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Page 1: CENTENARY RURAL DEVELOPMENT BANK LTD FINANCIAL … · Centenary Bank 9 Annual Report 2014 CENTENARY RURAL DEVELOPMENT BANK LTD FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER

CENTENARY RURAL DEVELOPMENT BANK LTD

FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

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2 Centenary BankAnnual Report 2014

CENTENARY RURAL DEVELOPMENT BANK LTD

FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

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3Centenary BankAnnual Report 2014

CENTENARY RURAL DEVELOPMENT BANK LTD

FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

We aim to provide appropriate financial services especially microfinance to all the people of Uganda particularly in rural areas.We are therefore at the forefront of increasing financial inclusion and reaching out to the unbanked population.

Read our Chaiman’s Statement on page 8

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FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

List of Acronyms 5

Vision, Mission and Ownership 6

Chairman’s Statement 8

Board of Directors 10

Managing Director’s Review 11

The Executive Management 13

Corporate Governance 14

Operational and financial review 23

Directors’ Report 30

Directors’ Responsibility For Financial Reporting 31

Report of Independent Auditors 32

Financial Statements 33

Statement of Comprehensive Income 33

Statement of Financial Position 34

Statement of Changes In Equity 35

Statement of Cash Flows 35

Notes To The Financial Statements 36

Sustainability Report 81

Bank Contact Information 98

TABLE OFCONTENTS

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ABI aBi Finance Ltd

ACF Agricultural Credit Facility

ALCO Asset and Liability Committee

ATM Automated Teller Machines

BCP Business Continuity Plan

BCMT Business Continuity Management Team

BOU Bank of Uganda

CBS Core Banking System

EaR Earnings at Risk

EIB EAC MF Loan European Investment Bank East African Community Microfinance Loan

EIB PEF European Investment Bank Private Enterprise Finance Facility

IAS International Accounting Standards

ICT Information and Communication Technology

IFRS International Financial Reporting Standards

KCCA Kampala City Council Authority

N.S.S.F National Social Security Fund

NPAT Net Profit After Tax

P.A.Y.E Pay As You Earn

ROA Return on Assets

ROE Return on Equity

RSA Rate Sensitive Assets

RSL Rate Sensitive Liabilities

SIDI Solidarite’ Internationale pour le Development et l’ investissement

SOCI Statement of Comprehensive Income

SOFP Statement of Financial Position

VSLA Village Savings and Loan Association

LIST OFACRONYMS

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FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

Our Vision

“To be the best provider of Financial Services, espe-cially Microfinance in Uganda.”

Our Mission Statement

“To provide appropriate financial services especially mi-crofinance to all people in Uganda, particularly in rural areas, in a sustainable manner and in accordance with the law.”

Our Values

• Superiorcustomerservice• Integrity• Teamwork• Professionalism• Leadership• Excellence• Competence

Shareholders

• TheCatholicDioceses,whichareall independ-ent legal personalities as Registered Trusteeships, are: Arua, Fort Portal, Gulu, Hoima, Jinja, Ka-bale, Kasana-Luwero, Lugazi, Kampala, Kasese, Kotido, Lira, Masaka, Mbarara, Mityana, Moroto, Nebbi, Soroti, and Tororo.

• Registered Trustees of the Uganda EpiscopalConference.

• SIDI-Solidarite’ Internationale pour leDevelop-ment et l’Investissement (International Solidar-ity for Development and Investment) based in France.

• STICHTINGHIVOS-TRIODOSFONDS.An in-vestment fund, specializing in investing in micro-finance and trade finance, managed by Triodos Investment Management in the Netherlands.

• Individualshareholders(4individuals).

11.6%

18.6% 0.3% 38.5%

Catholic Dioceses

The Registered Trustees of the Uganda EpiscopalConference

SIDI

Stichting Hivos Triodos

31.3%

Individuals

OwnershipThe Catholic Dioceses of Uganda 38.5%

The Registered Trustees of the Uganda Episcopal Conference 31.3%

SIDI 11.6%

Stichting Hivos-Triodos Fonds 18.3%

Individuals 0.3%

Total 100%

VISION, MISSIONAND OWNERSHIP 01

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Centenary Bank won the Bronze Award, Overall Achievement at the 2014 Financial Reporting Awards

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I am delighted to present the Bank’s annual re-port for the year ended 31st December 2014. It has been another year of strong results in the face of increasing competition and im-proved macro-economic conditions. Cente-nary Bank is a Tier–I financial institution with a network of service delivery channels spread across Uganda. We aim to provide appropri-ate financial services especially microfinance to all the people of Uganda particularly in ru-ral areas. We are therefore at the forefront of increasing financial inclusion and reaching out to the unBanked population

The Operating EnvironmentThe Board and Management keep abreast of happenings in the environment because the Bank’s growth entirely depends on it, especially the forces of macro-economic conditions. On a positive note, 2014 headline inflation declined to 1.8% from 6.7% in 2013. The main driver of inflation in 2014 was the fall in food prices attributed to increased food supply in the domestic market. This is reflected in the modest increase in the Bank’s operating expenses.

The Uganda shilling weakened by about 9% against the dollar in 2014 with much of the depreciation oc-curring in the second half of the year on the back of strong import demand coupled with low export levels, instability in some neighboring countries, low foreign direct investment and reduced remittances from the diaspora. The Bank’s balance sheet which is predomi-nantly denominated in Uganda shillings and the dollar

denominated operating costs have been affected by the weakening shilling. The depreciation of the shilling also led to an increase in the Bank’s capital expenditure.

The market place continues to be associated with in-creasing competition from other players and the tel-ecommunication sector. Centenary Bank is however leveraging on the platforms of telecoms to deliver its mobile Banking services through our telephone Bank-ing platform called CenteMobile. The Bank continues to enhance its e- Banking platforms.

Interest rates continued to rise especially in quarter four of 2014 particularly on short tenors. The overnight rate closed the year at 10.7% while the 364 day rate closed at 13.9%. The rise in the rates was attributed to a depreciation of the shilling against other hard cur-rencies. To some extent, changes in the investor senti-ment as well as expectations on forward trends had an impact. We expect upward pressure on interest rates to continue in 2015. The increase in interest rates had an impact on our funding costs hence a decrease in the Bank’s interest margin as reflected in the financial re-sults.

Return to ShareholdersThe Bank’s basic earnings per ordinary share have in-creased to Shs 2,952 from Shs 2,319 the previous year, while return on equity (ROE) increased from 25.3% to 25.9% which is above the Industry ROE of 16.1%. Despite stiff competition in the sector, the strong per-formance posted by the Bank once again demonstrates our ability to deliver substantial and sustained value for our shareholders and other stakeholders. The Bank is still adequately capitalized and meets all the statutory capital requirements.

The Bank’s Tier II capital adequacy ratio as at 31 De-cember 2014 was 29.5% (2013: 28.7%) compared with 12% required by Bank of Uganda and this was above the industry average of 22.2%. The Bank’s good performance and growth momentum have been driven by the continued focus on microfinance, convenience and affordability of the Bank’s products.

For the year under reviewTHE NUMBERS

Return on equity Earnings per ordinary share

25.9% Shs2,952

CHAIRMAN’SSTATEMENT

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Corporate Social Investment Centenary Bank believes in sustainability of lives and the environment in which we work, so 1% of the pre-vious year’s net profit was devoted to Corporate Social Investment. In 2014, the Bank focused on health, edu-cation, environment, supporting the social mission of the Church and supporting other community causes. Under education, people benefited from the financial literacy initiatives. In health, the Bank continued to raise awareness on breast, cervical and prostate can-cer by contributing towards the completion of the can-cer ward at Nsambya Hospital, sponsoring the Cancer Run organized by Uganda Rotary Office, printing and distributing brochures with cancer awareness mes-sages countrywide and holding screening camps; these initiatives reached more than 2,500,000 people. Under environment, the Bank contributed to water and sani-tation projects, along with clean energy initiatives and also supported 125 Church projects and community initiatives including construction, women programs and nutrition.

Corporate GovernanceThe Board membership remained stable and continued to serve with complete dedication. The Board contin-ues to provide the strategic direction for all the Bank’s operations. None of the members of the Board had any conflict of interest in the matters of the Bank on which they were required to provide guidance and direction. The various board committees continued to play a vital role in supporting the board and management to dis-charge their duties. At their Annual General meeting of 07th June 2014, the shareholders re-appointed the board to serve for another three years. As part of their oversight duty, the board approved the Bank’s rolling strategic plan for the year 2015 – 2017 with a focus on innovation and execution that will translate into im-proved productivity and operational efficiency

Environmental OutlookGenerally, the operating environment forecasts point to a better economic environment in 2015 compared to 2014. Uganda’s gross domestic product is estimated at 6.7% for the financial year 2014/15 compared to 4.5% for 2013/2014. This growth is expected to be led by public expenditure in the form of infrastructure

spend in the energy and transport sectors, increased agricultural output, rebound in private sector credit and increased foreign direct investment. 2016 is an election year and it is common for uncertainties in growth patterns to set in. With this macro-economic operating environment, Centenary Bank is set to continue with its growth drive, putting in place adequate structures and systems that will continue to improve customer service. We will continue to consolidate the Bank’s position in the market place as the leading microfinance provider in Uganda.

The Bank will continue to leverage on its operational and financial strength to take advantage of opportuni-ties in the environment like oil and gas industry not for-getting the emerging middle class, youth and women. The Bank is set to manage challenges plus risks that lie ahead.

ConclusionI wish to express an immense sense of gratitude to all who have enabled the Bank achieve the success regis-tered in 2014; our customers, shareholders and strate-gic business partners for the continued loyalty, support, not forgetting my fellow board members for their guid-ance and support.

All the above-mentioned achievements would not be realized without a passionate team at Centenary Bank comprising of 2,001 staff members. I am sure that with the sound leadership and support provided by the board of Directors and guided by the same vision and mission, we shall be able to move Our Bank to even greater heights of success.

Corporate Social InvestmentTHE NUMBERS

people benefited from the financial literacy initiatives.

Church projects and community initiatives including construction, women programs and nutrition

people were reached in the bank’s initiatives to raise awareness on breast, cervical and prostate cancer

Over SupportedOver

12,500,000 1252,500,000Education EnvironmentHealth

CHAIRMAN’S STATEMENT

Professor John Ddumba-SsentamuChairman of the Board

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The Directors who held office during the year were as follows: -

Prof. John Ddumba Ssentamu - Board ChairmanMr. Fabian Kasi - Managing DirectorDr. Simon M.S. Kagugube - Executive Director Mr. Jacco Minnaar - Member (Chairman ALCO Committee)Mr. Kimanthi Mutua - Member (Chairman Risk & ICT Strategy Committee) Dr. Peter Ngategize - Member (Chairman Credit Committee) Mr. Henry Kibirige - Member (Chairman Audit Committee) Mr. Andrew Obol - Member (Chairman Compensation and Human Resources Committee) Mt. Rev. Dr. Cyprian K. Lwanga - Member Mt. Rev. Paul Bakyenga - Member Mr. Rene Ehrmann - Member Alternate DirectorsMr. Frederic FoulonMonsignor John Baptist KautaFr. Eustachius Lwemalika

Board of Directors

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IntroductionI am happy to present to you Centenary Bank’s annual report and financial statements for the year 2014. In the year under review, we are pleased with the Bank’s performance which aligns well with our vision and also our proven track record of sustained growth. The Bank is well positioned with a clear strategy and a strong brand.

2014 Performance reviewNotwithstanding the macro-economic turbulences, the Bank continued its growth on all fronts especially prof-itability and total assets. This growth momentum has been maintained due to continued focus on strategy execution.

The Bank posted a 27.3% growth in profit after tax to close at Shs 73.8 billion compared to Shs 58.0 bil-lion the previous year and representing a market share of 15.2%. Total income went up by 17.7% to reach Shs 324.3 billion up from Shs 275.6 billion the previous year, mainly driven by growth in loans and advances to customers and increase in transaction volumes. Net in-terest income rose by 20.1% to Shs 210.5 billion from Shs 175.3 billion the previous year. Total expenses in-creased by 12.0% to Shs 228.8 billion from Shs 204.4 billion mainly attributed to the Bank’s expansion.

During the year, the balance sheet grew impressively with total assets reaching Shs 1,636.9 billion from Shs 1,451.0 billion the previous year, representing a 12.8% increase and close to industry growth of 13.1%. This impressive growth was reflected in the net loan book that grew to Shs 830.9 billion up from Shs 672.3 billion the previous year, a growth of 23.6% which is above the industry growth of 14.0%. Despite this growth, the Bank maintained a high quality asset portfolio with an average non-performing loan book of 2.8%, which is below the Bank’s set target of 3% and the industry av-erage of 4.1%.

For the year under reviewTHE NUMBERS

Profit after tax Net interest income

27.3% Shs73.8billion 20.1% Shs210.5

billion

17.7% Shs324.3billion

12.0% Shs228.8billion

Total income Total expenses

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Customer deposits grew from Shs 966.0 billion to Shs 1,175.1 billion, a growth of 21.7% which is above the industry growth of 14.9%. The Bank continued to attract new customers and closed the year with 1,307,757 deposit accounts compared to 1,240,077 the previous year, thereby maintaining the lead posi-tion in the industry in terms of customer base. In ad-dition to customer deposits, the other funding sources of the Bank are represented by equity which increased by 25.3% to Shs 317.5 billion, up from Shs 253.3 billion the previous year.

Business development and innovationWith regard to business development and innova-tion, the Bank closed 2014 with 62 branches and 153 ATMs at 112 locations. Over the past years, the Bank has been expanding its footprint in terms of delivery channels. In 2012, we expanded by 2 branches and 11 ATMs. In 2013, we opened 4 service centers and 4 offsite ATMs. In order to consolidate our position, we decided to open one service center in 2014 and 5 offsite ATMs. Expanding by only one service center in 2014 was mainly attributed to other major investments the Bank decided to undertake, including the acquisi-tion of a new core Banking application and completing the new headquarters. Besides, the Bank’s strategy is to focus more on other e-Banking channels of service delivery. During the year, the Bank rolled out Point of Service (POS) machines, joined the Interswitch ATM platform and partnered with MTN, Airtel and Ezeey money on a number of e-Banking solutions to expand its delivery channels. The Bank introduced a youth sav-ings campaign (Centevolution) in recognition of the valuable contribution of the youth to the economy.

Partnerships and collaborationsTo respond to some of the challenges that Private En-terprises and the youth face in accessing credit facilities, the Bank went into partnership with European Invest-ment Bank, Abi-Trust, Kampala Capital City Authority and Government of Uganda and the main focus was on

financing the agro industry, micro credit projects and supporting expansion of business ventures owned by the youth residents in Kampala district.

Strategy 2015Despite the difficult prevailing market conditions, the Bank will remain committed to its long-term strategy which will enable it to capture emerging growth op-portunities in Uganda. We expect that the growth mo-mentum will be continued through maintaining efficient operations, prudent lending and risk management. The Bank will continue to implement an engaging strategy that focuses on delighting customers, enhancing pro-ductivity and efficiency. The Bank will pursue its growth focusing on new delivery channels and products. The Bank plans to increase its market share by rolling out more electronic Banking services and getting on agency Banking. The Bank will also ensure that customer ser-vices are upheld.

ConclusionI wish to take this opportunity to express my sincere appreciation to our customers, shareholders and busi-ness partners for their support to the Bank and contin-ued confidence and trust in our business. I also want to thank the Board of Directors for the oversight and guidance they have given the Bank. Lastly, I am grateful to management and staff of the Bank for their dedica-tion and sacrifice that enabled delivery of this excellent financial performance. Team, we could not have done it without you! Thank you for continuing to live our core values.

For the year under reviewTHE NUMBERS

Total assets Total customer deposits

12.8% Shs1,636.9billion

21.7% Shs1,175.1billion

23.6% Shs830.9billion

25.3% Shs317.5billion

Net Loan Book Shareholders funds

Fabian KasiManaging Director

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Shs1,175.1billion The Executive Management

Mr. Joseph KimbowaGeneral Manager - Operations

Mr. Fabian Kasi Managing Director

Dr. Simon M. S. KagugubeExecutive Director

Mrs. Peninnah Kasule Company Secretary

Mr. Joseph LutwamaGeneral Manager - Credit

Mr. Godfrey ByekwasoGeneral Manager - Finance

Mrs. Beatrice LugalambiGeneral Manager - Business Development & Marketing

Mr. Micheal NyagoGeneral Manager - Audit

Mr. Denis EcheruGeneral Manager - Risk

Management & Compliance

Mr. George K. ThogoGeneral Manager - Business

Technology

Mr. Arnold ByansiGeneral Manager-Corporate

Services

General Manager-HumanResource

Mr.s. Florence Mawejje

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4.0 ApproachThe philosophy of the Bank is that best corporate gov-ernance should be engrained and intrinsic in all the processes, structure and culture of the Bank. This is in harmony with the objectives of good corporate gov-ernance which seeks to protect stakeholders’ interests by balancing entrepreneurial leadership with transpar-ency and control mechanisms, without compromising value creation and efficient decision-making. The Bank endeavors to establish and maintain good governance and risk management systems and practices.

The Bank’s risk management function is responsible for identifying and understanding the different types of risks faced, internally and externally, locally and interna-tionally and for measuring and managing them accord-ingly through established and emerging risk manage-ment methodologies. The Bank has a clearly identified enterprise risk management framework that emanates from the sound governance principles. The risk objec-tives are integrated and aligned with the Bank’s wider business development and management objectives.

The Bank is a member of the Institute of Corporate Governance of Uganda and subscribes to promot-ing corporate governance in various institutions in the country. Members of the Board and senior manage-ment also subscribe to the Institute.

4.1 Codes and RegulationsThe Bank operates in a highly regulated industry with corporate governance principles largely promoted through appropriate legislation and regulations, against a backdrop of the Bank’s own internal standards ar-ticulated in a Corporate Governance Charter. The Bank considers good governance as one of the pillars for sound operation of its business, performance and sustainability hence its commitment to compliance with legislation, regulation, codes and guidelines of best practice. The Bank seeks to maintain high standards of governance, including transparency, accountability and fairness to all stakeholders and these are regularly evaluated against relevant local and international best practice, including the King III code in order to embrace current best practice.

4.2 Board Structure(i) Structure The Bank has a unitary Board in which the ex-

ecutive and non-executive directors are brought together in a single structure and share collec-

tive responsibility. The authority of the Board is therefore vested in the collective body.

(ii) Appointment Directors are appointed based on a competency

profile and rotation criteria that ensures there is a sound mix of relevant skills, experience and continuity for good leadership to the Bank.

The Board of Directors is appointed by the sharehold-ers for a term of 3 years in line with the Articles of Association and all appointments including those of any alternate directors are subjected to regulatory vetting and approval. The Bank’s approach is that directors need sufficient time to understand the business to use-fully apply their skills and this can be achieved and dem-onstrated over a medium tenure hence preference for the said term which also promotes stability. Retiring di-rectors also qualify for reappointment which promotes continuity for the Board.

In appointing directors, the shareholders take into ac-count and balance relevant skills, experience and geo-graphical representation. The directors’ skills and ex-perience canvas:

• MicrofinanceinlinewiththeBank’smissionandvision

• Financialandcommercialbankingskills• Operationalexperienceandcapitalmanagement• Regulatoryexperience• Riskmanagementandfinancialcontrolexpertise• Corporateplanning

The roles of the Board Chairman and the Chief Execu-tive Officer/Managing Director are separate and dis-tinct with the Chairman of the Board of Directors being a non-executive director. To maintain independence, the Chairman of the Board is not a member of any of the specialized committees of the Board of Directors specified under the Financial Institutions Act (including Audit, ALCO, Risk and Compensation).

The Bank also has a clear formal demarcation of re-sponsibilities between the Board and Management with the Board providing strategic oversight, has the respon-sibility to ensure that the company has effective man-agement and has ultimate responsibility for the func-tioning of the Bank and its sustainability. Management on the other hand is in charge of the Bank’s day-to-day operations.

The Board is accountable for all decisions taken by its

CORPORATEGOVERNANCE 04

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CORPORATE GOVERNANCE

committees and for its delegation to management of the business and affairs of the Bank. This delegation is reviewed regularly in light of business developments to ensure that the Board canvasses and devotes attention to any emerging strategic issues; such review has seen the instituting of a Board IT (Strategy) Committee for Board oversight on the increasing role of IT in the deliv-ery of banking services and the new business landscape with the advent of telecom companies in the financial services arena. (iii) Induction and Training On appointment, every new director receives

a comprehensive induction pack containing a wide range of information on the Bank. The Di-rector is placed under an orientation program which includes site visits, training on corporate governance, a review of the relevant legislation and regulations, one-on-one meetings with the Chairman and senior management. Annual re-fresher programmes are arranged in-house and externally for all directors in areas concerning responsibilities and legal obligations of a director, corporate governance and corporate strategy, planning and risk management.

Personal training is also availed to address indi-vidual directors’ unique needs. All directors are encouraged to subscribe for membership with an institute in corporate governance.

As part of the Board of Directors’ annual work plan, the directors are expected to make site vis-its.

4.3 RemunerationDirectors’ remuneration is approved by shareholders and is determined by the directors’ scope of respon-sibility and market surveys in order to obtain sufficient and competitive remuneration in line with the share-holders philosophy on remuneration of directors. The Board in turn approves the remuneration of Executive Directors and senior management also premised upon a philosophy of the position the Bank wishes to have in the industry as well as taking into account perfor-mance targets of the business, individual senior ex-ecutives’ achievements of targets, external norms and benchmarks. No member of management is present during proceedings when the members’ remuneration is discussed to avoid conflict of interest.

(iv) Board Responsibilities The key responsibilities of the Board include the

following:

(i) Establish strategic objectives and corporate val-ues and ensure that these are understood with-in the organization.

(ii) Reviewing management performance and moni-toring progress towards set objectives.

(iii) Set and enforce clear lines of responsibility and accountability throughout the organization in-cluding clear demarcation of responsibilities be-tween the Board and Management and develop a position/job description for the Managing Direc-tor [CEO].

(iv) Establish approval authority of different levels of Senior Management and ensure there is appro-priate oversight by management.

(v) Having timely and frank discussions of problems and issues in relation to the Bank including its fi-nancial affairs and risk management processes.

(vi) Ensure that Board meetings are held at least once in every quarter of the financial year.

(vii) Recognizing the importance of audit process and communicating its high importance throughout the Bank and utilizing in a timely and effective manner the findings in internal and external au-dits and timely correction by management of problems identified by auditors.

(viii) Approve compensation of Senior Management and other key personnel.

(ix) Enforce sound corporate governance in the Board, Senior Management and organizational structures, incentive structure, nature and extent of transactions with affiliates and related par-ties, Board mandate, composition of the Board, Board’s expectation of management and ensure feedback received from stakeholders is docu-mented and addressed.

(x) Ensuring that the Bank remains a going concern.

(v) Board meetings The Board and its committees convene quarterly

for compliance with both regulatory require-ments and equally so for addressing the business needs of the Bank. In addition to the statutory committees, the Board has 3 additional commit-tees to oversee the Bank’s unique needs; namely; IT (Strategy) Committee, Credit (Risk) Commit-tee and the Shareholding Review Committee. The Board also convenes additional meetings at least once a year for strategic planning and train-ing respectively.

One of the formal and also required arrange-ments through which directors perform their re-sponsibilities to the Bank is attendance of Board meetings. The Board further subscribes to a code of conduct at its meetings to maintain an open and inclusive atmosphere which promotes accountability. Quorum for all meetings is made of non-executive directors to enhance engage-ment and objectivity.

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The Board maintains an annual work plan to fa-cilitate adequate planning and preparation. As a standard and also in line with the regulatory re-quirements the Board and all its respective com-mittees convene at least quarterly. A register of attendance is maintained and individual directors attendance is monitored and evaluated regularly, along with the membership of the respective committees.

The Board has embraced new technology by

adapting to a web portal where its documents are lodged for constant access by directors using mobile devices. This has enhanced efficiency and communication.

(vi) Board Committees The Board Committees mainly comprise of the

specialized committees required under the Fi-nancial Institutions Act and regulations, and all committees have clearly defined written Terms of Reference setting out their role and function, term, responsibilities and scope of authority. The committees perform a significant role in as-sisting the Board in the performance of its duties by providing deeper analysis. The mandates of the “specialized” committees comply with the relevant legislation, regulations and emerging best practice. Each committee submits a com-prehensive quarterly report to the Board of Di-rectors on their respective activities and recom-mendations. Directors have full access to the documentation of all committees. The Board of Directors also reviews the performance of all its committees annually against the approved Terms of Reference. Adjustments may be made to such terms where necessary to ensure committees are highly effective, accountable and enhance Board oversight in line with the agreed scope of activities, priorities and their changing roles. The chairpersons and members of the committees are appointed by the full Board.

A. Board Audit CommitteeThe Board Audit Committee is comprised of inde-pendent non-executive directors who are suitably qualified for the committee to perform its mandate. The Board Chairman and the Managing Director and the Head of the Audit function attend the Audit Com-mittee meetings by invitation only, the latter being in attendance regularly to present to the Committee.

Communication between the Board, executive man-agement, Internal Audit and External Auditors is encouraged. Accordingly the committee meets with management after its meetings to provide management with a sense of its areas of concern requiring interven-

tion.

The committee’s key terms of reference are as follows:• Overseefinancialreportingtoensureabalance,

transparency and integrity of published financial information

• Review the effectiveness of the Bank’s internalfinancial controls and risk management system

• Monitor the effectiveness of the internal auditfunction

• Ensuretheindependenceoftheauditprocess• Appointandassess theperformanceof theex-

ternal auditor • OverseetheBank’sprocessformonitoringcom-

pliance with laws and regulations affecting finan-cial reporting

B. Board Risk Management CommitteeThe purpose of the Risk Management Committee is to oversee the Bank’s risk management systems, practices and procedures to ensure effectiveness in risk identifi-cation and management as well as to ensure compliance with internal policies and Bank of Uganda regulation.

The committee’s main terms of reference include:

• Setting theBank’s risk governance structure toensure that there is a clearly defined mandate and delegated authorities within the structure.

• Reviewing of operational risk exposure in re-spect to IT operations, people, organisational and regulatory compliance levels, business con-tinuity, money laundering issues, disaster recov-ery measures, key control standards, expansion, competition and frauds.

• Ensuringthat the levelofoperational riskwith-in Centenary Bank is identified, monitored and remains within agreed risk tolerance levels ap-proved by the Board.

• Reviewingmonthly operational risk assessmentreports (The operational risk template and the operational risk dash board).

• Reviewing operational risk associated with thelaunching of any new products or services.

• ReviewingBusinessContinuitytestingschedulesto ensure that plans remain “fit for purpose” at all times.

C. Asset and Liability Committee (ALCO)To ensure that all assets and liabilities are managed for optimum returns within the agreed fundamental guide-lines through:

a. Establishing guidelines on the Bank’s tolerance for risk and expectation from investment;

b. Setting specific financial targets for the Bank and monitoring management`s performance against

CORPORATE GOVERNANCE

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those targets;c. Monitoring of the Bank’s capital; andd. Ensuring that management implements the as-

sets and liability policy of the Bank

D. Board Credit Committee The primary role and responsibility of the Credit Com-

mittee is to: a. Review the Bank’s credit risk, including perfor-

mance trends, concentrations, loan quality and provisions;

b. Ensure alignment between the Bank’s credit strategy and its risk appetite for compliance with the Financial Institutions Act; and

c. Approve all insider loans, in addition to large exposures whose limits are reviewed regularly.

E. Board Human Resource & Compensation Committee

The primary role and responsibility of the com-mittee is to:

a. Provide oversight in respect of compliance with the Financial Institutions Act 2004 and the Em-ployment Act.

b. Review and recommend to the Board terms and conditions of service for Senior Management staff and review their performance annually.

c. Assist the Board to discharge its human resource management mandate and obligation in terms of attracting, retaining and utilising qualified and competent human resources.

d. To ensure that management promotes and/or maintains a conducive working environment, good employee relations, good customer care and service throughout the bank, and a culture of merit and professionalism that evolves, thrives and percolates throughout all categories of em-ployees.

F. Shareholding Review Committee The primary role and responsibility of the Board Share-holding Review Committee is to preserve the integrity of the Bank’s shareholding structure and provide a plat-form for discussion of matters of interest to the Bank’s substantial shareholders while upholding the fiduciary duty of directors to act in the best interest of the Bank as a whole.

The Bank also consults with all its shareholders pre-ceding the Bank’s Annual General Meeting. At these consultative meetings shareholders receive the Board of Directors’ proposals on shareholding issues raised. This forum provides a platform for engaging the share-holders and building consensus that would ultimately form a resolution at a general meeting of sharehold-ers. During the consultative meetings, shareholders are permitted to bring in delegates who are experts on

the subjects at hand to discuss with the Board.

All directors are required and attend the meetings with the shareholders. During the year one shareholders consultative meeting and Annual General Meeting were held. G. IT Strategy CommitteeThe Board IT Strategy Committee provides strategic leadership and governance of the Bank’s IT resources, services and initiatives, to facilitate direction, oversight, monitoring & evaluation by the Board.

The overall objectives of the IT Strategy Committee are to ensure that the Board:

a. Understands and focuses on the strategic impor-tance of IT, as well as key issues and systems to manage IT risks and constraints.

b. Provides direction and oversight on IT activities, as well as monitors and evaluates the impact of investments, initiatives and strategies employed.

c. Places emphasis on driving and supporting busi-ness strategies and objectives.

d. Formulates and regularly reviews the TOR of this committee.

(vii) Board Evaluation The Board conducts an annual evaluation of its

compliance with governance standards and of its performance as a collective body. Consequently, an Action Plan for improvement is developed. At the Bank, Board evaluation has now been taken to a higher level to encompass evaluation of the performance of the Board Chairman, the individ-ual directors and the perfomance of the respec-tive Board Commitees.

4.4 Delegation of Authority and Effective ControlThere is clear segregation of responsibilities between the Board and management and between the role of the Chairman of the Board and Managing Director. Ac-cordingly the Board provides strategic oversight and has the responsibility to ensure that the Bank has effec-tive management, while management is in charge of the Bank’s day-to-day operations. Authority has been delegated to the Managing Director to manage the business. There is a clear appreciation of the four eyes principle under the Financial Institutions Act. The Bank has two Executive Directors including the Managing Director. The Executive Director is a member of the Board of Directors.

The Board operates within an established structure that ensures that there are adequate processes in place

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to monitor operations. An assessment of how well the Board works and its contribution is vital to the achieve-ment of the objectives of the Bank and is done on a regular basis.

4.5 Company SecretaryThe Board has a service of a full time Company Secre-tary. This position is a central source of guidance and advice to the Board collectively and to its members on matters of governance and compliance. Accordingly the Company Secretary ensures that Board members are cognizant of their duties and responsibilities in consonance with legislation and current best practice and that they are versed with changes in the relevant laws and governance thinking and trends. The Com-pany Secretary in consultation with the Chairman as-sists individual directors identify training relevant to the identified needs of the respective directors and assists the Board in accomplishing their annual work plan and strategy.

The Company Secretary also plays a pivotal role in re-laying decisions of the Board to management for its im-plementation.

4.6 Planning StrategyThe Board in one of its primary roles concerns itself with strategic direction. The Board considers and ap-proves the Bank’s objectives and the strategy and plans to achieve these objectives and which is used to meas-ure management performance. At an annual meeting with management, the Board reviews management’s performance against the approved strategies, objec-tives and financial plans. Through a forward planning process and outlook, the Board determines areas of im-provement and aspects of its activities and business that it will assign high priority. With a continuum of changes in the environment including new legislation, new finan-cial services delivery channels, the advent of consumer protection, increased consumer expectations, corpo-rate governance practices, these are analyzed and an impact assessment made on the risks and opportunities they bring for strategy. Management’s performance is monitored regularly on its achievement of the agreed key strategic objectives. Management performance is subsequently evaluated against the same through a Bal-anced Score Card.

4.7 ComplianceCompliance is integral to the Bank’s culture. The over-sight of compliance risk management is delegated to the Audit Committee charged with reviewing and ap-proving the annual compliance plan.

The impact of new and proposed legislation and regula-tion is assessed by Management and recommendations submitted to the Board through the Risk Management

Committee.

The Bank is compliant with all new legislation and regu-lations mainly the Companies Act, the Employment Act & Regulations and the Financial Institutions Consumer Protection Guidelines instituted by the Central Bank.

The Bank sponsors a defined contribution provident fund for its staff and this is compliant with the Uganda Retirement Benefits Regulatory Authority Act 2012. The scheme is managed separately from the Bank in accordance with applicable laws and best practice with the required employee representation thereon. The Bank has a compliance function which among other things monitors the ethical conduct of the Bank and considers the development of ethical standards and requirements. The function also reviews complaints handling and reporting procedures.

4.8 Going ConcernThe Board has reviewed the facts and assumptions on which the Bank is operated and based on these, contin-ues to view the Bank as a going concern for the fore-seeable future.

4.9 Governance JourneyThe Board is aware that corporate governance princi-ples and best practice evolve and that there is always room for improvement for the institution.

The Bank has therefore maintained a practice of moni-toring corporate governance developments and evalu-ating them to ensure that the Bank adopts principles and practices that are relevant and best fit and serve to enhance business and community objectives.

4.10 Risk Management and ControlThe Bank uses an Enterprise wide Risk Management (ERM) approach which is governed by the Risk Man-agement Framework Policy. The Bank recognizes that many risks within the organization are interrelated and should not be managed independently, but rather across the Bank. This ERM framework sets forth guidance to manage risks across the Bank. It aims to strengthen the Bank’s ability to develop an integrated view of risk and the means to handle risks within a comprehensive ap-proach.

Enterprise-wide Risk Management provides uniform processes to identify, assess, manage, mitigate, and re-port on key risks. It supports Centenary Bank’s Board of Directors (BOD) corporate governance needs, ena-bles informed decision-making, and identifies areas for value optimization.

Centenary Bank’s Enterprise Risk Management (ERM)

CORPORATE GOVERNANCE

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framework provides Management and staff with the information they need to perform their risk manage-ment-related duties. The document provides both background information such as Centenary Bank’s ERM objectives, policy, and principles in addition to the detailed formal processes and methodologies for risk identification, assessment, management, monitoring and reporting using informa-tion such as process flow diagrams and procedures. ERM Objectives applicable:

Centenary Bank’s ERM program brings risk knowledge and information to the fore in decision-making process-es to mitigate the downside of unrewarded risk while exploiting rewarded risks to benefit from business op-portunities.

The ERM objectives are to: • Support the Bank’s business growth strategy

through the implementation of well-defined and common risk management processes, tools, and techniques.

• Counter losses and improve business value through optimization of risk and return.

• More knowledgeably seize and exploit oppor-tunities and quickly identify risks to avoid, both current and emerging risks.

• Reduce uncertainty and increase the likelihood of success in achieving the bank’s strategic initia-tives.

• Build credibility and sustainable stakeholder con-fidence in Centenary Bank’s governance and risk management processes and comply with both regulatory and local laws and jurisdictions.

• Improve the understanding of interactions and interrelationships between risks.

• Establish clear accountability and ownership of risk.

• Develop a common language that helps to estab-lish the broad scope of risk and to organize risk management activities and reinforce Centenary Bank’s risk culture.

• Develop capacity for continuous monitoring and reporting of risk across Centenary Bank, from the operational level to the Board.

a. Risk Management Policy The risk management policy defines the Bank’s busi-ness processes, structure, risk profile and risk appetite. It is a guiding document in the application of the bank’s comprehensive risk management framework which is regularly reviewed. The policy among other things defines the roles and re-

sponsibilities of management and the board in the man-agement of existing and emerging risks in the bank and the market respectively. The document defines “Sound Practice” in terms of the Bank’s risk management and provides guidelines for management to address the Bank’s risk profile on an ongoing basis.

b. Risk Categories:To enhance the understanding of particular sources of risk, their possible consequences, and the practical ap-proaches to managing them, Centenary Bank has de-fined risks into 9 major categories.These risk categories are groupings that help the bank to consistently identify, assess measure, monitor and report across on its overall risk exposure. Using con-sistent risk categories across the bank enables aggre-gation and determination of overall risk impact. This enhances the understanding of particular sources of risk, their possible consequences and the practical ap-proaches to managing them.

Centenary Bank has adopted the following risk categories: i) Strategic Risk Risk of current and prospective impact on the

Bank’s earnings and capital arising from poor business decisions, improper implementation of decisions or lack of response to industry, eco-nomic or technological changes.

ii) Credit Risk Potential that a Bank borrower or counterparty

will fail to meet their obligations in accordance with agreed terms.

iii) Liquidity Risk Risk resulting from the Bank’s failure to pay its

debts and obligations when due because of its in-ability to convert assets into cash, or its failure to procure enough funds, or, if it can, that the funds come with an exceptionally high cost that may affect the bank’s incomes and capital fund now and in the future.

iv) Market Risk This is the risk that the value of the Bank’s invest-

ments will decrease due to unexpected and/or adverse changes in market factors such as stock and commodity prices as well as interest and for-eign exchange rates.

Key market risks factors for the Bank include Interest Rate Risk and Foreign Exchange Risk which have been described below:

i. Interest Rate Risk: the exposure of a bank’s

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financial condition to adverse movements in in-terest rates.

ii. Foreign Exchange Risk: risk associated with doing business in two or more currencies. For-eign exchange price risk relates to possible re-valuation losses (or gains) on long/over bought or short/oversold currency positions in response to movements in exchange rates.

v) Reputation Risk This is the risk arising from changes in public

opinion that impact the Bank’s earnings or access to capital. This can be mainly thought of as pub-licity or operational inadequacies that would have an adverse effect on the Bank’s public image.

vi) Operational Risk Risk of direct or indirect loss resulting from inad-

equate or failed internal processes, people, and systems or from the external events or unfore-seen catastrophes. It includes the exposure to loss resulting from the failure of a manual or au-tomated system to process, produce, or analyze transactions in an accurate, timely, and secure manner.

Operational risks increase the Bank’s exposure to other risks by impairing the Bank’s ability to adequately assess, monitor and report on other risks. Operational risks cut across all the Bank’s divisions and include, but not limited to:

Human Resources Risk: The risk arising from inadequate human resources or inappropriate use of available staffing resources.

Business Process Risk: The risk arising from in-

adequate implementation and non-adherence to the Bank’s business processes.

Legal Risk: The risk arising from contracts or

other arrangements that are not enforceable through available means.

Health & Safety Risk: The risk arising from noncompliance with or lack of health and safety regulations, policies, or procedures.

vii) Compliance Risk Risk of legal or regulatory sanctions, material fi-

nancial loss, or loss to reputation a bank may suf-fer as a result of its failure to comply with laws, regulations, prudential guidelines, supervisory recommendations and directives, rules, internal policies and procedural guidelines and codes of

conduct applicable to its banking activities.

viii) Information Technology Risk The risk arising from inadequate information

communication technology (ICT) resources or inappropriate use of available ICT resources. This can result in financial loss and lost business opportunities due to unavailability of the ICT re-sources, loss of data integrity and confidentiality.

ix) Country Risk Refers to the risk of investing in a country, other

than Uganda, resulting from uncertainties arising from the economic, social and political conditions of that country that may cause borrowers in that country to be unable or unwilling to fulfill their obligations to the Bank.

The main categories of country risk comprise sovereign, transfer and contagion risk and are described below:

Sovereign risk: Denotes a foreign government’s capacity and willingness to repay its direct and in-direct (i.e. guaranteed) foreign currency obliga-tions.

Transfer risk: This is the risk that a borrower

may not be able to secure foreign exchange to service its external obligations.

Contagion risk: This risk arises where adverse developments in one country lead to a down-grade of rating or a credit squeeze not only for that country but also other countries in the re-gion.

4.11 Business Continuity Management:Business Continuity Management (BCM) is a holistic management process that identifies Potential impacts that threaten an organization and provides a framework for building resilience and the capability for an effective response that safeguards the interests of its key stake-holders, reputation, brand and value creating activities.The Bank has in place an appropriate business continu-ity management program with the ultimate purpose to minimise the impact on the organization and recover from loss of information assets which may result from natural disasters, accidents, equipment failures, and deliberate actions to an acceptable level through a combination of preventive and recovery controls. The process includes the development, maintenance, and testing of contingency plans and work-around proce-dures necessary to sustain the operational continuity of mission critical processes, information technology sys-tems and resources.

Business Continuity Management Framework

CORPORATE GOVERNANCE

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Centenary Rural Development Bank continues to en-sure that a business continuity management process is in place and sufficient financial, organizational, technical and environmental resources are identified to address the specific requirements for Business Continuity. A Business Continuity Management Framework was de-veloped in accordance with best practices and stand-ards to ensure all plans are consistent and to identify priorities for testing and maintenance.

Business Continuity Management (BCM) ProcessBCM is important to the Bank and is the overall re-sponsibility of Senior Management to ensure that it is implemented. At CERUDEB, Senior Management is committed to drive the BCP process, provide ad-equate resources and ensure that the respective plans are well developed, documented, tested, updated and maintained.Consequently, the following BCP manage-ment process have been established to ensure that the plans are developed, documented, tested, updated and maintained

• CERUDEB’s plans are developed according toCERUDEB’s BCP framework and in compliance with the policies.

• BCP is an ongoing process of development,testing, updating and maintenance, and not just a one off project. It is a part of every division Head’s normal responsibilities to ensure that the division has not only planned for the recovery of all critical business processes of that business unit, but has also tested and maintained those plans.

• EachdivisionhasanapprovedBusinessContinu-ity Recovery Plans for the recovery of its critical business processes.

• Every year, the BCM unit in consultationwiththe BCP Steering Committee/BCMT establishes the BCP Development Plan for the year. The plan sets out the BCP activities to be undertaken for that year, who is responsible for those activi-ties and the timeline for such activities. The BCP Steering Committee reviews and approves the BCP Development Plan.

RISK GOVERNANCE STRUCTURE:

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Centenary Bank was the Best Employer Gold Category in the 2014 NSSF Employer Awards.

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Core capital Permanent equity in the form of issued and fully paid-up shares plus all disclosed reserves less goodwill or any intangible assets

Cost-to-income ratio (%) Total operating expenses as a percentage of total income

Credit impairment charge (Shs) The amount by which the period profits are reduced to cater for the effect of non-performing loans for the period

Credit loss impairment [Statement of Financial Position (SOFP)] (Shs)

The amount by which gross loans in the SOFP are written down to cater for non-performing loans

Credit loss ratio (%) Provision for credit losses per the Statement of Comprehen-sive Income as a percentage of average net loans

Dividend cover (times) Earnings Per Share divided by ordinary dividend per share

Dividend per share ( Shs) Total ordinary dividends declared per share with respect to the year

Dividend Yield (%) Dividend per share as a percentage of closing share price

Earnings per share (cents) Earnings attributable to ordinary shareholders divided by the weighted average number of ordinary shares

Effective tax rate (%) The income tax charge as a percentage of income before tax excluding income from associates

Lending Ratio Net loans and advances divided by total deposits

Net interest margin (%) Net interest income as a percentage of average earning assets

Non-performing loans [NPL] (Shs) Loans whose servicing is due but the borrower has no money on the account from which to recover the installment(s)

Percentage change in credit loss ratio (%) Ratio of change in the rate of credit loss impairment between time periods

Percentage change in the impairment charge (%) Ratio of change in the rate of impairment charge between time periods

Profit for the year (Shs) Annual profit attributable to ordinary shareholders and prefer-ence shareholders

Return on Assets (%) Earnings as a percentage of average total assets

Return on Equity (%) Earnings as a percentage of average equity

SOFP credit impairment as a % of gross loans and advances (%)

Ratio of SOFP credit impairment to gross loans and advances

Supplementary capital General provisions which are held against future and current unidentified losses that are freely available to meet losses which subsequently materialize, and revaluation reserves on banking premises, and any other form of capital as may be determined from time to time.

Total capital The sum of core capital and supplementary capital

Total capital adequacy Total capital divided by the sum of total risk weighted assets and total risk weighted contingent claims

5.0 Financial Definitions

05OPERATIONAL AND FINANCIAL REVIEW

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5.1 Performance against financial objectives in 2014

Return on Equity (ROE) Objective: Return of 19.1%Performance: ROE of 25.9% was achieved (2013: 25.3%).

Return on total assets (ROA) Objective: ROA of 4.7%Performance: ROA of 4.8% was achieved (2013: 4.5%).

Cost to income ratio Objective: A ratio of 73.4%Performance: A ratio of 70.6% was achieved (2013: 74.2%).

Provision for credit losses Objective: Statement of comprehensive income (SOCI) charge - 1.1% of the gross loan portfolioPerformance: SOCI charge of 1.3% of loans and ad-vances was recorded (2013: 1.4%).

Net loans to deposit ratio Objective: A ratio of 60% - 80%Performance: A ratio of 70.7% was achieved (2013: 69.6%). Loans grew faster relative to the deposits

5.2 Financial highlights - extracts from the financial statements

2014 2013 2012 2014% Shs ‘000’ Shs ‘000’ Shs ‘000’ +/-

Financial data

Total assets 1,636,923,018 1,451,039,532 1,122,415,626 12.8Shareholders’ funds 317,501,337 253,337,071 204,468,442 25.3Total customer deposit 1,175,115,554 965,891,194 818,478,708 21.7Net loans and advances 830,931,969 672,307,038 556,959,785 23.6Total income 324,298,922 275,579,308 240,459,902 17.7Total expenses 228,812,880 204,356,533 171,155,223 12.0Profit before income tax 95,486,042 71,222,775 69,304,679 34.1Profit after income tax 73,816,511 58,005,547 54,901,186 27.3

Key performance ratiosCost to income ratio 70.6% 74.2% 71.2% 3.6Return on assets 4.8% 4.5% 5.3% 0.3Return on equity 25.9% 25.3% 30.3% 0.5Lending ratio 70.7% 69.6% 68.0% 1.1Total expenses to loan ratio 27.5% 30.4% 30.7% -2.9Capital adequacy ratio (Tier 2) 29.4% 28.7% 26.9% 0.7

Non-financial dataNumber of depositors 1,307,757 1,240,077 1,300,479 5.5Number of ATMs 153 147 136 4.1Number of Branches and services centers 62 61 57 1.6

OPERATIONAL AND FINANCIAL REVIEW

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OPERATIONAL AND FINANCIAL REVIEW

Net interest income

The Bank’s total income is comprised of interest income, income from commissions and fees and other non-operating income. Total income went up by Shs 48.7 billion in 2014 (2013: 35.1 billion) representing a growth of 17.7% when compared to 2013 14.6%.

Net interest income:Net interest income, which is the margin between interest income and interest expense, remained the main source of income for the Bank. Net inter-est income for the year 2014 was Shs 210.5 billion (2013: Shs 175.3 billion) and represents 73.3% of operating income(2013: 72.5%).

2014 2013 % %

Growth in net interest income 20.1 12.4Net interest margin 17.6 18.4

Net interest income growth of 20.1 % was achieved. Income benefited from strong growth in assets of 12.8% in 2014 (2013: 29.3%). The growth was also attributed to faster growth in loans and investments in government securities.

The trend of the Bank’s net interest income and net interest margin over the last five years is presented below:

Non-interest income:The Bank’s non-interest income arises from trade fi-nancing activities such as letters of credit, transactional activities including bank drafts, funds transfers, mobile money, trading income and revaluation of currency positions and exchange income on foreign transactions with customers.

5.4 Non-interest income:

2014 2013 % %Growth in net non- interest 15.6 20.1income Non-interest income as 26.7 27.5% of total operating income

Non-interest income rose to Shs 76.7 billion (2013: Shs 66.4 billion): following growth in fee and commis-sion income by 12.3% (2013: 17.8%) This growth was mainly driven by higher transaction volumes initiated through customer interactions with the branches, service centres and an expanded ATM network.

The trend of the Bank’s non-interest income as per percentage of a total income over the last five years is presented below.

2010 2011 2012 2013 2014

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

19.0

19.5

20,000

-

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

220,000

240,000

Net interest income

Years

Shs

Mill

ion

Net interest margin Non interest income Net interest income

Non interest income

2010 2011 2012 2013 2014

24.0-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000 29.5

29.0

28.5

28.0

27.5

27.0

26.5

26.0

25.5

25.0

24.5

Years

Shs

Mill

ion

2014 20142013 2013

Net Interest Margin Close At

0.8% 17.6%0.9 % 18.4%

The decrease was mainly attributed to lower interest rates offered to customers.

5.3 Statement of Comprehensive income analysys

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Credit impairment charges:

Specific provisions for credit losses for the year 2014 (excluding interest in suspense) totaled to Shs 11.3 billion (2013: 9.5 bil-lion). The provisions charged to the statement of comprehensive income as a percentage of gross loans and advances closed at 1.3% (2013: 1.4%).

Credit impairment charges:

2014 2013

Percentage change in the impairment charge 18.3 48.3

Credit loss ratio 1.3 1.4

Credit impairment as % of gross loans and advances 2.3 2.3

Non-performing loans (NPL) - millions 24,215 18,915

Credit loss impairment (SOFP) - millions 19,789 15,719

Credit impairment charge - millions 11,295 9,551

Credit impairment charges Increased by 18.3% (2013: increase by 48.3%). The increase in 2014 was less than that registered in 2013 because the quality of loans improved towards the end of 2014 due to decentralization of civil servant salary payments more still Agricultural loans performed well because of good rains in 2014 compared to 2013.

-

2010 2011 2012 2013 2014

0.5

-

1.0

1.5

2.0

2.5

3.0

3.5

Credit loss as a % of gross loans and advances

Years

%

BS impairment/Total Loans NPL/Total Loans

Credit Loss Ratio

5.5 Total expenses: 2014 2013 % %

Growth in total operating expense 12.0 19.4 Change in cost-to-income ratio 3.6 3.0

Total expenses increased by 12.0% against income growth of 17.7% (2013:19.4% against income growth of 14.6%). The cost-to-income ratio reduced to 70.6% in 2014 from 74.2% in 2013. The staff costs in 2014 were higher by 18.7% compared to 2013. Other operating expenses in 2014 were higher by 6.3% when compared to 2013.

Income and operating expenses

Years

Shs

Mill

ion

2010 2011 2012 2013 2014

50,000

100,000

64.0

66.0

68.0

70.0

72.0

74.0

76.0

78.0

150,000

200,000

250,000

300,000

350,000

Operating Expenses Cost/Income RatioTotal Income

For the year under review

THE NUMBERS

Total Expenses

Staff Costs

Income Growth

Other Operating Expenses

12.0%

18.7%

17.7%

6.3%

OPERATIONAL AND FINANCIAL REVIEW

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OPERATIONAL AND FINANCIAL REVIEW

5.8 Funding mix

The funding mix has remained rather stable in terms of value. Savings accounts represent 47.9% of total equity and liabilities compared to 44.1% in 2013. The Bank has been able to maintain a stable deposit mix in 2014 due to an increase in its loyal customer base and massive de-posit mobilisation. Current accounts represent 17.2% of total equity and liabilities compared to 15.0% for the same period last year. Time deposits constituted 6.7% of total equity and liabilities compared to 7.5% for 2013. Borrowed and managed funds contribute only 5.1% of the total equity and liabilities (2013: 6.4%).

5.6 Statement of financial Position analysis

The Bank’s total assets during the year under review in-creased by 12.8% (2013: 29.3%) due to the expansion in the Bank’s distribution channels by 1 service centre, 7 ATMs at 6 locations and growth in its investments, loan and advances portfolio.

Net loans and advances accounted for 50.8% (2013: 46.3%) of total assets and registered a 23.6% (2013: 20.7%) growth to close at Shs 830.9 billion in 2014 up from Shs 672.3 billion in 2013. The loan growth was driv-en by good customer service, reduced interest rates and increased lending opportunities in the market.

Customer deposits, which consist of current accounts, savings accounts and time deposits, made up the Bank’s main sources of funding. These deposits grew by 21.7% (2013: 18.0%) to Shs 1,175.1 trillion in 2014 from Shs 965.9 billion in 2013. The good deposit growth is attrib-uted to increased marketing efforts and an increase in the Bank’s distribution channels.

5.7 Deposit composition

The number of depositors increased to 1,307,757 in 2014 (2013: 1,240,077). This came as a result of increased mar-ket efforts to bring in more customers. The current ac-count average balance per account in 2014 increased to Shs 7.2 million (2013: Shs 6.1 million); savings accounts average balance per account in 2014 increased to Shs 0.6 million (2013: Shs 0.5 million) and time deposits average balance per account in 2014 increased to Shs 33.9 million (2013: Shs 31.3 million) signifying an improvement in the savings culture by our customers and the bank`s deposit mobilisation strategy.Savings accounts continue to make up the biggest portion of the bank’s deposit liabilities.

Deposit and loans

Deposits Loans

Years

Shs

Mill

ion

2010 2011 2012 2013 2014

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

1,300,000

Funding Mix 2014

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FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

5.9 Equity

Equity, which comprises share capital, share premium and retained earnings, finances 19.4% (2013:17.5%) of the total assets. The level of equity is a function of earnings which are distributed as dividends and amount of earnings which are ploughed back into the business. The Bank’s policy is to maintain a sustain-able dividend growth which satisfies shareholders.

5.10 Capital adequacy

The Bank monitors its capital adequacy using ratios established by the Bank for International Settlement (BIS) as approved by Bank of Uganda, the regulator. The ratios measure capital adequacy by comparing the Bank’s eligible capital with its statement of finan-cial position assets, off-statement of financial position commitments and market and other risk positions at weighted amounts to reflect their relative risk. At 31 December 2014, the Bank had a regulatory total capital base of 29.4% (2013: 28.7%) of risk-weighted assets. This compares favorably with the regulatory requirement of 12.0%.

Statement of cash flows analysis

The Bank’s cash flow from / (used in) operating activi-ties went down from Shs 126.7 billion in 2013 to (Shs 13.1 billion) in 2014.

Cash flows in investing activities decreased from Shs 24.4 billion to Shs 14.6 billion during the year ended 2014.

Cash flows from / (used in) financing activities de-creased from Shs 29.2 billion in 2013 to (Shs 19.9 bil-lion) in 2014. The reduction was mainly attributed to a reduction in long term borrowings of Shs 9.3 billion.

Total assets and shareholder equity

Sahreholders’ equity

Total Assets

Years

Shs

Mill

ion

2010 2011 2012 2013 2014

200,000

-

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

OPERATIONAL AND FINANCIAL REVIEW

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Centenary Bank was voted as the Most Promising Brand on Social Media in the 2014 Digital Impact Awards Africa

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CENTENARY RURAL DEVELOPMENT BANK LTD

FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

Principal activitiesThe Bank provides a range of banking and related finan-cial services especially to the economically disadvan-taged people in rural areas. The Bank is an approved and licensed financial institution under the Financial Institutions Act 2004 and is a member of the Uganda Banker’s Association.

ResultsThe Bank’s results for the year ended 31 December 2014 are shown in the statement of comprehensive in-come. A general review of the business and operations as well as a financial review discussing the results of the Bank are set out in section 5 of this report.

DividendThe directors recommend payment of dividends for the year ended 31 December 2014 of Shs 18,477.5 mil-lion (2013: Shs 9,652.2 million).

Share CapitalDuring the year no preference shares were issued.

Directors and Directors’ InterestThe directors who held office during the year and to the date of signing of this report are listed in section 2 of this report.

None of the directors held any beneficial interest in the ordinary share capital of the Bank as at 31 December 2014.

AuditorsErnst & Young have expressed their willingness to con-tinue as external auditors in accordance with section 67 of the Financial Institutions Act 2004.

Management by Third PartiesNone of the business of the Bank was managed by a third party or a company in which a director had an interest during the financial year.

Risk ManagementManaging risk is an integral part of the Bank’s business. The Board of Directors is ultimately responsible for risk management and has established policies and proce-dures to control and monitor risk throughout the Bank.

Corporate Social Responsibility StatementThe Bank is focused on achieving strong sustainable financial returns while promoting a more decent, dig-nified and kinder society. We commit considerable amounts of resources every year to the humanitarian cause both directly and indirectly through our pricing and product mix. Some of our direct community inter-ventions are highlighted in the sustainability report in section 10.

The Bank has adopted the reporting mechanism devel-oped by the Global Reporting Initiatives (GRI) in an at-tempt to be transparent about our performance on the triple bottom line of people, property and planet.

In the sustainability report, the Bank has included a comparison of its performance against the guidelines established in the GRI.

Retirement Benefits The Bank contributes to a retirement benefits scheme covering all of its employees. On attaining the retire-ment age or honorably leaving the service of the Bank, all permanent staff are eligible for terminal benefits ap-plicable to them.

By order of the Board:

Mrs. Peninnah T Kasule COMPANY SECRETARY

DIRECTORS’REPORT 06

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FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

The Bank’s directors are responsible for the preparation and fair presentation of these financial statements in accord-

ance with International Financial Reporting Standards and in the manner required by the Companies Act of Uganda,

2012 and Financial Institutions Act 2004, and for such internal control as the directors determine is necessary to en-

able the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The directors’ responsibility includes: designing, implementing and maintaining internal control relevant to the prepa-

ration and fair presentation of these financial statements that are free from material misstatement, whether due to

fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are rea-

sonable in the circumstances.

Under the Companies Act of Uganda, the directors are required to prepare financial statements for each year that give

a true and fair view of the state of affairs of the Bank as at the end of the financial year and of the operating results of

the Bank for that year. It also requires the directors to ensure the Bank keeps proper accounting records that disclose

with reasonable accuracy the financial position of the Bank.

The directors accept responsibility for the financial statements, which have been prepared using appropriate account-

ing policies supported by reasonable and prudent judgments and estimates, in conformity with International Financial

Reporting Standards, the Companies Act of Uganda, 2012 and Financial Institutions Act 2004. The directors are of

the opinion that the financial statements give a true and fair view of the state of the financial affairs and the profit and

cash flows for the year ended 31 December 2014. The directors further accept responsibility for the maintenance of

accounting records that may be relied upon in the preparation of financial statements, as well as adequate systems of

internal financial control.

The directors have made an assessment of the Bank’s ability to continue as a going concern and have no reason to

believe the business will not be a going concern for the next twelve months from the date of this statement.

The auditor is responsible for reporting on whether the annual financial statements are fairly presented in accordance

with the International Financial Reporting Standards, the Companies Act of Uganda, 2012 and Financial Institutions

Act 2004.

Approval of the Financial StatementsThe financial statements, as indicated above, were approved by the Board of Directors and signed on its behalf on 9th

April 2015 by:

Prof. John Ddumba-Ssentamu Mr. Fabian Kasi Mr. Henry Kibirige Mrs. Peninnah T. KasuleCHAIRMAN, MANAGING DIRECTOR CHAIRMAN, COMPANY SECRETARYBOARD OF DIRECTORS AUDIT COMMITTEE

DIRECTORS’ RESPONSIBILITYFOR FINANCIAL REPORTING 07

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FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

08Report on the financial statementsWe have audited the accompanying financial statements

of Centenary Rural Development Bank Limited, which

comprise the statement of financial position as at 31

December 2014, and the statement of comprehensive

income, statement of changes in equity and statement

of cash flows for the year then ended, and a summary

of significant accounting policies and other explanatory

information.

Directors’ responsibility for the financial statementsThe Bank’s directors are responsible for the prepara-

tion and fair presentation of these financial statements

in accordance with International Financial Reporting

Standards and in the manner required by the Compa-

nies Act of Uganda, 2012 and the Financial Institutions

Act, 2004, and for such internal control as the directors

determine is necessary to enable the preparation of fi-

nancial statements that are free from material misstate-

ment, whether due to fraud or error.

Auditor’s responsibilityOur responsibility is to express an opinion on the fi-

nancial statements based on our audit. We conducted

our audit in accordance with International Standards

on Auditing. Those standards require that we comply

with ethical requirements and plan and perform the au-

dit to obtain reasonable assurance whether the finan-

cial statements are free from material misstatement.

An audit involves performing procedures to obtain au-

dit evidence about the amounts and disclosures in the

financial statements. The procedures selected depend

on the auditor’s judgment, including the assessment of

the risks of material misstatement of the financial state-

ments, whether due to fraud or error. In making those

risk assessments, the auditor considers internal control

relevant to the entity’s preparation and fair presenta-

tion of the financial statements in order to design audit

procedures that are appropriate in the circumstances,

but not for the purpose of expressing an opinion on the

effectiveness of the Bank’s internal control. An audit

also includes evaluating the appropriateness of account-

ing policies used and the reasonableness of accounting

estimates made by the directors, as well as evaluating

the overall presentation of the financial statements.

We believe that the audit evidence we have obtained

is sufficient and appropriate to provide a basis for our

opinion.

OpinionIn our opinion the accompanying financial statements

present fairly, in all material respects, the financial po-

sition of Centenary Rural Development Bank Limited

as at 31 December 2014, and its financial performance

and its cash flows for the year then ended in accord-

ance with International Financial Reporting Standards

and the requirements of the Companies Act of Uganda,

2012 and the Financial Institutions Act, 2004.

Report on other legal requirementsAs required by the Companies Act of Uganda, 2012,

we report to you, based on our audit that:

i) we have obtained all the information and expla-nations which to the best of our knowledge and belief were necessary for the purposes of the au-dit;

ii) in our opinion proper books of account have been kept by the Bank, so far as appears from our examination of those books; and

iii) the Bank’s statement of financial position and statement of comprehensive income are in

agreement with the books of account

REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF CENTENARY RURAL DEVELOPMENT BANK LIMITED

Ernst & Young House, Certified Public Accountants, Kampala, Uganda.

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FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

09 Note 2014 2013 Shs ‘000 Shs ‘000

Interest income 9.48 247,573,040 209,181,388

Interest expense 9.49 (37,067,293) (33,852,506)

Net interest income 210,505,747 175,328,882

Fee and commission Income 9.50 58,679,232 52,239,258

Net interest, fee and commission income 269,184,979 227,568,140

(Loss)/income from financial instruments at fair value 9.48 (505,138) 238,171

Foreign exchange income 9.51 6,161,964 5,108,638

Other operating income 9.52 12,389,824 8,811,853

Operating income 287,231,629 241,726,802

Employee benefits 9.53 (87,409,176) (73,620,570)

Impairment losses on loans and advances 9.54 (11,294,916) (9,551,125)

Depreciation 9.64 (19,106,980) (17,800,564)

Operating expenses 9.55 (73,934,515) (69,531,768)

Profit before income tax 95,486,042 71,222,775

Income tax expense 9.56 (21,669,531) (13,217,228)

Profit for the year 73,816,511 58,005,547

Other comprehensive income - - -

Total comprehensive income, net of income tax 73,816,511 58,005,547

FINANCIAL STATEMENTS

9.0 Statement of comprehensive income

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FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

Note 2014 2013 Shs ‘000 Shs ‘000

ASSETS Cash and balances with Bank of Uganda 9.57 140,653,147 244,962,510Placements with other banks 9.58 49,527,599 28,571,192Government securities –held for trading 9.59 24,180,039 7,289,093Loans and advances to customers 9.60 830,931,969 672,307,038Government securities –held to maturity 9.59 412,179,522 327,255,190Other assets 9.61 33,520,060 37,164,126Deferred expenses 9.63 9,233,400 1,700,003Finance lease on leasehold land 9.64 2,223,977 2,269,508Property and equipment 9.64 (b) 132,475,944 127,923,956Intangible assets 9.64 (c) 1,997,361 1,596,916Total assets 1,636,923,018 1,451,039,532

LIABILITIES Customer deposits 9.65 1,175,115,554 965,891,194Deposits from other banks 9.66 5,456,389 6,319,817Inter-bank borrowing 9.67 - 82,471,095Managed funds 9.68 10,769,684 10,562,122Borrowed funds 9.69 72,656,320 82,895,846Current income tax payable 9.56 5,259,400 1,640,550Deferred income tax liability 9.62 300,406 2,605,073Deferred grants 9.72 746,576 1,030,250Other liabilities 9.70 48,538,623 43,619,913Provision for litigation 9.71 578,729 666,601Total liabilities 1,319,421,681 1,197,702,461

EQUITY Ordinary share capital 9.74 25,000,000 25,000,000Preference share capital 9.74 116,624 116,624Share premium 9.74 1,138,927 1,138,927Regulatory reserve 9.76 3,377,657 1,822,018Proposed dividends 9.75 18,477,452 9,652,245Retained earnings 269,390,677 215,607,257Total equity 317,501,337 253,337,071Total equity and liabilities 1,636,923,018 1,451,039,532Off balance sheet financial instruments 9.78 31,350,646 18,183,974

9.1 Statement of financial position

The financial statements were approved by the Board of Directors and signed on its behalf on 9th April 2015 by:

Prof. John Ddumba-Ssentamu Mr. Fabian Kasi Mr. Henry Kibirige Mrs. Peninnah T. KasuleCHAIRMAN, MANAGING DIRECTOR CHAIRMAN, COMPANY SECRETARYBOARD OF DIRECTORS AUDIT COMMITTEE

FINANCIAL STATEMENTS

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FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

FINANCIAL STATEMENTS

9.2 Statement of changes in equity

Note 2014 2013 Shs ‘000 Shs ‘000

Cash flows from operating activities Interest receipts 237,844,632 196,804,393 Interest payments (40,918,505) (29,748,650) Fee and commission income 71,679,028 54,124,447 Other income received 9,430,404 7,675,286 Recoveries from loans previously written off 9.52 3,074,268 1,857,548 Payments to employees (88,188,005) (74,117,851) Payments to suppliers and other payments (66,235,220) (65,809,934) Grants received 758,073 1,065,896Income tax paid 9.56 (20,355,351) (12,292,641) Cash flows from operating activities before changes in operating assets and liabilities 107,089,324 79,558,494 Changes in operating assets and liabilities Investments (65,911,424) (64,899,952) Loans and advances to customers (162,308,211) (113,927,789) Other assets 3,689,596 (12,678,705) Customer deposits 209,224,360 147,412,486 Deposits from other banks (83,334,524) 83,586,934 Other liabilities (4,779,714) 8,699,390 (103,419,917) 48,192,364

9.3 Statement of cash flows

Year ended 31 December 2013 Note Ordinary Preference Share Regulatory Retained Proposed TOTAL shares shares premium reserve profits dividends Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

At 1 January 2013 25,000,000 116,621 1,138,927 1,924,704 167,151,269 9,136,921 204,468,442

Total comprehensive income for the year - - - - 58,005,547 - 58,005,547

Contributions by and distributions to owners

Transfer to regulatory reserve 9.76 - - - (102,686) 102,686 - -

Transactions related to owners

Dividend paid - - - - - (9,136,921) ( 9,136,921)

Proposed dividends 9.75 - - - - (9,652,245) 9,652,245 -

Shares paid up 9.74 - 3 - - - - 3

Total contributions by and distributions to owners - 3 - (102,686) (9,549,559) 515,324 (9,136,918)

At 31 December 2013 25,000,000 116,624 1,138,927 1,822,018 215,607,257 9,652,245 253,337,071

Note Ordinary Preference Share Regulatory Retained Proposed TOTAL shares shares premium reserve profits dividends Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000 At 1January 2014 25,000,000 116,624 1,138,927 1,822,018 215,607,257 9,652,245 253,337,071 Total comprehensive income for the year - - - - 73,816,511 - 73,816,511 Contributions by and distributions to owners Transfer to regulatory reserve 9.76 - - - 1,555,639 (1,555,639) - - Transactions related to owners - Dividend paid - - - - - (9,652,245) (9,652,245) Proposed dividends 9.75 - - - - (18,477,452) 18,477,452 - Total contributions by and distributions to owners - - - 1,555,639 (20,033,091) 8,825,207 (9,652,245) At 31 December 2014 25,000,000 116,624 1,138,927 3,377,657 269,390,677 18,477,452 317,501,337

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FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

Note 2014 2013 Shs ‘000 Shs ‘000

Net cash flows generated from operating activities 3,669,407 127,750,880 Cash flows from investing activities Additions to deferred expenses 9.63 (7,533,397) -Purchase of property equipment 9.64 (18,917,358) (15,990,270) Purchase of software 9.64 (1,715,173) (772,513)Additions to Mapeera House Project 9.64 (3,438,228) (7,716,182)Proceeds from sale of property and equipment 369,857 101,752 Net cash flows used in investing activities (31,234,299) (24,377,213) Cash flows from financing activities Dividends paid (9,652,245) (9,136,921) Share capital paid up 9.74 - (3) Proceeds from managed/borrowed funds 5,677,663 38,220,125Repayments of managed/borrowed funds (15,909,627) (915,078) Net cash flows (used in)/ from financing activities (19,884,209) 28,168,123 Net (decrease) / increase in cash and cash equivalents (47,449,101) 131,541,790 Net foreign exchange difference - 6,000Cash and cash equivalents at 1 January 389,981,119 258,433,329 Cash and cash equivalents at 31 December 9.77 342,532,018 389,981,119

9.4 Notes to the Financial Statements

a General informationCentenary Rural Development Bank Limited is incorpo-rated in the Republic of Uganda under the Companies Act 2012 and is domiciled in the Republic of Uganda. The address of its registered office is:

Mapeera House Plot 44-46 Kampala Road P. O. Box 1892, Kampala.

b Summary of significant accounting policiesThe principal accounting policies adopted in the prepa-ration of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

Basis of preparationThe financial statements are prepared in compliance with International Financial Reporting Standards (IFRS). The financial statements are presented in the functional currency, Uganda Shillings (Shs), rounded to the nearest thousand, and prepared on the historical cost basis, ex-cept where otherwise stated in the accounting policies

below. The preparation of financial statements in con-formity with IFRS requires the use of estimates and as-sumptions. It also requires management to exercise its judgment in the process of applying the Bank’s account-ing policies. The areas involving a higher degree of judg-ment or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in Note 3.

c New and amended standards and interpretationsThe accounting policies adopted are consistent with those of the previous financial year. Amendments result-ing from improvements to IFRSs to the following stand-ards did not have any impact on the accounting policies, financial position or performance of the Bank:

• Investment Entities – Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclo-sure of Interests in Other Entities and IAS 27 Sepa-rate Financial Statements

• Offsetting Financial Assets and Financial Li-abilities — Amendments to IAS 32 Financial In-struments: Presentation

• Recoverable Amount Disclosures for Non-Fi-nancial Assets — Amendments to IAS 36 Impair-ment of Assets

FINANCIAL STATEMENTS

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FINANCIAL STATEMENTS

• Novation of Derivatives and Continuation of Hedge Accounting — Amendments to IAS 39 Financial Instruments: Recognition and Meas-urement

• IFRIC 21 Levies• Improvements to IFRSs – 2010-2012 Cycle:

Amendments to IFRS 13 – Short-term receiv-ables and payables

• Improvements to IFRSs – 2011-2013 Cycle: Amendments to IFRS 1 – Meaning of ‘effec-tive IFRSs’

d Standards issued but not yet effectiveStandards issued but not yet effective up to the date of issuance of the Bank’s financial statements are listed below. This listing is of standards and interpretations issued, which the Bank reasonably expects to be ap-plicable at a future date. The Bank intends to adopt those standards when they become effective. The Bank expects that adoption of these standards, amend-ments and interpretations in most cases not to have any significant impact on the Bank’s financial position or performance in the period of initial application but additional disclosures will be required. In cases where it will have an impact the Bank is still assessing the pos-sible impact.

NUMBER TITLE EFFECTIVE DATE EXECUTIVE SUMMARY

IFRS 9 Financial Instruments

1-Jan-18 In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard in-troduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but compara-tive information is not compulsory. Early application of previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if the date of initial application is before 1 February 2015. The adoption of IFRS 9 will have an effect on the classification and measurement of the Bank’s financial assets, but no impact on the classifica-tion and measurement of the Bank’s financial liabilities.

Amendments to IAS 19

Defined Benefit Plans: Employee Contributions

1-July-14 IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions are linked to service, they should be attributed to periods of service as a negative benefit. These amendments clarify that, if the amount of the contributions is inde-pendent of the number of years of service, an entity is permitted to recognise such contributions as a re-duction in the service cost in the period in which the service is rendered, instead of allocating the contribu-tions to the periods of service. This amendment is ef-fective for annual periods beginning on or after 1 July 2014. It is not expected that this amendment would be relevant to the Bank, since the Bank does not have defined benefit plans with contributions from employ-ees or third parties.

9.5 International Financial Reporting Standards and Amendments issued but not effective for 31 December 2014 year-end

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FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

IFRS 15 Revenue from Contracts with Customers

1-Jan-17 IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the consid-eration to which an entity expects to be entitled in exchange for transferring goods or services to a cus-tomer.The principles in IFRS 15 provide a more structured approach to measuring and recognising revenue.The new revenue standard is applicable to all entities and will supersede all current revenue recognition re-quirements under IFRS. Either a full or modified retro-spective application is required for annual periods be-ginning on or after 1 January 2017 with early adoption permitted. The Bank is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date.

The standards issued but not yet effective which the Bank does not expect to have an impact on the financial statements are listed below:

• IAS14RegulatoryDeferralAccounts• Amendments to IAS 19 Defined Benefit Plans:

Employee Contributions• Annualimprovements2010-2012Cycle• Annualimprovements2012-2014Cycle• Annualimprovements2011-2013Cycle• AmendmentstoIFRS11JointArrangements:Ac-

counting for Acquisitions of Interests• AmendmentstoIAS16andIAS38:Clarification

of Acceptable Methods of Depreciation and Am-ortisation

• Amendmentsto IAS16andIAS41Agriculture:Bearer Plants

• AmendmentstoIAS27:EquityMethodinSepa-rate Financial Statements

9.6 2010-2012 cycle (issued in December 2013)In the 2010-2012 annual improvements cycle, the IASB issued seven amendments to six standards, summaries of which are provided below. Other than amendments that only affect the standards’ Basis for Conclusions, the changes are effective 1 July 2014. Earlierapplication is permitted and must be disclosed.IFRS 2 Share-based Payment: Definitions of vesting conditionsThe amendment defines ‘performance condition’ and ‘service condition’ to clarify variousissues, including the following:• Aperformanceconditionmustcontainaservice

condition• A performance target must be met while the

counterparty is rendering service

• Aperformance targetmayrelate to theopera-tions or activities of an entity, or to those of an-other entity in the same group

• A performance condition may be a market ornon-market condition

• If the counterparty, regardless of the reason,ceases to provide service during the vesting pe-riod, the service condition is not satisfied

• Theamendmentmustbeappliedprospectively.

IFRS 3 Business Combinations: Accounting for con-tingent consideration in a business combinationThe amendment clarifies that all contingent considera-tion arrangements classified as liabilities or assets aris-ing from a business combination must be subsequently measured atfair value through profit or loss whether or not they fall within the scope of IFRS 9 (or IAS 39, as applicable). The amendment must be applied prospectively.

IFRS 8 Operating Segments: Aggregation of op-erating segmentsThe amendment clarifies that an entity must disclose the judgements made by managementin applying the aggregation criteria in IFRS 8.12, includ-ing a brief description of operatingsegments that have been aggregated and the economic characteristics (e.g., sales and grossmargins) used to assess whether the segments are simi-lar. The amendment must be applied retrospectively.

9.7 Reconciliation of the total of the reportable segments’ assets to the entity’s assetsThe amendment clarifies that the reconciliation of seg-ment assets to total assets isrequired to be disclosed only if the reconciliation is re-

FINANCIAL STATEMENTS

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ported to the chief operating decisionmaker, similar to the required disclosure for segment liabilities. The amendment must be applied retrospec-tively.

IFRS 13 Fair Value Measurement: Short-term re-ceivables and payablesThe amendment clarifies in the Basis for Conclusions that short-term receivables and payables with no stat-ed interest rates can be measured at invoice amounts when the effect of discounting is immaterial. The amendment is effective immediately.

IAS 16 Property, Plant and Equipment and IAS 38 In-tangible Assets: Revaluation method – proportionate restatement of accumulated depreciation/amortisation

The amendments to IAS 16 and IAS 38 clarify that the revaluation can be performed, asfollows:• Adjustthegrosscarryingamountoftheassetto

market valueOR• Determine the market value of the carrying

amount and adjust the gross carrying amount proportionately so that the resulting carrying amount equals the market value

The amendments also clarify that accumulated depreciation/amortisation is the difference be-tween the gross and carrying amounts of the asset. The amendments must be applied retro-spectively.

IAS 24 Related Party Disclosures: Key manage-ment personnelThe amendment clarifies that a management entity – an entity that provides key management personnel servic-es – is a related party subject to the related party dis-closures. In addition, an entity that uses a management entity is required to disclose the expenses incurred for management services. The amendment must be ap-plied retrospectively.In the 2012-2014 annual improvements cycle, the IASB issued five amendments to four standards, summaries of which are provided below. The changes are effec-tive 1 January 2016. Earlier application is permitted and must be disclosed.

IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations: Changes in methods of disposalAssets (or disposal groups) are generally disposed of either through sale or distribution to owners. The amendment clarifies that changing from one of these disposal methods to the other would not be considered

a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in IFRS 5. The changes are effective 1 January 2016. Earlier application is per-mitted and must be disclosed. The amendment must be applied prospectively. These amendments are not expected to have any impact to the Bank.

IFRS 7 Financial Instruments: Servicing contractsThe amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and the arrangement against the guidance for continuing involvement in IFRS 7.B30 and IFRS 7.42C in order to assess whether the disclosures are required. The assessment of which servicing contracts constitute continuing involvement must be done retrospectively. However, the required disclosures would not need to be provided for any period beginning before the annual period in which the entity first applies the amendments.

Applicability of the offsetting disclosures to con-densed interim financial statements:The amendment clarifies that the offsetting disclosure requirements do not apply to condensed interim finan-cial statements, unless such disclosures provide a sig-nificant update to the information reported in the most recent annual report. The changes are effective 1 Janu-ary 2016. Earlier application is permitted and must be disclosed. The amendment must be applied retrospec-tively. These amendments are not expected to have any impact to the Bank.

IAS 19 Employee Benefits: Discount rate: region-al market issueThe amendment clarifies that market depth of high quality corporate bonds is assessed based on the cur-rency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. The amendment must be applied prospec-tively. The changes are effective 1 January 2016. Earlier application is permitted and must be disclosed. These amendments are not expected to have any impact to the Bank.

IAS 34 Interim Financial Reporting: Disclosure of information ‘elsewhere in the interim financial report’The amendment clarifies that the required interim dis-closures must either be in the interim financial state-ments or incorporated by cross-reference between the interim financial statements and wherever they are included within the interim financial report (e.g., in the

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management commentary or risk report). The other information within the interim financial report must be available to users on the same terms as the interim fi-nancial statements and at the same time. The changes are effective 1 January 2016. Earlier application is per-mitted and must be disclosed. The amendment must be applied retrospectively. These amendments are not expected to have any impact to the Bank.

9.8 Interest income and expense

Interest income and expense on all interest bearing in-struments are recognised using the effective interest method in profit or loss. The effective interest method is a method of calculat-ing the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective inter-est rate is the rate that exactly discounts financial in-struments estimated future cash payments or receipts through its expected life or, where appropriate, a shorter period to the net carrying amount.

Once a financial asset or a group of similar financial as-sets has been written down as a result of an impairment loss, interest income is recognised based on the rate of interest that was used to discount the future cash flows for the purpose of measuring the impairment loss.

9.9 Fees and commission income

Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective inter-est rate on the loan.Other fees and commissions include; Loan and lease processing fees, Commitment Fees Overdraft to Customers, commissions on Advance Payment Guar-antees, bid bonds & Guarantees ,drafts Payable, bills Payable, Inter-branch, RTGS /EFT Transfers ,Cheques, uncleared Effects and ledger fees .

9.10 Translation of foreign currencies

The accounting records are maintained in the currency of the primary economic environment in which the Bank operates, Uganda Shillings (“the functional cur-rency”). Transactions in foreign currencies during the year are converted into Uganda shilling using the ex-change rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the transla-tion at year-end exchange rates of monetary assets and

liabilities denominated in foreign currencies are recog-nised in the statement of comprehensive income.

Non–monetary items that are measured in terms of historical cost in a foreign currency are translated using the spot exchange rates as at the date of recognition.

9.11 Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

a. Financial assets Initial recognition and measurementFinancial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments or avail-able-for-sale financial assets. All financial assets are rec-ognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial as-sets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Bank commits to purchase or sell the asset.

Subsequent measurementFor purposes of subsequent measurement financial as-sets are classified in four categories:

• Financialassetsatfairvaluethroughprofitorloss• Loansandreceivables• Held-to-maturityinvestments• Available-for-salefinancialinvestments

Financial assets at fair value through profit or lossFinancial assets at fair value through profit or loss in-clude financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments as defined by IAS 39. The Bank has designated its financial assets held for trading, at fair value through profit or loss. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value presented as finance costs (negative net changes in fair value) or finance income (positive net changes in fair value) in the statement of profit or loss.

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Loans and receivablesThis category is the most relevant to the Bank. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such fi-nancial assets are subsequently measured at amortised cost using the effective interest rate (EIR) method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the statement of comprehensive income. The losses arising from impairment are recognised in profit or loss. This category generally applies to trade and other receiva-bles.

Held-to-maturity investmentsNon-derivative financial assets with fixed or determina-ble payments and fixed maturities are classified as held to maturity when the Bank has the positive intention and ability to hold them to maturity. After initial meas-urement, held to maturity investments are measured at amortised cost using the EIR, less impairment. Am-ortised cost is calculated by taking into account any dis-count or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as interest income in profit or loss. The losses arising from impairment are recognised in the state-ment of profit or loss as finance costs.

Available-for-sale (AFS) financial investmentsAFS financial investments include equity investments and debt securities. Equity investments classified as AFS are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in the market conditions. The Bank did not have any available-for-sale assets as at 31 December 2014 or 2013.

DerecognitionA financial asset (or, where applicable, a part of a finan-cial asset or part of a group of similar financial assets) is primarily derecognised (i.e. removed from the Bank’s statement of financial position) when:

• Therights toreceivecash flows fromtheassethave expired, or

• The Bank has transferred its rights to receivecash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either

(a) the Bank has transferred substantially all the risks and rewards of the asset, or

(b) the Bank has neither transferred nor retained substantially all the risks and rewards of the as-set, but has transferred control of the asset

When the Bank has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred con-trol of the asset, the Bank continues to recognise the transferred asset to the extent of the Bank’s continuing involvement. In that case, the Bank also recognises an associated liability. The transferred asset and the asso-ciated liability are measured on a basis that reflects the rights and obligations that the Bank has retained.

b. Financial liabilities Initial recognition and measurementFinancial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives des-ignated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initial-ly at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Bank’s financial liabilities include customer deposits, loans and borrowings and managed funds.

Subsequent measurementThe measurement of financial liabilities depends on their classification, as described below:Financial liabilities at fair value through profit or lossFinancial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are clas-sified as held for trading if they are incurred for the pur-pose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Bank that are not designated as hedging in-struments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recog-nised in the statement of profit or loss.Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IAS 39 are satisfied. The Bank has not designated any finan-cial liability as at fair value through profit or loss.

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Loans and borrowingsThis is the category most relevant to the Bank. After in-itial recognition, interest-bearing loans and borrowings, customer deposits and managed funds are subsequent-ly measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in profit or loss. This category generally applies to interest-bearing loans and borrowings, customer de-posits and managed funds.

DerecognitionA financial liability is derecognised when the obligation under the liability is discharged or cancelled, or ex-pires. When an existing financial liability is replaced by another from the same lender on substantially differ-ent terms, or the terms of an existing liability are sub-stantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in profit or loss.

OffsettingFinancial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the bank has a currently enforce-able legal right to set off the recognised amounts and it intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when per-mitted under IFRSs.

9.12 Impairment of financial assets

The Bank assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

Objective evidence that a financial asset or group of assets is impaired includes observable data that comes to the attention of the Bank about the following loss events:

The estimated period between a loss occurring and its identification is determined by management for each

identified portfolio. In general, the periods used vary between 3 month and 6 months.

• significantfinancialdifficultyoftheborrower• a breach of contract, such as default or delin-

quency in interest or principal repayments;• the grantingtotheborrower, foreconomicor

legal reasons relating to the borrower’s financial difficulty, a concession that the lender would not otherwise consider;

• itbecomingprobablethattheborrowerwillen-ter bankruptcy or other financial reorganization;

• the disappearance of an activemarket for thatfinancial asset because of financial difficulties; or

• observabledataindicatingthatthereisameasur-able decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the de-crease cannot yet be identified with the individual financial assets in the group, including:

• adverse changes in the payment status of bor-rowers in the group; or

• Nationalor localeconomicconditions thatcor-relate with defaults on the assets in the group.

Assets carried at amortised costThe Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collective-ly for financial assets that are not individually significant.

If the Bank determines no objective evidence of im-pairment exists for an individually assessed financial as-set, whether significant or not, it includes the asset in a group of financial assets with similar credit risk charac-teristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be rec-ognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss on loans or held-to-maturity investments carried at amor-tised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carry-ing amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial instrument’s original effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the profit and loss account. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Bank

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may measure impairment on the basis of an instru-ment’s fair value using an observable market price.

The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclo-sure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impair-ment, financial assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contrac-tual terms of the assets being evaluated.

Provisions for impairment on assets assessed individu-ally are referred to as specific provisions, whilst provi-sions for such losses on assets assessed collectively are referred to as general provisions.

When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previ-ously written off are reported as other income in the statement of comprehensive income.

If, in a subsequent period, the amount of the impair-ment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debt-or’s credit rating), the previously recognised impair-ment loss is reversed by adjusting the allowance ac-count. The amount of the reversal is recognised in the statement of comprehensive income.

In addition to the measurement of impairment losses on loans and advances in accordance with IFRS as set out above, the Bank is required by the Financial Insti-tutions Act 2004 to estimate losses on loans and ad-vances as follows:

Specific provision for the loans and advances consid-ered to be non-performing (impaired) based on the criteria, and classification of such loans and advances established by the Bank of Uganda, as follows:

• Substandardloanswitharrearsperiodbetween91 to 180 days – 20%

• Doubtfulloanswitharrearsperiodbetween180to 365 days – 50%

• Losswitharrearsperiodexceeding365days–

100% provision

• Generalprovisionof1%ofcredit facilities lessspecific provision and suspended interest

In the event that provisions computed in accordance with the Financial Institution Act 2004 materially ex-ceed provisions determined in accordance with IFRS, the excess is accounted for as an appropriation of re-tained earnings.

9.13 Impairment of non-financial assets At the end of each reporting period, the Bank assesses whether there is any indication that an asset is impaired, that is, whether its carrying amount is higher than its recoverable amount). If there is an indication that an asset is impaired, then the asset’s recoverable amount is calculated. [IAS 36.9]The recoverable amount is de-termined by assessing;

• Ifthefairvaluelesscostsofdisposalorvalueinuse is more than carrying amount, then it is not necessary to calculate the other amount since the asset is not impaired. If an impairment loss is determined, the loss is recognised through profit or loss.

• Iffairvaluelesscostsofdisposalcannotbedeter-mined, then recoverable amount is value in use.

• Forassetstobedisposedof,recoverableamountis fair value less costs of disposal.

The Bank looks at both external and internal in-dicators to determine if an asset is impaired.

External Indicators:• Declineinmarketvalue• Negativechangesintechnology,markets,econo-

my, or laws• Increasesinmarketinterestrates• NetassetsoftheBankhigherthanmarketcapi-

talisation

Internal Indicators: • Obsolescenceorphysicaldamageoftheasset• Assetisidleaspartofarestructuringorheldfor

disposal• Worseeconomicperformancethanexpected

9.14 Property and equipment

i. Recognition and measurement Items of property and equipment are measured

at cost less accumulated depreciation and accu-mulated impairment losses.

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Cost includes expenditures that are directly attribut-able to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their in-tended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equip-ment is capitalised as part of that equipment.

When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.The gain or loss on disposal of an item of property and equipment is determined by comparing the proceeds from disposal with the carrying amount of the item of property and equipment, and are recognised net within other income in profit or loss.

ii. Subsequent costs The cost of replacing a part of an item of prop-

erty or equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the bank and its cost can be measured reliably. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred.

(iii) Depreciation Depreciation is recognised in profit or loss on a

straight-line basis over the estimated useful lives of each part of an item of property and equipment since this most closely reflects the expected pat-tern of consumption of the future economic ben-efits embodied in the asset. Leased assets under finance leases are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated.

The estimated useful lives for the current and compara-tive periods are as follows:

Leased buildings Shorter of 50 years or lease period

Computer hard ware 3 yearsFurniture, fixtures and fittings 5 yearsMotor vehicles & cycles 4 yearsGenerators & office equipment 8 years

Depreciation methods, useful lives and residual values are reassessed at each financial year-end and adjusted if appropriate.

9.15 Fair value measurement

The Bank measures financial instruments at fair value at each reporting date. Also, fair values of financial in-struments measured at amortised cost are disclosed in Note 4(a).

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transac-tion between market participants at the measurement date. The fair value measurement is based on the pre-sumption that the transaction to sell the asset or trans-fer the liability takes place either:• Intheprincipalmarketfortheassetorliability,or• Intheabsenceofaprincipalmarket,inthemost

advantageous market for the asset or liability

The principal or the most advantageous market must be accessible to by the Bank. The fair value of an as-set or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Bank uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial state-ments are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities

• Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly ob-servable

• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the fi-nancial statements on a recurring basis, the Bank deter-mines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair

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value measurement as a whole) at the end of each re-porting period.

9.16 Intangible assets

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful lives of 3 years (33.3%).

Costs associated with developing or maintaining com-puter software programs are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software prod-ucts controlled by the bank, and that will probably gen-erate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include software development employee costs and an appropriate portion of relevant overheads.

9.17 Tax

Current income tax Income tax expense is the aggregate of the charge to the statement of comprehensive income in respect of current income tax and deferred income tax. Current income tax is the amount of income tax payable on the taxable profit for the year determined in accordance with the Ugandan Income Tax Act. Current income tax assets and liabilities for the current period are meas-ured at the amount expected to be recovered from or paid to the taxation authorities.

Current income tax relating to items recognised di-rectly in equity or other comprehensive income is recognised directly in equity or other comprehensive income and not in profit or loss. Management periodi-cally evaluates positions taken in the tax returns with respect to situations in which the tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred income taxDeferred income tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred income tax liabilities are recognised for all taxable temporary differences, except:• When the deferred income tax liability arises

from the initial recognition of goodwill or an as-set or liability in a transaction that is not a busi-ness combination and, at the time of the trans-action, affects neither the accounting profit nor

taxable profit or loss• In respectof taxable temporarydifferencesas-

sociated with investments in subsidiaries, asso-ciates and interests in joint ventures, when the timing of the reversal of the temporary differ-ences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that tax-able profit will be available against which the deductible temporary differences, and the carry forward of un-used tax credits and unused tax losses can be utilised, except:

• Whenthedeferredtaxassetrelatingtothede-ductible temporary difference arises from the initial recognition of an asset or liability in a trans-action that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss .

• In respect of deductible temporary differencesassociated with investments in subsidiaries, as-sociates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the tempo-rary differences can be utilised

Deferred income tax relating to items recognised out-side profit or loss is recognised outside profit or loss. Deferred income tax items are recognised in correla-tion to the underlying transaction either in OCI or di-rectly in equity.

Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to set off current income tax assets against current in-come tax liabilities and the deferred income taxes re-late to the same taxable entity and the same taxation authority.

Withholding taxWithholding tax is deducted at source at 20% on in-come earned on treasury bills and bonds. This amount is included under the income tax charge for the year.

Value Added taxValue added tax is chargeable at a rate of 18%. Output VAT is the value added tax you calculate and charge on

FINANCIAL STATEMENTS

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your own sales of goods and services if you are regis-tered. Input VAT is the value added tax added to the price when you purchase goods or services liable to VAT. VAT payable arises when the output VAT is in ex-cess of input VAT.

9.18 Employee benefits

The Bank and all its employees contribute to the Na-tional Social Security Fund, which is a defined contribu-tion scheme.

The Bank also operates a defined contribution benefits scheme for its employees. The Bank has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all em-ployees the benefits relating to employee service in the current and prior periods. The assets of the scheme are held in separate trustee administered funds, which are funded by contributions from both the Bank and employees. The Bank’s contributions to the defined contributions schemes are charged to profit or loss in the year in which they relate.

The estimated monetary liability for employees’ ac-crued annual leave entitlement at the reporting date is recognised as an expense accrual.

9.19 Contingent liabilities and commitments

Contingent liabilities and commitments comprised of letters of credit, acceptances, guarantees and com-mitments to extend credit are not included in assets and liabilities in note 36. They are accounted for as off-statement of financial position transactions and are disclosed as contingent liabilities and commitments.

9.20 Share capital

Ordinary shares are classified as ‘share capital’ in equi-ty. Any premium received over and above the par value of the shares is classified as ‘share premium’ in equity.

Preference shares (irredeemable) classified as share capital in equity.

Dividends on shares are charged to equity in the pe-riod in which they are declared. Proposed dividends are shown as a separate component of equity until de-clared.

9.21 Cash and cash equivalents

Cash and cash equivalents include cash at hand, depos-its held at call with banks, other short term highly liquid investments with original maturities of three months or less, including: cash and non-restricted balances with

the Bank of Uganda, Treasury and other eligible bills, and amounts due from other banks. Cash and cash equivalents include the cash reserve requirement held with the Bank of Uganda.

9.22 Comparatives No comparative figures have been adjusted.

9.23 Grants

Grants are recognised where there is reasonable as-surance that the grant will be received and all attached conditions will be complied with. When the grant re-lates to an expense item it is recognized as income over the period necessary to match the grant on a system-atic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is recognized as deferred income and released to income in equal amounts over the expected useful life of the related asset.

9.24 Provisions

A provision is recognised if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

9.25 Managed funds and borrowed funds

The Bank manages funds on behalf of others in terms of specific agreements. The funds are recorded as a liability on receipt of the funds and the corresponding investments (as per the agreement) are recorded un-der cash and cash equivalents or loans and advances to customers. Details of the funds are included in note 26 and 27.

9.26 Leases

The determination of whether an arrangement is a lease, or contains a lease, is based on the substance of the arrangement and requires an assessment of wheth-er the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrange-ment conveys a right to use the asset.

Bank as a lesseeLeases that do not transfer to the Bank substantially all the risks and benefits incidental to ownership of the leased items are operating leases. Operating lease pay-ments are recognised as an expense in profit or loss on a straight-line basis over the lease term. Contingent rental payable is recognised as an expense in the period in which they are incurred.

FINANCIAL STATEMENTS

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Bank as a lessorWhen assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receiv-able and the present value of the receivable is recog-nised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method. The Bank has entered into finance lease transactions as a lessor (Note 18(b) – Finance Leases).

9.27 Critical Accounting Estimates and Judgments in Applying Accounting Policies

The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are con-tinually evaluated and are based on historical experi-ence and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

i. Impairment losses on loans and advances The Bank reviews its loan portfolios to assess

impairment at least on a quarterly basis. In de-termining whether an impairment loss should be recorded in profit or loss, the Bank makes judge-ments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfo-lio of loans before the decrease can be identi-fied with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the pay-ment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the Management uses esti-mates based on historical loss experience for as-sets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows.

The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

The carrying amount of loans and advances is indicated in note 18.

ii. Held-to-maturity investments The Bank follows the guidance of IAS 39 on clas-

sifying non-derivative financial assets with fixed or determinable payments and fixed maturing as

held-to-maturity. This classification requires sig-nificant judgment. In making this judgment, the Bank evaluates its intention and ability to hold such investments to maturity. If the Bank fails to keep these investments to maturity other than for the specific circumstances – for example, sell-ing a insignificant amount close to maturity – it will be required to re-classify the entire class as available-for-sale. The investments would there-fore be measured at fair value and not amortised cost.

The carrying amount of held-to-maturity investments is indicated in note 17(b).

iii. Determining fair values The determination of fair value for financial as-

sets and liabilities for which there is no observ-able market price requires the use of valuation techniques as described in accounting policy 2 (e)(v). For financial instruments that trade infre-quently and have little price transparency, fair value is less objective, and requires varying de-grees of judgement depending on liquidity, con-centration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

The Bank measures fair values using the following fair value hierarchy that reflects the significance of the in-puts used in making the measurements:

Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.

Level 2: Valuation techniques based on observable in-puts, either directly (i.e., as prices) or indirectly (i.e., de-rived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all sig-nificant inputs are directly or indirectly observable from market data.

Level 3: Valuation techniques using significant unob-servable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The fair value disclosures are included in note 4.

FINANCIAL STATEMENTS

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iv. TaxesThe Bank is subject to various government taxes under the Ugandan tax laws. Significant judgement is required in determining the provision for income taxes. Signifi-cant estimates and judgements are required in deter-mining the provision for taxes on certain transactions. For these transactions, the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is dif-ferent from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. The deferred tax liability is indicated in note 20.

9.28 Financial Risk Management

The Bank’s activities expose it to variety of financial and non-financial risks. These activities involve the analysis, evaluation, acceptance and management of some de-gree of risk or combination of risks. Taking risk is core to the Bank’s business, and the operational risks are in-evitable consequences of being in business. The effec-tive management of risk is critical to earnings and bal-ance sheet growth within Centenary Bank where the culture encourages sound commercial decision making, which adequately balances risk and reward. The identi-fication and management of risk remains a high priority and underpins all business activities.

The Bank’s approach to risk management is based on a well-established risk, compliance and governance pro-cess and relies both on individual responsibility and col-lective oversight supported by comprehensive report-ing. This approach balances strong corporate oversight at Head Office level with risk management structures within the business units.

The Bank has governance standards for all major risk types. All standards are applied consistently across the Bank and are approved by the Board through either Bank’s Board Risk Management Committee or Board ALCO Committee.

The standards form an integral part of the Bank’s gov-ernance infrastructure reflecting the expectations and requirement of the Board in respect of key areas con-trol across the Bank. The standards ensure alignment and consistency in the manner major risk types across the Bank are identified, measured, managed, controlled and are reported.

The standards underpin the Bank’s governance princi-ples, which are:

• Shareholder value: The Bank’s primary objective is to protect and

enhance shareholder value. As such the risks to this objective drive the Bank’s system of internal control.

• Embedded: The Bank’s culture reflects its appetite for risk.

Risk management is achieved at all levels of the business through a suitable organisational struc-ture, policies, and procedure, and appropriate staff training. Responsibility for risk resides at all levels of management from the Board down through the organisation to individuals in office. Each business manager is accountable for manag-ing risk in his or her business area, assisted and supported, where appropriately.

• Supported and assured: The system of governance and internal control

provide management and Board with assurance that risks are being managed appropriately. The designated executives and Board Committees regularly receive and review reports on risks, compliance, governance and control process.

• Reviewed: The Board of Directors considers the effective-

ness of the internal control system and risk man-agement processes, at least annually. The major risks to which the Bank is exposed, including non – financial risks are:-

• Creditrisk• Operationalrisk• Compliancerisk• Reputationrisk• Businessrisk• Strategicrisk• Marketrisk• Liquidityrisk• Taxationrisk

A combination of these risks occurring concurrently would be the most likely cause of significant loss. The Bank’s approach to managing risk on a holistic basis therefore ensures that risk types are not managed in isolation.

9.29 Credit Risk

Comprehensive resources, expertise and control are in place to ensure efficient and effective manage-ment of credit risk. In lending transactions, credit risk arises through non-performance by counter-party for facilities used. These facilities are typically loans and advances, including the advancement of securities and contracts to support customer obligations (such as let-ters of credit and guarantees).

FINANCIAL STATEMENTS

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Approach to managing credit risk:

Credit risk is managed by means of a governance structure with clearly defined mandates and del-egated authorities. The Board Risk Committee delegates authority to the Management Credit Risk Committee for the approval of credit proposals. The management further delegates authority within its limits, primarily on a risk adjusted basis.

Total Assets And Shareholder Equity

9.30 Credit Risk Measurement

• Internal Risk RatingsThe Bank assesses the credit quality and assigns – watch and standard for performing loans and substandard, doubtful and loss for non-performing borrowers.

9.31 Classified as impaired for accounting purposes

• Industry AnalysisThe Bank analyses its customers per industry using various portfolio segmentation techniques. These include the use of Bank of Uganda categories as well as International Standard Classification (SIC) codes whilst ensuring compliance with regulatory

requirements.• Agriculture• Manufacturing• Tradeandcommerce• Transportandutilities• Buildingandconstruction• Otherservices

The Bank takes on exposure to credit risk which

Standard and current:

Items that are fully current and the full repayment of the contractual principal and interest amounts are expected.

Watch list: Items for which the borrower is experiencing difficulties. Ultimate loss is not expected but could occur if adverse conditions persist.

Substandard Items that show underlying well defined weaknesses that could lead to probable loss if not corrected. The risk that these items may be impaired is probable and the Bank relies to a large extent on the available security.

Doubtful Items that are considered to be impaired, but are not yet considered final losses because of pending factors, which may strengthen the quality of the items.

Loss Items that are considered to be uncollectible and where the realization of col-lateral and institution of legal proceedings have been unsuccessful. These items are considered of such little value that they should no longer be included in the net asset of the Bank.

FINANCIAL STATEMENTS

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The above table represents the worst case scenar-io of credit risk exposure to the Bank at 31 Decem-ber 2014 and 2013; without taking into account any collateral held or other credit enhancements attached. For the financial assets, the exposures set out above are based on carrying amounts as re-ported in the statement of financial position.

As shown above, 58.6% (2013: 53.8%) of the to-tal maximum exposure is derived from loans and advances to banks and customers. Investment in debt securities represents 30.1% (2013: 26.2%) of the total maximum exposure.

is the risk that a counterparty will be unable to pay amounts in full as and when due. The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrow-er, or groups of borrowers, and to industry segments. Such risks are monitored on a revolving basis and are subject to an annual or more frequent review. Limits on the level of credit risk by product, and industry sec-tor are approved by the Board of Directors.

The exposure to any one borrower including banks and brokers is further restricted by sub-limits covering on

and off-statement of financial position exposures and daily delivery risk limits in relation to trading items. Ac-tual exposures against limits are monitored daily.

Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential bor-rowers to meet interest and capital repayment obliga-tions and by changing these lending limits where ap-propriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate and personal guarantees, but a significant portion is personal lending where no such security/undertaking can be obtained.

2014 2013 Shs ‘000 Shs ‘000

Credit risk exposure relating to statement of financial position items:

Balances with Bank of Uganda (Note 9.57) 58,732,147 177,372,531Placements with other banks (Note 9.58) 49,527,599 28,571,192Investment securities – held to maturity (Note 9.59) 412,179,522 327,255,190Investment securities – held for trading (Note 9.59) 24,180,039 7,289,093Loans and advances (Note 9.60) 850,721,299 688,025,729Other assets 24,486,762 30,167,782 1,419,827,368 1,258,681,517Credit risk exposures relating to off-statement of financial position items:

- Letters of credit, Guarantees and performance bonds (Note 9.78) 25,023,470 13,951,477- Commitment to extend credit (Note 9.78) 6,327,176 4,232,497 31,350,646 18,183,974Total 1,451,178,014 1,276,865,491

Maximum exposure to credit risk before collateral held

FINANCIAL STATEMENTS

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As at 31 December 2014

As at 31 December 2013

Total loan Netting off Exposure Collateral portfolio agreements after 51-1005 Coverage Shs 000 (cash accured) netting off Shs 000 over 100% Shs000

Secured loans 639,744,629 754,053 638,990,577 35,599,871 604,144,759

Partly secured 210,976,670 - 210,976,670 15,274,234 195,702,436

Total 850,721,299 754,053 849,967,247 50,874,105 799,847,195

Total loan Netting off Exposure Collateral portfolio agreements after 51-1005 Coverage Shs 000 (cash accured) netting off Shs 000 over 100% Shs000

Secured loans 537,250,515 1,106,634 536,143,881 45,206,941 490,936,940

Partly secured 150,775,214 - 150,775,214 - -

Total 688,025,729 1,106,634 686,919,095 45,206,941 490,936,940

Loans and advances to customers are secured mainly by collateral in the form of charges over land and buildings and/or plant and machinery or corporate guarantees. Mi-cro loans can also be secured by chattels.

Management is confident in its ability to continue to con-trol and sustain minimal exposure of credit risk to the Bank resulting from both its loans and advance portfolio

and debt securities based on the following:

• TheBankexercisesstringentcontrolsovergrantingnew loans.

• 93.0% (2013: 93.5%) of the loans and advancesportfolio are neither past due nor impaired.

• 100.0%(2011:100.0%)oftheinvestmentsindebtsecurities are government securities.

The table below shows the collateral coverage for secured loans as at year end. The type of collateral held includes land titles, motor vehicles and chattels.

2014 2013 Shs ‘000 Shs ‘000

Neither past due nor impaired 791,395,724 643,265,263

Past due but not impaired 35,111,032 25,845,549

Impaired 24,214,543 18,914,917

Gross loans and advances 850,721,299 688,025,729

Less: Allowance for impairment (19,789,330) (15,718,691)

Net loans and advances 830,931,969 672,307,038

Loans and advances are summarised as follows:

Loans and advances neither past due nor impaired

The quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the internal rating sys-tem adopted by the Bank, as follows:

2014 2013 Shs ‘000 Shs ‘000

Standard 764,504,141 640,666,376

Watch 26,891,583 2,598,887

Total 791,395,724 643,265,263

FINANCIAL STATEMENTS

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Loans and advances past due but not impaired

Micro loans that are less than 30 days overdue and other loans that are less than 90 days past due are not considered impaired, unless other informa-tion is available to indicate the contrary. The gross amounts of loans and advances that were past due but not impaired were as follows:

Of the total gross amount of impaired loans, the following amounts have been individually assessed for impairment:

These are low risk assets which did not exhibit any indicators of impairment as at year end.

2014 2013 Shs ‘000 Shs ‘000

Loans individually assessed for impairment by category

Commercial loans 3,783,057 6,515,209

Micro loans 4,525,219 2,684,365

Home improvement loans 868,860 964,574

Agricultural loans 4,797,658 2,673,173

Salary loans 10,068,110 5,562,842

Overdrafts 171,639 514,754

24,214,543 18,914,917

Gross loans and advances by category

Commercial loans 256,853,882 222,040,421

Micro loans 161,617,968 113,913,555

Home improvement loans 46,657,323 45,204,996

Agricultural loans 127,496,388 109,506,182

Salary loans 199,907,497 150,775,213

Overdrafts 30,185,205 23,579,668

Staff loans 28,003,036 23,005,694

Gross loans and advances 850,721,299 688,025,729

Less: Provision for impairment of loans and advances

Individually assessed (14,352,602) (10,496,853)

Collectively assessed (5,436,728) (5,221,838)

Net loans 830,931,969 672,307,038

Other financial assets not impaired Carrying amounts:

Balances with Bank of Uganda 58,732,147 177,372,531

Placements with other banks 49,527,599 28,571,192

Investment securities- Held-to-maturity 412,179,522 327,255,190

Investment securities- Held for trading 24,180,039 7,289,093

Other assets 24,486,762 30,167,782

Total 569,106,069 570,655,788

2014 2013 Shs ‘000 Shs ‘000

Past due up to 30 days 25,395,324 18,877,716

Past due 31-60 days 6,008,760 4,794,234

Past due 61-90 days 3,706,948 2,173,599

Total 35,111,032 25,845,549

FINANCIAL STATEMENTS

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Movement in provisions for impairment of loans and advances in the statement of financial position are as follows:

Commercial Microfinance Leasing Staff Overdraft Loans Loans portfolio Loans Total Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000

Non-performing loans - Identified loss:

At 1 January 2014 123,102 443,938 9,656,039 192,794 80,980 10,496,854

Impaired accounts written off - (2,883,922) (4,958,966) (129,139) - (7,972,027)

Additional identified impairment 90,513 4,461,305 12,975,360 158,724 - 17,685,902

Impairments released due

to improved status (94,392) (1,878,165) (4,519,343) (113,975) - (6,605,875)

Movement in interest

suspended during the year 28,173 252,716 466,859 - - 747,748

At 31 December 2014 147,396 395,872 13,619,950 108,404 80,980 14,352,602

Performing loans - Unidentified loss:

At 1 January 2013 223,977 754,816 4,117,789 125,256 - 5,221,838

Net provisions raised 5,882 52,763 97,474 4,202 54,569 214,890

At 31 December 2014 229,859 807,579 4,215,263 129,458 54,569 5,436,728

Total 377,255 1,203,451 17,835,213 237,862 135,549 19,789,330

Non-performing loans - Identified loss:

At 1 January 2013 433,571 271,765 9,391,139 4,700 80,980 10,182,155

Impaired accounts written off - (2,067,411) (5,801,755) - - (7,869,166)

Additional identified impairment 117,346 3,355,307 10,247,907 221,259 - 13,941,819

Impairments released due

to improved status (427,815) (1,115,723) (4,181,252) (33,165) - (5,757,955)

At 31 December 2013 123,102 443,938 9,656,039 192,794 80,980 10,496,853

Performing loans - Unidentified loss:

At 1 January 2013 187,958 389,923 3,178,490 98,207 - 3,854,578

Net provisions raised 36,019 364,893 939,299 27,049 - 1,367,260

At 31 December 2013 223,977 754,816 4,117,789 125,256 - 5,221,838

Total 347,079 1,198,754 13,773,828 318,050 80,980 15,718,691

FINANCIAL STATEMENTS

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2014 2013 Shs ‘000 Shs ‘000

Provision for impairment losses

Additional identified impairment 17,685,902 13,941,820

Additional unidentified impairment 214,890 1,367,260

17,900,792 15,309,080

Reduction due to improved status

Identified impairment (6,605,875) (5,757,955)

6,605,875 (5,757,955)

Provisions for the year 17,900,792 15,309,080

Reductions in provision for impairment (6,605,875) (5,757,955)

Total statement of comprehensive

income movement 11,294,917 9,551,125

2014 2014 Shs ‘000 Shs ‘000 % Credit

commitments

Sector analysis by industry

Agriculture 145,706,306 17.0 1,611,632

Manufacturing 6,460,407 0.8 203,378

Trade and commerce 178,439,601 21.0 8,040,825

Transport and utilities 20,380,890 2.4 614

Building and construction 196,337,346 23.1 15,986,993

Other services 303,396,749 35.7 5,507,204

850,721,299 100 31,350,646

2013 2013 Shs ‘000 Shs ‘000 % Credit

commitments

Sector analysis by industry

Agriculture 121,783,100 17.7 886,626

Manufacturing 4,942,245 0.7 921,793

Trade and commerce 159,978,982 23.3 6,511,773

Transport and utilities 16,405,700 2.4 2,000

Building and construction 152,346,469 22.1 6,027,606

Other services 232,569,233 33.8 3,834,176

688,025,729 100 18,183,974

Movement in provisions for impairment of loans and advances in the statement of comprehensive income are as follows:

Concentration of RiskEconomic sector risk concentrations within the customer loan portfo-lio were as follows:

As at 31 December 2014, the Bank had no loans and advances to a single borrower or group of related borrow-ers exceeding 25.0% of core capital (31 December 2013: Nil).

9.33 Credit Related CommitmentsThe primary purpose of these instru-ments is to ensure that funds are avail-able to a customer as required. Guar-antees and standby letters of credit, which represent irrevocable assuranc-es that the Bank will make payments in the event that a customer cannot meet its obligation to third parties, carry the same credit risk as loans. Documen-tary and commercial letters of credit, which are written undertakings by the Bank on behalf of the customer au-thorizing a third party to draw drafts up to a stipulated amount under spe-cific terms and conditions, are collat-eralized by the underlying shipments of goods to which they relate and therefore carry less risk than a direct borrowing.

Commitments to extend credit repre-sent unused portions of authorizations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. How-ever, the likely amount of loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term of ma-turity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

9.34 Impaired loans and advancesIndividually impaired loans and securi-ties are loans and advances and invest-ment debt securities (other than those carried at fair value through profit or loss) for which the bank determines that there is objective evidence of impairment and it does not expect to

FINANCIAL STATEMENTS

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collect all principal and interest due according to the contractual terms of the loan agreement. These loans are graded as standard and watch in the bank’s inter-nal credit risk grading system. Loans and advances and investment debt securities carried at fair value through profit or loss are not assessed for impairment but are subject to the same internal grading system.

9.35 Past due but not impaired loans

Past due but not impaired loans other than those car-ried at fair value through profit or loss, are those for which contractual interest or principal payments are past due, but the bank believes that impairment is not appropriate on the basis of the level of security / collat-eral available and / or the stage of collection of amounts owed to the bank.

9.36 Loans with renegotiated terms

Loans with renegotiated terms are loans that have been restructured due to deterioration in the borrower’s fi-nancial position and where the bank has made conces-sions that it would not otherwise consider. Once the loan is restructured it remains in this category for at least one year and returned to normal category there after satisfactory performance. 9.37 Allowances for impairment

The Bank establishes an allowance for impairment losses on assets carried at amortised cost or classified as available for sale that represents its estimate of in-curred losses in its loan and investment debt security portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loan loss allow-ance established for groups of homogeneous assets in respect of losses that have been incurred but have not been identified on loans that are considered individually insignificant as well as individually significant exposures that were subject to individual assessment for impair-ment but not found to be individually impaired. Assets carried at fair value through profit or loss are not sub-ject to impairment testing as the measure of fair value reflects the credit quality of each asset.

9.38 Write-off policy

The Bank writes off a loan or an investment debt secu-rity balance, and any related allowances for impairment losses, when the Bank Credit Committee determines that the loan or security is uncollectible. This determi-nation is made after considering information such as the occurrence of significant changes in the borrower’s / is-suer’s financial position such that the borrower / issuer

can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire ex-posure. For smaller balance standardized loans, write-off decisions generally are based on a product-specific past due status.

9.39 Collateral held

The Bank holds collateral against loans and advances to customers in the form of mortgage interests over prop-erty such as land and buildings and plant and machinery, other registered securities over assets e.g. chattels for micro loans, and corporate guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired. Collateral generally is not held over loans and advances to banks within the board approved risk tolerance limit, except when securities are held as part of reverse re-purchase and securities borrowing activity. Collateral usually is not held against investment securities and no such collateral was held at 31 December 2014 or 31 December 2013. As an internal requirement, the forced sale value of the collateral security is over and above the amount of loans and advances disbursed.

9.40 Operational Risk

Operational risk is the risk of direct or indirect loss aris-ing from a wide variety of causes associated with the Bank’s processes, personnel , technology and infra-structure, and from external factors other than credit, market and liquidity risks such as those arising from le-gal and regulatory requirements and generally accepted standards of corporate behavior. Operational risks arise from all the Bank’s operations.

The Bank’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Bank’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

9.41 Market Risk

Market risk arises from decrease in the market value of portfolio of financial instruments caused by adverse move in the market variables such as currency exchange rates, interest rates, credit spreads and implied volatili-ties on all the above. The objective of market risk man-agement is to manage and control market risk exposures within acceptable limits, while optimizing the return on risk. The Board grants the general authority to take on market risk exposures to the Board Asset and Liabil-ity Committee (ALCO). The ALCO sets market risk standards and policies to ensure that the measurement,

FINANCIAL STATEMENTS

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reporting, monitoring and management of market risk is maintained. The day to day implementation of these policies rests with the Treasury Department.

The Bank manages risk through a range of market risk and capital risk limits. Stress testing and basic risk man-agement measures (permissible instruments, concen-tration of exposures, gap limits and maximum tenor) are used to facilitate this process.

9.42 Interest Rate Risk

The Bank takes on exposure to the effects of fluctua-tions in the prevailing levels of market interest rates on its financial position and cash flows. Interest mar-gins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. The Asset and Liability Commit-tee sets limits on the level of mismatch of interest rate repricing that may be undertaken, which is monitored monthly.

Methods of Measuring and Managing the Interest Rate Risk:There are a good number of techniques and tools available for measuring and managing interest rate risk ranging from simple calculation to highly complex sim-ulations and modeling. The technique that Centenary Bank utilises is explained below:

Gap Analysis:Under this, interest sensitive assets and liabilities are classified into various time bands according to their ma-turity in the case of fixed interest rates, and residual maturity towards next repricing date in the case of floating interest rates.

The size of the gap in a given time band is analyzed to study the interest rate exposure and the possible ef-fects on the Bank’s earnings. Items in assets and liabili-

ties are captured into various buckets, using judgmental factors by studying behavioral patterns, customer seg-mentation, and roll over history, etc, on a continuous basis which eventually leads to a dynamic gap analysis.

In order to evaluate the earnings exposure, inter-est Rate Sensitive Assets (RSA) in each time band are netted off against the interest Rate Sensitive Liabilities (RSL) to produce a repricing “Gap” for that time band.

A positive gap indicates that the Bank has more RSA than RSL. A positive or asset sensitive gap means that an increase in market interest rates could cause an in-crease in the net interest margin and vice versa. Con-versely, a negative or liability sensitive gap implies that the Bank’s net interest margin could decline as a result of increase in market rates and vice versa.

The positive or negative gap is multiplied by the as-sumed interest rate changes to derive the Earnings at Risk (EaR). The EaR method helps to estimate how much the earnings might be impacted by an adverse movement in interest rates. The assumed changes in interest rate are estimated on basis of past trends, forecasting of interest rates, etc. The off-statement of financial position items are excluded from the gap re-port because the Bank does not bear any interest rate risk on these items.

The table below summaries the Bank’s exposure to in-terest rate risks. Included in the table are the Bank’s assets and liabilities at carrying amounts, categorized by the earlier of contractual re-pricing or maturity dates. The carrying amounts of derivative financial instruments which are principally used to reduce the exposure to interest rate movements are included in ‘Other Assets’ and ‘Other Liabilities” under the heading ‘Non-interest Bearing’. The off-statement of financial position gap represents the net notional amounts of all interest-sensitive derivative financial instruments.

FINANCIAL STATEMENTS

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Over 5 Fixed& Nov- <1 mth 1-12 mth 1-5 Years Years interest bearing TOTAL Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000

31 December 2014

Financial assets

Cash and short-term funds 1,501,356 - - - 139,151,791 140,653,147

Due from other banks 44,831,161 - - - 4,696,438 49,527,599

Investments 57,643,802 378,715,759 - - - 436,359,561

Loans and advances to customers 7,006,916 216,861,064 358,846,480 40,326,312 207,891,196 830,931,969

Other financial assets - - - - 35,944,140 35,944,140

Total financial assets 110,983,235 595,576,823 358,846,480 40,326,312 387,683,565 1,493,416,416

Non-financial assets

Property & equipment - - - - 134,473,304 134,473,304

Other assets - - - - 9,033,298 9,033,298

Total non-financial assets - - - - 143,506,602 143,506,602

Total assets 110,983,235 595,576,823 358,846,480 40,326,312 531,190,167 1,636,923,018

Liabilities

Due to customers and other banks 11,791,522 881,830,049 418,152 - 286,532,220 1,180,571,943

Managed/ borrowed funds - - 10,000,000 - 73,426,004 83,426,004

Other liabilities - - - - 55,423,734 55,423,734

Capital & Reserves

- - - - 317,501,337 317,501,337

Total liabilities 11,791,522 881,830,049 10,418,152 - 732,883,295 1,636,923,018

Net on-SOFP gap 99,191,713 (286,253,226) 348,428,328 40,326,312 (201,693,128) -

Net off-SOFP gap - - - - 31,350,646 31,350,646

Total interest sensitivity gap 99,191,713 (286,253,226) 348,428,328 40,326,312 (170,342,482) 31,350,646

Over 5 Fixed& Nov- <1 mth 1-12 mth 1-5 Years Years interest bearing TOTAL Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000

31 December 2013

Financial assets

Cash and short-term funds - - - - 244,962,510 244,962,510

Due from other banks 11,427,480 - - - 17,143,712 28,571,192

Investments 41,636,019 292,908,264 - - - 334,544,283

Loans and advances to customers 5,050,642 181,319,705 283,878,180 31,971,876 170,086,635 672,307,038

Other financial assets - - - - 30,167,782 30,167,782

Total financial assets 58,114,141 474,227,969 283,878,180 31,971,876 462,360,639 1,310,552,805

Interest rate risk exposure

FINANCIAL STATEMENTS

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Non-financial assets

Property & equipment - - - - 129,520,872 129,520,872

Other assets - - - - 41,133,637 41,133,637

Total non-financial assets - - - - 140,486,727 140,486,727

Total assets 58,114,141 474,227,969 283,878,180 31,971,876 602,847,366 1,451,039,532

Liabilities

Due to customers and other banks 13,415,036 94,921,072 338,606 - 863,536,297 972,211,011

Managed/ borrowed funds 92,471,095 - - - 83,457,968 175,929,063

Other liabilities - - - - 49,562,387 49,562,387

Capital & Reserves - - - - 253,337,071 253,337,071

Total liabilities 105,886,131 94,921,072 338,606 - 1,249,893,723 1,451,039,532

Net on-SOFP gap (47,771,990) 379,306,897 283,539,574 31,971,876 (647,046,357) -

Net off-SOFP gap - - - - 10,175,082 10,175,082

Total interest sensitivity gap (47,771,990) 379,306,897 283,539,574 31,971,876 (636,871,275) 10,175,082

Over 5 Fixed& Nov- <1 mth 1-12 mth 1-5 Years Years interest bearing TOTAL Shs’000 Shs ‘000 Shs’000 Shs’000 Shs’000 Shs’000

The re-pricing gaps for the Bank’s portfolios are shown below. Positions are managed by currency to take account of the fact that interest rates are unlikely to move together. All assets and liabilities are sited in gap intervals based on their re-pricing character-istics. Assets and liabilities, for which no specific contractual re-pricing or maturity dates exist are placed in gap intervals based on management judgment, where appropriate, based on the most likely re-pricing behavior

>3 months >6months After 12 Within 3 but within 6 but within 12 After 12 months months months months Shs million Shs million Shs million Shs million

2014 (578,345) 74,075 317,208 388,755

Interest rate sensitivity gap

Cumulative interest rate sensitivity gap (578,345) (504,270) (187,062) 201,693

Cumulative interest rate sensitivity gap as a percentage of total assets 6% 5% 19% 2%

2013 2,494 106,392 222,649 315,511

Interest rate sensitivity gap

Cumulative interest rate sensitivity gap 2,494 108,886 331,535 647,046

Cumulative interest rate sensitivity gap as a percentage of total assets 0% 8% 23% 45%

FINANCIAL STATEMENTS

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Interest sensitivity analysisThe table below shows the increase / (decline) in 12-month earnings for upward and downward instan-taneous parallel rate shocks.

Assuming no management intervention, a parallel 500bps increase in all yield curves would increase the forecast net interest income for the next financial year by Shs 10,478 million. A parallel decreases in all yield curves would decrease the forecast net interest in-come for the next financial year by Shs 10,478 million. Whilst a parallel 100bps increase in all yield curves would increase the forecast net interest income for the next financial year by Shs 2,096 million. A parallel decreases in all yield curves would decrease the fore-cast net interest income for the next financial year by Shs 2,096 million.

9.43 Currency riskThe Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Asset and Liability Committee sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The table below summaries the Bank’s exposure to foreign currency exchange rate risk at 31 December 2014 and 31 December 2013. Included in the table are the Bank’s assets and liabilities at carrying amounts, categorized by currency.

EUROS, TZ & GBP USD KSH TOTAL Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

31 December 2014 Assets Cash and balances at the Central Bank 784,619 10,603,837 2,298,139 13,686,595Due from other banks 1,005,613 1,202,228 2,488,596 4,696,437Investments - 5,326,421 5,326,421Loans and advances to customers - 23,688,526 7,800 23,696,326Other accounts receivable 28,364 902,012 10,435 940,811Property & equipment - - - -Total assets 1,818,596 36,396,603 10,131,391 48,346,590 Liabilities Customer deposits and balances due to other banks 1,366,977 35,351,855 8,867,094 45,585,926Managed funds -Other accounts payable 4,157 311,181 16,957 332,295Total liabilities 1,371,134 35,663,036 8,884,051 45,918,221Net on-SOFP position 447,462 733,567 1,247,340 2,428,369Net off-SOFP position - 5,294,091 209,598 5,503,689Overall net position 447,462 6,027,658 1,456,938 7,932,058% of Net position over core capital 0.15 2.05 0.49 2.96

Assuming no management intervention, a parallel 500bps increase in all yield curves would increase the equity for the next fi-nancial year by Shs 15,844 million. A par-allel decreases in all yield curves would decrease the equity for the next financial year by Shs 15,844 million. Whilst a parallel 100bps increase in all yield curves would in-crease the equity for the next financial year by Shs 3,169 million. A parallel decreases in all yield curves would decrease the equity for the next financial year by Shs 3,169 mil-lion.

Impact on profit before tax

2014 2013

Shs million Shs million

+ 500 bps rate shock 10,478 9,563

- 500 bps rate shock (10,478) (9,563)

+ 100 bps rate shock 2,096 1,913

- 100 bps rate shock (2,096) (1,913)

Impact on equity

2014 2013

Shs million Shs million

+ 500 bps rate shock 15,844 12,667

- 500 bps rate shock (15,844) (12,667)

+ 100 bps rate shock 3,169 2,533

- 100 bps rate shock (3,169) (2,533)

FINANCIAL STATEMENTS

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The tables below shows the increase (decline) in 12 month earnings for upward (appreciation) and downward (depre-ciation) of the shilling on all foreign currencies on instanta-neous parallel rate changes over the next 12 months.

Assuming no management intervention a parallel appreciation of the shilling by 500bps on all foreign currencies would in-crease the forecast earnings by Shs397 million whilst a fall or depreciation shall reduce forecast earnings by Shs 397 million.

A 100bps appreciation of the shilling on all currencies would increase the forecast earnings for the next financial year by Shs 79 million whilst a full or depreciation shall reduce forecast earnings by Shs 79 million.

9.44 Liquidity Risk

Liquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its financial liabilities as they fall due and to replace funds when they are withdrawn.

The Bank is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing de-posits, and calls on cash settled contingencies. The Bank does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. Bank of Uganda requires that the Bank maintain a cash reserve ratio of 8.0% of total deposits. In addition, Bank of Uganda sets limits on the minimum proportion of liquid funds available to meet such calls at 20% and other borrowing facilities that should be in place to cover withdraws at unexpected levels of demand. The Treasury Department monitors liquidity ratios on a daily basis.

The Bank incorporates the following elements as part of a cohesive liquidity management process:

• Shorttermandlongtermcashflowmanagements• Maintainingastructurallysoundfinancialposition• Foreigncurrencyliquiditymanagement• Preservingadiversifiedfundingbase• Undertakingregularliquiditystresstesting• Maintainingadequateliquiditycontingencyplan.

GBP USD OTHERS TOTAL Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

31 December 2013

Total assets 1,676,608 39,340,386 17,284,734 58,301,728Total liabilities 750,045 37,358,666 9,328,794 47,437,505 Net on-SOFP position 926,563 1,981,720 7,955,940 10,864,223Net off-SOFP position (795,684) (1,331,496) (1,620,419) (3,747,599)Overall net position 130,879 650,224 6,335,521 7,116,624% of Net position over core capital 0.05 0.27 2.64 2.96

Parallel rate shocks

2014 2013

Shs million Shs million

+ 500 bps exchange rate change 397 731

-500bps exchange rate change (397) (731)

+100bps exchange rate change 79 146

-100bps exchange rate change (79) (146)

FINANCIAL STATEMENTS

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<1 mth 1-12 mth 1-5 Years Over 5 Years TOTAL Shs’ 000 Shs’ 000 Shs’ 000 Shs’ 000 Shs’ 000

Assets Cash and short-term funds 140,653,147 - - - 140,653,147 Due from other banks 49,527,599 - - - 49,527,599 Investments 637,210 435,722,351 - - 436,359,561 Loans and advances at amortised cost 165,386,070 242,727,124 380,056,963 42,761,812 830,931,969 Other assets 14,111,018 19,409,042 - - 33,520,060 370,315,044 697,858,517 380,056,963 42,761,812 1,490,992,336 Liabilities Due to customers and other banks 1,117,561,646 62,524,689 480,700 4,908 1,180,571,943 Managed funds - - 10,769,684 - 10,769,684 Borrowed funds 3,651,779 10,505,958 69,541,978 664,279 84,363,994 Other liabilities 39,039,972 3,800,410 5,950,602 669,527 49,460,512 1,160,253,398 76,831,057 86,742,964 1,338,715 1,325,166,134

Net liquidity gap (789,938,354) 621,027,460 293,313,999 41,423,097 165,826,202

Off balance sheet mismatch 11,565,581 18,882,424 897,641 5,000 31,350,646

Net liquidity mismatch (778,372,773) 638,909,884 294,211,640 41,428,097 197,176,848

31 December 2014 31 December 2013 Carrying Amount Fair Value Carrying Amount Fair Value Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Assets Cash and short-term funds 140,653,147 140,653,147 244,962,510 244,962,510 Due from other banks 49,527,599 49,527,599 28,571,192 28,571,192 Investments 436,359,561 436,359,561 334,544,283 334,544,283 Loans and advances at amortised cost 830,931,969 996,836,683 672,307,038 853,138,699 Other assets 33,520,060 33,520,060 30,167,782 30,167,782 1,490,992,336 1,656,897,050 1,310,552,805 1,491,384,466 Liabilities Due to customers and other banks 1,180,571,943 1,180,741,945 975,824,260 977,308,137 Managed funds 10,769,684 14,489,351 105,242,104 135,041,887 Borrowed funds 72,656,320 110,498,627 10,562,123 13,205,845 Other liabilities 49,460,512 52,058,104 44,286,514 47,781,272 1,313,458,459 1,357,788,026 1,135,915,001 1,173,337,141

Fair value versus carrying amounts of financial assets and liabilities carried at amortised cost

The fair values of financial assets and liabilities together with the carrying value shown in the statement of financial position are analysed as follows:

The table below presents the undiscounted cash flows payable by the Bank under financial liabilities by remaining contractual maturities at the reporting date.

FINANCIAL STATEMENTS

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At 31 December 2014 Level 1 Level 2 Level 3 Total Shs‘000 Shs‘000 Shs‘000 Shs‘000

Assets measured at fair value Government securities at fair value - 24,180,039 - 24,180,039 -Assets and liabilities not measured at fair value for which fair values have been disclosed Loans and advances - - 996,836,683 996,836,683Managed funds - - 14,489,351 14,489,351 Borrowed funds - - 110,498,627 110,498,627 Other liabilities - - 52,058,104 52,058,104

At 31 December 2013 Level 1 Level 2 Level 3 Total Shs‘000 Shs‘000 Shs‘000 Shs‘000

Assets at fair value Government securities at fair value - 7,289,093 - 7,289,093 - Assets and liabilities not measured at fair value for which fair values have been disclosed Loans and advances 853,138,699 853,138,699Managed funds 135,041,887 135,041,887 Borrowed funds 13,205,845 13,205,845 Other liabilities 47,781,272 47,781,272

The fair value of the financial assets and liabilities is in-cluded at the amount at which the instrument could be exchanged in a current transaction between willing par-ties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

• Long-termfixed-rateandvariable-ratereceivables/borrowings are evaluated by the Bank based on parameters such as interest rates, individual cred-itworthiness of the customer and the risk char-acteristics of the financed project. Based on this evaluation, allowances are taken into account for the expected losses of these receivables. As at 31 December 2014, the carrying amounts of such re-ceivables, net of allowances, were not materially different from their calculated fair values.

• Fairvalueofthetreasurybondsisbasedonpricequotations at the reporting date. The fair value of unquoted instruments, loans from banks and other

financial liabilities, as well as other non-current fi-nancial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturi-ties.

• FairvaluesoftheBank’sinterest-bearingborrow-ings and loans are determined by using DCF meth-od using discount rate that reflects the issuer’s bor-rowing rate as at the end of the reporting period. The own non-performance risk as at 31 December 2014 was assessed to be insignificant.

Financial instruments not measured at fair value

i. Loans and advances The estimated fair value of loans and advances rep-

resents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to de-termine fair value.

FINANCIAL STATEMENTS

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ii. Government securities and investments held-to-maturity

The fair value for these held-to-maturity assets is based on market prices. Where this informa-tion is not available, fair value is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics. The carrying amount of investment securities is a rea-sonable approximation of fair value.

iii. Deposits due to customers and other banks The estimated fair value of deposits with no stat-

ed maturity, which includes non-interest bearing deposits, is the amount repayable on demand and this is the carrying amount. The estimated fair value of interest-bearing deposits not quoted

in an active market is based on discounted cash flows using interest rates for new debts with sim-ilar remaining maturity. The carrying amounts are a reasonable approximation of this.

iv. Borrowings and managed funds The interest rates charged on borrowings held

by the bank based on WACC or other bases for determining market interest rates. The interest rates are variable and in line with market rates for similar facilities. The fair values of such inter-est bearing borrowings not quoted in an active market is based on discounted cash flows using interest rates for similar facilities.

Valuationtechnique

Significant unobservable inputs

Range (weighted average)

2014 2013

Loans and advances DCF method WACC 12.6% 13.6%

Managed funds and borrowed funds DCF method WACC 12.6% 13.6%

The significant unobservable inputs used in the fair value measurement categorised within Level 3 of the fair value hierarchy are as shown below:

9.45 Capital Management

The Bank monitors the adequacy of its capital using ratios established by Bank of Uganda, which ratios are broadly in line with those for the Bank for International Settlements (BIS). These ratios measure capital ade-quacy by comparing the Bank’s eligible capital with its statement of financial position assets, off-statement of financial position commitments and market and other risk positions at weighted amounts to reflect their rela-tive risk.

The market risk approach covers the general market risk and the risk of open positions in currencies and debt and equity securities. Assets are weighted according to the amount of capital deemed to be necessary to sup-port them. Four categories of risk weights (0%, 20%, 50%, 100%) are applied; for example cash and money market instruments have a zero risk weighting which means that no capital is required to support the hold-ing of these assets. Property and equipment carries a 100% risk weighting, meaning that it must be support-ed by capital equal to 100% of the carrying amount. Certain asset categories have intermediate weightings. Off-statement of financial position credit related com-mitments and forwards are taken into account by ap-plying different categories of credit conversion factors,

designed to convert these items into balance sheet equivalents. The resulting credit equivalent amounts are then weighted for credit risk using the same per-centages as for statement of financial position assets.

The Bank’s objectives when managing capital, which is broader than the equity on the face of the statement of financial position, are:

• To complywith the capital requirement set byBank of Uganda

• To safeguard theBank’s ability to continueas agoing concern so that it can continue to provide returns to the shareholders and

• Tomaintainastrongcapitalbasetosupportthedevelopment of the Bank’s business.

Capital adequacy and the use of regulatory capital are monitored monthly by management, employing tech-niques based on guidelines developed by Basel commit-tee as implemented by Bank of Uganda, for supervisory purposes. The required information is filled with Bank of Uganda on a quarterly basis.Bank of Uganda requires each bank to:

a. Hold the minimum level of the regulatory capital of Ushs 25,000,000,000 (Shs Twenty five billion);

b. Maintain a ratio of total regulatory capital to the

FINANCIAL STATEMENTS

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FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

The increase of the regulatory capital in the year 2014 is mainly due to the contribution of the current-year profit.

The risk–weighted assets are measured by means of hierarchy of five risk weights classified according to the na-ture of portfolio holding and reflecting an estimate of credit and market risks associated with each asset and coun-terparty, taking into account any eligible collateral or guarantees. A similar treatment is adopted for off-statement of financial position exposure, with some adjustments to reflect the more contingent nature of potential losses.

risk –weighted assets of not less than 12.0%; and

c. Maintain core capital of not less than 8.0% of risk weighted assets.

The Bank’s regulatory capital is divided into two tiers:

Tier 1 capital (core capital): Share capital, share premium, retained earnings and reserves created by appropriations of retained earnings. The book value of goodwill, current year losses, prohibited loans to insiders; investments in unconsolidated financial statements, deficiencies in provisions for losses and other deductions determined by BOU are deducted

in arriving at tier 1 capital.

Tier 2 capital (Supplementary Capital): Revalu-ation reserves, unidentified impairment allowance, statutory regulatory reserves (reserves created by appropriations of retained earnings), subordinated debt and hybrid capital instruments.

The table below summaries the composition of regu-latory capital and the ratios of the Bank, for the years ended 31 December 2013 and 2014. During those two years, the Bank complied with all of the external-ly imposed capital requirements to which it is subject.

2014 2013 Shs 000 Shs 000

Core Capital (Tier 1) Permanent equity 25,116,624 25,116,624Share premium 1,138,927 1,138,927Prior years’ retained profits 215,607,257 167,151,269Proposed dividends (18,477,452) (9,652,245)Net after-tax profits (current year-to-date) 73,816,511 58,005,547 297,201,867 241,760,122

Computer software (1,997,361) (1,596,916)Unrealised foreign exchange gains (65,747) (238,171)Tier 1 Capital 295,138,759 239,925,035

Supplementary Capital (Tier 2)

Unencumbered general provisions for losses 8,814,385 7,043,856Tier 2 Capital 8,814,385 7,043,856Total Capital (Tier 1+Tier 2) 303,953,144 246,968,891

FINANCIAL STATEMENTS

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9.46 Statement of financial position

Nominal amounts Risk weighted amounts 2014 2013 2014 2013 Shs ‘000 Shs ‘000 Shs ‘000 Shs ‘000

Assets Notes, coins & other cash assets 81,921,000 67,589,979 0% Balances with Bank of Uganda 58,732,147 177,372,531 0% Due from commercial banks in Uganda 44,837,023 11,545,817 20% 8,967,405 2,309163 Due from commercial banks outside Uganda (1) Rated AAA to AA (-) 3,719,164 7,491,149 20% 743,833 1,498,230 (2) Rated A (+) to A (-) 806,099 9,381,818 50% 403,050 4,690,909 (3) Rated A (-) and non-rated 165,313 152,409 100% 165,313 152,409 Investment securities 436,359,561 334,544,283 0% - - Loans and advances to customers 830,931,969 672,307,038 100% 830,931,969 672,307,038 Other accounts receivable 44,977,437 41,133,637 100% 44,977,437 41,133,637 Property and equipment 132,475,944 127,923,956 100% 132,475,944 127,923,956 Off-statement of financial position items Contingencies secured by cash collateral 5,691,443 1,241,258 0% - - Guarantees & acceptances 4,178,266 6,914,925 100% 4,178,266 6,914,925 Performance bonds 11,199,166 2,452,296 50% 5,599,583 1,226,148 Documentary credits (trade related) 3,954,594 3,342,998 20% 790,919 668,600 Other commitments 6,327,177 4,232,497 50% 3,163,589 2,116,248 Total risk-weighted assets 1,666,276,303 1,467,626,591 1,032,397,306 860,941,263

2014 Ratio 2013 Ratio Shs ’000 Shs ‘000

Capital ratios Tier 1 Capital (Core) 295,138,759 28.6% 239,925,035 27.9%Tier 1 + Tier 2 Capital (Total) 303,953,144 29.4% 246,968,891 28.7% FIA 2004 minimum ratio capital requirement Core capital 8% 8%Total capital 12% 12%

Shs million 2010 2011 2012 2013 2014

Total assets 807,238 944,044 1,122,296 1,451,040 1,636,923

Risk-weighted assets 479,528 646,689 860,941 862,538 1,032,397

The Bank’s total capital adequacy ratio improved from 28.7% to 29.4% as at 31 December 2014 and Tier 1 capital increased from 27.9% to 28.6% as at 31 December 2014 showing that the Bank is well capitalised.

9.47 Trend in risk-weighted assets

The table below summarises the composition of the risk weighted assets of the Bank for the years ended 31 December 2014 and 31 December 2013.

FINANCIAL STATEMENTS

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-2010 2011 2012 2013 2014

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

-

Turnover

The Bank’s turnover is derived substantially from the business of banking and related ac-tivities and comprises net interest income, fees and commission income, trading income and other income. These revenues are shown in the statement of comprehensive income and accompanying notes and represent the most appropriate equivalent of turnover compared with other forms of business enterprise.

2014 2013 Shs ‘000 Shs ‘000

9.48 Interest income Interest on loans 192,910,797 162,488,656 Interest on treasury bills held to maturity 42,431,071 37,316,896 Interest on treasury bonds 2,111,827 1,674,202 Interest on inter-bank placements 10,119,345 7,701,634 247,573,040 209,181,388 The interest on impaired loans as at 31 December 2014 was Ushs 2.969 billion (2013: Ushs 2.220 billion). (Loss)/income from financial instruments at fair value Fair value (loss) / gain on held for trading securities (505,138) 238,171 (505,138) 238,1719.49 Interest expense Savings accounts 13,152,428 11,008,348 Current accounts 544,008 343,176 Fixed deposit accounts 9,565,802 10,365,088 Managed/borrowed funds 7,856,883 8,329,810 Inter-bank borrowings 5,948,172 3,806,084 37,067,293 33,852,506 9.50 Fee and commission income Trade related fees and commitment 13,776,423 11,577,332 Ledger fees 17,888,977 16,697,719 Other commissions and fees 27,013,832 23,964,207 58,679,232 52,239,258 9.51 Foreign exchange income Foreign trade commission 3,081,171 2,512,737 Revaluation gain 3,080,793 2,595,901 6,161,964 5,108,638 9.52 Other operating income Income from bullion van hire 14,724 10,760 Recovery of written off loans 3,074,268 1,857,548 Sale of ATM cards & banking stationery 4,102,499 3,505,327 Release of unutilised accruals 1,556,567 853,819 Credit Reference Bureau search fee income 344,615 423,301 Grant income 1,041,747 836,185 Uncollected ATM cards 456,055 382,677 Other income 1,799,349 942,236 12,389,824 8,811,853

Trends in risk weighted assets

Total AssetsRisk - weighted assets

Years

Shs

Mill

ion

FINANCIAL STATEMENTS

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Other income 2014 2013 Shs ‘000 Shs ‘000 Fees on current accounts 61,958 - Penalties 47,101 8,552 Profit on sale of assets 365,913 33,172 Cash overages 217,780 165,543 Miscellaneous income 837,520 548,679 Income from uncollected balances 10,569 - Early redemption fees 258,508 185,845 Lease application fees - 445 1,799,349 942,236

9.53 Employee benefits expense Staff salaries 60,918,835 53,188,763 Staff bonuses 13,993,895 9,512,638 NSSF contributions 7,620,800 6,716,476 Retirement plan contributions 4, 875,646 4,202,693 87,409,176 73,620,570

9.54 Impairment losses on loans and advances Credit losses impairment-Identified 11,080,027 8,183,865 Credit losses impairment-Unidentified 214,889 1,367,260 11,294,916 9,551,125

9.55 Operating expenses Auditors’ remuneration and expenses 221,607 210,877 Software costs 3,986,538 2,707,631 Premises cost 11,631,093 11,520,895 Insurance 6,081,284 5,295,053 Security 3,218,390 3,010,956 Office expenses 11,752,244 10,374,051 Equipment lease expenses 1,476,776 1,332,483 Motor vehicle expenses 2,458,401 2,540,287 Telephone, telex and postage 5,557,786 5,740,235 Corporate Social Responsibility (CSR) 457,626 797,612 Advertising and marketing 4,655,112 4,247,017 Directors’ emoluments and other expenses 3,065,168 2,711,072 Consultancy and legal fees 2,947,637 1,711,982 Recruitment and training 1,497,246 1,462,505 Staff transfer 802,416 987,285 Seminars & conferences 322,985 276,462 Subscription 493,767 345,850 Stationery 4,897,014 4,688,472 Transport & travel 5,430,120 5,201,138 Bank charges 529,518 1,538,376 Long-term rental amortization 45,532 45,750 Cash shortages and other losses 859,461 1,353,715 Other operating expensesb 1,546,794 1,432,064 73,934,515 69,531,768

Other operating expenses 2014 2013 Shs ‘000 Shs ‘000 Foreign exchange loss 34,289 - Funeral expenses 53,454 66,071 Business promotion account 313,937 232,843 Annual General Meeting 57,918 48,285 Licence (Bank) - 400

FINANCIAL STATEMENTS

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Cashiers allowance 235,567 235,720 MTN Mobile Money expense - 60 WARID Pesa Mobile Money expense - 60 Loss on sale of assets - 27,422 Management fees expense 606,574 714,132 Meeting expenses 118,903 65,240 Financial card fees expenses 89,741 17,135 Other expenses 36,411 24,694 1,546,794 1,432,0649.56 Income tax expense Current income tax 15,065,619 6,323,657 Withholding tax expense 8,908,579 7,798,220 Deferred tax credit (2,304,674) (1,348,135) Prior year under provision 7 443,486 21,669,531 13,217,228

The tax on the Bank’s profit before tax differs from the theoretical amount that would arise using the basic tax rate as fol-lows: 2014 2013 Shs ‘000 Shs ‘000 Profit before income tax 95,486,042 71,222,775 Tax calculated at 30.0% (2013: 30.0%) 28,645,812 21,366,832 Tax effect of: - Expenses not deductible for tax 1,326,193 2,084,884 - Income not subject to tax (17,211,060) (17,811,397) - Prior year adjustment 7 (221,311) - 20% final tax on treasury bills 8,908,579 7,798,220 Income tax expense 21,669,531 13,217,228 Movement in current tax payable is as follows:- At 1 January 1,640,550 (632,173) Under provision in prior years- current tax 3 443,486 Current income tax expense 23,974,198 14,121,878 Tax paid during year (20,355,351) (12,292,641) At 31 December 5,259,400 1,640,550 Further information on deferred income tax is presented in Note 9.62.

2014 2013 Shs ‘000 Shs ‘000 9.57 Cash and balances with Bank of Uganda

Cash in hand – Uganda Shillings 72,131,981 59,757,900 Cash in hand – Foreign Currency 9,789,019 7,832,079 Bank of Uganda clearing account 57,230,791 80,761,154 Bank of Uganda Repo 1,501,356 96,611,377 140,653,147 244,962,510 Due within < 1 month 140,653,147 244,962,510

9.58 Placements with other banks Balances with local banks 5,862 118,337 Balances with foreign banks 4,690,576 17,025,375 Placements with local banks 44,831,161 11,427,480 49,527,599 28,571,192 Due within < 1 month 49,527,599 28,571,192

FINANCIAL STATEMENTS

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The weighted average effective interest rate on placement with other banks was 10.8% (2013:12.7%).

2014 2013 Shs ‘000 Shs ‘000 9.59 Government securities (a) Government securities held for trading Government bonds 24,180,039 7,289,093 24,180,039 7,289,093 Treasury bills are debt securities issued by the Central Bank for a term of three months, six months and twelve months, whilst bonds are also issued for a term of two years, three years, five years and ten years.

The weighted average effective interest rate on treasury bills and bonds was 12.5% (2013: 12.6%) and 13.8% (2013:10.4%) respectively.

Government securities held to maturity 2014 2013 Shs ‘000 Shs ‘000 Government treasury bills 412,179,522 327,255,190 Maturity analysis of government securities held-to-maturity Short Term (1-3 months) 128,171,233 109,158,324 Medium Term (3-6 months) 95,283,935 96,917,958 Long Term (Over 6 months and within 12 months) 188,724,354 121,178,908 412,179,522 327,255,190

2014 2013 Shs ‘000 Shs ‘0009.60 Loans and advances to customers

Overdrafts 30,185,205 23,579,668 Commercial loans 270,765,529 238,876,858 Micro finance loans 500,203,696 384,854,639 Finance leases 21,563,833 17,708,870 Staff loans 28,003,036 23,005,694 Gross loans and advances 850,721,299 688,025,729 Provision for loan impairment – identified losses (14,352,602) (10,496,853) Provision for loan impairment – unidentified losses (5,436,728) (5,221,838) Net loans and advances 830,931,969 672,307,038 Maturity analysis of loans and advances Short Term (1-3 Months) 33,708,722 25,601,502 Medium Term (3-6 Months) 18,973,937 13,954,277 Long Term (Over 6 Months and within 12 months) 211,299,237 175,242,570 Long Term (Over 12 months) 586,739,403 473,277,378 850,721,299 688,025,729

FINANCIAL STATEMENTS

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% 2014 % 2013 Shs ‘000 Shs ‘000Sector Analysis Agriculture 17.1 145,706,306 17.7 121,783,100Manufacturing 0.8 6,460,407 0.7 4,942,245Trade and Commerce 21.0 178,439,601 23.3 159,978,982Transport and Utilities 2.4 20,380,890 2.4 16,405,700Building and Construction 23.1 196,337,346 22.1 152,346,469Other Services 35.7 303,396,749 33.8 232,569,233 100 850,721,299 100 688,025,729

Finance leases 2014 2013 Shs’000 Shs’000 Gross investments in finance leases No later than 1 year 388,454 257,078 Later than 1 year but no later than 5 years 25,422,802 22,511,088 Later than 5 years 1,154,700 - 26,965,956 2,768,166 Unearned future finance income on finance leases (5,402,123) (5,059,296) Net investment in finance leases 21,563,833 17,708,870 Analysis of net investment in finance leases No later than 1 year 364,156 246,524 Later than 1 year but no later than 5 years 20,449,759 17,462,346 Later than 5 years 749,918 21,563,833 17,708,870 This is a form of financing an asset where the asset serves as the main security. The leases are offered for a period be-tween 1 to 7 years depending on the type of equipment financed and the anticipated cash flows. The average interest rate on these facilities for 2014 was 26.1% for Ushs facilities and 10.0% for USD facilities (2013: 26.1% and 10.1% respectively). 2014 2013 Shs ‘000 Shs ‘0009.61 Other assets Cheques in transit 173,972 308,716 Staff advances 21,207 16,308 Accrued late fee payment 734,066 683,502 Accounts receivable 9,554 436,732 Prepaid expenses 7,495,011 5,056,392 Sundry stationery stock 1,538,287 1,939,952 Western Union commission receivable 229,550 399,583 Outward clearing 962,650 1,108,743 Mobile E-money 7,265,263 9,970,379 Deferred staff loan off market discount 10,792,115 8,613,386 Unsettled interbank trading deals 693,750 3,832,400 Value Added Tax 1,919,053 3,478,333 Other sundry assets 1,685,582 1,319,700 33,520,060 37,164,126

All other assets are due within one year.

FINANCIAL STATEMENTS

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9.62 Deferred income tax Deferred income taxes are calculated on all temporary differences under the liability method at the applicable rate of 30.0%. The movement on the deferred income tax account is as follows:

2014 2013 Shs’000 Shs’000

At 1 January 2,605,073 3,953,208Prior year adjustment 7 (644,797)Credit to statement of comprehensive income (Note 9.56) (2,304,674) (683,338)At 31 December 300,406 2,605,073

Charge/ (Credit) to 1 January 2014 SOCI 31 Dec 2014 Shs’000 Shs’000 Shs’000Deferred tax liability Accelerated tax depreciation 7,408,517 (1,276,576) 6,131,941Fair value adjustments 27,639 (151,541 (123,902 7,436,156 (1,428,117) 6,008,039Deferred tax asset Provisions (1,766,531) (38,100) (1,804,631)Opening balance adjustment - - -Deferred income (3,064,552) (838,450) (3,903,002) (4,831,083) (876,550) (5,707,633)Net deferred tax liability 2,605,073 (2,304,667) 300,406 Charge/ (Credit) to 1 January 2013 SOCI 31 Dec 2013 Shs’000 Shs’000 Shs’000 Deferred income tax liability Accelerated tax depreciation 7,824,309 (415,792) 7,408,517Fair value adjustments (43,812) 71,451 27,639 7,780,497 (344,341) 7,436,156Deferred income tax asset Provisions (1,328,295) 438,237) (1,766,532)Deferred income (2,498,994) (565,557) (3,064,551) (3,827,289) (1,003,794) (4,831,083)Net deferred income tax liability 3,953,208 (1,348,135) 2,605,073

9.63 Deferred expenses 2014 2013 Shs ‘000 Shs ‘000 At start of year 1,700,003 3,640,307 Net additions/transfers 7,533,397 (1,940,304) At end of year 9,233,400 1,700,003

FINANCIAL STATEMENTS

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These include expenses incurred on major renovations on branches rented by the Bank and expenses incurred on the Bank’s upcoming core banking implementation project, whose benefit is estimated to spread over more than one year. They are deferred and amortised upon completion of renovations over a period of the lower of five years and the lease tenor. The expenses on the core banking project will be capitalised as intangible assets upon completion.

9.64 Finance lease on leasehold land 2014 2013 Shs ‘000 Shs ‘000

Cost At 1 January 2,536,543 2,536,543 Additions - - At 31 December 2,536,543 2,536,543 Amortisation At 1 January 267,035 221,285 Charge for the year 45,531 45,750 At 31 December 312,566 267,035 Net carrying amount 2,223,977 2,269,508

The finance lease relates to costs incurred when acquiring the leasehold land on plot 44-46 Kampala Road. The costs are being amortised on a straight line basis over the life of the lease agreement. The lease agreement for plot 44 – 46 Kampala Road became effective November 2009 for ninety nine years. As at 31st December 2014 the remaining lease period is 94 years.

At the inception of the lease, the obligations associated with the acquisition was all paid up front in full as required by the local laws. Therefore, all the lease payments/installments were paid upfront at the beginning of the lease and as at 31 December 2014 there were no other lease obligations outstanding.

As at 31 December 2014

Computer Furniture Motor Equipment Fixture & Work-in Buildings Vehicles & &accessories Equipment Progress Total Ushs ‘000 Ushs ‘000 Ushs ‘000 Ushs ‘000 Ushs ‘000 Ushs ‘000

COST

At 1 January 2014 71,566,200 11,944,669 38,181,066 57,570,894 7,716,182 186,979,011

Additions 3,438,228 227,278 2,640,739 4,631,119 11,418,222 22,355,586

Disposals - ( 1,189,981) (2,388,530) (261,461) - (3,839,972)

Transfer from work-in-progress 7,716,182 - - - (7,716,182) -

Impairment - - - (110,489) - (110,489)

At 31 December 2014 82,720,610 10,981,966 38, 433,275 61,830,063 11,418,222 205,384,136

DEPRECIATION

At 1 January 2014 2,247,567 6,951,084 26,526,870 23,329,534 - 59,055,055

Charge for the year 1,555,999 2,119,730 5,679,156 8,444,639 - 17,799,524

On disposals - (1,188,631) (2,385,806) (261,461) - (3,835,898)

Impairment - - - (110,489) - (110,489)

At 31 December 2014 3,803,566 7,882,183 29,820,220 31,402,223 - 72,908,192 Computer Furniture

FINANCIAL STATEMENTS

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Motor Equipment Fixture & Work-in Buildings Vehicles & &accessories Equipment Progress Total

Ushs ‘000 Ushs ‘000 Ushs ‘000 Ushs ‘000 Ushs ‘000 Ushs ‘000

Net Carrying Amount

At 31 December 2014 78,917,044 3,099,783 8,613,055 30,427,841 11,418,222 132,475,944

Cost

At 1 January 2013 65,634,442 9,272,041 34,559,147 51,135,828 - 160,601,458

Additions 5,931,758 2,770,641 3,770,988 6,889,802 7,716,182 27,079,371

Disposals - ( 98,013) (149,069) (454,736) - (701,818)

At 31 December 2013 71,566,200 11,944,669 38,181,066 57,570,894 7,716,182 186,979,011

Depreciation

At 1 January 2013 918,259 5,188,422 20,871,347 15,894,201 - 42,872,229

Charge for the year 1,329,308 1,847,331 5,804,592 7,807,419 - 16,788,650

On disposals - (84,669) (149,069) (372,086) - (605,824)

At 31 December 2013 2,247,567 6,951,084 26,526,870 23,329,534 - 59,055,055

Net Carrying Amount

At 31 December 2013 69,318,633 4,993,585 11,654,196 34,241,360 7,716,182 127,923,956

Capital work in progress relates to the ongoing works at Mapeera House.

Intangible assets 2014 2013 Shs ‘000 Shs ‘000 Cost At 1 January 6,440,001 5,667,488 Additions 1,715,173 772,513 Write downs (8,267) - At 31 December 8,146,907 6,440,001 AMORTISATION At 1 January 4,843,085 3,831,171 Charge for the year 1,307,456 1,011,914 Write down (995) - At 31 December 6,149,546 4,843,085 NET CARRYING AMOUNT At 31 December 1,997,361 1,596,916 9.65 Customer deposits Current accounts 281,075,829 217,639,269 Savings accounts 784,414,283 639,577,210 Time deposits 109,625,442 108,674,715 1,175,115,554 965,891,194

The weighted average effective interest rate on customer deposits was 2.0% (2013: 2.1%). Customer deposit balances are due within one year.

FINANCIAL STATEMENTS

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2014 2013 Shs ‘000 Shs ‘0009.66 Deposits and balances due to banks and other financial institutions Balances from local banks 2,715,713 3,388,748 Other finance institutions 2,740,676 2,931,069 5,456,389 6,319,817

Deposits and balances due to banks and other financial institutions are due within one year.

2014 2013 Shs ‘000 Shs ‘0009.67 Inter-bank borrowing Borrowings from banks - 82,471,095 - 82,471,095

Inter-bank borrowings relate to short-term borrowings from local banks. The interest rates range between 7% and 12% and the term of the loans ranges between 2 to 7 days.

As at 31st December 2014 there were no interbank borrowings.

2014 2013 Shs ‘000 Shs ‘0009.68 Managed funds Danida - 19,704 ACF-BOU 734,869 267,065 Rural Electrification Fund 76,252 42 Youth Venture capital fund 6,500,532 6,975,311 KCCA Fund 3,258,031 3,300,000 Managed Funds UECCC & WENRECCO 200,000 - 10,769,684 10,562,122

a. DANIDA:This was a grant to the people of Rakai District from the Danish International Development Assistance (Da-nida). Rakai District Local Government were the legal owners of the credit Capital fund and Centenary Bank the administrators of the fund. The fund aimed at in-creasing productivity and production in the local com-munity and to contribute to the general improvement of the standards of living of the people of Rakai District. The fund was terminated effective August 2013 and the balance paid off in 2014.

b. ACF-BOU: The Government of Uganda through the central bank created an agricultural credit facility for the purpose of supporting agricultural expansion and moderniza-tion in partnership with commercial banks. Loans are advanced to customers at 10%. In April and August 2014 funds worth Shs 545 million and Shs 147 million respectively were advanced by the Central Bank. (31 December 2013: Nil).

c. Rural Electrification Fund:On 8 August 2011, the Bank signed a Memorandum of Understanding with the Government of Uganda to im-prove and increase the provision of energy in the rural sector in Uganda. These funds are at zero interest and are applied as subsidies to qualifying rural borrowers to offset the cost of electrification. Their application is certified by Rural Electrification Board staff. Fresh re-plenishment on application are made by Government subject to availability.

d. Government of uganda youth venture capital fund:The Bank is a Participating Partner in the Government of Uganda (GoU) revolving Youth Venture Capital Fund (YVCF) established in Financial Year 2011/12 to facili-tate job creation and employment generation targeted at addressing the rampant unemployment problem among the Ugandan youth by supporting financially viable start-up micro, Small and Medium Enterprises operated by Youth Entrepreneurs. Under the scheme

FINANCIAL STATEMENTS

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the bank makes an equal contribution to the revolving fund and as at 31 December 2014 the fund stood at Shs 6.5 billion (31 December 2013: Shs 6.9 billion).

e. KCCA Youth Venture Capital Fund:The Bank in collaboration with Kampala Capital City Authority signed a Memorandum of Understand-ing on 30 October 2012 to take custody and on-lend the authority’s Youth Venture Capital funds worth Shs 3.3 billion to eligible youth as per criteria set out and agreed upon. The fund is for 5 years subject to renewal terms and conditions acceptable to both parties. The funds are to support expansion of business ventures owned by the youth residents in Kampala district.

f. UECCC AND WENRECO:On 13th June 2014, the Bank signed a Memorandum of Understanding with the with West Nile Rural Elec-trification Company Limited (WENERECO) in part-nership with Uganda Energy Credit Capitalisation Company(UECCC) to collaborate in financing hydro power connections UECC to avail Shs 200 Million at a zero cost for on lending and to share risk by offering a default risk cover of up to 10%.WENRECO to participate in mobilisation of potential applicants for the power connection loan.The project was to target West Nile sub regions that can be effectively served by Koboko service center, Nebbi and Arua branches.

a. Eib –Peff (Private Enterprise Finance Facility):This is a global loan facility extended to a group of fi-nancial institutions in Uganda from Cotonuo invest-ment facility resources. The facility is used to finance private enterprises in agro industry, fishing, construc-tion, food processing, manufacturing, tourism and ser-vices provided to these sectors and in health and educa-tion sectors. Repayments are made semiannually and interest is computed on reducing balance. The interest rate charged on this facility is not fixed or uniform but is dependent on the tenure of the loan for which it is disbursed.In 2014 two loans were retired of Shs 2.5 billion (Euros 864,200) and Shs 1.4 billion ( euro 500,000)

b. EIB EAC MF LOAN (European Investment Bank; East African Community Microfinance Loan)This is a Global Facility from the Cotonou Investment Facility which is used by the EAC Banks for the financing of micro credit projects. This was a bullet disbursement of the Uganda Shillings equivalent of Euro 8 million (ap-proximately UGX 27B). Interest is payable at 10.008% semi annually but there is a two year grace period for payment on the principal. The loan tenure is 7 years.

c. Triodos:This is a syndicated loan agreement between Cente-nary Bank and Triodos Investment Management B.V to finance the expansion of the loan portfolio. The first tranche of Shs 10 billion was repayable in December 2012 and was renegotiated for renewal for another three years. There were two facilities each of Shs 10 billion with a tenure of three years maturity in Decem-ber 2013 priced at 91 days plus 5.25% & 2015 priced at 182 days plus 3.15% respectively. The one of Decem-ber 2013 was repaid on 2 January 2014

d. Solar Loan:Centenary Bank signed a Solar Refinance facility of USD 250,000 with Uganda Energy Credit Capitalisation Company on 12th July 2012. The refinance facility is denominated in Ushs and the shilling liability is deter-mined at the exchange rate applicable on every release of funds. The Bank drew down Shs 128.8 million in Oc-tober 2012. The refinance interest rate is 8.15% per annum fixed. The repayment of the principal borrowed is in 18 equal half yearly installments commencing 12 months after draw down. The funds are applied exclusively for the purpose of provision of solar loans to rural households. The loans are secured by promissory notes.

2014 2013 Shs ‘000 Shs ‘0009.69 Borrowed funds

Triodos 10,000,000 21,157,486 European Investment Bank(EIB PEFF) 14,310,585 18,526,274 Solar loan 586,110 388,353 Agribusiness Business Initiative Trust 20,325,171 15,396,644 EAC MF Loan (EIB) 27,434,454 27,427,089 72,656,320 82,895,846

FINANCIAL STATEMENTS

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In 2014 there was an additional funding of Shs 255.9Million

e. Agri Business Initiative (ABI) Trust As at the end of December 2013 the Bank had secured two five year lines of credit from ABI Trust under the Agribusiness Loan Guarantee Company Limited. The first loan of Shs 10 billion was at the interest rate of 15.5%. The second loan of Shs 5 billion was secured at an interest rate of 12%. The loan is to support the Bank’s effort in agricultural lending.

On 3 july 2014 it secured another line of Shs. 5.0 Billion at an interest rate of 11.25%

9.70 Other liabilities 2014 2013 Shs ‘000 Shs ‘000

Bills payable 994,368 946,711 Clearing suspense 197,825 214,922 Unearned fees on late payments 627,561 564,791 Deferred fee income 13,010,011 10,215,172 Guarantees - Cash collateral 411,577 413,735 Contract staff (Terminal benefits) 632,644 620,083 Accrued expenses 6,883,831 5,941,796 PAYE payable 3,493,617 2,893,603 N.S.S.F payable 1,743,028 1,461,957 Unsettled interbank trading bills 690,500 3,827,500 Accounts payable 1,089,299 2,202,296 Uganda Revenue Authority Payable 9,339,630 5,451,047 Unclaimed balances (Nostro A/cs) 3,287 397,212 Value Added Tax 1,852,244 1,955,306 Excise duty on bank charges 439,716 - Real Time Gross Settlement 216,045 1,073,885 Other payablesa 6,913,441 5,439,897 48,538,623 43,619,913

2014 2013 Shs ‘000 Shs ‘0009.71 Provisions for litigation

Legal cases 571,749 244,924 Defalcations 6,980 421,677 578,729 666,601 The Bank is a litigant in several cases which arise from normal day-to-day banking activities. The directors and man-agement believe the Bank has strong grounds for success in majority of them and are confident that they should get a ruling in their favor and none of the cases individually or in aggregate would have a significant impact on the Bank’s operations. Management carried out an assessment of all the cases outstanding as at 31 December 2014 and where considered necessary, provisions made as indicated above.

2014 2013 Shs ‘000 Shs ‘0009.72 Deferred grants

At start of year 1,030,250 800,538 Additions 758,073 1,065,897 Transfers to statement of comprehensive income (1,041,747) (836,185) At end of year 746,576 1,030,250

FINANCIAL STATEMENTS

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a. AbiTrust and Private Sector FoundationThe Bank partnered with AbiTrust and Private Sec-tor Foundation Uganda to extend financial literacy to millions of people through the “CenteBusinessLife” programme. This was done through classroom train-ings, electronic media training, print media messages, market vendor training and mentorships. Over 10,000 Small and Medium Enterprises (SMEs) in 9 districts countrywide have improved their businesses. There is no unfulfilled condition as at the year end. b. GIZ Financial Systems Development ProgramGIZ Financial Systems development Programme (FSD), through the support of the German Develop-ment Cooperation of the German Government, sup-

ported the Bank in financing a baseline survey on SAC-COs , Village Savings and Loan Association( VSLAs) and farming groups based in Karamoja to inform whether the groups are bankable and investigate the most ef-fective, impactful financial products and appropriate channels of delivering such products to the sub-region. The Bank, under the same programme, was supported to install solar systems in the service outlets located in Moroto and Kotido. There is no unfulfilled condition as at the year end.

c. AGRIFIN ProjectThe World Bank has contributed towards the support of agriculture extension through training, setting up satellite service centres and enhancing service delivery of the agricultural product. There is no unfulfilled con-dition as at the year end.

The opening balance at the start of the year relates to grants in form of cars, laptops and scanners to assist the Bank to set up the leasing portfolio and a grant from USAID to procure a mobile bank van to improve outreach in the Northern region where infrastructure is not so well developed. Grant additions include: 2014 2013 Shs ‘000 Shs ‘000 ABI Trust - 408,208 GIZ 179,669 72,414 Agrifin 578,404 585,275 758,073 1,065,897

9.73 Earnings per ordinary share Basic earnings per share are calculated by dividing the profit attributable to the ordinary equity holders of the Bank by the weighted average number of ordinary shares in issue during the year 2014 2013 Shs ‘000 Shs ‘000

Net income 73,816,511 58,005,547 Dividends to preference shareholders (23,324) (23,324) Net income attributable to ordinary shareholders 73,793,187 57,982,223 Weighted average number of ordinary shares (No.) 25,000,000 25,000,000 Basic earnings per ordinary share (shilling per share) 2.952 2.319

There were no potentially dilutive shares outstanding at 31 December 2014 or 2013. Diluted earnings per share are therefore the same as basic earnings per share.

FINANCIAL STATEMENTS

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2014 2013 Shs 000 Shs 0009.74 Share capital Authorized 28,825,356 ordinary shares (2013: 28,825,356) of Shs 1,000 each 28,825,356 28,825,356 150,000 non-redeemable preference shares of Shs 1,000 each 150,000 150,000 28,975,356 28,975,356 Issued and fully paid 25,000,000 ordinary shares (2013:25,000,000) of Shs 1,000 each 25,000,000 25,000,000 116,624 preference shares (2013: 116,624) of Shs 1,000 each 116,624 116,624 25,116,624 25,116,624

The issued number of shares as at year end was 25,000,000 ordinary shares and 116,624 preference shares (2013: 25,000,000 ordinary shares and 116,624 preference shares). All issued shares are fully paid.

Movements in capital during the year were as follows:

Share Premium Preference Ordinary

At 1 January 2014 1,138,927 116,624 25,000,000 Shares paid up - - - At 31 December 2014 1,138,927 116,624 25,000,000

Movements in capital during 2013 were as follows: Share premium Preference Ordinary

At 1 January 2013 1,138,927 116,621 25,000,000 Shares paid up & bonus issue - 3 - At 31 December 2013 1,138,927 116,624 25,000,000

The holders of ordinary shares are entitled to receive dividend from time to time and are entitled to one vote per share at meeting of the Bank. Holders of preference shares receive a non-cumulative coupon of 20% and they do not carry the right to vote. All shares rank equally with regards to the Bank’s residual assets except that the prefer-ence shareholders have priority over ordinary shareholders but participate only to the extent of the face value of the shares.

2014 2013 Shs ‘000 Shs ‘000

9.75 Proposed dividends

Preference - 20.0% 23,324 23,324 Ordinary - 25% of NPAT (2013: 16.6%) 18,454,128 9,628,921 18,477,452 9,652,245

Dividend per ordinary share (Shs) 738.17 385.16 The directors recommend the payment of a dividend of Shs 738.17per share (2013: 385.16per share) totaling Shs 18,477,452 (2013: Shs 9,652,245). Dividends are subject to withholding tax at rates which vary depending on the tax residence status of the recipient and double tax agreements in place.

FINANCIAL STATEMENTS

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2014 2013 Shs 000 Shs 0009.76 Regulatory reserve At start of year 1,822,018 1,924,704 Transfer from/to retained earnings during the year 1,555,639 (102,686) At end of year 3,377,657 1,822,018 The regulatory reserve represents amounts by which provisions for impairment of loans and advances determined in accordance with the Financial Institutions Act 2004 exceed those determined in accordance with International Financial Reporting Standards. These amounts are appropriated from retained earnings in accordance with the Bank’s accounting policy.

2014 2013 Shs 000 Shs 0009.77 Cash and cash equivalents

Cash and balances with Bank of Uganda (Note 9.57) 140,653,147 244,962,510 Balances with other financial institutions (Note 9.58) 49,527,599 28,571,192 Treasury bills and other eligible bills < 91 days 128,171,233 109,158,324 Government securities held for trading (Note 9.59) 24,180,039 7,289,093 342,532,018 389,981,119 9.78 Off-statement of financial position financial instruments and capital commitments

Guarantees and performance bonds 2014 2013 Shs 000 Shs 000

Acceptances and letters of credit 3,954,594 3,342,998 Performance bonds 15,846,321 3,233,714 Bid securities bond guarantees 5,222,555 7,374,765 Commitments to extend credit 6,327,176 4,232,497 31,350,646 18,183,974

Capital Commitments

2014 2013 Shs 000 Shs 000Capital expenditure authorised and contracted 48,137,000 33,491,329 48,137,000 33,491,329 The expenditure will be funded from the Bank’s internal resources. In 2013, the Bank embarked on Phase three construction of its new headquarters on Plot 44-46 Kampala Road and this was estimated to cost USD 16.3m. In 2013 USD 3.0m was advanced and by 2014 total payment was USD 9.2m, it’s estimated that the remaining USD 7.0 million under this project will fall due for payment during the period 2015. Phase three revised completion date is May 2015.

Operating lease commitments - Bank as a lessee

The Bank has entered into commercial leases for motor vehicles and photo copiers. These leases have an average life of two years with a renewal option included in the contracts. There are no restrictions placed upon the lessee by entering into these leases. Future minimum lease payments under non–cancellable operating leases as at 31 De-cember are, as follows: 2014 2013 Ushs ‘000 Ushs ‘000Within one year 1,476,776 1,332,483

FINANCIAL STATEMENTS

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9.79 Related party transactions and balances 2014 2013 Shs’000 Shs’000(i) Directors’ remuneration Fees to non-executive directors 514,407 382,500 Emoluments to executive directors 2,138,625 1,863,426 Emoluments to directors 2,653,032 2,245,926 Other expenses – non-executive directors 412,136 450,784 Other expenses - executive directors - 14,362 3,065,168 2,711,072

2014 2013 Shs’000 Shs’000 (ii) Loans and advances to related parties At 1 January 26,021,517 9,013,296 Advanced during the year 14,473,215 20,340,300 Repaid during the year (8,327,585) (3,332,079) At 31 December 32,167,147 26,021,517

The value of security pledged for the above loans amounts to Ushs 160.8 billion as at 31 December 2014 (2013: Ushs 107.8 billion). The average period of the loans is 48 months.

There was no impairment charge or provision for impairment of these loans as at 31 December 2014 or 31 De-cember 2013.

(iii) Substantial shareholders (>5% of shareholding) Shareholder name 2014 2013 Shs’000 Shs’000 % % Catholic Archdiocese of Kampala 5.3 5.3 Registered Trustees of the Uganda Episcopal Conference 31.3 31.3 SIDI (France) 11.6 11.6 Stiching Hivos Triodos 18.3 18.3 Total 66.5 66.5

(iv) Loans to shareholders and guarantees by shareholders 2014 2013 Shareholder Shs’000 Shs’000 Catholic Diocese of Kabale 464,329 524,060 Catholic Archdiocese of Kampala 20,375,,089 17,777,339 Catholic Diocese of Lugazi 946,321 1,389,559 Catholic Diocese of Hoima 1,038,416 271,324 Catholic Diocese of Gulu 21,438 Catholic Diocese of Jinja 508,495 Catholic Diocese of Arua 198,419 225,140 Catholic Archdiocese of Lira 226,599 244,759 Catholic Diocese of Masaka 4,853,485 2,305,877 Catholic Archdiocese of Tororo 319,277 352,982 Catholic Diocese of Fort Portal 139,091 123,808 Catholic Archdiocese of Mbarara 1,458,956 675,980 Catholic Diocese of Kasana, Luweero 271,712 386,838

FINANCIAL STATEMENTS

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Catholic of Diocese Kasese 3,732 370,083 Catholic Diocese of Kotido - 15,000 Catholic Diocese of Mityana 158,914 284,154 Total 30,984,273 24,946,903

Executive Directors 438,874 308,439 Non-Executive Directors 47,099 38,587 EXCO members 696,901 727,588 1,182,874 1,074,614 Total 32,167,147 26,021,517

The average interest rate for loans advanced to dioceses was 22.7% %( 2013: 18%).

10.0 IntroductionThis report represents a commitment by Centenary Bank to sustainably develop and to comprehensively report to all stakeholders.The report follows guidelines released by the Global Reporting Initiative (GRI), which is a joint initiative coalition for Environmentally Responsible Economies and the United Nations Environment Programme.The guidelines have been issued for voluntary use by organisations for reporting on the economic, environ-mental and social diversion of their activities, products and services aimed at articulating the contribution to sustainable developments.

10.1 Value Added Statement for the yearThe Value Added Statement shows the social value added that the Bank makes through its activities. Value added is calculated as the Bank’s performance minus payments such as cost of materials, depreciation and amortisation. The resulting amount is distributed to the stakeholders who include employees, sharehold-ers and the Government.

SUSTAINABILITYREPORT

2014 2013 Shs’000 % Shs’000 %Value added Interest income 247,067,902 76.2% 209,419,559 76%Commission, fee income 58,679,232 18.1% 52,239,258 19%Other revenue 18,553,637 6.0% 13,920,491 5%Total income 324,300,771 100% 275,579,308 100%Less: Interest paid to depositors 37,067,293 33,852,506 Cost of other services 74,915,761 100% 69,431,716 100%Wealth created 212,317,717 100% 172,295,086 100% Distribution of wealth 2014 2013 Salaries, wages and other benefits 97,724,695 46.0% 83,271,747 48.3%Government 21,669,531 10.2% 13,217,228 7.7%Shareholders - (dividends) 18,477,452 8.7% 9,652,245 5.6%* Retention to support future business growth 74,446,039 35.1% 66,153,866 38.4% Wealth distributed 212,317,717 100% 172,295,086 100%

Retention surplus 55,339,059 48,353,302 Depreciation 19,106,980 17,800,564 Retention to support future business growth 74,446,039 66,153,866

Value Added Statement for the year ended 31 December 2014

FINANCIAL STATEMENTS

10

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As illustrated by the Value Added Statement, the Bank is a material contributor in a financial sense to various stake-holders.

Of the total wealth created in 2014:

• Shs97.7billion(46.0%)wasdistributedtoemploy-ees as remuneration and benefits.

• Shs21.7billion(10.2%)wasallocatedtoGovern-ment in form of direct and indirect taxes, including charges in deferred tax assets and liabilities.

• Shs18.5billion(8.7%)istobedistributedtoshare-holders as dividends in 2014

• Shs 74.4 billion (35.1%) was retained for invest-ment in business in order to ensure its profitability contentment into the future.

10.2 Shareholders engagement and involvement

Shareholders are entitled to a fair return after all the stakeholders have been settled. Shareholders contrib-ute the long-term operating capital, which together with borrowings, provide the financial resources nec-essary for the Bank to operate and invest for future growth. Ordinary shareholders assume the respon-sibility of ownership and are entitled to a fair return on investment after all other stakeholders (employees, suppliers, providers of credit and Government) have been settled.

We understand and recognize that creating and pro-tecting shareholder value over the long-term is contin-gent on honouring the interest of all stakeholders. In recognition of responsibility to our shareholders, the Bank operates in an open governance environment in which we do not only meet our legal obligations but also subscribe to the best practices in corporate gov-ernance. Considerable attention is paid to the govern-ance process so as to ensure that it is operating both effectively and efficiently throughout the Bank.The Bank proactively engages the shareholders in continuous communication of strategies and financial performance. Presentations of results, shareholders’ conference, one-on-one meetings, Annual General Meetings, and the annual report are some of the ways in which contacts are maintained.

10.3 Customer engagement and support

a. Customer engagement Understanding and responding to our custom-

ers’ needs is the key to Centenary Bank’s suc-cess. The importance of service delivery is fun-damental and a non-negotiable component of our attitude towards customers. Our customers are key to ensuring that we remain a profitable and sustainable organisation. How customers are treated, where we choose to operate who we provide financial support to and our response to customer needs all have great impact on our reputation and financial success.

The Bank engages customer contacts through various means including:

• CentePoints - Automatic Teller Machines (ATMs) and Point Of Service (POS)

• Branchnetwork• Customerseminars/workshops,andproductre-

search• DedicatedSalesStaffforlendinganddepositmo-

bilisation• Electronic, mobile and telephone communica-

tion, print and electronic media• Marketingandadvertising.

b. Customer week With regard to customer week, branches with

head and regional office representatives engage branch customers for a whole week through serving customers at the branch and visiting some in the field. CenteMobile clinics were set up in

Distribution of wealth

Salaries,Wages

& other benefits

Government Shareholders-(dividends)

Retention tosupport

future growth

10

20

30

40

50

60

0

2014 2013

SUSTAINABILITY REPORT

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SUSTAINABILITY REPORT

branches during the week to educate customers about the service. Many clients appreciated and enrolled for the service during the week. Field visits to mobilise deposits and get feedback from our customers were carried out and the week crowned off with a dinner for selected clientele of the branch.

For SME clients, workshops were organized for customers. The workshops are aimed at discuss-ing strategic business opportunities. These ses-sions exposed the SME owners to new ways of doing business, new developments in the market technologically and other offerings that the Bank has in place to improve what they do. The work-shops also helped in obtaining feedback on how the bank can improve its offerings and services.

c. Customer Confidentiality The Bank demands the highest standard in carry-

ing out its business activities. As an integral point of banking activities, banks accumulate sensitive information regarding customers and their per-sonal affairs. Centenary Bank like other banks in the country has always been subject to the com-mon law principle of bank client confidentially. In addition to this, Centenary Bank subscribes to the Code of Banking Practice that requires banks to treat all customers’ personal information as private and confidential. The Bank’s Operational Guidelines and Staff Rules and Regulations gov-ern the conduct and duties of Bank employees, further emphasizing the importance of customer privacy and detailing the procedures that must be observed in matters regarding confidential infor-mation.

We hold a growing array of information about

customers, potential customers, staff, suppliers and other stakeholders. Some of this data is of a personal and sensitive nature. We have a duty to handle this information responsibly. We rec-ognize that there is a growing need for transpar-ency over the way we conduct our business, but we will not compromise on our commitment to keeping customer related information confiden-tial.

In handling such information, we have made a commitment that we will:

• Ensurethatitisaccurate,uptodate,neitherbi-ased nor misleading;

• Onlyuseitforthepurposesforwhichitwasgiv-en;

• Keepitonlyforaslongasisnecessary;• Keepitsecurely;• Keeponlyrelevantandrequiredinformation;and

• Distribute itwithin theBankonlyonaneed toknow basis.

d. Money Laundering Money laundering is the process by which banks

are used to disguise or “launder” the proceeds of criminal activity. Such activities undermine a bank’s integrity, damage its reputation, deter honest customers and expose a bank to severe sanctions.

We fully support the international drive against crime and are committed to assisting the authori-ties in preventing money laundering. We have adopted policies and procedures designed to protect ourselves from doing business with cus-tomers involved in criminal activity.

Our employees must adhere to the following key principles:

• Customer Identification - the identity of every customer must be established from reliable iden-tifying documents.

• Know Your Customer - our staff must know enough about their customers to be able to identify transactions which are inconsistent with their business or personal status, or which do not match the normal pattern of account activity.

• Reporting of Suspicious Transactions – all such transactions are to be reported to the prop-er authorities immediately

We take money-laundering prevention very seri-ously and have created a rigorous programme to ensure that we can enforce consistent high stand-ards across our network. The Know Your Cus-tomer initiative, a key priority within the Bank, is a cornerstone of our anti-money laundering pro-gramme.

Our policy is based on the Financial Institutions Act 2004 Money Laundering Rules and interna-tional best practices, such as recommendations made by the Financial Action Task Force (FATF).

e. Fair Treatment of Customers Financial products and services are becoming in-

creasingly sophisticated tools. Selling them calls for knowledge, skill and judgment.

For our employees, the basic rules are: • Donotsellanunsuitableproducttoacustomer

- that is, a product that does not meet his or her needs/expectations.

• KnowenoughaboutCentenaryBank’sproducts

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and about the customer (risk appetite, objec-tives, finances and personal circumstances) to judge the effect which the products will have and whether the products will meet his or her needs.

• Makeeveryeffort toensure that the customerproperly understands more complex products and their risks.

• Explainproductfeaturesandfees/chargesclearlyboth face-to-face and in any marketing literature and software.

10.4 Significant partnerships with external stakeholders

In addition to those who extended grants, the Bank has other significant partnerships. In the year 2014, the Bank maintained some very significant relationships with key external stakeholders, which relationships im-pacted positively to the business value and the social performance of the Bank, suffice to mention are the following:

Verma Uganda Limited Verma partnered with the Bank to rollout an innovative Collaborative Credit Scheme for financing acquisition of motor cycle for business and personal use.

Rotary Uganda Bridging the Cancer Gap Pro-gramme The Bank partnered with Rotary Uganda and Nsam-bya Hospital through a campaign “Bridging the Cancer Gap”, a project aimed at increasing awareness on pros-tate, breast and cervical cancer. Over 25,000 women have been reached through screening, seminars, litera-ture, sensitization through media and the cancer run.

International Labour Organization (ILO) The Bank partnered with International Labour Organi-zation (ILO) under their Youth Entrepreneurship Facil-ity (YEF) where 390 youths have been trained. Kampala City Council Authority (KCCA)The Bank partnered with the KCCA to contribute to-wards registration and streamlining of Boda Boda op-eration in the City. The partnership is earmarked to last for a period of three years.

GIZThe Bank partnered with GIZ and rolled out Karamoja linkage banking project and financial literacy was con-ducted.

10.5 Financial products and services

10.5.1 Local currency deposit product

a. CenteSavings Account Deposit account designed for regular savers.

Cash withdrawals are made over the counter and by the use of the ATM/CenteCard. Account opened with only Shs 10,000.

b. CenteCurrent Account Transaction based account which can be opened

either by individuals as a personal current ac-count or by Companies, Partnerships, Societies, Clubs and Associations as non-personal account. It is operated by use of a cheque book and an ATM Card issued upon request.

c. CenteFixed Deposit Account This is an ideal account for customers interested

in earning attractive interest rates for their sav-ings. The deposits are fixed for an agreed period of time subject to no withdrawals before the elapse of the period. Minimum amount to be fixed is Shs 300,000 and maximum amount to be fixed is open.

d. CentePlusAccount Special Personal Savings Account designed to

motivate customers to accumulate savings for fi-nancing future plans or investments thus enabling people to realize their personal dreams. Holders of the account earn attractive interest paid de-pendant on the credit balance strata in which the account falls. The more one saves and higher one earns.

e. CenteJuniorAccount Account designed specially for children under

the age of 18 years and is operated by the spon-sor (Parent/Guardian) in trust for the child until the child attains a contractual age of 18 years af-ter which the account automatically converts to personal savings account to be operated by the child on his or her own.

f. CenteVolution Savings Account A special savings account designed to meet the

financial needs and preferences of the youth who are students in Tertiary educational institutions that fall in the age bracket of 18 to 26 years.

g. CenteSACCO Savings Account

SUSTAINABILITY REPORT

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A special savings account designed for the pur-pose of motivating SACCOs and to accumulate for financing their lending operations or future investment plans thus enabling them to realize their shared objectives and goals

h. CenteSACCO Current Account Deposit account designed for SACCOs that pre-

fer a checking account for the purpose of accu-mulating savings for financing their lending op-erations or future investment plans thus enabling them to realize their shared objectives and goals.

i. CenteVSLA Savings Account Savings account designed for the purpose of mo-

tivating VSLAs to accumulate savings for financ-ing their lending operations or future investment plans thus enabling them to realize their shared objectives and goals

j. CenteSupaWoman Savings Account A special savings account targeted at women

who desire to save as individuals to improve their level of income and livelihoods.

k. CenteSupaWoman Group Savings Account Savings account targeted at formal and infor-

mal women groups who desire to save jointly as a Group with a common goal of improving their level of income and livelihoods.

l. CenteInvestment Club Savings Account Savings account targeted at investment clubs for

members that desire to save and invest jointly as a Group or Club in a business or income gener-ating activity with a common goal of improving their level of income and livelihoods.

m. CenteInvestment Club Current Account A current account for investment clubs whose

members desire to save and invest to either gen-erate income or acquire assets with the aim of improving their level of income and livelihoods and prefer a checking account.

10.5.2 Foreign currency products and services a. CenteForeign Savings Account Savings account designed for US Dollar, British

Pound Sterling, Euros and Kenya Shillings. Fea-tures include restricted cash withdrawals.

b. CenteForeign Current Account

Current account denominated in foreign curren-cies i.e. US Dollar, British Pound Sterling, Euros and Kenya Shillings. Transactions can in both for-eign and local currencies.

c. CenteForeign Fixed Deposit Account Account where a customer’s deposits in foreign

currency are fixed for the agreed period of time subject to non-withdrawals before the elapse of the period. Interest income is forfeited for with-drawals made before maturity period.

10.5.3 E-Banking products

a. CentePoint CentePoint is a 24hour round-the-clock auto-

mated teller machine for Centenary Bank that enables customers and customers of other Finan-cial Institutions on Interswitch to check account balance, mini account statement, withdraw and deposit cash by use of ATM Cards. Currently the Bank has 153 ATMs located on-site in all bank branch offices and offsite in strategic places in the main towns around the country.

b. CenteMobile CenteMobile is an M-Banking end-to-end e-

commerce and information content service that will allow customers to perform transactions and accessing banking information using their mobile phones 24/7 in any location that has mobile net-work coverage. The service is also enhanced with mobile wallet to Bank service where customers can transfer money from their mobile money ac-counts to their Centenary Bank account and vice versa.

c. PC Banking Service A facility that enables Centenary Bank custom-

ers’ access their account information using their Personal computers from the convenience of their offices and home.

d. Merchant POS Service Under this, the bank enables customers to use

Point Of Sale (POS) terminals with their Cente-Cards to pay for goods and services retail outlets and other facilities like super markets, groceries, hospitals, petrol stations and hardware shops.

SUSTAINABILITY REPORT

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10.5.4 Credit Products

Business Loansa. CenteSME/Corporate business Loans Loans extended to SME’s and Corporate organi-

zations engaged in business in a variety of sec-tors including trade/, transport, communication, industry/ manufacturing, agriculture (animal hus-bandry, fisheries, crop finance, Government sec-tor, building/construction, and service sectors. The loans can be used to finance working capital, acquisition of business assets and infrastructural development.

b. CenteLease A short-to-medium term finance lease to aid the

acquisition of assets by individuals and/or organi-zations actively engaged in agricultural produc-tion, processing & marketing and other busi-ness activities outside the agricultural sector like transportation, tourism & recreation, trade & commerce, education services, health services, small scale processing & manufacturing, hotel.

c. Bank Overdraft Short term credit facility designed to meet the

bank customers’ urgent day-to-day cash require-ments for their business transactions. The facility is renewable based on borrower’s existing credit history with the Bank within a period of twelve months.

Agribusiness Finance Loans

a. Production Loan Loan designed to finance business activities in the

agricultural production, processing and market-ing value chain, animal production (Diary, poul-try and piggery projects), fishing and fish farming, bee keeping as well as food processing i.e. grain mills, oil mills and hullers. The loan period and repayment plan is dependent on the nature and season of the agricultural activity to be financed.

b. Revolving Production Loan Line of Credit facility offered to producer farm-

ers for the purpose of financing cultivation ex-penses for raising crops such as purchase of agro in-puts including but not limited to crop seeds, fertilizers, pesticides and meeting of Labour ex-penses etc. A farmer is appraised only once pro-vided there occurs no change in the land holding and if no request for loan reschedule is requested for reasons like weather vagaries or any external event that may result to unanticipated financial stress.

c. Marketing Loan Post-harvest short-term loan targeted at crop

Producer-farmers, Processors and Wholesalers and or Dealers for procurement of produce dur-ing harvest, financing expenses directly related transportation, storage and or to cater for work-ing capital needs for stocking with a sole aim to re-sell in the near future. The loan is restricted to agricultural crop commodities that have a sustained demand throughout the year (such as maize, rice, millet, sorghum, oil seeds.)

d. Farm & Asset Equipment Loan Short and medium-term loan targeted at Pro-

ducer-farmers and Commercial-farmers for the purpose of financing purchase of small and high value farm equipment respectively. Small value equipment can include items such as sprayers, farm tools like pickaxes, hoes, steel ploughs, paddlers and tractor attachments/accessories, fodder cutting machine, tractor oil engine, and pump. Higher value farm equipment are big-tick-et equipment such as tractors, combine harvest-ers, rice haulers.

Retail /Micro Loans

a. CentePersonal Loan. Personal loan with both irregular and irregular

repayments targeted at individual micro, retail and High Net Worth customers for the purpose of financing a variety of consumption needs in-cluding among others needs like medical treat-ment/insurance, payment of school/tuition fees, purchase of educational requirements, purchase of assets, financing a start-up business or any legally productive, socially and environmentally acceptable business or none business activity/project.

b. CenteLand Loan. Loan designed for the purpose of financing land

purchase, survey and registration. The loan is targeted at the Micro and Retail customer seg-ments. Survey and registration of land is under-taken by the Bank’s accredited Land Surveyors who guarantee delivery of the land registration certificate to the Bank.

c. CenteSolar Loan Short term loan for financing the purchase and

installation of solar power at places of residence or business premises.

d. CenteYouth Loan The loan targets Ugandan youth aged between

18 and 35 years and it is a short to medium term

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loan designed for the purpose of financing busi-ness expansion. The loans support business ven-tures owned by young entrepreneurs and the eligible sectors include manufacturing, agro-pro-cessing, primary agriculture, fisheries, livestock, health, transport, education, ICT, tourism, con-struction, printing and service contractors among others.

e. CenteMortgage A medium-to-long term housing finance product

targeting salary earners as well as economically active rural and urban low, middle and high regu-lar income earners engaged in self-employment. The loan can be used for the purpose of financing housing needs through purchase, construction or completion.

f. CenteHome Improvement Loan Short medium term loan for home owners with

regular income earnings for the purpose of fi-nancing home improvement either through con-struction/renovation of residential/commercial houses, erecting of perimeter wall/fence, installa-tion of power and energy systems, kitchenettes, water supply and sanitation systems and building of latrines.

10.5.5 Trade Finance Products

a. Letters of Credit An undertaking issued by the Bank for the ac-

count of the buyer/applicant to pay the benefi-ciary/seller to facilitate importation/exportation of goods and services, and also facilitate local trade, provided that the terms of the LC are complied with.

b. Bank Guarantees Written irrevocable undertakings issued by the

Bank to pay the beneficiary a specific sum of money on demand in the event that its customer/applicant has not fulfilled his/her contractual ob-ligation within the validity of the guarantee. The Bank guarantees Bid security/Bid bonds, perfor-mance guarantees, advance payment guarantee, retention guarantees, shipping guarantees and customs bonds

c. Invoice Discounting Short-term facility where the Bank offers to pay

a discounted amount against the invoice face

value before the maturity date. The facility is of-fered to the customers of the Bank who trade on credit terms.

d. Shipment Finance The Bank offers shipping finance to facilitate cus-

tomers engaged in export and import trade. It can be post-shipment or pre-shipment finance.

e. Local Purchase Order (LPO) Finance Short-term credit facility offered to the supplier

for the purpose of mobilizing resources and sub-sequent serving of the LPO

f. Structured Trade Finance This various structured trade finance deals in-

clude: Back to back Letters of credit, structured pre-shipment finance, Warehouse finance and Stock Financing.

g. Commodity Finance A financing technique where by the commodity/

good are placed at the custody and control of a Collateral Manager

h. Documentary Collections The Bank facilitates trading of goods between

parties and collection of sale proceeds as well as acceptance of the documents arising there from, both locally and internationally.

10.5.6 Money Transfer Services

a. Western Union Money Transfer A fast and secure way of sending and receiving

money locally and globally to/from more than 400 countries. The service is available for indi-vidual to individual transactions and there is no requirement for the sender or receiver to have an account with the bank.

b. Real Time Gross Settlement (RTGS) The Bank handles payment transfers on behalf of

its customers for anywhere in Uganda. The Bank handles payment transfers on behalf of its cus-tomers for any amount through the Real Time Gross Settlement.

c. East African Payment Systems (EAPS) Faster and secure funds transfer within East Af-

rica in the currency of the East African region.

SUSTAINABILITY REPORT

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d. Electronic Funds Transfer (EFT) The Bank handles transfer of customers’ funds

from one account to another account(s) in other financial institutions within the shortest possible time

e. EFT Direct Debit Transfers Option EFT Direct Debit Transfer Option facilitates

the transfer of money for school fees from the parents’/guardians’ accounts to the educational institutions’ accounts electronically, after the cus-tomer has executed a Direct Debit Agreement (DDA). The DDA, when executed, authorizes the bank to remit school fees money from the parent’s/guardian’s bank account through elec-tronic transfer to the educational institutions bank account.

f. MTN Mobile Money Transfers Centenary Bank offers MTN mobile money ser-

vices where the bank can send or receive money from an unregistered customer.

g. Airtel Money transfer The Bank offers Airtel Money services for send-

ing and receiving money by both customers and non-customers.

h. Ezee Money services Ezee Money Agents collect deposits on behalf of

the Bank, transfer money and make bill payments on behalf of the Bank customers.

i. Telegraphic Money Transfers Customers are able to transfer money instantly

to and from their accounts on locally and interna-tional basis/Instant outward and inward interna-tional money transfers.

10.5.7 Other Services

a. Foreign exchange trading The Bank offers attractive rates for buying and

selling of foreign currencies including USD, GBP, Euro and Kenya Shillings.

b. Bulk Salary processing The Bank offers instant processing of bulk salaries

of employees of private companies, public lim-ited companies and nonprofit organizations who receive their salaries through centenary bank.

c. SMS Transaction Alerts A Short Message Service (SMS) banking facility

that enables mobile phone users who are ac-

count holders with Centenary bank access to their account information by use of their mobile phone handsets

d. Primary dealership services Centenary Bank is a registered Primary Dealer

for Treasury bills/bonds. It transacts directly with Bank of Uganda on behalf of its customers and the investing public. Any member of the public, with or without a Centenary Bank account is eli-gible to invest in Treasury bills through Centenary bank.

e. E - Payments• e-USA VISA Fees Collection Service The Bank accepts payments for the United States

of America VISA application fees in all its branch-es irrespective of whether the customer has an account with the Bank or not. Customers can pay VISA application fees directly at the counter and receive a payment receipt for delivery to US Em-bassy in Kampala.

• e-Water Payment Service The Bank accepts payments for National Water

and Sewerage Cooperation (NW&SC) water bills irrespective of whether the customer has an ac-count with the Bank or not. Customers can pay their bills by cash or cheques directly at the coun-ter free of charge, receive a receipt with an in-stant SMS notification for credit of the customer NW&SC or alternatively sign a Standing Order for Direct Debit option.

• e -Tax Payment Service The Bank accepts payments for Uganda Revenue

Authority (URA) taxes irrespective of whether the customer has an account with the Bank or not. People intending to pay taxes deposit cash directly at the counter and receive a payment re-ceipt for delivery to URA.

• e-NSSF Contributions Collection Service The Bank on behalf of the National Social Se-

curity Fund (NSSF) accepts payments from or-ganizations that have registered to remit their employees social contributions. The cash for the contributions is credited directly to NSSF’s Col-lection Account held in the Bank

• e-UMEME Payment Service The Bank accepts payments for UMEME bills ir-

respective of whether the customer has an ac-count with the Bank or not. Customers can pay

SUSTAINABILITY REPORT

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their bills by cash or cheques directly at the counter free of charge, receive a receipt with an instant SMS notification for credit of the cus-tomer UMEME account.

• Kampapa Capital City Authority (KCCA) The Bank collects taxes like trade licenses,

ground rent for KCCA

10.6 Employee empowerments and engagement

Employee empowerment and engagement are HR strategies that enable employees to progres-sively make more meaningful decisions about their jobs. Employee empowerment helps em-ployees contextualise and own their work, take responsibility for their results, and helps employ-ees serve customers at the level of the organi-zation where the customer interface exists. To attain the goals above, the Bank empowers and engages its employees in several ways such as those highlighted below;

a. Open Communication Staffs’ views, ideas and value-adding input is

sought, valued and used to improve motivation, performance and business environment. The Bank provides to its employees structured ways through which they make their thoughts, feel-ings, concerns and recommendations on vari-ous issues known easily and regularly through Email, Newsletter, branch and centefusion staff meetings as well as the bank wide annual climate survey. The Climate Survey is an avenue through which staff voice their views and concerns to management thus contributing collectively and positively towards the strategic planning process in the Bank. Hitherto, the Bank has undertaken four surveys: 2006, 2009, 2011, and 2013, the latest being on-line. The primary aim of the suc-cessive Bank Climate surveys is to track and evaluate progress made in addressing identified employee work related challenges and risks. It also captures new issues and enables develop-ment of appropriate empirical remedial strate-gies/initiatives to enhance staff engagement, retention, productivity as well as Bank business performance and growth generally.

The Climate Survey 2013 identified and rated four best performing H/O divisions: Business Technology for prompt feedback & very com-mitted Team, Credit for meeting targets, timely delivery and teamwork, Operations for reduced

customer complaints, good customer service and dedicated Team. Human Resource Division was recognized for timely response, feedback and delivering as promised.

b. Increased Employee Engagement The Human Resource Business Partnering

(HRBP) model was adopted and the Unit was set up and staffed with a Chief Manager and 2 Managers to effectively deliver the HR strategy bank wide and enhance engagement. 45 Branch-es were visited by HR in the year 2014. The purpose of this program was to gain an under-standing of the Branch Performance regarding “THE BIG SIX”, Share the 2013 Climate Survey findings, remedial interventions hitherto imple-mented; new HR initiatives as well as respond to identified staff concerns. The Business Partner-ing team is currently engaging other line divisions to provide more HR solutions to various issues.

c. Plenty of Contexts Most leaders carry lots of information in their

brains. Unfortunately, many employees do not get the benefit of all that information, yet they are expected to take action and make good de-cisions as if they understood every nuance. The Bank has made strides to ensure that important information is shared with all staff in a structured and consistent manner through the Corporate Communications department including staff transfers, promotions, new joiners, exits, New Core Banking FAQ’S among other things. An employee who clearly understands the values, purpose and direction of the company can easily make consistent decisions and take appropriate action at any junction.

d. Career Growth and Self-Improvement The Bank assists its employees set a plan for

growth and rewards them as they advance through internal rotations, promotions and re-designation/re-deployments. That way they are enabled to apply their newly-learned skills as they step up to leadership opportunities. As at end of 2014, 45.83 % of Management positions were filled internally and approximately 77.4% (151) other positions filled internally through re-designations, and promotions.

e. Performance, Recognition and Reward Managementi. The Job Evaluation Project led by KPMG was

conducted with Job Evaluation undertaken for the agreed benchmark jobs. A new and more simplified bank wide job grade and salary struc-

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ture based on scientific approach was established for the Bank. As a result, an internal equity and retention salary review was implemented in July 2014.

ii. The Employee of the month program initiative was approved and implemented effective Sep-tember 2014. In September 30 staff were recog-nized and rewarded and 39 in October.

iii. The Merit Award proposal was reviewed: a to-tal of 148 staff were recognized and rewarded for continuous long service, excellent sports personality and overall branch performance. The following 3 branches qualified for and were awarded the best branch award: Kasese (Gold), Kabalagala (Silver) and Nateete (Bronze).

iv. Staff were paid bonuses for 2013 overall com-pany performance as well as individual contribu-tion.

f. Staff compensation and benefits A number of achievements were registered in

2014; as highlighted below:

i. Staff Retirement scheme• Claims settlement turnaround time improved

greatly in 2014.• Amendmentof theTrusteeDeedwasmade in

liaison with the amended law.• Members earned 15.7% interest, the highest

since inception of the scheme.• Online systemwas launched andPINnumbers

to access member statements were availed to all scheme members

• A proposal on Board of Trustee compositionmade to the Sponsor, in relation to the amended law.

ii. Staff Medical care The bank continues to provide medical care to

its employees and their eligible dependants un-der two Medical Insurance service providers (AAR & Jubilee Insurance Company of Uganda)

iii. Occupational Safety and Health (OSH)• OSHguidelinesweredevelopedandcommuni-

cated to all staff• OSH committeeswere formed across all busi-

ness units• In compliance with the Labour Law, the Bank

paid workplace occupational safety and Health non-tax revenue of UGX 14.7M/= for 63 work-places for the period November 2014 to Nov 2017

g. Human Capital Development Programs, 2014. In the realm of human capital development,

greater emphasis was laid on Management devel-opment & Advanced Leadership training for top and middle level Management employees (mak-ing it possible for approximately 46% of the va-cant management positions to be filled internal-ly). Using the 70:20:10 employee development approach, the Bank placed more emphasis on on-job training, coaching and mentoring to fast track staff capability to contribute to the Bank’s fast growth. The Library, getAbrastract and the e-Learning delivery Channel, “Click –Campus”, that enabled the Bank to provide diverse train-ing and development interventions cost effec-tively and efficiently across the network, within approved budget limits. Through the eLearning program the Bank saved a total of 1,674 man hours and UGX 550M, while it managed to wid-en the scope and coverage of the Bank staff de-velopment population.

h. Training Budget Performance Overall training and development budget perfor-

mance realised a positive variance of UGX 477M (22%). The New Core Banking Project training vote accounted for 43% of the budget, and pro-ject training commenced three months to end of the year.

i. Staffing highlights as at 31st December 2014. As at 31st December 2014, total head count

stood at 2001 against 1867 staff as at December 2013. 210 staff were recruited in 2014, com-pared to 218 the previous year.

Among the new recruits 40% (85) were Loans Officers, 29% (60) were Banking Officers, 11% (23) were Office Attendants and 20% (42 only) were in other roles.

The annual staff turnover rate declined to 5.2% in 2014 down from 7.0% in 2013, due to contin-ued staff retention and development initiatives.

The average age of staff stood at 33.4 years com-pared to 33.5 years as at December 2013. The average period of service across the board was 5.8 years compared to 5.1 years the previous year.

Females constituted 907 staff (45.3%) while males constitute 1094 (54.7%) of the staff popu-lation, compared to 40.6% female and 59.4% male as at 31st December 2013.

A synopsis of Senior Management gender di-versity stood at 69.3% male and 30.7% female compared to the ratio 73.2%:26.8% in 2013, reflecting gradual improvement in gender mix profile.

SUSTAINABILITY REPORT

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The table below illustrates the comparative picture over the last 3 years;

Table 1 Senior Management Diversity

Position Title/Category 2014 2013 2012

Male Female Total Male Female Total Male Female Total

Executive Directors 2 - 2 2 - 2 2 - 2

General Managers 7 3 10 7 3 10 8 2 10

Chief Managers 16 6 22 15 6 21 16 4 20

Head Office Managers 35 23 58 38 19 57 27 16 43

Branch Managers/SCH 46 15 61 47 12 59 31 8 39

Total 106 47 153 109 40 149 84 30 114

10.7 Corporate Social Investment

Centenary Bank is committed to sustainable value-creation for our stakeholders. One of the ways we achieve this it through our Corporate Social Investment initiatives, which are aligned to the bank’s strategic objectives. The initia-tives focus on contributing to development of communities countrywide. The bank’s Corporate Social Investment (CSI) policy is that initiatives are funded by up to 1% of the previous year’s after-tax income. The allocation on the banks CSI increased by 5% from Ugx 550M in 2013 to Ugx 580M in 2014. The number of activities increased by 43% from 211 to 303 and people reached remained averagely the same between 15M and 16M.

THE GOALS OF THE BANK’S CORPORATE SOCIAL INVESTMENT WERE;

To achieve Centenary Bank’s social and environmental objectives of contributing to sustainable development of society.

To support communities through partnerships and social and environmental projects.

To reinforce our values.

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During the year, the bank invested UShs 117 million in Financial Literacy training for youths and small and medium enterprises. The youths training was done in partnership with International Labour Organisation (ILO) where 390 youths in business acquired skills in budgeting, record keeping, costing and financial forecasting. The training for Small and Medium Enterprises (SME’s) was implemented together with Pri-vate Sector Foundation Uganda (PSFU) and the activities included evaluation of market vendor trainings previously done in 2013, classroom trainings, radio talk shows, newspaper articles and training through digital versatile disc (DVD) recordings. Over 12,500,000 people were impacted through the channels. The trainings focused on Book keeping, Personal Finance, Saving and In-vestment and Managing Family Businesses and Uses of Banking Facilities.

EDUCATION 117 million was invested in Financial Literacy trainingOver 12,500,000 people were impacted through different channels

Youths under the Consortium for enhancing University Responsiveness to Agribusiness Development Limited (CURAD) with financial literacy training material just after the training.

OUR TARGETS FOR 2014 WERE AS BELOW;

To train 300 youth in finan-cial literacy.

To expand the scope of initiatives done for communities

To measure impact of particular activities done in 2013

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Participants during the 2014 Cancer Run

Mpigi Branch Staff donating dust-bins to Gombe Hospital.

In 2014, the bank continued to roll out clean energy solutions in its off-site Automated Teller Machines (ATMs) by using the uninterruptable power supply (UPS) system to back up grid power. 10 more ATMs were connected to this power, an increase of 100% from 2013. This replaces the use of gener-ator power. The bank has also continued with the Ministry of Energy partnership to lend solar systems bought at a subsidized price; and in 2014, 75 systems were lent out. The bank further invested close to 14M in com-munity activities that preserved the environment; these includ-ed donations of refuse bins and cleaning activities. The Bank also uses automatic switches in all branch security lights and signages.

In 2014, the bank continued to invest in raising cancer awareness in the ‘Bridging the Cancer Gap’ campaign. This was in partnership with Rotary District 9211 and St. Raph-ael of St. Francis Hospital Nsambya. Out of the Ushs 167 million that was contributed, Ushs 67million was used in organising the cancer run whose proceeds completed the cancer ward at St. Raphael of St. Francis Hospital Nsambya and Ushs 100million was used to raise cancer awareness through other initiatives namely the family health days, the Rotary District conference and leadership events.

ENVIRONMENTHEALTH

‘Bridging the Cancer Gap’ campaign 167 million was contributedUshs 67million was used to organise the cancer run Ushs 100million was used for raising cancer awareness

Close to 14 million was invested in environment preservation75 solar systems were lent out at a subsidized price

General Manager Finance, Mr. Godfrey Byekwaso (in blue) parking medicines during a Rotary Health camp in Kayunga district that the bank participated in.

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THE SOCIAL MISSION OF THE CHURCH

Over 138 million allocated in supporting the church through direct spon-soring of various programmes, events and publications country wide

Centenary Bank owes its foundation to the Social Mission of the Catholic Church. It is with this background that the Bank endeav-ours to support the church in its various activities both those con-cerning social development and the evangelism of people. The Bank allocated over 138 million in supporting the church through direct sponsorship of various programmes, events and publica-tions countrywide.

In addition to the above activities, Centenary Bank supports communities through participating in developmental activities and direct donations. The bank invested over Ugx100M in community initiatives in 2014.

OTHER COMMUNITY ACTIVITIESOver 100M invested in community initiatives

For the year under review

THE NUMBERS

Increased allocation on the banks CSI

Increased number of activities

Was allocated on the banks CSI

Were carried out by the bank

People were reached

5%

43%

580 million

303 activities

15 to 16 million

Ishaka, Ntugamo, Kanungu, Najjanankumbi and Mukono branches donate 30 computers to schools in their communities.

Mukono branch staff donating shs20m to Lugazi diocise team led by Rt. Rev . Matthias Ssekamanya. The contribution was towards their computerization project.

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The index below comprises indicators from the GRI Sustainability Reporting Guidelines. The index has been abridged to relate it to the Bank’s disclosure status.

PERFORMANCE INDICATORS

TOPIC DISCLOSURE PAGES

DESCRIPTION

1.1 & 1.2 Vision Mission and Ownership 6 Mission Statement

PROFILE

2.1 Name of reporting organisation 36 Centenary Rural Development Bank Limited

2.2 Major products or services, including brands if appropriate

84 - 88 Financial products and services

2.3 Operational structure of the organisation 13 -21 Executive management, Corpotare Governance

2.4 Description of major divisions, operating companies, subsidiaries and joint ventures

13 - 21 Executive management, Corpotare Governance

2.5 Countries in which the organisation’s located

36 General Information

2.6 Nature of ownership 6 Ownership

2.7 Nature of markets served 84 Financial products and services

2.8 Scale of the reporting organization’s:

Number of employees 90 Staffing highlights

Products produced/services offered 84 - 88 Financial products and services

10.8 List of Global Reporting Initiative (GRI) indicators

Vision and Strategy

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FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

Economic performance indicators

Governance structure and management systems

PERFORMANCE INDICATORS

TOPIC DISCLOSURE PAGES

DESCRIPTION

Net sales 33 Statement of Comprehensive Income

Total capitalization 34 Statement of Financial position

2.9 List stakeholders 80, 82 - 84 Related parties Report, Share-holder, Customer and external stakeholder engagement

2.10 Contact details 99 -102 Bank contact information

2.11 Reporting Period 32 Report of the Independent Audi-tor

2.12 Date of most recent previous report 31 December 2013.

2.13 Report Scope 32 Report of the Independent Audi-tor

2.14 Significant changes in size, structure, ownership, products/services

8 & 11 Chairman’s StatementManaging Director’s review

2.15 Basis for reporting 36 - 81 Summary of Significant account-ing policies

2.16 Restatements of information 36 - 81 Summary of Significant account-ing policies

2.17 Decision not to apply GRI principles Applied on a limited scale

2.18 Accounting Criteria/definitions 36 - 81 Notes to financial ststements

2.19 Significant changes in measurement methods 36 - 81 Summary of Significant account-ing policies

2.20 – 2.21 Independent assurance 32 Report of the Independent Audi-tor

2.22 Information availability 99 -102 Bank contact information

3.1-3.6 Governance structure of the organisation, including major committees under the board of directors that are responsible for strategy and oversight

14 - 21 Corporate governance

EC1 Net sales 33 Statement of Comprehensive Income

EC2 Geographic breakdown of markets 99 - 102 Branch Network

EC3 Cost of all goods and services purchased 33 Statement of Comprehensive Income

EC4 Percentage of contracts paid in accordance with agreed terms

90 Staffing highlights

EC5 Total employee remuneration 81 Value Added Statement For the year ended 31 December 2014

EC7 Increase in retained earnings 35 Statement of changes in Equity

EC8 Total taxes of all types paid 81 Value added statement/ income statement

EC10 Donations by type 92 - 94 Coporate Social Investment

SUSTAINABILITY REPORT

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PERFORMANCE INDICATORS

TOPIC DISCLOSURE PAGES

DESCRIPTION

LA1 Breakdown of workforce 90 Staffing highlights

LA2 Net employment creation and average turnover

90 Staffing highlights

LA3 Union representation Not applicable

LA4 Policies/procedures on negotiations with employees over changes in operations

90 Human capital development

LA5 Occupational accidents and diseases 90 Staff medical care

LA6 Health and safety committees 90 Staff medical care

LA7 Injury, lost days and absentee rates and work-related fatalities

Not applicable

LA8 Policies and programmes on HIV/AIDS 90 Staff medical care

LA9 Average hours of training per employee 89 Employee empowerments and engagement

LA10 Transformation policies and procedures 89 Employee empowerments and engagement

LA11 Composition of senior management and corporate governance bodies

91 Senior Management Diversity

Human rights

Product responsibility

HR1 Policies and guidelines dealing with human rights Human rights recognized, observed and embedded in the Ugandan’s Constitution. No evidence of transgressions but Bank’s Poli-cies not formally codified.

HR2 Consideration of human rights impacts in making business decisions

HR3 Policies/procedures to evaluate human rights performance within supply chain

HR4 Global policy/procedures preventing discrimination of any form

HR5 Policy on freedom of association independent of local laws

HR6 Policy excluding child labour

HR7 Description of policy to prevent forced and compulsory labour

PR1 Policy for preserving customer health and safety Customers/Environment

PR2 Product information and labeling policies/procedures Customers

SO4 Awards received for social, environmental and ethical performance

Managing Director’s report

SUSTAINABILITY REPORT

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CENTENARY RURAL DEVELOPMENT BANK LTD

FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

Principal Place of Business and Registered Office Mapeera House Plot 44-46, Kampala Road P. O. Box 1892 Kampala Tel: +256 414-251276/7 Toll free line: 0800 200555Fax: +256 414-251273/4 E-mail: [email protected]; http://www.centenarybank.co.ug

Secretary Peninnah Tibagwa KasuleMapeera HousePlot 44-46, Kampala RoadP. O. Box 1892Kampala

AuditorsErnst & YoungCertified Public AccountantsPlot 18 Clement Hill RoadP. O. Box 7215 Kampala Uganda

Correspondent Banks1. National West Minister Bank PLC- UK2. Citibank NA New York - USA3. Deutsche Bank AG - Germany4. Deutsche Bank Trust Company - USA5. Co-operative Bank of Kenya6. Citibank N.A – Kenya7. Ivory Bank–South Sudan8. Sparkase Aachen Bank-UK9. I&M Bank–Rwanda10. CRDB – Tanzania

EXECUTIVE MANAGEMENT

Managing Director Mr. Fabian KasiTel: +256 417 202124E-mail: [email protected]

Executive DirectorDr. Simon M.S. KagugubeTel: +256 417 2120E-mail: [email protected]

Company Secretary/General Manager, LegalMrs. Peninnah T. KasuleTel: +256 417 202117E-mail: [email protected]

General Manager, CreditMr. Joseph LutwamaTel: +256 417 202501E-mail: [email protected]

General Manager, Business TechnologyMr. George T. ThogoTel: +256 417 202123E-mail: [email protected]

General Manager, Human ResourcesMrs. Florence MawejjeTel: +256 417 202801E-mail: [email protected]

General Manager, OperationsMr. Joseph KimbowaTel: +256 417 202901E-mail: [email protected]

General Manager, Finance Mr. Godfrey ByekwasoTel: +256 417202701E-mail: godfrey.byekwaso @centenarybank.co.ug

General Manager, Business DevelopmentMrs. Lugalambi BeatriceTel: +256 417 202301 E-mail: [email protected]

General Manager, RiskMr. Denis EcheruTel: +256 317 202108E-mail: [email protected]

General Manager, Corporate Services Mr. Arnold Byansi BernardTel: +256 317 202408E-mail: [email protected]

General Manager, AuditMr. Michael NyagoTel: +256 417 202608E-mail: [email protected]

11BANK CONTACTINFORMATION

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BRANCH NETWORK

Branch opened in 2014Mbarara Corporate Branch Plot 28 Masaka Road, P.O B0x 662, MbararaTel: +256 485 420624

Continuing Branches

Apac BranchPlot 22 Akokoro RoadApac TownTel: +256 414 663211

Arua BranchPlot 3, Avenue RoadP. O. Box 246 AruaTel: +256 476-420013 +256 372-260001

Bugiri BranchPlot 117, Grant StreetIganga-Tororo HighwayP. O. Box 137 BugiriTel: +256 434-250074

Bwaise BranchPlot 526 Bwaise- Kawempe Bombo RoadP .O. Box 1982 KampalaTel: +256 414-566096

Bwera BrachPlot 102, Bukonjo BlockTel: +256 712 751729Bwera Town

Entebbe Road BranchPlot 7, Entebbe Road Talenta HouseP. O. Box 1892 KampalaTel: +256 414 506009

Entebbe Road AnnexPlot 18/20, Entebbe Road AnnexP. O. Box 1892 KampalaTel: +256 414 506009

Fort Portal BranchGolden Jubilee BuildingFort Portal- Kasese roadP. O. Box 124 Fort portalTel: +256 483-422791/8

Gulu BranchPlot 426, Gulu StreetP. O. Box 957 GuluTel: +256 471-432572

Hoima BranchPax Arcade, Fort Portal RoadP. O. Box 472 HoimaTel: +256 465-440193+256 392-751733

Ibanda BranchPlot 4, Main StreetP. O. Box 395IbandaTel: +256 485-426998

Iganga BranchPlot 43 Main StreetIganga townPO Box 101 IgangaTel: +256 434242143

Isingiro BranchPlot 17A, High StreetIsingiro Town CouncilP. O. Box 1892 KampalaTel: +256 414 663235

Ishaka BranchPlot 432, Rukungiri RoadP. O. Box 36 BushenyiTel: +256 414 663230

Jinja BranchPlot 6, Nizam West Road(Opp. Uganda Telecom Office)P. O. Box 1767 JinjaTel: +256 434-122007 +256 434122012

Kabalagala BranchBlock 245, Plot 551, Kabalagala Town,P. O. Box 1892 KampalaTel: +256 414-501490

Kabale BranchPlot 129, Kabale RoadP. O. Box 385KabaleTel: +256 486 423671

Kagadi BranchPlot 69 Prime HouseFort Prtal- Kyenjojo Road

Kagadi Town CouncilP.O. Box 35 KagadiTel: +256 392 892372

Kamuli BranchPlot 4, Kitimbo RoadKamuli Town CouncilP. O. Box 168Tel:+256 414 663226

Kanungu BranchKanungu – Kihihi RoadKanungu Town CouncilP.O. Box 20 Tel: +256 414 663194

Kasese BranchPlot 213, Portal StreetP. O. Box 87 KaseseTel: +256 483 444041 +256 483 444424

Kapchorwa BranchPlot 1, Market StreetP. O. Box 286 KapchorwaTel: +256 414 663208

Kayabwe BranchPlot 64, KayabweMasaka roadP.O Box 1063 MasakaTel: +256 414 663223

Kayunga BranchBlock 123, Plot 300, Main Street, Kayunga CentralP.O Box 18257, KayungaTel: +256 414 663207

Kiboga BranchPlot 101, Hoima RoadP. O. Box 28 KibogaTel: +256 414 663224

Kikuubo Branch1st Floor, Unifam PlazaPlot 15, Nakivubo RoadP. O. Box 1892 KampalaTel: +256 414 258795/91

Kireka BranchPlot 1653, KirekaTel: +256 414 663193

BANK CONTACT INFORMATION

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Kitgum BranchPlot 7/8, Ogwok RoadP. O. Box 147 KitgumTel: +256 414 663200

Kisoro BranchPlot 27 Kisoro- Kabale RoadPO Box 10Tel: +256 486 430026

Koboko BranchPlot 19, Central RoadKoboko TownP. O. Box 194 KampalaTel: +256 414598648

Kotido BranchBlock 20, Moroto RoadKotido TownP.O Box 88 KotidoTel: +256 392751796

Kumi BranchPlot 39, Ngora Road, KumiPO Box 1892, KampalaTel: +256 414 663222

Kyenjojo BranchPlot 2/6, Nyantungo RoadP. O. Box 1077 KyenjojoTel: +256 414 663196

Kyotera BranchPlot 6, Kyotera RoadP. O. Box 116 KyoteraTel: +256 481-432676

Lira BranchObote AvenuePlot 4-7, Soroti RoadP. O. Box 817 LiraTel: +256 473-420124

Lugogo BranchPlot 3A2 & 3A3 Sports LaneForest Mall, ground floor, unit G3 LugogoP. O. Box 1892 KampalaTel: 0414 663220

Lyantonde BranchPlot 226, Lyantonde Town CouncilP. O. Box 49, LyantodeTel: 0382280689

Makerere BranchSt. Augatine’s Student CentreP. O. Box 1892 KampalaTel: +256 (0) 414 535750

Mapeera House BranchPlot 44/46, Kampala RoadPlot 2, Burton StreetP. O. Box 1892 KampalaTel: +256 317 202287

Masaka BranchPlot 6, Edward AvenueP. O. Box 1063. MasakaTel: +256 481-420406

Mbale BranchPlot 54, Republic StreetP. O. Box 818 MbaleTel: +256 454-434002

Mbarara Main BranchPlot 25/27, High StreetP. O. Box 1352 MbararaTel: +256 485 421540

Masindi BranchPlot 59/61, Masindi Port RoadP. O. Box 5 MasindiTel: +256 465-420000

Mityana BranchPlot 50, Corner HouseP. O. Box 156 MityanaTel: +256 464-442791 +256 414 -663215

Moroto BranchPlot 25, Lira Street. Moroto TownTel: +256 414 663202

Mpigi BranchPlot 106, Butambala RoadMpigi TownTel: +256 414 664508

Mubende BranchPlot 20, Main Street, Mubende TownP. O. Box 332 MubendeTel: +256 464-444059 +256 464-444068

Mukono BranchJinja RoadP. O. Box 790 MukonoTel: +256 414-291618/9

Nakivubo Road BranchMukwano Arcade(Opposite St. BalikudembeMarket)P. O. Box 6171KampalaTel: +256 414-507047/6

Namirembe Road BranchPlot 16, Namirembe RoadP. O Box 25229. KampalaTel: +256 414-345295

Najjanankumbi BranchPlot 1032, Entebbe RoadFreedom City Mall, Entebbe RoadP. O. Box 1892 KampalaTel: +256 414 501222

Nateete BranchPlot 3, Old Masaka RoadP. O. Box 1892 KampalaTel: +256 414-660637/1

Ntinda BranchPlot 36 - 38Ntinda Capital Shoppers BuildingNtinda-Nakawa RoadTel: +256 414289844

Ntungamo BranchPlot 4C, New Mbarara-Kabale RoadP. O. Box 136 NtungamoTel: +256 485 424012

Nebbi BranchPlot 1/3/5, Bishop Orombi RoadP. O. Box 179 NebbiTel: +256 414598643

Paidha BranchPlot 16, Arua RoadTel:+256 716 420013

Rubaga BranchRubaga CathedralAdmission blockPO Box 1892 KampalaTel:+256 414 271453

Rukungiri BranchPlot 13 Republic Road RukungiriP. O. Box 353 RukungiriTel: +256 486-442177

Soroti BranchPlot 36, Gweri RoadP. O. Box 420 SorotiTel: +256 414 663205

Tororo BranchPlot 3, Uhuru DriveP. O. Box 1146 TororoTel: +256 454-445018

BANK CONTACT INFORMATION

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Wakiso BranchPlot 249, Wakiso District Headquaters RoadP. O. Box 69 WakisoTel: +256 414-380501

Wobulenzi BranchKasana Luweero Diocese(KALUDO) HousePlot 249, Gulu RoadP. O. Box 186 WobulenziTel: +256 414 620006 +256 414 620468

OFF SITE ATMs

ATMs opened in 2014

DokoloAngwenchibange ParishAkaidebe Zone, ParcelDokolo Town

Kakiri Block 204 Kakiri, Plot 287/288

Lukaya Block 185, Plot 101 Mutuba IIBuddu, Lukaya

MatuggaBlock 91, Plot 5St. Francis of Assis Catholic Parish

RusherePlot 18 Rushere, Kiruhura

Continuing ATMs

AruaCatholic Center Building,Near Christ the King Church,Avenue Road

BugolobiPlot 69-71, Spring road,Middle East Hospital & shopping complex building Bugolobi

BusiaPlot 93, Customs road, Busia town

Bweyogerere Block 236, plot 232, UPET Petrol station

Bweyogerere town, Kampala-Mukono highway

Entebbe –KitooroBlock 438, Plot 505 Nkumba

Gulu Lacor HospitalJuba Road

Gulu Andrea Olal Road Opposite Shell petrol Station

GayazaNear Mirembe SupermarketGayaza Road

IgangaPlot 43, Main Street, Iganga town

Jinja RoadCoffee Development buildingPlot 15, Kampala

Kasubi Plot 3648, Petrol City Fuelling Station Kasubi town

KabalagalaShell Petrol Station, Kabalagala

KabwoheSheema Block2, plot 521, Kabwohe, Bushenyi district

KajjansiBlock 383 Plot 162, Opp. Kajjansi market

KalerweGayaza road next to Pearl Micro Finance

KalisizoZiladamu building, Plot 2-4 New Masaka road

KamwokyaBoxing Supermarket Kamwokya Market

Kasana LuweeroGulu highwayNext to Diocesan Cathedral

KatweBlock 7, Plot 1230, KibugaOpposite Total Petrol Station, Katwe

Kawempe Kobil petrol station Near Kawempe market

KawukuBlock 419/420, Plot 311, Entebbe road

KyengeraDevine Mercy Arcade, Masaka road

LiraGapco Petrol stationOlwol Roads

Lugazi Plot 94, Jinja road. Lugazi

Luwum Street (3 ATMs)Plot 25, JBK Plaza,

Luzira Next to Bishop Cyprian Kihangire SS, Port Bell road

MakindyePlot 1100- SIM Towers, MakindyeOpposite Makindye Military Barracks

Makerere HillHam Towers, Tuskys Shopping MallNear Wandegeya Trading Centre

Makerere University Business School (MUBS)Nakawa Capital ShoppersPlot 123, Sebei Lane

Mbale (2 ATMs)Canos Guest House, Naboa road

MbararaPlot 28, Masaka RoadMbarara Town

MpigiBlock 92 Mpigi Town CouncilPlot 106, Butabala roadPark village, Mpigi

Mulago Business Centre near HospitalChapel, Mulago Hospital

BANK CONTACT INFORMATION

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Mini Price (2 ATMs)Plot 48/50 Ben Kiwanuka Street

Mukwano Shopping Mall (3 ATMs)Mukwano Arcade Buiding

NakawaPlot 38, Jinja RoadShell Petrol station

NakulabyeRoad Master Hotel, Plot 589 Balintuma road

NamugongoBlock 222 plot 146Namugongo road towards the Uganda Martyrs Catholic Shrine

NansanaMasitowa Nansana, Hoima road

NdeebaBlock 16, Plot 553 Nsike at Christine Motel

NtindaNtinda Road Trading CentrePlot 5A (shop B) opposite the mosqueNyendoPlot 495, 497, 498 JOBASCA Building, Next to St. Joseph’s Nyendo Catholic ChurchKitovu Road, Nyendo Masaka

Oasis MallNakumatt Shopping Mall,Yusuf Lule road, Kampala

RwebikonaPlot 43, Fort Portal road

SironkoPlot 20, Block D, Kapchorwa roadSironko town

Wandegeya (2 ATMs)Plot 166, Next to Hotel CatherineWandegeya- Kampala

BANK CONTACT INFORMATION

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CENTENARY RURAL DEVELOPMENT BANK LTD

FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

Centenary Rural Development Bank Limited. Head Office: Mapeera House,Plot 44-46, Kampala Road, P. O. Box 1892 Kampala

Tel: +256 414-251276/7 Toll free line: 0800 200555Fax: +256 414-251273/4 E-mail: [email protected]

Website; http://www.centenarybank.co.ug