capital charge
and reflects the anticipated recovery rates in a downturn period.
Exposure at default
EAD captures the impact of potential draw-downs against unutilised
facilities and potential changes in counterparty credit risk positions
due to changes in market prices. By using historical data, it is possible
to estimate an account’s average utilisation of limits when default
occurs, recognising that customers may use more of their facilities as
they approach default.
Expected loss
The expected loss provides a measure of the value of the credit
losses that may reasonably be expected to occur in the portfolio.
Provisions must be sufficient to cover the expected losses in the
credit portfolio. In its most basic form the expected loss can be
represented as: PD x EAD x LGD.
25
Risk and capital management report
Credit risk | Approved regulatory capital approaches continued
Basel: Analysis of PDs, EADs and LGDs by risk grade under the IRB approach
Corporate
Average
PD
%
Total
EAD1
Rm
EAD
Rm
LGD
%
Sovereign
Exposure
weighted
average risk
weight2
%
EAD
Rm
LGD
%
Banks
Exposure
weighted
average risk
weight2
%
EAD
Rm
LGD
%
Exposure
weighted
average risk
weight2
%
June 2015
Non-default
1–4
5–7
8 – 12
13 – 21
22 – 25
Default
0.02
0.06
0.28
2.14
30.92
100.00
Total
989 922
322 864
112 151
7 406
65 776
436 261
446 024
34 455
34
18 398
164 685
139 082
665
35.48
39.98
27.24
27.31
27.47
8.62
18.01
33.55
61.68
124.10
90.78
29 304
5 584
35.87
1 019 226
328 448
28.14
90 814
3 931
25.26
2.16
100 060
8 118
42
27.22
14.82
35.89
20.10
34.61
181.85
19
36.98
84.54
112 170
26.26
1 602
40 803
43 629
4 780
37.50
38.39
42.18
49.57
90 814
40.78
10.08
18.57
35.73
102.13
December 2014
Non-default
976 138
307 178
1–4
5–7
8 – 12
13 – 21
22 – 25
0.02
0.06
0.28
2.15
30.42
24 998
57 445
402 742
455 352
35 601
2 848
12 324
140 871
150 058
1 077
16.87
41.67
30.28
28.52
30.61
18.52
24.31
37.90
67.74
165.48
17 220
328
96 819
4 921
55
45.00
45.00
27.20
29.19
39.54
8.27
27.53
17.26
64.33
220.20
2 979
36 992
36 146
8 968
39.23
41.65
43.45
47.93
Default
100.00
30 675
8 349
40.48
84.04
9
33.07
44.24
69
45.29
1 006 813
315 527
30.04
119 352
29.90
85 154
42.99
Total
119 343
85 085
12.70
24.50
44.19
92.29
1Excludes equity EAD.
2Exposure weighted average risk weights have been weighted by the sum of the EAD within each of the PD bands.
Corporate, sovereign and bank portfolios
Retail portfolio
Corporate entities include large companies as well as small and
medium enterprises that are managed on a relationship basis or have
a combined exposure to the group of more than R7,5 million.
Corporate exposures also include specialised lending (project, object
and commodity finance as well as income-producing real estate),
public sector entities and central counterparties (CCPs).
Retail mortgage exposures relate to mortgage loans to individuals
and are a combination of both drawn and undrawn EADs.
Sovereign and bank borrowers include sovereign government
entities, central banks, local and provincial government entities, bank
financial institutions and non-bank financial institutions.
The creditworthiness of corporate (excluding specialised lending),
sovereign and bank exposures is assessed based on a detailed
individual assessment of the financial strength of the borrower. This
quantitative analysis coupled with a detailed qualitative analysis of
the entity together with expert judgement and external rating agency
ratings, leads to an assignment of an internal rating to the entity.
Specialised lending’s creditworthiness is assessed on a transactional
level, rather than on the financial strength of the borrower, as the
group relies on repayment from the cash flows generated by the
underlying asset.
26
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
QRRE relates to cheque accounts, credit cards and revolving personal
loans and products, and include both drawn and undrawn exposures.
Retail other covers other branch lending and vehicle finance for
retail, retail small and retail medium enterprise portfolios. Branch
lending includes both drawn and undrawn exposures, while vehicle
and asset finance only has drawn exposures.
Internally developed behavioural scorecards are used to measure the
anticipated performance for each account. Mapping of the behaviour
score to a PD is performed for each portfolio using a statistical
calibration of portfolio-specific historical default experience.
The behavioural scorecard PDs are used to determine the portfolio
distribution on the master rating scale. Separate LGD models are
used for each product portfolio and are based on historical recovery
data. EAD is measured as a percentage of the credit facility limit
and is based on historical averages. EAD is estimated per portfolio
and per portfolio-specific segment, using internal historical data on
limit utilisation.
Retail mortgages
EAD
Rm
LGD
%
QRRE
Exposure
weighted
average risk
weight2
%
300 725
EAD
Rm
LGD
%
Retail other
Exposure
weighted
average risk
weight2
%
76 133
111
1 283
104 856
171 917
22 558
12.29
13.14
12.72
15.37
17.43
1.24
2.44
8.39
30.92
91.92
14 566
19.21
4.18
315 291
14.80
299 845
EAD
Rm
LGD
%
Equity
Exposure
weighted
average risk
weight2
%
87 235
2 351
8 292
59 233
6 257
62.90
63.06
64.90
64.77
3.12
8.71
56.54
176.68
5 431
64.34
63.05
81 564
64.61
1 728
2 941
14 739
62 894
4 933
38.41
41.69
41.03
34.42
43.57
4.53
7.44
22.64
47.40
110.90
3 704
44.19
2.42
90 939
36.69
75 014
89 673
1.18
2.38
8.20
31.15
94.77
2 613
8 281
57 893
6 227
62.90
63.05
64.90
64.77
3.27
9.19
56.71
177.46
1 834
3 731
14 526
64 756
4 826
38.41
41.68
41.01
34.41
43.55
4.38
7.83
24.74
49.04
110.12
13 622
19.25
3.27
4 942
64.34
57.31
3 684
44.21
1.35
313 467
14.78
79 956
64.60
93 357
36.67
The market-based and PD/LGD approaches are used to model the
capital requirement for equity exposure. The market-based approach
includes portfolios subject to the simple risk-weight method. For the
PD/LGD approach, the group’s approved credit risk grade models are
used together with the regulatory prescribed LGD of 90% and
maturity factor of five years.
500
2 462
0.29
1.43
78
3 040
12.29
13.14
12.71
15.36
17.43
Equity risk held on the banking book is substantively controlled in
accordance with the credit risk governance standard, except insofar
as it is approved and overseen under the mandate of the ERC rather
than under the normal credit risk delegated authority structures.
Please refer to page 66 for more information regarding equity risk
on the banking book.
PD
%
2 962
117
1 457
106 099
168 756
23 416
Equity portfolio
Exposure
Rm
2 759
304
2 455
0.26
1.24
78
2 837
Equity exposures under the simple risk-weight method
June
2015
Rm
December
2014
Rm
Listed
Unlisted
97
830
89
1 056
Total
927
1 145
Use of internal estimates
The group’s credit risk rating systems and processes differentiate and
quantify credit risk across counterparties and asset classes. Internal
risk parameters are used extensively in risk management and business
processes, including:
setting risk appetite
setting limits for concentration risk and counterparty limits
credit approval and monitoring
pricing transactions
determining portfolio impairment provisions
calculating economic capital.
27
Risk and capital management report
Credit risk | continued
Credit portfolio characteristics and metrics in terms of Basel
Credit portfolio analysis
The credit portfolio is analysed in the tables that follow in terms of the Basel approach and asset class.
Basel: Exposure by approach and asset class1
On-balance sheet
Standardised
Rm
Off-balance sheet
Securities financing transactions
AIRB
Rm
Standardised
Rm
111 059
83 006
53 405
46 049
264 020
107 750
59 085
444 613
34 730
1 713
2 638
12 179
99 823
9 635
9 622
84 699
14 340
1 486
31 709
302 981
62 394
79 238
10 693
29 339
34 508
20 852
293 519
875 468
51 260
230 356
97 579
34 496
438 181
30 313
521
1 918
11 635
300 478
59 679
78 024
1 782
800 612
44 387
FIRB
Rm
FIRB
Rm
AIRB
Rm
Standardised
Rm
FIRB
Rm
AIRB
Rm
June 2015
Corporate
Sovereign
Banks
Retail exposure
Retail mortgages
QRRE
Other retail
Total
1 443
626
42 748
7 740
111 886
203 779
2 069
162 374
96 778
8 688
11 997
89 163
2 019
2 024
147
15 267
14 112
40 369
7 670
73 790
4 190
29 379
121 829
December 2014
Corporate
Sovereign
Banks
Retail exposure
Retail mortgages
QRRE
Other retail
Total
107 392
77 148
23 677
47 892
12 622
16 957
14 202
14 633
3
33 256
256 109
43 781
1Amount before the application of any offset, mitigation or netting.
28
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
54
69
30 463
35 927
22 773
9 853
123
206 626
Derivative instruments
Standardised
Rm
FIRB
Rm
3 318
106
808
32 596
20 497
540
73 889
94 926
Standardised
Rm
EAD
Gross
past due
but not
impaired
exposures
Rm
Impairment of exposures
Gross
defaulted
exposures1
Rm
AIRB
Rm
Total
Rm
150 550
85 451
56 851
58 228
421 883
126 967
213 561
529 312
572 433
212 418
270 412
587 540
328 448
112 170
90 814
487 794
2 269
1
8 387
19
3 823
6
33 265
27 182
10 298
15 826
42 402
332 320
96 902
100 090
348 146
96 902
142 492
315 291
81 564
90 939
19 937
6 406
6 922
15 303
5 561
6 318
3 915
3 247
3 136
50 102
351 080
1 291 723
1 642 803
1 019 226
35 535
35 588
14 127
15 944
4 733
35 073
171 365
79 925
26 465
59 527
383 447
118 670
155 356
527 344
603 252
216 092
284 093
586 871
289 073
101 633
56 503
486 780
1 621
1
30 397
10 540
9
70
25 575
3 372
3
61
10 017
16 415
3
43 109
330 941
95 606
100 797
347 356
95 609
143 906
313 467
79 956
93 357
16 940
4 076
9 381
14 273
5 061
6 241
3 513
2 967
3 537
337 282
168 209 1 184 817
1 690 308
933 989
32 019
36 194
13 453
AIRB
Rm
15 292
1 842
32 968
4 232
31 641
232
723
Total by approach
55 750
FIRB
Rm
48 440
17 497
102 272
FIRB
Rm
26 454
17 719
28 651
72 824
AIRB
Rm
Specific
Rm
Portfolio
Rm
6 114
5 315
29
Risk and capital management report
Credit risk | Credit portfolio characteristics and metrics in terms of Basel continued
Basel II: Exposure by approach and asset class (Rbn)
450
400
350
300
250
200
150
100
50
Corporate
Sovereign
Banks
Retail mortgages
● Standardised June 2015
● FIRB June 2015
● AIRB June 2015
● Standardised December 2014
● FIRB December 2014
● AIRB December 2014
Concentration risk
Concentration risk is the risk of loss arising from an excessive
concentration of exposure to a single counterparty, an industry, a
product, a geography, maturity, or collateral. The group’s credit risk
portfolio is well diversified. The group’s management approach relies
on reporting of concentration risk along key dimensions, the setting
of portfolio limits and stress testing.
30
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
QRRE1
Other retail
Basel: Exposures by type of asset and industry1
Securities
financing
transactions
Rm
On-balance
sheet
Rm
Off-balance
sheet
Rm
27 559
42 797
65 569
19 523
10 946
65 655
23 864
5 161
37 280
18 910
9 164
10 273
22 619
19 246
275 956
432 038
205 080
48 621
68 369
15 396
163 817
626
1 168 987
255 039
164 443
22 775
39 964
62 641
15 065
12 386
63 032
22 324
5 684
31 861
25 491
7 629
10 743
23 029
16 665
245 740
426 371
190 204
41 815
70 423
17 796
146 546
2 225
1 100 502
251 136
155 398
Gross
defaulted
exposures1
Rm
Impairment of exposures
Derivative
instruments
Rm
Total gross
exposure
Rm
47
39
275
835
461
278
391
32 767
80 116
84 754
29 522
21 680
88 552
43 501
866
2 177
801
997
421
2 932
888
236
916
460
348
154
1 497
365
51 862
146
540 256
500 407
221 248
1 656
23 353
1 497
905
8 506
740
54 334
1 642 803
35 588
14 127
55
588
4 698
3 858
466
6 326
1 433
28 514
72 413
93 294
26 552
23 595
98 550
40 422
685
2 112
852
216
1 403
4 897
1 628
285
857
478
89
294
1 665
395
165 436
412
599 537
496 794
210 637
1 458
21 781
1 162
571
8 136
683
183 272
1 690 308
36 194
13 453
Specific
Rm
Portfolio
Rm
June 2015
Agriculture
Mining
Manufacturing
Electricity
Construction
Wholesale
Transport
Finance, real estate and
other business services
Private households
Other
Total
6 114
December 2014
Agriculture
Mining
Manufacturing
Electricity
Construction
Wholesale
Transport
Finance, real estate and
other business services
Private households
Other
Total
464
6 163
5 315
1Amount before the application of any offset, mitigation or netting.
Basel: Total gross exposure by type of industry (%)
● 33 Finance, real estate and other
business services
● 30 Private households
● 13 Other
● 5 Wholesale
● 19 Agriculture, mining, manufacturing,
electricity, construction and transport
(December 2014: 35)
(December 2014: 29)
(December 2014: 12)
(December 2014: 6)
(December 2014: 18)
31
Risk and capital management report
Credit risk | Credit portfolio characteristics and metrics in terms of Basel continued
Basel: Exposures by type of asset and geographic region1
Securities
financing
transactions
Rm
Gross
defaulted
exposures1
Rm
Impairment of exposures
Derivative
instruments
Rm
Total gross
exposure
Rm
1 047 884
292 087
199 653
57 249
29 127
11 592
5 211
26 737
7 130
10 012
2 774
1 384
1 077
20
16 831
1 472
23 570
5 740
6 698
1
22
182
155
150
114
255 039
164 443
54 334
1 642 803
35 588
14 127
747 098
237 128
64 394
29 005
9 361
10 822
2 694
190 729
39 438
9 730
5 184
4 947
544
564
21 328
4 101
109 477
14 863
519
4 766
344
22 928
2 732
119 017
17 281
20 454
608
252
982 083
283 399
302 618
66 333
35 281
16 740
3 854
24 784
7 498
70
3 503
9 297
2 617
61
1 225
174
165
140
113
1 100 502
251 136
155 398
183 272
1 690 308
36 194
13 453
On-balance
sheet
Rm
Off-balance
sheet
Rm
812 629
244 273
38 952
45 926
11 711
11 190
4 306
191 933
42 560
9 238
3 202
6 842
401
863
26 491
3 782
127 893
2 381
3 876
1 168 987
Specific
Rm
Portfolio
Rm
June 2015
South Africa
Other African countries
Europe
Asia
North America
South America
Other
Total
6 114
December 2014
South Africa
Other African countries
Europe
Asia
North America
South America
Other
Total
1Amount before the application of any offset, mitigation or netting.
Basel: Total gross exposure by geographic region (%)
● 64 South Africa (December 2014: 58)
● 18 Rest of Africa (December 2014: 17)
● 18 Outside Africa (December 2014: 25)
32
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
5 315
Basel: Exposures by residual contractual maturity1
Less than
1 year
Rm
1 to 5
years
Rm
Greater than
5 years
Rm
Total gross
exposure
Rm
247 559
144 216
199 146
163 851
283 325
53 651
57 973
64 619
41 549
14 551
13 293
359 070
572 433
212 418
270 412
587 540
4 431
96 902
62 518
2 991
340 724
61 628
18 346
348 146
96 902
142 492
754 772
459 568
428 463
1 642 803
288 276
153 666
212 334
165 309
272 969
45 307
56 775
67 621
42 007
17 119
14 984
353 941
603 252
216 092
284 093
586 871
4 641
95 609
65 059
2 828
339 887
64 793
14 054
347 356
95 609
143 906
819 585
442 672
428 051
1 690 308
June 2015
Corporate
Sovereign
Banks
Retail exposure
Retail mortgages
QRRE
Other retail
Total
December 2014
Corporate
Sovereign
Banks
Retail exposure
Retail mortgages
QRRE
Other retail
Total
1 Amount before the application of any offset, mitigation or netting.
33
Risk and capital management report
Credit risk | Credit portfolio characteristics and metrics in terms of Basel continued
Loss analysis
Estimated losses versus actual losses
Actual losses
The table on the next page provides a comparison of actual PDs,
LGDs and EADs to the estimated through-the-cycle PDs, LGDs
and EADs.
The table below shows the actual losses experienced in the group’s
IRB exposure classes during the six months ended 30 June 2015,
compared to the six months ended 30 June 2014.
Actual losses comprise impairments as determined by IFRS, and
exclude post write-off recoveries. The values displayed in the table
below exclude all standardised approach portfolios.
Basel: Analysis of actual losses1
June
2015
Rm
June
2014
Rm
Corporate
Retail exposure
641
3 617
572
3 994
Retail mortgages
QRRE
Other retail
1 220
1 605
792
1 301
2 130
563
Total
4 258
4 566
IRB exposure class
1Excludes post write-off recoveries and all the standardised approach portfolios.
Note that this comparison is an approximation as the PD, LGD and
EAD actual and estimated parameters are different for reasons
that include:
Estimated PDs are determined at the beginning of the 12-month
cycle using calibrated regulatory models. The models are
calibrated to long-run default experience to ensure stable
regulatory models over an entire credit cycle and would tend to
underestimate actual defaults at the top of the credit cycle and
overestimate actual defaults at the bottom of the credit cycle.
The actual PDs are the defaults experienced over the 12-month
period. A change in the vehicle and asset finance definition of
default has occurred between the 2013 and 2014 reporting
periods, resulting in different PD values for other retail exposure
class.
LGD estimates are determined at the beginning of the 12-month
cycle using the regulatory long-run average-based models that
include downturn adjustments. Actual LGD values can take several
years to be determined as defaulted exposures have to reach a
write-off stage to allow for accurate LGD calculations. In order to
determine comparable actual LGD values, all accounts that
reached a write-off stage during the prior three-year period were
used to determine the actual LGD values.
The EAD ratio reflects estimated through-the-cycle EADs,
used to derive the regulatory expected loss, as a percentage
of EADs derived from the actual losses. In order to be
meaningful the calculated EADs are computed as averages
over a three-year period.
The analysis is based on the AIRB portfolios only.
The zero or low level of bank and sovereign defaults, experienced in
the AIRB portfolio during the period and comparative periods, did not
allow for a meaningful calculation of actual LGD and PD values for
sovereign and banks’ values or a meaningful calculation of sovereign
or bank’s EAD ratios.
34
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Basel: IRB exposure class1
LGD2
PD
EAD
Estimated
%
Actual
%
Estimated
%
Actual
%
Estimate to
actual ratio
%
Corporate
Sovereign
Banks
Retail exposure
1.35
0.36
0.67
4.10
0.89
25.23
111.00
4.17
33.03
23.13
42.69
28.11
68.11
23.35
102.54
Retail mortgages
QRRE
Other retail
3.91
5.29
3.71
3.73
6.11
3.88
18.40
64.32
40.37
15.02
51.27
38.49
100.53
104.24
107.21
Total
2.25
1.98
28.45
23.59
102.75
Corporate
Sovereign
Banks
Retail exposure
1.60
2.23
0.93
4.01
0.62
21.96
110.10
4.57
33.00
29.22
40.74
27.10
22.91
102.72
Retail mortgages
QRRE
Other retail
3.97
4.91
3.43
4.21
6.33
4.22
18.64
63.72
42.25
15.53
51.21
41.98
101.11
104.47
106.51
Total
2.56
2.15
27.49
22.79
102.88
Corporate
Sovereign
Banks
Retail exposure
1.94
1.52
0.85
4.67
1.40
15.20
103.31
0.17
4.37
32.66
16.75
37.21
26.19
66.10
22.54
261.79
104.70
Retail mortgages
QRRE
Other retail
4.53
4.87
4.94
4.24
4.92
4.33
18.71
64.71
41.07
14.97
57.45
41.76
102.57
106.29
112.71
Total
2.83
2.27
26.56
22.27
105.07
June 2015
December 2014
December 2013
1 No data in the columns headed actual reflects either that no default occurred or, if there was a default, there was no loss incurred.
2 Excludes FIRB portfolios.
35
Risk and capital management report
Credit risk | Credit portfolio characteristics and metrics in terms of Basel continued
Credit risk mitigation
Collateral, guarantees, credit derivatives and on- and off-balance
sheet netting are widely used to mitigate credit risk. Credit risk
mitigation policies and procedures ensure that credit risk mitigation
techniques are acceptable, used consistently, valued appropriately
and regularly, and meet the risk requirements of operational
management for legal, practical and timely enforcement. Detailed
processes and procedures are in place to guide each type of
mitigation used.
The main types of collateral obtained by the group for its banking
book exposures include:
mortgage bonds over residential, commercial and industrial
properties
cession of book debts
bonds over plant and equipment
the underlying movable assets financed under leases and
instalment sales.
Reverse repurchase agreements and commodity leases to customers
are collateralised by the underlying assets.
Guarantees and related legal contracts are often required, particularly
in support of credit extension to groups of companies and weaker
counterparties. Guarantor counterparties include banks, parent
companies, shareholders and associated counterparties.
Creditworthiness is established for the guarantor as for other
counterparty credit approvals.
For derivative transactions, the group typically uses internationally
recognised and enforceable International Swaps and Derivatives
Association agreements, with a credit support annexure, where
collateral support is considered necessary. Other credit protection
terms may be stipulated, such as limitations on the amount of
unsecured credit exposure acceptable, collateralisation if the
mark-to-market credit exposure exceeds acceptable limits, and
termination of the contract if certain credit events occur, for example,
downgrade of the counterparty’s public credit rating.
36
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Wrong-way risk arises in transactions where the likelihood of
default by a counterparty and the size of credit exposure to that
counterparty tend to increase at the same time. This risk is managed
both at an individual counterparty level and at an aggregate portfolio
level by limiting exposure to such transactions, taking adverse
correlation into account in the measurement and mitigation of credit
exposure and increasing oversight and approval levels.
To manage actual or potential portfolio risk concentrations in areas of
higher credit risk and credit portfolio growth, the group implements
hedging and other strategies from time-to-time. This is done at
individual counterparty, sub-portfolio and portfolio levels through the
use of syndication, distribution and sale of assets, asset and portfolio
limit management, credit derivatives and credit protection.
Basel II: Exposure and mitigation by asset class (Rbn)
700
600
500
400
300
200
100
Corporate
Banks
Sovereign
Retail
● Gross exposure June 2015
● Credit risk mitigation June 2015
● Gross exposure
December 2014
● Credit risk mitigation
December 2014
Basel: Credit risk mitigation for portfolios under the IRB approach
Eligible
financial
collateral
Rm
Other
eligible IRB
collateral
Rm
Guarantees
and credit
derivatives
Rm
53 237
11 088
103 767
72 273
791
1 144
Effects
of netting
agreements1
Rm
Total
credit risk
mitigation
Rm
Total
exposure
Rm
373 153
138 880
13 330
140 753
373 153
421 883
126 967
213 561
529 312
315 516
248
57 389
315 516
248
57 389
332 320
96 902
100 090
June 2015
Corporate
Sovereign
Banks
Retail exposures
Retail mortgages
QRRE
Other retail
Total
12 226
1 451
36 986
168 092
446 217
1 144
50 663
666 116
1 291 723
64 600
8 031
94 386
69 867
1 708
6 173
29 773
4 344
103 898
374 992
170 413
14 083
198 284
374 992
431 887
136 167
257 628
527 344
317 036
305
57 651
317 036
305
57 651
330 941
95 606
100 797
757 772
1 353 026
Total
credit risk
mitigation
Rm
Total
exposure
Rm
December 2014
Corporate
Sovereign
Banks
Retail exposures
Retail mortgages
QRRE
Other retail
Total
167 017
446 567
6 173
138 015
1Netting is not equivalent to offsetting in terms of IFRS.
Basel: Credit risk mitigation for portfolios under the standardised approach
Eligible
financial
collateral
Rm
Guarantees
and credit
derivatives
Rm
Effects
of netting
agreements1
Rm
June 2015
Corporate
Sovereign
Banks
Retail exposures
14 381
Total
14 630
70
249
150 550
85 451
56 851
58 228
70
14 700
351 080
9 479
21 944
2
309
111
171 365
79 925
26 465
59 527
22 366
337 282
249
14 451
December 2014
Corporate
Sovereign
Banks
Retail exposures
12 166
2
251
111
299
Total
12 530
299
58
9 537
1Netting is not equivalent to offsetting in terms of IFRS.
37
Risk and capital management report
Credit risk | Credit portfolio characteristics and metrics in terms of Basel continued
Counterparty credit risk
The group is exposed to counterparty credit risk through movements
in the fair value of securities financing and derivative contracts. The
risk amounts reflect the aggregate replacement costs that would be
incurred by the group in the event of counterparties defaulting on
their obligations.
The group’s exposure to counterparty credit risk is affected by the
nature of the trades, the creditworthiness of the counterparty, and
underlying netting and collateral arrangements. Counterparty credit
risk is measured in potential future exposure terms and recognised
on a net basis where netting agreements are in place and are legally
enforceable, or otherwise on a gross basis. Exposures are generally
marked-to-market daily. Cash or near cash collateral is posted where
contractually provided for.
Counterparty credit risk, reflecting both pre-settlement and
settlement risk, is subjected to explicit credit limits which are
formulated and approved for each counterparty and economic group,
with specific reference to its credit rating and other credit exposures
to that counterparty.
The tables that follow detail the group’s exposure to securities
financing transactions and derivatives.
38
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Basel: Securities financing transactions
June
2015
Rm
December
2014
Rm
Exposure
With master netting agreement
Without master netting agreement
21 066
143 377
29 164
126 233
Total
164 443
155 398
27 892
Collateral
Cash
Commodities
Debt securities
Equities
120 549
13 048
32 561
5 378
117 806
8 359
Total
161 489
164 105
EAD
20 084
9 250
Basel: Derivatives exposure
June 2015
December 2014
Centrally cleared
Centrally cleared
Noncentrally
cleared
Rm
On behalf
of clients
Rm
Total
exposure
to CCPs
Rm
Noncentrally
cleared
Rm
81 493
1 924
176 258
14
30 276
456 808
6 591
265 139
19
30 292
4 246 161
1 424 311
71 177
37 928
137 046
131 936
On behalf
of clients
Rm
Total
exposure
to CCPs
Rm
61 936
1 886
150 390
52
9 923
585 838
12 555
204 320
6 535
151 151
Notional principal amount1
Interest rate products
Forex and gold
Equities
Precious metals
Other commodities
Credit derivatives
Protection bought
Protection sold
Total
4 472 236
784 978
50 071
242
12 163
35 391
24 098
11 293
72 603
59 333
5 355 081
289 965
758 849
6 048 559
224 187
960 399
Gross positive fair value
52 099
398
1 837
168 495
1 473
13 304
Interest rate products
Forex and gold
Equities
Precious metals
Other commodities
Credit derivatives
24 357
24 652
2 308
2
25
306
1 116
58
606
2
14
1 370
459
323
65
57
35 154
93 473
1 997
2 291
33 285
2 295
4 256
49
2 796
33
6 170
Netted current credit exposure
(net fair value)
Protection bought
Protection sold
Netting benefits2
236
87
(40 454)
87
1 756
539
(242)
(331)
(148 625)
(1 059)
(5 021)
Total
11 645
156
1 506
19 870
414
8 283
EAD
21 392
1 228
11 038
59 756
1 263
20 861
Collateral
Cash
Gold
Debt securities
4 246
2 526
14 413
1
1 937
Total
6 772
16 351
1 Notional principal amount for derivative assets and liabilities.
2 Netting is not equivalent to offsetting in terms of IFRS.
39
Risk and capital management report
Credit risk | Credit portfolio characteristics and metrics in terms of Basel continued
Securitisation
The group uses SEs to securitise customer loans and advances that it
has originated to diversify its sources of funding for asset origination,
for capital efficiency purposes and to reduce risk. In addition, the
group plays a secondary role as an investor in certain third party
securitisation note issuances (SEs established by third parties).
Securitisation is a transaction whereby the credit risk associated with
an exposure, or pool of exposures, is tranched, typically through loan
notes, and where payments to investors via the loan notes in the
transaction are dependent upon the performance of the exposure or
pool of exposures.
The following SEs have been established by the group:
Blue Granite Investments No 1 (RF) Limited (BG 1)
Blue Granite Investments No 2 (RF) Limited (BG 2)
Blue Granite Investments No 3 (RF) Limited (BG 3)
Blue Granite Investments No 4 (RF) Limited (BG 4)
Siyakha Fund (RF) Limited (Siyakha)
Blue Titanium Conduit (RF) Limited (BTC)
A traditional securitisation involves the transfer of the exposures
being securitised to a structured entity (SE) which issues securities. In
a synthetic securitisation, the tranching is achieved by the use of
credit derivatives and the exposures are not removed from the SOFP.
Basel: Roles fulfilled in securitising assets
Securitisation transactions
Originator
Investor
Liquidity
provider
Servicer
Credit
enhancement
provider
Swap
counterparty
Traditional securitisations
BG 1
BG 2
BG 3
BG 4
Siyakha
Asset-backed commercial
paper programme
BTC
Third party transactions
Basel: Securitisation transactions
Assets
outstanding
Asset type
Year
initiated
BG 1
BG 23
BG 33
BG 43
Siyakha
Retail mortgages
Retail mortgages
Retail mortgages
Retail mortgages
Retail mortgages
2005
2006
2006
2007
2007
Asset-backed commercial paper programme
BTC4
Various
2002
Total
June
2015
Rbn
December
2014
Rbn
June
2015
Rbn
December
2014
Rbn
June
2015
Rbn
December
2014
Rbn
17,9
8,3
8,9
9,2
9,8
5,1
5,4
2032
2041
2032
2037
2043
4,6
2,8
3,0
5,1
2,4
0,9
1,9
1,5
2,5
1,5
1,0
2,0
1,6
2,7
1,6
1,0
2,1
1,7
2,8
1,6
1,1
2,2
1,8
3,0
1,7
0,9
1,2
1,0
1,1
0,9
1,0
1,2
1,1
1,2
0,9
N/A
N/A
4,3
4,1
4,3
4,1
0,7
0,7
17,9
12,6
13,0
13,5
13,9
5,8
6,1
1Capital plus accrued interest.
2 Includes notes and subordinated loans held by SBG.
3 Rating agency: Moody’s.
4 Rating agency: Fitch.
40
Retained
exposure1,2
Assets
securitised
Rbn
Expected
close
Traditional securitisations
3,4
Notes
outstanding1
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
For originated and sponsored or administered securitisations
consolidated under IFRS (that is, BG1 – 4, Siyakha and BTC),
intragroup exposures to and between these securitisations have been
eliminated and the underlying assets consolidated in the relevant
sections and classes (that is, primarily retail mortgages) of the risk
disclosure. Only exposures to securitisations of assets originated by
third parties are disclosed below. The approach applied in the
calculation of risk-weighted assets is dependent on the group’s
approved model for the underlying assets and the existence of a
rating from an eligible external credit assessment institution. To date,
the group has applied the standardised approach, ratings-based
approach and standard formula approach, where relevant, in the
calculation of risk-weighted assets.
For local securitisations in South Africa, Moody’s Investor Services
and/or Fitch act as rating agencies. R2 billion of securitisation
activities took place during the period ended 30 June 2015 (31
December 2014: R4,6 billion) (relates to the facilitation of the
securitisation of third-party assets into an SE that is not consolidated
by the group).
The transfer of assets by the group to an SE may give rise to the
full or partial derecognition of the financial assets concerned. Only in
the event that derecognition is achieved are sales and any resultant
gains or losses on disposals recognised in the financial statements.
Where the SEs are consolidated at group level, such gains or losses
are eliminated.
Basel: Securitised on-balance sheet exposures
June 2015
December 2014
Retail
mortgages
Rm
Retail
loans
Rm
Total
Rm
Total
Rm
Standardised – unrated1
IRB
850
235
571
235
1 421
2 175
Unrated1
Investment grade
362
488
571
362
1 059
766
1 409
Total
850
806
1 656
2 175
1This includes rated securitisation exposures whose ratings are not eligible for recognition from a regulatory perspective.
Basel III: Securitised off-balance sheet exposures
June 2015
December 2014
Retail
mortgages
Rm
Retail
loans
Rm
Total
Rm
Total
Rm
Standardised – unrated1
IRB
2 932
265
175
265
3 107
500
2 229
Unrated1
Investment grade
2 344
588
175
2 344
763
1 438
791
Total
2 932
440
3 372
2 729
1 This includes rated securitisation exposures whose ratings are not eligible for recognition from a regulatory perspective.
41
Risk and capital management report
Credit risk | continued
Credit portfolio characteristics and
metrics in terms of IFRS
Analysis of loans and advances
The tables on the pages that follow analyse the credit quality of loans
and advances measured in terms of IFRS.
Maximum exposure to credit risk
Loans and advances are analysed and categorised based on credit
quality using the following definitions.
Performing loans
Performing loans are classified into two categories, namely:
neither past due nor specifically impaired loans
early arrears but not specifically impaired loans.
These loans are current and fully compliant with all contractual terms
and conditions. Normal monitoring loans within this category are
generally rated 1 to 21, and close monitoring loans are generally
rated 22 to 25 using the group’s master rating scale.
Early arrears but not specifically impaired loans include those loans
where the counterparty has failed to make contractual payments and
payments are less than 90 days past due, but it is expected that,
most likely, the full carrying value will be recovered when considering
future cash flows, including collateral. Ultimate loss is unlikely but
could occur if the adverse conditions persist.
42
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Non-performing loans
Non-performing loans are those loans for which:
the group has identified objective evidence of default, such as a
breach of a material loan covenant or condition, or
instalments are due and unpaid for 90 days or more.
Non-performing but not specifically impaired loans are not specifically
impaired due to the expected recoverability of the full carrying value
when considering the recoverability of future cash flows, including
collateral.
Non-performing specifically impaired loans are those loans that are
regarded as non-performing and for which there has been a
measurable decrease in estimated future cash flows. Specifically
impaired loans are further analysed into the following categories:
Sub-standard: Items that show underlying well-defined
weaknesses and are considered to be specifically impaired.
Doubtful: Items that are not yet considered final losses due
to some pending factors that may strengthen the quality
of the items.
Loss: Items that are considered to be uncollectible in whole or in
part. The group provides fully for its anticipated loss, after taking
collateral into account.
Loans
Performing
loans
Non-performing
loans
Neither
past due nor
specifically
impaired loans
(Rm)
Early arrears
but not
specifically
impaired loans
(Rm)
Nonperforming but
not specifically
impaired loans
(Rm)
June 2015
June 2015
June 2015
June 2015
997 802
35 535
89
32 681
December 2014
December 2014
December 2014
December 2014
885 725
32 019
30
30 477
Normal
monitoring
(Rm)
Close
monitoring
(Rm)
Sub-standard
(Rm)
Doubtful
(Rm)
Specifically
impaired
loans
(Rm)
Loss
(Rm)
June 2015
June 2015
June 2015
June 2015
June 2015
980 551
17 251
7 154
21 250
4 277
December 2014
December 2014
December 2014
December 2014
December 2014
865 486
20 239
7 222
18 871
4 384
Portfolio credit impairments.
Specific credit impairments.
43
Risk and capital management report
Credit risk | Credit portfolio characteristics and metrics in terms of IFRS continued
IFRS: Maximum exposure to credit risk by credit quality
Performing loans
Neither past due nor
specifically impaired
Not specifically impaired
Gross
advances
total
Rm
Normal
monitoring
Rm
Close
monitoring
Rm
Early
arrears
Rm
Personal & Business Banking
611 365
534 804
16 088
33 960
Mortgage loans
Instalment sale and finance leases
Card debtors
Other loans and advances
319 168
75 229
31 139
185 829
275 212
65 964
25 448
168 180
8 798
1 851
1 555
3 884
20 010
4 581
2 260
7 109
Personal unsecured lending
Business lending and other
53 310
132 519
42 505
125 675
1 950
1 934
4 481
2 628
Corporate & Investment Banking
512 499
503 506
1 163
1 575
89
Corporate loans
Commercial property finance
459 498
53 001
450 875
52 631
1 160
3
1 575
82
7
17 251
35 535
89
Nonperforming1
Rm
June 2015
Other services
Gross loans and advances
Less:
Impairments for loans and advances
Tutuwa2 loans and advances IFRS adjustment
Net loans and advances
1 Includes loans of R78 million that are past due but not specifically impaired.
2 Tutuwa is the group’s black economic empowerment ownership initiative.
44
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
(57 757)
1 066 107
(20 241)
(254)
1 045 612
(57 759)
980 551
Non-performing loans
Specifically impaired loans
Net after
securities
and
expected
recoveries
on
specifically
impaired
loans
Rm
Balance
sheet
impairments
for nonperforming
specifically
impaired
loans
Rm
Gross
specific
impairment
coverage
%
Total
nonperforming
loans
Rm
Nonperforming
loans
%
Substandard
Rm
Doubtful
Rm
Loss
Rm
Total
Rm
Securities
and
expected
recoveries
on
specifically
impaired
loans
Rm
5 804
17 033
3 676
26 513
15 711
10 802
10 802
41
26 513
4.3
3 791
451
508
1 054
10 965
1 278
469
4 321
392
1 104
899
1 281
15 148
2 833
1 876
6 656
11 196
1 466
690
2 359
3 952
1 367
1 186
4 297
3 952
1 367
1 186
4 297
26
48
63
65
15 148
2 833
1 876
6 656
4.7
3.8
6.0
3.6
450
604
3 192
1 129
732
549
4 374
2 282
1 344
1 015
3 030
1 267
3 030
1 267
69
56
4 374
2 282
8.2
1.7
1 350
4 217
599
6 166
2 843
3 323
3 323
54
6 255
1.2
1 100
250
4 120
97
586
13
5 806
360
2 613
230
3 193
130
3 193
130
55
36
5 888
367
1.3
0.7
2
2
2
2
100
2
7 154
21 250
4 277
32 681
18 554
14 127
14 127
43
32 770
3.1
45
Risk and capital management report
Credit risk | Credit portfolio characteristics and metrics in terms of IFRS continued
IFRS: Maximum exposure to credit risk by credit quality continued
Performing loans
Neither past due nor
specifically impaired
Not specifically impaired
Gross
advances
total
Rm
Normal
monitoring
Rm
Close
monitoring
Rm
Early
arrears
Rm
Personal & Business Banking
589 811
514 379
20 054
30 817
Mortgage loans
Instalment sale and finance leases
Card debtors
Other loans and advances
317 069
72 483
30 029
170 230
274 374
63 766
24 723
151 516
11 803
1 908
1 910
4 433
16 996
4 119
1 898
7 804
Personal unsecured lending
Business lending and other
54 362
115 868
43 594
107 922
1 943
2 490
4 667
3 137
Corporate & Investment Banking
412 717
405 386
185
1 202
30
Corporate loans
Commercial property finance
365 008
47 709
357 977
47 409
185
1 201
1
28
2
Other services
(54 277)
(54 279)
Gross loans and advances
948 251
865 486
20 239
32 019
30
50 026
49 965
Nonperforming1
Rm
December 2014
Discontinued operation
Less:
Impairments for loans and advances
Tutuwa2 loans and advances IFRS adjustment
Discontinued operations loans and advances
(18 707)
(1 303)
(50 026)
Net loans and advances
928 241
1Includes loans of R24 million that are past due but not specifically impaired.
2 Tutuwa is the group’s black economic empowerment ownership initiative.
46
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Non-performing loans
Specifically impaired loans
Net after
securities
and
expected
recoveries
on
specifically
impaired
loans
Rm
Balance
sheet
impairments
for nonperforming
specifically
impaired
loans
Rm
Gross
specific
impairment
coverage
%
Total
nonperforming
loans
Rm
Nonperforming
loans
%
Substandard
Rm
Doubtful
Rm
Loss
Rm
Total
Rm
Securities
and
expected
recoveries
on
specifically
impaired
loans
Rm
4 865
16 163
3 533
24 561
14 314
10 247
10 247
42
24 561
4.2
3 062
285
391
1 127
10 420
1 399
333
4 011
414
1 006
774
1 339
13 896
2 690
1 498
6 477
10 351
1 259
468
2 236
3 545
1 431
1 030
4 241
3 545
1 431
1 030
4 241
26
53
69
65
13 896
2 690
1 498
6 477
4.4
3.7
5.0
3.8
454
673
2 885
1 126
819
520
4 158
2 319
1 247
989
2 911
1 330
2 911
1 330
70
57
4 158
2 319
7.6
2.0
2 357
2 708
849
5 914
2 771
3 143
3 143
53
5 944
1.4
2 192
165
2 610
98
815
34
5 617
297
2 611
160
3 006
137
3 006
137
54
46
5 645
299
1.5
0.6
2
2
2
2
100
2
4 384
30 477
13 392
13 392
44
30 507
3.2
61
61
100
61
0.1
7 222
18 871
61
61
17 085
47
Risk and capital management report
Credit risk | Credit portfolio characteristics and metrics in terms of IFRS continued
IFRS: Movement in group loans and advances impairment
June 2015
Retail
secured
Rm
Corporate
Rm
December 2014
Retail
unsecured
Rm
Total
Rm
Total
Rm
Specific impairments
Balance at beginning of the period
Net impairment raised and released
Impaired accounts written off
Discount element recognised in
interest income1
Exchange and other movements
3 143
347
(187)
4 976
1 813
(1 224)
5 273
2 565
(2 055)
13 392
4 725
(3 466)
13 802
10 154
(9 908)
(9)
29
(263)
17
(190)
(108)
(462)
(62)
(763)
107
Balance at end of the period
3 323
5 319
5 485
1 429
212
(3)
3 050
374
(19)
14 127
13 392
Portfolio impairments
Balance at beginning of the period
Net impairment raised and released
Exchange and other movements
836
260
(25)
5 315
846
(47)
5 364
(47)
(2)
Balance at end of the period
1 071
1 638
3 405
6 114
5 315
Total
4 394
6 957
8 890
20 241
18 707
1Unwinding of discounting of expected recoveries in terms of IAS 39.
IFRS: Ageing of loans and advances past due but not impaired
Less than
31 days
Rm
31 – 60
days
Rm
61 – 90
days
Rm
Personal & Business Banking
20 994
8 132
4 834
33 960
Mortgage loans
Instalment sale and finance leases
Card debtors
Other loans and advances
11 791
3 237
1 318
4 648
5 331
879
580
1 342
2 888
465
362
1 119
20 010
4 581
2 260
7 109
Personal unsecured lending
Business term lending and other
2 985
1 663
920
422
576
543
4 481
2 628
Corporate & Investment Banking
1 260
315
78
1 653
Corporate loans
1 260
315
78
1 653
22 254
8 447
4 834
78
35 613
Personal & Business Banking
20 813
6 562
3 442
30 817
Mortgage loans
Instalment sale and finance leases
Card debtors
Other loans and advances
11 028
3 045
1 222
5 518
4 098
823
433
1 208
1 870
251
243
1 078
16 996
4 119
1 898
7 804
3 215
2 303
853
355
599
479
4 667
3 137
Corporate & Investment Banking
694
508
24
1 226
Corporate loans
Commercial property finance
694
507
1
24
1 225
1
7 256
3 950
24
32 043
91 – 180
days
Rm
More than
180 days
Rm
Total
Rm
June 2015
Total
December 2014
Personal unsecured lending
Business term lending
Total
48
20 813
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Compliance risk
Definition
Compliance risk is the risk of legal or
regulatory sanction, financial loss or damage
to reputation that the group may suffer as a
result of its failure to comply with laws,
regulations, codes of conduct and standards
of good practice applicable to its banking
services activities.
49
Definition
49
49
50
50
50
50
50
Approach to managing compliance risk
• General approach
• Approach to market conduct
• Approach to managing money laundering
and terrorist financing
• Approach to sanctions management
• Approach to managing regulatory change
• Approach to occupational health and safety
50
Governance
Approach to managing compliance risk
General approach
The compliance function operates independently of business as a
second line of defence function, in terms of its mandate. The
mandate is approved annually by the GAC and is drawn primarily from
Regulation 49 of the Banks Act.
The group’s approach to managing compliance risk is standardised
across the group, is proactive and is premised on internationally
accepted principles of compliance risk management and supervisory
expectations.
Compliance risk management is a core risk management activity
overseen by the GCCO. The GCCO has unrestricted access to the
group chief executives and to the chairman of the GAC, thereby
supporting the function’s independence.
A robust risk management reporting and escalation procedure
requires business unit and functional area compliance heads to report
on the status of compliance risk management in the group to the
GCCO, who escalates significant matters to group management,
executive and independent board committees. There is a key focus
on treating customers fairly (TCF) and market conduct as the South
African regulatory framework moves towards a Twin Peaks model of
supervision. This focus includes ensuring regular interaction with the
regulators and programmes of work to support integration at all
operational levels of business.
Attention to the group’s technological capability and coverage
continues with the extension of compliance surveillance capability in
the group’s rest of Africa banking subsidiaries.
49
Risk and capital management report
Compliance risk | Approach to managing compliance risk continued
Approach to conduct risk
Approach to managing regulatory change
Conduct risk is defined by the group as the risk that detriment is
caused to the group’s customers, the markets or the group itself
because of inappropriate execution of business activities.
The group operates in a highly regulated industry across multiple
jurisdictions and is increasingly subject to international legislation
with extra-territorial reach.
The group’s approach to conduct risk is informed by the regulatory
initiatives to transform the financial sector with the focus on a
dedicated market conduct regulator. The group distinguishes
between market integrity and conduct of business. Market integrity is
maintained through the management of conflicts of interest and
market abuse risk.
The group aims to embed regulatory best-practice in our operations
in a way that balances the interests of various stakeholders, while
supporting the long-term stability and growth in the markets where
we have a presence.
Conduct of business is currently driven through the implementation
of TCF. As regulators incrementally embed TCF in regulatory and
supervisory frameworks, the group continuously updates its risk
management frameworks to ensure board-level sponsorship and
business ownership of conduct risk management.
The group continuously reviews its strategy and business models from
a market conduct risk perspective. Conduct risk is considered in
decision-making, communication, performance, reward and
recognition.
Approach to managing money laundering and
terrorist financing
Legislation pertaining to money laundering and terrorist financing
control imposes significant requirements in terms of customer due
diligence, record keeping, staff training and the obligation to detect,
prevent and report suspected money laundering and terrorist
financing. The group subscribes to the principles of the Financial
Action Task Force, an intergovernmental body that develops and
promotes policies to combat money laundering and terrorist
financing. An integrated systems approach is being followed to
support surveillance and reporting responsibilities.
Group minimum standards are implemented throughout the group,
taking into account local jurisdictional requirements.
Approach to sanctions management
The group actively manages the legal, regulatory, reputational and
operational risks associated with doing business in jurisdictions which,
or with customers who, are subject to embargoes or sanctions
imposed by competent authorities. Sanctions surveillance capability
has been enhanced to manage sanctions alerts and the staff
complement has been increased to meet supervisory expectations.
The group sanctions review committee, supported by a sanctions
desk, is responsible for providing advice on all sanctions-related
matters in a fluid sanctions environment.
50
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
The group’s regulatory advocacy unit assesses the impact that
emerging policy and regulation will have on the business. The group’s
approach to regulatory advocacy is to engage with government
policymakers, legislators, regulators and standard and policy setters in
a proactive and constructive manner.
The group regulatory and legislative oversight committee enhances
regulatory risk management by proactively considering the impacts of
regulatory developments on the group.
Approach to occupational health and safety
Any risks to the health and safety of employees and stakeholders
resulting from hazards in the workplace and/or potential exposure to
occupational illness are managed by the occupational health and
safety team and are supported by executive management
accountability structures.
Governance
The primary management level governance committee overseeing
compliance risk is the group compliance committee. It is chaired by
the GCCO and is a subcommittee of GROC. Compliance is now also
represented on the group management committee which facilitates
executive awareness of compliance risk-related matters.
The group compliance committee reports, through the GCCO, to both
the GAC and GRCMC.
The principal governance document is the compliance risk
governance standard.
Country risk
Definition
Country risk, also referred to as cross-border
country risk, is the uncertainty that obligors
(including the relevant sovereign, and
including the obligations of group branches
and subsidiaries in a country) will be able to
fulfil obligations to the group given political
or economic conditions in the host country.
51
Definition
51
Approach to managing country risk
51
Governance
52
Approved regulatory capital approaches
52
Country risk portfolio characteristics and metrics
Approach to managing country risk
All countries to which the group is exposed are reviewed at least
annually. Internal rating models are employed to determine ratings
for country, sovereign and transfer and convertibility risk. In
determining the ratings, extensive use is made of the group’s
network of operations, country visits and external information
sources. These ratings are also a key input into the group’s credit
rating models, with credit loan conditions and covenants linked to
country risk events.
The model inputs are continuously updated to reflect economic and
political changes in countries. The model outputs are internal risk
grades that are calibrated to a country risk grade (CR) from CR01 to
CR25, as well as sovereign risk grade and transfer and convertibility
risk grade (SB) from SB01 to SB25. Countries rated CR08 and higher,
referred to as medium- and high-risk countries, are subject to
increased analysis and monitoring.
Country risk is mitigated through a number of methods, including:
political and commercial risk insurance
co-financing with multilateral institutions
structures to mitigate transferability and convertibility risk such as
collection, collateral and margining deposits outside the
jurisdiction in question.
Governance
The primary management level governance committee overseeing
this risk type is the group country risk management committee. It is
chaired by the group CRO and is a subcommittee of GROC.
The principal governance documents are the country risk governance
standard and the model risk governance framework.
51
Risk and capital management report
Country risk | continued
Approved regulatory capital approaches
There are no regulatory capital requirements for country risk. Country risk is, however, incorporated into regulatory capital for credit in the IRB
approaches through the country risk and transfer and convertibility risk ratings’ impact on credit grades.
Country risk portfolio characteristics and metrics
The risk distribution of cross-border country risk exposures is weighted towards European and North American low-risk countries, as well as
sub-Saharan African medium- and high-risk countries.
Country risk exposure by region and risk grade
Europe
%
Asia
%
25.6
0.2
1.7
2.3
14.5
SubSaharan
Africa
%
North
America
%
Latin
America
%
Middle East
and
North Africa
%
Australasia
%
June 2015
Risk grade
CR01-CR07
CR08-CR11
CR12-CR14
CR15-CR17
CR18-CR21
CR22+
7.0
1.4
4.8
11.2
23.6
1.5
1.8
0.5
2.3
0.7
0.1
0.8
December 2014
Risk grade
CR01-CR07
CR08-CR11
CR12-CR14
CR15-CR17
CR18-CR21
CR22+
22.4
1.0
3.6
0.2
0.1
5.7
14.4
0.1
0.4
7.5
5.4
7.6
20.9
1.8
0.7
0.3
2.7
0.5
2.3
0.3
0.6
0.1
Total medium- and high-risk country risk exposures and total low-risk country risk exposures for the year ended 30 June 2015 amounted to
USD10 billion and USD10 billion, respectively (31 December 2014: USD17 billion and USD10 billion, respectively).
Medium and highrisk country exposure by region (%): June 2015
25
20
15
10
5
CR08 – CR11
● Europe
52
● Asia
CR12 – CR14
● Sub-Saharan Africa
CR15 – CR17
● Latin America
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
CR18 – CR21
● Middle East and North Africa
CR22+
1.4
Exposure to the top five medium- and high-risk countries is shown together with comparatives in the graph below. These exposures are in line with
the group’s growth strategy focused on Africa and selected emerging markets.
Top five medium and highrisk country risk EAD (USDm)
3 500
3 000
2 500
2 000
1 500
1 000
500
China
● June 2015
Nigeria
Kenya
Zambia
Ghana
● December 2014
Medium and highrisk country EAD concentration by country rating (%)
25.00
20.00
15.00
10.00
5.00
CR08
● June 2015
CR09
CR10
CR11
CR12
CR13
CR14
CR15
CR16
CR17
CR18
CR19
CR20
CR21 CR22+
● December 2014
53
Funding and
liquidity risk
54
Definition
54
Approach to managing liquidity risk
56
Governance
56
56
58
Liquidity characteristics and metrics
• Contingency liquidity risk management
• Structural liquidity mismatch
60
SBG’s credit ratings
60
Conduits
Definition
Liquidity risk is defined as the risk that an
entity, although solvent, cannot maintain or
generate sufficient cash resources to meet
its payment obligations in full as they fall
due, or can only do so at materially
disadvantageous terms.
Approach to managing liquidity risk
The group’s liquidity risk framework is designed to ensure the
comprehensive management of liquidity risks within the group in all
geographies and that regulatory, prudential as well as internal
minimum requirements are met at all times. This is achieved through
a combination of maintaining adequate liquidity buffers to ensure
that cash flow requirements can be met and ensuring that the
group’s SOFP is structurally sound and supportive of the group’s
strategy. Liquidity risk is managed on a consistent basis across the
group’s banking subsidiaries, allowing for local requirements.
Information relating to the period ended 30 June 2015 is based on
Basel III principles, including behavioural profiling methods and
assumptions, as well as phasing-in requirements where applicable.
The nature of the group’s banking and trading activities gives rise to
continuous exposure to liquidity risk. Liquidity risk arises when the
group, despite being solvent, cannot maintain or generate sufficient
cash resources to meet its payment obligations as they fall due, or
can only do so at materially disadvantageous terms. This type of
event may arise where counterparties, who provide the group with
short-term funding, withdraw or do not roll over that funding, or
normally liquid assets become illiquid as a result of a generalised
disruption in asset markets.
The group manages liquidity in accordance with applicable regulations
and within the group’s risk appetite framework. The group’s liquidity
risk management governance framework supports the measurement
and management of liquidity across both the corporate and retail
sectors to ensure that payment obligations can be met by the group’s
legal entities, under both normal and stressed conditions. Liquidity
risk management ensures that the group has the appropriate amount,
diversification and tenor of funding and liquidity to support its asset
base at all times.
54
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
The group manages liquidity risk as three interrelated pillars, which are aligned to Basel III liquidity requirements.
Liquidity management categories
Tactical (shorter-term)
liquidity risk management
manage intra-day liquidity positions
monitor interbank and repo shortage levels
monitor daily cash flow requirements
manage short-term cash flows
manage daily foreign currency liquidity
set deposit rates in accordance with structural
and contingent liquidity requirements as
informed by ALCO.
Structural (long-term) liquidity
risk management
ensure a structurally sound balance sheet
identify and manage structural
liquidity mismatches
determine and apply behavioural profiling
manage long-term cash flows
preserve a diversified funding base
inform term funding requirements
assess foreign currency liquidity exposures
establish liquidity risk appetite
ensure appropriate transfer pricing of
liquidity costs
ensure Basel III NSFR readiness by
1 January 2018.
The LCR, which was implemented on 1 January 2015, is a metric
introduced by the BCBS to measure a bank’s ability to manage a
sustained outflow of customer funds in an acute stress event over a
30-day period. The ratio is calculated by taking the group’s
high-quality liquid assets (HQLA) and dividing it by net cash outflows.
The minimum regulatory LCR requirement effective 1 January 2015 is
60%, increasing by 10% annually to reach 100% by 1 January 2019.
The group has exceeded the 60% minimum phase-in requirement for
the first half of 2015.
Contingency liquidity
risk management
monitor and manage early warning
liquidity indicators
establish and maintain contingency
funding plans
undertake regular liquidity stress testing
and scenario analysis
convene liquidity crisis management
committees, if needed
set liquidity buffer levels in accordance
with anticipated stress events
advise on the diversification of liquidity
buffer portfolios
ensure compliance with Basel III liquidity
coverage ratio (LCR).
From 2018, the group will also be required to comply with the Basel
III NSFR. This is a metric designed to ensure that the majority of term
assets are funded by stable sources, such as capital, term borrowings
or other stable funds.
Further available stable funding will have to be raised in order to
fully meet the proposed Basel III NSFR liquidity regime. Ongoing
industry analysis and engagement through the Banking Association
of South Africa and the SARB continue to explore market-based
solutions to meeting the NSFR.
Liquidity
Basel III implementation timeline
LCR
NSFR
2015
2016
2017
2018
2019
60%
minimum standard
70%
minimum standard
80%
minimum standard
90%
minimum standard
100%
100%
100%
55
Risk and capital management report
Funding and liquidity risk | continued
Governance
The primary governance committee overseeing liquidity risk is the
group ALCO, which is chaired by the group financial director and is
a subcommittee of GROC. ALCOs have been established in each
of the banking subsidiaries of the group and manage in-country
liquidity risk.
The principal governance documents are the liquidity risk governance
standard and model risk governance framework.
Liquidity characteristics and metrics
Contingency liquidity risk management
Contingency funding plans
Contingency funding plans are designed to protect stakeholder
interests and maintain market confidence in the event of a liquidity
crisis. The plans incorporate an early warning indicator process
supported by clear crisis response strategies. Early warning indicators
cover bank-specific and systemic crises and are monitored according
to assigned frequencies and tolerance levels.
Crisis response strategies are formulated for the relevant crisis
management structures and address internal and external
communications and escalation processes, liquidity generation
management actions and operations, and heightened and
supplementary information requirements to address the crisis event.
The updating of contingency funding plans while considering
budget forecasting continues to be a focus for the ALM teams
across the group.
56
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
The group, in line with the SARB’s requirements, updates and submits
its recovery and resolution plans to the SARB on an annual basis. The
group’s recovery plan incorporates the contingent liquidity funding
plan in addition to the focus given to capital planning and business
continuity planning.
Liquidity stress testing and scenario analysis
Stress testing and scenario analysis are based on both hypothetical as
well as historical events. These are conducted on the group’s funding
profiles and liquidity positions. The crisis impact is typically measured
over a 30 calendar day period as this is considered the most crucial
time horizon for a liquidity event. This measurement period is also
consistent with the Basel III LCR requirements. This measure is,
however, adapted to meet different regulatory environments.
Anticipated on- and off-balance sheet cash flows are subjected to a
variety of bank-specific and systemic stresses and scenarios to
evaluate the impact of unlikely but plausible events on liquidity
positions. The results are assessed against the liquidity buffer and
contingency funding plans to provide assurance as to the group’s
ability to maintain sufficient liquidity under adverse conditions.
Internal stress testing metrics are supplemented with the regulatory
Basel III LCR in monitoring the group’s ability to survive severe
stress scenarios.
The Basel III LCR analysis that follows includes banking and/or deposit
taking entities and represents an aggregation of the relevant individual
net cash outflows and HQLA portfolios. These results reflect the simple
average of the month-end values at 30 April 2015, 31 May 2015
and 30 June 2015, based on the regulatory submissions to the SARB.
LCR (average)
Total
unweighted1
value
(average)
Rm
Total
weighted2
value
(average)
Rm
HQLA
Total HQLA
Cash outflows
160 300
1 151 583
339 432
325 785
27 855
47 234
278 551
27 855
517 105
267 730
137 291
378 222
1 592
39 471
226 667
1 592
86 155
17 226
5 908
2 645
77 602
5 908
2 645
8 673
Other contractual funding obligations
Other contingent funding obligations
21 016
201 522
21 016
5 605
Cash inflows
219 873
189 745
Secured lending
Inflows from fully performing exposures
Other cash inflows
5 760
198 473
15 640
5 760
172 695
11 290
Retail deposits and deposits from small business customers, of which:
Stable deposits
Less stable deposits
Unsecured wholesale funding, of which:
Operational deposits (all counterparties) and deposits in networks of cooperative banks
Non-operational deposits (all counterparties)
Unsecured debt
Secured wholesale funding
Additional requirements
Outflows related to derivative exposures and other collateral requirements
Outflows related to loss of funding on debt products
Credit and liquidity facilities
Total
adjusted3
value
Rm
Total HQLA
160 300
Total net cash outflows
149 687
LCR (%)
107.1
1 Unweighted value represents the outstanding balances maturing or callable within 30 days (for inflows and outflows).
2 Total weighted value is calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates (for inflows and outflows).
3Adjusted value calculated after the application of both (i) haircuts and inflow and outflow rates and (ii) any applicable caps (i.e. cap on level 2B and level 2 assets for HQLA and
cap on inflows).
The group seeks to exceed the minimum LCR requirement with a sufficient buffer to allow for funding flow volatility as determined by its internal
liquidity risk appetite. A buffer is maintained above the minimum regulatory requirement to cater for balance sheet and market volatility. For the
period under review, the group’s LCR of 107.1% was well above the targeted LCR tolerance limit.
57
Risk and capital management report
Funding and liquidity risk | Liquidity characteristics and metrics continued
Liquidity buffer
Portfolios of highly marketable liquid securities to meet prudential,
regulatory and internal stress testing requirements are maintained as
protection against unforeseen disruptions in cash flows. These
portfolios are managed within ALCO-defined limits on the basis of
diversification and liquidity.
The table below provides a breakdown of the group’s liquid and
marketable securities as at 30 June 2015 and 31 December 2014.
Eligible Basel III LCR HQLA are defined according to the BCBS
January 2013 LCR and liquidity risk monitoring tools framework.
Managed liquidity represents unencumbered marketable securities
other than eligible Basel III LCR HQLA (excluding trading assets)
which would be able to provide significant sources of liquidity in a
stress scenario.
Total liquidity
June
2015
Rbn
Eligible LCR HQLA1 comprising:
December2
2014
Rbn
The graph below shows the group’s cumulative maturity mismatch
between assets and liabilities for the 0 to 12 months bucket, after
applying behavioural profiling. The cumulative maturity is expressed
as a percentage of the group’s total funding-related liabilities.
Expected aggregate cash outflows are subtracted from expected
aggregate cash inflows. Limits are set internally to restrict the
cumulative liquidity mismatch between expected inflows and outflows
of funds in different time buckets. These mismatches are monitored
on a regular basis with active management intervention if potential
limit breaches are evidenced. Liquidity transfer restrictions across the
group are considered as part of the prudent liquidity risk
management assumptions that are followed. The behaviourally
adjusted cumulative liquidity mismatch remains within the group’s
liquidity risk appetite.
Whilst following a consistent approach to liquidity risk management in
respect of the foreign currency component of the SOFP, specific
indicators are observed in order to monitor changes in market
liquidity as well as the impacts on liquidity as a result of movements
in exchange rates.
158
174
15
19
29
103
11
45
98
12
Managed liquidity
137
114
0
Total liquidity
295
288
(5)
Total liquidity as a % of
funding-related liabilities
25.2
24.8
Notes and coins
Cash and deposits with
central banks
Government bonds and bills
Other eligible liquid assets
1
Eligible LCR HQLA considers any liquidity transfer restrictions that will inhibit the
Behaviourally adjusted cumulative liquidity mismatch (%)
10
5
(10)
(15)
transfer of HQLA across jurisdictions.
2
Restated. Refer to page 76.
Liquid assets held remain adequate to meet all internal stress testing,
prudential and regulatory requirements.
Structural liquidity mismatch
(20)
(25)
0–7
days
0–1
month
0–3
months
0 – 12
months
– Internal limit
Maturity analysis of financial liabilities using
behavioural profiling
● June 2015
With actual cash flows typically varying significantly from the
contractual position, behavioural profiling is applied to assets,
liabilities and off-balance sheet commitments as well as to certain
liquid assets. Behavioural profiling assigns probable maturities based
on historical customer behaviour. This is used to identify significant
additional sources of structural liquidity in the form of core deposits,
such as current and savings accounts, which exhibit stable behaviour
despite being repayable on demand or at short notice.
Funding activities
In order to highlight potential risks within the group’s defined
liquidity risk thresholds, structural liquidity mismatch analyses are
performed regularly to anticipate the mismatch between payment
profiles of SOFP items.
Primary funding sources are in the form of deposits across a spectrum
of retail and wholesale clients, as well as loan and debt capital
markets across the group. Total funding-related liabilities grew from
R1 161 billion as at 31 December 2014 to R1 170 billion as at
30 June 2015.
58
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
● December 2014
0–6
months
Funding markets are evaluated on an ongoing basis to ensure
appropriate group funding strategies are executed depending on the
market, competitive and regulatory environment. The group
continued to focus on building its deposit base as a key component
of the group’s funding mix. Deposits sourced from South Africa and
other major jurisdictions in the rest of Africa, Isle of Man and Jersey
provide diversity of stable sources of funding for the group.
Depositor concentrations
Funding diversification by product (%)
Single depositor
Top 10 depositors
●
●
●
●
●
●
●
●
●
22
16
17
12
12
10
6
3
2
Call deposits
Term deposits
Current accounts
Cash management deposits
Deposits from banks and central banks
Negotiable certificates of deposits
Senior and subordinated debt
Other funding
Savings accounts
(December 2014: 22)
(December 2014: 21)
(December 2014: 16)
(December 2014: 11)
(December 2014: 10)
(December 2014: 8)
(December 2014: 6)
(December 2014: 4)
(December 2014: 2)
Funding-related liabilities composition1
Corporate funding
Retail deposits2
Institutional funding
Deposits from banks
Government and parastatals
Senior debt
Subordinated debt
Other liabilities to the public
Non-current funding related
liabilities held for sale
Total funding-related
liabilities
June
2015
Rbn
December
2014
Rbn
353
279
255
137
73
49
23
1
351
268
233
98
69
42
23
3
74
1 170
1 161
1 Composition aligned to Basel III liquidity classification.
2 Comprises individual and small business customers.
Concentration risk limits are used within the group to ensure that
funding diversification is maintained across products, sectors,
geographic regions and counterparties.
June
2015
%
December
2014
%
2.0
9.4
8.1
1.9
A component of the group’s funding strategy is to ensure that
sufficient contractual term funding is raised in support of term
lending and to ensure adherence to the structural mismatch tolerance
limits and appetite guidelines.
The group successfully accessed the longer-term funding market
during 2015 raising R17 billion through a combination of senior and
subordinated debt, and syndicated loans. SBSA issued R2,8 billion of
the Basel III compliant tier II instruments for the period ended
30 June 2015 (December 2014: R2,3 billion).
The graph below is a representation of the market cost of liquidity,
which is measured as the spread paid on the negotiable certificates
of deposits (NCDs) relative to the prevailing swap curve for that
tenor. The graph is based on actively-issued money market
instruments by banks, namely 12- and 60-month NCDs. For the
period under review, long term funding spreads continued to
increase, however some stabilisation of funding cost was observed
during the second quarter of 2015.
12 and 60month liquidity spread (bps)
140
120
100
80
60
40
20
December 2010
– 12-month NCD
– 60-month NCD
June 2015
Six month period
ended 30 June 2015
59
Risk and capital management report
Funding and liquidity risk | Liquidity characteristics and metrics continued
Rating downgrades will reduce thresholds above which collateral must
be posted with counterparties to cover the group’s negative
mark-to-market on derivative contracts. These are managed within
the liquidity management pillar. The potential cumulative impact on
additional collateral requirements is as follows:
SBG’s credit ratings
The group’s ability to access funding at cost-effective levels is
dependent on maintaining or improving the borrowing entity’s
credit rating.
1, 2 and 3 notch rating downgrades
The following table provides a summary of the major credit ratings for
the group and its principal operating subsidiary, SBSA.
Credit ratings
Long-term
SBG foreign currency issuer default rating
SBSA foreign currency issuer default rating
RSA sovereign foreign currency issuer rating
Fitch
BBB
BBB
BBB
Moody’s
SBG foreign currency issuer default rating
SBSA foreign currency deposit rating
RSA sovereign foreign currency rating
Baa3
Baa2
Baa2
Credit ratings for SBSA are dependent on multiple factors, including
the South Africa sovereign rating, capital adequacy levels, quality of
earnings, credit exposure, the credit risk governance framework and
funding diversification. These parameters and their possible impact
on the borrowing entity’s credit rating are monitored closely and
incorporated into the group’s liquidity risk management and
contingency planning considerations.
A reduction in these ratings could have an adverse effect on the
group’s access to liquidity sources and funding costs, may trigger
collateral calls or lead to the activation of downgrade clauses and
early termination associated with certain structured deposits.
60
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Impact on the group’s liquidity
of a collateral call linked
to downgrading by
1 notch
2 notch
3 notch
June
2015
Rm
December
2014
Rm
121
243
243
296
724
781
Conduits
The group provides standby liquidity facilities to two conduits, namely
BTC and Thekwini Warehouse Conduit. These facilities, which totalled
R5,6 billion as at 30 June 2015 (31 December 2014: R4,9 billion),
had not been drawn on.
The liquidity risk associated with these facilities is managed in
accordance with the group’s overall liquidity position and represents
less than 2% of the group’s total liquidity (31 December 2014: 2%).
The liquidity facilities are included in both the group’s structural
liquidity mismatch as well as in liquidity risk stress testing.
Market risk
61
Definition
61
Governance
61
Approved regulatory capital approaches
62
Trading book market risk
65
Interest rate risk in the banking book
66
Equity risk in the banking book
67
Foreign currency risk
68
Own equity-linked transactions
69
Post-employment obligation risk
Definition
Market risk is the risk of a change in the
market value, actual or effective earnings,
or future cash flows of a portfolio of
financial instruments, including
commodities, caused by adverse movements
in market variables such as equity, bond and
commodity prices, currency exchange and
interest rates, credit spreads, recovery rates,
correlations and implied volatilities in all of
these variables.
The group’s key market risks are:
trading book market risk
interest rate risk in the banking book (IRRBB)
equity risk in the banking book
foreign currency risk
own equity-linked transactions
post-employment obligation risk.
Governance
The governance management level committees overseeing market
risk are group ALCO, which is chaired by the group financial director,
and the group equity risk committee, which is chaired by the CIB
CRO. Both are subcommittees of GROC.
The principal governance documents are the market risk governance
standard and the model risk governance framework.
Approved regulatory capital approaches
The group has approval from the SARB to adopt the internal models
approach for most asset classes and across most market variables.
For material equity portfolios, the group has approval from the SARB
to adopt either the market-based or PD/LGD approach.
There are no regulatory capital requirements for IRRBB, structural
foreign exchange exposures or own equity-linked transactions.
61
Market risk | continued
Trading book market risk
Definition
Trading book market risk is represented by financial instruments,
including commodities, held in the trading book, arising out of normal
global market’s trading activity.
Approach to managing market risk in the
trading book
The group’s policy is that all trading activities are undertaken within
the group’s global markets’ operations.
The market risk functions are independent of the group’s trading
operations and are accountable to the relevant legal entity ALCOs.
ALCOs have a reporting line into group ALCO, a subcommittee
of GROC.
All VaR and SVaR limits require prior approval from the respective
entity ALCOs. The market risk functions have the authority to set
these limits at a lower level.
Market risk teams are responsible for identifying, measuring,
managing, monitoring and reporting market risk as outlined in the
market risk governance standard.
Exposures and excesses are monitored and reported daily. Where
breaches in limits and triggers occur, actions are taken by market risk
functions to bring exposures back in line with approved market risk
appetite, with such breaches being reported to management and
entity ALCOs.
Measurement
The techniques used to measure and control trading book market risk
and trading volatility include VaR and SVaR, stop-loss triggers, stress
tests, backtesting and specific business unit and product controls.
VaR and SVaR
The group uses the historical VaR and SVaR approach to quantify
market risk under normal and stressed conditions.
For risk management purposes VaR is based on 251 days of
unweighted recent historical data, a holding period of one day and a
confidence level of 95%. The historical VaR results are calculated in
four steps:
Calculate 250 daily market price movements based on 251 days’
historical data.
Calculate hypothetical daily profit or loss for each day using these
daily market price movements.
Aggregate all hypothetical profits or losses for day one across all
positions, giving daily hypothetical profit or loss, and then repeat
for all other days.
VaR is the 95th percentile selected from the 250 days of daily
hypothetical total profit or loss.
Daily losses exceeding the VaR are likely to occur, on average,
13 times in every 250 days.
62
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
SVaR uses a similar methodology to VaR, but is based on a period of
financial stress and assumes a 10-day holding period and a worst
case loss.
Where the group has received internal model approval, the market
risk regulatory capital requirement is based on VaR and SVaR, both of
which use a confidence level of 99% and a 10-day holding period.
Limitations of historical VaR are acknowledged globally and include:
The use of historical data as a proxy for estimating future events
may not encompass all potential events, particularly those which
are extreme in nature.
The use of a one-day holding period assumes that all positions
can be liquidated or the risk offset in one day. This will usually
not fully reflect the market risk arising at times of severe
illiquidity, when a one-day holding period may be insufficient to
liquidate or hedge all positions fully.
The use of a 95% confidence level, by definition, does not take
into account losses that might occur beyond this level of
confidence.
VaR is calculated on the basis of exposures outstanding at the
close of business and, therefore, does not necessarily reflect
intra-day exposures.
VaR is unlikely to reflect loss potential on exposures that only
arise under significant market moves.
Trading book credit risk
Credit issuer risk is assumed in the trading book by virtue of normal
trading activity, and managed according to the market risk
governance standard. These exposures arise from, inter alia, trading
in debt securities issued by corporate and government entities as well
as trading derivative transactions with other banks and corporate
clients. The credit spread risk is incorporated into the daily price
movements used to compute VaR and SVaR mentioned above.
The VaR models used for credit risk are only intended to capture the
risk presented by historical day-to-day market movements, and
therefore do not take into account instantaneous or jump to default
risk. Issuer risk is incorporated in the standardised approach interest
rate risk charge for SBSA. The largest single issuer risk exposure is to
the SA Sovereign with an EAD of R12,40 billion (31 December
2014: R12,75 billion).
Stop-loss triggers
Stop-loss triggers are used to protect the profitability of the trading
desks, and are monitored by market risk on a daily basis. The triggers
constrain cumulative or daily trading losses through acting as prompt
to a review or close-out positions.
Stress tests
Stress testing provides an indication of the potential losses that could
occur under extreme but plausible market conditions, including where
longer holding periods may be required to exit positions. Stress tests
comprise individual market risk factor testing, combinations of market
factors per trading desk and combinations of trading desks using a
range of historical, hypothetical and Monte Carlo simulations. Daily
losses experienced during the period ended 30 June 2015 did not
exceed the maximum tolerable losses as represented by the group’s
stress scenario limits.
Backtesting
The group backtests its VaR models to verify the predictive ability of
the VaR calculations and ensure the appropriateness of the models
within the inherent limitations of VaR. Backtesting compares the daily
hypothetical profit and losses under the one-day buy and hold
assumption to the prior day’s calculated VaR. In addition, VaR is
tested by changing various model parameters, such as confidence
intervals and observation periods to test the effectiveness of hedges
and risk-mitigation instruments.
Regulators categorise a VaR model as green, amber or red and assign
regulatory capital multipliers based on this categorisation. A green
model is consistent with a satisfactory VaR model and is achieved for
models that have four or less backtesting exceptions in a 12-month
period. All of the group’s approved models were assigned green
status for the period ended 30 June 2015 (31 December 2014:
green). Four exceptions occurred during the period ended 30 June
2015 (31 December 2014: 11) for 95% VaR and nil exceptions
(31 December 2014: one) for 99% VaR.
Refer to the graph below for the results of the group’s backtesting
for the period ended 30 June 2015.
Backtesting: Hypothetical income of trading units and VaR (Rm)1
100
50
0
(50)
(100)
(150)
(200)
January 2015
● Hypothetical income
June 2015
– 95% VaR (including diversification benefits)
– 99% VaR (including diversification benefits)
1 Includes SB Plc.
63
Risk and capital management report
Market risk | Trading book market risk continued
Specific business unit and product controls
Other market risk limits and controls specific to individual business
units include permissible instruments, concentration of exposures,
gap limits, maximum tenor, stop-loss triggers, price validation and
balance sheet substantiation.
Trading book portfolio characteristics
VaR for the period ended 30 June 2015
Trading book market risk exposures arise mainly from residual
exposures from client transactions and limited trading for the group’s
own account. In general, the group’s trading desks have run similar
levels of market risk throughout the period when compared to
31 December 2014.
Trading book normal VaR analysis by market variable
Normal VaR
Maximum1
Rm
Minimum1
Rm
Average
Rm
Closing
Rm
June 2015
Commodities risk
Foreign exchange risk
Equity position risk
Debt securities
Diversification benefits2
16,8
26,9
14,2
35,7
0,1
13,6
3,5
7,9
2,6
19,5
8,0
23,4
(21,0)
0,1
17,0
9,2
23,5
(21,0)
Aggregate
49,4
23,7
32,6
28,7
Commodities risk
Foreign exchange risk
Equity position risk
Debt securities
Diversification benefits2
19,8
18,6
18,2
55,0
8,4
5,3
2,5
23,6
13,3
10,2
8,6
36,2
(27,5)
14,2
17,8
6,1
27,5
(25,6)
Aggregate
52,0
27,9
40,8
40,0
December 2014
1The maximum and minimum VaR figures reported for each market variable do not necessarily occur on the same day. As a result, the aggregate VaR will not equal the sum of the
individual market VaR values, and it is inappropriate to ascribe a diversification effect to VaR when these values may occur on different dates.
2Diversification benefit is the benefit of measuring the VaR of the trading portfolio as a whole, that is, the difference between the sum of the individual VaRs and the VaR of the
whole trading portfolio.
Trading book stressed VaR analysis
Stressed VaR
Maximum
Rm
Minimum
Rm
Average
Rm
Closing
Rm
476,3
244,9
533,6
369,0
425,7
312,2
676,2
286,1
722,0
436,9
409,3
June 2015
Pre-diversification
Aggregate
December 2014
Pre-diversification
Aggregate
64
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
703,1
Analysis of trading profit
The graph below shows the distribution of daily profit and losses for
the period. It captures trading volatility and shows the number of
days in which the group’s trading-related revenues fell within
particular ranges. The distribution is skewed favourably to the
profit side.
For the period ended 30 June 2015, trading profit was positive for
126 out of 128 days (30 June 2014: 127 out of 128 days) on an
aggregated global basis
Endowment risk: exposure arising from the net differential
between interest rate insensitive assets such as non-earning
assets and interest rate insensitive liabilities such as non-paying
liabilities and equity.
Approach to managing IRRBB
Banking book-related market risk exposure principally involves
managing the potential adverse effect of interest rate movements on
banking book earnings (net interest income and banking book
mark-to-market profit or loss) and the economic value of equity.
The group’s approach to managing IRRBB is governed by applicable
regulations and is influenced by the competitive environment in
which the group operates. The group’s treasury and capital
management team monitors banking book interest rate risk operating
under the oversight of group ALCO.
Distribution of daily trading profit or loss (Rm)
70
Frequency of days
60
Measurement
50
The analytical techniques used to quantify IRRBB include both
earnings- and valuation-based measures. The analysis takes account
of embedded optionality such as loan prepayments and accounts
where the account behaviour differs from the contractual position.
40
30
The results obtained from forward-looking dynamic scenario analyses,
as well as Monte Carlo simulations, assist in developing optimal
hedging strategies on a risk-adjusted return basis.
20
10
(30) – 0
● June 2015
0 – 30
>30 – 60 >60 – 90
>90
● June 2014
Interest rate risk in the banking book
Definition
This risk results from the different repricing characteristics of banking
book assets and liabilities.
IRRBB is further divided into the following sub-risk types:
Repricing risk: timing differences in the maturity (fixed rate) and
repricing (floating rate) of assets and liabilities.
Yield curve risk: shifts in the yield curve that have adverse
effects on the group’s income or underlying economic value.
Basis risk: hedge price not moving in line with the price of the
hedged position. Examples include bonds/swap basis, futures/
underlying basis and prime/Johannesburg Interbank Agreed Rate
(JIBAR) basis.
Optionality risk: options embedded in bank asset and liability
portfolios, providing the holder with the right, but not the
obligation, to buy, sell, or in some manner alter the cash flow of
an instrument or financial contract.
Desired changes to a particular interest rate risk profile are achieved
through the restructuring of on-balance sheet repricing or maturity
profiles, or through derivative overlays.
Limits
Interest rate risk limits are set in relation to changes in forecast
banking book earnings and the economic value of equity. The
economic value of equity sensitivity is calculated as the net present
value of aggregate asset cash flows less the net present value of
aggregate liability cash flows.
All assets, liabilities and derivative instruments are allocated to gap
intervals based on either their repricing or maturity characteristics.
Assets and liabilities for which no identifiable contractual repricing or
maturity dates exist are allocated to gap intervals based on
behavioural profiling.
Hedging of endowment risk
IRRBB is predominantly the consequence of endowment exposures,
being the net effect of non-rate sensitive liabilities and equity less
non-rate sensitive assets.
The endowment risk is hedged using liquid instruments as and when
it is considered opportune. Where permissible, hedge accounting (in
terms of IFRS) is adopted using the derivatives designated as
hedging instruments. Following meetings of the monetary policy
committees, or notable market developments, the interest rate view
is formulated through ALCO processes.
Non-endowment IRRBB (repricing, yield curve, basis and optionality)
is managed within the treasury and the global markets portfolios.
65
Risk and capital management report
Market risk | Trading book market risk continued
Banking book interest rate exposure characteristics
The table below indicates the rand equivalent sensitivity of the group’s banking book earnings (net interest income and banking book mark-tomarket profit or loss) and other comprehensive income (OCI) given a parallel yield curve shock. A floor of 0% is applied to all interest rates under
the decreasing interest rate scenario resulting in asymmetric rate shocks in low-rate environments. Hedging transactions are taken into account
while other variables are kept constant.
Assuming no management intervention, an upward 100 basis point parallel interest rate shock across all foreign currency yield curves and a
200 basis point parallel interest rate shock across rand yield curves would, based on the 30 June 2015 SOFP, increase the forecast 12-month
net interest income by R2,9 billion (31 December 2014: R2,5 billion).
The group is well positioned for a rising interest rate environment.
Interest rate sensitivity analysis1
ZAR
USD
GBP
EUR
200
2 254
153
200
(2 348)
(153)
100
284
(87)
100
(117)
25
100
(3)
100
(12)
100
2
100
200
1 975
18
200
(2 170)
(18)
100
217
(74)
100
(103)
19
100
1
(3)
100
(1)
2
100
(11)
Other
Total
June 2015
Increase in basis points
Sensitivity of annual net interest income
Sensitivity of OCI
Decrease in basis points
Sensitivity of annual net interest income
Sensitivity of OCI
Rm
Rm
Rm
Rm
100
335
(81)
100
(361)
81
2 858
(15)
(2 824)
(47)
December 2014
Increase in basis points
Sensitivity of annual net interest income
Sensitivity of OCI
Decrease in basis points
Sensitivity of annual net interest income
Sensitivity of OCI
Rm
Rm
Rm
Rm
100
1
100
323
(149)
100
(349)
149
2 505
(208)
(2 622)
152
1Before tax.
Equity risk in the banking book
Definition
Equity risk is defined as the risk of loss arising from a decline in the
value of an equity or equity-type instrument held on the banking
book, whether caused by deterioration in the underlying operating
asset performance, net asset value (NAV), enterprise value of the
issuing entity, or by a decline in the market price of the equity or
instrument itself.
Though issuer risk in respect of tradable equity instruments
constitutes equity risk, such traded issuer risk is managed under the
trading book market risk framework.
66
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Approach to managing equity risk in the
banking book
Equity risk relates to all transactions and investments subject to
approval by the group ERC, in terms of that committee’s mandate,
and includes debt, quasi-debt and other instruments that are
considered to be of an equity nature.
For the avoidance of doubt, equity risk in the banking book excludes
strategic investments by the group in subsidiaries, associates and
joint ventures deployed in delivering the group’s business and service
offerings unless the group financial director and group CRO deem
such investments to be subject to the consideration and approval by
the group ERC.
Governance
The group ERC is constituted as a subcommittee of GROC and
operates under delegated authority from that committee, with
additional reporting accountability to the CIB credit governance
equity risk portfolio committee.
GROC grants the group ERC authority to approve equity risk
transactions to be held on the banking book and to manage such
equity risk in accordance with the provisions of the group equity risk
governance standard and associated policies. This includes the
authority to:
exercise such powers as are necessary to discharge its
responsibilities in terms of this mandate
seek independent advice at the group’s expense, and investigate
matters within its mandate
delegate authority to a combination of group ERC voting
members based on the investment size.
To the extent equity exposures approved by the group ERC are held
on the banking book, they are substantively managed and reviewed
according to the credit risk governance standard.
Banking book equity portfolio characteristics
Basel equity positions in the banking book1
June
2015
Rm
December
2014
Rm
Fair value
Listed
Unlisted
191
2 554
162
2 131
Total
2 745
2 293
Foreign currency risk
Definition
The group’s primary non-trading-related exposures to foreign
currency risk arise as a result of the translation effect on the group’s
net assets in foreign operations, intragroup foreign-denominated
debt and foreign-denominated cash exposures and accruals.
Approach to managing foreign currency risk
The group foreign currency management committee, a subcommittee
of the group capital management committee, manages the risk
according to existing legislation, South African exchange control
regulations and accounting parameters. It takes into account naturally
offsetting risk positions and manages the group’s residual risk by
means of forward exchange contracts, currency swaps and option
contracts.
Hedging is undertaken in such a way that it does not constrain
normal operating activities. In particular, for banking entities outside
of the South African common monetary area, the need for capital to
fluctuate with risk-weighted assets is taken into account.
The repositioning of the group’s NAV by currency, which is managed
at a group level, is a controlled process based on underlying
economic views and forecasts of the relative strength of currencies.
The group does not ordinarily hold open exposures of any
significance with respect to its banking book.
Gains or losses on derivatives that have been designated as either
net investment or cash flow hedging relationships in terms of IFRS,
are reported directly in OCI, with all other gains and losses on
derivatives being reported in profit or loss.
1Banking book equity exposures are equity investments which comprise listed and
unlisted private equity and strategic investments, and do not form part of the
trading book.
Unrealised gains or losses recognised in OCI were R3 million
(31 December 2014: R3 million).
67
Risk and capital management report
Market risk | Interest rate risk in the banking book continued
Own equity-linked transactions
Definition
The group has exposure to changes in its share price arising from its equity-linked remuneration contractual commitments.
Refer to the SBG 2014 annual integrated report for details regarding the group’s equity-linked share incentive schemes.
Depending on the nature of the group’s equity-linked share schemes, the group is exposed to either income statement risk or NAV through equity
risk (NAV risk) due to changes in its own share price as follows:
Income statement risk arises as a result of losses being recognised in the group’s income statement as a result of increases in the price of the
group’s share price on cash-settled share schemes above the award price.
NAV risk arises as a result of the group settling an equity-linked share scheme at a higher price than the price at which the share incentive was
awarded to the group’s employees.
The following table summarises the group’s most material share schemes together with an explanation of which risk (where applicable) the share
scheme exposes the group to, and why, and an indication as to whether the share schemes are hedged:
Share scheme
Risk to the group
Explanation
Hedged
Equity growth scheme
and the group share
incentive scheme
N/A
The equity growth scheme and group share
incentive scheme are equity-settled share
schemes that are settled through the issuance of
new shares. Accordingly, the group is not required
to incur any cash flow in settling the share
schemes and hence is not exposed to any risk as a
result of changes in its own share price.
No
Quanto stock unit scheme
Income statement risk
The Quanto stock unit scheme is a cash-settled
share scheme. Increases in the group’s share price
result in losses being recognised in the income
statement.
Yes
Deferred bonus scheme
and performance
reward plan
NAV risk
The deferred bonus scheme and performance
reward plan are equity-settled share schemes that
are settled through the purchase of shares from
the external market. Accordingly, increases in
the group’s share price above the grant price
will result in losses being recognised in the
group’s equity.
Yes
68
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Approach to managing own equity-linked
transactions
The ALCOs of the respective group entities that issue the equity
linked transactions approve hedges of the group’s share price risk
with quarterly reporting to group ALCO which is chaired by the
group financial director. Hedging is undertaken taking into account a
number of considerations which include expected share price levels
based on investment analyst reports; the value of the issued share
scheme awards; the cost of hedging; and the ability to hedge taking
into account the nature of the share scheme and applicable
legislative requirements. Hedging instruments typically include equity
forwards and equity options. Hedge accounting in terms of IFRS is
applied to the extent that the hedge accounting requirements are
complied with.
Hedges are only transacted outside of the group’s closed periods
which are in effect from 1 June until the publication of the group’s
interim results; 1 December until the publication of the group’s year
end results; and any period where the group is trading under a
cautionary announcement.
Post-employment obligation risk
The group operates both defined contribution plans and defined
benefit plans, with the majority of its employees participating in
defined contribution plans. The group’s defined benefit pension and
healthcare provider schemes for past and certain current employees
create post-employment obligations. Post-employment obligation risk
arises from the requirement to contribute as an employer to an
under-funded defined benefit plan.
69
Operational risk
Definition
Operational risk is defined as the risk of loss
suffered as a result of the inadequacy of, or
failure in, internal processes, people and/or
systems or from external events.
70
Definition
70
71
Approach to managing operational risk
• Insurance cover
71
Governance
71
Approved regulatory capital approach
71
71
72
72
72
Operational risk subtypes
• Operational risk subtype: Model risk
• Operational risk subtype: Tax risk
• Operational risk subtype: Legal risk
• Operational risk subtype: Environmental and
social risk
• Operational risk subtype: IT risk and IT change risk
• Operational risk subtype: Information risk
• Operational risk subtype: Financial crime risk
• Operational risk subtype: Physical
commodities
72
73
73
73
Operational risk subtypes are managed and overseen by specialist
functions. These subtypes include:
model risk
tax risk
legal risk
environmental and social risk
IT risk and IT change risk
information risk
compliance risk (more information on page 49)
financial crime risk
physical commodities.
Approach to managing operational risk
Operational risk exists in the natural course of business activity.
The group operational risk governance standard sets out the
minimum standards for operational risk management to be adopted
across the group. The governance standard seeks to ensure adequate
and consistent governance, identification, assessment, monitoring,
managing and reporting of operational risk to support the group’s
business areas. In addition, it ensures that the relevant regulatory
criteria can be met by those banking entities adopting the advanced
measurement approach (AMA), and those adopting the basic
indicator approach or the standardised approach for regulatory
capital purposes.
It is not an objective to eliminate all exposure to operational risk as
this would be neither commercially viable nor possible. The group’s
approach to managing operational risk is to adopt fit-for-purpose
operational risk practices that assist business line management in
understanding their inherent risk and reducing their risk profile while
maximising their operational performance and efficiency.
The integrated operational risk (IOR) management function is
independent from business line management and is part of the
second line of defence reporting to the group CRO. It is responsible
for the development and maintenance of the operational risk
governance framework, facilitating business’s adoption of the
framework, oversight and reporting, as well as for challenging the risk
profile. The team proactively analyses root causes, trends and
emerging threats, advises on the remediation of potential control
weaknesses and recommends best practice solutions.
70
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Individual teams are dedicated to each business line and report to
the business unit CRO with a functional reporting line to the group
head of operational risk management. The IOR team provides
dedicated teams to enabling functions such as finance, IT and human
capital. These teams work alongside their business areas and facilitate
the adoption of the operational risk governance framework. As part
of the second line of defence, they also monitor and challenge the
business units’ and enabling functions’ management in respect of
their operational risk profile.
Business continuity management is a process that identifies potential
operational disruptions and provides a basis for planning for the
mitigation of the negative impact from such disruptions. In addition,
it promotes operational resilience and ensures an effective response
that safeguards the interests of the group and its stakeholders. The
group’s business continuity management framework encompasses
emergency response preparedness and crisis management capabilities
to manage the business through a crisis to full recovery. The group’s
business continuity capabilities are evaluated by testing business
continuity plans and conducting crisis simulations.
The group is fully cognisant of the risks which the prevailing
electricity shortages in South Africa pose to the continuity of
SBSA’s services and operations and to the broader group through
services provided out of South Africa. The group has completed a
high-level assessment of its readiness to withstand both routine load
shedding and a national grid interruption to ensure that the risks are
mitigated proactively.
Insurance cover
The group buys insurance to mitigate operational risk. This cover is
reviewed on an annual basis. The group insurance committee
oversees a substantial insurance programme designed to protect the
group against loss resulting from its business activities.
The principal insurance policies in place are the group crime,
professional indemnity, and group directors’ and officers’ liability
policies. In addition, the group has fixed assets and liabilities
coverage in respect of office premises and business contents;
third-party liability for visitors to the group’s premises, and
employer’s liability. The group’s business travel policy provides
cover for group staff whilst travelling on behalf of the group.
Governance
The primary management level governance committees overseeing
operational risk are GROC and the group operational risk committee.
The primary governance documents are the operational risk
governance standard and the operational risk governance framework.
Operational risk subtypes report to various governance committees
and have various governance documentation applicable to each risk
subtype.
Approved regulatory capital approach
The group has approval from the SARB to adopt the AMA for SBSA
and the standardised approach for all other legal entities.
The journey to migrate all countries in Africa to the AMA is currently
underway.
The group does not include insurance as a mitigant in the calculation
of regulatory capital.
Operational risk subtypes
Operational risk subtype: Model risk
Model risk arises from potential weaknesses in a model that is
used in the measurement, pricing and management of risk.
These weaknesses include incorrect assumptions, incomplete
information, inaccurate implementation, limited model
understanding, inappropriate use or inappropriate methodologies
leading to incorrect conclusions by the user.
The group’s approach to managing model risk is based on the
following principles:
Fit-for-purpose governance, which includes:
an approved model risk governance framework
a three lines of defence governance structure comprising
independent model development, model validation and GIA
oversight functions
71
Risk and capital management report
Operational risk | Approach to managing operational risk continued
technical forums that challenge and recommend models for
approval to model approval committees
model approval committees with board and executive
management membership based on model materiality and
regulatory requirements
policies that define minimum standards, materiality, validation
criteria, approval criteria, validation frequency, and roles
and responsibilities.
A skilled and experienced pool of technically competent staff is
maintained in the development, validation and audit functions.
Robust model-related processes, including:
the application of best-practice modelling methodologies
independent model validation in accordance with both
regulatory and internal materiality assessments to test the
appropriateness and effectiveness of models
validation of regulatory capital models at initial development
and at least annually thereafter
validation of other models at initial development and
thereafter reviewed at intervals determined by materiality and
performance criteria
adequate model documentation, including the coverage of
model use and limitations
controlled implementation of approved models into
production systems
ongoing monitoring of model performance
review and governance of data used as model inputs
peer challenge in technical forums.
Operational risk subtype: Tax risk
Tax risk is defined as any event, action or inaction in tax strategy,
operations, financial reporting, or compliance that either adversely
affects the group’s tax or business objectives or results in an
unanticipated or unacceptable level of monetary, financial statement
or reputational exposure.
The group’s approach to tax risk is governed by the GAC-approved
tax risk control framework which, in turn, is supported by policies
dealing with specific aspects of tax risk such as, for example, transfer
pricing, indirect taxes, withholding taxes and remuneration taxes.
Operational risk subtype: Legal risk
Legal risk is defined as the exposure to the adverse consequences
resulting from non-compliance with applicable laws, the conclusion of
agreements that do not mitigate all relevant legal risks or the inability to
enforce legal rights or defend against unforeseen liabilities arising from
inadequate or inappropriate contracts. It applies to the full scope of
group activities and may also include the protection of group member’s
rights in enforcement actions by regulators. The adverse consequences
include financial losses arising from unenforceable rights or obligatory
payment of unforeseen liabilities, damages, fines and penalties and the
putting at risk of licences required to conduct business.
The group has processes and controls in place to identify, manage
and mitigate its legal risks.
72
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Operational risk subtype: Environmental
and social risk
Environmental risk is described as a measure of the potential threats
to the environment. It combines the probability that events will cause
or lead to the degradation of the environment and the magnitude of
such degradation. Environmental risk includes risks related to or
resulting from climate change, human activities or from natural
processes that are disturbed by changes in natural cycles.
Social risk is described as risks to people, their livelihoods, health and
welfare, socioeconomic development, social cohesion and the ability
to adapt to changing circumstances.
Environmental and social risk assessment and management deals with
two aspects:
Risks over which the group has direct control. These include
our immediate direct impact, such as our waste management
and the use of energy and water as well as our broader impact,
including risks that occur as a result of our lending or financial
services activities.
Risks over which the group does not have control but which have
the potential to impact on the group’s operations and its clients.
The group sustainability management unit develops the strategy,
policy and management frameworks that enable the identification,
management, monitoring and reporting of both aspects.
The environmental and social risk management framework includes:
identifying risk prone sectors
tracking how risks interact with each other.
The group has an environmental and social risk management policy
and subscribes to a number of international norms and codes, such
as those of the United Nations Environment Programme Finance
Initiative, the Equator Principles and the Banking Association of
South Africa’s code of conduct for banks. In support of these policy
commitments, it has developed guidance to bankers, screening tools
to assist in categorising environmental and social risk and various
training programmes to assist credit evaluators, deal makers and
other key individuals.
Operational risk subtype: IT risk and
IT change risk
IT risk encompasses both IT risk and IT change risk. The group’s
IT risk refers to the risk associated with the use, ownership,
operation, involvement, influence and adoption of IT within the
group. It consists of IT-related events and conditions that could
potentially impact business operations. IT change risk refers to
the risk arising from changes, updates or alterations made to the
IT infrastructure, systems or applications that could affect service
reliability and availability.
The advancement of IT has brought about rapid changes in the way
businesses and operations are being conducted in the financial
industry. IT is no longer a support function within the organisation
but is a key enabler for business strategies including reaching out to
external customers and meeting their needs. As technology becomes
increasingly important and integrated into business processes, the
need for adequate and effective governance and management of
IT resources, risks and any constraints becomes imperative.
The execution of these policies and practices is driven through a
network of embedded representatives within the business lines. The
head of group information risk oversees the execution in conjunction
with the heads of embedded operations risk per business area.
The board is responsible for ensuring that prudent and reasonable
steps have been taken with respect to fulfilling its responsibilities for
IT governance. To assist the board to fulfil this obligation, the group
IT committee has been delegated the authority to ensure the
implementation of the IT governance framework. It delegates this
responsibility to management. A group IT executive committee
has been established to provide assurance that management has
implemented an effective IT governance framework. The group
IT executive committee has established a group IT architecture
governance committee and a group IT risk and compliance committee
to assist in the fulfilment of its architecture and risk obligations.
The Promotion of Access to Information Act 2 of 2000 gives effect
to the constitutional right of access to information that is held by a
private or public body. The following information was disclosed in
terms of applicable regulations:
From January 2015 to June 2015, the group processed 14
(January 2014 to December 2014: six) requests for access to
information, of which zero were granted, five were denied, eight
are still in progress and one was for access to own information,
which was directed to the relevant business compliance officers.
The reason for the denial of access was that the owners of the
personal information declined to give consent for access to be
given to the requestor.
The GRCMC ensures that all risks are adequately addressed through
its risk management, monitoring and assurance processes. It
considers IT risk as a crucial element of the effective oversight of risk
management and it places reliance on the group IT committee and
IOR to provide oversight of the first line of defense risk activities.
IT, as it relates to financial reporting and the ongoing concern aspects
of the organisation, is the responsibility of the GAC.
Our main IT risks include the failure or interruption of critical systems,
cybercrime, unauthorised access to systems and the inability to serve
our customers’ needs in a timely manner. These risks are mitigated
through various controls which are implemented and closely
monitored by management. We continuously review and invest in
our security systems and processes to ensure our customers are well
protected. Actions to reduce the likelihood of risks materialising are
identified and accountabilities for remediation are allocated to
management.
For more information, refer to the IT report in the
SBG annual integrated report.
Operational risk subtype: Information risk
Information risk encompasses the risk of accidental or intentional
unauthorised use, modification, disclosure or destruction of
information resources, which would compromise the confidentiality,
integrity or availability of information and which would potentially be
harmful to the group’s business. Additionally, it comprises of all the
challenges that result from the need to control and protect the
group’s information.
The group has adopted a risk-based approach to managing
information risks. The IOR management function oversees the
information risk management system, policies and practices across
the group.
Cyber risk
Cyber risk is the risk associated with injury, damage or loss from
electronic exposure that can result in an adverse impact on the
group’s business. This risk may arise due to the disclosure,
modification, destruction or theft of information, or from the
unavailability of the transaction site, systems or networks. The cyber
security operations centre, within IOR, manages this risk by
proactively identifying malicious activity that poses a risk to the
confidentiality, integrity and availability of the group’s information
assets. Identification and mitigation of cyber threats includes services
to deliver both the proactive immobilisation of threats that are active
in the group and the identification, investigation, resolution and
reporting of threats that have materialised into cyber incidents.
Operational risk subtype: Financial crime risk
Financial crime risk includes fraud, bribery, corruption, theft and
integrity misconduct by staff, customers, suppliers, business partners
and stakeholders. The group financial crime control function combats
financial crime risk through the prevention and detection of, and
response to, all financial crime incidents to mitigate economic loss,
reputational risk and regulatory sanction. As is the case with the
other functions within operational risk, group financial crime control
maintains close working relationships with other risk functions,
specifically compliance, legal risk and credit risk, and with other
group functions such as IT, human capital, and finance.
Operational risk subtype: Physical commodities
Exposure to physical commodities arises as a result of collateral held
in relation to lending activity, and periodically from inventory held as
a result of trading activity. This is managed by the relevant lending
or trading business area together with the group’s operations
department.
73
Business risk
Business risk is the risk of loss due
to operating revenues not covering
operating costs after excluding the effects
of market risk, credit risk, structural interest
rate risk and operational risk.
Business risk is therefore not directly attributable to internal
operational failures or external market price events, but nevertheless
covers a host of internal and external factors.
Business risk is usually caused by the following:
inflexible cost structures
market-driven pressures, such as decreased demand, increased
competition or cost increases
group-specific causes, such as a poor choice of strategy,
reputational damage or the decision to absorb costs or losses to
preserve reputation.
The group mitigates business risk in a number of ways, including:
performing extensive due diligence during the investment
appraisal process, in particular for new acquisitions and joint
ventures
detailed analysis of the business case for, and financial,
operational and reputational risk associated with, disposals
the application of new product processes per business line
through which the risks and mitigating controls for new and
amended products and services are evaluated
stakeholder management to ensure favourable outcomes
from external factors beyond the group’s control
74
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
monitoring the profitability of product lines and
customer segments
maintaining tight control over the group’s cost base, including the
management of its cost-to-income ratio, which allows for early
intervention and management action to reduce costs
being alert and responsive to changes in market forces
a strong focus in the budgeting process on achieving headline
earnings growth while containing cost growth; and building
contingency plans are built into the budget that allow for costs to
be significantly reduced in the event that expected revenues do
not materialise
increasing the ratio of variable costs to fixed costs which creates
flexibility to reduce costs during an economic downturn.
Business risk includes strategic risk. Strategic risk is the risk that the
group’s future business plans and strategies may be inadequate to
prevent financial loss or protect the group’s competitive position and
shareholder returns. The group’s business plans and strategies are
discussed and approved by executive management and the board
and, where appropriate, subjected to stress tests.
The group mitigates strategic risk through independent asset
managers and independent asset and liability management advisors
for material funds. Potential residual risks which may impact the
group are managed within the group asset and liability management
process.
The primary governance committee for overseeing this risk is the
group ALCO which is chaired by the group financial director. The
primary governance document is the business risk governance
standard.
Reputational risk
Reputational risk is the risk of potential or
actual damage to the group’s image which
may impair the profitability and/or
sustainability of its business.
Such damage may result from a breakdown of trust, confidence or
business relationships on the part of customers, counterparties,
shareholders, investors or regulators that can adversely affect the
group’s ability to maintain existing business or generate new business
relationships and continued access to sources of funding. The
breakdown may arise from a number of factors or incidents such as a
poor business model, continued losses and failures in risk
management.
Safeguarding the group’s reputation is of paramount importance.
There is growing emphasis on reputational risks arising from
compliance breaches, as well as from ethical considerations linked to
countries, clients and sectors, and environmental considerations.
The breakdown may be triggered by an event or may occur gradually
over time. The group’s crisis management processes are designed to
minimise the reputational impact of such events or developments.
Crisis management teams are in place both at executive and business
line level. This includes ensuring that the group’s perspective is fairly
represented in the media.
The principal governance document is the reputational risk
governance standard.
The group’s code of ethics is an important reference point for all
staff. The group ethics officer and group chief executives are the
formal custodians of the code of ethics.
75
Restatements
Risk-weighted assets
Risk-weighted assets on securitisation exposures have been restated
to reflect the group’s exposure to external party securitisation
vehicles only. The restatement had no effect on the overall
risk-weighted assets total or the group’s capital requirements.
Refer to page 15 – 16.
Capital adequacy ratios
Capital adequacy ratios for some rest of Africa countries were
restated following final in-country regulatory submissions.
Refer to page 17.
Total liquidity
Liquidity policies and calculations have been updated in line with the
Basel III liquidity framework and the comparative results have
accordingly been restated.
Refer to page 58.
76
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Additional
information
Terms and conditions of capital instruments issued
Share capital
Authorised
2 000 000 000 (December 2014: 2 000 000 000) ordinary shares of 10 cents each
8 000 000 (December 2014: 8 000 000) 6,5% first cumulative preference shares of R1 each
1 000 000 000 (December 2014: 1 000 000 000) non-redeemable, non-cumulative, non-participating
preference shares of 1 cent each
June
2015
Rm
December
2014
Rm
200
8
200
8
10
10
218
218
162
162
17 814
17 905
5 503
5 503
8 000 000 (December 2014: 8 000 000) 6,5% first cumulative preference shares of R1 each – first
preference shares
8
8
52 982 248 (December 2014: 52 982 248) non-redeemable, non-cumulative, non-participating
preference shares of 1 cent each - second preference shares
1
1
5 494
5 494
23 479
23 570
Issued
Ordinary share capital
1 618 268 746 (December 2014: 1 618 361 000) ordinary shares of 10 cents each
Ordinary share premium
A premium of R308 million (December 2014: R554 million) was raised on the allotment and issue
during the year of 2 188 716 ordinary shares (December 2014: 4 879 268).
During 2015 there was a share buyback of 2 281 819 shares by the group. R399 million was reduced
from ordinary share premium.
Preference share capital and premium
Preference share premium - non-redeemable, non-cumulative, non-participating preference shares second preference shares
The non-redeemable, non-cumulative, non-participating preference shares are entitled to an annual
dividend, if declared, payable in two semi-annual instalments of not less than 77% of the prime interest
rate multiplied by the subscription price of R100 per share.
All classes of preference shares in issue are non-redeemable.
77
Additional information
Composition of capital – SBG
Composition of capital1
June
2015
Basel III
Rm
December
2014
Basel III
Rm
99 051
100 406
CET I capital before regulatory adjustments
127 610
123 936
Directly issued qualifying common share capital plus related stock surplus
Retained earnings
Accumulated other comprehensive income (and other reserves)
17 976
104 022
5 612
18 067
97 455
8 414
4 968
4 159
(33 527)
(27 689)
(3 573)
(16 579)
(3 711)
(15 850)
(511)
(7)
(2 156)
(511)
(467)
(2 054)
(54)
(439)
(289)
(195)
(516)
(308)
(9 919)
(4 074)
CET I capital
Instruments and reserves
Directly issued capital subject to phase out from CET I
(only applicable to non-joint stock companies)
Public sector capital injections grandfathered until 1 January 2018
Common share capital issued by subsidiaries and held by third parties
(amount allowed in group CET I)
Regulatory adjustments
Less: total regulatory adjustments to CET I
Prudential valuation adjustments
Goodwill (net of related tax liability)
Other intangibles other than mortgage-servicing rights (net of related tax liability)
Deferred tax assets that rely on future profitability excluding those arising from temporary
differences (net of related tax liability)
Cash-flow hedge reserve
Shortfall of provisions to expected losses
Securitisation gain on sale
Gains and losses due to changes in own credit risk on fair valued liabilities
Defined-benefit pension fund net assets
Investments in own shares (if not already netted of paid-in capital on reported balance sheet)
Reciprocal cross-holdings in common equity
Investments in the capital of banking, financial and insurance entities that are outside
the scope of regulatory consolidation, net of eligible short positions, where the bank
does not own more than 10% of the issued share capital (amount above 10% threshold)
Significant investments in the common stock of banking, financial and insurance entities
that are outside the scope of regulatory consolidation, net of eligible short positions
(amount above 10% threshold)
Mortgage servicing rights (amount above 10% threshold)
Deferred tax assets arising from temporary differences
(amount above 10% threshold, net of related tax liability)
Amount exceeding the 15% threshold, relating to:
Significant investments in the common stock of financials
Mortgage servicing rights
Deferred tax assets arising from temporary differences
National specific regulatory adjustments
Regulatory adjustments applied to CET I in respect of amounts subject to pre-Basel III treatment
Regulatory adjustments applied to CET I due to insufficient additional tier I and tier II
to cover deductions
1
Disclosure based on prescribed SARB template. All blank line items are not applicable as at 30 June 2015 and 31 December 2014.
78
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
(3)
Composition of capital1 continued
June
2015
Basel III
Rm
December
2014
Basel III
Rm
4 011
4 515
Additional tier I capital before regulatory adjustments
4 011
4 515
Directly issued qualifying additional tier I instruments plus related stock surplus, classified as:
3 846
4 396
Equity under applicable accounting standards
Liabilities under applicable accounting standards
3 846
4 396
Directly issued capital instruments subject to phase out from additional tier I
5 495
5 495
165
119
103 062
104 921
21 058
23 993
Tier II instruments (and CET I and additional tier I instruments not included in common share
capital and additional tier I instruments) issued by subsidiaries and held by third parties
(amount allowed in group tier II), including:
19 405
22 727
Instruments issued by subsidiaries subject to phase out
15 860
26 283
1 653
1 266
Additional tier I capital
Instruments
Additional tier I instruments (and CET I instruments not included in common share capital )
issued by subsidiaries and held by third parties (amount allowed in group additional tier I),
including:
Instruments issued by subsidiaries subject to phase out
Regulatory adjustments
Total regulatory adjustments to additional tier I capital
Investments in own additional tier I instruments
Reciprocal cross-holdings in additional tier I instruments
Investments in the capital of banking, financial and insurance entities that are outside
the scope of regulatory consolidation, net of eligible short positions, where the bank
does not own more than 10% of the issued share capital (amount above 10% threshold)
Significant investments in the common stock of banking, financial and insurance entities
that are outside the scope of regulatory consolidation, net of eligible short positions
(amount above 10% threshold)
National specific regulatory adjustments:
Regulatory adjustments applied to CET I in respect of amounts subject to pre-Basel III treatment
Regulatory adjustments applied to additional tier I due to insufficient additional tier I
due to insufficient tier II to cover deductions
Tier I capital
Capital and provisions
Tier II capital before regulatory adjustments
Directly issued qualifying tier II instruments plus related stock surplus
Directly issued capital instruments subject to phase out from tier II
Provisions
1
Disclosure based on prescribed SARB template. All blank line items are not applicable as at 30 June 2015 and 31 December 2014.
79
Additional information
Composition of capital – SBG | continued
Composition of capital1 continued
June
2015
Basel III
Rm
December
2014
Basel III
Rm
Regulatory adjustments
Total regulatory adjustments to tier II capital
Investments in own tier II instruments
Reciprocal cross-holdings in tier II instruments
Investments in the capital of banking, financial and insurance entities that are outside
the scope of regulatory consolidation, net of eligible short positions, where the bank
does not own more than 10% of the issued share capital (amount above 10% threshold)
Significant investments in the capital of banking, financial and insurance entities that are
outside the scope of regulatory consolidation (net of eligible short positions)
National specific regulatory adjustments
Regulatory adjustments applied to tier II in respect of amounts subject to
pre-Basel III treatment
Tier II capital
21 058
23 993
Total capital
124 120
128 914
Total risk-weighted assets
856 380
915 213
11.6
12.0
14.5
11.0
11.5
14.1
6.5
5.5
5.7
5.5
Risk-weighted assets in respect of amounts subject to pre-Basel III treatment
Capital ratios and buffers
CET I (as a percentage of risk-weighted assets)
%
Tier I (as a percentage of risk-weighted assets)
%
Total capital (as a percentage of risk-weighted assets)
%
Institution specific buffer requirement (minimum CET I requirement plus capital conservation
buffer plus countercyclical buffer requirements plus global systemically important banks
(G-SIB) buffer requirement, expressed as a percentage of risk-weighted assets)
%
Capital conservation buffer requirement
Bank specific countercyclical buffer requirement
G-SIB buffer requirement
%
%
%
Common equity tier I available to meet buffers (as a percentage of risk-weighted assets)
%
1
Disclosure based on prescribed SARB template. All blank line items are not applicable as at 30 June 2015 and 31 December 2014.
80
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Composition of capital1 continued
June
2015
Basel III
Rm
December
2014
Basel III
Rm
6.5
8.0
5.5
7.0
10.0
10.0
404
10 897
484
10 448
National minima (if different from Basel III)
National CET I minimum ratio (if different from Basel III minimum) – excluding individual
capital requirement (ICR) and D-SIB
%
National tier I minimum ratio (if different from Basel III minimum) – excluding ICR and D-SIB %
National total capital minimum ratio (if different from Basel III minimum) – excluding ICR and
D-SIB%
Amounts below the threshold for deductions (before risk weighting)
Non-significant investments in the capital of other financials
Significant investments in the common stock of financials
Mortgage servicing rights (net of related tax liability)
Deferred tax assets arising from temporary differences (net of related tax liability)
422
Applicable caps on the on the inclusion of provisions in tier II
Provisions eligible for inclusion in tier II in respect of exposures subject to standardised
approach (prior to application of cap)
Cap on inclusion of provisions in tier II under standardised approach
Provisions eligible for inclusion in tier II in respect of exposures subject to internal
ratings-based approach (prior to application of cap)
Cap for inclusion of provisions in tier II under internal ratings-based approach
1 653
2 906
1 266
2 951
2 319
2 435
Capital instruments subject to phase-out arrangements (only applicable between
1 January 2018 and 1 January 2022)
Current cap on CET I instruments subject to phase out arrangements
Amount excluded from CET I due to cap (excess over cap after redemptions and maturities)
Current cap on additional tier I instruments subject to phase out arrangements
Amount excluded from additional tier I due to cap (excess over cap after redemptions
and maturities)
Current cap on tier II instruments subject to phase out arrangements
Amount excluded from tier II due to cap (excess over cap after redemptions and maturities)
1
Disclosure based on prescribed SARB template. All blank line items are not applicable as at 30 June 2015 and 31 December 2014.
81
Additional information
Composition of capital – SBSA
Composition of capital1
June
2015
Basel III
Rm
December
2014
Basel III
Rm
62 776
57 156
CET I capital before regulatory adjustments
82 100
76 256
Directly issued qualifying common share capital plus related stock surplus
Retained earnings
Accumulated other comprehensive income (and other reserves)
Directly issued capital subject to phase out from CET I
(only applicable to non-joint stock companies)
Public sector capital injections grandfathered until 1 January 2018
39 057
42 127
916
36 356
39 211
689
CET I capital
Reference
Instruments and reserves
Common share capital issued by subsidiaries and held by third parties
(amount allowed in group CET I)
Regulatory adjustments
Less: total regulatory adjustments to CET I
Prudential valuation adjustments
Goodwill (net of related tax liability)
Other intangibles other than mortgage-servicing rights
(net of related tax liability)
Deferred tax assets that rely on future profitability excluding those
arising from temporary differences (net of related tax liability)
Cash-flow hedge reserve
Shortfall of provisions to expected losses
Securitisation gain on sale
Gains and losses due to changes in own credit risk on fair valued liabilities
Defined-benefit pension fund net assets
Investments in own shares (if not already netted of paid-in capital
on reported balance sheet)
Reciprocal cross-holdings in common equity
Investments in the capital of banking, financial and insurance entities that
are outside the scope of regulatory consolidation, net of eligible short
positions, where the bank does not own more than 10% of the
issued share capital (amount above 10% threshold)
Significant investments in the common stock of banking, financial and
insurance entities that are outside the scope of regulatory consolidation,
net of eligible short positions (amount above 10% threshold)
Mortgage servicing rights (amount above 10% threshold)
Deferred tax assets arising from temporary differences
(amount above 10% threshold, net of related tax liability)
Amount exceeding the 15% threshold, relating to:
(f)
(19 324)
(19 100)
( 36)
( 36)
(b)
(16 441)
(15 486)
(b)
( 71)
( 134)
(2 150)
( 183)
( 23)
(2 750)
(a)
( 54)
( 438)
( 106)
( 516)
Significant investments in the common stock of financials
Mortgage servicing rights
Deferred tax assets arising from temporary differences
National specific regulatory adjustments
Regulatory adjustments applied to CET I in respect of amounts
subject to pre-Basel III treatment
Regulatory adjustments applied to CET I due to insufficient additional
tier I and tier II to cover deductions
1Disclosure based on prescribed SARB template. All blank line items are not applicable as at 30 June 2015 and 31 December 2014.
82
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
(c)
(d)
(d)
Composition of capital1 continued
June
2015
Basel III
Rm
December
2014
Basel III
Rm
Reference
Additional tier I capital
Instruments
Additional tier I capital before regulatory adjustments
Directly issued qualifying additional tier I instruments plus related stock
surplus, classified as:
Equity under applicable accounting standards
Liabilities under applicable accounting standards
(e)
(e)
Directly issued capital instruments subject to phase out from additional tier I
(e)
Additional tier I instruments (and CET I instruments not included in common
share capital ) issued by subsidiaries and held by third parties (amount
allowed in group additional tier I), including:
Instruments issued by subsidiaries subject to phase out
Regulatory adjustments
Total regulatory adjustments to additional tier I capital
Investments in own additional tier I instruments
Reciprocal cross-holdings in additional tier I instruments
Investments in the capital of banking, financial and insurance entities that
are outside the scope of regulatory consolidation, net of eligible short
positions, where the bank does not own more than 10% of the issued
share capital (amount above 10% threshold)
Significant investments in the common stock of banking, financial and
insurance entities that are outside the scope of regulatory consolidation,
net of eligible short positions (amount above 10% threshold)
National specific regulatory adjustments:
Regulatory adjustments applied to CET I in respect of amounts subject to
pre-Basel III treatment
Regulatory adjustments applied to additional tier I due to insufficient
additional tier I due to insufficient tier II to cover deductions
Tier I capital
62 776
57 156
Tier II capital before regulatory adjustments
20 443
19 679
Directly issued qualifying tier II instruments plus related stock surplus
20 085
19 490
Directly issued capital instruments subject to phase out from tier II
15 250
18 250
Capital and provisions
Tier II instruments (and CET I and additional tier I instruments not
included in common share capital and additional tier I instruments) issued
by subsidiaries and held by third parties (amount allowed in group tier II),
including:
Instruments issued by subsidiaries subject to phase out
Provisions
(g)
358
189
1Disclosure based on prescribed SARB template. All blank line items are not applicable as at 30 June 2015 and 31 December 2014.
83
Additional information
Composition of capital – SBSA | continued
Composition of capital1 continued
June
2015
Basel III
Rm
December
2014
Basel III
Rm
Regulatory adjustments
Total regulatory adjustments to tier II capital
Investments in own tier II instruments
Reciprocal cross-holdings in tier II instruments
Investments in the capital of banking, financial and insurance entities
that are outside the scope of regulatory consolidation, net of eligible
short positions, where the bank does not own more than 10% of the
issued share capital (amount above 10% threshold)
Significant investments in the capital of banking, financial and insurance
entities that are outside the scope of regulatory consolidation (net of
eligible short positions)
National specific regulatory adjustments
(2 088)
(1 964)
(2 088)
(1 964)
18 355
17 715
Regulatory adjustments applied to tier II in respect of amounts subject to
pre-Basel III treatment
Tier II capital
Total capital
81 131
74 871
542 175
513 856
%
%
%
11.6
11.6
15.0
11.1
11.1
14.6
Institution specific buffer requirement (minimum CET I requirement plus
capital conservation buffer plus countercyclical buffer requirements
plus global systemically important banks (G-SIB) buffer requirement,
expressed as a percentage of risk-weighted assets)
%
6.5
5.5
4.4
5.3
Total risk-weighted assets
Risk-weighted assets in respect of amounts subject to pre-Basel III
treatment
Capital ratios and buffers
CET I (as a percentage of risk-weighted assets)
Tier I (as a percentage of risk-weighted assets)
Total capital (as a percentage of risk-weighted assets)
Capital conservation buffer requirement
Bank specific countercyclical buffer requirement
G-SIB buffer requirement
%
%
%
Common equity tier I available to meet buffers (as a percentage of
risk-weighted assets)
%
1Disclosure based on prescribed SARB template. All blank line items are not applicable as at 30 June 2015 and 31 December 2014.
84
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Reference
Composition of capital1 continued
June
2015
Basel III
Rm
December
2014
Basel III
Rm
%
6.5
5.5
%
8.0
7.0
%
10.0
10.0
547
439
697
113
Reference
National minima (if different from Basel III)
National CET I minimum ratio (if different from Basel III minimum)
– excluding individual capital requirement (ICR) and domestic
systemically important banks (D-SIB)
National tier I minimum ratio (if different from Basel III minimum)
– excluding ICR and D-SIB
National total capital minimum ratio (if different from Basel III minimum)
– excluding ICR and D-SIB
Amounts below the threshold for deductions
(before risk weighting)
Non-significant investments in the capital of other financials
Significant investments in the common stock of financials
Mortgage servicing rights (net of related tax liability)
Deferred tax assets arising from temporary differences
(net of related tax liability)
4
( 3)
Applicable caps on the on the inclusion of provisions in tier II
Provisions eligible for inclusion in tier II in respect of exposures subject
to standardised approach (prior to application of cap)
Cap on inclusion of provisions in tier II under standardised approach
Provisions eligible for inclusion in tier II in respect of exposures subject
to internal ratings-based approach (prior to application of cap)
Cap for inclusion of provisions in tier II under internal ratings-based
approach
358
362
262
363
2 398
2 185
Capital instruments subject to phase-out arrangements (only
applicable between 1 January 2018 and 1 January 2022)
Current cap on CET I instruments subject to phase out arrangements
Amount excluded from CET I due to cap
(excess over cap after redemptions and maturities)
Current cap on additional tier I instruments subject to phase out
arrangements
Amount excluded from additional tier I due to cap
(excess over cap after redemptions and maturities)
Current cap on tier II instruments subject to phase out arrangements
Amount excluded from tier II due to cap
(excess over cap after redemptions and maturities)
1Disclosure based on prescribed SARB template. All blank line items are not applicable as at 30 June 2015 and 31 December 2014.
Leverage ratio – SBSA
Tier I capital (excluding unappropriated profit)
Tier I capital (including unappropriated profit)
Total exposures
Leverage ratio (excluding unappropriated profits, %)
Leverage ratio (including unappropriated profits, %)
June
2015
Rm
December
2014
Rm
62 776
67 036
57 155
63 311
1 290 141
1 213 657
4.9
5.2
4.7
5.2
85
Additional information
Capital instruments: main features
disclosure template
SBG capital instruments – main features disclosure template
Ordinary
share capital
(including
share premium)
Subordinated
bond – SBK9
Subordinated
bond – SBK12
Subordinated
bond – SBK13
Subordinated
bond – SBK14
Subordinated
bond – SBK15
SBSA
SBSA
ZAG000029687
SBSA
ZAG000073388
SBSA
ZAG000073396
SBSA
ZAG000091018
SBSA
ZAG000092339
SA
SA
SA
SA
SA
SA
CET I
CET I
Solo
Ordinary
share capital
and premium
ZAR39 067
Tier II
Tier II
Group & solo
Subordinated
debt
Tier II
Tier II
Group & solo
Subordinated
debt
Tier II
Tier II
Group & solo
Subordinated
debt
Tier II
Tier II
Group & solo
Subordinated
debt
Tier II
Tier II
Group & solo
Subordinated
debt
ZAR1 050
ZAR1 120
ZAR805
ZAR1 190
ZAR854
ZAR1
Equity
attributable
to ordinary
shareholders
Ongoing
Perpetual
N/A
No
N/A
ZAR1 500
Subordinated
debt
ZAR1 600
Subordinated
debt
ZAR1 150
Subordinated
debt
ZAR1 780
Subordinated
debt
ZAR1 220
Subordinated
debt
2006/04/10
Dated
2023/04/10
Yes
2018/04/10
ZAR1 500
2018/04/10
or any
subsequent
interest
payment date
2009/11/24
Dated
2021/11/24
Yes
2016/11/24
ZAR1 600
N/A
2009/11/24
Dated
2021/11/24
Yes
2016/11/24
ZAR1 150
N/A
2011/12/01
Dated
2022/12/01
Yes
2017/12/01
ZAR1 780
2017/12/01
or any
subsequent
interest
payment date
2012/01/23
Dated
2022/1/23
Yes
2017/01/23
ZAR1 220
N/A
Fixed
10.82%
semi-annual
No
Mandatory
Floating
JIBAR + 2.20
No
Mandatory
Fixed
9.66%
semi-annual
No
Mandatory
Floating
JIBAR + 2.00
No
Full discretionary
Fixed
8.40%
semi-annual
No
Mandatory
No
Yes
Yes
Yes
No
No
Non-cumulative
Non-convertible
N/A
Most
subordinated
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Non-cumulative
Non-convertible
N/A
Senior
unsecured
June 2015
Issuer
Unique identifier (for example, CUSIP, ISIN or
Bloomberg identifier for private placement)
Governing law(s) of the instrument
Regulatory treatment
Transitional Basel III rules
Post-transitional Basel III rules
Eligible at solo/group/group & solo
Instrument type (types to be specified
by each jurisdiction)
Amount recognised in regulatory capital
(currency in Rm, as of most recent
reporting date)
Par value of instrument
Accounting classification
Original date of issuance
Perpetual or dated
Original maturity date
Issuer call subject to prior supervisory approval
Optional call date, contingent call dates and
redemption amount (currency in Rm)
Subsequent call dates, if applicable
N/A
Coupons/dividends
Fixed or floating dividend/coupon
Coupon rate and any related index
Existence of a dividend stopper
Fully discretionary, partially discretionary
or mandatory
Existence of step up or other incentive
to redeem
Non-cumulative or cumulative
Convertible or non-convertible
Write-down feature
Position in subordination hierarchy in
liquidation (specify instrument type
immediately senior to instrument)
Non-compliant transitioned features
If yes, specify non-compliant features
86
N/A
N/A
No
Mandatory
No
Yes
Yes
Yes
Yes
Yes
N/A Regulation 38(14) Regulation 38(14) Regulation 38(14) Regulation 38(14) Regulation 38(14)
(a)(i)
(a)(i)
(a)(i)
(a)(i)
(a)(i)
Regulation 38(14) Regulation 38(14) Regulation 38(14) Regulation 38(14) Regulation 38(14)
(a)(iv)(D)
(a)(iv)(D)
(a)(iv)(D)
(a)(iv)(H)(ii)
(a)(iv)(H)(ii)
Regulation 38(14) Regulation 38(14) Regulation 38(14)
(a)(iv)(H)(ii)
(a)(iv)(H)(ii)
(a)(iv)(H)(ii)
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Ordinary
share capital
(including
share premium)
Subordinated
bond – SBK16
Subordinated
bond – SBK17
Subordinated
bond – SBK18
Subordinated
bond – SBK19
Subordinated
bond – SBK20
Subordinated
bond – SBK21
Subordinated
bond – SBK22
Subordinated
bond – SBK23
SBSA
ZAG000093741
SBSA
ZAG000097619
SBSA
ZAG000100827
SBSA
ZAG000100835
SBSA
ZAG00121781
SBSA
ZAG000123258
SBSA
ZAG000126442
SBSA
ZAG000126434
SBG
SBK
ZAE000109815
SA
SA
SA
SA
SA
SA
SA
SA
SA
Tier II
Tier II
Group & solo
Subordinated
debt
Tier II
Tier II
Group & solo
Subordinated
debt
Tier II
Tier II
Group & solo
Subordinated
debt
Tier II
Tier II
Group & solo
Subordinated
debt
N/A
Tier II
Group & solo
Subordinated
debt
N/A
Tier II
Group & solo
Subordinated
debt
N/A
Tier II
Group & solo
Subordinated
debt
N/A
Tier II
Group & solo
Subordinated
debt
ZAR1 400
ZAR1 400
ZAR2 450
ZAR350
ZAR2 250
ZAR750
ZAR1 000
ZAR1 000
CET I
CET I
Group
Ordinary
share capital
and premium
ZAR17 976
ZAR2 000
Subordinated
debt
ZAR2 000
Subordinated
debt
ZAR3 500
Subordinated
debt
ZAR500
Subordinated
debt
ZAR2 250
Subordinated
debt
ZAR750
Subordinated
debt
ZAR1 000
Subordinated
debt
ZAR1 000
Subordinated
debt
10c
Equity
attributable
to ordinary
shareholders
2012/03/15
Dated
2023/3/15
Yes
2018/03/15
ZAR2 000
2012/07/30
Dated
2024/07/30
Yes
2019/07/30
ZAR2 000
2012/10/24
Dated
2025/10/24
Yes
2020/10/24
ZAR3 500
2012/10/24
Dated
2024/10/24
Yes
2019/10/24
ZAR500
2014/12/02
Dated
2024/12/02
Yes
2019/12/02
ZAR2 250
2015/01/28
Dated
2025/01/28
Yes
2020/01/28
ZAR750
2015/05/28
Dated
2025/05/28
Yes
2020/05/28
ZAR1 000
2015/05/28
Dated
2027/5/28
Yes
2022/05/28
ZAR1 000
Ongoing
Perpetual
N/A
No
N/A
N/A
N/A
N/A
N/A
2019/12/02
or any
interest
payment date
thereafter
2020/01/28
or any
interest
payment date
thereafter
2020/05/28
or any
interest
payment date
thereafter
2022/05/28
or any
interest
payment date
thereafter
N/A
Floating
JIBAR + 2.10
Floating
JIBAR + 2.20
Floating
JIBAR + 2.35
Floating
JIBAR + 2.20
Floating
JIBAR + 3.50
Floating
JIBAR + 330
Floating
JIBAR + 350
N/A
N/A
No
Mandatory
No
Mandatory
No
Mandatory
No
Mandatory
No
Mandatory
No
Mandatory
No
Mandatory
Fixed
11.56%
semi-annual
No
Mandatory
No
Full discretionary
No
No
No
No
No
No
No
No
No
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Non-cumulative
Non-convertible
Yes
Senior
unsecured
Non-cumulative
Non-convertible
Yes
Senior
unsecured
Non-cumulative
Non-convertible
Yes
Senior
unsecured
Yes
Yes
Yes
Yes
Regulation 38(14) Regulation 38(14) Regulation 38(14) Regulation 38(14)
(a)(i)
(a)(i)
(a)(i)
(a)(i)
Regulation 38(14) Regulation 38(14) Regulation 38(14) Regulation 38(14)
(a)(iv)(H)(ii)
(a)(iv)(H)(ii)
(a)(iv)(H)(ii)
(a)(iv)(H)(ii)
No
N/A
No
N/A
No
N/A
Non-cumulative
Non-cumulative
Non-convertible Non-convertible
Yes
N/A
Senior
Non-cumulative
unsecured preference shares
No
N/A
No
N/A
87
Additional information
Capital instruments: main features disclosure | continued
SBG capital instruments – main features disclosure template
Subordinated
bond
– Standard Bank
Swaziland 1
Subordinated
bond
– Standard Bank
Swaziland 2
Subordinated
bond
– Stanbic Bank
Botswana 1
Subordinated
bond
– Stanbic Bank
Botswana 5
Standard Bank
Standard Bank
Stanbic Bank
Swaziland Limited Swaziland Limited Botswana Limited
SBBL056
Stanbic Bank
Botswana
Limited
SBBL057
Swaziland
Botswana
Botswana
N/A
N/A
Solo
Subordinated
debt
Tier II
Tier II
Group & solo
Subordinated
debt
Tier II
Tier II
Group & solo
Subordinated
debt
Tier II
Tier II
Group & solo
Subordinated
debt
E50
ZAR35
E50
ZAR43
BWP50
ZAR68
BWP80
E50
Subordinated
debt
ZAR50
E50
Subordinated
debt
ZAR61
BWP50
Subordinated
debt
ZAR97
BWP80
Subordinated
debt
2014/12/14
2010/10/14
2011/06/13
2012/05/23
Dated
2024/12/14
Yes
Dated
2020/10/14
Yes
Dated
2021/06/13
Yes
Dated
2022/05/23
Yes
2015/10/14
E50
On or after
2015/10/14
2016/06/13
BWP50
On or after
2016/06/13
2017/05/23
BWP80
On or after
2017/05/23
Fixed margin
linked to
a floating
base rate
91 day
BoBC +150bps
No
Mandatory
Cumulative
preference
share capital
Non-cumulative
preference
share capital
SBG
SBG
SBKP
ZAE000038881
SA
SBPP
ZAE000056339
SA
SZD000551465
SZD000551242
Swaziland
Tier II
Tier II
Group
Preference share
capital and share
premium
ZAR8
Additional tier I
Additional tier I
Group
Preference share
capital and share
premium
ZAR3 846
June 2015
Issuer
Unique identifier (for example, CUSIP, ISIN or
Bloomberg identifier for private placement)
Governing law(s) of the instrument
Regulatory treatment
Transitional Basel III rules
Post-transitional Basel III rules
Eligible at solo/group/group & solo
Instrument type (types to be specified by
each jurisdiction)
Amount recognised in regulatory capital
(currency in Rm, as of most recent
reporting date)
Par value of instrument
ZAR1
1c
Preference share
capital and share
premium
1969/11/25
Perpetual
N/A
No
Preference share
capital and share
premium
2004/07/07,
2006/05/23,
2006/08/12
Perpetual
N/A
No
N/A
N/A
N/A
N/A
2019/12/14
E50
2019/12/15
or any interest
payment date
thereafter
Fixed or floating dividend/coupon
Fixed
Floating
Fixed
Fixed
Coupon rate and any related index
6.50%
8.75%
8.1%
No
Full discretionary
77% of prime
interest rate
No
Full discretionary
No
Mandatory
No
Mandatory
Fixed margin
linked to
a floating
base rate
91 day
BoBC +130bps
No
Mandatory
No
No
Yes
Yes
Yes
Yes
Cumulative
Non-convertible
N/A
Subordinated
debt
Non-cumulative
Non-convertible
N/A
Cumulative
preference
shares
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Yes
No loss
absorbency
features at the
point of
non-viability
Yes
No loss
absorbency
features at the
point of
non-viability
N/A
Accounting classification
Original date of issuance
Perpetual or dated
Original maturity date
Issuer call subject to prior supervisory
approval
Optional call date, contingent call dates and
redemption amount (currency in Rm)
Subsequent call dates, if applicable
Coupons/dividends
Existence of a dividend stopper
Fully discretionary, partially discretionary or
mandatory
Existence of step up or other incentive to
redeem
Non-cumulative or cumulative
Convertible or non-convertible
Write-down feature
Position in subordination hierarchy in
liquidation (specify instrument type
immediately senior to instrument)
Non-compliant transitioned features
If yes, specify non-compliant features
88
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Yes
Yes
Yes
Regulation 38(14) Regulation 38(14) Regulation 38(14)
(a)(i)
(a)(i)
(a)(i)
Regulation 38(14) Regulation 38(14) Regulation 38(14)
(a)(iv)(D)
(a)(iv)(D)
(a)(iv)(D)
Regulation 38(14) Regulation 38(14) Regulation 38(14)
(a)(iv)(H)(ii)
(a)(iv)(H)(ii)
(a)(iv)(H)(ii)
Subordinated
bond
– Standard Bank
Mozambique
Subordinated
bond
– CfC Stanbic
Bank Kenya 3
Subordinated
bond –
CfC Stanbic
Bank Kenya 3
Subordinated
bond
– CfC Stanbic
Bank Kenya
Subordinated
bond
– Stanbic Bank
Ghana 1
Subordinated
loan
– Standard Bank
Mauritius
Subordinated
loan
– Standard Bank
Tanzania
Subordinated
loan
– Stanbic Bank
Uganda
Subordinated
loan
– Standard Bank
Angola
Standard Bank CFC Stanbic Bank CFC Stanbic Bank CFC Stanbic Bank
Mozambique
Limited
Limited
Limited
Stanbic Bank
Ghana Limited
Standard Bank
Mauritius
Standard Bank
Tanzania
Stanbic Bank
Uganda
Standard Bank
Angola
Standard Bank
South Africa
Mauritius
Standard Bank
South Africa
Tanzania
Standard Bank
South Africa
Uganda
Standard Bank
South Africa
Angola
SBM-2007
KE1000001684
KE1000001672
KE4000002438
SBG001
Mozambique
Kenya
Kenya
Kenya
Ghana
Tier II
Tier II
Group & solo
Subordinated
debt
Tier II
Tier II
Group & solo
Subordinated
debt
ZAR28
MT260
ZAR42
KES2 402
ZAR2
KES98
KES4 000
ZAR15
GHS7
USD25
TZS10 011
UGX20 973
AOA3 277
ZAR88
MT260
Subordinated
debt
ZAR292
KES2 402
Subordinated
debt
ZAR12
KES98
Subordinated
debt
KES4 000
Subordinated
debt
ZAR22
GHS7
Subordinated
debt
USD25
Subordinated
loan
TZS10 011
Subordinated
loan
UGX20 973
Subordinated
loan
AOA3 277
Subordinated
loan
2007/06/29
2009/07/07
2009/07/07
2014/12/15
2012/01/23
2012/12/03
2011/12/15
2011/10/31
2013/05/23
Dated
2017/06/29
Yes
Dated
2016/07/07
Yes
Dated
2016/07/07
Yes
Dated
2021/12/08
Yes
Dated
2022/01/23
Yes
Dated
2022/12/04
Yes
Dated
2021/12/15
Yes
Dated
2021/10/31
Yes
Dated
2023/04/23
Yes
N/A
N/A
N/A
N/A
N/A
N/A
June 2020
KES4 000
June 2020
or any
interest payment
date thereafter
2017/01/23
GHS7
2017/01/23
or any
interest payment
date thereafter
2017/12/04
USD25
2017/12/05
or any
interest date
thereafter
2016/12/15
TZS10 011
2016/12/16
or any
interest date
thereafter
2016/10/31
UGX20 973
2016/11/01
or any
interest date
thereafter
2018/04/23
AOA3 277
2018/04/24
or any
interest date
thereafter
Fixed margin
linked to
a floating
base rate
WA
+50bps
No
Mandatory
Fixed
.
Fixed
Fixed
Fixed margin
linked to
a floating
base rate
LIBOR + 300bps
Fixed margin
linked to
a floating
base ratee
LIBOR + 395bps
Fixed margin
linked to
a floating
base rate
LIBOR + 376bps
Fixed margin
linked to
a floating
base rate
LIBOR + 360bps
No
Mandatory
No
Mandatory
No
Mandatory
No
Mandatory
Tier II
N/A
Tier II
Tier II
Tier II
Tier II
N/A
Tier II
N/A
Tier II
Tier II
Tier II
Tier II
N/A
Group & solo
Solo
Group & solo
Solo
Solo
Solo
Solo
Subordinated Subordinated debt Subordinated debt Subordinated loan Subordinated loan Subordinated loan Subordinated loan
debt
No
Mandatory
.
Fixed margin
linked to
a floating
base rate
182 day
T-bill +175 bps
No
Mandatory
No
Mandatory
11.25%
Semi-annual
No
Mandatory
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Non-cumulative
Non-convertible
N/A
Senior/
unsecured
Non-cumulative
Non-convertible
N/A
Senior
unsecured
Non-cumulative
Non-convertible
N/A
Senior
debt
Non-cumulative
Non-convertible
N/A
Senior
debt
Non-cumulative
Non-convertible
N/A
Senior
debt
Non-cumulative
Non-convertible
N/A
Senior
debt
Yes
Yes
Yes
Regulation 38(14) Regulation 38(14) Regulation 38(14)
(a)(i)
(a)(i)
(a)(i)
Regulation 38(14) Regulation 38(14) Regulation 38(14)
(a)(iv)(D)
(a)(iv)(H)(ii)
(a)(iv)(D)
Regulation 38(14)
Regulation 38(14)
(a)(iv)(H)(ii)
(a)(iv)(H)(ii)
N/A
Yes
Yes
Yes
Yes
Regulation 38(14) Regulation 38(14) Regulation 38(14) Regulation 38(14)
(a)(i)
(a)(i)
(a)(i)
(a)(i)
Regulation 38(14) Regulation 38(14) Regulation 38(14) Regulation 38(14)
(a)(iv)(D)
(a)(iv)(D)
(a)(iv)(D)
(a)(iv)(D)
Regulation 38(14) Regulation 38(14) Regulation 38(14) Regulation 38(14)
(a)(iv)(H)(ii)
(a)(iv)(H)(ii)
(a)(iv)(H)(ii)
(a)(iv)(H)(ii)
N/A
12.5%
12.95%
89
Additional information
Capital instruments: main features disclosure | continued
SBG capital instruments – main features disclosure template
Subordinated
loan
– Stanbic Bank
IBTC
Subordinated
loan
– Standard Bank
Zambia
Subordinated
loan
– Stanbic Bank
DRC
Subordinated
bond
– Stanbic Bank
IBTC
Subordinated
bond
– Standard Bank
Namibia
Stanbic Bank
IBTC
Standard Bank
South Africa
Standard Bank
Zambia
Standard Bank
South Africa
Stanbic Bank
DRC
Standard Bank
South Africa
Stanbic Bank
IBTC
NGSB20245181
Standard Bank
Namibia
NA000A1ZRK11
Nigeria
Zambia
DRC Congo
Nigeria
Namibia
N/A
N/A
Solo
Subordinated
loan
Tier II
Tier II
Solo
Subordinated
loan
N/A
N/A
Solo
Subordinated
loan
N/A
N/A
Solo
Subordinated
debt
N/A
N/A
Solo
Subordinated
debt
NGN7 913
ZMK111
CDF2 739
NG15 440
NAD100
NGN7 913
Subordinated
loan
2013/04/30
Dated
2025/10/31
Yes
2020/05/31
NGN7 913
ZMK111
Subordinated
loan
2011/12/13
Dated
2021/12/13
Yes
2016/12/13
ZMK111
CDF2 739
Subordinated
loan
2014/06/03
Dated
2024/06/03
Yes
2019/06/03
CDF2 736
NGN15 440
Subordinated
debt
2014/09/30
Dated
2024/09/30
Yes
2019/10/01
NGN15 440
NAD100
Subordinated
debt
2014/10/23
Dated
2024/10/23
Yes
2019/10/24
NAD100
2016/11/01
or any
interest date
thereafter
2016/12/14
or any
interest date
thereafter
2019/06/04
or any
interest date
thereafter
2019/10/01
or any
interest date
thereafter
2019/10/24
or any
interest date
thereafter
Fixed margin
linked to
a floating
base rate
LIBOR + 360bps
Fixed margin
linked to
a floating
base rate
LIBOR + 385bps
Fixed margin
linked to
a floating
base rate
LIBOR + 975bps
Fixed
Fixed
13.25%
9.00%
No
Mandatory
Yes
Non-cumulative
Non-convertible
N/A
Senior
debt
No
Mandatory
Yes
Non-cumulative
Non-convertible
N/A
Senior
debt
No
Mandatory
Yes
Non-cumulative
Non-convertible
N/A
Senior
debt
No
Mandatory
No
Non-cumulative
Non-convertible
N/A
Senior
unsecured
No
Mandatory
Yes
Non-cumulative
Non-convertible
N/A
Senior
unsecured
N/A
Yes
Regulation
38(14) (a)(i)
Regulation
38(14) (a)(iv)(D)
Regulation
38(14) (a)(iv)(H)
(ii)
N/A
N/A
N/A
June 2015
Issuer
Unique identifier (for example, CUSIP, ISIN or Bloomberg
identifier for private placement)
Governing law(s) of the instrument
Regulatory treatment
Transitional Basel III rules
Post-transitional Basel III rules
Eligible at solo/group/group & solo
Instrument type (types to be specified by each jurisdiction)
Amount recognised in regulatory capital (currency in Rm,
as of most recent reporting date)
Par value of instrument
Accounting classification
Original date of issuance
Perpetual or dated
Original maturity date
Issuer call subject to prior supervisory approval
Optional call date, contingent call dates and redemption
amount (currency in Rm)
Subsequent call dates, if applicable
Coupons/dividends
Fixed or floating dividend/coupon
Coupon rate and any related index
Existence of a dividend stopper
Fully discretionary, partially discretionary or mandatory
Existence of step up or other incentive to redeem
Non-cumulative or cumulative
Convertible or non-convertible
Write-down feature
Position in subordination hierarchy in liquidation
(specify instrument type immediately senior to instrument)
Non-compliant transitioned features
If yes, specify non-compliant features
90
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Subordinated
loan
– Stanbic Bank
Botswana
Subordinated
bond
– Stanbic Bank
Zambia
Subordinated
bond
– Standard Bank
Namibia
Subordinated
loan
– Standard Bank
Offshore Group
Subordinated
loan
– Standard Bank
Offshore Group
Subordinated
loan
– Standard Bank
Offshore Group
Subordinated
loan
– Standard Bank
Offshore Group
Subordinated
loan
– Standard Bank
Offshore Group
Subordinated
loan
– Standard Bank
Offshore Group
Stanbic Bank
Botswana
Standard Bank
South Africa
Stanbic Bank
Zambia
ZM2000000272
Standard Bank
Namibia
Standard Bank
South Africa
SBOG
SBOG
SBOG
SBOG
SBOG
SBOG
Standard Bank
Offshore Group
Standard Bank
Offshore Group
Standard Bank
South Africa
Standard Bank
Offshore Group
Standard Bank
Offshore Group
Botswana
Zamiba
Namibia
IOM Ltd
IOM Ltd
Jersey
Standard Bank
Group
International Ltd
Jersey
Jersey
Jersey
N/A
N/A
Solo
Subordinated
loan
N/A
N/A
Solo
Subordinated
debt
N/A
N/A
Solo
Subordinated
loan
Tier II
Tier II
Solo
Subordinated
debt
Tier II
Tier II
Solo
Subordinated
debt
Tier II
Tier II
Solo
Subordinated
debt
Tier II
Tier II
Solo
Subordinated
debt
Tier II
Tier II
Solo
Subordinated
debt
Tier II
Tier II
Solo
Subordinated
debt
BWP300
ZMK36.7
NAD100
GBP8
GBP3
GBP10
GBP6
GBP10
GBP11
BWP300
Subordinated
loan
2014/11/28
Dated
2024/11/28
Yes
2019/11/28
BWP300
ZMK36.7
Subordinated
debt
2014/10/31
Dated
2024/10/31
Yes
2019/11/01
ZMK36.7
NAD100
Subordinated
loan
2015/04/30
Dated
2025/04/30
Yes
2020/04/30
NAD100
GBP8
Subordinated
debt
2011/06/09
Dated
2021/06/30
N/A
N/A
GBP3
Subordinated
debt
2011/06/09
Dated
2025/06/30
N/A
N/A
GBP10
Subordinated
debt
2010/06/10
Dated
2025/06/30
N/A
N/A
GBP6
Subordinated
debt
2011/06/15
Dated
2021/06/30
N/A
N/A
GBP10
Subordinated
debt
2011/06/15
Dated
2025/06/30
N/A
N/A
GBP11
Subordinated
debt
2011/06/29
Dated
2021/06/30
N/A
N/A
29 November
or any
interest date
thereafter
2019/11/01
or any
interest
payment date
thereafter
2020/05/01
or any
interest
payment date
thereafter
N/A
N/A
N/A
N/A
N/A
N/A
Fixed
Fixed margin
linked to
a floating
base rate
182-day
t-bill
+ 275 bps
Fixed margin
linked to
a floating
base rate
JIBAR + 350bps
Floating
Floating
Floating
Floating
Floating
Floating
No
Mandatory
No
Non-cumulative
Non-convertible
N/A
Senior/
unsecured
No
Mandatory
Yes
Non-cumulative
Non-convertible
N/A
Senior/
unsecured
25bps
over LIBOR,
payable
3 monthly
No
Mandatory
No
Non-cumulative
Non-convertible
N/A
Senior
unsecured
390bps
over LIBOR,
payable
3 monthly
No
Mandatory
No
Non-cumulative
Non-convertible
N/A
Senior
unsecured
25bps
over LIBOR,
payable
3 monthly
No
Mandatory
No
Non-cumulative
Non-convertible
N/A
Senior
unsecured
LIBOR + 390bps,
payable
3 monthly
No
Mandatory
No
Non-cumulative
Non-convertible
N/A
Senior
debt
25bps
over LIBOR,
payable
6 monthly
No
Mandatory
No
Non-cumulative
Non-convertible
N/A
Senior
unsecured
No
Mandatory
No
Non-cumulative
Non-convertible
N/A
Senior
unsecured
25bps
over LIBOR,
payable
3 monthly
No
Mandatory
No
Non-cumulative
Non-convertible
N/A
Senior
unsecured
N/A
N/A
N/A
Yes
Non compliant
with Basel III
post transition
Yes
Non compliant
with Basel III
post transition
Yes
Non compliant
with Basel III
post transition
Yes
Non compliant
with Basel III
post transition
Yes
Non compliant
with Basel III
post transition
Yes
Non compliant
with Basel III
post transition
10.25%
91
Additional information
LCR (average) – SBSA
LCR (average)
Total
unweighted1
value
(average)
Rm
Total
weighted2
value
(average)
Rm
HQLA
Total HQLA
116 343
Cash outflows
880 539
290 563
Retail deposits and deposits from small business customers, of which:
225 318
18 979
35 530
189 788
18 979
392 498
230 885
137 291
255 191
16
39 471
191 398
16
80 954
15 344
4 369
2 645
73 940
4 369
2 645
8 330
Other contractual funding obligations
Other contingent funding obligations
20 958
160 811
20 958
4 397
Cash inflows
177 275
154 228
Secured lending
Inflows from fully performing exposures
Other cash inflows
5 760
158 567
12 948
5 760
140 021
8 447
Stable deposits
Less stable deposits
Unsecured wholesale funding, of which:
Operational deposits (all counterparties) and deposits in networks of cooperative banks
Non-operational deposits (all counterparties)
Unsecured debt
Additional requirements, of which:
Outflows related to derivative exposures and other collateral requirements
Outflows related to loss of funding on debt products
Credit and liquidity facilities
Total
adjusted3
value
Rm
Total HQLA
116 343
Total net cash outflows
136 335
LCR (%)
85.3
1 Unweighted value represents the outstanding balances maturing or callable within 30 days (for inflows and outflows).
2 Total weighted value is calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates (for inflows and outflows).
3 Adjusted value calculated after the application of both (i) haircuts and inflow and outflow rates and (ii) any applicable caps (i.e. cap on level 2B and level 2 assets for HQLA
and cap on inflows).
92
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
Acronyms and abbreviations
A
F
AIRB
Advanced internal ratings-based
ALCO
Asset and liability committee
AMA
Advanced measurement approach
AOA
Angolan kwanza
B
FIRB
Foundation internal ratings-based
G
GAC
Group audit committee
GBP
British pound sterling
GCCO
Group chief compliance officer
Banks Act
South African Banks Act 94 of 1990
GHS
Ghana cedi
Basel
Basel Capital Accord
GIA
Group internal audit
BCBS
Basel Committee on Banking Supervision
GRCMC
Group risk and capital management committee
BG1
Blue Granite Investments No. 1 (RF) Limited
GROC
Group risk oversight committee
BG2
Blue Granite Investments No. 2 (RF) Limited
G-SIB
Global systemically important banks
BG3
Blue Granite Investments No. 3 (RF) Limited
The group
Standard Bank Group banking activities
BG4
Blue Granite Investments No. 4 (RF) Limited
Board
Standard Bank Group Board of Directors
BTC
Blue Titanium Conduit (RF) Limited
BWP
Botswana Pula
H
HQLA
High quality liquid assets
I
C
CCPs
Central counterparties
ICAAP
Internal capital adequacy assessment process
CET I
Common equity tier I
ICBC
Industrial and Commercial Bank of China
CIB
Corporate & Investment Banking
ICR
Individual capital requirement
CoE
Cost of equity
IFRS
International Financial Reporting Standards
Country risk grade
IOR
Integrated operational risk
Chief risk officer
IRB
Internal ratings-based
IRRBB
Interest rate risk in the banking book
IT
Information technology
CR
CRO
D
DRC
Democratic Republic of Congo
D-SIB
Domestic systemically important banks
J
JIBAR
Johannesburg interbank agreed rate
E
L
E
Swazi emalangeni
EAD
Exposure at default
ERC
Equity risk committee
EUR
Euro
LCR
Liquidity coverage ratio
LGD
Loss given default
93
Additional information
Acronyms and abbreviations | continued
M
S
M
Mozambican metical
N
NAD
Namibian dollar
NAV
Net asset value
NCDs
Negotiable certificates of deposit
NGN
Nigerian naira
NSFR
Net stable funding ratio
SARB
The South African Reserve Bank
SB
Sovereign risk grade transfer and convertibility
SBG
Standard Bank Group
SBSA
The Standard Bank of South Africa Limited
SE
Structured entity
Siyakha
Siyakha Fund (RF) Limited
SOFP
Statement of financial position
SVaR
Stressed value-at-risk
T
O
OCI
Other comprehensive income
P
TCF
Treating customers fairly
TCM
Treasury and capital management
Tier I
Primary capital
Tier II
Secondary capital
Tier III
Tertiary capital
PBB
Personal & Business Banking
Tutuwa
Black economic empowerment ownership initiative
PD
Probability of default
Tutuwa 1
Tutuwa Strategic Holdings 1 Proprietary Limited
Tutuwa 2
Tutuwa Strategic Holdings 2 Proprietary Limited
TZS
Tanzanian shilling
Q
QRRE
Qualifying retail revolving exposure
R
R
South African rand
Rbn
Billions of rand
RAPM
Risk-adjusted performance measurement
RAS
Risk appetite statement
RCCM
Risk, compliance and capital management
Rm
Millions of rand
94
Standard Bank Group
Risk and capital management report for the six months ended 30 June 2015
U
UGX
Ugandan shilling
USD
United States dollar
V
VaR
Value-at-risk
Z
ZAR
South African rand
ZMK
Zambian kwacha
Contact details
Standard Bank Group Limited
Registration No. 1969/017128/06
Incorporated in the Republic of South Africa
Website: www.standardbank.com
Head: Investor relations
Registered address
David Kinsey
9th Floor, Standard Bank Centre
5 Simmonds Street
Johannesburg 2001
PO Box 7725
Johannesburg 2000
Tel: +27 11 631 3931
Group secretary
Zola Stephen
Tel: +27 11 631 9106
Group financial director
Simon Ridley
Tel: +27 11 636 3756
Contact details
Tel: +27 11 636 9111
Fax:+27 11 636 4207
Website: www.standardbank.com
Online
Please direct all annual report queries and comments to: [email protected]
Please direct all customer-related queries and comments to: [email protected]
Please direct all investor relations queries and comments to: [email protected]
Disclaimer
This document contains certain statements that are ’forward-looking’ with respect to certain of the group’s plans, goals and expectations relating to its future performance,
results, strategies and objectives. Words such as “may”, “could”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “aim”, “outlook”, “believe”, “plan”, “seek”, “predict” or
similar expressions typically identify forward-looking statements. These forward-looking statements are not statements of fact or guarantees of future performance, results,
strategies and objectives, and by their nature, involve risk and uncertainty because they relate to future events and circumstances which are difficult to predict and are
beyond the group’s control, including but not limited to, domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and
exchange rates, the policies and actions of regulatory authorities (including changes related to capital and solvency requirements), the impact of competition, inflation,
deflation, the timing impact and other uncertainties of future acquisitions or combinations within relevant industries, as well as the impact of changes in domestic and global
legislation and regulations in the jurisdictions in which the group and its affiliates operate. The group’s actual future performance, results, strategies and objectives may differ
materially from the plans, goals and expectations expressed or implied in the forward-looking statements. The group makes no representations or warranty, express or implied,
that these forward-looking statements will be achieved and undue reliance should not be placed on such statements. The group undertakes no obligation to update the
historical information or forward-looking statements in this document and does not assume responsibility for any loss or damage arising as a result of the reliance
by any party thereon.
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