1. ABC Holdings
Limited
Annual Report
2010

2. ABOUT
BancABC
ABC Holdings Limited is the parent company of a
number of banks operating under the BancABC brand
in Sub-Saharan Africa, with operations in Botswana,
Mozambique, Tanzania, Zambia and Zimbabwe.
A group services office is located in South Africa.
Our vision is to be Africa’s preferred banking partner
by offering world class financial solutions. We will
realise this by building profitable, lifelong customer
relationships through the provision of a wide range
of innovative financial products and services – to the
benefit of all our stakeholders. The Group offers a
diverse range of services including but not limited to
the following: wealth management, corporate banking,
treasury services, leasing, asset management, stock
broking, and retail banking.
ABC Holdings Limited is registered in Botswana. Its
primary listing is on the Botswana Stock Exchange,
with a secondary listing on the Zimbabwe Stock
Exchange.

3. CONTENTS
ifc Our values
1 Highlights
2 Five-year financial highlights
3 Salient features
4 Chairman’s report
10 Chief Executive Officer’s report
17 orporate social responsibility report
C
19 Risk and governance report
27 irectors and Group management
D
31 Directors’ responsibility
32 Directors’ report
33 Annual financial statements
111 Analysis of shareholders
112 Contact information

4. OUR
VALUES
Our core values centre
on five distinct areas.
They remain the guiding
principles by which we
operate and form the
basis of our corporate
personality.

5. WHERE WE
OPERATE
HIGHLIGHTS
Financial:
T
otalincomeincreasedby39%toBWP546 million.
O
peratingexpensesincreasedby19%toBWP435 million.
O
peratingprofitincreasedby327%toBWP111 million.
C
osttoincomeratioimprovedto77%from82%intheprioryear.
I
mpairmentchargesonloansandadvancesreducedby69%toBWP16 million.
Basicearningspershareimprovedby15%from40.4thebeto46.3 thebe.
Thebalancesheetgrewby36%fromBWP4.4billionin2009toBWP6.0 billion.
Loansandadvancesincreasedby54%fromBWP2.0billiontoBWP3.1 billion.
C
ustomerdepositsgrewby46%fromBWP3.4billionin2009toBWP4.9 billion.
NetassetvaluepershareupfromBWP2.73toBWP2.93.
R
eturnonaverageequitywas16%comparedto14%in2009.
Operational:
¢ AllbankingoperationsreportedprofitforthefirsttimeinthehistoryoftheGroup
¢ Totalnumberofretailbranchesincreasedto17asat28February2011
¢ SuccessfulturnaroundoftheZambiaoperationwhichisnowprofitable
BancABCMozambique,BancABCZambiaandBancABCZimbabwerecapitalisedduringtheyear
¢
1

6. FIVE-YEAR FINANCIAL HIGHLIGHTS
on a historical cost basis in US$’000s
31 Dec 2010 31 Dec 2009 31 Dec 2008 31 Dec 2007 31 Dec 2006
US$’000s US$’000s US$’000s US$’000s US$’000s
Income statement
Netinterestincomeafterimpairment 41,542 17,948 20,498 12,152 16,085
Noninterestrevenue 38,930 37,402 31,650 37,849 28,849
Total income 80,472 55,350 52,148 50,001 44,934
Operatingexpenditure (64,089) (51,610) (34,679) (26,126) (24,757)
Net income from operations 16,383 3,740 17,469 23,875 20,177
Shareofprofitsofassociates
andjointventure (2,966) 2,281 337 540 1,912
Profit before taxation 13,417 6,021 17,806 24,415 22,089
Taxation (3,314) 2,225 (4,905) (3,417) (7,444)
Profit for the year 10,103 8,246 12,901 20,998 14,645
Attributableto
Equityholdersofparent 9,827 8,202 12,592 20,174 14,587
Minorityinterests 276 44 309 824 58
Profit for the year 10,103 8,246 12,901 20,998 14,645
Balance sheet
Cashandcashequivalents 154,997 132,194 68,056 87,832 71,312
Financialassetsheldfortrading 173,375 134,707 90,956 143,642 141,709
Financialassetsdesignatedatfairvalue 12,274 – – – –
Derivativeassetsheldforrisk
management 6,516 1,195 5,891 – –
Loansandadvancestocustomers 477,415 299,099 298,450 207,372 156,396
Investments 8,224 7,387 8,988 11,795 8,745
Investmentinassociates
andjointventure 5,405 6,138 5,471 5,064 7,086
Otherassetsandinvestmentproperty 34,048 32,123 14,101 16,426 7,013
Propertyandequipment 51,217 41,818 28,776 9,178 8,349
Intangibleassets 8,903 7,558 5,653 5,824 6,226
932,374 662,219 526,342 487,133 406,836
Shareholders’equity 67,911 62,325 60,572 54,230 46,681
Deposits 761,083 502,932 374,385 326,096 255,239
Derivativeliabilitiesheld
forriskmanagement 162 293 294 849 1,182
Borrowedfunds 89,868 81,519 79,565 96,855 91,132
Otherliabilitiesandtaxation 13,350 15,151 11,526 9,103 12,602
932,374 662,219 526,342 487,133 406,836
Sharesinissue 146,419,524 146,419,524 146,419,524 132,568,680 132,568,680
Costtoincomeratio(%) 77 82 59 47 50
Averageshareholders’equity 65,118 61,449 57,401 50,456 41,537
Returnonaverageshareholders’
equity(Headline)(%) 15 13 23 42 37
Netassetvaluepershare(cents) 44.7 40.9 39.7 39.4 33.6
Closing exchange rates to US$
BotswanaPula 6.45 6.67 7.54 6.02 6.05
Euro 0.75 0.69 0.72 0.68 0.76
MozambicanMetical(droppedthree
zeroin2006) 32.58 29.19 25.50 25.86 25.97
TanzanianShilling 1,505.01 1,339.51 1,315.02 1,146.01 1,264.05
ZambianKwacha 4,800.00 4,650.00 4,795.00 3,850.00 4,390.24
ZimbabweDollar(droppedthreezero
in2006and10zerosin2008)
–official – – 5,059,942.76 30,000.00 250.00
–calculated – – 642,901,315.78 4,948,961.54 2,400.99
ABC Holdings Limited
2
ANNUAL REPORT 2010

7. SALIENT
FEATURES
2010 2009 % change
Income statement (BWP000’s)
Profitattributabletoordinaryshareholders 66,710 58,117 15%
Balance sheet (BWP000’s)
Totalassets(attributable) 6,011,439 4,417,745 36%
Loansandadvances 3,078,110 1,995,325 54%
Deposits 4,907,045 3,355,118 46%
Netassetvalue 422,336 399,069 6%
Financial performance (%)
Returnonaverageequity 16% 14%
Returnonaverageassets 1.3% 1.4%
Operating performance (%)
Noninterestincometototalincome 48% 68%
Costtoincomeratio 77% 82%
Impairmentlossesonloansandadvances
togrossaverageloansandadvances 5% 6%
Effectivetaxrate 25% -37%
Share statistics (000’s)
Numberofsharesinissue 146,420 146,420 0%
Weightedaveragenumberofshares 143,956 143,846 0%
Share statistics (thebe)
Earningspershare 46.3 40.4 15%
Dividendpershare 10.0 – –
Netassetvaluepershare 2.93 2.77 6%
3

8. TheGroupperformedwellduringtheperiodunderreview,
reflectingtheimprovedeconomicandbusinessenvironment
acrossthemarketsinwhichthebankoperates;asituation
broughtaboutinpartbythewide preadrecoveryfromthe
s
recentglobalfinancialcrisis.
Inaddition,thedecisiontakentocurtaillendingfollowing
the start of the global recession has been vindicated as
evidencedbythesignificantreductionincreditimpairments.
Followingtheintroductionofretailbanking,theGroupnow
offersafullsuiteofbankingproductswhichwillenablethe
CHAIRMAN’S businesstogetahighershareofthewallet.Alltherequired
informationtechnologysystems,distributionchannelsalbeit
REPORT limitedandkeypersonnelarenowinplace.Asaresult,
retailbankingisexpectedtocontributepositivelytoincome
HJButtery in2011andbeyond.
“The Group performed well during Review of the economic environment
the period under review, reflecting
During 2010, the world economy began a widespread
the improved economic and business recovery,movingsteadilyawayfromtheeconomiclowsof
environment across the markets in 2008and2009.Therecoverywasledbyemergingmarkets
whichthebankoperates;asituation whichenjoyedhighergrowthratesthanthoseexperienced
indevelopedmarkets.
brought about in part by the wide-
spreadrecoveryfromtherecentglobal Itshouldbenotedthoughthatthepresentrapid“bounce-
back” to prosperity is unlikely to continue at its current
financialcrisis.”
pace, but will revert to a lower but more sustainable
growthrate.
Economic growth
in Sub-Saharan Africa
Africaisvulnerabletoeconomicdislocationsthroughmany
sources.Theseincludefluctuationsincommodityprices,
naturaldisastersandpoliticalinstabilitywithinthecontinent.
Additional inherent risks arise from a dependence on
aidandfinancialflows.Despitethis,during2010overall
economicgrowthinSub-SaharanAfrica(SSA)wasrevised
upwardsbyIMFto5.0%(fromaninitialprojectionof4.3%).
Thiswasasignificantincreasefromthe2.6%experienced
in 2009, which was largely spurred by firming commodity
prices and improved resource inflows. The trend is set to
continue during 2011, when economic growth in SSA is
projectedtoacceleratefurthertoalevelof5.5%.
However,cognisancestillhastobetakenofthefactthat
EuroperemainsthelargesttradingpartnerofseveralSSA
countries.Thecontinuingfiscalausteritymeasuresinthe
EuropeanUnioncouldthereforehaveadampeningeffect
onregionalgrowthprospects.ThestatusofAsia,whichis
experiencing burgeoning levels of trade and investment
links,alsoneedstobeconsideredaspartofthechanging
globaldynamics.AreductioninactivitybetweenChinaand
ABC Holdings Limited
4
ANNUAL REPORT 2010

9. SSAcausedbyasignificantslowdownofChineseeconomic markets economic outlook. Firm commodity prices are
activity, could impact negatively on growth prospects in expectedtoprovideanimpetustosustainedgrowthinthe
thisregion.Thiswouldparticularlybethecaseinthefields commoditydriveneconomiesinthesemarkets.
ofmineralandoilexports.
Botswana
The economic recovery in Sub-Saharan Africa has been In Botswana, economic growth was supported largely
driven by high commodity prices which have increased by recovering demand for diamonds and growth in base
exports,thoughpre-crisislevelsinsomeinstancesareyet metal prices. For 2010, the projected GDP growth rate
tobeachieved. wasestimatedat8.4%,comparedtothedeclineof6%in
GDPduring2009.
Gold,platinumandpalladium,thepreciousmetals,which
are traditionally used as “safe havens” during times of Mozambique
economicuncertaintybenefitedfromtheweakeningof TheMozambicaneconomyisestimatedtohavegrownby
the US Dollar. The oil price was largely influenced by 6.5%in2010.Itisprojectedtotest8%overthemedium
financialflowsasthemarketwaswellsupplied. term.Thiscomparesfavourablywiththe6.3%growthrate
achievedin2009.
OilproductionfrombothOPECandnon-OPECcountries,
including Canada, Brazil and Kazakhstan rose in the last
Tanzania
fewmonthsoftheyear,takingplacesimultaneouslywith
Tanzaniahadanexcellentyear,withtheGDPgrowthrate
an increase in oil prices. Most agricultural commodities
increasingfrom5.0%in2009toabout7.5%in2010.
recordedsharppriceincreasesin2010.Thesepriceincreases
wereduelargelytoimprovedglobaldemandandalso,in
Zambia
somecases,tosupplyconstraints.
Zambia’seconomyreboundedfollowingtherecoveryof
copperpricesonworldmarkets.Zambia’seconomywas
Wheatpricesfirmedonthebackofweather-relatedsupply
expected to expand in real terms by 6.6% in 2010,
lossesinCanadaandKazakhstanandalsobecauseofthe
comparedto5.3%in2009.
grainexportbanimposedbyRussiaandUkraine.
Zimbabwe
This export ban is expected to last until the end of the
Zimbabwe, having recently emerged from 10 years of
2011 harvest season. The tight wheat market resulted in
uninterrupted depression, is expected to post positive
increaseddemandformaizeandsoya-beans.Cottonprices
growthforasecondconsecutiveyear.Economicgrowth
firmedduetofearsthatthecurrentseason’scropmaynot
besufficienttomeetdemand. projections for 2010 were revised upwards by both
Government and the IMF. Government now expects the
economytogrowby8.1%thisyear,whileIMFprojects
Economic growth in BancABC markets a 5.9% growth. The improved economic growth outlook
EconomicgrowthprospectsinBancABCoperationalmarkets has largely been underpinned by expected double digit
havesignificantlyimprovedinlinewiththepositiveemerging growthintheagricultureandminingsectors.
5

10. Chairman’s report continued
Zimbabwe’s inflation position in 2010 remained at an
average of 3.1%. Assisted by improved availability of
consumergoodsonthemarket,inflationpressureshave
beenwellcontained.Morerecently,reflectingseasonal
patterns and firming international oil prices, inflation
pressuresgraduallyfirmed.
Mozambiquewastheonlyexceptionasfarasinflationwas
concerned. Year-on-year inflation increased from 4.2% in
December 2009 to 16.6% at the end of 2010. This was
primarilydrivenbyimportedinflationduetotheweakening
ofthelocalcurrency(Metical)againstkeyforeigncurrencies
suchastheSouthAfricanRandandUSDollar.Thisweakness
was exacerbated by a reduction in Government subsidies
on fuel, resulting in an increase in the overall price to the
Inflation developments
consumer.Inevitably,therewasa“knock-on”effectonthe
Generally, inflationary pressures in the markets in which pricesofotherkeygoodsandservices.
theGroupoperateshavebeensubdued,despitethelow
interestrateswhichhaveprevailedinthesemarketssince Interest rate developments
theonsetoftheglobalfinancialcrisis.
Relaxedmonetarypolicies,adoptedasameansofpropping
Thelowinflationarypressurescanbeplacedatthedoorof up economic activity in the wake of the world financial
subduedconsumerdemand.Consumerdemandisyetto crisis,continuedtoprevailinmostcountriesduring2010.
recover as conservative consumers are primarily focusing
onreducingtheirpresentdebtlevelsratherthanundertaking ThiswasthealsothecaseinSub-SaharanAfrica.TheBank
newobligations.Inaddition,thepricesofimportedcom- of Botswana, after lowering the bank rate several times
moditiesaresetwithinrangesthatwouldadverselyaffect in2009,maintaineditat10%fromDecember2009until
theinflationoutlookofanyofthesecountries.Oilprices December 2010, then reduced it by a further 50 basis
having already risen sharply in 2011, could be a concern pointsto9.5%.
goingforwardifthetrendissustained.
InTanzania,thelowinterestratepositionthatexistedat
InBotswana,theannualaverageinflationratein2010was theendof2009continued,withtheovernightand91-day
6.9%, which compared favourably to 8.2% in 2009. The T-billratebeinginthe1.5%to2%and3.5%to3.9%range,
end of year inflation rate was 7.4% in December 2010, respectively. However, during the first nine months to
compared to 5.8% in December 2009. An increase September2010,averagelendinganddepositrateswere
inVATfrom10%to12%hadamarginaleffectonthe 14.1% and 8.2%, respectively. This reflected the inef i-
f
inflationrate. cienciesthatexistwithinthemarket.
Inflation in Tanzania was lower as a result of low food TheBankofZambiarate(BOZrate),whichistheCentral
pricesthatprevailedformostoftheyear.Averageannual Bank’skeypolicyrate,softenedfrom8.3%inDecember
inflation was 7.2% compared to 12.1% in 2009. The 2009 to 3.9% in April 2010. Since then, the BOZ rate,
inflationrateendedtheyearat5.6%comparedto12.2% however, increased for consecutive months to 7.6% in
inDecember2009.Weatherconditionshavealargepart August2010,beforeretreatingto5.8%inNovember2010.
toplayinthecountry’sfooddeficitsorsurplus,henceany The 91-day T-bill rate which is pegged at 2 percentage
changesinweatherpatternscouldhaveanadverseimpact pointslowerthantheBOZratealsomirroredchanges
ontheinflationoutlook. inthepolicyrate.During2010,lendingand90-daydeposit
ratesremainedbroadlystable,averaging28%and7.4%,
InZambia,overallinflationcontinueditsdownwardspiral respectively.
in 2010, largely due to lower food inflation. Volatile food
inflation, which was in double digit levels during 2009, In Zimbabwe, there is still no lender of last resort as the
dipped to 7.1% in January 2010 and stood at 2.8% in countryusesabasketofforeigncurrencies.Awidedisparity
September2010;thelowestlevelsinceJanuary2007.In between lending and deposit rates exists in the banking
November, the annual inflation rate declined to 7.1%, industry.Lendingrateshavebeenunderpressureaidedby
representing the lowest level in over 15 years. Average thefactthattheborrowersarealsoincreasinglyresisting
inflationforthefirst11monthsoftheyearwas8.6%which highlendingrates.Thisisoccurringasborrowerscanno
wassignificantlylowerthanthe13.8%of2009. longer pass these costs on to consumers. Deposit rates
ABC Holdings Limited
6
ANNUAL REPORT 2010

11. arebroadlyinthelowersingledigitlevels,withtheexception
assets
ofsomefixedtermdeposits,whichattractratesofinterest
ofupto20%insomeinstances,dependingontheamount
andinstitution.
Mozambique’sinterestratepolicywasdifferentfromthe
other four countries in the sense that the policy rates
increased dramatically in an attempt to counter inflation.
The Standing Lending Facility, which was at 11.5% in
December 2009, was raised by 100 basis points in April
2010to12.5%.Itincreasedfurtherto14.5%inJuneand
15.5% in September where it has remained unchanged.
The Standing Deposit Facility (SDF), another benchmark
interestratefortheBankofMozambique,wasreviewed
upwardsby100basispointsto4%inJune2010,whereit
remainedunchangedfortheremainderoftheyear.
Exchange rate developments
The US Dollar remained under pressure during much of
2010.Thiswasduetoitsdecliningappealasasafehaven
currency, as risk appetite improved and investors began
to be wary of a rise in US inflation resulting from the
aggressive monetary policies it pursued to counteract
therecession.
Onanannualbasis,theBotswanaPulaappreciatedby3.5%
againsttheUSDollar from BWP6.67/USDin December
2009toBWP6.44/USDinDecember2010.ThePula,how-
ever, depreciated massively by 8% against the South
AfricanRand(ZAR).
TheMozambicanMeticalhadaturbulentyear,depreciating
rapidlyagainsttheUSDollar.Howeverthecurrencyappre-
ciated by 7.1% against the dollar in December 2010. Not-
with tandingtheappreciationinDecemberonanannual
s
basisthecurrencydepreciatedby19.6%againsttheUS
Dollaranddepreciatedby32.2%againsttheZAR.
In 2010, the Tanzanian Shilling was consistently under
pressureagainsttheUSDollarandtheZAR.However,the
effectoftheexchangeratedepreciationoninflationwas
veryminimal.Theexchangeratedepreciationagainstthe
US Dollar was in the main due to low domestic interest
rates.Highdemandforforeignassetsinthebanks(largely
duetoatechnicalchangeinthecalculationofthelimiton
theirnetopenforeignexchangepositions)alsocontributed.
TheTanzanianShillingweakenedagainsttheUSDollarby
10.8%fromTZS1,326.6/USDollarattheendofDecember
2009toTZS1,469.9/USDollarasofendofDecember2010.
Similarly, since December 2009, the Tanzanian Shilling
alsoweakenedby24%againsttheZARand14.8%against
theBotswanaPula.
The Zambian Kwacha was range bound against the US
Dollarformuchoftheyear.Onayear-on-yearbasis,the
7

12. Chairman’s report continued
Kwacha appreciated against the Euro (4.0%) and GBP courseofthepastfewyears,Tanzania’sloantoGDPratio
(1.1%)butdepreciatedagainsttheUSDollar(3.4%)and hassteeplytrendedupwardsfrom4.7%in2000to18%in
ZAR(15.2%). 2008beforemarginallydecliningto16.3%in2009.Priorto
recentyears,Tanzania’sprivatesectorloanstoGDPratio
Financial sector developments had been one of the lowest when compared to other
Conservativeattitudetowardsriskexercisedbymostbanks, countriesintheregion.Thisnotwithstanding,areportby
asaresultoftherecentfinancialturmoil,isbeingliberalised ErnstYoungindicatesthatonlyabout4millionTanzanians
asmarketscontinuetoreturntonormalcy.Banksarenow (outofapopulationofabout40millionpeople)haveaccess
beginningtograduallyloosentheirlendingcriteria.Regional to loans provided by banks and non-banking financial
marketsthatwerebatteredbybaddebtsduringthecrisis institutions. Only 10% of the population has access to
(such as Botswana and Zambia) have largely stabilised. bankingsectorloanssuggestingthatthereisstillahuge
However,thebaddebtsproblemisstillamajorconcernfor potentialforgrowthinthismarket.Inspiteofverylow
thebankingindustryparticularlyinTanzania. interestrates,mostbankscontinuedtoholdexcessively
highreserves,whiletheprivatesectorcreditgrowthshowed
In Botswana, total banking sector deposits increased by
signs of modest rebound. Annual growth in private sector
10%fromUSD5.6billioninDecember2009toUSD6.5billion
creditimprovedto22.3%inSeptember2010com aredto
p
inOctober2010.Theshareofforeigncurrencydenominated
9.6% in December 2009. In nominal terms, credit to the
deposits (FCAs) has, however, not recovered from the
privatesectorgrewbyTZS723billionfromTZS4,992billion
levelsthatprevailedpriortotheglobalrecession.Asat
inDecember2009toTZS5,715billioninSeptember2010.
October 2010, total bank loans to the private sector
amountedtoUSD3.3billion.Thehouseholdsectoraccounted
TheZambianfinancialservicessector,thoughnotdirectly
forthelargestshareofbankingsectorloansat57.1%.This
exposed to the infamous toxic assets, was none the less
was followed by the business services sector at 8.3%;
indirectlyaffectedbythefinancialcrisis.During2010,there
(this includes legal, advisory, accounting, auditing, data
processing,consulting,engineering,surveying,advertising, was some recovery evident, with most banks im roving
p
rentingandleasingofmachineryandequipmentservices); their lending criteria to customers. The banking sector
trade accounted for 8.4%; construction, 4.3%; manu ac-f depositsinUSDollartermsincreasedfromUSD2.7billionin
turing,3.8%;andmining,2.7%.Miningsectorcompanies December 2009 to about USD3.3 billion in October 2010.
have capacity to borrow offshore at favourable terms TheloansalsomarginallyincreasedfromUSD1.6billionto
andconditions.Hence,theshareofcreditofthemining USD1.7billioninOctober2010.
sectorisverylow,despitetheimportanceofthissector
totheeconomy. ThebankingsysteminZambiawasfacedwithaminorcrisis
of confidence following the take-over of Finance Bank of
InMozambique,totalbankdepositsinUSDollarterms ZambiaLimited(FBZL)byBankofZambia(BOZ).According
de lined from USD3.4 billion in December 2009 to
c to BOZ, FBZL is alleged to have had weak corporate
USD3.0 billion in July 2010. This was primarily due to the governanceandriskmanagementsystemsandwaslikely
massivedepreciationoftheMeticalagainsttheUSDollar. tofailtoconductbusinessinasafeandsoundmanner.This
In some cases, a weak Metical can influence depositors situationisnotexpectedtohaveamaterialadverseimpact
to relinquish the local currency deposits in preference to onthebankingsectoringeneral,asdepositors’fundswere
the FCAs in order to restore value. In October 2010, total
protectedbyBOZ.
bankdepositswereUSD3.15billion,whiletheratioofFCAs
to total deposits improved to 43%. By and large, the vast
InZimbabwe,thebankingsectorcontinuedtoexperience
majorityofMozambicansarestillnotservedbyregistered
aremarkablerecoveryduring2010asreflectedbystrong
institutions.Inaddition, although, both deposit and credit
growthindepositsandloans.Totalbankingsectordeposits,
ratiosrelativetoGDPhavebeengrowingovertheyears,
which increased from USD300 million at the beginning
theyarestillconsideredtobeverylow.Bankdepositsto
of 2009 to USD1.4 billion in December 2009, are now
GDPimprovedsignificantlyfrom13.3%in2006to18.5%
estimatedtohaveincreasedby79%toUSD2.5billionin
in2008andgrewfurtherto26%in2009.Similarly,private
sectorcredittoGDPratioimprovedfrom15%in2007to December2010.Likewise,bankingsectorloans,which
28%in2010. stoodatUSD636millioninDecember2009improvedto
about USD1.6 billion in December 2010, representing a
In Tanzania, total bank deposits (US Dollar equivalent) loantodepositratioof65%.However,duetotheabsence
marginally improved from USD5.5 billion in December of a functional money market, aggressive credit growth
2009 to USD5.7 billion in September 2010. Reflecting a witnessedinthebankingsectorhasexposedmostbanks
significant improvement in financial deepening, over the toheightenedliquidityandcreditrisks.
ABC Holdings Limited
8
ANNUAL REPORT 2010

13. According to the IMF, Zimbabwe’s banking sector is still Zimbabwe, however, is still grappling with the Kimberly
fragile.TheIMFhasurgedtheReserveBankofZimbabwe Process so that it can gain full access to international
tostepupsupervisoryeffortsinordertoensurethatthe diamondmarketsforitsMarangediamonds.Theuncertain-
bankingsystemcanwithstandanyshocksthatmightarise tiesthatcharacterisethepoliticalarrange entareunnerving
m
duetosystemicrisks. for foreign investors and are limiting foreign investor
participationinthelocalmarket.Weremainhopefulthatthe
Outlook Zimbabweaneconomywillberestoredtoitsformersizein
themediumterm.
The growth recovery of the world economy is still very
fragileanditssustainabilityremainsuncertainforanumber
of reasons. The effects of the large stimulus packages
Change of shareholding
that countries had to provide to help stem-out growth The Directors wish to advise shareholders that African
areunknown,asthisisthefirsttimethatsuchwidespread DevelopmentCorporation(ADC),aMauritianregistered
useofstimuluspackageshasoccurred.Theimpactofthe company, has recently acquired 20% of the company’s
variousstimuluspackagesoneconomicgrowthisstillto sharesthroughtheopenmarket.
bedetermined.
Dividend
The sovereign debt crisis in Europe, the socio-political
TheDirectorshavedeclaredafinaldividendofBWP0.10
instabilities in the Arab world, austerity measures being
(tenThebe)(USDequivalentcurrently1.52cents)pershare
undertaken by some large developed economies and
in respect of the year ended 31 December 2010. The
risk of asset price bubbles developing in China point to a
dividend will be payable to shareholders registered in the
potentiallynegativeoutlookontheworldeconomicgrowth.
booksofthecompanyatthecloseofbusinessonFriday,
1April2011.
Goingforward,oilpricesareexpectedtoremainfirmdespite
slowerdemandgrowthandlargesurpluscapacityasOPEC
now prefers a wider price range of USD70 – 90/bbl. Oil Governance
pricesin2011have,however,beenmuchhigherthanthis IwelcomeMrFrancisDzanya,theChiefOperatingOfficer,
range. Base metal prices are expected to record further andMrBekiMoyo,theChiefFinancialOfficer,whowere
price gains on the backdrop of continued strong demand electedinMay2010totheBoard.
from China, falling stocks and supply constraints. Some
expertsprojectanincreaseinbasicfoodpriceswhichcould Acknowledgements
sparkriotsandgeneralunrestinsomedevelopingcountries.
However,thiscouldbeshort-livedifproductionreturnsto Iwouldliketothankmyfellowdirectors,managementand
normalandcountriesstartrebuildingstrategicfoodstocks. staff for the positive results achieved by the Group in
2010.TheseresultspositiontheGroupwellinitsquestto
AccordingtotheInternationalMonetaryFund(IMF),global bethepre-eminentfinancialservicesgroupinAfrica.
economic growth is expected to weaken somewhat in
2011,beforepickingupin2012.TheIMFestimatesthat
the global economy, which grew by 4.8% in 2010, will HJ Buttery
grow by 4.2% and rebound in 2012. The IMF, however, GroupChairman
noted that although financial conditions have begun to
normalise,institutionsandmarketsremainfragile.
Inmanyhighincomeeconomiesanddevelopingterritories
inEasternEuropeandCentralAsia,economicgrowthwill
be largely dependent on restructuring and right-sizing in
the banking and construction sectors, as well as ongoing
fiscalandhouseholdconsolidationexercisesamongothers.
Inthedevelopingcountries,economicgrowthwillbenefit
fromsomewhatstrongerremittanceinflows,arecoveryin
tourismandhighercommodityprices.
The economies in which the Group has a footprint are
expectedtocontinuegrowingintothefuture.Improvements
indemandandconsequently,pricesofcommodities,willbe
thecommondrivertoeconomicgrowthinallthesemarkets.
9

14. Itispleasingtoreportthatforthefirsttimeintheshort
historyoftheinstitution,alltheGroup’soperatingbanking
subsidiariespostedcom endableresults.Operatingprofit
m
atBWP111millionismorethanfourtimestheBWP26million
thatwasachievedin2009.
Thequalityofearningshasimproved,withmostofthe
incomebeinggeneratedfromcorebankingactivities.This
contrastsmarkedlywith2009andprioryears,whennon-
recurrentincomecontributedsignificantlytotheprofitability
ofthebusiness.
CHIEF EXECUTIVE Businessgrowthwasachievedacrossalloperationsasthe
OFFICER’S REPORT Group continued widening and strengthening its footprint
throughtheexpansionintotheretailbankingsector.The
DTMunatsi Group has to date set up 17 retail branches across its
network.Theretailexpansionwasfundedentirelyfrom
“It is pleasing to report that for the Groupresources,whichispleasing.Themovehasbeenwell
receivedinallmarkets,particularlyinZimbabwewherethe
first time in the short history of the
retail business achieved profitability after its first year in
institution,alltheGroup’soperating operation.Thisachievementexceededinternalexpectations,
banking subsidiaries posted com- which had estimated that profitability would be achieved
18to24monthsafterthedoorsopenedforbusiness.
mendableresults.Operatingprofitat
BWP111 million is more than four Thequalityoftheloanbookcontinuedtoimprove.During
times the BWP26 million that was theperiodunderreview,non-performingloansreduced
from10%to8%,resultingina69%reductionincharges
achievedin2009.” forcreditimpairments.Tanzaniawastheonlyoperation
that had significant impairments and its contribution is
higherthanalltheotheroperationscombined.Theother
operationsrecordednetwrite-backs.Whilstweareconfident
thatwearewellsecuredformostoftheseexposures,the
courtsysteminTanzaniaissuchthattherecoveryprocess
willbeprotracted.
Notwithstandingthehugeshareoflossfromassociates,
attributable profit at BWP66 million is 14% ahead of
BWP58millionachievedinprioryear.Boththereturnon
equity and the net asset value per share improved as a
consequence.
ABC Holdings Limited
10
ANNUAL REPORT 2010

15. loansaresecuredbymoveableassets,bythetimejudgement
isissued,thevalueofthoseassetsmayhavesubstantially
declined.Inviewthereof,wehavedecidedtobeextremely
cautiousinourlendingapproachinTanzania,andasmuch
aspossibletakeimmoveablepropertiesascollateral.Efforts
torecoverfromallthedelinquentclientsareintensifying.
Non interest income
NoninterestincomeatBWP264millionwasmarginallydown
onprioryear.Whatiscomfortingthoughisthatincomefrom
bankingservicesincreased,whilstnon-recurrentincome
reduced significantly. In 2009, the Group realised once-off
incomeofBWP94millioninrespectofdisposalofassociates
Financial performance andtheequityportfolioinZimbabwe.Alltheoperationswith
theexceptionofBancABCBotswanarecordedsignificant
Net interest income increases in non interest income BancABC Botswana
NetinterestincomeofBWP298millionis67%higherthan experienced a slump in foreign exchange trading income
theBWP178millionrecordedinthepreviousreporting duetoamarket-widereductioninbothvolumesandmargins.
year.Thiswaslargelyduetoa54%increaseinloansand
advances,coupledwithahighernetinterestmarginof6.8%, Operating expenses
upfrom5.6%.AlloperationswiththeexceptionofBancABC
OperatingexpensesatBWP435millionwere19%above
Mozambique recorded an improvement in net interest
theBWP366millionrecordedin2009.Thisincreasewas
income.Mozambiquewasimpactedbyexcessivelyvolatile
largelyattributabletotheZimbabweoperation,wherecosts
interestrateswhichresultedinmarginsbeingsqueezed.In
roseby71%post-dollarisation,andtheretailbankingroll-
addition,theloanportfolioincreasedonlymarginally,dueto
outwhichcostBWP63millioncomparedtoBWP35million
thesignificantdepreciationoftheMeticalagainstallmajor
in2009.Notwithstandingtheincreaseincosts,thecostto
currencies. On the other hand, BancABC Zimbabwe per-
incomeratiodeclinedby5percentagepointsfrom82%in
formedexceptionallywellalbeitoffalowbase.
2009to77%fortheperiodunderreview.Whilstcostswill
continuetoincreaseaswerampuptheretailprogramme,
Impairment losses on loans and advances
we expect the cost to income ratio to come down as a
NetimpairmentchargesofBWP16millionare69%below resultofrevenuecontributionbytheretailbankingsegment.
theprioryearchargesofBWP51million.Thisimprovement Themedium-termtargetistoreducethecosttoincome
wasduetoacombinationofanimprovementintheeconomic ratioto50%.Weare,however,cognisantofthefactthat,
environmentandstrictcreditmonitoringoffacilities.Owing whilsttheratiowilldecline,itwillstillbehigherthanthis
to the above a number of clients that were previously targetinthenear-term.
adversely classified were able to service their facilities.
Thisresultedinsignificantreversalsofloanimpairments.
The level of non-performing loans, whilst still high, is
reducing.Thestrategyofcurtailinglendingatthestartofthe
globalcrisishasbeenvindicated.Thequalityoftheloanbook
is sound and barring any unforeseen adverse changes in
the regional economies, the level of non-performing loans
shouldcontinuetodeclineandbeinlinewiththoseofother
industryplayers.
BancABCTanzania’snetimpairmentchargesatBWP18million
were41%higherthantheBWP13millionrecordedinprior
year and exceeded the Group total as other operations
recordedsignificantrecoveries.Mostofthesefacilities
Tax
are secured by tangible assets, hence they should be The Group incurred a net tax charge of BWP22 million
recoverable.Thebiggestchallenge,however,isthecomplex comparedtoacreditofBWP16millionin2009.Changesto
courtsystemwhichresultsincasesgenerallytakingan thetaxationrulesinZimbabwein2009resultedinataxcredit
inordinateamountoftimetoresolvein-spiteofthefactthat fortheGroupthroughthereductionofdeferredtaxinrespect
therewillbeaclearbreachofcontract.Asaresult,where ofgainsondisposalofquotedmarketablesecurities.
11

16. Chief Executive Officer’s report continued
Balance sheet
The balance sheet grew by 36% from BWP4.4 billion
to BWP6 billion as at 31 December 2010. Loans and
advancesincreasedby54%fromBWP2billionin2009
to BWP3.1 billion. Deposits increased by 46% from
BWP3.4billiontoBWP4.9billion.
Deposits increased by 46% from BWP3.4 billion to
BWP4.9billion.Overthelastfiveyearsdepositshavegrown
byanannualcompoundrateof32%.Alltheoperations
recorded growth in deposits. Botswana’s contribution at
40%isstillthehighestandBancABCZimbabwehascome
LoansandadvancesinBancABCZimbabweincreasednine- instronglyandnowcontributes22%ofthebook,upfrom
foldfromBWP98milliontoBWP975million.Zimbabwenow 8%inprioryear.
constitutes32%ofthetotalloanportfolio,upfrom5%inthe
previous year. BancABC Zimbabwe’s market share has
increasedfrom3.1%in2009to8.8%in2010.Thiswas
achieveddespitethebankstillbeingpredominantlycorporate
innature.Marketshareisexpectedtoincreaseontheback
oftheretailexpansion.Alltheotherbankingsubsidiaries
with the exception of Tanzania registered growth in loans
andadvances.BancABCTanzaniamanagementfocusedon
collectionsandrehabilitationofnon-performingloans.
The quality of the loan book in all subsidiaries, other than
Tanzania,wasgood.ThestrategyinTanzaniawillbepremised
on growing quality loans and collecting on delinquent
accounts.
ABC Holdings Limited
12
ANNUAL REPORT 2010

17. revenue
Attributable profit by operation
The banking subsidiaries recorded attributable profits of
BWP98million,up151%fromBWP39millioninprioryear.
Head office and other non-banking operations posted a
lossofBWP11million,whileassociatescontributedalossof
BWP20million.AlthoughtheGroupwillcontinuetosupport
theassociates,theyremainavailableforsaleaslongasa
reasonablepricecanberealised.Headofficeintheprior
yearrecordedsomeonce-offgainsthroughthesaleofequity
investments that were being used for capital preservation
purposesinZimbabwe.
Operational performance
Botswana
BancABC Botswana performed well on the back of the
economicrecoveryascommoditypricesimproved.Profit
after tax of BWP20 million was 15% higher than the
BWP17millionachievedin2009.Thebalancesheetgrew
by30%,largelyduetoincreasedcustomerdeposits,which
grewby40%toBWP2billion.Thisadditionalliquiditywas
investedpartlyinmoneymarketinstruments,includingBank
ofBotswanacertificatesaswellasinloansandadvances.
Thefirmingofmarginsinlendingactivitiescoupledwithan
increaseinthebalancesheetsize,resultedinhighernet
interest income. Net interest income increased by 48%
fromBWP35milliontoBWP51million.Ontheotherhand,
noninterestincomedeclinedby22%(BWP9million),largely
due to a reduction in foreign exchange trading income
on account of a reduction in both volumes and margins.
Management acted proactively in managing the quality of
theloanbook,collectingonsomepreviouslyimpairedloan
accounts.Non-performingloansinBotswanahavecome
downandthissituationisexpectedtoimprovefurtherin
2011.Owingtotheabove,BancABCBotswanahadazero
netchargeforcreditimpairmentsin2010.
13

18. Chief Executive Officer’s report continued
Operatingexpensesincreasedby27%(BWP13million)to BancABCZambiareinforceditsimprovedpositionbygrowing
BWP59millionasaresultofexpenditurerelatedtothe its customer deposit base by 21% to BWP253 million,
roll-outoftheretailprogramme. despitea22%declineinitsloanbooktoBWP233million.
Thecapitalpositionofthebankhadbecomeprecariousdue
Mozambique tohistoricallosses.AsaresultnewequityofUSD6million
BancABCMozambiquewasadverselyaffectedbythehigh wasinjectedbytheholdingcompany.Asthebank’sfortunes
volatilityinmarketinterestandexchangeratesduringthe changeditbecamecorrespondinglyeasiertoraisedeposits
year.Thesedevelopmentsnegativelyimpactedthebank’s atareasonablecost.Netinterestincomeincreasedby9%
margins and led to subdued balance sheet growth. As to BWP67 million while non interest income increased by
a consequence, net interest income declined by 25% 110%toBWP21milliononthebackofincreasedtran ac-
s
(BWP10million)toBWP29millionandnoninterestincome
tionalvolumesduringtheyear.
declinedby7%toBWP57million.
The quality of the loan book improved significantly. This
Onapositivenote,thecreditimpairmentchargedeclined
enabled the entity to record a net impairment recovery
by77%toBWP2millionfromBWP10millionin2009.This
wasduetocollectionsonpreviouslyadverselyclassified ofBWP3millioncomparedtoachargeofBWP27million
accountsandtightmonitoringofthequalityoftheloanbook. in2009.Operatingexpensesweretightlymanagedand
As a result, no new accounts were adversely classified. onlyincreasedby5%,mainlythroughsynergiesachieved
Operatingexpensesweretightlymanaged.Despiteincreased followingthemergerofthebankandthemicrofinanceunit
staffnumbersandbusinessactivitiesfollowingtheintro- in2009.Thereremains,however,substantialworktobe
ductionofretailservices,operatingexpensesincreasedonly doneonthebankingsideofthebusinesstoensurethat
by6%(BWP3million). profitabilityaccelerates.
AftertaxprofitatBWP23millionwas24%lowerthanthe
Zimbabwe
BWP30millionachievedin2009.
TheZimbabweaneconomywhichhadbeeninfree-fallfor
Tanzania more than a decade, recorded growth for the first time in
2009followingtheestablishmentofagovernmentofnational
DespitethehighimpairmentsrecordedbyBancABCTanzania
unityanddollarisationoftheeconomy.Thisgrowthcontinued
during the year, the subsidiary managed to increase its
attributableprofitsby207%toBWP16million.Thiswas into2010.However,thedevelopedworldremainsdoubtful
achieved on the back of increased revenues across the thattheriskprofileofthecountryhasmateriallychanged.
board. Asaresult,foreigninvestorparticipationisstilllimitedand
the economy continues performing at a fraction of its full
Thebank’sdepositsincreasedby18%(BWP119million). potential.Further,thelackofcapacitybythelenderoflast
Loansandadvances,however,declinedby8%(BWP40million). resorthaslimitedbothloanexpansionandinterbanktrading.
The excess liquidity generated was invested in money
market instruments, including Government bonds. Net Despite these challenges, BancABC Zimbabwe posted
interestincomeincreasedonthebackofincreasedvolumes BWP27 million in profit after tax, an improvement of
andmarginsasthecostoffundsinthemarketdeclinedto
43%fromtheBWP19millionachievedin2009.Thebank
historiclows.Asaresult,noninterestincomeincreasedby
grew its balance sheet by 215% from BWP0.5 billion to
40%fromBWP27milliontoBWP38million.
BWP1.5 billion. Customer deposits increased by 316%
The above achievements were, however, negated by an fromBWP0.25billiontoBWP1.1billion.Loansandadvances
increaseinimpairmentsfromafewlargeclientswhodid increasedby810%fromBWP0.1billiontoBWP0.9billion.
notservicetheirdebtsonschedule.Creditmanagementand This,togetherwithincreasedtransactionflows,increased
monitoring has been strengthened and benefits of these the bank’s revenues across the board by 93% from
actions should be realised in the near-term. Operating BWP73millionin2009toBWP140millionin2010.
expenses increased by 18% (BWP7 million) as the bank
intensifiedtheretailbankingroll-out. Operatingexpensesincreasedby71%toBWP107million
fromBWP62million.Theincreaseinoperatingexpenses
Zambia waslargelyduetothenormalisationofstaffsalaries,which
BancABCZambiaachievedasuccessfulturnaround,posting was a feature of the market post-dollarisation. In addition,
aprofitaftertaxofBWP11million.Thiscomparedfavourably theexpansionintotheretailbankingsectorexacerbatedthe
tothelossofBWP34millionthebankrecordedin2009. increaseincosts.
ABC Holdings Limited
14
ANNUAL REPORT 2010

19. Business segments wroteretailloansofBWP109million.Totalrevenueswere
BWP27millionagainstoperatingexpensesofBWP63million
Treasury and structured finance (2009:BWP35million).Allthesystemshavebeenacquired
Thedivisionperformedwellduringtheyear,withcustomer andasubstantialnumberhasbeendeployedorareinthe
depositsincreasingby46%fromBWP3.4billionin2009to processoffinaldeployment.Withtheintroductionofretail
BWP4.9billion.Allsubsidiariesregisteredpositivegrowth bankingtheGroupwillnowbeinapositiontoofferafull
whencomparedto2009,withsignificantgrowthbeing suiteofbankingproductsandthisshouldhelpinpushing
registeredinBotswanaandZimbabwe. formorebusinessfrombothnewandexistingclients.As
previouslyadvisedourtargetistoensurethatallbranches
Thedivisionwasabletoincreasefundsinvestedinmoney
areprofitablewithin18to24monthsofopening.
marketinstrumentsresultingina27%increaseinmoney
market interest income to BWP201 million. This growth
was achieved on the back of stability in market interest Human capital
ratesotherthaninMozambique.
TradingactivitiesinMozambique,TanzaniaandZimbabwe
re ained high. Trading income increased 8% to
m
BWP140 million from BWP129 million in 2009. Growth
washamperedbyadeclineintradingvolumesinBotswana
following the introduction of cheque capping and other
regulations that are restricting transaction volumes.
However, foreign exchange trading income improved
substantiallyinMozambiqueandZimbabwe,whilsttrading
of Government securities helped improve overall trading
incomeinTanzaniaandZambia.Centraltreasuryoperations
havebeenbolsteredanditisourhopethatthisunitwill During the year, the Group’s Human Capital department
contributepositivelytoincomegoingforward. continuedexecutingitsmandateofensuringstandardised
andconsistentpeoplemanagementpracticesinallGroup
Corporate banking operations. The “Balanced Scorecard” methodology which
The division fared well despite the tough but improving is part of the overall performance management and
operatingenvironment.Loansandadvancesgrewsignificantly, measure ent tool at entity and individual level has now
m
even though challenges, which militated against growth, beenembeddedGroup-wide.Staffgrading,compensation
persistedinZambiaandtoalesserextentinMozambique. and incentive schemes were also harmonised during the
Thequalityoftheloanbookcontinuestoimproveandthe year.Toensurecontinuity,thesewerelinkedtoindividualand
ratioofnon-performingloansshouldbeinlinewithindustry countrybalancedscorecards.
peerswithinthenext24months.Theestablishmentofa
separatecreditfunctionacrossallsubsidiariesin2009has Tremendous successes were recorded in the fields of
resultedinamorefocusedapproachtocreditmanagement
learninganddevelopment.Ofthemostnoteworthyachieve-
and has led to more objective assessment of any new
ments was the success of the Leadership Development
loansbeingunderwritten.
Programmes undertaken by executives, managers and
Thedivisionrecordeda31%increaseininterestincome specialists. The objective of the Executive Leadership
to BWP450 million and an increase of 23% in fees and Develop ent Programme is to achieve universal partici-
m
commissionstoBWP103million.Zimbabwenowcontributes pationbyallexecutivesandseniormanagers.Withalmost
meaningfullytothedivision’soverallresults. a year still to run, it is anticipated that this objective will
beachievedbytheendofDecember2011.
Retail banking
Thedivision’sshorttomediumtermplansaretoentrench
During2010,thedivisionopened11branchesacrossits
strategichumancapitalmanagementpractices,improve
regionalfootprint(bringingthetotalnumberofbranches
openedto15asat31December2010and17todateafter overall employee productivity in the Group, drive down
opening2morebranchesinJanuaryandFebruary2011) peoplecostsanddrivearobusttalentmanagementsystem
and began marketing all key products. These products thatincludessuccessionplanning.Asaresultofallthese
havebeenwellreceivedacrossallmarkets.In2010,the policiesweshouldbeabletoattractandretainhighlyskilled
division raised deposits of BWP165 million and under- employeeswithintheGroup.
15

20. Chief Executive Officer’s report continued
Other support divisions GroupCreditmonitorstheloanportfoliooftheGroupand
ensuresthattheGroupisnotexposedtoundueriskfrom
The Group operates a centralised Information Technology
new business that is underwritten. In addition, it also
(IT)function.ThefocusofITduringtheyearwastoimprove
monitorsexistingcustomerswhomaybefacingfinancial
overallservicesofferedtointernalandexternalcustomers.
challenges that impact on their ability to meet their
Thisinvolvedthesettingupofamorerobusthelp-deskand
commitments.
buildingtheinfrastructureandsystemsrequiredtosupport
theretailprogrammethroughaspeciallycreatedprogramme Group Internal Audit plays a key role in maintaining and
managementoffice.Theroll-outofretailbankingfunctionality improvingtheinternalcontrolenvironmentwithintheGroup.
is ongoing. To meet the demands of this programme the TheGroupHeadofInternalAuditreportsdirectlytothe
departmentwillbebolsteredbyadditionalskilledstaffasthe RiskandAuditCommittee.
roll-outprogresses.
Rating
Simultaneouslywiththedevelopmentofnewfunctionality,
GlobalCreditRatingmaintainedtheratingfortheGroupat
the core banking system is being upgraded to improve
A3forshort-termsecuritiesandBBBminusforlong-term
performance.Thehigherversionofthecorebankingsoftware
securities. The evolution of the Group’s rating is listed
willenabletheGrouptoseamlesslyintegratesystemsfrom
below.
differentvendors.
Security class 2006 2007 2008 2009 2010
TheGroup’sBankingOperationsdepartmentsupportsvarious
revenue-generatingdepartments.Wecontinuouslylookfor Short-term A3 A2 A2 A3 A3
Long-term BBB BBB BBB BBB- BBB-
newandbetterwaysofservicingthecustomerandatthe
same time reduce the error rate to negligible figures. The
departmentrationalisedexistinginternalfunctionstoimprove Outlook
transaction handling and to cater for increased transaction
Webelievethateventhoughtheeconomicrecessionhas
processingfromtheretailprogramme.Italsoreviewedand
bottomedout,fullrecoverywillbeprotracted.Inflationcould
wroteanumberofnewprocessmanualstohelpnewstaff
beachallengeasaconsequenceofhigheroilpricesgiven
understandtheGroup’sstandardwayofhandlingbusiness.
the challenges currently being experienced in the Middle
EastandNorthAfrica.TheGrouphasmademajorinvest-
GroupFinanceisresponsibleforfinancialmanagementand
mentsintheretailbankingbusinessandthisshouldyield
reporting,regulatoryreporting,budgetingandGrouptax.A
higherreturnsinthenexttwoyears.Thewholesalebanking
new management information system will be deployed in
businessremainsrobustandcontinuestogeneratestrong
2011whichwillhelpinboththequalityandtimeousreporting
revenues. An even stronger performance is anticipated in
ofallkeyinformation. 2011.Inordertomovethecompanytothenextlevel,it
willbenecessarytoraiseadditionalcapital.TheBoardand
GroupRiskmanagesallrisksthattheGroupisexposedto
Managementareactivelyexaminingthisimportantmatter,
fromallitsactivities.Thedepartmenthasvariouscommittees andfurtherannouncementswillbemadeinduecourse.
thatidentifyandmanagevarioustypesofrisks.Thekey
committees are the Asset and Liability Management Acknowledgements
CommitteeandtheOperationalRiskCommittee.TheLegal
I would like to extend my sincere thanks to the Board,
andCompliancedepartmentisalsochargedwiththeday-to-
management and the entire BancABC team for all their
daymanagingoflegalandcompliancerisks.Tothisend,the
supportduring2010.
department has developed standardised documents for
wholesaleandretailbanking.Ithasstrengthenedstructures
inthesubsidiariesandestablishedacentralisedfilingsystem
foralllegaldocumentation. DT Munatsi
GroupChiefExecutiveOfficer
The Legal and Compliance department developed a legal
policy framework that sets uniform legal document pro-
tocols.ItalsoadvisedtheBoardofDirectorsonaugmenting
corporatepoliciesinlinewiththenewcorporategovernance
recommendationsmadeintheKingIIIReportoncorporate
governance. The Group Legal Counsel, who heads this
department, also provides legal services as required or in
conjunctionwithexternalattorneys.
ABC Holdings Limited
16
ANNUAL REPORT 2010

21. Social and environmental policy CORPORATE
BancABC recognises, that sustainable development is
dependent upon a positive interaction between economic
SOCIAL
growth,socialupliftmentandenvironmentalprotection.Asa
responsiblecorporatecitizen,theGrouphasapolicyframe-
RESPONSIBILITY
workthatisdesignedtoensurethatallprojectsundertaken REPORT
adheretosocialandenvironmentalregulationsoftherelevant
local,nationalandinternationallawsandstandards.
This policy framework commits the Group to: “BancABC is also a patron of the
¢ rovide inhouse environmental education and
p arts. The Group supports the view
support; thatvibrantartsandcultureisavital
¢ ecognise the environmental burden caused by
r expressionofAfrica’sidentity.Africa
consumption of resources and release of waste boasts a rich artistic and cultural
fromourownbusinessactivitiesandaimtoprotect
theenvironmentthroughresourcerecyclingaswell
heritage that is as diverse as its
asefficientuseofenergyandresources; people. This heritage is the soul of
¢ upport business activities that contribute to the
s the African continent and for it to
protectionandimprovementoftheenvironment; grow and thrive, the cultural arts
¢ onitortheeffectsofouractivitiesontheenviron-
m needtobenurturedandcelebrated.”
ment and work towards continuous improvement
andpollutionprevention;
¢ omply with all applicable laws and regulations
c
related to environmental protection and other
requirementstowhichBancABCGroupcompanies
aresubjecttoandsubscribeto;and
¢ rovidefinancingtoprojectswithminimaladverse
p
impact on the environment while ensuring that
those having potentially major adverse environ-
mental and social impact are accompanied by
adequatemitigationmeasures.
Inordertoensurecompliancewiththelastofthesecommit-
ments,BancABC’screditriskassessmentseekstoensure
that the social and environmental effects of its financial
support are assessed and monitored. This Environmental
and Social Review Appraisal Procedure (ESRP) enables
the integration of social and environmental safeguards in
projects,toensurethatthepotentialrisksassociatedwith
theseissuesareappropriatelyidentifiedandmitigated.
17

22. Corporate and social responsibility report continued
The team managed to work on “People” as one of
The key components of the ESRP are:
the core values by ensuring that all staff participate in
¢ n assessment of potential and current environ
a - CorporateSocialResponsibilitiesandimpactotherpeople
mentalandsocialrisksandimpactarisingoutofthe outsidetheBank.Theteamidentifiedoneoftheorphanage
proposal;and centres in Dar es Salaam known as Kurasini National
¢ he commitment and capacity of the borrower to
t Children’sHomeCenterwhereneedychildrenarelooked
managethisimpact. afterandraised.TheBankdonatedvariousmaterialitems,
including50mattresses,100kgofmaizeflour,50kgof
Against this background, the procedure ensures that sugar,washingandbathsoaps,drinks,andotherfoodstuff.
projects financed by the Group are environmentally and Morethan30stafffromBancABCvisitedtheCenterand
socially sound and sustainable and that any potential hadtimetointeractwiththechildren.
environmental and social risks are identified, evaluated BancABChascontinuedtosupportKiota’sWomen’sHealth
andwherenecessary,mitigated.Inlinewithitspolicy,the andDevelopmentOrganization(KIWOHEDE).KIWOHEDE
Group will not finance any business activity that cannot is a non-governmental community-based organisation and
reasonablybeexpectedtomeettherequiredenvironmental operatesin21townsanddistrictsacrossthecountry.The
andsocialstandardsupfront. center caters for girls between the ages of 9 to 20 by
Projects financed by the Group shall, at the minimum, providing counselling, rehabilitation and alternative pro-
complywiththenationaland/orlocallegislationandguide- grammes for child prostitutes, domestic workers, sexually
linesforenvironmentalandsocialassessmentandmanage- abusedandothervulnerablechildrenandyouth.TheBank’s
ment.TheBankfurtherconformstotheAfricanDevelopment projectissupportingfivegirlsthroughtheirsecondaryedu-
Bank’s Environmental and Social Assessment Procedures cation.Thegirlsaredoingwellatschoolandtheassistanceis
(2001). changingtheirlives,thusgivingthemhopeforabetterfuture.
Management ensures, through training and coaching, Zimbabwe
that there is an appropriate internal capacity to handle
BancABChasbeenproudlyinvestinginHarareInternational
environmental and social issues. This is supplemented
FestivalofTheArts(HIFA)throughthelifeoftheFestival.
by external expertise, as the need arises. All the Bank’s
ThebankpartneredwithHIFAinsponsoringtheBancABC
employees in the Operations department are provided
openingday,inApril2010.Thisyear’sthemewas“about
withacopyoftheESRP.
face”, which focused on changes the country is going
The Group may finance projects for which no specific through. HIFA has become one of the biggest festivals
environmentalorsocialguidelinesexist.Insuchcases, in Africa, attracting international artists and tourists, and
generalenvironmentalandsocialconsiderationspertaining promotinglocalartsandculture.
to emissions, liquid effluents, hazardous materials and
The bank contributed to the Khayelihle Children’s Home
wastes,solidwastes,ambientnoise,occupationalhealth
fundraising dinner that was held in Bulawayo. The bank
andsafety,lifeandfiresafetyandotherhazardsareborne
alsopledgedtocontributetowardsthefoundationbuilding
inmindduringtheappraisal.
oftheMidlandsStateUniversityLibrary.Thefoundation
Corporate Social Investment (CSI) willcostUSD62,000andthebankhasalreadycontributed
USD15,000.
BancABC recognises it has a responsibility to uplift and
supportsocialprogrammesinAfricaanditplaysanactiverole Zambia
inthecommunitiesinwhichitoperatestoachieveasmuch.
BancABCZambiasupportsOurLady’sHospiceinKalingalinga.
Through various programmes and initiatives, BancABC is
Thehospiceprovidesdaycare,home-basedcareandhospital
focusedontheeconomicupliftmentofthemostvulnerable
facilities for people suffering from full blown AIDS. It also
grouponourcontinent–womenandchildren. givessupportinprovidinganti-retroviraltreatmenttosome
BancABCisalsoapatronofthearts.TheGroupsupports of its patients. BancABC Zambia supports the hospice by
theviewthatvibrantartsandcultureisavitalexpression providingUSD1,000everymonthtoassistthelabinbuying
ofAfrica’sidentity.Africaboastsarichartisticandcultural astringents.BancABCZambiaalsosupportedtheZambia
heritagethatisasdiverseasitspeople.Thisheritageisthe Judo Association by sponsoring the tracksuits used for
souloftheAfricancontinentandforittogrowandthrive, allinternationalevents,andtheZambiaCyclingUnionby
theculturalartsneedtobenurturedandcelebrated. sponsoring their cycling event to support healthy living
inZambia.
Tanzania
BancABCChangeForumteamwasformedin2010forthe
purposeofensuringthatstafflivetheBank’scorevalues.
ABC Holdings Limited
18
ANNUAL REPORT 2010

23. Risk management RISK AND
ThedirectorateandmanagementofABCHoldingsrecognise
thateffectiveriskmanagementisfundamentaltothesus-
GOVERNANCE
tainabilityofitsbusiness.Astrongriskmanagementculture
withintheGroupensuresanappropriatebalancebetween
REPORT
thediverserisksandrewardsinherentinanytransaction,and
underpins sound decision making. Accordingly, a compre-
hensive risk management process is in place to evaluate, “GroupRiskManagementcontinually
monitorandmanagetheprincipalriskstheGroupassumes
in conducting its activities. In the course of conducting its
seekstoenhanceitsriskmanagement
business,theGroupisexposedtovariousrisksinherent techniques and provide assurance
in providing financial services. Some of these risks are thatrisksareappropriatelyidentified,
managedinaccordancewithestablishedriskmanagement monitoredandcontrolled.”
policiesandprocedures,mostofwhicharediscussedinthe
Financial Risk Management section. The Group’s primary
risksareoutlinedbelow:
Market risk
TheGroupmaybeadverselyimpactedbyglobalmarkets
and economic conditions that can lead to fluctuations
in interest and exchange rates, as well as equity and
commodityprices.Itmayalsobeadverselyimpactedby
significantholdingsoffinancialassets,orsignificantloans
orcommitmentstoextendloans.
Credit risk
TheGroupmaybeadverselyimpactedbyanincreaseinits
creditexposurerelatedtotrading,lendingandotherbusiness
activities.Potentialcredit-relatedlossescanresultfroman
individual,counterpartyorissuerbeingunableorunwillingto
honourtheircontractualobligations.
Liquidity risk
The financial condition of the Group may be adversely
impactedbyaninabilitytoborrowfundsorsellassetsto
meetitsobligations.
Operational risk
TheGroupmayincurlossesduetothefailureofitspeople,
internalprocessesorsystems,orasaresultofexternalevents.
19

24. Risk and governance report continued
Legal risk Approach to risk management
Legal proceedings against the Group or insufficient legal TheBoardrecognisesthatitisultimatelyresponsibleand
protectioncouldadverselyaffectitsoperatingresultsfora accountabletoshareholdersfor:
particularperiodandimpactitscreditratings.
¢ heprocessofriskmanagementandthesystems
t
Regulatory and legislative risks ofinternalcontrol;
ManyoftheGroup’sbusinessesarehighlyregulatedand ¢ dentifying,evaluatingandmanagingthesignificant
i
are subject to, and could be adversely impacted by, risksfacedbytheGroup;
regulatoryandlegislativeinitiatives. ¢ nsuringthateffectiveinternalcontrolsystemsare
e
inplacetomitigatesignificantrisksfaced;
Role of Group Risk Management ¢ nsuringthatadocumentedandtestedprocessis
e
in place to allow the Group to continue its critical
GroupRiskManagementisresponsibleformaintaininga
businessintheeventofasevereincidentimpacting
culture of risk awareness throughout the Group. While
itsactivities;and
each business unit is primarily responsible for managing
its own risks, Group Risk Management independently ¢ eviewing the efficacy of the internal control
r
monitors,managesandreportsonallrisksfacingtheGroup, system.
asmandatedbytheBoardofDirectors.Itcoordinatesrisk
management activities across the Group to ensure that The Board has approved the Group Risk Management
riskparametersareproperlysetandadheredtoacrossall frame ork which applies to all Group companies and
w
riskcategoriesandinallGroupcompanies.Italsoensures dealswithenterprise-wideriskandgovernanceprotocol.
that all risk exposures can be measured and monitored Risk management in the Group is underpinned by gover-
across the Group. Managing risk effectively is one of nancestructuresaswellasriskownership,identificationand
the key drivers of the Group’s continuous investment in evaluation. Ownership and management of risks begins
technology. Group Risk Management continually seeks in the business units of each subsidiary, who identify
newwaystoenhanceitsriskmanagementtechniques.It andevaluaterisksparticulartotheirfunction.GroupRisk
alsoupdatestheGroupRiskManagementframeworkona Management reviews actions taken by business units to
regularbasistoreflectnewpoliciesadoptedbytheBoard mitigateidentifiedrisks.
of Directors. Group Risk Management regularly reports
to the Executive Committee and the Risk and Audit
Group Risk Management objectives
Committee,toprovidetheBoardwithassurancethatrisks
arebeingappropriatelyidentified,managedandcontrolled. TheGroupRiskManagementfunction,asmandatedbythe
Group Risk Management is headed by an executive BoardofDirectorsisto:
managerwhoreportstotheChiefExecutiveOfficer(CEO).
¢ oordinate risk management activities across the
c
The Group’s approach to risk management organisation,byultimatelybecomingthecustodianof
The Group’s approach to risk management involves a BancABC’sriskmanagementculture;
numberoffundamentalelementsthatdriveitsprocesses ¢ nalyse,monitorandmanageallaspectsofexposures
a
across the Group. The procedure and methodology is acrossriskclasses;
describedintheGroup’sEnteprise-wideRiskManagement ¢ nsureriskparametersandlimitsareset,approvedand
e
Framework. The Group’s risk appetite sets out the level implementedandensurethatsuchriskparametersand
of risk that the Group is willing to take in pursuit of its limitsareconsistentlyadheredto;and
businessobjectives.Thisriskappetiteiscalibratedagainst
¢ acilitate various risk management committees as
f
the Group’s broad financial targets, including profitability
partoftheGroup’sriskmanagementprocess.
and impairment targets, dividend coverage and capital
levels business. The Group’s risk methodologies include
systemsthatenabletheGrouptomeasure,aggregateand
report risk for internal and regulatory purposes. As an
example,theGroup’screditgradingmodelsproduceinternal
ratings through internally-derived estimates of default
probabilities,seediscussiononCreditRiskManagement
below.Thesemeasurementsareusedbymanagementin
anextensiverangeofactivities,fromcreditgrading,pricing
and approval to portfolio management, economic capital
allocationandcapitaladequacyprocesses.
20 ABC Holdings Limited
ANNUAL REPORT 2010