31 August 2021

Atlas Mara Limited

Atlas Mara audited results for the 14-month period ended 28 February 2021

Principal highlights:

§ On 29 June 2021, the Group announced that it had changed its accounting reference date and financial year end from 31 December to 28 February, effective for the 2020 financial year. As a result of this change, the results and prior year information presented herein on an IFRS basis are not comparable.

§ Adjusted net profit of $1.5 million (2019: $5.8 million) which excludes the impact of IFRS 5 remeasurement of subsidiaries held-for-sale and other transaction and restructuring related expenses.

§ Union Bank of Nigeria ("UBN") contributed associate income of $25.5 million for the 14-month period (2019: $31.2 million). The associate income reported reflects the impact of the currency devaluation in 2020, being translated at an average US dollar FX rate of NGN384.4 compared to NGN306.4 in 2019.  This represents a 14-month pro-rated 30% decrease in US dollar terms (12.1% on a constant currency basis)

o  Despite the impact of the COVID-19 pandemic and related macro-economic challenges as well as government policy responses, UBN's underlying performance for the 14-month period remained strong, with the NPL ratio decreasing to 4% compared to 5.8% in December 2019.

o  Capital adequacy remains strong with total CAR above 17% at period-end.

o  BVPS increased by NGN 0.41 to 9.05 as at December 2020.

§ On 14 July 2021 the Group announced that it had successfully executed a binding and comprehensive debt restructuring agreement (the "Support and Override Agreement" or "restructuring agreement") with the majority of the Company's and its subsidiary ABC Holdings Limited's ("ABCH's") creditors. This followed the initial announcement on 29 December 2020 that the Group had entered into a new secured facility agreement and a standstill agreement with certain creditors in respect of the Company's and ABCH's financing arrangements (the "Standstill"). Additional information related to the terms of this agreement are set out in the Company's previous announcement.

§ Successful execution of the restructuring agreement enables the Company to continue its focus on its previously announced strategic priorities. In the period from September 2020 to date, the company has announced divestments in Mozambique, Rwanda, Tanzania and Botswana. The Group continues its efforts to streamline the holding company and centralised cost structures. Additionally, the Company continues to evaluate all options that could include a take-private or delisting of the Company and will keep the market apprised as appropriate. 

§ Reported net loss to equity holders of $58.7 million (2019: loss of $143.2 million) or $0.35 per share (2019: loss of $0.84 per share) This result includes a loss from continuing operations of $46.6 million (2019: loss of $8.5 million) and a loss from discontinued operations of $12.0 million (2019: loss of $134.7 million). The loss from continuing operations includes a loss on the monetary position in Zimbabwe of $16.9 million and reflects the impact of the currency devaluation of >100% in Zimbabwe and 20% in Nigeria.

§ The Group's operating businesses evolved in response to the challenges brought by the COVID-19 pandemic as well as the ever- increasing customer expectations, new technologies and a rapidly changing competitive environment. Key changes were implemented in health and safety of clients and employees, Information Technology systems and cyber security, capital and liquidity buffers, internal controls, and robust loan management systems.

§ All operating banks maintained adequate capital adequacy ratios, reflecting stable balance sheets. Continued focus on deposit growth, loan book quality, and growth business lines.

 

Commenting on these results, Chairman Michael Wilkerson said, "The past financial year was the most challenging in the Company's history. Nonetheless, I am pleased to report that the Group was successful in working with its creditors to complete its debt restructuring.  The Company also achieved several milestones in the strategic review aimed at maximizing creditor and shareholder value in the context of extraordinary market disruptions and highly regulated banking environments. Despite the challenging macroeconomic environment in Africa, most of our banks generated positive recurring operating profit during the period." 

Events subsequent to year end

§ Debt Restructuring

o  On 14 July 2021 the Group announced the successful execution of the restructuring agreement. Creditors representing 88% of the aggregate amount of debt outstanding under the Company's direct and contingent financial liabilities agreed to enter the Restructuring Agreement.

o  This agreement provides for a high level of support from the creditors to enable a long-term stable platform to allow the Company to complete its strategic review and divestiture program.

§ Update on strategic transactions

o  On 25 August 2021, the Group announced that after successfully securing the necessary regulatory approvals and consents, and fulfilling all other agreed closing conditions, the transaction for the sale of 62.06% shareholding in Banque Populaire du Rwanda Plc ("BPR") had been completed.

o  On 19 May 2021, the Group announced the completion of the sale of its subsidiary African Banking Corporation Mozambique ("BancABC Mozambique").  The transaction was initially announced on 29 September 2020.

o  On 19 April 2021, the Group announced that it had entered into definitive agreements for the sale of ABCH's holdings in African Banking Corporation Botswana ("BancABC Botswana"). This transaction has received all requisite regulatory approvals and is expected to close by the end of 2021.

§ Classification of BancABC Botswana as a non-current asset held for sale

o  Following the announcement of the planned divestiture of BancABC Botswana, effective 31 August 2021, the Group will be required to classify its investment in BancABC Botswana as a non-current asset held for sale. As required by IFRS 5, this will result in the investment being deconsolidated and remeasured to the lower of its carrying value or fair value less cost to sell. The transaction is expected to result in a loss primarily due to the carrying value of goodwill and intangible assets associated with BancABC Botswana of c$25 - 28 million.

o  At completion, this transaction will result in release of translation losses to P&L of c. $13.2 million. 

 

 

Summary of audited results

Table 1: Adjusted operating profit and reconciliation to IFRS profit for 14-months ended 28 February 2021

million	14-months ended 28 February 2021	Year ended 31 December 2019	CCY* Var %
Adjusted profit after tax	1.5	5.8	2.0%
Transaction and M & A related items	(12.6)	(109.5)	88.5%
Reorganisations and restructuring costs	(4.3)	(13.1)	67.4%
Impact of hyperinflation accounting	(16.9)	(11.1)	(45.7%)
Tax and NCI	(26.4)	(15.3)	45.5%
Reported net profit	(58.7)	(143.2)	61.0%
Reported cost to income ratio	114.4%	115.7%
Adjusted cost to income ratio	106.1%	106.6%
Reported return on equity	(20.5%)	(28.5%)
Adjusted return on equity	0.9%	1.2%
Reported return on assets	(2.3%)	(5.5%)
Adjusted return on assets	0.1%	0.2%
Reported EPS ($)	(0.35)	(0.84)
Operational EPS ($)	0.01	0.03
Book value per share ($)	1.99	2.97
Tangible book value per share ($)	2.01	2.87
Total Shares in issue ('000)	144,002	169,191

 

^*  Unaudited

 

 

 

Statement of financial position as at 28 February 2021

##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## million	28 February 2021	FY 2019	Variance (%)
			Total	CCY
ASSETS
Cash and short-term funds	141.9	130.5	8.7%	14.1%
Financial assets at FVTPL	17.3	25.2	(31.3%)	(30.5%)
Loans & advances	580.5	644.1	(9.9%)	(7.2%)
Investments	119.6	107.8	10.9%	17.6%
Investment in associates	471.5	582.1	(19.0%)	(19.0%)
Goodwill and other intangible assets	63.9	73.0	(12.5%)	(10.7%)
Other assets	112.5	85.1	32.2%	42.2%
Assets included in disposal groups held for sale	1,101.4	979.6	12.4%	12.4%
Total assets	2,608.6	2,627.4	(0.7%)	0.8%
LIABILITIES
Deposits	672.5	723.7	(7.1%)	(3.9%)
Borrowed funds	441.7	366.8	20.4%	21.3%
Other liabilities	141.3	115.5	22.3%	25.6%
Liabilities included in disposal groups held for sale	1,022.6	874.2	17.0%	17.0%
Total liabilities	2,278.1	2,080.2	9.5%	11.1%
EQUITY
Equity attributable to parent	286.8	502.5	(42.9%)	(41.9%)
Minority interests	43.7	44.7	(2.2%)	(2.2%)
Total equity	330.5	547.2	(39.6%)	(38.6%)
Total equity and liabilities	2,608.6	2,627.4	(0.7%)	0.8%
Loan to deposit ratio	86.3%	89.0%
NPL ratio	11.4%	11.4%
Net book value per share - $	1.99	2.97
Tangible book value per share - $	2.01	2.87

 

 

ATLAS MARA LIMITED

ANNUAL FINANCIAL REPORT FOR THE 14-MONTH PERIOD ENDED 28 FEBRUARY 2021

BUSINESS REVIEW

Additional operational highlights during the period:

§ BancABC Botswana

o  Implemented a new Retail Digital Banking platform (SARUMoney) in 2020 before the introduction of mandatory COVID-19 related country-wide lockdowns.

o  Digital subscriptions increased by 60% during the year and monthly engagement levels exceed 80% on the platform. The Bank also introduced cardless cash withdrawal on its digital platform.  These innovations contributed to the Retail deposit book's increase by over 16% by end of February 2021 compared to December 2019.             

o  Aligned to the ambition to become a transactional bank for corporate clients, additional functionality was added to the Corporate Banking Online platform, which resulted in significant volume and subscription growth during the year.

o  Global Markets profit after tax recorded over 40% year on year increase, supported by a 176% increase in trading income driven by increased client relationships.

o  Extended repayment and interest moratoriums were offered to select impacted clients in both the retail and corporate business - mostly small exposures in the tourism sector. 

o  Tools were provided to staff to enable them to work from home. Allowances were granted to employees to purchase office equipment and internet facilities to improve productivity. This ensured that employees were fully equipped to work during the pandemic. 

§ BancABC Zimbabwe

o  Digital income contributed 9% to core revenue, a substantial increase from 2019.

o  A 348% increase in Visa card holders from 7.5 thousand as at February 2020 to 33.8 thousand as at February 2021. 11% increase between December 2020 (30.5k) and February 2021 (33.8 thousand).

o  A 33% increase in mobile banking subscribers from 107 thousand in February 2020 to 164 thousand in February 2021.

o  A 63% and 424% increase in mobile transaction volumes and values ($3.7 million vs. $2.3 million) respectively.

o  The Bank NPL ratio improved to 1.35% as at February 2021 from 3.10% in February 2020.

o  Entered into partnership to open total of 28 kiosks which are a low-cost substitute to branches.

o  Launched the local remittance service in September 2020, $2 million sent through the service between September 2020 and February 2021.

o  Launched the A360 mobile app in July, 33 thousand registrations by December 2020 and 45 thousand registrations by February 2021.

o  Added QR code payment functionality on the A360 mobile app.

o  Optimized KYC account opening through the website launched in October 2020.

o  As part of the annual #777 CSR Campaign, the Bank donated over 200 litres of sanitiser and detergent, 500 face masks and other PPE to 7 different medical and vulnerable health organisations including an Old Peoples Home, Antenatal Clinic, Children's Hospital and Infectious Diseases Hospital.

§ UBN

o  Non-interest income increased by 4% for the 12 months ended 31 December 2020 compared to December 2019, with this trend continuing into Q1 and H1 2021 with UBN reporting a 9.5% and 22.3% increase respectively compared to the comparable period. 

o  The NPL ratio decreased to 4% at 31 December 2020 compared to 5.8% reported in December 2019.  As at 30 June 2021, the NPL ratio has stabilized at 4.3%.

o  Active users on digital platforms grew 1.3x and new features were added such as end-to-end account opening and enhanced card services including home delivery of cards, boosting revenues from digital channels by 1.5x.

o  UnionDirect network was increased to over 18,000 agents, representing a 6x increase. Transaction volume and value grew 10x and 12x respectively delivering 14x revenue growth.

o  Relaunched UnionVibe, UnionLegend and UnionInfinity, a suite of products targeting the key youth and teen demographic; and disbursed over NGN9.4 billion loans with new credit propositions.

o  Core systems were upgraded to strengthen the performance, reliability, security and processing capacity of various platforms.

o  Measures to prioritize the health and safety of employees, customers and other stakeholders to help weather the challenges of the pandemic.

o  One of the first in the Nigerian banking industry to adopt the remote working model, with over 70% of workforce operating remotely at the height of the lockdowns, made possible due to pre-pandemic strategic investments made in digital technologies. 

o  Investments as part of business continuity measures taken in the face of this crisis including additional tools, measures and investments to facilitate work from home and avoid reduced productivity.

EXECUTIVE CHAIRMAN'S LETTER

Executive chairman's statement

Dear fellow Atlas Mara shareholders,

 

We entered the 2020 financial year with both optimism and positive momentum for most of our underlying banks. The previously announced strategic transaction in 2019 was intended to strengthen our position in markets where we did not have top five stand-alone market positions, and, through meaningful share ownership in the combined group, provide a broader strategic partnership with one of the region's leading banking franchises. At the same time, a strategic fund-raising was underway to strengthen the Group's balance sheet and to allow the Group to focus on and invest in FinTech and digital banking in its top-performing markets. Both of these opportunities were severely impacted by the unexpected global developments of the first quarter of 2020.

 

The visible onset of the pandemic caused by SARS-CoV-2, government responses in attempt to contain it, and the resulting period of market panic had a substantial and immediate detrimental impact on our business and on our markets that was outsized relative to other regions, including other emerging markets, and even other industries in the region. For example, during the first quarter of 2020, African equity markets declined by nearly 40%, double the decline of the S&P 500 in the same quarter, and of the African equity markets in the worse quarter of the global financial crisis (4Q08). Foreign exchange markets were similarly impacted, with greater than 20% declines against the dollar in the quarter for local currencies in countries such as Zambia, Zimbabwe, and South Africa.  The major currency depreciations across the African markets in which the Group operates resulted in a more than $145 million reduction in the US dollar value of the Company's assets and thus a reduction in the Company's debt capacity.  Debt funding and liquidity dried up almost overnight. In our largest market, Nigeria, the equity markets declined by over 25% and the Naira by over 7%, while the sovereign yield blew out by over 110 basis points, foreign currency was unavailable in any size. The equity market decline in Africa was 60% worse than in other emerging markets, reflecting a particular "risk-off" view of Africa investment.

 

While COVID-19 infections remained relatively low, strict lockdowns and travel restrictions led to a substantial decrease in business activity in the region. Many African central banks struggled to provide the liquidity support necessary for local banks impacted by the crisis, while at the same time political pressures led to the imposition of regulatory restrictions on interest rate increases, imposition of fees and other actions that would ordinarily be available to defend liquidity and capital, if not profitability. 

 

As the year progressed, it became apparent that neither the strategic transaction nor the strategic fundraising and repositioning of the balance sheet would be able to go forward under the circumstances. The Board made the difficult decision to undertake a formal restructuring of the Group's holding company debt and hired legal and financial advisors to assist in the process. At the same time, the Board broadened its review of strategic options to ensure that all possible alternatives to preserve value would be considered.

 

I am pleased to report that the Group was successful in completing the debt restructuring. In July 2021, the Company announced an agreement with creditors representing 88% of the total outstanding debt of the Group's holding companies. This critical agreement includes forbearance of debt service and other conditions favourable to the Group. The agreement also enabled the Company to continue its strategic review and certain associated divestitures, which are discussed below. The high level of creditor support was an affirmation of the alignment of the Company with its creditors, regulators and other stakeholders.  I want to thank our creditors for their constructive engagement in reaching the agreement.

 

The Company also achieved several milestones in the strategic review aimed at maximizing creditor and shareholder value in the context of highly regulated banking environments.  In the past year, we have completed or announced several important divestitures in line with this goal, including the Company's banking subsidiaries in Mozambique, Tanzania, Rwanda, and Botswana. Additionally, the company is in ongoing discussions regarding the Group's Zambian subsidiary. These announced transactions demonstrated the value of the Company's assets and represented the culmination of tremendous effort on the part of our colleagues, for which the Board and I are grateful. Today, the Company has a clear trajectory for completing the strategic review and restructuring that we began more than a year ago.

 

Despite the challenging macroeconomic environment in Africa, I am also pleased to report resilient operating performance from our underlying banks during the financial year. Most banks generated positive recurring operating profit during the period. Our local management teams demonstrated dedicated - and in some cases heroic - performance during this extraordinary period, and I want to thank our teams for their commitment and hard work. 

 

Digital banking continued its rapid expansion across the footprint, particularly given the disruptions to traditional in-person banking activities, and we expect increasing contribution to income from these channels. UBN achieved an increase in profit from continuing operations (in local currency terms), due in part to improved cost efficiency, and despite the significant hit to Nigeria's economy and very limited access to hard currency. 

 

Across the Group, the banks' balance sheets contracted as expected, given pandemic and lockdown related disruptions, but all banks remained above their minimal required capital adequacy ratios.  We believe a stronger macroeconomic turnaround will enable the banks, which have improved operational efficiency in this crisis, to achieve faster growth and improved profitability in the future.

 

For the moment, the macroeconomic environments in our countries of operation remain precarious. The 2021 recovery seen elsewhere around the world has been slow to come to sub-Saharan Africa. The region's GDP contracted by 2.6% in 2020 and is expected to reach only 3.2% positive growth in 2021 (a respectable figure for Western markets, but far below a normal environment for sub-Saharan Africa).  The muted economic activity has had widespread effects, from decreased credit book quality, negative credit growth, and lower interest income due in part to regulatory policy decisions. 

 

With already constrained fiscal environments and relatively limited assistance from central banks, African markets have been unable to mount economic responses as impactful as those in the US or the EU, and local currencies, debt and capital markets remain under considerable pressure. 

 

The Company continues to work with the subsidiaries to maximize value both in operations and, where appropriate, in potential partnerships or divestments.  We have received expressions of interest in our remaining banking assets, and the board continues to explore all options to maximize the value of its franchises. 

 

In July 2021, Atlas Mara's ordinary shares were suspended from trading at the Company's request, while critical elements of the strategic review were completed, and while financial results were prepared for publication following the completion of the debt restructuring.  Shareholders can expect the shares to resume trading following the publication of the annual results. The Board continues to evaluate all potential options that could include a take-private or delisting of the Company and will keep the market apprised as appropriate.

 

The past financial year was the most challenging in the Company's history. I am proud of our teams' persistence and unwavering commitment to their customers.  We continue to believe in the long-term growth story for Africa and for the banking sector, especially as it relates to financial technology and digital banking. In the short-term we remain focused first and foremost on exploring every available option for value realization. Thank you for your continued support.

 

Michael Wilkerson

Chairman

 

 

FINANCE REVIEW

Chief Financial Officer's review of financial performance

Consistent with the Atlas Mara's continued efforts to monitor and mitigate the effects of the COVID-19 pandemic, the Company implemented measures to prioritise the health and safety of employees, customers, and other stakeholders and activated the business continuity processes. COVID-19 and the scale of its impact on the Group's countries of operations continues to evolve, we remain hopeful that with greater access to vaccinations, the coming months could be a bridge to "normalcy," and many aspects of social and economic life can resume.  In 2020, the sub-Saharan Africa ('SSA') region contracted by 2.6% due to the adverse impact of the pandemic and the associated lockdown measures, which disrupted economic activity through multiple channels. Economic growth in the SSA region is expected to rebound by 3.2% in 2021, which is still below typical levels for the region.

Despite these challenges, during the 14-month period ended 28 February 2021, the banking subsidiaries in Botswana and Zambia respectively reported profit after tax of $8.3 million (12-month period ended 31 December 2019: Profit after tax of $11.3 million) and $5.2 million (12-month period ended 31 December 2019: reported loss of $9.8 million), despite the significant headwinds posed by the COVID-19 pandemic.

The banking subsidiary in Zimbabwe, BancABC Zimbabwe, reported a loss of $0.4 million for the 14-month period ended 28 February 2021 (12-month period ended 31 December 2019: Profit after tax of $7.8 million). Performance was impacted by an increase in loss on net monetary position as well as increased operating costs due to hyperinflationary pressures and currency depreciation. As part of balance sheet management, BancABC Zimbabwe invested in inflation and exchange rate hedging assets, which resulted in net asset value increasing to $60.7 million for February 2021 compared to $53.6 million for December 2019.

The Group's performance for the period was negatively impacted by the restrictions on business activity in each of our markets as a result of lockdowns, travel restrictions, and entire sectors of the economy being closed as "non-essential" during the height of the pandemic. Excluding IFRS 5 remeasurement loss of $1.4 million (12-month period ended 31 December 2019: $105.5 million), the Group recorded a loss of $57.3 million for the 14-month period ended 28 February 2021 (12-month period ended 31 December 2019: $37.7 million). In addition to the negative impact of the pandemic on the Group's operations, current period performance was also negatively impacted by additional losses arising from write-off of deferred tax assets of $10.9 million, additional fair value loss of $2.8 million arising on the revaluation of the Group's financial assets measured at FVTPL as well as $6.1 million net monetary loss based on hyperinflation accounting in Zimbabwe. Excluding the impact of these additional losses and that of IFRS 5 remeasurement loss, the reported loss for the
14-month period ended 28 February 2021 remained flat at $37.6 million (12-month period to 31 December 2019: $37.7 million).

Adjusted profit for the 14-month period ended 28 February 2021 was $1.5 million (12-month period ended 31 December 2019: $5.8 million), while the adjusted cost to income ratio remained flat at 106.1% (12-month period to 31 December 2019: 106.6%). Nearly all other key financial performance metrics were negatively impacted with the adjusted ROE declining to 0.9% for the 14-month period ended 28 February 2021 from 1.2% for the 12-month period ended 31 December 2019.

The Group has been stress testing its portfolios in the current environment. As of 28 February 2021, there was a decline in the ECL estimate, thereby keeping the NPL ratio constant at 11.4%. We will continue to monitor the portfolios and act as the situation unfolds.

Change in financial year-end

The Group extended its reported date by two months from 31 December 2020 to 28 February 2021.

New financing

On 29 December 2020, the Company entered into a new secured facility agreement with a fund entity managed by UBS O'Connor LLC. The facility was for a new investment in the principal amount of US$25,824,075 with a duration of 18 months. The facility has been used to fund the near-term operating expenses and working capital requirements of the Group, and to finance the purchase of 26,435,188 ordinary shares of the Company held by the lender at a price of $0.40 per share, reflecting the closing market price on the day the funding was agreed between the parties.  The repurchased shares are held in treasury.

Strategic transactions

On 30 September 2020, ABCH entered into a definitive agreement for the sale of the Group's shareholding in African Banking Corporation Mozambique Limited. The transaction was completed on 17 May 2021.

On 26 November 2020, ABCH entered into a definitive agreement for the sale of the Group's 97.3% shareholding in African Banking Corporation Tanzania Limited. The transaction, which has been approved by the Bank of Tanzania, is now subject to fulfilment of customary conditions precedent.

On 26 November 2020, ATMA entered into a definitive agreement for the sale of the Group's 62.06% shareholding in Banque Populaire du Rwanda Plc ("BPR"). The Transaction was completed on 25 August 2021.

On 19 April 2021, ABCH entered into a definitive agreement for the sale of its 78.15% shareholding in African Banking Corporation Botswana Limited. The transaction, which has already been approved by the Bank of Botswana, is now near completion. 

African Banking Corporation Zambia limited is, for accounting purposes, still classified as a disposal group held for sale in terms of International Financial Reporting Standard ("IFRS") 5: Non-current assets held for sale and discontinued operations. The discussions with a potential investor for the sale of the subsidiary are ongoing.

Restructuring agreement

On 14 July 2021, the Support and Override agreement was signed by majority of the company lenders representing 88% of the aggregate amount of debt outstanding under the company direct and contingent facilities. The lenders who are a party to the Support and Override Agreement have agreed to forbearances in respect of certain events of default under their relevant facilities, while the Support and Override Agreement is effective, including (i) non-payment of amounts due under the company's financing agreements, (ii) any deterioration in the financial or operational performance of the Group as a result of COVID-19, and (iii) any breach of any financial covenant under the company's financing agreements. The Support and Override Agreement governs and provides a stable framework for company ongoing liquidity needs as the Company continues to work on the milestones set out in the agreement. Details of the restructuring agreement and milestones are set out in the Company's previous announcement. These milestones include Strategic Transactions required for successful implementation of the Support and Override agreement.

 

Country performance summary

Nigeria

UBN has shown resilient performance which has resulted in profit after tax increasing by 3.1% in local currency for continued operations for 12-month period ended December 2020 in comparison to 12-month period ended December 2019. Including the results of the discontinued operations, profit after tax declined by 6.1% in local currency for 12-month period ended December 2020 in comparison to 12-month period ended December 2019. 

Overall, UBN sustained its cost to income ratio to 75.4% for 12-month period ended December 2020 compared to 74.1% reported in December 2019. The NPL ratio has decreased to 4.0% for 12-month period ended December 2020 from 5.8% for 12-month period ended December 2019.  The NPL coverage ratio remained strong at 127.5% for the period ended 31 December 2020 (31 December 2019: 138.1%).

Despite the impact of the contraction in earnings, UBN remains well capitalised with its CAR at 17.5% at December 2020, well above the regulatory minimum of 15%.

UBN continues to show resilience in 2021 and is well capitalized over its regulatory minimum, NPL ratio hovering at 4.3% and sustained profitability with cost to income ratio hovering at 76%.

 

Zimbabwe

Zimbabwe's recession persisted in 2020 amid continued structural economic weaknesses, adverse climate conditions and the outbreak of the COVID-19 pandemic. Inflation reached a peak of 838% year-on-year in July 2020, and then trended downward to 349% year-on-year in December 2020. The economy has benefited from the currency reforms, which led to the adoption of the auction exchange rate system in June 2020.

African Banking Corporation of Zimbabwe Limited reported a loss of $0.45 million for the 14-month period ended February 2021 compared to reported profit of $7.8 million for the 12-month period ended December 2019.  The numbers have been impacted by an increase in loss on net monetary position of $5.8 million compared to corresponding period due to hyperinflation. As part of balance sheet management, the Bank invested in inflation and exchange rate hedging assets, which resulted in net asset value being sustained year-on-year.

Botswana

Botswana's economy is estimated to have contracted by a record of 10% during the year as the country suffered from the collapse of international trade, which adversely affected diamond exports and tourism. In response to the pandemic, the Bank of Botswana ("BoB") cut its policy rate by 100 bps in April 2020 to provide sufficient liquidity in the economy.

The banking subsidiary in Botswana reported profit after tax of $8.3 million for the 14 months ended February 2021 compared to profit of $11.3 million for the 12-month period ended December 2019 despite the significant headwinds posed by the COVID-19 outbreak. Profitability was supported by cost reduction and containment measures implemented.

Discontinued operations

Zambia delivered a solid performance for the year after posting a profit after tax of $5.2 million for the
14-month period ended February 2021 compared to a loss of $9.8 million in 2019 largely due to increase in interest income, improved FX trading income and reduction in impairment charge. Interest income was propelled by earnings on short term structured finance deals and improved yields on government securities.

Rwanda reported a profit of $4.8 million for the 14-month period ended February 2021 compared to the profit of $2.6 million for the 12-month period in 2019. This performance has been supported by cost reduction and containment initiatives.

In Tanzania, performance was adversely impacted by the reduction in transactional activity caused by the COVID-19 pandemic and liquidity challenges, partially offset by recoveries of loans written off in previous years.

Performance summary

The Group recorded an adjusted net profit of $1.5 million for the 14-month period ended 28 February 2021 (12-month period 31 December 2019: adjusted profit of $5.8 million).

Statement of comprehensive income review

Total income

Total income at $186.2 for the 14-month period ended 28 February 2021 has shown a decline due to decrease in net interest income.  

 

Table 1: Total income for the year ended 28 February 2021

##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## million	14 months to 28 February 2021			12 months to 31 December 2019
	Continuing	Discontinued	Total	Continuing	Discontinued	Total
Net interest income	1.1	81.1	82.2	11.4	74.8	86.2
Non-interest revenue	51.7	52.3	104.0	53.7	49.9	103.6
Total income	52.8	133.4	186.2	65.1	124.7	189.8

Net interest income

Net interest income declined by $4 million resulting from an increase in interest expense. This was mainly as a result of an increase in borrowed funds and the impact of liquidity pressures experienced in some of our markets, resulting in more expensive deposits. This is reflected in the increase in the cost of funds to 6.6% for the 14-month period ended 28 February 2021 from 5.9% as reported for the 12-month period ended 31 December 2019.

Non-interest income

Non-interest income increased by $0.4 million resulting from improved earnings from digital channels and offset by a reduction in loan-related fees and foreign currency trading income. Lower loan growth and decline in business activities resulting from the impact of the COVID-19 pandemic negatively impacted the Group's ability to improve non-interest income during the period.

Total expenses

Total expenses declined to $213.1 million ($209.5 million excluding one-offs) for the 14-month period ended 28 February 2021 from $219.5 million reported for the 12-month period ended 31 December 2019, largely due to strategic cost management initiatives across the Group. Cost to income ratio decreased to 114.4% from 115.7% reported in December 2019; however, on an adjusted operating profit basis, cost to income ratio decreased to 106.1% in the 14-month period ended 28 February 2021 from 106.6% for the 12-month period ended 31 December 2019).

Staff costs decreased by 2.4% from $93.0 million reported for the 12-month period ended 31 December 2019 to $90.8 million reported for the current period ended 28 February 2021, while the contribution to total expenses decreased from 42.6% to 42.4%.

The Group continued to focus on reducing holding companies' expenses and for the 14-month period ended 28 February 2021, normalised expenses (net of restructuring costs) holding companies declined by $6.56 million for the 14-month period ended February 2021 compared to the 12-month period ended 31 December 2019. This has been achieved due to reduction in head count across the Holdcos, cost rationalization and process reengineering. 

 

Impairment charges on financial assets

The loan book reduced by 9.9% during the 14-month reporting period ended February 2021, largely due to the conservative credit appetite, as lending was halted in the high-risk sectors and a cautious approach was taken for all new lending. COVID-19 related restrictions including lockdowns and travel restrictions also negatively impacted on Customer drawdown. Notwithstanding the 9.8% reduction in the loan book, the NPL ratio remained constant at 11.4%, however reduced in actual stock by $14.6 million or 10.2% to end the period at $142.6 million. This was due to proactive remedial management strategies and hard collection efforts in some high value cases.

 

While most of the retail loan portfolio consists of lending to the government sector, constrained incomes have resulted in subdued increase of credit in some markets. Corporate and SME borrowers in sectors such as transport, tourism, hospitality, private education and manufacturing have experienced increasing levels of default which are the main drivers of increases in NPL and impairments. Whilst these loans are collateralized by immovable property, adjustments have been made to the expected recovery rates and time to liquidate these assets, as prices remain under pressure and asset disposals take longer to effect.

 

Several enhancements were made to the ECL model during the year. Some of these enhancements included development of separate PD term structures for stage 1 and stage 2 loans; improving the ECL code to compute a weighted ECL based on base, best and worse-case scenarios to account for non-linearities in the scenarios and to incorporate forward looking information; development of a macro- economic linkage model to estimate changes in macro-economic factors on PD; introduction of a Floor LGD as a minimum ECL appropriate for each of the country portfolios and segmenting the retail secured and unsecured loan portfolios to accommodate for the different PD behaviour of these portfolios.

 

Share of profit of associates

This represents the Group's 47.68% share of UBN's profit for the 14-month period ended 28 February 2021. The impact of the amortisation of acquisition-related intangible assets is also included.

The Group booked $25.5 million of profit from UBN for the 14-month period ended Feb 2021 compared to $31.2 million for 12-month period ended Dec 2019. The reduction in profit has been due to the change in exchange rate index from Central Bank Rate to Nafex and devaluation of the currency. (Exchange rate on February 2021: 410 Naira, Exchange rate on December 2019: 306 Naira)

Statement of financial position review

Loans and advances comprise 22.3% of total assets; Cash, short-term funds and marketable securities represent 10.7%; investment in associate (UBN) balance accounts for 18.1%; goodwill and other intangible assets make up 2.4%; other assets (made up of derivatives, property and equipment, investment property, prepayments and other receivables etc.) make up 4.3% of total assets, while assets included in disposal groups account for the balance of 42.2%.

Total assets contracted by 0.7% reflecting the impact of currency movements in the Group's core markets (Botswana and Nigeria) and the slow-down in business operations resulting from the disruptions caused by COVID-19.

Deposits comprise 29.5% of the total liability base and represent 25.8% of the aggregate of liabilities and equity. The loan to deposit ratio for the period was 86.3% (December 2019: 89.0%).

Loans and deposits

Table 2: Loans and deposits composition by country at 28 February 2021

	28 February 2021 ( ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## m)		31 December 2019 ( ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## m)		Var (%)	CC Var (%)	Var (%)	CC Var (%)
	Loans	Deposits	Loans	Deposits	Loans		Deposits
Continuing operations
Botswana	549.4	581.5	606.3	662.5	(9.4)	(6.9)	(12.2)	(9.8)
Zimbabwe	18.4	91.0	22.7	61.2	(18.9)	(9.6)	48.7	65.8
Other	12.7	-	15.1	-	(15.9)	(15.9)	-	-
Total	580.5	672.5	644.1	723.7	(9.9)	(7.2)	(7.1)	(3.9)

Loans and deposits

As presented in Table 2 above, loans and advances to customers declined by 9.9% (7.2% on a ccy basis) while deposits also declined by 7.1% (3.9% on a ccy basis).

Decline in loans and deposits was attributable to the impact of currency devaluation in Botswana and Zimbabwe and the slowdown in business activities due to the COVID-19 pandemic. The economic environment was challenging in the period as a result of the business disruptions caused by the pandemic. Market liquidity constraints in our countries of operations hindered the writing of new loans (as there was a market-wide decline in the demand for credit) and resulted in the loss of some significant deposits.

Term deposits remained the highest contributor to deposits, making up 58.2% of total deposits as at the end of February 2021 (31 December 2019: 72.0%). There was an increase in overnight deposits/interbank borrowings reflecting the tight liquidity situation experienced in Botswana and Zimbabwe.

Credit quality

NPLs as a percentage of the loan book remained constant at 11.4% (31 December 2019: 11.4%). This is due to the impact of the COVID-19 pandemic on business activities which in turn increased the credit risk on the Group's loan portfolio.

Capital position

As at 28 February 2021, all of Atlas Mara's operating banks and affiliates complied with local minimum capital requirements relevant in respective countries, as summarised below.

Table 3: Capital adequacy ratios

	February 2021	December 2019	Regulatory Minimum
Continuing operations
Botswana	18.4%	18.6%	12.5%
Zimbabwe	35.9%	58.7%	12.0%
Discontinued operations
Mozambique	12.1%	19.6%	12.0%
Rwanda	23.4%	23.5%	15.0%
Tanzania	12.9%	16.6%	12.0%
Zambia	12.8%	14.3%	10.0%

Investment in associate: UBN

Our total shareholding in Union Bank of Nigeria was 47.68% as at 28 February 2021 compared to 49.97% as at 31 December 2019.  The investment is equity-accounted for in the statement of financial position as an investment in associate, with a closing balance of $469.9 million (December 2019: $580.6 million). Reduction in carrying value is mainly attributable to the dividend income earned from UBN in the year of $8.5 million and the impact of currency translation losses of $114.2 million.

Goodwill and other intangible assets  

The statement of financial position incorporates goodwill and intangible assets of $63.9 million at 28 February 2021 (31 December 2019: $73.0 million). The decline in this balance is attributable to the amortisation for the period as well as currency translation losses on the balances reported by Group's foreign operations (UBN and Botswana).

 

Statement of Equity

The net equity balance of $330.5 million at 28 February 2021 was down from $547.2 million at 31 December 2019.  $145.9 million of the reduction was due to FX translation losses taken by the Group during the
14-month period ended February 2021. As of 28 February 2021, the tangible book value of the Group was $2.01 per share (31 December 2019: $2.87 per share) and book value per share of the Group $1.99 (31 December 2019: $2.97).

Segment information

The segmental results and statement of financial position information represents management's view of its underlying operations.

Nigeria: Through our 47.68% stake in UBN and Board representation, Atlas Mara has a footprint in Nigeria, Africa's largest economy. Our share of profit from our stake in UBN is based on UBN's reviewed management accounts for the 14-month period ended 28 February 2021.

Botswana: Represents the Group's 78.15% investment in BancABC Botswana and its subsidiaries. BancABC Botswana has been listed on the Botswana Stock Exchange since 2018. The Group is currently in the process of completing the sale of its stake to Access Bank Plc. This transaction is expected to be completed before the end of the year.

Zimbabwe: Represents the Group's 100% owned investment in BancABC Zimbabwe and its subsidiaries.

 

Discontinued operations

Our operations in Mozambique, Tanzania, Zambia and Rwanda remain classified as discontinued operations as the Group. On 17 May 2021, the transaction was completed for the sale of African Banking Corporation Mozambique Limited. On 25 August 2021, the transaction was completed for the sale of ATMA shareholding in Banque Populaire du Rwanda Plc ("BPR").

Corporate

Included in this segment are Atlas Mara Limited, the BVI incorporated holding company, Atlas Mara Management Services, the Dubai subsidiary, and all other intermediate Group holding entities, also referred to as the Shared Services and Centre.

Segment report for the year ended 28 February 2021

##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## million	Group	Continuing operations				Discontinued operations
		Botswana	Zimbabwe	Nigeria	Corporate
Total income	186.2	55.4	51.0	-	(53.6)	133.4
Impairment charge on financial assets	(12.2)	(0.6)	(0.8)	-	1.5	(12.3)
Total expenses	(213.1)	(42.5)	(31.1)	-	(16.6)	(122.9)
Net loss on monetary position	(16.9)	-	(13.0)	-	(3.9)	-
Share of profits of associate	25.5	-	-	25.5	-	-
(Loss)/profit before tax	(30.5)	12.2	6.2	25.5	(72.6)	(1.8)
Net change on IFRS 5 remeasurement	(1.4)	-	-	-	-	(1.4)
(Loss)/profit after tax and NCI	(58.7)	6.5	(0.4)	25.5	(78.2)	(12.0)
Loans and advances	580.5	549.4	18.4	-	12.7	-
Total assets	2,608.6	727.9	197.7	470.6	111.0	1,101.4
Total liabilities	2,278.1	619.9	137.1	-	498.5	1,022.6
Deposits	672.5	581.5	91.0	-	-	-
Net interest margin - total assets	3.2%	5.9%	4.2%
Net interest margin - earning assets	4.7%	6.0%	6.4%
Cost to income ratio	114.4%	76.8%	60.9%
Statutory credit loss ratio	1.2%	0.1%	4.4%
Return on equity	(20.5%)	6.0%	(0.7%)
Return on assets	(2.3%)	0.9%	(0.2%)
Loan to deposit ratio	86.3%	94.5%	20.2%

Segment report for the year ended 31 December 2019

##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## million	Group	Continuing operations				Discontinued operations
		Botswana	Zimbabwe	Nigeria	Corporate
Total income	189.8	50.1	38.3	-	(23.2)	124.6
Loan impairment charge	(11.4)	1.5	(0.2)	-	(0.3)	(12.4)
Operating expenses	(230.6)	(37.4)	(21.6)	-	(33.6)	(138.0)
Share of profits of associate	31.1	-	-	31.2	(0.1)	-
Profit/(loss) before tax	(21.1)	14.2	16.5	31.2	(57.2)	(25.8)
Loss on IFRS 5 remeasurement	(105.5)	-	-	-	-	(105.5)
Profit/(loss) after tax and NCI	(143.2)	8.9	7.8	31.2	(56.4)	(134.7)
Loans and advances	644.1	606.3	22.7	-	15.1	-
Total assets	2,627.4	856.7	161.3	580.6	49.2	979.6
Total liabilities	2,080.2	736.1	107.9	-	362.0	874.2
Deposits	723.7	662.5	61.2	-	-	-
Net interest margin - total assets	3.3%	4.5%	6.1%
Net interest margin - earning assets	4.7%	5.0%	14.4%
Cost to income ratio	115.7%	74.6%	56.4%
Statutory credit loss ratio	1.0%	(0.2%)	0.8%
Return on equity	(28.5%)	11.2%	14.7%
Return on ----assets	(5.5%)	1.3%	4.8%
Loan to deposit ratio	89.0%	91.5%	37.1%

 

Omar Khan

Chief Financial Officer

 

 

 

CORPORATE GOVERNANCE REPORT

Introduction

The governance structures and practices detailed in this Report underpin the Company's purpose and strategic objectives. We believe that building a sound corporate governance framework is the bedrock of the Company. Indeed, although the Company is not required to comply with the UK Corporate Governance Code issued by the Financial Reporting Council in 2018 (the 'Code') because of its standard listing, the Company nevertheless has taken the decision to continue to voluntarily apply the provisions of the Code to the greatest extent possible in order to drive sound decision-making and facilitate effective and prudent management of the Company.

Throughout this report, we highlight our progress to date in complying with the recently revised provisions of the Code that came into force on 1 January 2019. A copy of the revised Code can be found on the FRC's website at https://www.frc.org.uk/directors/corporate-governance-and-stewardship/uk-corporate-governance-code.

In addition, the Company also applies the corporate governance regime applicable to the Company pursuant to the laws of the British Virgin Islands ('BVI'). The corporate governance standards outlined in the BVI Business Companies Act 2004 have been incorporated into the Company's memorandum and articles and association. The Board has also voluntarily adopted a share dealing code which incorporates the provisions relating to transactions in securities by directors and persons discharging managerial responsibilities ('PDMRs') contained in the Market Abuse Regulations (EU 596/2014). The Board is responsible for taking all proper and reasonable steps to ensure compliance with these rules by the Directors and PDMRs.

How We Comply with the Principles of the Code

Although Atlas Mara is a standard listed company on the London Stock Exchange, we continue to work towards achieving conformity with the provisions of the Code where feasible, taking into account the Company's size, operations, markets and strategic objectives. Below we highlight the measures we've taken to comply with the principles set out in the Code and also provide explanations for instances where our practices depart from the provisions set out in the Code.

The first table below sets out how we applied the principles of the Code for the financial year ended 28 February 2021, and the second table below identifies and explains areas where we continue to work towards achieving full conformity with the standards of the Code.

 

Section of the Code	How we comply
Section 1. Board Leadership and Company Purpose
A. Generating Long-term Value	§ The Board recognises its responsibility for to provide effective oversight of the Company's business for the benefit of all stakeholders. § In response to the unprecedented challenges wrought across the globe and our jurisdictions of operation by the COVID-19 pandemic, the Board met frequently to monitor the health and economic effects of the pandemic on our businesses, as well as the effects of the various mandatory lock downs and government policies on our businesses.  The Board also monitored the resilience of the businesses in response to the deep stress wrought upon our operations and customers.   The Board ensured a range of tools were available to the operations to help weather the health and economic effects of the pandemic, including the appropriate policy, hygiene and technology tools.  § Every year the Board holds a focused strategy session that provides the Directors with an opportunity to reassess the Company's vision and ensure financial and non-financial targets are set in alignment with the Company's overarching purpose and long-term objectives.  As previously reported, in the year 2019, the Board undertook a review of the Company's strategic options, assessing the risks and opportunities in the Company's countries of operation to determine the key strategic priorities and actions for 2019 and beyond to drive shareholder value. The process included a review of each banking operation to ensure that top five market leadership is practicably achievable in the near term, or to explore transactions that will reduce risk exposure where such leadership is unlikely on a stand-alone basis. In parallel, the Company was also engaged in a strategic fundraising initiative targeting both debt and equity, to be utilized to support operations as well as address a balance sheet realignment given debt maturities expected in 2020. The strategic review resulted in a number of strategic initiatives aimed at creating a more sustainable business model.  In response to the effects of the COVID-19 pandemic which fundamentally affected the strategic transactions, the Board pivoted the strategic priorities to focus on steps that will assure a stable platform and sustainability. § The Board also understands the importance of preserving value through effective risk management and oversight. To this end, the Board continuously works to ensure that internal reporting mechanisms are operating effectively in order to receive timely information relating to emerging material risks affecting the Company's operations, and monitor measures being taken to manage such risks.
B. Aligning Purpose and Culture	§ The Board is responsible for setting the right tone at the top and shaping the cultural norms that influence behaviour and decision-making throughout the Company. § In addition to the annual strategy session, the Board sets the tone and regularly monitors culture on an ongoing basis throughout the year. Directors receive regular reports from the Head of Human Capital to enable them to oversee staff-related issues or concerns and measures being taken by management to address them. § Incentive structures are used to encourage the right culture and behaviour. The Board also receives regular reports from the Group General Counsel and Chief Compliance Officer on compliance or as well as on matters which may signal concerns around culture that require close monitoring and action. § Further details on the Company's culture and values can be found under the Corporate Governance Report
C.  Effective Controls and Risk Management	§ The Audit, Risk and Compliance Committee is responsible for supporting the Board in overseeing the effectiveness of the Company's internal controls and risk management systems. § In response to the challenges presented by the COVID-19 pandemic, the Board received frequent stress testing reports and challenged the scenarios on stress testing of the portfolios and operations of the Company and its subsidiaries.  The Board also more frequently monitored risk-mitigation strategies and implemented early warning requirements for a range of matters.  § The Committee receives regular updates from the Chief Risk Officer, Head of Internal Audit, Group General Counsel and Chief Compliance Officer and Chief Financial Officer and closely monitors emerging risks identified by management, and oversees the measures being taken to manage such risks. A comprehensive Risk Report is included below. § The Board oversees the Company's digital strategy and monitors the Company's information technology capabilities to ensure effective management of information security, fraud, cyber security risks. § The Board also reviews the Company's infrastructure to ensure it is capable of meeting the short and long-term information technology needs of the Company. § In addition, through the anonymous whistleblowing line externally managed, the company receives reports on matters of concerns which are thoroughly invested and addressed.  § In addition, through regular internal and external audits and assessments, the Board oversees areas identified for improvement, which are regularly monitored through reports to the Audit, Risk and Compliance Committee.
D. Effective Stakeholder and Shareholder Engagement	§ The Company regularly evaluates its stakeholder engagement practices to identify ways to improve how we connect and communicate with our colleagues, customers, shareholders, regulators, business partners and the communities we operate in. § During 2020, the Chairman of the Board and Executive Management met with many of the major shareholders of the Company to interact on various topics on the minds of the shareholders. § The Board regularly requests reports from management to ensure that the Non‑Executive Directors have an understanding of the views of major shareholders and senior management regularly provide updates to the Board to ensure awareness of the issues and concerns of major shareholders. § The Board leverages the Investor Relations Department to keep abreast of shareholder feedback. § The Company's AGM provides an additional platform to engage constructively with our shareholders. The Company's last AGM was held on 30 October 2020. At this meeting, all resolutions put to the shareholders were passed on a poll with votes cast in favour of the proposed resolutions ranging from 82.5% to 100% of the total votes cast. None of the resolutions proposed by the Board at the 2020 AGM received 20% or more votes cast against the resolution.
E. Sound Workforce Policies and Practices	§ The Remuneration Committee is responsible for advising the Board in respect of the Company's workforce policies and practices aimed at attracting talented staff and aligning managements with long term interest of the Company. The Committee receives quarterly updates from the Head of Human Capital and monitors how rewards, incentives, terms of employment and disciplinary measures are structured to impact recruitment, retention, development and performance in the workplace. § The company has in place comprehensive work force policies and procedures focused on ensuring the right skills and work practices, fostering diversity, preventing harassment and ensuring sustainability of our businesses.  § The Company has put in place measures for staff members to raise concerns confidentially. An anonymous whistleblowing service provides a secure and confidential means for staff and other stakeholders to raise any concerns regarding criminal or unethical activity. Compliance personnel undertake awareness campaigns to ensure staff are aware of reporting procedures and feel encouraged to speak up and utilize the whistleblowing service. § Remuneration Committee as well as the Audit, Risk and Compliance Committee receive regular and comprehensive reports on whistleblowing reports and any issues or internal investigations arising from such reports. The Committee is responsible for monitoring how these issues are being addressed by management.
Section 2. Division of Responsibilities
F. Role of the Board Chair	§ The Board Chair sets the tone for Board discussions, keeping the full board focused on the organization's mission, vision, and strategic direction and facilitating open and constructive dialogue during the meetings and actively inviting the views of all Non-Executive Directors. The Board Chair is responsible for setting the agenda for meetings and manages the calendar and timetable of meetings, leveraging the assistance of the Company Secretary. § The division of responsibilities between the Chair and Chief Executive are clearly defined, however at times the Board has for an interim period deemed it in the best Interest of the Company for the Chair of the Board to act in an executive capacity, in particular given the Board's current focus on the strategic priorities of the Company. § Since 30 April 2019, the Chairman of the Board has served as the Executive Chair, thereby taking on an executive role.  In this capacity, the Board Chair  is fully abreast of emerging issues, organization's goals and strategies and works together with the executive to achieve the goals of the organization.
G. Board Composition and Independence	§ The Board is currently composed of five Directors, two of whom are considered independent. § The Board delegates certain responsibilities to its Committees to assist in discharging its functions. The duties of the Audit, Risk and Compliance Committee, Remuneration Committee and Nomination Committee are set out in writing in each Committee's Terms of Reference, which are available on the Company's website at http://atlasmara.com/about-us/corporate-governance/board-committees/. § The Board also delegates the operational management of the Group's business to the Executive Committee, which executes the strategy set by the Board. § It is a standard agenda item at most Board meetings for the Chairman to hold a session with Non-Executive Directors without the Executive Management in attendance to openly discuss matters relating to the business of the Company. § In 2020, the Chairman held several meetings with the Non-Executive Directors without the Executive Management present, to discuss a number of matters relating to performance and remuneration. § Rachel Robbins serves as the Board's Senior Independent Director. The Senior Independent Director and the Independent Directors constructively and rigorously challenge the Executive Management team on matters important to all stakeholders.  The Independent Board members also hold regular Interaction with senior management to receive reports on various matters.
H. Time Commitment	§ On appointment, Directors are notified of the time commitment expected from them in discharging their duties.  Directors are also expected to disclose any jobs, external directorships or similar commitments so that an assessment of available time and commitment can be independently made by the Company. § Following their appointment, any external directorships, which may impact on the existing time commitments of the Directors, must be agreed with the Chairman in consultation with the Company Secretary. External appointments held by the Chairman and all the Directors on the Board are disclosed under section Composition of the Board. § The Board meets regularly to discharge its duties with meetings held at least once a month, and in-person every quarter. § During the reporting period, the Board and Committees held an aggregate of 28 meetings and received frequent written updated in between meetings in order to remain fully abreast of the dynamic and everchanging challenges wrought by the COVID-19 pandemic. Meeting attendance by the Directors has been high for all meetings held during this period, as further detailed under section Board and Committee meetings.
I. Information and Support	§ Directors have access to independent professional advice to discharge their responsibilities as and when required and also ensure that the Board is kept up to date on regulatory developments and corporate governance requirements. § The Board receives monthly written and verbal reports on the performance of the operating businesses, key or emerging risks, engagement with key stakeholders, and progress made in implementing key strategic initiatives. At each monthly Board meeting, the Board has an opportunity to engage and challenge management on these matters.
Section 3. Composition, Succession and Evaluation
J. Appointments to the Board	§ The Nomination Committee leads the process for Board appointments and ensures that the Board and its Committees have an appropriate balance of skills, experience, availability, independence and knowledge of the Company to enable them to discharge their responsibilities effectively. § The Nomination Committee takes into account a variety of factors including skills and experience needed to enhance diversity on the Board. Each Board candidate is interviewed by the Non-Executive Directors and relevant members of the Executive Committee prior to appointment. § During 2020 the Committee spent time reviewing the composition of the Board and its Committees with a keen focus on ensuring that the Board was composed of the appropriate skills to deliver on the strategic initiatives. § Amadou Raimi stepped down from the Board in 2020.Following this change, it was vital for the Committee to rigorously assess the balance of skills and expertise on the Board and its Committees and make recommendations to the Board on Committee reassignments as necessary, to ensure each Committee was appropriately composed. The Committee concluded that the current number of Board members was the right size to help achieve the Company's goals while also being consistent with corporate governance requirements.   § The Committee oversaw the nomination process for Jawaid Mirza, to the chairmanship of the Audit Risk and Compliance Committee. § The Committee acknowledges the need to continue to improve gender balance and diversity across the Board and senior management team. The Committee will continue to seek opportunities to address diversity and inclusion. § The Committee will also continue to ensure that our Directors are well-equipped to provide the appropriate oversight to meet the challenges wrought upon the globe by the COVID-19 Pandemic.  § The Committees Terms of Reference are available on the Company website at http://atlasmara.cI-us/corporate-governance/board-committees/
K. Board Composition and Skills	§ The Board is currently composed of five Directors who possess the right mix of skills, background and knowledge relevant to driving the company's strategic imperatives, and the particular challenges and opportunities faced by the Company. Further details on the Directors' backgrounds and experience can be found under section Leadership and is included on the Company website. § Michael Wilkerson, the current Chairman of the Board, assumed the position of Board Chair in February 2019 and has held the position for less than nine years. § Although not applicable to the Company at this time, In accordance with the company's policy, any non-executive Director who has served for more than nine years will be thorough reassessed and only presented for annual re-election if consistent with the strategic requirements.
L. Board Evaluation	§ Every year, the Board conducts a formal and rigorous evaluation of its own performance and that of its Committees and individual Directors. The annual evaluation is an important exercise that offers valuable insight into how effectively the Board is working together to achieve its objectives. § The Board Chair works with the Group General Counsel and Company Secretary to oversee the annual evaluation process. The Board evaluation is tailored specifically for the Company and designed to elicit constructive feedback and identify areas that are working well and those requiring improvement. § Considering the challenges posed by the COVID-19 pandemic, the 2020 Board evaluation did not take place.
Section 4. Audit, Risk and Internal Controls
M. Internal and External Audit	§ The Audit, Risk and Compliance Committee is responsible for reviewing and reporting to the Board on the Group's financial performance, audit matters, internal controls and risk management systems, the Company's compliance with legal and regulatory requirements, and the independence and effectiveness of the external auditors. § The Committee meets regularly throughout the year and at every meeting receives detailed reports from the Company's CFO, Head of Internal Audit, Chief Risk Officer and Group General Counsel and Chief Compliance Officer. § The Chairman of the Committee provides regular updates to the Board following every Committee meeting. The Chairman of the Committee also regularly monitors the Company's financial reporting processes, meeting with the external auditors every quarter and providing updates to the Board. In addition, the Chairman of the Audit Committee receives one-on-one updates from the Head of Internal Audit, Chief Financial Officer and Group General Counsel, on a regular basis. § Full details on the Committee's duties and responsibilities are set out in its Terms of Reference, which are available on the Company's website at http://atlasmara.com/about-us/corporate-governance/board-committees/ § During the reporting period, the Committee focused on the following matters, especially as it relates to the preparation of the consolidated financial statements of the Atlas Mara Group. o  Provided oversight, ensuring the balanced nature and reliability of accounting estimates. o  During the year, the Committee focussed on the following estimates specifically and performed the activities as set out below: Credit impairments o  Reviewed, discussed and assessed the detailed credit risk report presented by the head of risk on a quarterly basis. o  Received frequent stress-testing reports on the portfolio and operations, especially to mitigate risks in response to the COVID-19 pandemic o  Challenged management's assumptions specifically in terms of high risk portfolios and appropriateness of impairments held against specific large exposures. Valuation of financial instruments o  The committee reviewed and assessed the report presented by management and challenged management on the appropriateness of the assumptions and inputs applied in determining the calculations. o  Valuation of investment in associate o  Reviewed and debated the valuation report presented by management. o  Challenged management's assumptions and inputs, especially those related to the exchange rate and risk adjusted discount rate. Goodwill impairment assessment  o  The Committee reviewed the financial forecasts and challenged management's assumptions and inputs, especially those related to the exchange rate and risk adjusted discount rate. o  Valuation and ongoing or new classification  of the assets and related liabilities included in disposal groups held for sale o  Evaluated and challenged  assumptions and inputs used by management in determining the classification and fair values of the assets and related liabilities of the disposal groups held for sale in line with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Events after the reporting date o  Reviewed management's justification for treating the event as a non-adjusting event in the 28 February 2021 consolidated financial statement. Going Concern o  Reviewed and debated the key risks to the going concern of the Group. o  Reviewed and challenged the cash flow forecast presented by management for the holding company and Group.  o  Reviewed and challenged assumptions in respect of committed obligations and the impact of the terms of debt restructuring agreement concluded on 14 July 2021. Assessment of the External Auditor o  During the reporting period, the committee monitored the performance, objectivity and independence of the external auditor, KPMG Inc, including: o  assessment and determination of the scope of KPMG's Group Audit Plan o  approval of the terms of the audit engagement letter and approved, on behalf of the Board, the audit fees payable; o  meetings with the KPMG audit partner to discuss external auditor's findings with which KPMG handled the key accounting and audit judgements o  assessment of the independence of the external auditor, including a review of the non-audit services provided; o  Assessment of any other matters that could potentially affect the independence of the auditor. o  As a result of the need for frequent Board meetings in response to the pandemic and the strategic initiatives, the Committee met less frequently on a standalone basis and instead received frequent updates on a full range of audit matters during the full Board meetings.
N. Financial Reporting	§ In accordance with its terms of reference, the Committee is also responsible for reviewing the financial accounts of the Company and advising the Board on whether, taken as a whole they are fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy. § Every annual report includes a Statement of Directors Responsibilities which explains the responsibility Directors have in preparing the Annual Financial Statements and the Group financial statements in accordance with applicable law and regulations. The Statement of Directors Responsibilities for the reporting period can be found under Statement of Directors Responsibilities. The Board's responsibilities in financial reporting include assessing the Group's ability to continue as a going concern and disclosing, as applicable, matters related to going concern. A statement from the Directors on the going concern of the Company is set out under section Going concern assessment (audited).
O. Risk Management and Internal Controls	§ The Audit, Risk, and Compliance Committee Board assists the Board in Its oversight of current risk exposures and future risk strategy and assists the Board in monitoring and reviewing the effectiveness of the credit and risk functions in the context of Company's overall risk management framework. The Committee also monitors the Company's capability to identify and manage emerging risks and overall effectiveness of the Company's internal financial controls and internal controls and risk management systems. § Every annual report includes a comprehensive Risk Report that sets out the Group's risk management objectives, approach to measuring and managing risk, and an assessment of risk covering the applicable reporting period. § The Risk Report for the reporting period can be found under section Risk Report
Section 5. Remuneration	§
P. Aligning Remuneration Policies and Practices to Long-term Success	§ The Remuneration Committee is responsible for setting and overseeing policies on matters relating to remuneration practices and ensuring they remain relevant and aligned with the Company's strategy, talent acquisition, risk appetite, and long-term objectives of the Company. § In accordance with its Terms of Reference, the Committee's responsibilities include setting and reviewing the remuneration policy for all directors and the Executive Management team. § The Committee also advises the Board on the Company's human resources policies, staff recruitment criteria, staff development, compensation and benefits, health and safety, performance evaluation and promotion criteria, gender equality, discipline and grievance procedures, diversity, and the overall wellbeing of employees. § Full details on the Committee's duties and responsibilities are set out in its Terms of Reference, which are available on the Company's website at http://atlasmara.com/about-us/corporate-governance/board-committees/. § During the reporting period, in response to the challenges wrought by the pandemic, the Committee spent time: o  receiving reports on the health and welfare of the employees, and approved policies to facilitate rapid response to the everchanging and dynamic work environment as a result of the pandemic; o  monitoring the rates of COVID-19 infections among our employees and received reports on testing and isolation of employees that were affected; o  approved policies to facilitate a seamless transition to work-from home.  As a result of the policy changes and tools made available to them, although many of our employee were affected by the mandatory work from home policies imposed by governments in several jurisdictions of operation for several consequent months, the employees were able to continue seamlessly continue to work and serve our customers while working from home; and o  providing oversight in the application of the Company's remuneration policy to ensure continued alignment with shareholder interests, by determining the appropriate balance between immediate and deferred remuneration for senior management of the Company. § As a result of the need for frequent Board meetings in response to the pandemic and the strategic initiatives, the Committee met less frequently on a standalone basis and instead received frequent updates on Human Capital matters during the full Board meetings.
Q. Executive Remuneration	§ The Remuneration Committee determines the compensation of executive management team, as well as the Executive Chair, and sets policies which create align incentives and rewards with setting the right tone and delivering on strategic goals.  § The Executive Management do not participate in Board discussions relating to their own remuneration. The Remuneration Committee and the Board meet in an executive session when determining the compensation of the Executive team.
R. Remuneration Policies and Practices	§ The Remuneration Committee oversees the remuneration policy of the Company and ensures its alignment with the Company's business strategy and objectives, risk appetite, values, and the long-term interests of the Company and its shareholders. The Committee oversees the Company's human resource policies. § The Committee also reviews the design of, and targets for, any performance-related pay schemes, and all share incentive plans operated by the Company. § In making compensation decisions, the Committee reviews proposals from management and quantitative market data. The Committee relies on its own knowledge and business judgement to review and challenge management proposals and make compensation decisions. The full terms of reference of the Committee covering the authority delegated to it by the Board are available on the Company's website at: www.atlasmara.com.

 

Areas of the Code that the Company Continues to Work On

The table below sets out areas where the Company continues with efforts to achieve conformity with the Code and explanations for any areas of deviation.

 

Section of the Code	Provision of the Code	Explanation for Areas of Non-Compliance
2. Division of Responsibilities	Provision 5	§ The corporate governance requirements set out in section 172 of the Companies Act 2006 do not apply to Atlas Mara since the Company is incorporated in the BVI and holds a standard listing on the London Stock Exchange.
2. Division of Responsibilities	Provision 9	§ Michael Wilkerson was appointed as Executive Chairman of the Board effective 6 February 2019. While Michael Wilkerson is not independent, the Board elected to appoint him as Chairman of the Board to ensure continuity in executing the Company's strategic priorities. With Michael as CEO of Fairfax Africa Holdings Corporation ("Fairfax Africa"), the largest shareholder of Atlas Mara, it reflects the commitment of our largest shareholder to the strategic priorities to accelerate the transformation of the Group and create shareholder value.  Michael Wilkerson will remain Chairman of the Board for the foreseeable future to help oversee the implementation of the Board's recently announced strategic priorities and actions.
2. Division of Responsibilities	Provision 12	§ In accordance with our standard Board evaluation practices, the Board Chair's performance is appraised every year when the Directors conduct their annual Board evaluation.  In light of the challenges presented by the COVID-19 pandemic in 2020, an appraisal of the Board Chair's performance during did not take place.
3. Composition, Succession and Evaluation	Provision 17	§ The Nomination Committee is currently composed of four members, two of whom are considered independent. While less than a majority of the Committee members are independent, the composition of the Committee is appropriate in light of recent changes to the Board's composition as well as the recently announced strategic priorities of the Board.  Importantly, the Committee has continued to discharge Its duties effectively, and notably regularly interacting and  contributing to important strategy decisions. As and when additional Directors are appointed to join the Board, Committee compositions will be reassessed to identify opportunities to appoint additional independent Directors to the Nomination Committee. § The Board recognizes the importance of improving diversity on the Board and senior management team and remains committed to addressing any gaps in its future appointments and succession plans.
3. Composition, Succession and Evaluation	Provision 21	§ In light of the challenges posed by the COVID-19 pandemic, the 2020 Board evaluation did not take place.
4. Audit, Risk, and Internal Control	Provision 24	§ The Audit, Risk and Compliance Committee is currently composed of four members, three of whom are considered independent. While not every member of the Committee is independent, the Board is satisfied that at least a majority of the Committee's members are independent and that the Committee as a whole is appropriately composed with members that bring the financial skills and knowledge required to effectively carry out their duties.
5. Remuneration	Provision 32	§ The Remuneration Committee is currently composed of three members, one of whom is considered independent. While not every member of the Committee is independent, the composition of the Committee is appropriate in light of recent changes to the Board's composition as well as the recently announced strategic priorities of the Board.  Notably, the current Committee Chair, Rachel Robbins, is an independent Director, and the Board is satisfied that the Committee as a whole brings the knowledge and experience required to effectively carry out its duties.  Importantly, the Committee has continued to discharge its duties effectively, and notably regularly interacting and contributing to important strategy development and execution decisions, as well as overseeing efforts to right size the company to align with the Board's strategic priorities.
5. Remuneration	Provision 34	§ As at 28 February 2021, the former Chairman of the Board, Bob Diamond, held stock options which were awarded to him as part of a new Management Incentive Plan that was put in place pursuant to the terms of the strategic financing transaction executed between the Company and Fairfax Africa, which closed on 31 August 2017. The current Chairman of the Board, Michael Wilkerson, does not hold stock options.
5. Remuneration	Provision 41	§ As a BVI-incorporated company and with its standard listing on the LSE, Atlas Mara is not required to comply with the full disclosure requirements of the provision and have complied only to the extent required by IFRS or as disclosed in note 28.3.

 

Leadership

Overview of governance structures

The Board of Directors oversees the business of Atlas Mara on behalf of the Company's shareholders. The Board is accountable for the long-term success of the Company and delivery of sustainable value to shareholders. The Board sets the right tone and provides leadership of the Company within a framework of prudent and effective controls to appropriately assess and manage risks. The Board has delegated certain responsibilities to Board Committees to assist it with discharging its duties. Additionally, the implementation of matters approved by the Board and oversight of the day-to-day operations of the Company is delegated to the Atlas Mara Executive Committee ('EXCO'), which consists of senior management from the Company's key business lines and functional areas. Following recent changes made at the senior management level, in 2020 Atlas Mara's Executive Committee consisted of Michael Wilkerson, as Chairman of the Executive Committee, Muhammad Omar Khan (Group CFO); Beatrice Hamza Bassey (Group General Counsel); Kenroy Dowers (Group MD Strategy and Corporate Development); Sanjeev Anand (Group MD Retail and Commercial Banking) and Jonathan Muthige (head of Human Capital).

Role of the Board

Specifically, the Board:

§ sets and reviews the strategy and risk appetite for the Company;

§ oversees corporate governance activities of the Company, as well as compliance with the Code and any other corporate governance code the Board considers appropriate from time to time, as well as disclosures on corporate governance in the Annual Report and Accounts;

§ defines the Company's purpose and shared values, and promotes and monitors its culture;

§ approves capital and operating plans presented by management for the achievement of the strategic objectives it has set;

§ selects and evaluates the CEO and selected senior management hires;

§ sets the remuneration policy of the Company and approves the remuneration of the Executive Management team, as well as the remuneration of the Board;

§ is responsible for the Company's preparedness to respond in the event of a crisis;

§ oversees and approves major investments; and

§ reviews annually the Board's terms of reference and its own effectiveness.

The Board is also responsible for ensuring compliance with the general secretarial functions required under the BVI Companies Act and for compliance with the Company's continuing obligations as a company listed on the Official List and trading on the main market of the London Stock Exchange. The Company's company secretarial functions are performed and managed by the General Counsel, who has been approved as Company Secretary pursuant to BVI legal requirements.

Matters reserved for the Board

The Board maintains and periodically reviews a formal schedule of matters that are reserved to, and can only be approved by, the Board. The full schedule is available on the Atlas Mara website at http://atlasmara.com/about-us/corporate-governance/governance-framework/.

This schedule covers areas including:

§ the overall direction and approval of the Group's strategy;

§ changes relating to the Group's capital or corporate structures;

§ major investments, acquisitions and divestments;

§ risk appetite and oversight of risk and internal control;

§ approval of contracts, loans, repayments, borrowings, acquisitions and disposals greater than the thresholds established in the Company's related Schedule of Authorisations; and

§ authorising conflicts of interest where permitted by the Company's Articles of Association.

The matters that have not been expressly reserved to the Board are delegated by the Board to its Committees, as set out in their terms of reference, or to the Executive Committee of the Company. The Executive Committee executes the Company's strategy and is responsible to the Board for the management, development and performance of Atlas Mara and those matters for which the Board has delegated authority.

Composition of the Board

As at 28 February 2021, the Board was comprised of five members: the Chairman and four Non-Executive Directors. Effective 7 October 2020, Amadou Raimi, Chair of the Audit Committee, retired from the Board of Directors of the Company. Following this change, the Board is currently comprised of 5 members: Michael Wilkerson, as Chairman of the Board, and Bob Diamond, Rachel Robbins, , Simon Lee, and Jawaid Mirza as Non-Executive Directors. Further details on the Board of Directors and its composition are set out under section Board and Committee meetings and the Directors' Report.

Meetings of the Board

The Board holds regularly scheduled meetings every month with in-person meetings scheduled each quarter, however, following the impact of the Covid 19 Pandemic related travel restrictions, all meetings were conducted via telephone conference In 2020, special meetings were held in between scheduled meetings as often as necessary in order to enable the Board to fulfil its role or to consider and approve corporate activity of the Company. The Directors allocated sufficient time to the Company to perform their responsibilities effectively which includes time to prepare for Board meetings and review information packs circulated to the Board ahead of each meeting. During the reporting period, the Board and its Committees held 28 meetings in the aggregate. Board and Board Committee meetings are conducted in accordance with the articles of association of the Company.

The Board information packs include detailed reports with updates on the following key areas: financial performance; risk management; Internal Audit; legal, compliance and regulatory matters; banking and operations; Fintech and digital; global markets and treasury; and corporate development and strategic initiatives. The reports shared with the Board are agreed and prepared by in consultation with the Chairman of the Board and Chairs of the respective Committees. The Board also receives quarterly reports from external auditors. The management also makes available ad hoc information at the Board's request and endeavours to do so in a timely manner to ensure the Board has sufficient time to review materials.

In the few instances where Directors are unable to attend meetings due to conflicts in their schedule, they receive papers in the normal manner and have the opportunity to relay their comments in advance of the meeting, as well as follow up with the Chairman if necessary. The same process applies in respect of the various Board Committees.

The tables under section Board and Committee meetings set out the attendance by Directors at Board and Committee meetings during the reporting period.

Committees of the Board

The Board has delegated authority to its Committees to undertake various tasks on its behalf and to ensure compliance with regulatory requirements. This enables the Board to operate efficiently. The Board Committee terms of reference were drafted with the aim of promoting best practice in corporate governance. A summary of the terms of reference for each Committee is set out below. The full terms of reference are available on our website http://atlasmara.com/about-us/corporate-governance/board-committees/.

Committee	Role and terms of reference	Minimum meetings per year
Nomination	Leads the process for Board appointments and ensures that the Board and its Committees have an appropriate balance of skills, experience, availability, independence and knowledge of the Company to enable them to discharge their responsibilities effectively.	At least twice per year, and more frequently as requirements dictate.
Audit, Risk and Compliance	Reviews and reports to the Board on the Group's financial reporting, internal controls and risk management systems, the Company's compliance with legal and regulatory requirements, internal audit and the independence and effectiveness of the external auditors.	At least four times a year in person at appropriate intervals in the financial reporting and audit cycle and otherwise as required.
Remuneration	Advises the Board on developing an overall remuneration policy that is aligned with the business strategy and objectives, risk appetite, values and long-term interests of the Company, recognising the interests of all stakeholders.	At least four times per year, and more frequently as requirements dictate.

 

Board and Committee meetings

The attendance of Directors at Board and Committee meetings during 2020 is set out below.

Board meeting attendance in 20201
Michael Wilkerson	20 (20)
Robert E. Diamond, Jr.	21 (21)
Rachel F. Robbins	21 (21)
Amadou Raimi2	7 (7)
Simon Lee	19 (20)
Jawaid Mirza	21 (21)

In attendance    Absent

Note:

1.   Board meetings in 2020 covers period from 1 Jan 2020 to 28 February 2021.

2.   Amadou Raimi stepped down from the Board effective 7 October 2020

 

 

Audit, Risk and Compliance Committee meeting attendance in 20201
Amadou Raimi2	4 (4)
Rachel F. Robbins	5 (5)
Simon Lee	5 (5)
Jawaid Mirza3	5 (5)

In attendance    Absent

Note:

1.   Audit, Risk and Compliance meetings in 2020 covers period from 1 Jan 2020 to 28 February 2021.

2.   Amadou Raimi  stepped down from the Board effective 7 October 2020

3.   Jawaid Mirza assumed the role of chairman of the Committee effective 7October  2020.

 

 

Remuneration Committee meeting attendance in 20201
Rachel Robbins	2 (2)
Robert E. Diamond, Jr.	2 (2)
Michael Wilkerson	2 (2)

In attendance    Absent

Note:

1.   Remuneration Committee meetings in 2020 covers period from 1 Jan 2020 to 28 February 2021.

 

Nomination Committee meeting attendance in 20201
Robert E. Diamond, Jr.	1 (1)
Simon Lee	1 (1)
Rachel F. Robbins	1 (1)
Jawaid Mirza	1 (1)
Michael Wilkerson	1 (1)

In attendance    Absent

Note:

1.   Nomination Committee meetings in 2020 covers period from 1 Jan 2020 to 28 February 2021.

 

What the Board focused its time on in 2020

Strategy and Corporate Development

§ Undertook an assessment of the  key priorities and actions for 2020.

§ Considered and approved strategic transactions, including potential M&A transactions involving certain banking assets of the Company.

§ Continued to monitor progress with implementing strategic priorities throughout the year.

§ Ensured strategic objectives were designed to preserve value for shareholders.

§ Considered and approved leadership and organisational changes aimed at repositioning the Company.

§ Reviewed the capital and funding structure of the Group's businesses and assessed strategic proposals for enhancing growth and financial performance.

§ Oversaw the repositioning of the business and discussions aimed at restructuring of the Company's balance sheet.

Financial and operational performance of Retail & Commercial Banking Division

§ Provided leadership and oversight to weather the effects of the challenges presented by the COVID-19 pandemic including frequent stress testing and meetings to provide direction on ever changing environment. 

§ Assessed management proposals for addressing key macroeconomic challenges impacting financial performance and addressing the health and economic effects of the pandemic.

§ Received and reviewed regular updates on the operating environment and key drivers of the Company's performance.

§ Assessed and monitored the financial performance of the Company and its operating subsidiaries against the targets set for 2020.

§ Assessed and approved financial statements to be released to the market.

§ Oversaw efforts to further streamline the holding company and remove centralised cost structures

§ Monitored implementation of IFRS 9 requirements.

§ Assessed the liquidity and solvency of the Company.

§ Considered and approved capital injections into subsidiaries to capitalise subsidiaries to meet regulatory capital requirements where needed.

§ Considered and approved cost control and growth initiatives to drive financial performance of the Company.

Risk and Governance

§ Provided oversight and advice on the Company's risk strategy and effectiveness of the overall risk management framework.

§ Reviewed and received reports on risk management and key risk exposures.

§ Considered and discussed proposals to enhance internal controls and risk management systems.

§ Reviewed and monitored effectiveness of the Company's compliance policies and procedures.

§ Provided oversight over the implementation of the Company's compliance program.

§ Monitored adherence to the Board Committee terms of reference.

§ Discussed key regulatory engagement and interactions.

Shareholders and Investors

§ Engaged with shareholders through proactive and Intensive Investor relations programme of conference calls and regular updates.

§ Engaged with shareholders in connection with fundraising initiatives, including prospective divestments targeted at ensuring focus on the core business of the Company.

§ Discussed shareholders' views and concerns on a regular basis.

§ Discussed share price performance and investor feedback.

People, Culture and Values

§ Focused on leadership and culture during challenges wrought by the pandemic.

§ Monitored ongoing implementation of the Company's People Agenda, aimed at embedding the Company's purpose, culture and values across the group, and engaging and re-energising staff around a common vision and unified people proposition.

§ Considered and reviewed compensation structures of senior management to ensure alignment with values and interests of the Company.

§ Monitored implementation of cost-rationalisation projects to ensure operational stability and effective engagement with staff impacted by organisational changes.

§ Provided oversight over the Company's human resource policies and received regular updates on staff recruitment and performance.

§ Monitored ongoing efforts to standardise human capital policies and procedures across the group.

§ Reviewed incentive structures to ensure alignment with the Company's purpose, vision and culture.

Effectiveness

Independence

Following the previously reported changes to the Board's composition during 2019, the Board currently consists of the Chairman and four Non-Executive Directors, three of whom are considered to be independent. The two Independent Non-Executive Directors on the Board are: Rachel F. Robbins and Jawaid Mirza.

Robert E. Diamond, Jr., Non-Executive Director on the Board, is a co-founder of the Company and an affiliate of AFS Partners LLC, one of the Founding Entities of the Company that holds Founder Preferred Shares issued by the Company at the time of its incorporation. Bob Diamond is not considered independent by virtue of his role in founding the Company

Out of the 5 current Board members, two were appointed to the Board pursuant to the terms of the strategic financing transaction executed between the Company and Fairfax Africa in August 2017: Michael Wilkerson and Simon Lee. Under this strategic partnership, Fairfax Africa was granted certain rights to appoint Directors to the Company's Board, which were incorporated into the Articles of the Company and approved by the shareholders of the Company at an extraordinary general meeting held on 14 July 2017. These 2 Directors are not considered independent by virtue of their appointment to the Board by Fairfax Africa, which holds a substantial minority interest in the Company.

Following recent changes to the composition of the Board, half of the Board members, excluding the Chairman, are considered independent as defined by the 2018 Code. In light of ongoing strategic initiatives, the composition of the Board will remain as is, until such time the Board determines appropriate to initiate a search for additional independent Board members.

Director election

The Code recommends that all Directors be subject to annual re-election by the shareholders.  At the Company's last AGM, all Directors were submitted for re-election by the shareholders and were re-appointed accordingly. 

Diversity

Atlas Mara remains committed to promoting diversity across the Group, however the Board acknowledges the need to improve gender balance across the Board and senior management team. The Company's policy on diversity is embedded in the Group's Human Capital Policy, which outlines key principles and guidelines for enhancing diversity and inclusivity at all levels within the organisation. Achieving balanced representation is important for encouraging meaningful dialogue and empowering staff, Management and Directors to work towards the Company's common strategic objectives. Further details on our values and culture, and commitment to diversity in the workplace, can be found under section Corporate Governance.

Accountability

Risk management

The Board recognises its responsibility with respect to risk management with a particular focus on determining the nature and extent of the Company's risk appetite for achieving its strategic objectives.

The Audit, Risk and Compliance Committee takes responsibility for overseeing the effectiveness of sound risk management and setting the framework. The Board is very clear that risks and uncertainties are a necessary facet of the businesses in which we operate. Within this context, the Board trusts and empowers the Company's management and employees to manage risks, providing a framework designed to provide reasonable assurance that our resources are safeguarded and that the risks and uncertainties facing the business are being properly assessed, managed and mitigated.

Internal controls

The Board gives primacy to its responsibility for establishing and maintaining the Group's system of internal controls. The Board receives regular reports from management identifying, evaluating and managing the risks within the business. The system of internal controls is designed to manage, as opposed to eliminate, the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material losses or misstatements. The Audit, Risk and Compliance Committee reviews the system of internal controls by way of reports from the Chief Risk Officer, the General Counsel, the Head of Internal Audit, as well as the Company's external auditors.

During 2020, the Company's management continued efforts to strengthen internal controls and ensure a sound internal controls environment is established and adhered to by all the Company's subsidiaries. The Audit, Risk and Compliance Committee provided close monitoring and review of progress being undertaken by Management to improve internal controls. Management will continue to strive to ensure key issues are brought to the attention of the Committee and the Board.

The Board and the Audit, Risk and Compliance Committee has carried out a review of the effectiveness of the system of internal controls during the period ended 28 February 2021 and for the period up to the date of approval of the consolidated financial statements contained in the Annual Report. The review covered all material controls, including financial, operational and compliance controls, and risk management systems. The Board confirms that the actions it considers necessary have been, or are being, taken to remedy any significant weaknesses identified from its review of the system of internal control. This has involved considering the matters reported to it and developing plans and programmes that it considers are reasonable in the circumstances. The Board also confirms that it has not been advised of material weaknesses in the part of the internal control system that relates to financial reporting.

Relations with shareholders

The Board emphasises the importance of communicating with its shareholders to ensure that its strategy, business model and performance are clearly understood and that it remains accountable to shareholders.

Responsibility for maintaining regular communications with shareholders rests with the CFO and other members of the Executive team, as appropriate. Additionally, Atlas Mara has made available the Chairman of the Board and the Senior Non-Executive Director to investors reflecting our desire to promote shareholder access to the Company.  The Company sets itself the target of providing information that is timely, clear and concise. We have a programme of communication with shareholders based on our financial reporting calendar, including the Interim and Annual Report, AGM and the Investor Relations section of the corporate website at http://atlasmara.com/investor-relations/.

Investor activity during the last financial year included:

§ earnings calls for investors, analysts and stakeholders in conjunction with key financial announcements;

§ attendance at various investment bank-sponsored institutional investor conferences;

§ investor briefings and meetings held virtually; and

§ ad hoc meetings with the Chairman of the Board and other Non-Executive Directors on request, where calendar and regulatory requirements allow.

To further support engagement with our shareholders, the senior management team arranged meetings for investors in our countries of operations including meetings with the Company's local management teams.

RISK REPORT

The Group operates in an environment where taking considered business risks within the jurisdictions in which we operate is key to delivering on our strategy and to delivering value to shareholders.

In executing our business strategy, it is important to navigate uncertainties deftly, to optimise growth opportunities and to ensure that attendant risks fall within the Group's risk appetite framework of whichever risk type, with appropriate risk mitigants in place.

Group risk management objectives

The Board recognises that it is ultimately responsible and accountable to shareholders for:

·              the process of risk management and the systems of internal control;

·              identifying, evaluating and managing the significant risks faced by the Group;

·              ensuring that effective internal control systems are in place to mitigate significant risks faced;

·              ensuring that a documented and tested process is in place to allow the Group to continue its critical business in the event of a severe incident impacting its activities; and

·              reviewing the efficacy of the internal control system.

The Group risk management function, as mandated by the Board of Directors is to:

·              coordinate risk management activities across the organisation, by ultimately becoming the custodian of Atlas Mara's risk management culture;

·              analyse, monitor and manage all aspects of exposures across risk classes;

·              ensure risk parameters and limits are set, approved and implemented and ensure that they are consistently adhered to; and

·              facilitate various risk management committees as part of the Group's risk management process.

Group risk management objectives

The Group's approach to risk management involves a number of fundamental elements. The procedures and methodology are enshrined in the evolving Atlas Mara Enterprise-wide Risk Management ('ERM') Framework.

The Group's risk appetite sets out the level of risk that the Group is willing to take in pursuit of its business objectives. This risk appetite is calibrated against the Group's broad financial targets including profitability and impairment targets, dividend coverage and capital levels. The Group's risk methodologies include systems that enable the Group to measure, aggregate and report risk for internal and regulatory purposes in line with best practice.

ERM in business includes the methods and processes used by organisations to manage risks and identify opportunities related to the achievement of their objectives. ERM provides a framework for risk management, which typically involves identifying particular events or circumstances relevant to the organisation's objectives (risks and opportunities), assessing them in terms of likelihood and magnitude of impact, determining a response strategy, and monitoring progress.

The Group's risk management framework defines the risk management Principles and Standards followed by the Group. These Principles and Standards ensure that risks are consistently managed throughout the Group through a set of internal controls. The Principles and Standards also ensure that risk awareness filters down through every level of the Group, and that every employee understands their responsibility in managing risk. At each operating subsidiary entity, the following sub-committees, comprising executives and senior management, are responsible for dealing with the risks facing the Group in a structured manner:

·              Executive Credit Committee ('EXCO Credit') - responsible for credit risk;

·              Assets and Liability Committee ('ALCO') - responsible for interest rate, market, liquidity, counterparty, currency and capital adequacy risk; and

·              Operational Risk Committee ('ORCO') - responsible for technology, compliance, legal, human resources, reputational, operational and regulatory risk.

Atlas Mara has adopted the three lines of defence model to address how specific duties related to risk and control can be assigned and coordinated within the various business units. The model's underlying premise is that, under the oversight and direction of senior management and the Board of Directors, three separate groups (or lines of defence) within Atlas Mara are necessary for effective management of risk and control.

The three lines of defence are:

·              Business operations;

·              Risk and control functions; and

·              Internal audit.

Each of the three lines plays a distinct role within Atlas Mara's wider governance framework. When each performs its assigned role effectively, the prospects of Atlas Mara being successful in achieving its overall objectives are highly enhanced.

Role of Atlas Mara Group Risk Management

Atlas Mara Group Risk Management is responsible for maintaining a culture of risk awareness throughout the Group. While each business unit is primarily responsible for managing its own risks, Group Risk Management independently monitors, manages and reports on all risks facing the Group, as mandated by the Board of Directors. It coordinates risk management activities across the Group to ensure that risk parameters are properly set and adhered to across all risk categories and in all Group companies. It also ensures that all risk exposures can be measured and monitored across the Group. Managing risk effectively is one of the key drivers of the Group's continuous investment in technology. Group Risk Management continually seeks new ways to enhance its risk management techniques.

It also updates the Group risk management framework on a regular basis to reflect new policies adopted by the Board of Directors. Group Risk Management overseeing the banking operations regularly reports to the Atlas Mara Executive Committee and the Atlas Mara Board Audit, Risk and Compliance Committee, to provide the Board with assurance that risks are being appropriately identified, managed and controlled. Group Risk Management is headed by an executive manager who reports to the Group CEO of banking subsidiaries who in turn reports to the Executive Chairman.

The Board has approved the Group risk management framework which applies to all Group companies and deals with enterprise-wide risk and governance protocol. Risk management in the Group is underpinned by governance structures as well as risk ownership, identification and evaluation. Ownership and management of risks begins in the business units of each subsidiary, who identify and evaluate risks particular to their function. Group Risk Management reviews actions taken by business units to mitigate identified risks.

Each subsidiary or business unit produces risk reports which along with the detailed risk information provided by Group Risk Management, is discussed by the Board. The risk reports present a balanced assessment of significant risks and the effectiveness of risk management procedures, and management actions in mitigating those risks.

Credit risk

Credit risk is the risk of loss to the Group from the failure of clients, customers or counterparties, to fully honour their obligations to the Group, including the whole and timely payment of principal, interest, collateral and other receivable. Credit risk management is the most significant risk to which the Group is exposed to.

Significant changes in the economy, or in the health of a particular industry segment that represents a concentration in the Group's portfolio, could result in losses that are different from those provided for at the reporting date. Country (or Sovereign) risk is part of overall credit risk and is managed as part of the credit risk management function as it has a major impact on individual counterparties' ability to perform. Management therefore carefully manages its exposure to credit risk.

Credit exposures arise principally in loans and advances, debt securities and other similar instruments. There is also credit risk in off-balance sheet financial arrangements such as loan commitments and guarantees. The Group Risk team reviews subsidiary risk exposures regularly and reports to the Atlas Mara Board of Directors.

Credit risk management and strategy

Credit risk is managed across the Group in terms of its Board approved risk management framework, encompassing credit principles and standards, mandate limits and governance structures.

The governance structures mandated with accountability for loan approvals, monitoring and risk management include the following:

·              In Country Management Committee Credit Committee (Manco Credit Committee) (including BancABC entities and BPR).

·              In Country Board Credit Committee including (BancABC entities and BPR).

·              ABCH Group Credit Committee.

·              ABCH Board Credit Committee.

·              ABCH Board Loans Review Committee.

Atlas Mara Group credit risk management objectives are to:

·              enable sustainable asset growth in line with the Group Risk appetite;

·              optimise credit governance and operational structures;

·              create a robust control environment;

·              invest in skills, training and appropriate experience;

·              simplify risk management processes;

·              implement and refine appropriate models for credit granting;

·              improve early warning, problem recognition and remedial management capability; and

·              improve credit policies and governance framework.

The Board has defined and documented a credit policy for the Group which forms the basis of credit decisions. This policy includes a framework of limits and delegation of credit approval authority which are strictly adhered to. No one individual has the power to authorise credit exposures. Each subsidiary has a credit committee which operates within the defined limits set by the Board. These committees are responsible for the management of credit risk within their country including credit decisions, processes, legal and documentation risk and compliance with impairment policies. The Group Risk Department regularly reviews each subsidiary's adherence to required standards.

The Group Executive Committee ('EXCO') reports to the Board and is responsible for approval of credit decisions that are above country limits, recommendations on exposure limits and impairment policies. There is also a Board Credit Committee that approves any loans above the EXCO limit.

Credit life cycle

The credit life cycle consists of target market identification and quantification, principles of credit evaluation and decisioning, post-sanctioning fulfilment, credit administration, portfolio monitoring, early warning triggers, problem recognition and remedial management. The business, risk and senior management are integrated into the end-to-end credit life cycle. Atlas Mara Group uses a Risk Grading tool for corporate exposures to determine a minimum credit rating for acceptance for credit granting purposes.

The rating is the result of qualitative and quantitative criteria, based on statement of financial position and profit or loss inputs including critical ratios, industry benchmarking, management experience and capability. Risk ratings awarded to obligors are reviewed annually with the latest financial information and account conduct for corporate exposures.

Measuring credit risk

The Group's approach to measuring credit risk aims to align with the requirements set out under IFRS 9, in all substantial aspects, aligned with the standard approach and methodology employed by international financial institutions.

In line with IFRS 9, the Group has adopted the Expected Credit Loss approach effective 1 January 2018. Credit risk is broken down into the common risk components of Probability of Default ('PD'), Exposure at Default ('EAD') and Loss Given Default ('LGD'), modelled at a client, facility and portfolio level. These risk components are used in the calculation of the Expected Credit Loss ('ECL'). The models used by the Group are compliant with Basel II and regulatory requirements. These risk measures would be used as inputs to calculate the collective impairment amounts.

 

Component	Definition
Probability of default (PD)	The probability that a counterparty will default, over the next 12 months from the reporting date (stage 1) or over the lifetime of the product (stage 2). The PD estimates will fluctuate in line with the economic cycle. The lifetime (or term structure) PDs are based on statistical models, calibrated using historical data.
Loss given default (LGD)	The loss that is expected to arise on default, which represents the difference between the contractual cash flows due and those that the bank expects to receive. The Group estimates LGD based on the history of recovery rates and considers the recovery of any collateral that is integral to the financial asset.
Exposure at default (EAD)	The expected statement of financial position exposure at the time of default, taking into account the expected change in exposure over the lifetime of the exposure. This incorporates the impact of drawdowns of committed facilities, repayments of principal and interest, amortisation and prepayments.

To determine the expected credit loss ('ECL'), these components are multiplied together (PD for the reference period (up to 12 months or lifetime) x LGD at the beginning of the period x EAD at the beginning of the period) and discounted to the balance sheet date using the effective interest rate as the discount rate.

Expected credit loss and capital requirements

The three components, PD, EAD and LGD, are building blocks used in a variety of measures of risk across the entire portfolio. ECL is the measurement of loss, which enables the application of consistent credit risk measurement across all retail and corporate credit exposures. LGD, EAD and PD estimates are also used in a range of business applications, including pricing, customer and portfolio strategy and performance measurement. ECL estimates can be compared directly to portfolio impairment figures within the regulatory capital calculation to ensure that the organisation's estimates of ECL from doing business are sufficiently covered by the level of general impairments raised. Any situations in which general impairments are insufficient to cover total ECL in totality have a direct bearing on the Group's capital requirement to ensure that these potential losses are absorbed.

Forbearance and restructuring

Forbearance refers to obligations for which the contractual terms of the facilities availed are modified or formalised into a new transaction. Atlas Mara Group Credit Principles and Standards documents the criteria to be applied in assessing clients that will qualify for restructure. Great emphasis is placed on sustainability of cash flows to repay the restructured instalments.

Restructuring activities include extended payment arrangements or the modification and deferral of payments. If the terms of a loan are modified or an existing loan is replaced with a new loan, then a qualitative as well as quantitative assessment is made to determine whether the original loan should be derecognised. The quantitative test determines whether the net present value of the cash flows under the new terms discounted at the original effective interest rate is at least 10% different from the carrying amount of the original debt. The qualitative test assesses whether there has been a significant change in the terms and conditions of the new loan compared to the original loan.

If it is determined that the expected restructuring will not result in derecognition of the existing loan, then the gain or loss due to modification is computed as the difference between the gross carrying amount of the original loan at the time of the restructure, and the discounted cash flows of the modified loan contract using the original effective interest rate as the discount factor.

If the expected restructuring will result in derecognition of the existing loan, then the expected fair value of the new loan is treated as the final cash flow from the existing loan at the time of its derecognition. This amount is included in calculating the cash shortfalls from the existing loan that are discounted from the expected date of derecognition to the reporting date using the original effective interest rate of the existing loan. These policies are kept under continuous review.

With the onset of the COVID-19 pandemic, assistance was offered to customers by way of granting payment holidays of 2 - 6 months, reducing the instalment amounts and extending loan tenures. Policy guidelines document the criteria to be applied to determine the loans that qualify for a restructure. For the COVID-19 related restructures, the Group determined that the restructuring did not result in the derecognition of the original loan. The gain or loss on modification of the loan was computed as the difference between the gross carrying amount of the original loan at the time of the restructure, and the discounted cash flows of the modified loan using the original effective interest rate as the discount rate.

Risk limit control and mitigation policies

The Group manages, limits and controls concentrations of credit risk in respect of individual counterparties and groups, and to industries and countries. The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by product, industry sector and by country are approved by the Board of Directors (intermediate holding company) and relevant sub-committees and reviewed regularly. Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Some other specific control and mitigation measures are outlined below.

a. Collateral

The Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advanced, which is common practice.

The Group implements guidelines on the acceptability of specific classes of collateral for credit risk mitigation. The principal collateral types for loans and advances are:

·              cash collateral;

·              charges over assets financed;

·              mortgages over residential and commercial properties;

·              charges over business assets such as premises, inventory and accounts receivable; and

·              charges over financial instruments such as debt securities and equities.

Loans and advances to corporates are generally secured. In addition, in order to minimise credit loss, the Group will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances. Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument. Debt securities, treasury and other eligible bills are generally unsecured, with the exception of asset-backed securities and similar instruments, which are secured by portfolios of financial instruments.

b. Credit-related commitments

The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit - which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions - are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

c. Derivatives

The Group maintains strict control limits on net open derivative positions (that is, the difference between purchase and sale contracts) by both amount and term. The amount subject to credit risk is limited to expected future net cash inflows of instruments, which in relation to derivatives are only a fraction of the contract, or notional values used to express the volume of instruments outstanding. This credit risk exposure is managed as part of the overall lending limits with customers, together with potential exposures from market movements. Collateral or other security is not always obtained for credit risk exposures on these instruments, except where the Group requires margin deposits from counterparties.

Impairment policies

The Group has adopted standard impairment policies which at a minimum comply with the prudential guidelines of the respective countries' Central Banks. Impairments are determined monthly at subsidiary level and are subject to regular review by EXCO Credit.

The impairments shown in the statement of financial position are measured in line with the expected credit loss model prescribed by IFRS 9. IFRS 9 outlines a 'three-stage' model for impairment based on changes in credit quality since initial recognition. Refer to the table below for further details:

Stage	Description	ECL recognised
Stage 1: 12-month ECL	Financial assets that have had no significant increase in credit risk since initial recognition or that have low credit risk at the reporting date. For example: a newly originated loan on which repayments are being received and there are no other indicators of a significant increase in credit risk.	12-month expected credit losses. Losses expected on defaults which may occur within the next 12 months.
Stage 2: Lifetime ECL not credit impaired	Financial assets that have had a significant increase in credit risk since initial recognition but that do not have objective evidence of impairment. For example: a loan on which payment is 30 days overdue.	Lifetime expected credit losses. Losses expected on defaults which may occur at any point in a loan's lifetime. Losses are adjusted for probability weighted macroeconomic scenarios.
Stage 3: Lifetime ECL credit impaired	Financial assets that are credit impaired or in default and represent those that are at least 90 days past due in respect of principal and/or interest. Financial assets are considered to be credit impaired where the obligors are unlikely to pay on the occurrence of one or more observable events that have a detrimental impact on the estimated future cash flows of the financial asset.	Lifetime expected credit losses. Losses expected on defaults which may occur at any point in a loan's lifetime. Losses are adjusted for probability weighted macroeconomic scenarios. Interest income is calculated on the carrying amount of the loan net of credit allowance.

 

 

 

Maximum exposure and effects of collateral and other credit enhancements (audited)

The following table shows the maximum exposure to credit risk by class of financial asset (excluding equity instruments which are not subject to credit risk). For on-balance sheet financial assets, the maximum exposure to credit risk equals their carrying amount and is net of the allowance for ECL. For financial guarantees, the maximum exposure is the maximum amount that the Group would have to pay if the guarantees were called upon. For loan commitments and other credit-related commitments, the maximum exposure is the full amount of the committed facilities.

It also shows the total fair value of collateral, any surplus collateral (the extent to which the fair value of collateral held is greater than the exposure to which it relates), and the net exposure to credit risk.

28 February 2021 ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	Maximum exposure	Fair value of collateral and credit enhancements held							Net exposure
		Cash	Letters of credit/ guarantees	Property2	Other1,2		Net collateral
On balance sheet:
Cash and short-term funds3	112,339	-	-	-	-		-		112,339
Loans and advances	580,527	2,918	-	200,207	25,266		228,391		352,136
Investment securities at amortised cost	119,223	-	-	-	-		-		119,223
Derivative financial assets	5,543	-	-	-	-		-		5,543
Other financial assets4	37,708	-	-	-	-		-		37,708
Total on-balance sheet	855,340	2,918	-	200,207	25,266		228,391		626,949
Off-balance sheet:
Loan commitments	4,868	470	-	-	-		470		4,398
Financial guarantees	47,300	164	21,941	183	-		22,288		25,012
Total liabilities	5,637	4,058	-	-	-		4,058		1,579
Total off-balance sheet	57,805	4,692	21,941	183	-		26,816		30,989
Total	913,145	7,610	21,941	200,390	25,266		255,207		657,938

 

Notes

4.   Vehicles, machinery, other fixed assets, inventory and trade receivables.

5.   These collateral items are not readily convertible into cash as these items are sold in the market and are dependent on a buyer and seller.

6.   Represents bank balances and placements held with other banks and excludes cash in hand. Included in $183.9 million cash and short-term funds balance in the statement of financial position.

7.   Excludes prepayments and other non-financial assets. Balance disclosed is included in the $54.6 million other assets balance in the statement of financial position.

 

 

 

 

31 December 2019 ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	Maximum exposure	Fair value of collateral and credit enhancements held							Net exposure
		Cash	Letters of credit/ guarantees	Property2	Other1,2		Net collateral
On balance sheet:
Cash and short-term funds3	117,588	-	-	-	-		-		117,588
Loans and advances	682,747	612	-	224,507	3,466		228,585		454,162
Financial assets at FVTPL	4,955	-	-	-	-		-		4,955
Investment securities at amortised cost	107,667	-	-	-	-		-		107,667
Derivative financial assets	5,692	-	-	-	-		-		5,692
Other financial assets4	15,588	-	-	-	-		-		15,588
Total on-balance sheet	934,237	612	-	224,507	3,466		228,585		705,652
Off-balance sheet:
Financial guarantees	19,720	5,345	-	-	-		5,345		14,375
Letters of credit	8,578	-	4,913	-	-		4,913		3,665
Loan commitments	11,529	-	-	-	-		-		11,529
Total off-balance sheet	39,827	5,345	4,913	-	-		10,258		29,569
Total	974,064	5,957	4,913	224,507	3,466		238,843		735,221

 

Notes

8.   Vehicles, machinery, other fixed assets, inventory and trade receivables.

9.   These collateral items are not readily convertible into cash as these items are sold in the market and are dependent on a buyer and seller.

10.  Represents bank balances and placements held with other banks and excludes cash in hand. Included in $183.9 million cash and short-term funds balance in the statement of financial position.

11.  Excludes prepayments and other non-financial assets. Balance disclosed is included in the $54.6 million other assets balance in the statement of financial position.

 

 

Credit quality analysis (audited)

 

The Group manages the credit quality of financial assets using internal credit ratings. Financial assets are segmented into five rating classes. The Group's rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The Group regularly validates the performance of the rating and their predictive power with regard to default events.

 

Category	Description
Performing	The credit appears satisfactory.
Special mention	The credit appears satisfactory but exhibits potential for inherent weakness which, if not attended to, may weaken the asset or prospects of collection in full e.g. poor documentation.7
Special mention	Special mention
Doubtful	Credit facilities with above weaknesses and has deteriorated further to the extent that even with the existing security, full recovery will not be possible, or 180 days but less than 12 months in arrears.
Loss	Facilities considered impossible to collect with little or no realisable security, or more than 12 months in arrears.

 

 

Distribution of financial assets by credit quality

The table below shows the distribution of the Group's financial assets by credit quality:

 

28 February 2021 ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000			Performing		Special mention		Substandard		Doubtful		Loss		Gross total	ECL	Net total
Cash and short-term funds			112,339		-		-		-		-		112,339	-	112,339
Loans and advances			552,481		9,209		7,692		3,711		38,162		611,255	(30,728)	580,527
Investment securities at amortised cost			119,481		-		-		-		-		119,481	(258)	119,223
Derivate financial assets			5,543		-		-		-		-		5,543	-	5,543
Other financial assets			37,736		-		-		-		-		37,736	(28)	37,708
Total carrying amount on balance sheet			825,442		9,209		7,692		3,711		38,162		886,354	(31,014)	855,340
Off-balance sheet
Financial guarantees			47,393		-		-		-		-		47,393	(93)	47,300
Letters of credit			5,637		-		-		-		-		5,637	-	5,637
Loan commitments			4,868		-		-		-		-		4,868	-	4,868
Total carrying amount off-balance sheet			57,898		-		-		-		-		57,898	(93)	57,805
31 December 2019 ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000			Performing		Special mention		Substandard		Doubtful		Loss		Gross total	ECL	Net total
Cash and short-term funds			117,588		-		-		-		-		117,588	-	117,588
Loans and advances			587,585		33,400		5,164		14,607		41,991		682,747	(38,635)	644,112
Investment securities at amortised cost			107,667		-		-		-		-		107,667	(377)	107,290
Derivate financial assets			5,692		-		-		-		-		5,692	-	5,692
Other financial assets			15,588		-		-		-		-		15,588	-	15,588
Total carrying amount on balance sheet			834,120		33,400		5,164		14,607		41,991		929,282	(39,012)	890,270
Off-balance sheet
Financial guarantees			19,720		-		-		-		-		19,720	(187)	19,533
Letters of credit			8,587		-		-		-		-		8,587	-	8,587
Loan commitments			11,529		-		-		-		-		11,529	-	11,529
Total carrying amount off-balance sheet			39,827		-		-		-		-		39,827	(187)	39,640

 

Distribution of loans and advances, financial guarantees and loan commitments by credit quality and stage allocation

 

The tables below set out the credit quality of loans and advances, financial guarantees and loan commitments, based on the Group's internal credit rating system and by ECL stage allocation. The amounts presented are gross of impairment allowances. For loans commitments and financial guarantees, the amounts in the table represent the amounts committed or guaranteed, respectively.

 

i)          Loans and advances

 

##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	28 February 2021				31 December 2019
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
Performing	552,481	-	-	552,481	592,203	70	-	592,273
Special mention	-	9,209	-	9,209	-	30,740	1,429	32,169
Sub-standard	-	-	7,692	7,692	-	178	6,123	6,301
Doubtful	-	-	3,711	3,711	-	-	7,402	7,402
Loss	-	-	38,162	38,162	-	-	44,602	44,602
	550,343	9,209	49,565	611,255	592,203	30,988	59,556	682,747

ii)         Financial guarantees, loan commitments and other off-balance sheet items

 

##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	28 February 2021				31 December 2019
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
Performing	57,898	-	-	57,898	39,640	70	-	39,640
	57,898	-	-	57,898	592,203	30,988	59,556	39,640

 

iii) Credit quality analysis for stage 3 loans and advances

 

##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## million	28 February 2021			31 December 2019
	Carrying amount	Fair value of collateral	Over collateralisation	Carrying amount	Carrying amount	Over collateralisation
Retail	9,740	14,458	4,718		10,173	17,504
Corporate	17,250	24,441	7,191		19,362	28,551
	26,990	38,899	11,909		29,535	46,055

Collateral taken for this category includes cash, mortgages over residential properties, charges over business assets such as premises, inventory and accounts receivable, and charges over financial instruments such as debt securities and equities.

 

Modified financial assets (audited)

 

The contractual terms of a loan may be modified for a number of reasons, including changing market conditions, customer retention and other factors not related to a current or potential credit deterioration of the customer. With the onset of the COVID-19 pandemic, assistance was offered to customers by way of granting payment holidays of 2 - 6 months, reducing the instalment amount and extending loan tenures.

The Group considered whether the restructure will result in derecognition of the original loan by applying quantitative as well as qualitative test. The quantitative test determined whether the net present value of the cash flows under the new terms discounted at the original effective interest rate is at least 10% different from the carrying amount of the original debt while the qualitative test assessed whether there has been a significant change in the terms and conditions of the new loan compared to the original loan.

For the COVID-19 related restructures, the Group determined that the restructuring did not result in the derecognition of the original loan. The gain or loss on modification of the loan was computed as the difference between the gross carrying amount of the original loan at the time of the restructure, and the discounted cash flows of the modified loan using the original effective interest rate as the discount rate. Most of the loans that were restructured under the Group's COVID-19 restructure policy were not in arrears at the time of restructure. The Group continues to monitor these loans to assess whether there is a subsequent significant increase in credit risk.

The following table provides information on financial assets that were modified during the reporting period as part of the Group's restructuring activities and the resulting modification loss:

 

	28 February 2021
Financial assets modified during the period
Amortised cost before modification	1,027
Net modification loss	(249)

 

a.         Geographical sectors

 

The following table breaks down the Group's main credit exposure at their carrying amounts, as categorised by geographical region. For this table, the Group has allocated exposures to regions based on the country of domicile of its counterparties:

 

28 February 2021 ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	Botswana	Mozambique	Tanzania	Zimbabwe	Zambia	Other	Total
On-balance sheet
Cash and short-term funds1	60,773	-	4,944	44,792		1,855	112,364
Loans and advances	549,363	-	12,733	18,431		-	580,527
Investment securities2	67,265	-	-	51,958		-	119,223
Derivative financial assets	5,543	-	-	-		-	5,543
Other financial assets3	4,290	3,923		11,483	13,155	4,857	37,708
Total on balance sheet	687,234	3,923	17,677	126,664	13,155	6,712	855,365
Off-balance sheet
Financial guarantees	5,022	-	-	42,278	-	-	47,300
Letters of credit	1,579	-	-	4,058	-	-	5,637
Loan commitments	4,398	-	-	470	-	-	4,868
Total off-balance sheet	10,999	-	-	46,806	-	-	57,805
Total	698,233	3,923	17,677	173,470	13,155	6,712	913,170

 

Notes

1.   Represents cash balances and placements held with other banks and excludes cash in hand. Included in $183.9 million cash balance per statement of financial position.

2.   Excludes equity instruments. Balance disclosed is included in the $106.6 million investment securities balance per statement of financial position.

3.   Excludes prepayments and other non-financial assets. Balance disclosed is included in the $54.6 million other assets balance in the statement of financial position.

 

31 December 2019 ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	Botswana	Tanzania	Zimbabwe	Other	Total
On-balance sheet
Cash and short-term funds1	85,693	1,128	29,234	1,533	117,588
Financial assets at FVTPL2	3,925	-	1,030	-	4,955
Loans and advances	606,297	7,368	22,733	7,714	644,112
Investment securities2	64,747	-	42,543	-	107,290
Derivative financial assets	109	-	-	5,583	5,692
Other financial assets3	3,782	11,805	-	1	15,588
Total on balance sheet	764,553	20,301	95,540	14,831	895,225
Off-balance sheet
Financial guarantees	5,264	-	14,269	-	19,533
Letters of credit	8,578	-	-	-	8,578
Loan commitments	8,414	-	3,115	-	11,529
Total off-balance sheet	22,256	-	17,384	-	39,640
Total	786,809	20,301	112,924	14,831	934,865

 

Notes

1.   Represents cash balances and placements held with other banks and excludes cash in hand. Included in $130.5 million cash balance per statement of financial position.

2.   Excludes equity instruments. Balance disclosed is included in the $107.8 million investment securities balance per statement of financial position.

3.   Excludes prepayments and other non-financial assets. Balance disclosed is included in the $29.1 million other assets balance in the statement of financial position.

 

b.         Industry sectors

The following table breaks down the Group's main credit exposure at their carrying amounts, as categorised by industry sectors of the counterparties:

 

28 February 2021 ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	Agriculture	Construction	Corporate, retail and trade	Public sector	Real estate	Mining and energy	Financial services	Transport	Individuals	Tourism	Other	Total
On-balance sheet
Cash and short-term funds1	-	-	-	-	-	-	112,341	-	-	-	23	112,364
Loans and advances	6,342	29	23,860	9,865	388	810	5,640	116	522,523	2,428	8,526	580,527
Investment securities2	-	-	-	2,272	-	-	116,951	-	-	-	-	119,223
Derivative financial assets	-	-	-	-	-	-	5,543	-	-	-	-	5,543
Other financial assets3	-	-	-	11,483	-	-	21,368	-	-	-	4,857	37,708
Total on balance sheet	6,342	29	23,860	23,620	388	810	261,843	116	522,523	2,428	13,406	855,365
Off-balance sheet
Financial guarantees	-	13,263	5,022	-	-	-	19,999		-		9,016	47,300
Letters of credit	4,058	-	1,579	-	-	-	-		-		-	5,637
Loan commitments	470	-	3,200	-	-	-	-		1,198		-	4,868
Total off-balance sheet	4,528	13,263	9,801	-	-	-	19,999		1,198		9,016	57,805
Total	10,870	13,292	33,661	23,620	388	810	281,842	116	523,721	2,428	22,422	913,170

 

Notes

1.     Represents cash balances and placements held with other banks and excludes cash in hand. Included in $183.9 million cash balance per statement of financial position.

2.     Excludes equity instruments. Balance disclosed is included in the $106.6 million investment securities balance per statement of financial position.

3.     Excludes prepayments and other non-financial assets. Balance disclosed is included in the $54.6 million other assets balance in the statement of financial position.

 

 

28 February 2021 ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	Agriculture	Construction	Corporate, retail and trade	Public sector	Real estate	Mining and energy	Financial services	Transport	Individuals	Tourism	Other	Total
On-balance sheet
Cash and short-term funds1	-	-	-	-	-	-	117,588	-	-	-	-	117,588
Financial assets at FVTPL2	-	-	-	-	1,030	-	3,925	-	-	-	-	4,955
Loans and advances	4,613	9,973	28,852	6,949	69,224	2,096	22,165	2,546	475,929	6,229	15,536	644,112
Investment securities2	-	-	-	103,028	-	-	4,262	-	-	-	-	107,290
Derivative financial assets	-	-	-	-	-	-	5,692	-	-	-	-	5,692
Other financial assets3	-	-	-	-	-	-	-	-	-	-	15,588	15,588
Total on-balance sheet	4,613	9,973	28,852	109,977	70,254	2,096	153,632	2,546	475,929	6,229	31,124	895,225
Off-balance sheet
Financial guarantees	-	10,066	5,264	3	-	-	29	-	-	-	4,171	19,533
Letters of credit	-	-	208	8,370	-	-	-	-	-	-	-	8,578
Loan commitments	-	-	5,528	-	-	-	-	-	2,886	-	3,115	11,529
Total off-balance sheet	-	10,066	11,000	8,373	-	-	29	-	2,886	-	7,286	39,640
Total	-	10,066	5,264	3	-	-	29	-	-	-	4,171	19,533

 

Notes

4.     Represents cash balances and placements held with other banks and excludes cash in hand. Included in $130.5 million cash balance per statement of financial position.

5.     Excludes equity instruments. Balance disclosed is included in the $107.8 million investment securities balance per statement of financial position.

6.     Excludes prepayments and other non-financial assets. Balance disclosed is included in the $29.1 million other assets balance in the statement of financial position.

 

 

Measurement of ECLs

ECL for exposures in stage 1 is calculated by multiplying the 12-month PD by LGD and EAD. Lifetime ECL is calculated by multiplying the lifetime PD by LGD and EAD.

Credit risk grades are a primary input into the determination of the term structure of PD for exposures. The Group collects performance and default information about its credit risk exposures analysed by type of product and borrower as well as by credit risk grading. For some portfolios, information purchased from external credit reference agencies is also used.

 

The Group employs statistical models to analyse the data collected and generate estimates of the remaining lifetime PD of exposures and how these are expected to change as a result of the passage of time.

 

LGD is the magnitude of the likely loss if there is a default. The Group estimates LGD parameters based on the history of recovery rates of claims against defaulted counterparties. The LGD models consider the structure, collateral, seniority of the claim, counterparty industry and recovery costs of any collateral that is integral to the financial assets. For mortgages, loan to value ('LTV') ratios are a key parameter in determining LGD. LGD estimates are recalibrated for different economic scenarios and, for mortgage lending, to reflect possible changes in property prices. They are calculated on a discounted cash flow basis using the effective interest rate as the discounting factor.

 

EAD represents the expected exposure in the event of a default. The Group derives the EAD from the current exposure to the counterparty and potential changes to the current amount allowed under the contract and arising from amortisation. The EAD of a financial asset is its gross carrying amount at the time of default. For lending commitments, the EAD represents the amount of the guaranteed exposure when the financial guarantee becomes payable.

 

As described above, and subject to using a maximum of a 12-month PD for stage 1 financial assets, the Group measures ECL considering the risk of default over the maximum contractual period (including any borrower's extension options) over which it is exposed to credit risk, even if, for credit risk management purposes, the Group considers a longer period. The maximum contractual period extends to the date at which the Group has the right to require repayment of an advance or terminate a loan commitment or guarantee.

 

ECLs for retail overdrafts that include both a loan and an undrawn commitment component are measured over a period longer than the maximum contractual period if the Group's contractual ability to demand repayment and cancel the undrawn commitment does not limit the Group's exposure to credit losses to the contractual notice period. These facilities do not have a fixed term or repayment structure and are managed on a collective basis. The Group can cancel them with immediate effect; however this contractual right is not enforced in the normal day-to-day management, but only when the Group becomes aware of an increase in credit risk at the facility level. This longer period is estimated after taking into account the credit risk management actions that the Group expects to take, and that serve to mitigate ECL. These include a reduction in limits, cancellation of the facility and/or turning the outstanding balance into a loan with fixed repayment terms.

Where modelling of a parameter is carried out on a collective basis, the financial instruments are grouped on the basis of shared risk characteristics that include:

·              instrument type;

·              credit risk gradings;

·              collateral type;

·              LTV ratio for mortgages;

·              date of recognition;

·              remaining term to maturity;

·              industry; and

·              geographic location of the borrower.

The exposures are subject to regular reviews to ensure that exposures within a particular group remain appropriately homogeneous. For portfolios for which the Group has limited historical data, external benchmark information is used to supplement the internally available data.

 

Definition of default

The Group considers a financial instrument to be in default when:

·      the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held);

·      the borrower is more than 90 days past due on any material credit obligation to the Group. Overdrafts are considered as being past due once the customer has breached an advised limit or been advised of a limit smaller than the current amount outstanding; or

·      it is becoming probable that the borrower will restructure the asset as a result of bankruptcy due to the borrower's inability to pay its credit obligations.

In assessing whether a borrower is in default, the Group considers indicators that are:

·      qualitative: e.g. breaches of covenant;

·      quantitative: e.g. overdue status and non-payment on another obligation of the same issuer to the Group; and

·      based on data developed internally and obtained from external sources.

 

Inputs into the assessment of whether a financial instrument is in default and their significance may vary over time to reflect changes in circumstances. The definition of default largely aligns with that applied by the Group for regulatory capital purposes.

 

Credit impaired financial assets

 

Financial assets that are credit impaired (or in default) represent those that are at least 90 days past due in respect of principal and/or interest. Financial assets are also considered to be credit impaired where the obligors are unlikely to pay on the occurrence of one or more observable events that have a detrimental impact on the estimated future cash flows of the financial asset. It may not be possible to identify a single discrete event but instead the combined effect of several events may cause financial assets to become credit impaired. Evidence that a financial asset is credit impaired includes observable data about the following events:

·              Significant financial difficulty of the issuer or borrower;

·              Breach of contract such as default or a past due event;

·              For economic or contractual reasons relating to the borrower's financial difficulty, the lenders of the borrower have granted the borrower concessions that lenders would not otherwise consider. This would include forbearance actions.

·              Pending or actual bankruptcy or other financial reorganisation to avoid or delay discharge of the borrower's obligations;

·              The disappearance of an active market for the applicable financial asset due to financial difficulties of the borrower;

 

Incorporation of forward-looking information

 

Forward-looking macroeconomic information has been incorporated into expected loss estimates based on the key macroeconomic variables including GDP growth, inflation and exchange rates. The impact of these variables have been forecasted using quantitative modelling techniques and judgements.

The macroeconomic scenarios are defined by taking into account the macroeconomic conditions prevalent in the Group's countries of operation and their impact on the probability of the default (PD), Exposure at Default (EAD) and Loss Given Default (LGD). Forecasts are developed using a probability weighted scenario-based approach to ensure that the asymmetry of the various economic outcomes is captured in the estimation of ECL. The Group has modelled three scenarios as follows:

 

Base case scenario

Botswana - Economic growth contracts substantially during 2020 but economic recovery is evident in 2021 (although not quite at prior levels). Government interventions to support the economy, a recovery in the Diamond prices and the gradual roll out of a vaccine support a rebound in GDP growth rates ranging from 3% to 7%. This is considered the most likely scenario.

Zimbabwe - Government and regulator will continue taking steps to contain the spread of the virus and support the economy. No significant change in legislation expected. Inflation is expected to peak at 667.6%. the spread of Covid-19 is limited a further 3-6-week lockdown. Businesses is expected to be back to full capacity in 2021.

 

Moderate case scenario

Botswana - The economy is expected to rebound quickly in 2021 post the initial COVID crisis with GDP growth reach pre-COVID19 levels. The tourism and hospitality sector is buoyed by increased number of tourists while higher Diamond prices and increased export volumes boost the economy. Unemployment is stemmed. International markets open and regional flows of goods and services resume quickly.

Zimbabwe - COVID 19 is contained. The exchange rate stablises as a result of prudent financial management. Exports rebound as demand for raw materials increases globally resulting in greater economic activity in Zimbabwe. Business growth is further supported by stable input prices. Unemployment is contained.

 

Worst case scenario

Botswana - Economic recovery is expected to be very slow with output remaining constrained. Job losses continue and sectors such as tourism, transport, hospitality continue to struggle. Government support programs are not enough to stimulate the required economic recovery. The Diamond market remains suppressed. Vacine roll out is delayed and the government is forced to maintain tighter lock down regulations.

 

Zimbabwe - Inflation is expected to peak at 1500% with persistent hyperinflation. COVID-19 is not contained resulting in low productivity, lower international commodity prices as world economies take longer to recover. The local currency remains under pressure with limited forex in Zimbabwe. Banks withdraw from the interbank market. Business continue to close due to the limited economic activity resulting in higher levels of unemployment and economic hardship.

 

ECL results are calculated as the probability-weighted average across multiple macroeconomic scenarios. The final ECL results are dependent on the assumptions applied during the process. The scenario probability weightings applied in measuring ECL are as follows:

 

	Base case	Moderate case	Worst case
	85%	10%	5%
Scenario probability weighting - Botswana	22%	70%	8%
Scenario probability weighting - Zimbabwe	85%	10%	5%

 

The Group has identified and documented key drivers of credit risk and credit losses for each portfolio of financial instruments and, using statistical analysis of historical data, has estimated relationships between macro-economic variables and credit risk and credit losses. The key drivers of credit risk for retail portfolios include GDP growth, changes in the prime lending rate, inflation, and exchange rates. The key drivers for credit risk for corporate portfolios are GDP growth, inflation, and exchange rates.

 

The table below lists the macroeconomic assumptions used in the base, upside and downside scenarios over the three-year forecast period for the Group's key operating markets i.e. Botswana and Zimbabwe. The assumptions represent the absolute percentage for GDP, Inflation, Change in the prime lending rate and exchange rate. The impact of COVID 19 was considered in estimating the forecasts of these macro-economic factors.

 

a)         Base case economic assumptions

 

	GDP growth rate year-on-year	Year-on-Year Inflation Rate	Change in Prime Lending Rate for next quarter	Exchange Rate
Scenario probability weighting - Botswana	3.6%	n/a	-0.25%	n/a
Scenario probability weighting - Zimbabwe	n/a	350.6%	n/a	100

 

b)         Best case economic assumptions

 

	GDP growth rate year-on-year	Year-on-Year Inflation Rate	Change in Prime Lending Rate for next quarter	Exchange Rate
Scenario probability weighting - Botswana	5.5%	n/a	-0.25%	n/a
Scenario probability weighting - Zimbabwe	n/a	350.6%	n/a	86

 

b)         Worst case economic assumptions

 

	GDP growth rate year-on-year	Year-on-Year Inflation Rate	Change in Prime Lending Rate for next quarter	Exchange Rate
Scenario probability weighting - Botswana	1.8%	n/a	-0.25%	n/a
Scenario probability weighting - Zimbabwe	n/a	676.6%	n/a	140

 

 

Post-model adjustments and management overlays

 

Where there is uncertainty due to inherent limitations of the model, additional provisions via post model adjustments are made, through management overlays. Management applies expert judgement to determine the overlay ECL to incorporate the impact of forward-looking information in these cases. Any overlay ECL is based on available information and qualitative risk factors within a governed process. Management will evaluate a range of possible outcomes, taking into account past events, current conditions and the economic outlook. Additional considerations not addressed in the model are incorporated and include: (1) individual loss assessments of large exposures on watchlists; (2) observed model limitations; and (3) stress-test outputs.

 

Expected credit loss analysis (audited)

 

Analysis of gross loans and advances and ECL by business segment

The table below presents an analysis of loans and advances at amortised cost by gross exposure, impairment allowance and coverage ratio by stage allocation and business segment.

 

 

##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	28 February 2021				31 December 2019
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
Gross exposure
Retail	522,653	6,983	30,859	560,495	522,577	31,133	31,174	584,884
Corporate	29,828	2,226	18,706	50,760	65,008	2,267	30,588	97,863
Total	552,481	9,209	49,565	611,255	587,585	33,400	61,762	682,747

 

Expected credit  loss
Retail	5,827	693	18,931	25,451	5,876	1,072	18,793	25,741
Corporate	498	130	4,649	5,277	1,465	203	11,226	12,894
Total	6,325	823	23,580	30,728	7,341	1,275	30,019	38,635

 

Net exposure
Retail	516,826	6,290	11,928	535,044	516,701	30,061	12,381	559,143
Corporate	29,330	2,096	14,057	45,483	63,543	2,064	19,362	84,969
Total	546,156	8,386	25,985	580,527	580,244	32,125	31,743	644,112

 

Coverage ratio
Retail	1.1%	9.9%	61.3%	4.5%	1.1%	3.4%	60.3%	4.4%
Corporate	1.7%	5.8%	24.9%	10.4%	2.3%	8.9%	36.7%	13.2%
Total	1.1%	8.9%	47.6%	5.0%	1.2%	3.8%	48.6%	5.7%

*Compared to the loan staging analysis disclosed in the 2019 financial statements, the 2019 staging analysis for gross and net loan balances have been re-presented in the current period financial statements to align with the final classification disclosed in the statutory financial statements of the Group's banking components. This is a mere reclassification between stages and has no impact on the net loan balance.

 

Analysis of gross loans and advances and ECL by product classification

The table below presents a breakdown of loans and advances and the ECL allowance with stage allocation by product classification.

 

##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	28 February 2021					31 December 2019
	Stage 1	Stage 2	Stage 3	Total	Stage 1		Stage 2	Stage 3	Total
Gross exposure
Retail loans	522,653	6,983	30,859	560,495	522,577		31,133	31,174	584,884
Mortgage	68,474	1,231	9,109	78,814	64,097		5,264	8,287	77,648
Overdraft	2,417	147	1,664	4,228	1,899		255	3,642	5,796
Personal loans (including credit card and other retail lending)	451,762	5,605	20,086	477,453	456,581		25,614	19,245	501,440
Corporate	29,828	2,226	18,706	50,760	65,008		2,267	30,588	97,863
Term loans	26,850	1,792	17,974	46,616	57,986		1,814	29,839	89,639
Overdrafts	2,978	434	732	4,144	7,022		453	749	8,224
Total - Gross exposure	552,481	9,209	49,565	611,255	587,585		33,400	61,762	682,747

 

##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	28 February 2021					31 December 2019
	Stage 1	Stage 2	Stage 3	Total	Stage 1		Stage 2	Stage 3	Total
Expected credit loss
Retail loans	5,827	693	18,931	25,451	5,876		1,072	18,793	25,741
Mortgage	460	50	73	583	385		45	1,712	2,142
Overdraft	471	32	1,100	1,603	44		32	3,043	3,119
Personal loans (including credit card and other retail lending)	4,896	611	17,758	23,265	5,447		995	14,038	20,480
Corporate	498	130	4,649	5,277	1,465		203	11,226	12,894
Term loans	224	32	4,395	4,651	1,172		193	10,638	12,003
Overdrafts	274	98	254	626	293		10	588	891
Total - Expected credit loss	6,325	823	23,580	30,728	7,341		1,275	30,019	38,635

 

##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	28 February 2021					31 December 2019
	Stage 1	Stage 2	Stage 3	Total	Stage 1		Stage 2	Stage 3	Total
Net exposure
Retail loans	516,826	6,290	11,928	535,044	516,701		30,061	12,381	559,143
Mortgage	68,014	1,181	9,036	78,231	63,712		5,219	6,575	75,506
Overdraft	1,946	115	564	2,625	1,855		223	599	2,677
Personal loans (including credit card and other retail lending)	446,866	4,994	2,328	454,188	451,134		24,619	5,207	480,960
Corporate	29,330	2,096	14,057	45,483	63,543		2,064	19,362	84,969
Term loans	26,626	1,760	13,579	41,965	56,814		1,621	19,201	77,636
Overdrafts	2,704	336	478	3,518	6,729		443	161	7,333
Total - Net exposure	546,156	8,386	25,985	580,527	580,244		32,125	31,743	644,112

 

Movement in gross exposures and impairment allowance

The following tables present a reconciliation of the opening to the closing balance of the gross loan exposures and ECL allowance as at 28 February 2021.

 

28 February 2021 ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	Stage 1		Stage 2		Stage 3		Stage 4
	Gross	ECL	Gross	ECL	Gross	ECL	Gross	ECL
Opening balance	587,585	7,341	33,400	1,275	61,762	30,019	682,747	38,635
Transfer to stage 1	14,228	163	(14,056)	(143)	(172)	(20)	-	-
Transfer to stage 2	(6,729)	(56)	6,822	62	(93)	(6)	-	-
Transfer to stage 3	(8,156)	(121)	(2,383)	(44)	10,539	165	-	-
New financial assets originated	286,844	2,502	3,342	488	2,288	439	292,474	3,429
Repayment and other movements	(297,883)	(90)	(11,063)	(312)	(15,217)	(2,818)	(324,163)	(3,220)
Impaired accounts written-off	(7)	(7)	(5)	(5)	(4,399)	(4,399)	(4,411)	(4,411)
Exchange rate adjustment	(23,401)	(3,407)	(6,848)	(498)	(5,143)	200	(35,392)	(3,705)
Closing balance	552,481	6,325	9,209	823	49,565	23,580	611,255	30,728

 

31 December 2019 ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	Stage 1		Stage 2		Stage 3		Stage 4
	Gross	ECL	Gross	ECL	Gross	ECL	Gross	ECL
Opening balance	1,080,990	33,253	41,498	5,888	145,071	74,305	1,267,559	113,446
Transfer to stage 1	6,843	(857)	(6,087)	57	(756)	800	-	-
Transfer to stage 2	(28,288)	1	28,955	(683)	(667)	682	-	-
Transfer to stage 3	(10,208)	(4,681)	(2,584)	258	12,792	4,423	-	-
Business activity in the year	319,161	6,376	1,564	-	1,241	-	321,966	6,376
Repayment and other movements	(237,260)	-	(3,236)	-	(8,225)	-	(248,721)	-
Impaired accounts written-off	-	(2,962)	-	(688)	(707)	(3,699)	(707)	(7,349)
Exchange rate adjustment	(62,401)	(7,732)	(9,159)	(1,583)	(2,681)	(918)	(74,241)	(10,233)
Reclassified as part of disposal group held for sale	(481,252)	(16,057)	(17,551)	(1,974)	(84,306)	(45,574)	(583,109)	(63,605)
Closing balance	587,585	7,341	33,400	1,275	61,762	30,019	682,747	38,635

 

 

 

Measurement uncertainty and sensitivity of ECL estimates to future economic conditions

 

ECL estimates are sensitive to judgements and assumptions made regarding formulation of forward-looking scenarios and how such scenarios are incorporated into the ECL computations.

The table below shows the loss allowance on loans and advances to corporate and retail customers assuming each forward-looking scenario (e.g. central, upside and downside) were weighted 100% instead of applying scenario probability weights across the three scenarios. For ease of comparison, the table also includes the balances that are reflected in the financial statements.

 

##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	28 February 2021
	Base case	Best case	Worst case		Carrying amounts
Gross exposure
Retail	551,072	551,072	551,072		551,072
Corporate	60,183	60,183	60,183		60,183
Total	611,255	611,255	611,255		611,255
Expected credit loss
Retail	20,147	21,369	25,110		25,562
Corporate	14,079	14,065	14,177		5,166
Total off-balance sheet	34,226	35,434	39,287		30,728

 

 

 

Liquidity risk

 

Liquidity risk is the risk that the Group is unable to meet its obligations when they fall due as a result of customer deposits being withdrawn, cash requirements from contractual commitments, or other cash outflows, such as debt maturities or margin calls for derivatives. Such outflows would deplete available cash resources for client lending, trading activities and investments.

 

Analysis of liquidity risk (audited)

 

Non-derivative cash flow

The table below presents the cash flows payable by the Group under non-derivative financial liabilities and assets held for managing liquidity risk by remaining contractual maturities at the reporting date of the consolidated statement of financial position. The amounts disclosed in the table are the contractual undiscounted cash flows.

 

28 February 2021 ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	Up to 1 month	1-3 months	3-12 months	Greater than 1 year	Total	Effect of discount/ financing rates	Total
Financial assets
Cash and short-term funds	136,959	-	4,944	24	141,927	-	141,927
Financial assets at FVTPL	-	-	3,385	13,917	17,302	-	17,302
Loans and advances	24,334	1,075	33,519	1,137,680	1,196,608	(616,081)	580,527
Investment securities	41,827	12,542	-	68,183	122,552	(2,906)	119,646
Other financial assets1	144	15,629	15,720	6,215	37,708	-	37,708
Total financial assets (contractual)	203,264	29,246	57,568	1,226,019	1,516,097	(618,987)	897,110
Financial liabilities
Deposits	234,205	9,261	42,614	398,434	684,514	(11,980)	672,534
Borrowed funds	408,196	3,320	25,679	52,479	489,674	(47,970)	441,704
Lease liabilities	-	-	-	-	-	-	-
Other financial liabilities2	18,279	1,437	76,493	6,116	102,325	(2,084)	100,241
Loan commitments	4,398	470	-	-	4,868	-	4,868
Financial guarantee contracts	83	17,339	24,671	278	42,371	-	42,371
Total liabilities (contractual)	665,161	31,827	169,457	457,307	1,323,752	(62,034)	1,261,718
Liquidity gap	(461,897)	(2,581)	(111,889)	768,712	192,345
Cumulative liquidity gap	(461,897)	(464,478)	(576,367)	192,345

 

Notes

1.   Excludes prepayments and other non-financial assets. Balance disclosed is included in the $54.6 million other assets balance in the statement of financial position.

2.   Excludes provisions and other non-financial liabilities. Balance disclosed is included in the $111.4 million other liabilities balance in the statement of financial position.

 

31 December 2020 ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	Up to 1 month	1-3 months	3-12 months	Greater than 1 year	Total	Effect of discount/ financing rates	Total
Financial assets
Cash and short-term funds	130,324	-	-	209	130,533	-	130,533
Financial assets at FVTPL	-	-	3,925	21,318	25,243	-	25,243
Loans and advances	16,436	20,244	88,674	886,474	1,011,828	(367,716)	644,112
Investment securities	70,344	19,726	11,839	5,960	107,869	(91)	107,778
Other financial assets1	10,462	5,125	-	1	15,588	-	15,588
Total financial assets (contractual)	227,566	45,095	104,438	913,962	1,291,061	(367,807)	923,254
Financial liabilities
Deposits	319,782	199,313	180,166	32,656	731,917	(8,191)	723,726
Borrowed funds	12,384	9,666	184,738	209,257	416,045	(49,236)	366,809
Lease liabilities	-	-	-	-	-	-	-
Other financial liabilities2	73,054	12,524	3,384	-	88,962	-	88,962
Loan commitments	3,115	-	-	-	3,115	-	3,115
Financial guarantee contracts	1,282	1,188	3,494	8,316	14,280	-	14,280
Total liabilities (contractual)	409,617	222,691	371,782	250,229	1,254,319	(57,427)	1,196,892
Liquidity gap	(182,051)	(177,596)	(267,344)	663,733	36,742	(310,380)	(273,638)
Cumulative liquidity gap	(182,051)	(359,647)	(626,991)	36,742

 

Notes

3.   Excludes prepayments and other non-financial assets. Balance disclosed is included in the $29.1 million other assets balance in the statement of financial position.

4.   Excludes provisions and other non-financial liabilities. Balance disclosed is included in the $97.0 million other liabilities balance in the statement of financial position.

 

Market risk

 

This defines the risk that movements in market prices will adversely affect the value of on- or off-balance sheet positions. It encompasses risks arising from changes in investment market values or other features correlated with investment markets, in particular, changes in interest rates, foreign exchange rates, and equity and commodity prices. Market risk is often propagated by other forms of financial risk such as credit and market-liquidity risks.

 

Analysis of market risk (audited)

 

Sensitivity analysis of market price

The Group holds, directly or through its subsidiaries, listed equities with a fair value of $1.2 million and unlisted equities of $15.3 million. The Group is therefore exposed to gains or losses related to the variability in the market prices of the equities held.

Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. The exposure to equity price risk is described below.

 

Equity price risk

 

The Group's listed and unlisted equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Group manages the equity price risk through diversification and by placing limits on individual and total equity instruments. The Group's Board of Directors reviews and approves all equity investment decisions.

Further details on key assumptions in valuations, and sensitivity analysis of equity instruments and price risk are shown in note 5.

 

Foreign currency risk

 

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Group's exposure to the risk of changes in foreign exchange rates relates primarily to the Group's operating activities and the Group's net investments in foreign subsidiaries.

 

The Group takes on exposure due to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. Group Risk sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily. The following table summarises the Group's exposure to foreign currency exchange rate risk.

 

28 February 2021 ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	USD	EUR	BWP	ZWL	TZS	ZAR	MZN	AED	Other	Total
Financial assets
Cash and short-term funds	28,845	10,221	71,497	12,868	4,580	12,802	-	545	569	141,927
Financial assets at FVTPL	12,569	-	-	3,385	1,348	-	-	-	-	17,302
Loans and advances	14,883	-	548,885	16,758	-	1	-	-	-	580,527
Investment securities	33,247	-	67,265	18,889	245	-	-	-	-	119,646
Derivative financial assets	-	-	5,543	-	-	-	-	-	-	5,543
Other financial assets1	19,975	1	4,387	11,340	-	2	2,003	-	-	37,708
Total financial assets	109,519	10,222	697,577	63,240	6,173	12,805	2,003	545	569	902,653
Financial liabilities
Deposits	78,861	16,243	522,794	45,089		8,765			782	672,534
Borrowed funds	378,051		58,714	4,939						441,704
Derivative financial liabilities			5,564							5,564
Other financial liabilities2	87,639	45	11,172	1,130	32	220			3	100,241
Total financial liabilities	544,551	16,288	598,244	51,157	32	8,985			785	1,220,043
Net FCY exposure	(435,032)	(6,066)	99,333	12,082	6,141	3,820	2,003	545	(216)	(317,390)

 

Notes

5.   Excludes prepayments and other non-financial assets. Balance disclosed is included in the $54.6 million other assets balance in the statement of financial position.

6.   Excludes provisions and other non-financial liabilities. Balance disclosed is included in the $111.4 million other liabilities balance in the statement of financial position.

 

31 December 2019 ##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	USD	EUR	BWP	ZWL	TZS	ZAR	MZN	AED	Other	Total
Financial assets
Cash and short-term funds	66,021	2,531	51,979	5,796	1,045	170	5	1,211	1,775	130,533
Financial assets at FVTPL	19,860	-	3,925	-	1,439	19	-	-	-	25,243
Loans and advances	4,968	-	604,832	-	3,866	22,733	-	-	7,713	644,112
Investment securities	42,702	-	64,747	-	329	-	-	-	-	107,778
Derivative financial assets	-	-	5,583	109	-	-	-	-	-	5,692
Other financial assets1	11,806	-	3,782	-	-	-	-	-	-	15,588
Total financial assets	145,357	2,531	734,848	5,905	6,679	22,922	5	1,211	9,488	928,946
Financial liabilities
Deposits	99,956	2,145	616,118	4,401	-	-	-	-	1,106	723,726
Borrowed funds	8	25	5,577	-	-	-	-	-	-	5,610
Derivative financial liabilities	352,529	-	8,179	-	-	6,101	-	-	-	366,809
Other financial liabilities2	5,493	5	12,789	80	-	-	-	-	70,595	88,962
Total financial liabilities	457,986	2,175	642,663	4,481	-	6,101	-	-	71,701	1,185,107
Net FCY exposure	(312,629)	356	92,185	1,424	6,679	16,821	5	1,211	(62,213)	(256,161)

 

Notes

7.   Excludes prepayments and other non-financial assets. Balance disclosed is included in the $54.6 million other assets balance in the statement of financial position.

8.   Excludes provisions and other non-financial liabilities. Balance disclosed is included in the $111.4 million other liabilities balance in the statement of financial position.

 

Sensitivity analysis (audited)

The Group is exposed to a number of currencies as a result of its investments in different countries. The impact of the weakening of the major currencies of the Group's operating components against the US Dollar is presented below:

 

##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	28 February 2021		31 December 2019
	Effect on equity	Effect on profit or loss	Effect on equity	Effect on profit or loss
EUR: 5% movement (2019: 5% movement)	289	289	(17)	(17)
BWP: 5% movement (2019: 10% movement)	(4,730)	(4,730)	(8,380)	(8,380)
ZWL: 50% movement (2019: 50% movement)	(4,027)	(4,027)	(5,607)	(5,607)
ZAR: 10% movement (2019: 30% movement)	(347)	(347)	(328)	(328)
TZS: 1% movement (2019: 1% movement)	(61)	(61)	(66)	(66)
MZN: 1% movement (2019: nil)	(20)	(20)	-	-
All other currencies: 1% movement (2019: 5% movement)	(3)	(3)	2,905	2,905
	(8,899)	(8,899)	(5,886)	(5,886)

 

 

Interest rate risk (audited)

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce losses in the event that unexpected movements arise. In order to reduce interest rate risk, the majority of the Group's lending is on a variable interest rate with a term of less than one year. This approach has been adopted as a result of the scarcity of term deposits in the region which limits the Group's ability to build a substantial, stable pool of fixed rate funding.

 

The table below summarises the Group's total exposure to interest rate risks on financial instruments. It includes the Group's financial instruments at carrying amounts, categorised by the earlier of contractual re-pricing or maturity dates.

 

	Up to 1 month	1-3 months	3-12 months	1-5 years	Non-interest bearing	Total
Financial assets
Cash and short-term funds	98,789	-	4,944	-	38,194	141,927
Financial assets at FVTPL	-	-	-	-	17,302	17,302
Loans and advances	561,115	424	2,674	6,600	9,714	580,527
Investment securities	84,204	12,587	4,177	18,255	423	119,646
Derivative financial assets	96	5,447	-	-	-	5,543
Other financial assets1	-	-	-	-	37,708	37,708
Total financial assets	744,204	18,458	11,795	24,855	103,341	902,653
Financial liabilities
Deposits	234,177	9,261	42,614	386,482	-	672,534
Borrowed funds	277,150	77,677	22,546	45,240	19,091	441,704
Derivative financial liabilities	-	-	-	-	5,564	5,564
Other financial liabilities2	83	249	664	4,250	94,995	100,241
Total financial liabilities	511,410	87,187	65,824	435,972	119,650	1,220,043
Net interest rate risk gap	232,794	(68,729)	(54,029)	(411,117)
Cumulative interest rate gap	232,794	164,065	110,036	(301,081)

 

Notes

9.   Excludes prepayments and other non-financial assets. Balance disclosed is included in the $54.6 million other assets balance in the statement of financial position.

10.  Excludes provisions and other non-financial liabilities. Balance disclosed is included in the $111.4 million other liabilities balance in the statement of financial position.

 

Net interest income sensitivity to interest rate risk (audited)

The following is an analysis of the sensitivity of the Group's net interest income to increase or decrease in market interest rates. Based on a review of the movements in interest rates, especially as a result of the crisis caused by the COVID-19 pandemic, a 100-basis points ('bps') stress was deemed to be reflective of current interest rate movements.

 

##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	28 February 2021				31 December 2019
	Increase in rate		Decrease in rate		Increase in rate		Decrease in rate
	Pre-tax	Post-tax	Pre-tax	Post-tax	Pre-tax	Post-tax	Pre-tax	Post-tax
African Banking Corporation of Botswana Limited
Change in net interest income: +/-100 basis points (2019: +/-100 basis points)	(4,398)	(3,430)	4,398	3,430	(1,944)	(1,517)	1,944	1,517
As a percentage of total shareholders' equity	(4.07%)	(3.18%)	4.07%	3.18%	(1.92%)	(1.50%)	1.92%	1.50%
African Banking Corporation (Zimbabwe) Limited
Change in net interest income: +/-1000 basis points (2019: +/-1,000 basis points)	1,925	1,449	(1,925)	(1,449)	377	280	(377)	(280)
As a percentage of total shareholders' equity	3.17%	2.39%	(3.17%)	(2.39%)	0.71%	0.53%	(0.71%)	(0.53%)

 

The table below illustrates the impact of interest rate movements for each banking subsidiary, on the subsidiary. Based on a review of the movements in interest rates at country level, a 100 bps (2019: 100 bps) stress was deemed to be reflective of current interest rate movements, except for ABC Zimbabwe, where a higher rate has been assumed to account for the impact of inflation.

 

Risks arising from the impact of COVID-19

The COVID-19 pandemic, which developed and was prevalent throughout 2020, with a second wave being experienced in the second half of the year, negatively impacted the Group's customers as well as the performance of the Group for the 14-month period ended 28 February 2021. The second wave, as well as the third wave being experienced across nations has significantly caused uncertainty over how the future development of the outbreak will impact the Group's business and customer demand for its products and services. Whilst COVID-19 vaccine roll-outs gathered momentum around the world, there still remains uncertainty over the impact of the vaccine roll-outs in the markets the Group has footprints in as well as the efficacy of the vaccine against the emerging variants of the COVID-19 virus.

Containment measures taken by governments, including travel bans, border closures, mandatory 'stay at home' policies, quarantines, social distancing, closures of non-essential services and in some countries full lockdown, triggered significant disruptions to businesses activities worldwide and also to the Group's staff, customers and other stakeholders. Global economies as well as the economic environments of the Group's countries of operations were adversely impacted by the slowdown of economic activities caused by the pandemic.

 

Across the globe, governments and central banks responded with monetary and fiscal interventions, such as stimulus packages, quantitative easing, interest rate cuts, reduction in deposit statutory reserves, reduction in minimum capital adequacy requirements, removal of fees and charges on certain customer transactions, directing all banks to support customers during these uncertain times by providing access to credit, moratorium, and flexibility on repayment of loans, placing embargos on any reduction of workforce during the crisis and injection of liquidity into the markets, amongst other measures, to stabilise economic conditions.

 

The Group implemented a comprehensive range of measures to support staff and customers, with focus on the health and safety of staff. Some of the measures implemented include work from home policies, reconfiguration of offices, social distancing, provision of masks and other protective gear, periodic testing of staff, virtual meetings and provision of sanitisers. Some of the measures implemented to support customers include the restructuring of customer loans on a case by case basis; improvement of digital platforms, especially mobile and internet banking channels to ease the conduct of banking transactions by customers; provision of working capital to productive sectors and reduction of bank charges especially on digital platforms.

 

A number of digital innovations were undertaken by the Group. BancABC Zimbabwe launched Ally A.I. Chatbot, which allows customers to conduct transactions on social media platforms such as WhatsApp. In addition, the first virtual branch in Zimbabwe was launched, which makes virtual banking services accessible through channels including Skype, WhatsApp and Telephone Banking, coupled with Dial-A-Visa service and a Virtual Ignition Hub for SMEs. Other subsidiaries enhanced their internet and mobile platforms including offering of SaruMoney application in Botswana.

 

Across the Group's network of operations, business continuity plans ('BCP') were activated to ensure that business operations continued, while developing resilience against the crisis. Despite the activation of the BCPs, the Group's operations was vulnerable to the business disruptions caused by the pandemic, with attendant impacts on the Group's financial performance and position. Some of the actions taken by the Group such as payment holidays, extension of moratorium and loan restructures negatively impacted the interest income earned on the Group's loans and also resulted in lower fee income on credit. In addition, the rate cuts implemented by some central banks also negatively impacted the interest income earned by the Group during the period.

 

The effect of the pandemic on business activities also resulted in lower digital transaction volumes, thereby resulting in lower digital fee income. In addition, the economic slowdown impaired the ability of the Group's ability to grow its loan book, largely due to the conservative credit appetite as lending was halted in the high risk sectors and a cautious approach was taken for all new lending. The Group was able to keep the NPL ratio constant by proactively implementing remedial strategies and driving loan recovery efforts.

 

The weakening of market and macroeconomic indices such as GDP growth forecasts, inflation, exchange rates etc. could trigger impairments of the Group's assets such as investments in subsidiaries and associates (UBN) as well as goodwill and other intangible assets.

 

The economic outlook in the markets of operation remains uncertain with the longer-term impact on the Group's business, financial position and performance, liquidity and capital position, dependent on the severity and length of the pandemic and the mitigating impact of containment measures imposed by governments and other bodies as well as the success of the vaccination efforts across countries. Throughout this period of uncertainty, the Group will continue to work closely with customers, colleagues, regulators and the government and keep a close eye on the performance of the portfolios with frequent stress testing and scenario analysis.

 

 

Operational risk management

 

Managing operational risk requires timely, reliable as well as a strong control culture. We seek to manage our operational risk through:

·              active participation of all business units in identifying and mitigating key operational risks across the Group;

·              the training and development of the bank's employees;

·              independent control and support functions that monitor operational risk periodically; and

·              a network of systems and tools throughout the bank to facilitate the collection of data used to analyse and assess our operational risk exposure.

 

Operational risk is overseen by senior management under the Operational Risk Committee Framework. Our operational risk framework is in part designed to comply with operational risk measurement and assessment rules under Basel II. The Group's operational risk management processes focus primarily on risk assessment, loss data collection and the tracking of key risk indicators. The results of these processes are used to raise awareness of operational risk management and to enhance the internal control environment, with the ultimate aim of reducing losses.

 

Compliance risk management

 

Compliance risk is the risk of non-compliance with all relevant regulatory statutes, Central Bank supervisory requirements and industry codes of practice. The compliance function is an integral part of the overall Group Risk Management function. A decentralised compliance function has been implemented within business units and subsidiaries, and compliance officers have been appointed in each operating entity.

Compliance risk is effectively managed through developing and implementing compliance processes, developing effective policies and procedures affecting the respective regulatory frameworks, and providing advice and training on the constantly changing regulatory environment. A key role of compliance officers in the Group is to develop and maintain sound working relationships with its various regulators in the Group's operating countries.

 

Legal risk management

 

Group Chief Legal Counsel is responsible for ensuring that legal risk is adequately managed. This is achieved through standard approved legal documentation wherever possible; however, specialised external legal advisers are used when required for non-standard transactions. Group Chief Legal Counsel ensures that only approved legal advisers provide legal opinions or draw up specialised agreements for the Group.

 

Group internal audit

 

The primary function of Internal Audit is to give objective assurance to the Board that adequate management processes are in place to identify and monitor risks, and that effective internal controls are in place to manage those risks. Group Internal Audit independently audits and evaluates the effectiveness of the Group's risk management, internal controls and governance processes.

Internal Audit operates under terms of reference approved by the Audit, Risk and Compliance Committee. The terms of reference define the role and objectives, authority and responsibility of the internal audit function. The Group's reporting structures ensure that the Group internal auditor has unrestricted access to the Chairman of the Audit, Risk and Compliance Committee.

At the outset of each financial year, Group Internal Audit carries out a risk assessment for all business units and subsidiaries. A comprehensive audit plan for the year that identifies specific areas of focus is then derived from this assessment. The audit plan is reviewed regularly, and any changes must be approved by the Audit, Risk and Compliance Committee. The areas of focus are confirmed with executive management before being submitted to the Audit, Risk and Compliance Committee for approval.

 

Going concern assessment (audited)

 

The Group reported a loss of $57.3 million for the 14-month period ended 28 February 2021 (12-month period ended 31 December 2019: $141.0 million). As at that date, total assets exceeded total liabilities by $330.5 million (31 December 2019: $547.2 million).

 

The financial statement of the Group for the 14-month period ended 28 February 2021, were prepared on a going concern basis with the following matters identified as events or conditions requiring significant consideration with regards to the appropriateness of the going concern assumption:

·              Strategic options: The ability of the Group and Company to close the on-going strategic transactions which have been announced and thus transform the overall financial status of the Group and Company.

·              Liquidity challenges: Beginning in 2019, the Group launched a review of strategic options to partner in or exit certain markets. In parallel, the Group was also engaged in a strategic fundraising initiative targeting both debt and equity, to be utilised to support operations as well as address a balance sheet realignment given certain debt maturities expected in 2020. This initiative focused only on the holding companies, i.e. ATMA BVI, the Group's ultimate holding company and ABC Holdings Limited ('ABCH'), the intermediate holding company.

 

The extraordinary economic challenges related to the COVID-19 pandemic resulted in delays in the strategic fundraising initiative, which was paused because of tightening global liquidity. Emerging markets were affected more significantly due to the tightening of global liquidity. Further compounding these challenges, the major currency depreciations across the African markets in which the Group operates resulted in significant reduction in the US dollar value of the Group's assets and thus a reduction in the Group's debt capacity.

 

The cumulative effect of these challenges, and the pandemic's effects on growth and liquidity of the Group, led to an acceleration of potential transactions, as well as discussions with bilateral lenders towards an overall restructuring of the balance sheet of the holding companies. These discussions explored a range of options to provide stability to position the Group to weather the downturn and continue to pursue its strategic options. These discussions culminated in the standstill agreement announced on 29 December 2020, which was replaced by a long-term restructuring agreement that became effective on 14 July 2021 with the participating lenders in the form of the Support and Override agreement. The Support and Override agreement sets out the terms, milestones and timing of the debt repayments. While the signing of this definitive agreement provided the foundation for the stabilisation of the platform, given that the settlement of the Group's outstanding debt is dependent on a number of milestones, including the strategic transactions as set out below, the successful ongoing implementation of the Support and Override agreement results in a material uncertainty in respect of the going concern assumption.

 

Strategic transactions

 

The Group remains focused on executing the publicly announced strategic transactions, as listed below, to maximise value for its lenders and other stakeholders.

 

On 30 September 2020, ABCH entered into a definitive agreement with Access Bank Plc for the sale of the Group's shareholding in African Banking Corporation Mozambique Limited. The transaction was completed on 17 May 2021.

 

On 26 November 2020, ABCH entered into a definitive agreement with KCB Group Plc for the sale of the Group's 97.3% shareholding in African Banking Corporation Tanzania Limited. The transaction, which has been approved by the Bank of Tanzania, is now subject to fulfilment of customary conditions precedent.

 

On 26 November 2020, ATMA entered into a definitive agreement  with KCB Group Plc for the sale of the Group's 62.06% shareholding in Banque Populaire du Rwanda Plc ("BPR"). The transaction was completed on 25 August 2021.

 

On 19 April 2021, ABCH entered into a definitive agreement with Access Bank Plc for the sale of its 78.15% shareholding in African Banking Corporation Botswana Limited. The transaction, which has already been approved by the Bank of Botswana, is now near completion. The Group expects the change of ownership and control to be completed before the end of the year.

 

African Banking Corporation Zambia limited is, for accounting purposes, still classified as a disposal group held for sale in terms of International Financial Reporting Standard ("IFRS") 5: Non-current assets held for sale and discontinued operations. Discussions with a potential investor for the sale of the subsidiary are at an advanced stage.

 

Support and override agreement ('SOA')

 

On 14 July 2021, the SOA was signed by majority of the lenders representing 88% of the aggregate amount of debt outstanding under ATMA BVI ('the Company') and ABCH's direct and contingent facilities. The key terms of the SOA include:

·              The creditors who are a party to the SOA (the 'participating creditors') agreed to forbearances in respect of certain events of default under their relevant facilities while the SOA is effective, including: (i) non-payment of amounts due under certain of the Company's and ABCH's financing agreements, (ii) any deterioration in the financial or operational performance of the Group as a result of COVID-19, and (iii) any breach of any financial covenant under certain of the Company's and ABCH's financing agreements;

·              The participating creditors with direct facilities with the Company have agreed to forbearances in respect of the maturities of their facilities to 30 September 2021, with the possibility of further extension;

·              The participating creditors with direct facilities with ABCH have agreed to waive the maturities of their facilities until 31 December 2022, with the possibility of further extension;

·              Proceeds received in respect of the Group's on-going strategic divestments will be held by Wilmington Trust, acting as Global Agent, to support repayments of the Company and ABCH's creditors in accordance with agreed "waterfall" arrangements;

·              Participating creditors have agreed to either support, or not object to, the Company and ABCH proposing a restructuring procedure if required, including a UK restructuring plan, UK scheme of arrangement or a scheme of arrangement under Part IX of the British Virgin Islands Business Companies Act 2004, to ensure that all of the Company's financial creditors become bound by the terms of the SOA; and

·              The SOA will terminate either automatically, or upon notice from certain participating creditors, if specific criteria are not met, such as divestment milestones or any successful liquidation applications.

 

The Group, through ABCH, is in discussions with AATIF in relation to its participation in the restructuring. For Norsad, the Group continues to explore a consensual agreement while continuing to contest the petition filed by Norsad. Details on the Norsad litigation are provided under note  35.6 Norsad litigation.

 

In addition to the matters presented above, the Directors also considered the capital forecast, liquidity and funding position of individual banking entities within the Group, compared with minimum requirements set by banking regulators in each country as well as reasonable commercial headroom or so-called buffers in line with the Group's risk appetite. The Directors also considered forecasts for the parent company itself.

 

Based on the above, the Directors believe that the use of the going concern assumption in the preparation of the consolidated financial statements of the Group for the period ended 28 February 2021 is appropriate. This assumption is contingent on the availability of funds to finance future operations and that the realisation of assets and settlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business. However, should the SOA not be successfully implemented, a material uncertainty exists which may cast significant doubt on the Group's ability to continue as a going concern.

 

DIRECTORS' REPORT

Corporate governance and management report

DTR 7.2 requires that certain information be included in a corporate governance statement. The Corporate Governance Report is included in the Company's 2020 Annual Report.

For the purposes of compliance with DTR 4.1, the required content of the 'Management Report' can be found in the Business review, Executive Chairman's letter and Finance review sections of this report and in this Directors' report.

Results

The consolidated statement of profit or loss shows a reported loss of $58.7 million for the year ended 28 February 2021

Dividends

The Directors do not propose paying a dividend in respect of the year ended 28 February 2021.

Events after the reporting date

Please see note 35 the Financial statements, which is incorporated into this Report by reference.

Branches

In respect of the year 2020, Atlas Mara had subsidiaries and investment vehicles domiciled and/or operating in Botswana, Germany, Luxembourg, Mauritius, Mozambique, Nigeria, Rwanda, Tanzania, United Arab Emirates, Zambia and Zimbabwe.

Financial risk management objectives and policies

Details on financial risk management are set out in the Risk Report and are incorporated into this Report by reference.

Change of control

The Company is party to the following contracts that are subject to change of control provisions in the event of a takeover bid. In connection with the placement of senior secured convertible notes initially due 2020 (and now extended by agreement to 2021) and the placement of secured bonds due 2021 (the "Bonds"), the Company is party to contracts that give Bondholders the right to require redemption of their Bonds upon a change of control.  In addition, a change of control triggers a downward adjustment to the conversion applicable to the Convertible Bonds due 2020 (but extended to 2021), for a limited period of time following the change of control. The Company is also party to facility agreements that give the Lenders the right to declare all amounts outstanding under the loans immediately due and payable upon a change of control. There are no agreements between the Company and its Directors or employees providing compensation for loss of office or employment that occurs because of a takeover bid. However, if options are granted to senior executive officers, the vesting of issued options is accelerated in the case of a change of control.

Significant contracts

Details of related party transactions are set out under note 28 Related Parties and is incorporated into this Report by reference.

Going concern

The going concern of the Company is dependent on successfully funding the balance sheet of Atlas Mara and its subsidiaries ('the Group') and maintaining adequate levels of capital. In order to satisfy themselves that the Company has adequate resources to continue to operate for the foreseeable future, the Directors have considered a number of key dependencies relating to funding, liquidity and capital. Having considered these, the Directors consider that it is appropriate to adopt the use of the going concern assumption in the preparation of the consolidated financial statements of the Group for the period ended 28 February 2021.This assumption is contingent on the successful execution of the restructuring agreement the Company entered into with the majority of its creditors on July 14, 2021 ( the "SOA") and other factors, as described in the risk report and  financial statements. Should the SOA not be successfully implemented, a material uncertainty exists which may cast significant doubt on the Group's and Company's ability to continue as going concerns. (A fuller discussion of the going concern assessment is provided in the section going concern assessment in the risk report).

Directors

The names of the current members of the Board of Directors of the Company, as at 31 August 2021, are listed in the table below. The Directors' interests in shares in the Company are provided below. The composition of the Board and dates of appointment are shown in the table below:

 

Director1	Date of appointment
Robert E. Diamond, Jr.	3 December 2013
Rachel F. Robbins	3 December 2013
Michael Wilkerson	3 October 2017
Simon Lee	24 April 2018
Jawaid Mirza	1 April 2019

Note:

1.   Amadou Raimi, who was appointed to the Board in January 2015, stepped down from the Board, effective 7 October 2020.

Directors' indemnities

As at the date of this Report, indemnities granted by the Company to the Directors are in force to the extent permitted under BVI law. The Company also maintains Directors' and Officers' liability insurance, the level of which is reviewed annually.

Rights to appoint and remove Directors

On 31 August 2017, the Company entered a strategic financing transaction with Fairfax Africa (now 'Helios Fairfax Partners'), which resulted in Fairfax Africa acquiring a 42.4% ownership stake in the Company (the 'Strategic Financing'). On 22 December 2017 Fairfax Africa acquired additional ordinary shares of Atlas Mara, increasing its ownership stake to 43.3%. Pursuant to the terms of the Strategic Financing, Fairfax Africa was granted certain rights to appoint and remove directors to the Company's Board, which were incorporated into the Articles of the Company and approved by the shareholders of the Company at an extraordinary general meeting held on 14 July 2017. The amended Articles of the Company are available for inspection at the Company's registered office.

In December 2020, Fairfax Africa's holdings in the Company were transferred to Fairfax Financial Holdings Limited ('Fairfax Financial') along with certain rights to appoint and remove Directors pursuant to the Strategic Financing agreement. Fairfax Financial has the right to nominate four persons as Directors of the Company (the 'Investor Directors'), and the Directors shall appoint such persons to the Board, subject to the BVI Companies Act and the Articles. In the event Fairfax Financial notifies the Company to remove an Investor Director from the Board, the Directors shall remove such Investor Director, and Fairfax Financial shall have the right to nominate an Investor Director to fill such vacancy. For so long as Fairfax Financial has the right to appoint four Directors to the Board, the Directors retain the right, acting by majority, to nominate five persons as Directors of the Company (the 'Non-Investor Directors').

Following completion of the Strategic Financing, and subsequent to the changes in the governance arrangements of the Company, a holder of Founder Preferred Shares (being a Founding Entity together with its affiliates) owning 20% or more of the Founder Preferred Shares in issue, is no longer entitled to nominate a person as a Director of the Company.

Powers of the Directors

Subject to the provisions of the BVI Companies Act and the Articles, the business and affairs of the Company shall be managed by, or under the direction or supervision of, the Directors. The Directors have all the powers necessary for managing, and for directing and supervising, the business and affairs of the Company. The Directors may exercise all the powers of the Company to borrow or raise money (including the power to borrow for the purpose of redeeming shares) and secure any debt or obligation of or binding on the Company in any manner including by the issue of debentures (perpetual or otherwise) and to secure the repayment of any money borrowed, raised or owing by mortgage charge pledge or lien upon the whole or any part of the Company's undertaking property or assets (whether present or future) and also by a similar mortgage charge pledge or lien to secure and guarantee the performance of any obligation or liability undertaken by the Company or any third party.

Substantial shareholders

As at 31 August 2021, the Company has been notified of the following significant holdings (being 5% or more of the voting rights in the Company) in the Company's ordinary share capital.

Shareholder	% fully diluted interest1	Transaction date1
Fairfax Financial Holdings Limited	42.3	08/12/2020
Wellington Management Company, LLP	9.9	19/01/2017
Citigroup	5.0	12/02/2020

 Note:

1.   Per public TR-1 filings with the Financial Conduct Authority.

 

Share capital

General

As at 29 February 2021, the Company had in issue 174,618,767 ordinary shares of no-par value and 1,250,000 Founder Preferred Shares of no-par value. As at 31 August 2021 (the latest practicable date prior to the publication of this document) the Company had a total number of 174,618,767 ordinary shares in issue, of which 26,653,711 are held in treasury and 3,298,298 are held in escrow as part of the contingent consideration for the acquisition of Finance Bank Zambia Limited.

Founder Preferred Shares

Details of the Founder Preferred Shares can be found in note 3 and are incorporated into this Report by reference.

Directors' interest in shares

The Directors' beneficial shareholding in the Company, as of 31 August 2021 (the latest practicable date prior to the publication of this document) is as follows:

Directors	Number of ordinary shares held	% ownership
Robert E. Diamond, Jr.	3,948,991	2.73%
Rachel F. Robbins	315,113	0.22%
Michael Wilkerson	508,927	0.35%
Simon Lee	206,881	0.14%
Jawaid Mirza	193,471	0.13%

Note:

1.   Amadou Raimi stepped down from the Board, effective 7 October 2020. 

 

Securities carrying special rights

Save as disclosed above in relation to the shares held by Fairfax and the Founder Preferred Shares, no person holds securities in the Company carrying special rights with regard to control of the Company.

Voting rights

Holders of ordinary shares will have the right to receive notice of and to attend and vote at any meetings of members. Each holder of ordinary shares being present in person or by proxy at a meeting will, upon a show of hands, have one vote and upon a poll each such holder of ordinary shares present in person or by proxy will have one vote for each ordinary share held by him.

In the case of joint holders of a share, if two or more persons hold shares jointly each of them may be present in person or by proxy at a meeting of members and may speak as a member, if only one of the joint owners is present he may vote on behalf of all joint owners, and if two or more joint holders are present at a meeting of members, in person or by proxy, they must vote as one.

Restrictions on voting

No member shall, if the Directors so determine, be entitled in respect of any share held by him to attend or vote (either personally or by proxy) at any meeting of members or separate class meeting of the Company or to exercise any other right conferred by membership in relation to any such meeting if he or any other person appearing to be interested in such shares has failed to comply with a notice requiring the disclosure of shareholder interests and given in accordance with the Articles within 14 calendar days, in a case where the shares in question represent at least 0.25% of their class, or within seven days, in any other case, from the date of such notice. These restrictions will continue until the information required by the notice is supplied to the Company or until the shares in question are transferred or sold in circumstances specified for this purpose in the Articles.

Transfer of shares

Subject to the BVI Companies Act and the terms of the Articles, any member may transfer all or any of his certificated shares by an instrument of transfer in any usual form or in any other form which the Directors may approve. The Directors may accept such evidence of title of the transfer of shares (or interests in shares) held in uncertificated form (including in the form of depositary interests or similar interests, instruments or securities) as they shall in their discretion determine. The Directors may permit such shares or interests in shares held in uncertificated form to be transferred by means of a relevant system of holding and transferring shares (or interests in shares) in uncertificated form. No transfer of shares will be registered if, in the reasonable determination of the Directors, the transferee is or may be a Prohibited Person (as defined in the Articles) or is or may be holding such shares on behalf of a beneficial owner who is or may be a Prohibited Person. The Directors shall have power to implement and/or approve any arrangements they may, in their absolute discretion, think fit in relation to the evidencing of title to and transfer of interests in shares in the Company in uncertificated form (including in the form of depositary interests or similar interests, instruments or securities).

Independent auditor and audit information

Each person who is a Director at the date of approval of this report confirms that, so far as the Director is aware, there is no relevant audit information of which the Company's auditor is unaware and each Director has taken all the steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

Annual General Meeting

The AGM of the Company will be held on a date to be announced in due course in New York City at 477 Madison Avenue, 22nd Floor, New York, NY, 10022. All shareholders have the opportunity to attend and vote, in person or by proxy, at the AGM. The Notice of the AGM will be mailed out and made available on the Company's website at least 20 working days prior to the date of the AGM. The Notice of the AGM sets out the business of the meeting and explanatory notes on all resolutions. Separate resolutions will be proposed in respect of each substantive issue. The Chairman of the Board and the Chairpersons of the Board Committees will be available to answer shareholders' questions.

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The directors are responsible for preparing the Annual Financial Statements and the Group financial statements in accordance with applicable law and regulations. 

Company law requires the directors to prepare Group financial statements for each financial year.  Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law.

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of their profit or loss for that period.  In preparing each of the Group Company financial statements, the directors are required to:

§  select suitable accounting policies and then apply them consistently; 

§  make judgements and estimates that are reasonable, relevant and reliable; 

§  state whether they have been prepared in accordance with IFRSs as adopted by the EU; 

§  assess the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and 

§  use the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations or have no realistic alternative but to do so. 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company.  They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. 

Under applicable law and regulations, the directors are also responsible for preparing a Strategic report, Risk report and Directors' report that complies with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website.  Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement of the directors in respect of the annual financial statements

We confirm that to the best of our knowledge: 

§  the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the group and the undertakings included in the consolidation taken as a whole; and 

§  the management report, Risk report and Directors' report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. 

Signed on behalf of the Board

Michael Wilkerson

Chairman

31 August 2021

 

INDEPENDENT AUDITOR'S REPORT

1 Our opinion is unmodified 

 

We have audited the financial statements of Atlas Mara Limited ("the Group") for the period ended 28 February 2021 which comprise the consolidated statement of financial position, consolidated statement of profit and loss, consolidated statement of other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows and related notes, including the accounting policies in note 1, as well as the credit risk, liquidity risk and market risk information identified as "audited" in the risk report  and the going concern assessment marked as audited.

 

In our opinion: 

·      the financial statements give a true and fair view of the state of the Group's affairs at 28 February 2021 and of the Group's loss for the period then ended; and

·      the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU).

 

Basis for opinion 

 

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law.  Our responsibilities are described below.  We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.  Our audit opinion is consistent with our report to the audit committee. 

 

We were first appointed as auditor by the directors on 3 December 2013. The period of total uninterrupted engagement is for the eight financial years ended 28 February 2021.  We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities.  No non-audit services prohibited by that standard were provided. 

 

2 Material uncertainty related to going concern 

	The risk	Our response
Going concern We draw attention to the going concern assessment on page 32 of the published financial statements (included in the Risk Report) which indicates that the ability to settle the Group's outstanding debt is dependent on a number of milestones, including the strategic transactions  and the successful execution of the support and override agreement. These events and conditions, along with the other matters explained in the going concern assessment on page 32 of the published financial statements (included in the Risk Report), constitute a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified in respect of this matter.	Disclosure quality The financial statements explain how the Board has formed a judgement that it is appropriate to adopt the going concern basis of preparation for the Group. That judgement is based on an evaluation of the inherent risks to the Group's business model and how those risks might affect the Group's financial resources or ability to continue operations over a period of at least a year from the date of approval of the financial statements. There is little judgement involved in the Directors' conclusion that risks and circumstances described in note 1 and the going concern assessment on page 32 of the published financial statements (included in the Risk Report)  to the financial statements represent a material uncertainty over the ability of the Group to continue as a going concern for a period of at least a year from the date of approval of the financial statements. However, clear and full disclosure of the facts and the Directors' rationale for the use of the going concern basis of preparation, including that there is a related material uncertainty, is a key financial statement disclosure and so was the focus of our audit in this area.  Auditing standards require that to be reported as a key audit matter.	Our procedures included: Assessing transparency: Considering whether the going concern disclosure in the going concern assessment on page 32 of the published financial statements (included in the Risk Report) to the financial statements gives a full and accurate description of the Directors' assessment of going concern, including the identified risks and, dependencies, and related sensitivities. Our assessment of management's going concern assessment also included: Our sector experience: Reviewing the cash flow forecasts and assumptions in line with current market conditions and pending transactions. Evaluating assumptions: Evaluating whether the assumptions, used in the cash flow forecasts, are realistic and achievable, and consistent with the external and/or internal environment and other matters identified in the audit.   Funding assessment: Evaluating management's assessment of compliance with debt covenants. This included reviewing levels of capital and liquidity and understanding the extent of breaches during the year. Reviewing regulatory correspondence which included evaluating whether regulatory capital requirements have been met as well as the approval of some of the strategic transactions. Evaluating Directors' intent: Challenging management's plans for future actions, and assessed the reliability and relevance of data including cash flows from strategic initiatives and the expected timing of current liabilities and expenses. Reviewing the "Support and Override Agreement" as signed on 14 July 2021 and challenged the likelihood of meeting the necessary milestones. Our results: We found the going concern disclosure on page 32 (going concern assessment) of the published financial statements (included in the Risk Report)  with a material uncertainty to be acceptable (2019 result: We found the going concern disclosure with no material uncertainty to be acceptable).

 

3 Other key audit matters: our assessment of risks of material misstatement 

 

Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. Going concern is a significant key audit matter and is described in section 2 of our report.   

 

We summarise below the other key audit matters (unchanged from 2019), in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures.  These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.

 

Impairment of loans and advances Refer to accounting policies: (iii) Financial assets and liabilities as well as notes 10 and 12 to the financial statements.
Key audit matter	How the matter was addressed in our audit
The Group's core business involves providing loans and advances to corporate and retail customers. In the consolidated financial statements, gross loans and advances amount to USD 611 million and the expected credit losses amount to USD 31 million as at 28 February 2021. The expected credit loss (ECL) model applied to measure impairment requires management to exercise significant judgement in the determination of expected credit losses. Management calculates the ECL using statistical models. The following inputs to these models require significant management judgement: ·      Determination of significant increase in credit risk (SICR); ·      Determination of macroeconomic inputs and forward looking information into the SICR assessment and ECL measurement; and ·      Estimation of the probability of default, the exposure at default and the loss given default.   In addition to the above, judgement is also applied to determine whether any post model overlays are required for credit risk elements which are not captured by the models. Due to the significance of the loans and advances and the increased significant estimation uncertainty and judgement involved in determining the ECL, the impairment of loans and advances was considered to be a key audit matter.	Our procedures included the following: We evaluated the design and implementation, and where applicable, the operating effectiveness of key controls over the loan impairment process, focusing on the identification of the ECL, the governance processes implemented for credit models and inputs, and management's oversight over the ECL. We evaluated the design and implementation and the operating effectiveness of controls relating to the Group's loan origination process and credit reviews.  Where expected credit losses were calculated on a modelled basis, we performed the following procedures, in conjunction with our credit risk specialists: ·      We critically assessed the ECL models developed by management by using our credit risk specialists in the evaluating the appropriateness of the ECL model, data, inputs and the resultant outputs. This included assessing the ability of the model to reflect the impact of COVID-19 through appropriate calibration; ·      We assessed the completeness, accuracy and validity of data and inputs used during the development and application of the ECL models; and ·      We challenged the parameters and significant assumptions applied in the calculation models which included SICR, the estimated probability of default, exposure at default and loss given default by evaluating these assumptions against internal business practices, industry norms and our own independent assumptions.   We assessed how management have considered the uncertainties of COVID-19 in the estimate of ECL, specifically regarding macro-economic forecasts and behaviors of borrowers subject to payment holidays as well as the criteria set by management for determining whether there has been a SICR. We evaluated the appropriateness of management's additional post model overlays by independently assessing the reasonability of these assumptions. We evaluated the adequacy of the financial statement disclosures against the requirements of IFRS 9: Financial Instruments and IFRS 7: Financial Instruments Disclosures. We concluded that the Group's ECL provisions were reasonable and recognised in accordance with IFRS 9.

 

 

 

 

Valuation of goodwill Refer to note 17 to the financial statements.
Key audit matter	How the matter was addressed in our audit
Goodwill has been allocated to two cash-generating units (CGUs) for the purposes of impairment testing, namely Botswana and West Africa.   An annual impairment test was performed on goodwill by determining the recoverable amounts of the CGUs based on their value in use.    Management's determination of the value in use required the application of significant judgements in the following areas: ·      future cash flows; ·      discount rate applied; ·      the assumptions underlying the forecast growth and terminal growth rates.   The judgements applied by management have a significant impact on the valuation on the CGU's. Consequently, the valuation of goodwill was therefore considered to be a key audit matter.	Our procedures include: We compared the current methods and significant assumptions with the methods and assumptions used in previous impairment testing and valuations for consistency. We performed a forecast comparison of the current year forecasts compared to forecasts received in the prior year. We evaluated management's assumptions on growth rates and discount rates by comparing them to known market and industry trends. We evaluated the adequacy of the disclosures made in the financial statements against the requirements of IAS 36 Impairment of Assets. We found the resulting estimate of goodwill to be acceptable.

 

 

 

Disposal groups classified as held for sale Refer to note 32 to the financial statements.
Key audit matter	How the matter was addressed in our audit
On 30 April 2019, the Group publicly announced its intention to dispose of its investments in the following subsidiaries: African Banking Corporation (Tanzania) Limited, African Banking Corporation (Moçambique) S.A., African Banking Corporation Zambia Limited and Banque Populaire du Rwanda Limited.   On 29 September 2020, the Group announced that it had entered into definitive agreements with Access Bank Plc for the sale of the Group's banking asset in African Banking Corporation Mozambique, subject to regulatory approval and other customary conditions precedent.   On 26 November 2020, the Group announced that it had entered into an agreement with KCB Group Plc for the sale of the Group's banking assets in African Banking Corporation (Tanzania) Limited and Banque Populaire du Rwanda Limited, pending regulatory approvals and other customary conditions.   Atlas Mara Limited successfully completed the sale of 100% of its shareholding in African Banking Corporation (Moçambique) S.A on 17 May 2021 and the sale of 62.06% of its shareholding in Banque Populaire du Rwanda Limited on 25 August 2021. The change of control was effective on the same dates.   The application of IFRS 5, Non-current assets held for sale (IFRS 5) as a result of the announcements had a significant effect on the profit or loss, the carrying values of its assets and on the presentation of results, and as such this was considered to be a key audit matter.	Our procedures included the following:   We assessed the appropriateness of the classification of the investments/disposal group as held for sale by assessing the terms and conditions of the offer term sheets or signed agreements.   As relates to the Tanzania, Mozambique and Rwanda sales, we inspected the signed sale agreements and confirmed that the offer price represented the lower of carrying value and fair value less costs to sell.   As relates to the Zambia sale, we interrogated and compared the accuracy of the inputs, used to determine the lower of carrying value and fair value less costs to sell, against the signed term sheet and third party comparable data.   We evaluated the accuracy of the consolidation journal entries between continued and discontinued operations to assess the appropriate application of IFRS 5.   We evaluated the adequacy of the financial statement disclosures against the requirements of IFRS 5.   We found the Group's classification and disclosure of disposal groups classified as held for sale to be acceptable.

 

4 Our application of materiality and an overview of the scope of our audit 

 

Materiality for the group financial statements as a whole was set at USD 7.3 million (2019: USD 7.8 million), determined with reference to a benchmark of total assets of continued assets.

 

In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as a whole.

 

Performance materiality was set at 65% (2019: 65%) of materiality for the financial statements as a whole, which equates to USD 4.7 million (2019 : USD 5.1 million) for the group. We applied this percentage in our determination of performance materiality based on the increased aggregation risk.

 

We agreed to report to the audit committee any corrected or uncorrected identified misstatements exceeding USD 0.29 million (2019: 0.3 million), in addition to other identified misstatements that warranted reporting on qualitative grounds.

 

Scope

 

The group team performed the audit of the group as if it was a single aggregated set of financial information. The audit was performed using the materiality levels set out above.
 

5 Going concern basis of preparation

 

The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or to cease its operations, and as they have concluded that the Group's financial position means that this is realistic for at least a year from the date of approval of the financial statements ("the going concern period").  As stated in section 2 of our report, they have also concluded that there is a material uncertainty related to going concern.

 

An explanation of how we evaluated management's assessment of going concern is set out section 2 of our report.

 

Our conclusions based on this work:

•           we consider that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate

 

However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group will continue in operation.

 

6 Fraud and breaches of laws and regulations - ability to detect

 

Identifying and responding to risks of material misstatement due to fraud

 

To identify risks of material misstatement due to fraud ("fraud risks") we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:

•           Enquiring of directors, as to the Group's high-level policies and procedures to prevent and detect fraud, as well as whether they have knowledge of any actual, suspected or alleged fraud.

•           Reading the Board and Audit, Risk and Compliance Committee minutes.

•           Using analytical procedures to identify any unusual or unexpected relationships.

•           Using our own forensic specialists to assist us in identifying fraud risks based on discussions of the circumstances of the Group.

 

We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit. This included communication from the group to full scope component audit teams of relevant fraud risks identified at the Group level and request to full scope component audit teams to report to the Group audit team any instances of fraud that could give rise to a material misstatement at group.

 

As required by auditing standards, we perform procedures to address the risk of management override of controls and the risk of fraudulent revenue recognition.

We also identified a fraud risk related to the overlays on the ECL and the accuracy of the selling price of the disposal group classified as held for sale given the level of judgement applied by management.

 

Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations

 

We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, and through discussion with the directors and other management (as required by auditing standards), and from inspection of the Group's regulatory and legal correspondence and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations.

 

As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity's procedures for complying with regulatory requirements.

 

We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit.  This included a request for full scope component auditors to report to the group team any instances of non-compliance with laws and regulations that could give rise to a material misstatement at group.

 

Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and inspection of regulatory and legal correspondence, if any. Therefore if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.

 

Context of the ability of the audit to detect fraud or breaches of law or regulation

 

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.

 

In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.

 

7 We have nothing to report on the other information in the Annual Financial Statements

 

The directors are responsible for the other information presented in the Annual Financial Statements together with the financial statements.  Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.

 

Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge.  Based solely on that work we have not identified material misstatements in the other information.

 

8 We have nothing to report on the other matters on which we are required to report by exception 

 

We have nothing to report in these respects. 

 

9 Respective responsibilities 

 

Directors' responsibilities 

 

As explained more fully in their statement set out in the Statement Of Directors' Responsibilities, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

 

 

Auditor's responsibilities 

 

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor's report.  Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.  Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

 

A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities. 

 

10 The purpose of our audit work and to whom we owe our responsibilities 

 

This report is made solely to the Company's members, as a body. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

 

 

 

KPMG Inc 

Pierre Fourie 

Chartered Accountant 

85 Empire Road

Parktown

Johannesburg 

2193

31 August 2021

 

 

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

for the period ended 28 February 2021

##PRELOADED_STATE## ##REACT_QUERY_STATE## ##CHUNKS## 000	Note	14 months to 28 February 2021			12 months to 31 December 2019
		Continuing	Discontinued	Total	Continuing	Discontinued	Total
Interest and similar income	15	81,418	143,787	225,205	77,085	133,643	210,728
Interest and similar expense	8	(80,274)	(62,694)	(142,968)	(65,712)	(58,846)	(124,558)
Net interest income		1,144	81,093	82,237	11,373	74,797	86,170
Impairment credit/(charge) on financial assets	12	79	(12,290)	(12,211)	967	(12,388)	(11,421)
Net interest income after loan impairment charges		1,223	68,803	70,026	12,340	62,409	74,749
Non-interest income	23	51,743	52,345	104,088	53,741	49,925	103,666
Share of profit of associates	16	25,510	-	25,510	31,101	-	31,101
Total operating income		78,476	121,148	199,624	97,182	112,334	209,516
Operating expenses	24	(90,240)	(123,923)	(214,163)	(81,405)	(136,732)	(218,137)
Transaction and integration expenses		-	1,000	1,000	-	(1,350)	(1,350)
Loss on monetary position		(16,872)	-	(16,872)	(11,081)	-	(11,081)
Net movement on IFRS 5 remeasurement		-	(1,435)	(1,435)	-	(105,461)	(105,461)
(Loss)/profit before tax*		(28,636)	(3,210)	(31,846)	4,696	(131,209)	(126,513)
Income tax expense	25.1	(18,393)	(7,042)	(25,435)	(12,459)	(2,061)	(14,520)
Loss for the period		(47,029)	(10,252)	(57,281)	(7,763)	(133,270)	(141,033)
Attributable to:
Ordinary shareholders		(46,593)	(12,006)	(58,599)	(8,451)	(134,768)	(143,219)
Non-controlling interests		(436)	1,754	1,318	688	1,498	2,186
Loss for the period		(47,029)	(10,252)	(57,281)	(7,763)	(133,270)	(141,033)
Basic loss per share ($)	26	(0.28)	(0.07)	(0.35)	(0.05)	(0.79)	(0.84)
Diluted loss per share ($)	26	(0.28)	(0.07)	(0.35)	(0.05)	(0.79)	(0.84)

* The IFRS 5 remeasurement loss was incorrectly presented after the profit/(loss) before tax line for the year 2019 but has been correctly reported for the current year. Refer to note 34 for further details of the correction of this prior year error current year. Refer to note 34 for further details of the correction of this prior year error