BIDVEST BANK LIMITED

(Registration number 2000/006478/06)

BASEL III

CONSOLIDATED PILLAR 3 DISCLOSURE

AS AT 31 DECEMBER 2020

Contents 1. Pillar 3 public disclosure 1.1 Introduction 1.2 Goals and objectives 1.3 Appropriateness assessment 1.4 Nature and extent of information

2. Risk management (OVA) 2.1 Risk management systems 2.2 Risk reporting 2.3 Stress testing 2.4 Risk mitigation

3. Risk governance (OVA) 3.1 Board of Directors 3.2 Audit Committee 3.3 Asset / Liability Committee 3.4 Credit Committee 3.5 Risk and Capital Management Committee

4. Interrelationship of risk management functions (OVA) 4.1 The four lines of defence 4.2 Risk culture

5. Main ERM categories (OVA) 5.1 Bank specific risks 5.2 Other and operational risks

6. Risk appetite (OVA) 7. Components of the Bank’s ERM framework (OVA) 8. Capital management

8.1 Overview of Risk Weighted Assets (OV1) 8.2 Key metrics (KM1) 8.3 Composition of regulatory capital (CC1) 8.4 Reconciliation of Regulatory capital to Balance Sheet (CC2) 8.5 Summary comparison of accounting assets versus leverage ratio exposure

(LR1) 8.6 Leverage Ratio common disclosure template (LR2)

9. Credit risk 9.1 Credit quality of assets (CR1) 9.2 Changes in stock of defaulted loans and debt securities (CR2)

10. Credit risk mitigation (CRM) 10.1 Credit risk mitigation techniques (CR3) 10.2 Standardised approach – credit risk exposure and CRM effects (CR4) 10.3 Standardised approach – exposure by asset classes and risk weights (CR5)

11. Counterparty credit risk (CCR)

11.1 Analysis of CCR exposure by approach (CCR1) 11.2 Credit Valuation Adjustment (CVA) capital charge (CCR2) 11.3 Standardised Approach of CCR exposures by regulatory portfolio and risk weights (CCR3) 11.4 Composition of collateral for CCR exposure (CCR5)

12. Market risk 12.1 Market risk under the Standardised Approach (MR1)

13. Liquidity risk 13.1 Liquidity Coverage Ratio (LCR) (LIQ1) 13.2 Net Stable Funding Ratio (NSFR) (LIQ2)

Annexure A – Pillar III disclosure schedule

1. Pillar 3 public disclosure

1.1 Introduction

The Basel III International Convergence of Capital Measurement and Capital Standards saw the development of a third Pillar namely Market Discipline. This third pillar complements pillars I and II, the minimum capital requirements (Pillar I) and the Supervisory Review Process (Pillar II). Pillar III sets out disclosure requirements which allows market participants to assess key pieces of information on the capital, risk exposures, risk assessment processes, and hence the capital adequacy of Bidvest Bank on a top consolidated level.

Transparency and effective communication between the Bank and its stakeholders, as well as the general public, is of the utmost importance. The Bank therefore provides information that will enable the users of such information to form a fair opinion of the financial condition of the Bank.

In light of the above, the Bank’s Disclosure Policy, as approved by the Board of Directors (the Board), has been developed not only to meet the criteria of the Regulations, but also to implement a process to ensure the effectiveness of the Bank’s disclosures.

The Bank’s Pillar III Disclosure is subject to internal control measures and appropriate review by the Bank’s Audit Committee, chaired by an independent non-executive director. The Pillar III Disclosure is prepared as stipulated in the Bank’s Board approved Disclosure Policy which policy is subject to annual review. The Disclosure Policy provides guidance on public disclosure and deals with the following aspects:

• Goals and objectives • Appropriateness assessment • Approach and materiality • Disclosure requirements • Internal control processes and procedures • Risk Data Aggregation and Risk Reporting (RDARR) • Validation of information • Frequency and medium of information • Guiding principles for the Bank’s pillar III disclosures • BIS revised pillar III public disclosure requirements

1.2 Goals and objectives

The information disclosed by the Bank is consistent with that available to senior management and the Board in their assessment and management of the risks of the Bank. By disclosing the information, the Bank aims to meet the following goals and objectives:

● inform the market regularly about the Bank’s exposure to all risk areas;

● provide a consistent and understandable disclosure of information that will enhance decision-making and comparability;

● provide a fair presentation of the Bank’s financial position, including its capital adequacy position, financial performance, business activities, risk profile and risk mitigation practices; and

● provide reliable, relevant and timely information.

1.3 Appropriateness assessment

The review of the Bank’s disclosure strikes an appropriate balance between the need for meaningful disclosure and the protection of proprietary and confidential information, where the disclosure of information could make the Bank’s investment in products or systems less valuable, and therefore undermine its competitive position, or which may be contrary to the provisions of any agreement.

The Bank further assesses whether the information disclosed adequately reflects the financial position of the Bank, and reasonably reflects the Bank’s position in the banking environment.

The Board reviews the Bank’s Disclosure Policy annually, to asses, whether the Bank’s disclosure documents fulfil the requirements of the Regulations and whether any additional disclosures should be made, or the Bank’s disclosure documents be amended. During such reviews, it will be determined whether the Bank’s disclosures meet industry standards.

1.4 Nature and extent of information

In order for the Bank to maintain a high level of transparency between itself and the market, the Bank has adopted the following approach towards determining the materiality, nature and extent of the information that will be disclosed to the public:

● information is considered to be material if its omission or misstatement could change or influence a user relying on that information to take banking, economic or investment decisions. Materiality is determined in accordance with the International Accounting Standards (IAS) and accounting concepts;

● the nature and extent of the information will be in compliance with the International Financial Reporting Standards (IFRS);

● the nature and extent of the information disclosed will be in compliance with the minimum requirements as set out in the Regulations and Basel III;

● the information will be consistent with the Bank’s audited financial statements and subject to internal control and verification; and

● the information shall be consistent with that available to the directors and senior management to enable them to assess and manage the Bank’s risk exposures.

2. Risk management (OVA) The Board recognises the importance of on-going identification and management of risk in order to maintain a sound financial and reputational condition. The Board adopts a Risk Management Policy to affirm its awareness of the need to establish a program for enterprise risk management (ERM). The Board further commits to providing sufficient personnel and other resources to ensure full implementation of an enterprise risk management program. The Board also acknowledges that each of the Bank’s activities has an element of risk. Due to the diverse nature of the Bank’s business units, products and services, and the fact that not all risk can be transferred to third parties through insurance policies, contracts or waivers, the management of residual risk at all levels of the Bank is imperative. The Board has delegated responsibility for Risk Management Policy matters to the Risk and Capital Management Committee which is a sub-committee of the Board.

The Bank maintains an ERM Policy and ERM framework to coordinate the many aspects of risk. The Bank’s Risk Management Policy articulates the content of the Bank’s ERM and Risk Appetite.

The Board expects executive management of the Bank to be committed to building a risk culture, increased awareness and a shared responsibility for risk management at all levels of the Bank. A clearly defined Risk Management Policy including a Risk Appetite Statement supports this.

Risk is an inherent component of the Bank’s activities. The ability to effectively identify, assess, measure, respond, monitor and report on risk in activities is critical to the achievement of the Bank’s mission and strategic objectives. This risk management approach reflects the Bank’s values, influences the Bank’s culture and guides the Bank’s operations. It is captured in policy statements, Board and management directives, operating procedures, training programs, and is demonstrated in daily activities by management and staff.

ERM is a group of structured and consistent risk management processes that are applied across the Bank. The ERM program identifies, assesses, prioritises, and provides a formal structure for the internal and external risks that impact the organization. These activities are categorised under commonly accepted categories of risk.

The ERM program is driven by a formal approach that is aligned with the Bank’s profile and strategic objectives. It is enhanced by formalising roles within the Bank, active committees, policies and procedures, reporting, communication, and technology. The ERM program produces various risk mitigation activities within the business units. The resulting strategic, financial, and operational risk mitigation activities implemented strengthen the Bank, reduce the potential for unexpected losses, and manage the volatility experienced by the Bank.

The Board has overall responsibility for the establishment and oversight of the Bank’s risk management framework. The Board sub-committees are responsible for developing and monitoring the Bank’s risk management policies in their specified areas. All Board subcommittees report regularly to the Board on their activities.

The Bank’s risk management policies are established to identify and analyse the risks faced by the Bank, to set appropriate risk limits and controls, and to monitor risks and adherence

to limits. Risk management policies are reviewed regularly to reflect changes in strategy, products and services offered. The Bank, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment, in which all employees understand their roles and obligations.

The Board is satisfied that the risk management system and processes for identifying, evaluating and managing significant risks are in place and in line with the nature and size of the business of the Bank.

A documented and regularly tested business continuity plan exists to ensure continuity of business-critical activities.

2.1 Risk measurement systems The Bank’s risk system serves as the risk tool that allows the Bank to:

● Record new and current risks

● Determine impact and likelihood of risks

● Assign inherent risk ratings to the risk

● Document root causes

● List controls and mitigating actions against the risks

● Assign residual risk ratings to the risk

● Generate automatic e mail instructions on actions required

● Generate a complete risk register

● Generate risk registers per business units

● Create reports and dashboards

2.2 Risk reporting Risk reporting takes place on daily, weekly, monthly and quarterly basis through various forums and committees. Quarterly reporting to the Risk and Capital Management Committee contains details of significant operational losses, measured against appetite levels, as well as other ad-hoc topics which were relevant during the quarter under consideration. The report contains relevant information on Capital risk, credit risk, liquidity risk, market risk, regulatory risk and interest rate risk, amongst others. Reporting of risks per business unit includes:

● heat map, risk distribution and overview of top risks; ● trend analysis of the KRI framework (with commentary on indicators falling outside

acceptable tolerance levels); ● trend analysis of unresolved internal audit findings; ● review status of risk register action plans, policies, procedures and BIAs, with

commentary in relation to overdue items; and ● executive summaries on new risks/concerns identified, and incidents of operational

losses occurred.

2.3 Stress testing Credit risk The Bank uses stress testing and scenario analysis as a supplementary risk management tool, as well as to determine the amount of capital held for Pillar II capital within the Internal Capital Adequacy Assessment Process (ICAAP). Stress scenarios applied to credit risk include downgrade assumptions affecting Expected Credit Losses. Sector concentration risk stress testing is performed in order to determine the amount of required capital based on historical information on sector performance. Asset class stress testing assumes down grade scenarios causing an increase in the risk weighting of a particular asset class. Interest rate risk Potential changes in net interest income (NII) are quantified by applying potential interest rate movements to the cumulative mismatch position in each defined time band and in each currency book. The GAP model assumes that the derived potential rate movements will occur by way of a parallel rate shock to all maturities along the yield curve. The potential rate change applied to a gap depends on whether the gap is asset-sensitive (more assets re-pricing than liabilities) or liability-sensitive (more liabilities re-pricing than assets). The risk to an asset-sensitive position is that rates will fall. If this occurs, more assets will re-price at a lower rate than liabilities, thereby squeezing the net interest margin and reducing NII. The risk to a liability-sensitive position is that rates will rise also causing a squeeze as higher borrowing costs are not offset by an equivalent earnings rate on assets. Various scenarios are run, and the scenario which results in the biggest loss (either NII or EVE) is used in calculation of economic capital. Operational risk The Bank applies the Modified Standardised Approach by adjusting the business lines’ beta factors to calculate the internal capital requirement for operational risk under Pillar II. The Bank assumes a low risk appetite for operational risk and applies a 1% limit against the aggregate of the allocated operational risk capital, thus an upward adjustment of 1% across the beta factors of all the business lines is applied. A behavioural analysis for the applicable business lines across the seven event type categories is based on a three-year average of actual operational losses reported to the SARB. This behavioural analysis aims at determining the most likely event categories to be affected by operational losses as well as the relative extent to which said categories will be affected by operational losses. The operational risk strategy is aimed at limiting operational losses, as opposed to the effective recovery thereof; hence, the behavioural analysis is based on gross losses as opposed to losses net of any recoveries. The calculated appetite per event type category is a function of the behavioural analysis for each revenue line. The Bank assumes a low risk appetite for operational risk and a 1% limit is applied against the aggregate of the allocated operational risk capital.

Liquidity risk The Bank performs a reverse stress test on its Liquidity Coverage Ratio (LCR) to reach a Point of Non-Viability (PONV) which would result in a post-stress ratio less than the regulatory required minimum of 100%. Other assets Other assets which includes Full Maintenance leases and Operating Rentals are stress tested in a similar manner as the credit risk component, by multiplying the Bank’s Net Book Value (NBV) of each sector by the worst performing quarter of each industrial sector based on historic information. Equity investment risk The Bank utilises a historical simulation method to calculate a Value at Risk (VaR) figure over a one-year horizon. Daily profit and loss (PnL) values are calculated over the period. The value which sits on the normal distribution (Gaussian bell curve) is assumed and a one-year VaR figure is calculated by multiplying the confidence interval chosen’s (99.50%) scalar of 2.58, with the Net Open Position (NOP) and the portfolio sigma. Exchange rate risk The Bank uses the variance covariance method to estimate its FX VaR. This method uses a one-year data set and uses a 99.50% confidence under the normal distribution. 2.4 Risk mitigation The Bank considered one or more of the following risk strategies to mitigate the risk or reduce the exposure to the risk:

● Manage: Controls or action plans are implemented to mitigate the risk ● Taking or increasing the risk in order to pursue an opportunity ● Removing the risk source ● Changing the likelihood or consequence ● Transfer: The risk is transferred to another party (e.g. a service is outsourced to a third-

party vendor). Because risk transfer is an imperfect substitute for sound controls and risk management programmes, the Bank views risk transfer tools as complementary to, rather than a replacement for, thorough internal operational risk control. Having mechanisms in place to quickly identify, recognise and rectify distinct risk errors can greatly reduce exposures. Careful consideration is given to the extent to which risk mitigation tools such as insurance truly reduce risk, transfer the risk to another business sector or area, or create a new risk (e.g. counterparty risk).

● Finance: Financial measures may be taken to absorb the impact of expected or unexpected losses (e.g. provisioning for losses, pricing services or fees according to the level of the risk undertaken, issuing capital to protect against unforeseen losses or insuring against losses).

● Avoid: Discontinuing products, services or processes when the risks associated with these starts to exceed the potential benefits that can be derived.

3. Risk governance (OVA)

3.1 Board of Directors

The Board is responsible for approving new policies and changes to all policies; participating in committees with managers, reviewing status; providing guidance on strategies and risk appetite; staying apprised of significant risk exposures; and ensuring that risks are managed within tolerance levels.

3.2 Audit Committee & Internal Audit

The Audit Committee is a Board level committee responsible for providing assistance to the Board in fulfilling their need for consistency and their responsibility to the shareholders and investment community related to corporate accounting, reporting practices, the quality and integrity of financial reports, and the quality and effective administration of the controls and procedures of all systems and work processes. In terms of the Banks Act (Act 94 of 1990, amended 2007) the Audit Committee is responsible to assist the Board in its evaluation of the adequacy and efficiency of the internal control systems, accounting practices, information systems and auditing processes applied in the Bank in the day-to-day management of its business. The Committee will facilitate and promote communication on the matters referred to above, between the Board and senior management, the external auditors and the internal auditors. The Committee will also be responsible to introduce such measures as, in the Committee’s opinion, may serve to enhance the credibility and objectivity of financial statements and reports about the affairs of the Bank.

It will be the task of the Internal Audit Department to provide reasonable assurance over the effectiveness and integrity of the Bank’s risk management system in identifying, prioritising, managing and communicating significant exposure to risk and to provide reasonable assurance that the controls as designed are the most appropriate to mitigate risks in a cost-effective manner. Internal controls and procedures will be assessed in terms of the Internal Audit Charter of the Bank. 3.3 Asset and Liability Committee

The Asset and Liability Committee (ALCO) is chaired by an independent non-executive director, to oversee liquidity and interest rate risk programs, shock tests, monitor key risk indicators, develop and agree policies and procedures, set limits, prioritises activities and investments, and provide input to the senior management and the Board regarding the management of risks.

3.4 Credit Committee

The Credit Committee is chaired by an independent non-executive director and oversees credit risk activities, assessments and stress tests, develops and agrees on policies and procedures, sets limits, monitors key risk indicators, prioritises activities and investments, and provides input to the senior management and the Board regarding the management of credit risks.

3.5 Risk and Capital Management Committee

The Risk and Capital Management Committee is chaired by an independent non-executive director, and oversees compliance and operational risk programs, assessments, develops and agrees on policies and procedures, sets limits, monitors key risk indicators, prioritises activities and investments, and provides input to the senior management and the Board regarding the management of risks and the status of the programs, including matters relating to the Bank’s capital adequacy levels.

4. Interrelationship of risk management functions (OVA)

4.1 The four lines of defence

The Bank adopts the four lines of defence model.

First line of defence

Business units are the first line of defence. They take risks and are responsible and accountable for the ongoing management of such risks. This includes identifying, assessing and reporting such exposures, taking into account the Bank’s risk appetite and its policies, procedures and controls. The manner in which the business line executes its responsibilities reflects the Bank’s existing risk culture.

Second line of defence

The second line of defence includes an independent risk management function. The Risk Management function complements the business line’s risk activities through its monitoring and reporting responsibilities. Among other things, it is responsible for overseeing the Bank’s risk-taking activities and assessing risks and issues independently from the business line. The function promotes the importance of senior management and business line managers in identifying and assessing risks critically rather than relying only on surveillance conducted by the risk management function. Among other things, the Finance function plays a critical role in ensuring that business performance and profit and loss results are accurately captured and reported to the Board, management and business lines that will use such information as a key input to risk and business decisions.

The second line of defence also includes an independent and effective Compliance function. The Compliance function, should among other things, routinely monitor compliance with laws, corporate governance rules, regulations, codes and policies to which the Bank is subject. The Board approves compliance policies that are communicated to all staff. The Compliance function assesses the extent to which policies are observed and reports to senior

management and, as appropriate, to the Board on how the Bank is managing its compliance risk. The function also has sufficient authority, stature, independence, resources and access to the Board.

Third line of defence

The third line of defence consists of an independent and effective internal audit function. Among other things, it provides independent review and objective assurance on the quality and effectiveness of the Bank’s internal control system, the first and second lines of defence and the risk governance framework including links to organisational culture, as well as strategic and business planning, compensation and decision-making processes. Internal audit is not involved in developing, implementing or operating the risk management function or other first or second line of defence functions.

Fourth line of defence

Assurance from external independent bodies such as the external auditors and other external bodies. External bodies may not have the existing familiarity with the organisation that an internal audit function has, but they can bring a new and valuable perspective. Additionally, their outsider status is clearly visible to third parties, so that they can not only be independent but be seen to be independent. 4.2 Risk culture Values and Ethics

The Board of Directors (the Board) endorses the Bank’s commitment to the conduct of the business in accordance with the highest ethical standards, as expressed in the Code of Conduct, and to responsibility, accountability, fairness and transparency. Bank employees receive training on and are required to acknowledge and accept the Code of Conduct at induction. During the year employees were required to participate in an online survey to confirm their adherence to the Code of Conduct, and policies including the Conflict of Interests policy. The Bank’s commitment to ethical conduct in its business is expressed in policies addressing procurement, fraud, criminal activity, zero tolerance, money laundering, proceeds of crime, discrimination and sexual harassment. The responsibility for implementing and executing the Code of Conduct and ethics policies lies with management, and disciplinary action is taken against employees who contravene the policies. Related Parties

The Conflicts of Interest policy regulates the conduct of dealings with related parties, to ensure that potential conflicts of interest are avoided, and all related party transactions are fully disclosed.

Declarations of related party transactions are required to be made at least quarterly and are reported to the Audit Committee. The directors are required to make declarations of interest at each directors’ meeting in accordance with the provisions of the Companies Act, the

Corporate Governance Policy and the Board Charter and Code of Conduct. Whistleblowing

The Bank participates in the Bidvest Group confidential anti-fraud tip-off line: all reports are investigated, and disciplinary or other appropriate action taken. The Protected Disclosure Policy, to which all employees are subject, specifies the protection of whistle-blowers and their recourse for any occupational detriment they may suffer. In appropriate cases rewards may be given.

5. Main ERM categories (OVA) The Bank is exposed to various forms of risk in strategic, tactical and daily activities. The main risks the Bank is exposed to are set out in broad categories below.

5.1 Bank Specific Risks

Credit risk

The current and prospective risk to earnings or capital arising from an obligor’s failure to meet the term of any contract with the Bank or otherwise perform as agreed. Credit risk is found in all activities where success depends on counterparty, issuer or borrower performance. Credit risk is managed within the risk appetite of the Bank. Acceptable credit risk identified in a credit application is mitigated through sufficient underlying security. To enhance the return on funds, and therefore shareholder value, a certain amount of risk has to be taken in the lending activities of the Bank. The risk tolerance of the Bank is, however, low and therefore all credit risk is mitigated through sound credit principles, and all lending done against appropriate security, except where other factors deem it not necessary to obtain specific security.

The basic principle governing the Bank’s lending philosophy is the need for management to satisfy itself that the business of the borrower has the capacity to deploy its assets in a way that will generate the earnings/cash flows on a sustainable basis to facilitate the repayment of any facilities granted.

Interest rate risk

The risk to earnings or capital arising from movements in interest rates. Interest rate risk arises from differences between the timing of rate changes and the timing of cash flows (re-pricing risk); from changing rate relationships among different yield curves affecting Bank activities (basis risk); from changing rate relationships across the spectrum of maturities (yield curve risk); and from interest‐related options embedded in products (options risk).

Liquidity risk

The current and prospective risk to earnings or capital arising from incurring unacceptable losses. Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources. Liquidity risk also arises from failure to recognise or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value. Liquidity risk can be divided into two sub-categories:

● Market liquidity risk: The ease with which assets can be liquidated; and ● Funding liquidity risk: The ease with which additional funding can be raised e.g. in

the interbank or wholesale markets.

Effective liquidity risk management is a daily process used to monitor and project cash flows to ensure adequate liquidity is maintained. The mismatch of cash flows could lead to situations where cash outflows exceed cash inflows in a given period. This may result in the Bank’s failure to meet its obligations to pay creditors, repay depositors and fulfil commitments to lend.

Liquidity management is the process to meet the Bank’s commitments as they fall due, at an appropriate cost, whilst maintaining market confidence in the Bank.

Market risk

The risk to earnings or capital arising from changes in the value of traded portfolios of financial instruments. This risk arises from market-making, dealing and position-taking in interest rate, foreign exchange, equity and commodities markets. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

Overall authority for market risk is vested in ALCO. The Risk Department is responsible for the development of detailed risk management policies (subject to review and approval by ALCO) and for the day-to-day review of their implementation.

Currency risk

The risk of financial loss due to fluctuations in exchange rates.

Solvency risk

The risk of financial loss due to inability both to meet long-term fixed expenses and to have adequate funds for long-term expansion and growth.

Concentration risk

The risk of an adverse overall spread of the Bank's outstanding accounts over the number or variety of debtors to whom the Bank has lent money.

Counterparty credit risk

The risk arising from the possibility that the counterparty may default on amounts owed on a derivative transaction. Derivatives are financial instruments that derive their value from the performance of assets, interest or currency exchange rates, or indexes.

5.2 Other and operational risks

Compliance risk

The current and prospective risk to earnings or capital arising from violations of, or non-conformance with, laws, rules, regulations, prescribed practices, internal policies and procedures, or ethical standards. Compliance risk also arises in situations where the laws governing certain Bank products or activities of the Bank’s clients may be ambiguous or

untested. This risk exposes the Bank to fines, civil money penalties, payment of damages and the voiding of contracts. Compliance risk can lead to diminished reputation, reduced franchise value, limited business opportunities, reduced expansion potential and lack of contract enforceability.

Strategic risk

The current and prospective impact on earnings or capital arising from adverse business decisions, improper implementation of decisions or lack of responsiveness to industry changes. This risk is a function of the compatibility of the Bank’s strategic goals, the business strategies developed to achieve those goals, the resources deployed against those goals and the quality of implementation. The resources needed to carry out business strategies are both tangible and intangible. They include communication channels, operating systems, delivery networks and managerial capacities and capabilities. The organisation’s internal characteristics must be evaluated against the impact of economic, technological, competitive, regulatory and other environmental changes.

Reputation risk

The current and prospective impact on earnings and capital arising from negative public opinion. This affects the Bank’s ability to establish new relationships or services or continue servicing existing relationships. This risk may expose the institution to litigation, financial loss or a decline in its customer base. Reputation risk exposure is present throughout the organisation and includes the responsibility to exercise an abundance of caution in dealing with customers and the community.

Operational risk

The risk of loss resulting from inadequate or failed internal processes, people and systems from external events. This includes legal risk. These are the types of non-credit and non-interest rate exposures that can lead to financial loss – fraud, business outages, IT failures, vendor outages or failures, financial statement control issues and processing errors. The Bank’s objective is to manage operational risk so as to balance the avoidance of financial losses not part of operational risk with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The Operational Risk Committee is responsible for oversight of the Bank’s operational risks.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit.

Human resource risk

The risk of financial loss due to failure of human resource policies and procedures, including failure to appoint and retain knowledgeable, skilled, and talented staff.

Technology risk

The risk of financial loss due to technology related failure.

Business continuity and disaster recovery risk

The risk of financial loss due to insufficient business continuity or disaster recovery planning.

Systemic risk

The risk of financial loss due to the financial system as a whole not being able to withstand the effects of a market crisis.

Legal risk

The risk of financial loss due to legal action against the Bank, or through the inability of the Bank to exercise its rights.

Tax risk

The risk of non-compliance to tax laws.

Regulatory risk

The risk of a change in regulations and law that might affect the Bank.

Environmental risk

The actual or potential threat of adverse effects on living organisms and the environment by effluents, emissions, wastes, resource depletion, etc., arising out of the Bank’s activities.

6. Risk appetite (OVA)

The Board and management use a balanced approach in determining acceptable levels of risk to undertake. The Bank will only tolerate those risks which permit it to:

● achieve its stated strategic business objectives; ● provide a return that meets or exceeds expectations; ● comply with all applicable laws and regulations; and

● conduct its business in a safe and sound manner. The Board approves, and management sets general risk appetite levels annually through several means including:

● The overall internal and external risk environments are considered in conjunction with the strategic planning process.

● Key strategic business objectives and their financial and non‐financial risk appetite levels are set annually and expressed in the strategic plan and policies. Within the scope of their authority and guidelines established in business plans, policies, and procedures, business unit managers make decisions regarding acceptable levels of risk. Managers are also responsible for implementing risk mitigation strategies of retention, control, avoidance and transfer.

For monitoring and reporting purposes, management and the Board use a set of Key Risk Indicators of inherent risk across the predefined risk categories, assessing if they are within tolerances, and if the trend is increasing, stable, or decreasing. These are tracked in a common reporting format. High risk indicators and action plans are tracked by the various committees with update reporting to the Board at least quarterly or as requested.

Bank-wide risk appetite statement

The Bank considers both qualitative and quantitative measures as part of its risk appetite and focuses on capital, liquidity, profitability, and growth as primary measures. Financial operations are managed to obtain a reasonable risk / return relationship within the management of the various risks to which the Bank is exposed, including strategy risk, credit risk, liquidity risk and reputational risk. The Bank’s risk appetite is linked to its short and longer-term strategy focussing on higher return on equity, growth in profitability, year on year growth and revenue diversification. The Bank’s risk appetite also specifies, as part of risk appetite, risk tolerances around its risk appetite, such as acceptable limits of credit losses. The risk appetite is reviewed annually and is adjusted to take cognisance of target values and market prospects. The Bank’s overall risk appetite is relatively low.

7. Components of the Bank’s ERM framework (OVA)

Mandate and Commitment

Design of framework for managing risk

Understanding the organisation and its context Establishing Risk Management Policy

Accountability Integration into the Bank’s processes

Resources Establishing internal communication and

reporting mechanisms Establishing external communication and

reporting mechanisms

Monitoring and review of the framework

Implementing risk management

Implementing the framework for managing risk

Implementing the risk management process

Continual improvement of the framework

8. Capital management

The South African Reserve Bank (“SARB”) sets and monitors capital requirements for the Bank as a whole. In implementing current capital requirements, the SARB requires the Bank to maintain a prescribed ratio of total capital to total risk-weighted assets, market risk exposure and operational risk exposure. The Bank follows the Standardised Approach under Basel III and calculates requirements for market risk in its banking portfolios based upon the Bank’s market risk models and uses both external and internal grading as the basis for risk weightings for credit risk.

The Bank’s regulatory capital is analysed into two categories:

● tier I capital, which includes ordinary share capital, share premium and appropriated retained earnings; and

● tier II capital, which includes collective impairment allowances.

Banking operations are categorised as either trading book or banking book, and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and off-balance sheet statement of financial position exposures.

The Bank’s ICAAP is formalised and approved by the Board. The Bank’s policy is to maintain a strong capital base to maintain investor, credit and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognised and the Bank recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.

The Bank and its operations have complied with all externally imposed capital requirements throughout the year and previous year.

There have been no material changes in the Bank’s management of capital during the year.

The Bank’s ICAAP reflects its internal assessment of risk. The ICAAP determines the most suitable level of economic capital, i.e. the capital required to remain solvent under conditions that are extreme in nature. For potential losses arising from risk types that are statistically quantifiable, economic capital reflects the worst- case loss, taking risk-adjusted returns on capital into account.

The final economic capital level determined through the ICAAP reflects the capital to be held for risks as assessed by management instead of implicated by a prescribed regulatory formula. The economic capital requirement is then compared to the regulatory capital requirement to determine the buffer to be held for uncertainties to ensure adequate capitalisation for the Bank.

Statement of financial position forecasting based on business and strategy planning allows management to ensure that minimum required capital ratios are adhered to.

The table below provides a breakdown of the Bank’s Risk Weighted Assets and required capital as at 31 December 2020.

8.1 Overview of Risk Weighted Assets (OV1)

RWA (R’000)

Minimum capital requirements (R’000)

Dec-20 Dec-19 Dec-20

1 Credit risk (excluding counterparty Credit Risk

(CCR) and Credit Valuation Adjustment (CVA) 4,719,495 4,700,963 495,547

2 Of which Standardised Approach (SA) 4,719,495 4,700,963 495,547 3 Of which Foundation Internal Rating-Based (FIRB)

approach - - -

4 Of which Supervisory slotting approach - - -

5 Of which Advanced Internal Ratings Based Approach (A-IRB)

6 Counterparty Credit Risk (CCR) and Credit Valuation Adjustment (CVA) 29,968 61,485 3,147

7 Of which Standardised Approach for c counterparty credit risk (SA - CCR) 29,968 61,485 3,147

8 Of which Internal Model Method (IMM) - - - 9 Of which other 10 Credit Valuation Adjustment (CV) - - - 11 Equity positions under the simple risk weight

approach 78,190 76,298 8,210

12 Equity investment in funds – look through approach

13 Equity investment in funds – mandate based approach

14 Equity investment in funds – fall back approach 15 Settlement risk 16 Securitisation exposures in banking book 17 Of which: securitisation internal ratings-based

approach(SEC-IRBA)

18 Of which: securitisation external ratings-based approach (SEC-ERBA), including internal assessment approach (IAA)

19 Of which: securitisation standardised approach (SEC-SA)

20 Market Risk 6,450 16,961 677 21 Of which Standardised Approach (SA) 6,450 16,961 677 22 Of which Internal Model Method approaches

(IMM) - - -

23 Capital charge for switch between trading book and banking book

24 Operational Risk 2,226,936 2,527,147 233,828 25 Amounts below the thresholds for deduction

(subject to 250% risk weight) - - -

26 Floor adjustment - - -

Other risks 2,179,129 2,111,470 228,809 27 Total (1 + 6 + 10 + 11 + 12 + 13 + 14 + 15 + 16 + 20 +

23 + 24 + 25 + 26)

9,240,168 9,494,325 970,218

The percentage minimum capital requirement used for calculating the capital requirement is constructed as follows: 8% minimum capital requirement, plus 2.5% capital conservation buffer - Total: 10.5%.

Other risks reflected in the table above relate to property and equipment and other assets as contained in the Bank’s statement of financial position.

8.2 Key metrics (R’000) (KM1)

As at 31 December 2020 the Bank was adequately capitalised and the below capital related items are highlighted.

a b c d e T T-1 T-2 T-3 T-4 Available capital 1 Common Equity Tier 1 2,054,665 2,050,741 2,058,247 2,005,646 2,019,497 1a Fully loaded ECL

accounting model 2,054,665 2,050,741 2,058,247 2,005,646 2,019,497

2 Tier 1 2,054,665 2,050,741 2,058,247 2,005,646 2,019,497 2a Fully loaded ECL

accounting model Tier 1 2,054,665 2,050,741 2,058,247 2,005,646 2,019,497

3 Total qualifying capital 2,099,532 2,096,901 2,099,414 2,009,807 2,023,657 3a Fully loaded ECL

accounting model total capital

2,099,532 2,096,901 2,099,414 2,009,807 2,023,657

Risk weighted assets

4 Total risk-weighted assets (RWA)

9,240,168 9,379,391 9,547,834 9,880,712 9,494,325

Risk based capital ratios as percentage of RWA

5 Common Equity Tier 1 (%)

22.24% 21.86% 21.56% 20.30% 21.27%

5a Fully loaded ECL accounting model Common Equity Tier 1 (%)

22.24% 21.86% 21.56% 20.30% 21.27%

6 Tier 1 ratio (%) 22.24% 21.86% 21.56% 20.30% 21.27% 6a Fully loaded ECL

accounting model Tier 1 ratio (%)

22.24% 21.86% 21.56% 20.30% 21.27%

7 Total qualifying capital ratio (%)

22.72% 22.36% 21.99% 20.34% 21.31%

7a Fully loaded ECL accounting model total capital ratio (%)

22.72% 22.36% 21.99% 20.34% 21.31%

Additional CET1 buffer requirements as percentage of RWA

8 Capital conservation buffer requirement (2.5% from 2019) (%)

2.5% 2.5% 2.5% 2.5% 2.5%

9 Countercyclical buffer requirement (%)

- - - - -

10 Bank G-SIB and/or D-SIB additional requirement (%)

- - - - -

11 Total of bank CET1 specific buffer requirement (%) (row 8 + row 9 + row 10)

2.5% 2.5% 2.5% 2.5% 2.5%

12 CET1 available after meeting the bank’s

11.74% 11.36% 10.06% 8.80% 9.77%

minimum capital requirements (%)

Basel III Leverage Ratio

13 Total Basel III leverage ratio exposure measure

11,675,419 11,392,540 11,484,987 11,885,154 10,962,013

14 Basel III leverage ratio (%) (row 2/ row 13)

17.60% 18.00% 17.92% 16.88% 18.42%

14a Fully loaded ECL accounting model Basel III leverage ratio (%)

17.60% 18.00% 17.92% 16.88% 18.42%

Liquidity Coverage Ratio 15 Total HQLA 2,373,047 1,507,924 1,214,248 1,421,506 1,451,422 16 Total net cash outflow 493,185 450,852 504,045 536,445 431,743 17 LCR ratio (%) 481% 334% 241% 265% 336% Net Stable Funding Ratio 18 Total Available Stable

funding 8,985,820 8,800,815 8,731,262 9,221,934 8,544,132

19 Total Required Stable funding

5,612,586 5,750,496 5,855,627 6,206,521 5,577,237

20 NSFR ratio 160% 153% 149% 149% 153%

*** Values and percentages have not changed significantly between quarters other for the LCR. The movements in the LCR are caused by changes in the Bank’s High Quality Liquid Assets (HQLA) resulting from the purchase and sale of HQLA to optimize yield.

Description R’000

Total Capital and reserves 2,736,710 Qualifying capital and reserves 2,099,532 Of which: Tier I 2,054,665 Of which: Tier II 44,867 Total amount of qualifying capital required 970,218 Total risk weighted assets 9,240,168 Capital Adequacy Ratio (CAR) (qualifying capital and reserves) 22.72% Capital Adequacy Ratio (CAR) (total capital and reserves) 29.62% Regulatory minimum CAR 10.50% Internal Board approved CAR 16.00%

8.3 Composition of regulatory capital (CC1)

Common Equity Tier I capital: instruments and reserves (R’000)

1 Directly issued qualifying common share capital (and equivalent for non-joint stock companies) plus related stock surplus

527,779

2 Retained earnings 1,716,096

3 Accumulated other comprehensive income (and other reserves) (11,103)

4 Directly issued capital subject to phase out from CET1 (only applicable to non-joint stock companies)

-

Public sector capital injections grandfathered until 1 January 2018 -

5 Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET1)

-

6 Common Equity Tier 1 capital before regulatory adjustments 2,232,772

Common Equity Tier 1 capital: regulatory adjustments 7 Prudential valuation adjustments 8 Goodwill (net of related tax liability) 30,609

9 Other intangibles other than mortgage-servicing rights (net of related tax liability)

147,498

10 Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) -

11 Cash-flow hedge reserve - 12 Shortfall of provisions to expected losses - 13 Securitisation gain on sale - 14 Gains and losses due to changes in own credit risk on fair valued liabilities - 15 Defined benefit pension fund net assets -

16 Investments in own shares (if not already netted off paid-in capital on reported balance sheet) -

17 Reciprocal crossholdings in common equity -

18

Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above 10% threshold)

-

19 Significant investments in common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold)

-

20 Mortgage servicing rights (amount above 10% threshold) -

21 Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability) -

22 Amount exceeding the 15% threshold -

23 of which: significant investments in the common stock of financials -

24 of which: mortgage servicing rights -

25 of which: deferred tax assets arising from temporary differences -

26 National specific regulatory adjustments

REGULATORY ADJUSTMENTS APPLIED TO COMMON EQUITY TIER 1 IN RESPECT OF AMOUNTS SUBJECT TO PRE-BASEL III TREATMENT -

27 Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and Tier 2 to cover deductions -

28 Total regulatory adjustments to Common equity Tier 1 178,107

29 Common Equity Tier 1 capital (CET1) 2,054,665

Additional Tier 1 capital: instruments

30 Directly issued qualifying Additional Tier 1 instruments plus related stock surplus

54,133

31 of which: classified as equity under applicable accounting standards - 32 of which: classified as liabilities under applicable accounting standards -

33 Directly issued capital instruments subject to phase out from Additional Tier 1 -

34 Additional Tier 1 instruments (and CET1) instruments not included in line 5) issued by subsidiaries and held by third parties (amount allowed in group AT1)

-

35 Of which: instruments issued by subsidiaries subject to phase out - 36 Additional Tier 1 capital before regulatory adjustments 54,133

Additional Tier 1 capital: regulatory adjustments

37 Investments in own Additional Tier 1 instruments - 38 Reciprocal crossholdings in Additional Tier 1 instruments -

39

Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above 10% threshold)

-

40 Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions)

-

41 National specific regulatory adjustments (54,133)

REGULATORY ADJUSTMENTS APPLIED TO COMMON EQUITY TIER 1 IN RESPECT OF AMOUNTS SUBJECT TO PRE-BASEL III TREATMENT -

42 Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions

-

43 Total regulatory adjustments to Additional Tier 1 capital (54,133)

44 Additional Tier 1 capital (AT1) -

45 Tier 1 capital (T1 = CET1 + AT1) 2,054,665

Tier 2 capital and provisions

46 Directly issued qualifying Tier 2 instruments plus related stock surplus -

47 Directly issued capital instruments subject to phase out from Tier 2 -

48 Tier 2 instruments (and CET1 and AT1 instruments not included in lines 5 or 34) issued by subsidiaries and held by third parties (amount allowed in group Tier 2)

-

49 of which: instruments issued by subsidiaries subject to phase out -

50 Provisions 44,867 51 Tier 2 capital before regulatory adjustments 44,867

Tier 2 capital: regulatory adjustments

52 Investment in own Tier 2 instruments - 53 Reciprocal crossholdings in Tier 2 instruments -

54

Investments in capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not win more than 10% of the issued common share capital of the entity (amount above the 10% threshold)

-

55 regulatory consolidation (net of eligible short positions) - 56 National specific regulatory adjustments -

REGULATORY ADJUSTMENTS APPLIED TO COMMON EQUITY TIER 2 IN RESPECT OF AMOUNTS SUBJECT TO PRE-BASEL III TREATMENT -

57 Total regulatory adjustments to Tier 2 capital - 58 Tier 2 capital (T2) 44,867 59 Total capital (TC = T1 + T2) 2,099,532

RISK WEIGHTED ASSETS IN RESPECT OF AMOUNTS SUBJECT TO PRE-BASEL III TREATMENT

-

60 Total risk weighted assets 9,240,168

Capital ratios

61 Common Equity Tier 1 (as percentage of risk weighted assets) 22.24%

62 Tier 1 (as percentage of risk weighted assets) 22.24% 63 Total capital (as percentage of risk weighted assets) 22.72%

64

Institution specific buffer requirement (minimum CET1 requirement plus capital conservation buffer plus countercyclical buffer requirements plus G-SIB buffer requirement, expressed as a percentage of risk weighted assets)

-

65 of which: capital conservation buffer requirements 2.5%

66 of which: bank-specific countercyclical buffer requirement 0%

67 of which: G-SIB buffer requirement 0%

68 Common Equity Tier 1 available to meet buffers (as percentage of risk weighted assets)

22.24%

National Minima (if different from Basel 3)

69 National Common Equity Tier 1 minimum ratio (if different from Basel 3 minimum)

7.0%

70 National Tier 1 minimum ratio 8.5% 71 National total capital minimum ratio 10.5%

Amounts below the threshold for deductions (before risk weighting)

72 Non-significant investments in the capital of other financials -

73 Significant investments in the common stock of financials -

74 Mortgage servicing rights (net of related tax liability) -

75 Deferred tax assets arising from temporary differences (net of related tax liability) -

Applicable caps on the inclusion of provisions in Tier 2

76 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to Standardised Approach (prior to the application of cap)

44,867

77 Cap on inclusion of provisions in Tier 2 under Standardised Approach (1.25% of RWE)

115,502

78 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based approach (prior to the application of cap)

-

79 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach

-

Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2018 and 1 Jan 2022)

80 Current cap on CET1 instruments subject to phase out arrangements -

81 Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities)

-

82 Current cap on AT1 instruments subject to phase out arrangements -

83 Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) -

84 Current cap on T2 instruments subject to phase out arrangements -

85 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) -

8.4 Reconciliation of Regulatory Capital to Balance Sheet (CC2)

a b

Balance sheet as in published financial

statement

Under regulatory scope of

consolidation

Assets

Cash and cash equivalents 4,566,766 4,566,766

Derivative financial assets 28,328 28,328

Negotiable Securities 89,613 89,613 Loans and advances 3,024,633 3,024,633 Loans to companies within Group 214,881 214,881 Leased assets 1,350,541 1,350,541 Investment securities 1,373,970 1,373,970 Other assets 303,093 303,093 Equipment 88,265 88,265 Current Taxation 14,715 14,715 Inventories 48,716 48,716 Right of use asset 213,709 213,709 Intangible assets 178,107 178,107 Of which: Goodwill 30,609 30,609

Of which: Other Intangibles (excl MSRs) 147,498 147,498

Total assets 11,495,335 11,495,335

Equity and liabilities Equity 2,740,115 2,740,115 Share capital 2,070 2,070 Share premium 525,709 525,709 Fair value reserve (11,102) (11,102) Retained earnings 2,223,439 2,223,439 Of which: Appropriated 1,716,096 1,716,096

Of which: Unappropriated 507,343 507,343

Liabilities 8,755,221 8,755,221 Intergroup loans - - Derivative financial liabilities 1,972 1,972 Deposits 7,714,453 7,714,453 Other liabilities 424,465 424,465 Deferred taxation 202,380 202,380 Lease liability 246,862 246,862 Long term loan – Covid 19 64,558 64,558 Floating rate notes 100,219 100,219 Defined benefit liability 312 312 Total equity and liabilities 11,495,335 11,495,335

8.5 Summary comparison of accounting assets vs leverage ratio exposure measure (LR1)

Item R'000

1 Total consolidated assets as per published financial statements 11,495,335

2 Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation

(54,133)

3 Adjustment for fiduciary assets recognised on the balance sheet pursuant to the operative accounting framework but excluded from the leverage ratio exposure measure

(178,107)

4 Adjustments for derivative financial instruments 7,783

5 Adjustment for securities financing transactions (ie repos and similar secured lending)

-

6 Adjustment for off-balance sheet items (ie conversion to credit equivalent amounts of off- balance sheet exposures) 408,774

7 Other adjustments (4,233) 8 Leverage ratio exposure 11,675,419

8.6 Leverage Ratio Common Disclosure Template (LR2)

Item

Leverage ratio

framework (Dec 2020)

Leverage ratio

framework (Dec 2019)

On-balance sheet exposures

1 On-balance sheet items (excluding derivatives and SFTs, but including collateral) 11,467,007 10,727,507

2 (Asset amounts deducted in determining Basel III Tier 1 capital)

(236,473) (278,865)

3 Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of lines 1 and 2)

11,230,534 10,448,642

Derivative exposures

4 Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin)

28,328 40,724

5 Add-on amounts for PFE associated with all derivatives transactions 7,782

16,154

6 Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the operative accounting framework

-

7 (Deductions of receivables assets for cash variation margin provided in derivatives transactions) -

8 (Exempted CCP leg of client-cleared trade exposures) -

9 Adjusted effective notional amount of written credit derivatives

-

10 (Adjusted effective notional offsets and add-on deductions for written credit derivatives) -

11 Total derivative exposures (sum of lines 4 to 10) 36,111 56,878

Securities financing transaction exposures

12 Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions -

13 (Netted amounts of cash payables and cash receivables of gross SFT assets)

-

14 CCR exposure for SFT assets - 15 Agent transaction exposures -

16 Total securities financing transaction exposures (sum of lines 12 to 15)

-

Other off-balance sheet exposures

17 Off-balance sheet exposure at gross notional amount

2,699,106

2,403,981

18 (Adjustments for conversion to credit equivalent amounts) (2,290,332) (1,947,489) 19 Off-balance sheet items (sum of lines 17 and 18) 408,774 456,492

Capital and total exposures

20 Tier 1 capital 2,054,665

2,019,497

21 Total exposures (sum of lines 3, 11, 16 and 19) 11,675,419 10,962,012

Leverage ratio

22 Basel III leverage ratio 17.60% 18.42%

9.1 Credit quality of assets (R’000) (CR1)

a b c d

Gross carrying values of Allowances/ impairments

Net values (a + b - c)

Defaulted exposures

Non-defaulted exposures

1 Loans 20,556 3,049,772 45,695 3,024,633 2 Investment securities - 1,373,970 - 1,373,970

3 Cash and balances with banks - 4,566,766 - 4,566,766

4 Debt securities 34,079 66,567 11,033 89,613

5 Off-balance sheet exposures - 186,211 - 186,211

6 Total 54,635 9,243,286 56,728 9,241,193

9.2 Changes in stock of defaulted loans and debt securities (R’000) (CR2)

a

1 Defaulted loans and debt securities at the end of the previous reporting period

82,347

2 Loans and debt securities that have defaulted since the last reporting period - 3 Returned to non-defaulted status - 4 Amounts written off - 5 Other changes (27,712)

6 Defaulted loans and debt securities at the end of the reporting period (1+2-3-4±5) 54,635

10.1 Credit risk mitigation techniques (R’000) (CR3)

a b c d

Exposures unsecured:

carrying amount

Exposures secured by

collateral

Exposures secured by

collateral, of which:

secured amount

Exposures secured

by financial

guarantees

1 Loans 3,024,633 - - - 2 Debt securities 89,613 - - 200,000 3 Total 3,114,246 - - 200,000 4 Of which: defaulted 54,635 - - -

e f g

Exposures secured by

financial guarantees,

of which: secured amount

Exposures secured by

credit derivatives

Exposures secured by

credit derivatives, of

which: secured amount

1 Loans - - - 2 Debt securities - - - 3 Total 200,000 - - 4 of which defaulted - - -

10.2 Standardised approach – credit risk exposure and Credit Risk Mitigation (CRM) effects (R’000) (CR4)

a b

Exposures before CCF and CRM

Asset classes On-balance

sheet amount

Off-balance

sheet amount

1 Sovereigns and their central banks 1,412,604 41,122 2 Non-central government public sector entities 28,058 3,471 3 Multilateral development banks - - 4 Banks 2,527,727 34,121 5 Local Government and Municipalities 255,746 - 6 Securities firms 730,825 - 7 Corporates 2,049,445 2,484,019 8 Regulatory retail portfolios 683,998 12,039 9 of which: Secured by residential property 39,726 - 10 Secured by commercial real estate 56,146 - 11 Equity - - 12 Past-due loans 9,353 - 13 Higher-risk categories 928 - 14 Other assets - - 15 Total 7,688,405 2,574,772

c d

Exposures post CCF and CRM

Asset classes

On-balance sheet

amount

Off-balance

sheet amount

1 Sovereigns and their central banks 1,412,770 17,251 2 Non-central government public sector entities 27,922 41 3 Multilateral development banks - - 4 Banks 2,633,058 34,121 5 Local Government and Municipalities 255,916 - 6 Securities firms 1,022,081 - 7 Corporates 2,180,082 124,387 8 Regulatory retail portfolios 694,851 1,238 9 of which: Secured by residential property 39,751 - 10 Secured by commercial real estate 56,295 - 11 Equity - - 12 Past-due loans 9,358 - 13 Higher-risk categories 923 - 14 Other assets - 15 Total 8,226,679 177,039

e f RWA and RWA density

Asset classes RWA RWA

density

1 Sovereigns and their central banks - - 2 Non-central government public sector entities 5,592 0.12% 3 Multilateral development banks - - 4 Banks 791,560 16.76% 5 Local Government and Municipalities 51,183 1.08% 6 Securities firms 1,022,081 21.64% 7 Corporates 2,308,884 48.86% 8 Regulatory retail portfolios 544,678 11.54% 9 of which: Secured by residential property 15,336 0.32% 10 Secured by commercial real estate 54,494 1.15% 11 Equity - - 12 Past-due loans 5,841 0.12% 13 Higher-risk categories 1,384 0.03% 14 Other assets - 15 Total 4,723,979 100%

10.3 Standardised approach – exposure by asset classes and risk weights (R’000) post CCF and CRM (CR5)

a b c d e Risk weight Asset class 0% 10% 20% 35% 50%

1 Sovereigns and their central banks

1,430,021 - - - -

2 Non-central government public sector entities (PSEs) - - 27,963 - -

3 Multilateral development banks (MDBs) - - - - -

4 Banks - - 1,875,469 - 750,489

5 Local Government and Municipalities

- - 255,916 - -

6 Securities firms - - - - - 7 Corporates - - - - - 8 Regulatory retail portfolios - - - 21,290 -

9 of which: Secured by residential property

- - - 21,290 -

10 Secured by commercial real estate - - - - -

11 Equity - - - - -

12 Past-due loans - - - 4,673 -

13 Higher-risk categories - - - - -

14 Other assets - - - - -

15 Total 1,430,021 - 2,159,348 21,290 750,489

f g h i j Risk weight

Asset class 75% 100% 150% Other

Total credit

exposures amount

(post CCF and post

CRM)

1 Sovereigns and their central banks - - - - 1,430,021

2 Non-central government public sector entities (PSEs)

- - - - 27,963

3 Multilateral development banks (MDBs) - - - - -

4 Banks - 41,222 - - 2,667,180

5 Local Government and Municipalities - - - - 255,916

6 Securities firms - 1,022,081 - - 1,022,081

7 Corporates - 2,295,639 8,830 - 2,304,469 8 Regulatory retail portfolios 524,022 149,855 923 - 696,090

9 of which: Secured by residential property

14,196 4,266 - - 39,752

10 Secured by commercial real estate 7,205 49,091 - - 56,296

11 Equity - - - - -

12 Past-due loans 3,762 - 923 - 9,358

13 Higher-risk categories - - 923 - 923 14 Other assets - - - - - 15 Total 524,022 3,508,797 9,753 - 8,403,720

Additional CRM disclosure can be found in Note 18 of the Bank’s AFS as published on the Bank’s website: www.bidvestbank.co.za.

11.1 Analysis of Counterparty Credit Risk (CCR) exposure by approach (CCR1)

a b c d e f

Regulatory portfolio Replacement

cost

Potential

Future

Exposure

EEPE

Alpha used for comput

ing regulat

ory EAD

EAD post CRM

RWA

SA – CCR (for derivatives) 28,328 7,782 - 1.4 31,799 29,968 Internal Model Method (for derivatives and SFTs) - -

Simple Approach for Credit Risk Mitigation (for SFTs)

Comprehensive Approach for Credit Risk Mitigation (for SFTs)

VAR (for SFTs)

Total 28,328 7,782 - 1.4 31,799 29,968

11.2 Credit Valuation Adjustment (CVA) capital charge (R’000) (CCR2)

a b EAD post-CRM RWA

1 All portfolios subject to the Standardised CVA capital charge

31,799 29,968

2 Total subject to the CVA capital charge 31,799 29,968

11.3 Standardised approach of CCR exposures by regulatory portfolio and risk weights (post CCF and CRM) (R’000) (CCR3)

a b c d e Risk weight

Regulatory portfolio 0% 10% 20% 50% 75%

Sovereigns - - - - - Non-central government public sector entities (PSEs) - - - - -

Multilateral development banks (MDBs) - - - - - Banks - - 14,132 193 - Securities firms - - - - - Corporates - - - - -

Regulatory retail portfolios - - - - 689

Other assets - - - - -

Total - - 14,132 193 689

f g h i

Risk weight

Regulatory portfolio 100% 150% Others

Total credit

exposure

Sovereigns - - - - Non-central government public sector entities (PSEs) - - - -

Multilateral development banks (MDBs) - - - - Banks - - - 14,325 Securities firms - - - - Corporates 16,785 - - 16,785 Regulatory retail portfolios - - - 689 Other assets - - - -

Total 16,785 - - 31,799

11.4 Composition of collateral for CCR exposure (R’000) (CCR5)

a b c d e f

Collateral used in derivative transactions collateral used in SFTs

Fair value of collateral received Fair value of posted collateral Fair value of

collateral received

Fair value of posted

collateral Segregated Unsegregated Segregated Unsegregated

Cash - domestic currency

- 8,772 - 4,312 - -

Cash - other currencies - - - - - -

Domestic sovereign debt - - - - - -

Other sovereign debt

- - - - - -

Government agency debt - - - - - -

Corporate bonds - - - - - - Equity securities - - - - - - Other collateral - - - - - - Total - 8,772 - 4,312 - -

12.1 Market Risk under the Standardised Approach (R’000) (MR1)

a

Capital charge

1 General Interest rate risk - 2 Equity risk - 3 Commodity risk - 4 Foreign currency risk 6,450 5 Credit spread risk (non-securitisation) -

6 Credit spread risk (securitization non- correlation trading portfolio)

-

7 Credit spread risk (securitization correlation trading portfolio)

-

8 Default risk (non-securitisation) -

9 Default risk (securitization non-correlation trading portfolio) -

10 Default risk (securitization correlation portfolio) -

11 Residual risk add-on -

12 Total 6,450

Liquidity coverage ratio (LCR)

This standard aims to ensure that the Bank has an adequate stock of unencumbered High Quality Liquid Assets (HQLA) that consists of cash or assets that can be converted into cash at little or no loss of value in private markets, to meet its liquidity needs for a 30 calendar day liquidity stress scenario. Given the uncertain timing of outflows and inflows, the Banks is also expected to be aware of any potential mismatches within the 30-day period and ensure that sufficient HQLA are available to meet any cash flow gaps throughout the period.

*(above information is based on the Basel Committee on Banking Supervision January 2013 paper: “Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools”)

Additional disclosure on liquidity risk can be found in Note 18 of the Bank’s AFS as published on the Bank’s website: www.bidvestbank.co.za.

13.1 Liquidity Coverage Ratio (R’000) (LIQ1)

(R'000)

Total Unweighted

Value (Average)

Total Weighted

Value (Average)

HIGH-QUALITY LIQUID ASSETS 1 Total High-quality liquid assets (HQLA) 1,801,494

CASH OUTFLOWS

2 Retail deposits and deposits from small business customers, of which: 3,956,903 395,690

3 Stable deposits - - 4 Less stable deposits 3,956,903 395,690 5 Unsecured wholesale funding, of which: 3,337,082 1,427,300

6 Operational deposits (all counterparties) and deposits in networks of cooperative banks

- -

7 Non-operational deposits (all counterparties) 3,337,082 1,427,300 8 Unsecured debt - - 9 Secured wholesale funding -

10 Additional requirements, of which:

11 Outflows related to derivative exposures and other collateral requirements

41,544 41,544

12 Outflows related to loss of funding on debt products - - 13 Credit and liquidity facilities - -

14 Other contractual funding obligations

169,578

16,958 15 Other contingent funding obligations 2,003,557 99,053

16 TOTAL CASH OUTFLOWS 1,980,545

CASH INFLOWS 17 Secured lending (e.g. reverse repos) - - 18 Inflows from fully performing exposures 4,238,248 4,010,687 19 Other cash inflows 58,255 58,255

20 TOTAL CASH INFLOWS 4,068,942

TOTAL ADJUSTED VALUE 21 TOTAL HQLA 1,801,494 22 TOTAL NET CASH OUTFLOWS 495,136 23 LIQUIDITY COVERAGE RATIO (%) 364%

13.2 Net Stable Funding Ratio (NSFR)

The Net Stable Funding Ratio (NSFR) is one of the Basel Committee’s key reforms to promote a more resilient banking sector. The NSFR requires the Bank to maintain a stable funding profile in relation to the composition of its assets and off-balance sheet activities. A sustainable funding structure is intended to reduce the likelihood that disruptions to the Bank’s regular sources of funding will erode its liquidity position in a way that would increase the risk of its failure and potentially lead to broader systemic stress. The NSFR limits overreliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet items, and promotes funding stability.

The NSFR is defined as the amount of available stable funding relative to the amount of required stable funding. This ratio should be equal to at least 100% on an ongoing basis.

“Available stable funding” is defined as the portion of capital and liabilities expected to be reliable over the time horizon considered by the NSFR, which extends to one year. The amount of such stable funding required ("Required stable funding") of the Bank is a function of the liquidity characteristics and residual maturities of the various assets held by the Bank as well as those of its off-balance sheet (OBS) exposures.

The amount of available stable funding (ASF) is measured based on the broad characteristics of the relative stability of the Bank’s funding sources, including the contractual maturity of its liabilities and the differences in the propensity of different types of funding providers to withdraw their funding. The amount of ASF is calculated by first assigning the carrying value of the Bank’s capital and liabilities to various categories. The amount assigned to each category is then multiplied by an ASF factor, and the total ASF is the sum of the weighted amounts. Carrying value represents the amount at which a liability or equity instrument is recorded before the application of any regulatory deductions, filters or other adjustments.

The amount of required stable funding is measured based on the broad characteristics of the liquidity risk profile of the Bank’s assets and OBS exposures. The amount of required stable funding is calculated by first assigning the carrying value of the Bank’s assets to various categories. The amount assigned to each category is then multiplied by its associated required stable funding (RSF) factor, and the total RSF is the sum of the weighted amounts added to the amount of OBS activity (or potential liquidity exposure) multiplied by its associated RSF factor.

*(The above information is based on the Basel Committee on Banking Supervision October 2014 paper: “Basel III: the net stable funding ratio”)

13.2 Net Stable Funding Ratio (NSFR) (LIQ2)

a b c d e Unweighted value by residual maturity Weighted

value

No maturity < 6 months 6 months to

< 1 year

Greater or equal to 1

year

Available stable funding (ASF item)

1 Capital: 2,277,638 - - - 2,277,638 2 Regulatory capital 2,277,638 - - - 2,277,638 3 Other capital instruments - - - - - 4 Retail deposits and

deposits from small business customers:

- 5,016,082 835,650 10,719 5,277,277

5 Stable deposits - - - - - 6 Less stable deposits - 5,016,082 835,650 10,719 5,277,277 7 Wholesale funding: - 1,877,750 180,149 - 953,629 8 Operational deposits - - - - - 9 Other wholesale funding - 1,877,750 180,149 - 953,629 10 Liabilities with matching

interdependent assets - - - - -

11 Other liabilities - 845,561 - 477,276 477,276 12 NSFR derivative liabilities - - - 13 All other liabilities and

equity not included in the above categories

- 845,561 - 477,276 477,276

14 Total ASF 8,985,820

Required stable funding (RSF) item

15 Total NSFR high-quality liquid assets (HQLA)

62,612

16 Deposits held at other financial institutions for operational purposes

- - - - -

17 Performing loans and securities:

- 3,981,714 205,366 697,194 1,308,336

18 Performing loans to financial institutions secured by Level 1 HQLA

- 3,668,484 28,030 266,107 782,847

19 Performing loans to financial institutions secured by non-level 1 HQLA and unsecured performing loans to financial institutions

- 3,668,484 28,030 266,107 782,847

20 Performing loans to non-financial corporate clients, loans to retail and small business customers, and loans to sovereigns, central banks and PSEs of which:

- 313,230 177,336 431,087 525,489

21 With a risk weight of less than or equal to 35%

- - - 21,264 13,822

under the Basel II Standardized Approach for credit risk

22 Performing residential mortgages of which:

- - - 409,822 266,384

23 With a risk weight of less than or equal to 35% under the Basel II Standardized Approach for credit risk

- - - 409,822 266,384

24 Securities that are not in default and do not qualify as HQLA, including exchange-traded equities.

- - - - -

25 Assets with matching interdependent liabilities

- - - - -

26 Other assets: - 16,942 11,430 4,373,497 4,112,899 27 Physical traded

commodities, including gold

- - - - -

28 Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs

- - - - -

29 NSFR derivative assets - - - - - 30 NSFR derivative liabilities

before deduction of variation margin posted

- - - - -

31 All other assets not included in the above categories

- 16,942 11,430 4,373,497 4,112,899

32 Off-balance sheet items - 2,574,772 - - 128,739 33 Total RSF 5,612,586

34 Net Stable Funding Ratio %

160%

Annexure A – Pillar III Disclosure schedule

The schedule below provides an index of all required disclosure as set out in the Basel Pillar III consolidated and enhanced framework.

Table Description Frequency Comment KM1 Key metrics Quarterly Included KM2 Key metrics – TLAC requirements Quarterly The Bank is not a

GSIB. Excluded OVA Bank risk management approach Annual Excluded OV1 Overview of RWA Quarterly Included LI1 Differences between accounting and

regulatory scopes of consolidation and mapping of financial statement categories with regulatory risk categories

Annual Excluded

LI2 Main sources of differences between regulatory exposure amounts and carrying values in financial statements

Annual Excluded

LIA Explanations of differences between accounting and regulatory exposures amounts

Annual Excluded

PV1 Prudent valuation adjustments (PVA) Annual Excluded CC1 Composition of regulatory capital Semi-annual Included CC2 Reconciliation of regulatory capital to

balance sheet Semi-annual Included

CCA Main features of regulatory capital instruments and of other TLAC eligible instruments

Semi-annual The Bank does not have traded shares. Excluded. Composition of Regulatory capital included in table CC1

TLAC1 TLAC composition for G-SIBs Semi-annual The Bank is not a GSIB. Excluded

TLAC2 Material subgroup entity Semi-annual The Bank is not a GSIB. Excluded

TLAC3 Resolution entity Semi-annual The Bank is not a GSIB. Excluded

GSIB1 Disclosure of G-SIB indicators Annual Annual: The Bank is not a GSIB. Excluded

CCyB1 Geographical distribution of credit exposures used in the countercyclical buffer

Semi-annual The Bank does not have a CCyB. Excluded

LR1 Summary comparison of accounting assets vs leverage ratio exposure measure

Quarterly Included

LR2 Leverage ratio common disclosure template

Quarterly Included

LIQA Liquidity risk management Annual Excluded LIQ1 Liquidity Coverage Ratio (LCR) Quarterly Included LIQ2 Net Stable Funding Ratio (NSFR) Semi-annual Included

CRA General qualitative information about credit risk

Annual Excluded

CR1 Credit quality of assets Semi-annual Included CR2 Changes in stock of defaulted loans

and debt securities Semi-annual Included

CRB Additional disclosure related to the credit quality of assets

Annual Excluded

CRC Qualitative disclosure requirements related to credit risk mitigation techniques

Annual Excluded

CR3 Credit risk mitigation techniques Semi-annual Included CRD Qualitative disclosures on banks’ use

of external credit ratings under the standardised approach for credit risk

Annual Excluded

CR4 Standardised approach – credit risk exposure and credit risk mitigation (CRM) effects

Semi-annual Included

CR5 Standardised approach – exposures by asset classes and risk weights

Semi-annual Included

CRE Qualitative disclosures related to IRB models

Annual The Bank follows the Standardised approach. Excluded

CR6 IRB – credit risk exposures by portfolio and probability of default (PD) range

Semi-annual The Bank follows the Standardised approach. Excluded

CR7 IRB – effect on RWA of credit derivatives used as CRM techniques

Semi-annual The Bank follows the Standardised approach. Excluded

CR8 RWA flow statements of credit risk exposures under IRB

Semi-annual The Bank follows the Standardised approach. Excluded

CR9 IRB – backtesting of PD per portfolio Annual The Bank follows the Standardised approach. Excluded

CR10 IRB (specialised lending and equities under the simple risk weight method)

Semi-annual The Bank follows the Standardised approach. Excluded

CCRA Qualitative disclosure related to counterparty credit risk

Annual Excluded

CCR1 Analysis of counterparty credit risk (CCR) exposure by approach

Semi-annual Included

CCR2 Credit valuation adjustment (CVA) capital charge

Semi-annual Included

CCR3 Standardised approach of CCR exposures by regulatory portfolio and risk weights

Semi-annual Included

CCR4 IRB – CCR exposures by portfolio and PD scale

Semi-annual The Bank follows the Standardised

approach. Excluded

CCR5 Composition of collateral for CCR exposure

Semi-annual Included

CCR6 Credit derivatives exposures Semi-annual The Bank does not have any Credit derivative exposure. Excluded

CCR7 RWA flow statements of CCR exposures under the Internal Model Method (IMM)

Quarterly The Bank does not follow the Internal Model Method. Excluded

CCR8 Exposures to central counterparties Semi-annual The Bank does not clear through any central counterparties. Excluded

SECA Qualitative disclosure requirements related to securitisation exposures

Annual The Bank does not have any securitisation exposure. Excluded

SEC1 Securitisation exposures in the banking book

Semi-annual The Bank does not have any securitisation exposure. Excluded

SEC2 Securitisation exposures in the trading book

Semi-annual The Bank does not have any securitisation exposure. Excluded

SEC3 Securitisation exposures in the banking book and associated regulatory capital requirements

Semi-annual The Bank does not have any securitisation exposure. Excluded

SEC4 Securitisation exposures in the banking book and associated capital requirements

Semi-annual The Bank does not have any securitisation exposure. Excluded

MRA General qualitative disclosure requirements related to market risk

Annual Excluded

MR1 Market risk under SA Semi-annual Included MRB Qualitative disclosures for banks using

the IMA Annual The Bank does not

follow the Internal Model Method. Excluded

MRC The structure of desks for banks using the IMA

Semi-annual The Bank does not follow the Internal Model Method. Excluded

MR2 RWA flow statements of market risk exposures under IMA

Semi-annual The Bank does not follow the Internal Model Method. Excluded

MR3 IMA values for trading portfolios Semi-annual The Bank does not follow the Internal

Model Method. Excluded

MR4 Comparison of VaR estimates with gains/losses

Semi-annual The Bank does not follow the Internal Model Method. Excluded

IRRBBA IRRBB risk management objective and policies

Annual Excluded

IRRBB1 Quantitative information on IRRBB Annual Excluded REMA Remuneration policy Annual Excluded REM1 Remuneration awarded during the

financial year Annual Excluded

REM2 Special payments Annual Excluded REM3 Deferred remuneration Annual Excluded