01

A list of financial definitions commonly used

A

  • Amounts written off

    Once an advance has been identified as impaired and an impairment allowance has been raised, circumstances may change and indicate that the prospect of further recovery does not exist. Write-offs will occur when, and to the extent that, the debt is considered irrecoverable. A write-off policy based on an age-driven concept drives the timing and extent of write-offs.

    A write-off can also be triggered by a specific event, such as the conclusion of insolvency proceedings or other formal recovery actions, making it possible to quantify the extent of the advance that is beyond a realistic prospect of recovery. Assets are only written off once all necessary procedures have been completed and the amount of loss has been determined. Recoveries of amounts previously written off, are reversed and accordingly decrease the amount of the reported impairment charge in the statement of comprehensive income.

  • Approaches (FIRB, AIRB, AMA and IMA)

    Methods available to banks to calculate their regulatory capital requirements, based on their own risk estimates. These include the foundation internal ratings-based (FIRB) and advanced internal ratings-based (AIRB) approaches for credit risk, the advanced measurement approach (AMA) for operational risk and the internal models approach (IMA) for market risk.

  • Average interest-bearing assets

    Average interest-bearing assets consist of all accounts that are not impaired and thus attract interest within the asset categories of cash, cash balances and balances with central banks, loans and advances to banks and customers and investment securities (including cash and short-term assets, money market assets and capital market assets).

B

  • Balance sheet

    The term “balance sheet” is used in the same context as the “statement of financial position”.

  • Bank

    Absa Bank Limited, together with its subsidiary undertakings, special-purpose entities, joint ventures, associates and offshore holdings. It is also referred to as “the Bank” or “Absa Bank” in this report.

  • Banking average assets

    Banking average assets consist of all average assets related to the banking activities of the Group. Banking average assets exclude “Other assets”, “Current tax assets”, “Non-current assets held for sale”, “Reinsurance assets”, “Goodwill and intangible assets”, “Property and equipment” and “Deferred tax assets”, and includes “Trading portfolio liabilities”.

  • Banking book annual earnings at risk

    A measure of the sensitivity of net interest income over a one-year horizon due to a change in the level of interest rates. Calculated as the difference between the estimated income, using the current yield curve, and the lowest estimated income following an increase or decrease in interest rates. As per regulatory requirement, a 200 bps downward shock is applied.

  • Banking interest yield

    Net interest income after credit losses, as a proportion of banking average assets.

  • Banking non-interest yield

    Non-interest income as a proportion of banking average assets.

  • Banking income yield

    Income as a proportion of banking average assets.

  • Banks Act

    This means the Banks Act, No 94 of 1990 and its accompanying regulations relating to banks published in the Government Gazette on 12 December 2012.

  • Barclays

    Barclays PLC, registered in England under registration number 1026167, and the majority shareholder of Barclays Africa Group Limited.

  • Basel Capital Accord (ll, II.5 and lll)

    The Basel Capital Accord of the Bank for International Settlements is an improved capital adequacy framework aimed at closely aligning banks’ capital requirements with improved modern risk management practices and sophisticated risk assessment capabilities. It further ensures the risk sensitivity of the minimum capital requirements by including supervisory reviews and market discipline through enhanced disclosure.

  • Borrowed funds

    Subordinated callable notes qualifying as long-term Tier 2 capital in terms of section 1 of the Banks Act, No 94 of 1990.

C

  • Capital adequacy ratio

    The capital adequacy of South African banks is measured in terms of the requirements of the SARB. The ratio is calculated by the aggregate amount of qualifying capital and reserve funds dividend by RWA. The base minimum South African total capital adequacy ratio for banks is 10% of RWA. Non-South African banks in the Group have similar capital adequacy methodology requirements.

  • Capital - Common Equity Tier 1

    Common shares issued by Absa Bank Limited that meet the criteria for classification as common shares for regulatory purposes (or the equivalent for non-joint stock companies); › Stock surplus (share premium) resulting from the issue of instruments including CET1;

    • Retained earnings; › Accumulated other comprehensive income and other disclosed reserves;
    • Common shares issued by consolidated subsidiaries of Absa Bank Limited and held by third parties (i.e., non-controlling interest) that meet the criteria for inclusion in CET1; and
    • Regulatory adjustments applied in the calculation of CET1.

  • Capital - Additional Tier 1 capital

    Additional Tier 1 capital consists of the sum of the following elements:

    • Instruments issued by Absa Bank Limited that meet the criteria for inclusion in Additional Tier 1 capital (and are not included in CET1);
    • Stock surplus (share premium) resulting from the issue of instruments included in Additional Tier 1 capital;
    • Instrument issued by consolidated subsidiaries of Absa Bank Limited and held by third parties that meet the criteria for inclusion in Additional Tier 1 capital and are not included in Common Equity Tier 1. See section 4 for the relevant criteria; and
    • Regulatory adjustments applied in the calculation of additional Tier 1 capital.

  • Capital - Common Equity Tier 1 capital adequacy ratio

    A measurement of a bank’s core equity capital compared with its total risk-weighted assets. This is the measure of a bank’s financial strength. The Common Equity Tier 1 excludes any preference shares or non-controlling interests when determining the calculation.

  • Capital - Tier 2 capital

    Tier 2 capital consists of the sum of the following elements:

    • Instruments issued by Absa Bank Limited that meet the criteria for inclusion in Tier 2 capital (and are not included in Tier 1 capital);
    • Stock surplus (share premium) resulting from the issue of instruments included in Tier 2 capital;
    • Instruments issued by consolidated subsidiaries of Absa Bank Limited and held by third parties that meet the criteria for inclusion in Tier 2 capital and are not included in Tier 1 capital;
    • Certain loan loss provisions such as general provisions/general loan-loss reserve; and › Regulatory adjustments applied in the calculation of Tier 2 capital.

  • Capital - Tier 2 ratio

    A component of regulatory capital, comprising qualifying subordinated loan capital, related minority interests, allowable collective impairment allowances and unrealised gains arising on the fair valuation of equity instruments held as available-for-sale. Tier 2 capital also includes reserves arising from the revaluation of properties.

  • Claims ratio

    Net insurance claims and benefits paid as a percentage of net premium income.

  • Combined ratio

    Insurance losses incurred and expenses as a percentage of insurance premiums earned.

  • Conduct risk

    Conduct risk is the detriment caused to the Group’s customers and clients, counterparties or Absa Bank Limited as a result of inappropriate execution of the business activities.

  • Constant currency

    The selected line items from the Condensed consolidated statement of comprehensive income and Condensed consolidated statement of financial position for the rest of Africa market segment disclosed on pages 60 and 89, are derived by translating the Statement of comprehensive income and Statement of financial position from the respective individual entities’ local currencies to rand.

    The current reporting period’s results are translated at the current reporting period’s average rates for the Statement of comprehensive income, while the closing rate is used for the Statement of financial position in terms of IFRS. In order to calculate the percentage change based on constant currency, the previous reporting period’s results have also been translated at the current reporting period’s average rates for the Statement of comprehensive income, while the current reporting period’s closing rate has been used for the Statement of financial position.

    This has been done in order to provide investors with information on the impact of foreign currency movements on the local currency earnings. The percentage change based on constant currency is provided for illustrative purposes only and may not fairly present the Group’s financial position and/or the results of its operations. The directors are responsible for the preparation of the constant currency information. An assurance report on the constant currency financial information prepared by the Group’s auditors is available for inspection at the Group’s registered office.

  • Cost-efficiency ratio

    ‘Operating expenses’ as a percentage of income. Income consists of net interest income and non-interest income, net of reinsurance, unearned premiums, net insurance claims and benefits paid, changes in investment and insurance contract liabilities and acquisition costs.

  • Cost of equity

    An estimate of the return that the market demands in exchange for the risk of ownership of equity.

  • Cost-to-income ratio

    ‘Operating expenses’ as a percentage of income. Income consists of net interest income and non-interest income.

  • Coverage ratio

    Impairment loans on losses and advances as a proportion of gross loans and advances.

  • Credit risk

    Credit risk is the risk of financial loss should the Group’s customers, clients or market counterparties fail to fulfil their contractual obligations.

  • Credit loss ratio

    Impairment losses on loans and advances for the reporting period, divided by total average advances (calculated on a daily weighted- average basis).

D

  • Debt securities in issue

    Short- to medium-term instruments issued by the Group, including promissory notes, bonds and negotiable certificates of deposits.

  • Diluted headline earnings per share

    Headline earnings for the reporting period that is attributable to ordinary equity holders, as a proportion of the weighted average number of ordinary shares in issue adjusted for the effect of all potential dilutive ordinary shares.

  • Distribution force

    Number of active advisers.

  • Dividend cover

    Headline earnings per share divided by dividend per share.

  • Dividend per ordinary share relating to income for the reporting period

    Dividend per ordinary share for the reporting period is the actual interim dividends paid and the final dividends declared for the reporting period under consideration, expressed as cents per share. Special dividend per ordinary share is a payment made by the Group that is considered separate from the typical recurring dividend cycle, expressed as cents per share.

E

  • Earnings per share

    Basic earnings per share

    This constitutes the net profit for the reporting period, less earnings attributable to non-controlling interest, divided by the weighted average number of ordinary shares in issue during the reporting period.

    Diluted basic earnings per share

    The amount of profit for the reporting period that is attributable to ordinary equity holders, divided by the weighted average number of ordinary shares in issue during the reporting period, both adjusted for the effects of all potential dilutive ordinary shares, assuming they had been in issue for the reporting period

  • Economic capital

    An internally calculated capital requirement deemed necessary by the Group to support the risks to which it is exposed, at a confidence level consistent with a target credit rating of AA. Also used in the return of average economic capital calculation

  • Embedded value

    The embedded value of the covered business is the discounted value of the future after-tax shareholder profits (net of the opportunity cost of the required capital) arising from covered business in force at the valuation date, together with the adjusted net worth of the covered business. Covered business is taken to be all long-term insurance business written under the Group’s licence.

    The free surplus is the excess of assets over the sum of liabilities and required capital, with assets at market value and liabilities on the statutory valuation method, adjusted to add back inadmissible assets. The required capital is taken to be two times the statutory capital adequacy requirement, in line with the results of internal capital models and the Group’s dividend policy.

  • Exchange differences

    Differences resulting from the translation of a given number of units of one currency into another currency at different exchange rates.

F

  • Financial Markets Act

    This means the Financial Markets Act No 19 of 2012 and its regulations. This Act is the primary legislation governing the regulation of financial markets, market infrastructure and securities services in South Africa. It focuses primarily on the licensing and regulation of exchanges, central securities depositories, clearing houses, trade repositories and market infrastructure. The Act also strengthens measures already in place aimed at prohibiting insider trading and other market abuses.

  • Foreign currency translation

    Foreign currency accounts of the Group’s subsidiaries translated to reporting currency, with the foreign adjusted currency translation included in a foreign currency translation reserve as equity capital.

  • Funding risk

    Funding risk is the risk that the Group is unable to achieve its business plans. It consists of:

    • Capital risk: the risk that the Group is unable to maintain appropriate capital ratios and composition which could lead to: an inability to support business activity, a failure to meet regulatory requirements; and/or changes to credit ratings, which could also result in increased costs or reduced capacity to raise funding;
    • Liquidity risk: the risk that the Group is unable to meet its obligations as they fall due; and
    • Structural risk: the risk arising from the impact of interest rate and foreign exchange movements on the Statement of comprehensive income and Statement of financial position.
G

  • Gains and losses from banking and trading activities

    Banking and trading portfolios include:

    • realised gains and losses on financial instruments held at amortised cost, held- to- maturity or available- for- sale;
    • realised gains and losses on the disposal of associates, joint ventures and subsidiaries within the banking portfolios;
    • realised and unrealised gains and losses on financial instruments designated at fair value through profit or loss; and
    • interest, dividends and fair value movements on certain financial instruments held for trading or designated at fair value through profit or loss.

  • Gains and losses from investment activities

    Insurance and strategic investment portfolios including:

    • realised gains and losses on financial instruments held at amortised cost, held-to-maturity or available-for-sale;
    • realised gains and losses on the disposal of associates, joint ventures and subsidiaries;
    • realised and unrealised gains and losses on financial instruments designated at fair value through profit or loss; and
    • interest, dividends and fair value movements on certain financial instruments held for trading or designated at fair value through profit or loss.

  • Gross credit extended

    Loans advanced to customers and banks, as well as off-balance sheet exposures.

  • Group

    Absa Africa Group Limited, together with its subsidiary undertakings, special-purpose entities, joint ventures, associates and offshore holdings. It is also referred to as “the Group” or “Absa Africa Group” in this report.

H

  • Headline earnings

    Headline earnings reflects the operating performance separated from remeasurements (an amount recognised in the statement of comprehensive income relating to any change (realised or unrealised) in the carrying amount of an asset/liability that arose after the initial recognition of such asset or liability), as well as non-controlling interest of preference shares or ordinary shares, where relevant.

    Headline earnings per share

    Profit attributable to ordinary equity holders after adjusting for separately identifiable remeasurements, net of tax and non-controlling interest, divided by the weighted average number of ordinary shares in issue. A remeasurement is an amount recognised in profit or loss relating to any change in the carrying amount of an asset or liability that arose after the initial recognition of such asset or liability.

    Diluted headline earnings per share

    Diluted headline earnings per share is calculated by adjusting both the headline earnings and the weighted average number of ordinary shares outstanding for the effects of all potential dilutive ordinary shares, assuming they had been in issue for the reporting period.

I

  • Impairments raised - Identified

    Impaired loans with key indicators of default being:

    • the borrower is unlikely to pay its credit obligation in full, without recourse by the Group to actions such as realising security held; and/or
    • the borrower is overdue.

    A retail identified impairment is triggered when a contractual payment is missed and is raised on a collective basis. Future cash flows for a group of financial assets, which are collectively evaluated for impaired purposes, are estimated based on the contractual cash flows of the assets in the Group and the historical loss experienced for assets with similar credit risk characteristics to those in the Group. In the wholesale portfolio, an identified impairment is raised on an individual basis and is the difference between the outstanding capital and the present value of future cash flows.

  • Impairments raised - Unidentified

    Allowances are raised when observable data indicates a measurable decrease in the estimated future cash flows from a group of financial assets since their original recognition, even though the decrease cannot yet be linked to individual assets in the Group. The unidentified impairment calculation is based on the asset’s probability of moving from the performing portfolio to the defaulted portfolio as a result of a risk condition that has already occurred, but will only be identifiable at a borrower level at a future date.

  • Indirect taxation

    Indirect taxes are the taxes that are levied on transitions rather than on persons (whether individuals or corporate). These taxes include unclaimed value-added taxes, stamp duties on deposits and Regional Services Council levies.

  • Income statement

    The term Income statement is used in the same context as the Statement of comprehensive income.

  • Income or total income

    Income consists of net interest income and non-interest income.

J

  • Jaws

    A measure used to demonstrate the extent to which the Group’s income from operations growth rate exceeds operating expenses growth rate. Income from operations consists of net interest income and non-interest income.

L
M

  • Market capitalisation

    The Group’s closing share price, times the number of shares in issue at the reporting date.

  • Market risk

    Market risk is the risk that the Group’s earnings, capital or business objectives will be adversely impacted by changes in the level or volatility of market rates or prices such as interest rates, foreign exchange rates, equity prices, commodity prices and credit spreads. It consists of:

    • Traded market risk, which is the risk of the Group being impacted by changes in the level or volatility of positions in the Group’s trading books, primarily in Investment Bank.
    • Non-traded market risk, which is the risk of the Group being unable to hedge the interest rate risk in the banking book, primarily in retail, business banking and corporate portfolios.
    • Insurance risk, which is the risk that future experiences relating to claims, expenses, policyholder behaviour and investment returns are different from the assumptions made when setting premiums or valuing policyholder liabilities.
    • Pension risk, which arises when an adverse movement between pension assets and liabilities results in a pension deficit.

  • Merchant income

    Income generated from the provision of point-of-sale facilities to the Group’s merchant network customers. This income includes both rental income for the supply of point-of-sale units as well as transactional income for the transactions processed on the supplied terminals.

N

  • Net asset value per share

    Total equity attributable to ordinary equity holders divided by the number of shares in issue. The net asset value per share figure excludes the non-cumulative, non-redeemable preference shares issued.

  • Net insurance premium income

    The amount of insurance premiums received or receivable on insurance assets net of insurance claims and benefits paid on insurance liabilities.

  • Net interest income

    The amount of interest received or receivable on assets net of interest paid or payable on liabilities.

  • Net interest margin on average interest-bearing assets

    Net interest income for the reporting period, divided by average interest-bearing assets (calculated on a daily weighted- average basis), expressed as a percentage of average interest-bearing assets.

  • Net present value unwind on non-performing book

    A net present value adjustment representing time value of money of expected cash flows within the impairment allowance. Such time value of money reduces as the point of cash flow is approached. The time-based reduction in time value of money is recognised in the statement of comprehensive income as interest received on impaired assets.

  • Net income

    Net income consists of net interest income and non-interest income, net of impairment losses on loans and advances.

  • Net trading result

    Net trading result includes the profits and losses on CIB’s trading desks arising from both the purchase and sale of trading instruments and the revaluation to market value, as well as CIB’s hedge ineffectiveness. This includes the interest income and interest expense from these instruments and related funding cost. It also includes similar activities from the African operations.

  • Non-interest income

    Non-interest income consists of the following Statement of comprehensive income line items: “net fee and commission income”, “net insurance premium income”, “net insurance claims and benefits paid”, “changes in investment contracts and insurance contract liabilities”, “gains and losses from banking and trading activities”, “gains and losses from investment activities as well as other operating income”.

  • Non-performing loans

    A loan is typically considered non-performing once its delinquency reaches a trigger point. This is typically when interest is suspended (in accordance with Group policy) or if the loan is moved to the legal environment for recovery. As a consequence, a loan that has defaulted is not necessarily non-performing (unless certain criteria are met).

  • NPLs’ coverage ratio

    Net exposure, being the outstanding NPL balance, less expected recoveries and fair value of collateral, as a percentage of the total outstanding NPL balance.

  • NPL ratio

    NPLs as a percentage of gross loans and advances to customers.

  • NPL ratio on loans and advances to customers and banks

    NPLs as a percentage of gross loans and advances to customers and banks.

  • Non-interest income as a percentage of income

    Non-interest income as a percentage of income from operations. Income consists of net interest income and non-interest income.

O

  • Operational risk

    Operational risk is the risk of direct or indirect impacts resulting from human factors, inadequate or failed internal processes and systems or external events. This includes risks associated with payments and transaction operations, external suppliers, products, premises and security, fraud risk, regulation, information, financial reporting, tax, legal, people and technology.

P
R

  • Regulatory capital

    The capital that the Group holds, determined in accordance with the requirements of the Banks Act and regulations relating to banks.

  • Return on average assets

    Annualised headline earnings as a proportion of total average assets.

  • Return on average equity

    Annualised headline earnings as a proportion of average equity.

  • Return on average regulatory capital

    Measure of efficient use, by segment, of regulatory capital.

  • Return on average risk-weighted assets

    Annualised headline earnings as a proportion of average risk-weighted assets.

  • Risk-weighted assets

    Calculated by assigning a degree of risk, expressed as a percentage (risk weight) to an exposure, in accordance with the applicable standardised or internal ratings-based approaches rules. RWA are determined by applying the:

    • AIRB approach for wholesale and retail credit;
    • AMA for operational risk;
    • Internal ratings-based market-based simple risk-weight approach for equity investment risk in the banking book; and
    • Standardised approach for all African entities (both credit and operational risk).
S

  • Solvency margin

    The amount by which assets, at fair value, exceed liabilities and other comparable commitments.

T

  • Tangible net asset value per share

    Total equity attributable to ordinary equity holders less goodwill and intangible assets, divided by the number of shares in issue. The tangible net asset value per share figure excludes the non-cumulative, non-redeemable preference shares issued.

U

  • Underwriting margin

    Net insurance premium income remaining after losses have been paid and administrative expenses have been deducted.

V

  • Value-at-risk model

    A technique that measures the loss that could occur on risk positions as a result of adverse movements in market risk factors (e.g. rates, prices, volatilities) over a specified time horizon and to a given level of confidence.

  • Value of new business

    The discounted value, at the date of sale, of the projected after-tax shareholder profits from new covered business, net of the opportunity cost of the required capital for new business. New covered business is defined as long-term insurance contracts written by the Group during the reporting period and for which at least one premium has been recognised in the financial statements. The value of new business is calculated using closing assumptions for all basis items.

W

  • Weighted average number of shares

    The number of shares in issue at the beginning of the reporting period increased by shares issued during the reporting period, weighted on a time basis for the period during which they participated in the income, less treasury shares held by entities, weighted on a time basis for the period during which the entities held these shares.