2010 Annual report - Nedbank Group Limited

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CONTENTSOVERVIEW AND REPORTSVision, Mission and Values 2Financial Highlights 3 – 4Profile and Group Structure 5 – 7Economic Review 8 –10Chairman’s Statement 12 – 14Board of Directors 16 – 19Managing Director’s Report 20 – 23Nedbank (Swaziland) Limited Strategy 24 – 26Chief Financial Officer’s Report 28 – 33OPERATIONAL REVIEWSales 34 – 37Treasury 38 – 42Credit and Risk Management 44 – 51Human Resources 52 – 55Technology and Support Services 56 – 57Central Operations 58 – 59Internal Audit 60 – 61Enterprise, Governance and Compliance 62 – 71Corporate Social Investment Programme 72 – 79ANNUAL FINANCIALSTATEMENTSAnnual financial statements 80 –149Notice of Annual General Meeting 2009 150Definitions 151 – 154Contact DetailsIBC1Nedbank (Swaziland) Limited Annual Report 2010

VISION, MISSION AND VALUESVISIONBuilding Swaziland’s most admired bank...by our staff, clients, shareholders, regulators and communitiesMISSIONTo be a great bank at providing customised solutions to sustainable andprofitable high value segments in wholesale, business banking and retail bankingINTEGRITYBucotfoHonest, trustworthy,truthful, consistent, open.To act according to thehighest ethical standards.We communicate openly,directly and ethically.ACCOUNTABILITYKumela lokwentileBe prepared to makecommitments and be judgedagainst our commitments.Deliver on commitments.Be responsible for ouractions. We communicateopenly, directly and ethically.VALUESPUSHING BEYONDBOUNDARIESKusebenta ngalokwecilePlay to the maximum of ourabilities, as individuals, asteams and as an organisation.We always strive to breaknew ground, fuelled by ourpassion and commitment.PEOPLE-CENTREDKubeka bantfu embiliWe invest in our people.We create empoweringenvironments throughdevelopment, support,mentoring, coaching,recognition and reward.People are the source ofour strength.RESPECTKuhloniphanaTreat others as you wouldhave them treat you.Use diversity as strength.Listen to others and treatpeople with integrity. Provideindividuals with fertile groundon which to grow. Treat everyonein the organisation asimportant. Foster individualstrength to build the whole.ECONOMICSUSTAINABILITYENVIRONMENTALSUSTAINABILITYSOCIALSUSTAINABILITYCULTURALSUSTAINABILITYINTEGRATEDSUSTAINABILITYNedbank (Swaziland) Limited Annual Report 20102

FINANCIAL HIGHLIGHTS AT A GLANCE2010 2009E’000 E’000Key Balance Sheet ItemsShareholders’ funds 254 366 213 720Amounts owed to depositors 1 802 803 1 685 798Cash and cash equivalents 498 673 353 862Government and public sector securities 368 044 175 847Loans and advances to customers 1 234 615 1 355 911Group companies 306 669 123 090Key Income Statement ItemsTotal income 203 327 178 779Expenses 114 977 101 362Profit before tax 81 020 70 058Taxation 21 622 20 951Profit after tax 59 398 49 101Other Income Statement ItemsEarnings per share (cents) 247.9 205.8Headline earnings per share (cents) 247.9 205.8Dividend per share (cents) 85.0 70.0Selected RatiosReturn on average shareholders’ funds 23.4% 23.0%Return on average assets 2.7% 2.5%Expenses to total income 56.5% 56.7%Non-interest revenue to total income 46.0% 47.1%Effective tax rate 26.7% 29.9%Economic profit 23 474 16 030Dividend cover 2.92 2.94Capital adequency 20% 18.1%3Nedbank (Swaziland) Limited Annual Report 2010

FINANCIAL HIGHLIGHTSKey RatiosTotal IncomeEarnings per Share115.7128.9157.3178.9203.32006 2007 2008 2009 2010119.7146.5180.4213.7254.41281501882062482006 2007 2008 2009 2010Shareholders’ FundsCost-to-IncomeHeadline Earnings54.460.759.056.756.530.635.744.949.159.22006 2007 2008 2009 20102006 2007 2008 2009 20102006 2007 2008 2009 2010Market ShareAssetsLiabilities16% 21%84% 79%Nedbank (Swaziland) Limited Annual Report 20104

PROFILE AND GROUP STRUCTUREOldMutualplcNedbank Group StructureNedbankGroupLimitedNedbankLimitedNedbankCorporateNedbankAfricaCLIENTINTERFACENedbankSwazilandLimitedSUPPORTAREASTreasurySalesComplianceCompanySecretary/LegalFinanceRiskManagementCreditHumanResources& StrategyMarketingTechnology& SupportServicesCentralOperations& GlobalTradeInternalAuditNedbank (Swaziland) ProfileNedbank is a leading bank in Swaziland and belongsto the international Nedbank group. Nedbankgained presence in Swaziland following the thenNedcor’s acquisition of Standard CharteredBank’s local majority shareholding in January1997. The bank focuses on using the right peopleand processes to deliver customised solutionsto its clients whilst managing risk as an enabler.We constantly strive to build sustainable relationshipswith all our stakeholders while applying bestcorporate governance principles.Client ServiceNedbank delivers customised financial solutionsthrough Corporate, Business banking, Retail andSME banking functions. Through these functions,we offer a wide range of products and services suchas lending, deposit-taking, transactional banking,5Nedbank (Swaziland) Limited Annual Report 2010

PROFILE AND GROUP STRUCTURE (continued)asset-based fi nance, investment, global trade andtreasury services to our clients.In 2010 we launched and concluded a successfulthree months Sivuno Savings, Rural Home andUrban Home loan campaign.The Sivuno Account is a high value savings accountused to deposit, withdraw or transfer money ondemand. This savings account is ideal for clientswho are serious about investment on flexibleterms and wish to earn interest in accordancewith their investment. Through our home loan wefinance clients that want to build both on ruraland urban areas. We also finance clients who areemployed by organisations that have schemeswith the bank. We have since concluded a schemewith government for qualifying civil servants.Indeed we have grown as an organisation inproviding good customer service, putting inplace controls that will assist us to manage risk,infrastructure to expand our service networkand achieve the efficiency we need to reach ourfinancial targets.In 2010, we continued in the same spirit with ourSiyakhula initiative in order to achieve more thanwe ever thought was possible both as individualsand as teams of the organisation. We realisedthat we need to support each other and stand asa team so that it shines through our service, ourcommunication and interaction. If we practisethis, clients will see it and they will aspire to bepart of our organisation.In line with our vision, we commissioned anindependent research agency to conduct acustomer satisfaction measure for 2010. Thestudy was implemented in order to gain moreinsight on our target markets. In addition, thestudy formed part of a monitoring tool to trackNedbank Customer Relations Management (CRM)programmes. It premised on the baseline customersatisfaction and internal customer satisfactionstudies that were conducted in 2008. The studyprovided a customer feedback mechanism thathighlighted the gains and challenges of Nedbank’sCRM in a holistic approach that will help achievehigher satisfaction levels for our ultimate externalclients. The key objectives were to discover howcustomers rate the services and activities offeredby the Bank and discover which of the Bank’sofferings are not meeting customer expectations,to find out what customers think of our currentprogress and compare findings of the survey withthe previous survey that was undertaken in 2009.Successful ATM transactions continued to increaseas a result of growth in client base and two newATMs installed at Galp Energia at Oshoek andBig Bend.The Nedbank Head Office is in Mbabane, SwaziPlaza. Mbabane and Manzini each have twobranches. Matsapha, Gables, Nhlangano andSimunye have one branch each. We further havean agency at Mankayane. In total the Bank has22 ATMs, strategically spread throughout thecountry.Nedbank (Swaziland) Limited Annual Report 20106

PeopleThe Bank is led by a proficient and dynamicexecutive management team under the leadershipof Ms. Fikile Nkosi, the Managing Director. Nedbankhas a staff compliment of 214 people.The Nedbank Employee Wellbeing Programmeprovides assistance and support on emotionaland personal difficulties; alcohol and drug abuse;HIV and AIDS; violence and trauma; bereavementand loss. Nedbank is committed to proactivelyaddressing HIV and AIDS in a positive, supportiveand non-discriminatory manner, with the supportand cooperation of all its employees.We have in place a Management DevelopmentProgramme (MDP) whose aims are to build aworldclass organisation with the capacity toexecute the group’s strategy in a way that lives upto our values.for adherence to laws, regulations and codes ofpractice relating to the operations of the bank. Westrive to inculcate corporate governance culturethrough continuous staff training. It is imperativethat we manage risk in order to attain sustainabilityand profitability thus we have a comprehensiverisk management strategy, methodology andenterprise-wide risk management which is basedon corporate governance best practice principles.Corporate Social Investment (CSI)Nedbank (Swaziland) Limited is acutely awareof its responsibility to MAKE THINGS HAPPENand make a positive contribution to the peopleand communities in which it operates. This isachieved through an accessible CSI programmethat encourages staff involvement and strives todeliver sustainable life changing benefits to thoseit touches.Nedbank recognises that there are different valuedrivers for each employee in the organisation andtherefore strives to offer a total-rewards model asa component of our employee value proposition.The employee share ownership scheme becameoperational in January 2010 in which all qualifyingemployees were allocated shares.Risk and ComplianceNedbank adopted Enterprise Governance asan integrated system to address issues of Risk,Compliance and Corporate Governance. The bankis committed to the Code of Corporate Practiceand Conduct contained in the King III report. TheCompliance Function provides necessary assuranceOur CSI programme falls under six pillars:Economic Development, HIV/AIDS Initiatives,Community Development, Education, Sports andArts, and Environment. Nedbank sponsors theBusiness Woman of the Year Awards, TechnoServeand Students in Free Enterprise (SIFE) whose mainaim is to recognise and develop entrepreneurshipin Swaziland. Nedbank sponsors the SwazilandAIDS Support Organisation (SASO), Hospice atHome and Hope House. These organisationsimplement HIV/AIDS projects in the communities.A significant part of the sponsorship budget wasallocated to the community and our primary goalfor 2011 is to continue to maintain our reputationas a caring and giving bank.7Nedbank (Swaziland) Limited Annual Report 2010

ECONOMIC REVIEW(continued)OVERVIEW 2010The world economy was intricate in 2010with fluctuating market confidence,shifting commodity prices, imbalancedeconomic recovery, diverse economic policies,and severe currency battles. Despite a difficultrecovery, the world economy still enjoyeda growth rate beyond expectations. TheInternational Monetary Fund (IMF) estimated thegrowth rate to be 4.8% in 2010 with developedcountries achieving growth of 2.7%, and emergingeconomies and developing economies notching arate of 7.1%.Economic recovery continued to strengthen duringthe first half of 2010, but global financial stabilitysuffered a major setback due to the turmoilin sovereign debt markets in the second quarterof the year. The extent of economic recoverydiffers significantly across regions, with Asia inthe lead. The United States and Japan experienceda noticeable slowdown during the second quarterof 2010, while growth accelerated in Europe andremained strong in emerging and developingeconomies.Europe’s debt crisis indicates that global economicdevelopment has entered a period of fluctuation.Financial conditions have begun to normalise butinstitutions and markets are still fragile. In general,volatility in financial, currency, and commoditymarkets remained elevated.Nedbank (Swaziland) Limited Annual Report 20108

Local DevelopmentsThere was a challenge in 2010 to restore fiscalsustainability following a decline in customsreceipts from the Southern African CustomsUnion (SACU), upon which the government hashistorically relied heavily on for funding publicexpenditure. This required the addressing the largewage bill in the Government sector especially in linewith the drop in SACU revenue. Government alsofaces the challenge of restoring competitiveness inthe manufacturing sector, which is the mainstay ofthe economy. Indications are that there are somenew initiatives in the pipeline and their coming online will be of benefit to the GDP, although littleprogress is expected on this front.Economic policy-making will remain constrainedby structural weaknesses, however, the country’sproximity to ports and its membership of SACUwill continue to boost its attractiveness to foreigninvestors. Swaziland is expected to remain a memberof the Common Monetary Area (which also comprisesLesotho, Namibia and South Africa) throughout theforecast period, and the lilangeni will remain peggedat parity with the South African rand.The budget position is expected to deterioratesignificantly over the forecast period. Receiptsfrom SACU, which have accounted for a significantshare of Swaziland’s revenue - more than 60%,in fiscal year April 2008 to March 2009 - areexpected to fall by 50% in 2010/11, leading toa 22% decline in total government revenue. Thedecline in SACU receipts has been driven by acombination of weaker trade flows as a resultof the global economic crisis and a reduction inSACU’s common external tariffs. Government’sposition has also been accelerated by the once-offE400m (US$53m) repayment that Swaziland owedSACU as a result of excess payments received inprevious years.Forecasts are that in 2011/12 the deficit willfall marginally to 8% of GDP, as SACU receiptsincrease slightly in line with a gradual recovery ininternational trade and following the repayment ofSwaziland’s debt to SACU.Government recently raised a total of E500mthrough bond issues in the domestic market andthere appears to be some additional potential toraise funds domestically.Swaziland’s monetary policy continues to bedetermined by developments in South Africa. In2010, the Central Bank of Swaziland (CBS) cut itsrepo (repurchase) rate by a total of 150 basis pointsto 5.5%. This move also reflected a slightly sharperthan-expecteddecline in inflation over the first halfof the year and a stronger Lilangeni (E).The lilangeni strengthened by 8% year on yearto approximately E7.3:US$1 in August (fromE7.5:US$1 in July). After slipping in May, due toan increase in perceived emerging-market riskassociated with the Euro zone debt crisis. Thelilangeni has subsequently rallied, underpinned byan improvement in global sentiment and stronginvestor inflows. The lilangeni is expected toresume a trend of gradual depreciation owing torelatively high inflation and the current-accountdeficit. In line with these trends, the lilangeni9Nedbank (Swaziland) Limited Annual Report 2010

ECONOMIC REVIEW(continued)IN SOUTH AFRICA, SWAZILAND’S MAIN TRADING PARTNER,REAL GDP IS EXPECTED TO GROW BY 3.7% IN 2011. THE WORLDMARKET PRICE FOR SUGAR, WHICH ACCOUNTS FOR ROUGHLY17% OF SWAZILAND’S EXPORTS, IS FORECAST TO DECLINE BY12.8% IN 2011 TO 16.3 US CENTS/LB.is forecast to depreciate from an average ofE7.57:US$1 in 2010, to E8.4:US$1 in 2011. Therand and lilangeni will remain somewhat proneto short-term swings, mostly resulting from theformer’s exposure to short-term capital flows.Export growth is expected to slow in 2011 asglobal sugar prices decline. Imports are forecastto increase slowly in 2011 as domestic demandpicks up and commodity prices rise. Serviceexports are expected to decline slightly in 2011as the number of tourist arrivals returns to itstrend level following the temporary boost fromthe World Cup held in South Africa. The currentaccount deficit is forecast to narrow slightly to9.4% of GDP in 2011 from 9.8% as the tradebalance remains largely unchanged and SACUreceipts recover partially.OutlookIn South Africa, Swaziland’s main trading partner,real GDP is expected to grow by 3.7% in 2011.The world market price for sugar, which accountsfor roughly 17% of Swaziland’s exports, is forecastto decline by 12.8% in 2011 to 16.3 US cents/lb. World oil prices are expected to declinemarginally in 2011. Economic growth is expectedto recover marginally over the forecast period asthe South African economy, which is the mainsource of demand for Swazi output, accountingfor over 60% of Swaziland’s exports, begins torecover from the global recession.Manufacturing capacity has fallen in recent yearsas a number of textile and apparel companies haveclosed and in 2010, the SAPPI Usuthu Mill wasshut down. Little progress is expected in restoringthis capacity and competitiveness is expected toremain weak. In 2011 growth will be supported bya further improvement in South Africa’s economicperformance, but it will be adversely affected bya 12.8% decline in world prices for sugar. Sugaris Swaziland’s second-largest export. Overall, realGDP growth is forecast to recover marginally butto remain weak at 2.4% in 2011.During the first half of 2010 inflation in Swazilandaveraged a moderate 4.6% from 9.6% in the firsthalf of 2009. This largely reflected price trendsin South Africa, from which Swaziland obtains92% of her imports and where inflation declinedto 5.1% in the first half of 2010, from 8.7% inthe equivalent period in 2009. In 2011 inflationin South Africa is forecast to edge up to 5.7% asa weaker rand, higher power costs and generouswage increases boost prices. In line with this,inflation in Swaziland is forecast to rise marginallyto 6% in 2011.Nedbank (Swaziland) Limited Annual Report 201010

CHAIRMAN’S REPORT(continued)MABILI DLAMINI (53) Chairman• Bachelor of Arts• Post Diploma in International Relations• Certificate in International TradeNedbank (Swaziland) Limited Annual Report 201012

INTRODUCTIONThe year 2010 ushered in with it hope thatthe world’s economies would steadilyrecover from the global economic crisis.Throughout the year, market conditions wereunsteady, showing that the projected economicrecovery had not brought solid confidence back tothe market.The teetering world economic recovery reflectedthe need to ensure that businesses are operated ina sustainable manner that ensures their long -termprofitability instead of the pursuit of short-termgain. As the world hoped for accelerated recovery,most of its regions were beset by a variety ofchallenges, such as the sovereign debt crisis inEurope.In Swaziland we have faced additional challengesand have been adversely affected by the globalfinancial crisis. While this resulted in a compressedexport market, the country has also experienceda significant decline in SACU revenue. A combinationof these factors has brought about thecurrent fiscal challenges. The country is relying onthe Fiscal Adjustment Roadmap and the PovertyReduction Strategy Action Programme to bringabout some economic stability in the mediumterm.ECONOMY AND BANKINGENVIRONMENTThe banking sector managed to operate competitivelyin a challenging economic environment,reflecting resilient performance and mirroring theupward recovery as experienced by the bankingindustry throughout the world.Despite the unfavourable macroeconomics, demandfor credit was sustained. The Central Bank ofSwaziland decreased the repo rate by 150 basispoints, which appears to have boosted sustaineddemand for credit. The positive performanceby the banking sector in 2010 is likely to comeunder increased pressure in 2011 due to the fiscalchallenges that the country is currently experiencing.THE INTRODUCTION OF THE FINANCIAL SERVICES REGULATORYAUTHORITY ACT AND THE SECURITIES ACT ARE A WELCOMEDEVELOPMENT FOR THE ECONOMY AS THEY INTRODUCE THELONG-AWAITED REGULATORY FRAMEWORK FOR NON-BANKFINANCIAL SERVICES.13Nedbank (Swaziland) Limited Annual Report 2010

CHAIRMAN’S REPORT(continued)The introduction of the Financial ServicesRegulatory Authority Act and the Securities Actare a welcome development for the economyas they introduce the long-awaited regulatoryframework for nonbank financial services.BOARD OF DIRECTORSThe composition of the board remained relativelyunchanged over the year. There were two newappointments following the resignations ofAshley Sutton-Pryce and Ambrose Dlamini.We have welcomed to the board Rory Cupidoand Fikile Nkosi, both of whom have extensiveunderstanding of the business due to theirprevious roles within the Bank. We would liketo thank both Ashley Sutton Pryce and AmbroseDlamini who served the board with distinctionduring their time.LEADERSHIP SUCCESSIONAmbrose Dlamini resigned as Managing Directoron 31 July 2010 after successfully leading theorganization since his appointment to theposition in 2003. The board was very pleased toappoint Ms. Fikile Nkosi as his successor as sheis an internal candidate who has vast experiencein the strategies of the business. Fikile Nkosi hadalready been playing an influential role in thestrategic direction of the bank in her capacity asChief Financial Officer and her appointment willensure stability and continuity of the business.Fikile assumed her role as Managing Director on1 November, 2010. The board wishes her well inthis position.APPRECIATIONI would like to recognise the entire board for thediligent service and support it has rendered inthe past year. The management team and staffhave also displayed outstanding commitmentand contribution over the year. The results thatare detailed in this report are a testimony to thediligence and commitment of the entire staff ofthe bank.The Central Bank of Swaziland, as the regulator,has also played a significant overall role in theoperations of the bank. We have engaged withCBS on several occasions over the year andappreciate the constructive manner in whichthese engagements have been conducted.In closing I would like to wish the managementteam well under the leadership of Fikile Nkosi.Mabili DlaminiChairmanNedbank (Swaziland) Limited Annual Report 201014

BOARD OF DIRECTORSas at 31 December 2010Fikile Nkosi (42)Managing DirectorBusiness address: Nedbank Centre,Swazi Plaza, MbabaneQualifications:• Dip Acc Bus Admin (Uniswa)• BCom (Uniswa)• BCompt (Hons) (Unisa)• MAP (Wits)• SMP (GIBS)Fikile is the Managing Director forNedbank (Swaziland) Limited. Prior toher appointment as Managing Directorshe held the position of Chief FinancialOfficer. She has also served in theorganisation as the Head of InternalAudit. She joined Nedbank (Swaziland)Limited in 2001, having worked foran international audit firm. OutsideNedbank she sits on the Board of AONSwaziland (Pty) Ltd as a non executivedirector.Mabili Dlamini (53)ChairmanBusiness address: Nedbank Centre,Swazi Plaza, MbabaneQualifications:• Bachelor of Arts• Post Diploma in InternationalRelations• Certificate in International TradeCurrently a member of the BorderRestoration Committee and variousother state committees. He previouslyserved as Minister of Housing andUrban Development for the SwazilandGovernment, Minister of ForeignAffairs and Trade, Ambassador ofthe Government of Swaziland toMalaysia, Indonesia, South Korea, Japan,Philippines, Brunei, Thailand and Pakistan.Board Committee:Directors Affairs and RemunerationsCommittee (Chairman).Nedbank (Swaziland) Limited Annual Report 201016

Lungile Dlamini (41)Independent Non-Executive DirectorBusiness address:Swaziland Water ServicesCorporation, Emtfonjeni Building,EzulwiniQualifications:• BCom (Uniswa)• AAT Level 4• ACCA (UK)• Chartered Accountant (SD)• Management AdvancementProgramme (Wits)Occupation: Finance DirectorLungile is the Finance Director atSwaziland Water Services Corporation.She has previously worked for aninternational audit firm, as an AuditSupervisor and later as a Finance andAdministration Manager for the samefirm, and Swaziland Fruit Canners asFinancial Director. Lungile is a memberof the South African Institute ofDirectors.Board Committee: Audit Committee;Risk, Compliance & Loan Review(Chairperson).Stanley Herbert Beyers (57)Executive DirectorBusiness address: Nedbank Ltd,135 Rivonia Road, 7th Floor, E-Block,Qualifications:• FIBSA• Higher DiplomaAdvanced BankingOccupation:Chief Operating Officer –Nedbank AfricaStanley is currently Chief OperatingOfficer for Nedbank Africa Operation.He has worked for Nedbank Limited forover 30 years in various Divisions.Board Committee:Audit, Risk Compliance, Loan Review,Directors Affairs and RemunerationsCommittee.Muhawu Maziya (46)Independent Non-Executive DirectorBusiness address:Lusoti Village, Simunye Sugar EstatesQualifications:• Master of Laws (University of Virginia)• LLB (UNISWA)• Diploma in Journalism (TransWorldTutorial College, Jersey, UK)Occupation:Group Commercial ManagerMuhawu is an admitted Advocate of theHigh Court of Swaziland. He is currentlythe Group Commercial Manager forRoyal Swaziland Sugar Corporation. Hewas previously the Group CompanySecretary.He has also served as the DeputyExecutive Director of the Federation ofSwaziland Employers and the Head ofthe Law Department at the Universityof Swaziland.Muhawu has also served on variousboards and is presently serving on theboards of Newera Partners Limited andthe Insurance & and Retirement FundsBoard.Board Committee:Audit Committee, Directors Affairs andRemunerations Committee.17Nedbank (Swaziland) Limited Annual Report 2010

BOARD OF DIRECTORSas at 31 December 2010 - continuedErnest Michael Davidson (55)Executive DirectorBusiness address: c/o MBCA BankLimited, ZimbabweQualifications:• MDP (Stellenbosch University)• MDP (Unisa)• AEP (Unisa)Occupation:Chief Operating Officer – MBCAErnest is with the Nedbank AfricaBusiness cluster and is currently theCOO of MBCA Bank Limited. Ernesthas worked in various branches/divisions within Nedbank and hasheld the following positions: CreditManager, Branch Manager, CommercialManager, Senior Manager home loans,Asset Based Finance Assistant GeneralManager Branch Operations Kwa-Zulu Natal, General Manager BranchOperations East Gauteng, DivisionalDirector Branch Operations, GeneralManager ATM’s/ SST’s/POS, GeneralManager Shared Services.Board Committee:Audit CommitteeRisk Compliance & Loan ReviewMrs. Nomsa R. Hlatshwayo (55)Non-Executive DirectorBusiness address: Mbabane, SwazilandQualifications:• MA Finance & Management(Ball State University, USA)• Bcom (UBLS)• Diploma in Business Studies (UBLS)Currently operating her own businessas a business consultant. She is formerlya Director of Operations Department,Central Bank of Swaziland; ManagerInternal Finance, Central Bank of Swaziland;Pension and Loans AccountantCentral Bank. She has held othervarious position withing Central Bank ofSwaziland including Snr. ExaminationsApplications officer, Purchasing officerSnr. Supervisor Banking and Snr.Supervisor Budget Accounts.Board Committee:Risk Compliance & Loan ReviewDirectors Affairs and RemunerationCommittee.Christopher John Pearce (66)Independent Non-Executive DirectorBusiness address: Nedbank Limited,135 Rivonia Road, SandtonQualifications:• B.Com• Chartered Accountant (SA)• AMP (Harvard)Occupation: ConsultantAt the time of his retirement in 2003Chris was serving as a DivisionalDirector of Nedcor Limited. As aChartered Accountant he served hisarticles with Alex Aiken & Carter, nowknown as KPMG. He has held variousmanagerial positions within theNedbank Group including ManagingDirector of UAL Merchant Bank Limitedfrom 1995 to 1997.Board Committee:Audit Committee (Chairman)Risk Compliance and Loan ReviewNedbank (Swaziland) Limited Annual Report 201018

Rory Mark Cupido (48)Executive DirectorBusiness address: Nedbank Limited,135 Rivonia Road, SandtonQualifications:• BA (Law) 1(University of Western Cape)• BProc 1 (WITS)• MDP (University of Stellenbosch)• EDP (GIBS – University of Pretoria)Occupation: Head of Human Resources,Nedbank AfricaRory is Head of Human Resources –Nedbank Africa. Prior to his appointmentwith Nedbank he worked for Old Mutualand Drum Reconditioning Company.Within Nedbank he has been serving invarious managerial personnel positionssince 1995 and holds several portfoliosin various representative committees.Board Committee:Directors Affairs and RemunerationsPanuel Gwebu (36)Company SecretaryBusiness address:Nedbank Centre,Swazi Plaza, MbabaneQualifications:• BA Law, LLB (Uniswa)• Certificate in Board Governance& Compliance Management• MDP (GIBS)Occupation: Company SecretaryPanuel Gwebu holds the position ofCompany Secretary / Chief ComplianceOfficer at Nedbank Swaziland. He wasadmitted as an Attorney of the HighCourt of Swaziland in 2001. Panuelpracticed as a litigation attorney withS.A. Nkosi & Company. He later tookemployment with P.M. Shilubane &Associates also as a litigation attorneyprior to his appointment to NedbankSwaziland as a compliance officer.Mr. Gwebu has also been engaged bythe Institute of Distance Education inthe University of Swaziland as a parttime tutor in the Department of Law.19Nedbank (Swaziland) Limited Annual Report 2010

MANAGING DIRECTOR’S (continued) REPORTFIKILE NKOSI10 years’ service• Dip Acc Bus Admin (Uniswa)• BCom (Uniswa)• BCompt (Hons) (Unisa)• MAP (Wits)• SMP (GIBS)Managing DirectorFikile is the Managing Director for Nedbank (Swaziland)Limited. Prior to her appointment as Managing Directorshe held the position of Chief Financial Officer. She hasalso served in the organisation as the Head of InternalAudit. She joined Nedbank (Swaziland) Limited in 2001,having served articles in one of the internationalaudit firms. Outside Nedbank she sits on the Board of AONSwaziland (Pty) Ltd as a non executive director.Nedbank (Swaziland) Limited Annual Report 201020

DESPITE THE CHALLENGING ECONOMIC ENVIRONMENTAND SOCIAL ARENA, NEDBANK HAS CONTINUED TOPROVIDE A FULL SPECTRUM OF PRODUCTS AND SERVICESACROSS THE VARIOUS DIVISIONS.Swaziland faces a host of economic challengesin the short to medium term. Thecombination of continued global financialcrisis, the changes to the SACU agreement, lowinvestment, the end of European Union preferentialtreatment for the country’s main sugar and textileexports, and varying other economic factorsmeans that achieved sustained growth will remainchallenging for the country.The better-than-expected inflation data, whichimproved the price outlook, and concerns aboutthe sustainability of the global economic recoveryresulted in the Central Bank of Swaziland reducingthe repo rate by 150bps to 5.5% taking the primeinterest rate to 9%. Whilst this reduction shouldhave impacted on the Net Interest Income line ofthe Bank, the Bank was able to return a year onyear growth of 15.9% despite an overall reductionin assets.On the positive side, the economy has benefitedfrom a medium-term decline in inflation and froman associated lower cost of borrowing. Growth in2011 will depend upon a continued and gradualrecovery in the global economy, modest rises in oiland other commodity prices, as well as an upswingin workers’ remittances, amongst others.Projections for 2011 are that growth will reboundto 2.4%, below the 5% government target toreduce poverty to 30% by 2015. Inflation is notexpected to cross the 10% mark until 2011 despiteincreased inflationary pressure emanating fromthe rise in oil prices. It is projected to increasefrom 6.9% in 2010 to 10.2% in 2011. As inflationin South Africa is projected to decline, importedinflation will be low in the medium term.A Resilient PerformanceInterest rates continued to decrease and whilethis reduction should have impacted on the netinterest income line of the Bank, the Bank was ableto return a year on year growth of 15.9% despitean overall reduction in assets.21Nedbank (Swaziland) Limited Annual Report 2010

MANAGING DIRECTOR’S REPORT(continued)Our strategy of diversifying to Corporate andBusiness Banking sectors has enabled us tomaintain a sound asset pricing structure.Credit extension into the retail sector slowedas the economic growth continued to slow.Unemployment at 42% continues to burden theeconomy and we saw a number of protests wagedagainst government.During the latter part of 2010 PJ Bouwer, Head ofSales, left Nedbank in pursuit of advancement inhis career. This change in executive managementhad its own challenges, and it was only inNovember that a new Head of Sales wasappointed. Our Head of Treasury left in Novemberand both this position and that of CFO remainedvacant until the end of the year. These positionshave subsequently been filled.Despite the challenging economic environmentand social arena, Nedbank has continued toprovide a full spectrum of products and servicesacross the various divisions. Corporate and BusinessBanking showed a healthy growth comparingto the previous year. Our VIP Private Bankingand Schemes business continues to grow fromstrength to strength and we are looking at aproposal to design and deliver a VIP Banking suitein the Ezulwini Valley.Retail banking has again shown good year-onyeargrowth and we have operated predominantlyin the personal loans environment. We introduceda 24 hour loan campaign which was carriedinto 2011 and we will carry this momentumforward in ensuring fast turnaround times as adistinct differentiator.Financial ResultsHeadline earnings increased by 21 % year on yearto E59.4m (2009: E49.1 million), whilst earningsper share grew to 248 cents per share (2009: 206cents per share).THROUGH OUR VALUES OF INTEGRITY, RESPECT, ACCOUNT-ABILITY, PUSHING BEYOND BOUNDARIES AND BEING PEOPLECENTRED, WE AIM TO CREATE A BANK WHICH PROVIDESCUSTOMISED SOLUTIONS, TO SUSTAINABLE HIGH VALUESEGMENTS IN WHOLESALE, BUSINESS AND RETAIL BANKING.Nedbank (Swaziland) Limited Annual Report 201022

Total assets increased by 9.4% compared to prioryear to E2, 168 billion (2009: E1, 981 billion), butthrough the diversification strategy and a robustpricing policy, net interest income increased by15.9 % year on year. Interest rates declined by 150basis points (2009: 450 basis points).Customer loans decreased by 8.9% year-on-year toE1, 235 billion (2009: E1, 356 billion). Non interestrevenue grew by 11.3% to E93,625 million (2009:E84,133 million), with growth attributable tobetter management of fee collection and increasedvolumes in the corporate sector as this divisioncontinued to grow its assets and client base.Impairments included a write-back of E2.5mas credit continued with a solid credit riskmanagement process. Expectations for 2011 arethat we will see an increase on the impairment lineas the economy struggles with the Governmentdebt crisis and implementation of the Fiscal RoadMap.Vision-Led and Values-DrivenOur Vision to build the most admired bank byour staff, clients, shareholders, regulators andcommunities is underpinned by our values. Throughour values of integrity, respect, accountability,pushing beyond boundaries and being peoplecentered, we aim to create a bank which providescustomised solutions, to sustainable high valuesegments in wholesale, business and retail banking.This vision is further underscored by our Servicepromise in the following Key Issues;Knowledge and Competence;Problem Management;Communication;Turn Around Times;Pro-activeness and;Visibility.AcknowledgementI would like to the Executive MANCO, who havegiven so much of their time and ability to makethe running of this organisation to be much easier.Also for its direction and unwavering support Iextend sincere thanks to the Chairman and Boardof Directors.Further more, I am extremely grateful to the entirestaff of Nedbank (Swaziland) who have displayedcommitment to delivering the service promiseto our clients and who have diligently served ourclient base. Finally many thanks to all our clientsfor choosing to be associated with our bank andwe affirm to attend to their requests when theneed arises.Fikile NkosiManaging Director23Nedbank (Swaziland) Limited Annual Report 2010

Nedbank (Swaziland) Limited StrategyThe Nedbank Swaziland vision is ‘BuildingSwaziland’s most admired bank... by ourstaff, clients, shareholders, regulators andcommunities.Underpinning the vision and strategy is the bank’svalues that drive its decisions and behaviours,namely integrity, respect, accountability, pushingbeyond boundaries and being people-centred.During the past year, the bank’s strategic planswere reviewed against the backdrop of forcesthat are likely to influence the business in thefuture, including:Focus Areas• Business banking;• SME’s;• Group Schemes;• ABF; and• Private Banking.Focus Areas -What we are good at• Business banking (growing primaryrelationships) – we are No. 3 aspiring to beNo.1; and• Maintained total market share.Enablers/Dependencies• Electronic banking/debit cards/POS;• Leverage share of wallet;• Cash solutions (cash devices and drop safes);• People/capacity/resources/skills;Nedbank (Swaziland) Limited Annual Report 201024

• We are No.1 in Corporate Schemes on theasset side;• Reposition the value proposition;• Price for value; and• Capture primary relationships.Dependencies/Enablers• Sell packages across the banking solutions; and• Comprehensive product innovation solutionsrequiredStrategic focus areas for 2011• Expand and grow bank assurance;• Focus on SME, business banking and retailmass market;• Focus on customer service;• Become the employer of choice;• Re-engineer processes – cost efficiency;• Optimise and expand delivery channels;• Aggressively reposition and promote theNedbank brand;• Develop customised solutions;• Focus on processes and country credit limit• Embark on strategic partnerships;• Manage risk as an enabler;• Focus on bank charges; and• Manage IT as an enabler.25Nedbank (Swaziland) Limited Annual Report 2010

Nedbank (Swaziland) Limited StrategyVision‘Deep Green’aspirations:Good to GreatClusterMissionWhat makes usdifferent & guidesour long-termstrategy?Our brandexpressionOur G8strategic focusareasScope ofthe gameOur valuesDagwood 2011 -Vision led and Values drivenBuilding Swaziland’s most admired bank......by our staff, clients, shareholders, regulators and communitiesGreat place to workGreat place to bankGreat place to investMost respected andaspriational brandGreat at collaborationHighly involved in thecommunity and environmentWorld-class at managing risk Community of leadersLeading transformation Living our valuesTo be a great bank at providing customised solutions to sustainable and profitable high valuesegments in wholesale, business banking and retail bankingClientdrivenManagefor valueMAKING THINGS HAPPENPrimaryclients andcross sellRisk asan enablerGreat people:Great at listening,understandingclients’ needs anddeliveringProductivityandexecutionUnique andinnovativecultureTransformationGreen andCaring bankA member of theOld Mutual GroupBanking and selectedFinancial ServicesBank for allSouthern Africa focus,with selected AfricanexpansionIntegrityRespect AccountabilityPushing BeyondBoundariesPeople-centredNedbank (Swaziland) Limited Annual Report 201026

CHIEF FINANCIAL OFFICER’S REPORTOVERVIEWResultsNedbank (Swaziland) Limited deliveredpleasing results for 2010, weatheringthe challenging economic conditions,particularly if viewed in the context of the dropin interest rates during the period under review.Strategies concentrating on improving operationalefficiencies and cost containment have borne fruitand the successes are reflected in the increasedmargins. The Bank achieved commendable growthin its headline earnings, increasing by 21% toE59.4 million from E49.1 million in 2009. Earningsper share for the year ended 31 December 2010are 248 cents compared with earnings per shareof 206 cents for the previous year.IN 2011, THE BANK WILL CONTINUE IMPLEMENTINGITS STRATEGY TO IMPROVE PERFORMANCE ON NON-INTEREST REVENUE THROUGH FOCUSING MAINLY ONINCREASING RETAIL DEPOSITS TO ENSURE GREATERTRANSACTIONAL VOLUMES.Nedbank (Swaziland) Limited Annual Report 201028

The Bank continued its drive to grow its asset base,diversifying its portfolio to reduce concentrationrisk while improving profitability of the book. Totalassets grew by 9% compared with the previousyear to E2.168 billion (2009: E1.981 billion) whileloans and advances decreased by 9% to E1.234billion from E1.356 billion the previous year. Thedecline recorded in the client assets is a result ofthe decline in utilisation by the sugar industryclients when compared with the previous yearas they faced pressure from foreign markets.This was largely offset by an increase in businessbanking loans in the property finance product anda remarkable increase in residential home loans.In 2011, the Bank will continue implementing itsstrategy to improve performance on non-interestrevenue through focusing mainly on increasingretail deposits to ensure greater transactionalvolumes.Headline Earnings30,60112828,135,70915016,744,88418825,749,1062069,459,39824821,02006 2007 2008 2009 2010Headline earnings per share (c)Headline earnings (E 000)Growth in headline earnings (%)ACCOUNTING POLICIESThe Bank’s financial statements have beenprepared in accordance with Swaziland andInternational Financial Reporting Standards (IFRS),and the requirements of the Swaziland CompaniesAct 2009.The accounting policies set out in the financialstatements have been applied consistently toall periods presented thereupon. The financialstatements are presented in Emalangeni, which isNedbank Swaziland’s functional and presentationcurrency.MARKET SHARE16%84%The Swaziland economy during the year underreview reflected a country faced with difficultdecisions to make and an economy grapplingwith the realities of sluggish growth and greatereconomic constraints. The impact of the globaleconomic crisis was evident in the decline in theoverall market share to 16% from 19% in 2009.The Bank experienced a continuous decline inthe sugar processing industry during the financialperiod, which is a result of tougher economicchallenges faced by this industry. The Bank’schallenge is to continue focusing on strategiesthat will improve its market share to increaseprofitability, hence increasing shareholders’ wealth.29Nedbank (Swaziland) Limited Annual Report 2010

CHIEF FINANCIAL OFFICER’S REPORT(continued)CAPITAL RISK MANAGEMENTThe capital adequacy ratio as at 31 December 2010was within the Basel 1 regulatory requirementof 8% at 20.2%. Total capital was calculated atE254.3 million (2009: E213.7 million) indicating astrengthened position.The Bank is reporting in line with the Basel IIAccord using the standardised methodologyadopted for all the African subsidiaries per theNedbank Group requirements. The Bank monitorsits capital adequacy through its ALCO process.The Board of Directors is satisfied that the Bank’scapital meets Regulatory Requirements.FINANCIAL REVIEWBalance Sheet AnalysisThe Bank’s earnings are substantially driven byits balance sheet through its integrated balancesheet management approach and ensuringappropriate alignment between credit, capitaland funding strategies. Total assets increased by9.4% to E2.168 billion with loans and advancesconstituting the largest portion of these assets.However, the Bank experienced a decrease inadvances from E1.356 billion in 2009 to E1.235billion as a result of a 23% decrease in corporateloans. Attributable to the efficient credit riskmanagement, the bad debt book decreased toE21.632 million from E25.677 million in 2009.Other than margin management, other interestearning assets and cash account, investmentsecurities, are also held for regulatory liquidityrequirements. Derivative assets, together withthe corresponding derivative liabilities, representan accounting based disaggregating of the Bank’sportfolio of client deal structuring activities. Thesepositions are offset from a risk profile perspective.Deposits increased by 7%, supporting the Bank’sstrategy of growing and diversifying customerdeposits. This growth resulted mainly from theincrease in corporate deposits as they rose by33% compared with the previous year. The Bankwill continue to drive the strategy of growing coredeposits.Indicator2010Actual %2009Actual %Return on average shareholders funds 23.4 23.0Return on average assets 2.7 2.5Expenses to total income 56.5 56.7Non interest revenue to total income 46.0 47.1Effective tax rate 26.7 29.9Nedbank (Swaziland) Limited Annual Report 201030

Statement of Comprehensive IncomeNet Interest IncomeDespite the decline in client assets and thedecrease in interest rates by 150 basis pointsduring the year, NII increased by 16% year onyear to E109.7 million (2009: E94.6 million). Thissatisfactory growth came from a diversified assetmix through the reduction of concentration onthe finely priced assets to the increase of businessbanking loans, mainly in property finance andmortgage bonds. The SME sector continuedto contract compared with the previous year,which is indicative of the challenging economicconditions. The Retail sector has not shownimpressive growth. However, it has recorded goodgrowth in the personal loan portfolio followingthe enhancement of the product during the lastquarter of the year. The Bank continued with itsstrategy to grow its core deposits and diversify thefunding mix. While the Bank achieved the desiredgrowth in customer deposits, significant growthwas also recorded in interest free funds. Goodmargin management through the Bank’s ALCOenhanced its margins during the low interest era.Non- Interest RevenueThe Bank achieved an impressive 11.3% yearon year growth in commissions and fees. This isattributable to improved operational efficienciesand new business. Distribution channels wereNet Interest Income55.9832,467.1019,984.8626,594.6511,5109.702006 2007 2008 2009 2010Net interest income (E 000)NII growth (%)15,9increased during the year to 22 ATMs (20 in 2009)which is in line with the Bank’s view of reachingout to customers, while a drive on electronicbanking products assisted in increasing NIR.However, transactional volumes did not grow asanticipated by management. Foreign exchangeprofits were below the Bank’s expectations as aresult of the strong Lilangeni/Rand against majorforeign currencies.Period NIR (E000) NIR Growth %10 84 113 16,2%09 72 411 33,3%08 54 320 2,1%07 53 183 18,3%06 44 967 27,8%31Nedbank (Swaziland) Limited Annual Report 2010

CHIEF FINANCIAL OFFICER’S REPORT(continued)ExpensesTaxation70.2676.1185.62101.36114.9813,1914,6618,8020,9521,6260.759.054.056.756.530,129,129,529,926,72006 2007 2008 2009 2010Total Expenses (E 000)Expenses-to-income ratio (%)ExpensesCosts containment strategies were well executed.However, expenses increased by 1.2% ahead of theBank’s expectations for the 2010 financial period.Operating expenses grew by 13.4% to E115.0million (2009: E101.4 million). The efficiency ratioimproved to 56.5 % (2009: 56.7 %). Staff costsand management fees accounted for a significantincrease in the overall expenses. Staff expensesincreased by 4.3% due to IAS 19 adjustments ofE3.6 million. However, staff numbers decreasedby 3.6%. Management fees increased by 75.1%to E20.8 million (2009: E11.9). This growth inexpenses is in line with improved service deliveryand business growth as the Bank continued toinvest in strategic projects for the longer termbenefit of the business and its customers.2006 2007 2008 2009 2010Taxation charge (E 000)Effective taxation rate (%)TaxationThe taxation charge was 3.25% above lastyear’s charge at E21.6 million. This increase isattributable to the current year’s profit growth.The effective tax rate decreased marginally to26.7% (2009: 29.9 %).119,6825,6Shareholders’ funds146,5424,4180,4524,9213,7223,0254,3720,22006 2007 2008 2009 2010Shareholders’ Funds (E 000)Return on Equity (%)Nedbank (Swaziland) Limited Annual Report 201032

NEDBANK (SWAZILAND) LIMITED IS WELL POSITIONED TOTAKE ADVANTAGE OF THE RECOVERY OF THE COUNTRY’SECONOMY. EMPHASIS WILL CONTINUE TO BE PLACED ONTHE IMPROVEMENT OF OPERATIONAL EFFICIENCIES, WHILETHE TRAINING AND DEVELOPMENT OF STAFF REMAINSFUNDAMENTAL TO ENSURING SUSTAINABLE SOLUTIONS.Shareholders’ FundsCommendable growth in shareholders’ funds of19.0% to E254.4million (2009: E213.7 million)was achieved during the period under review.DividendThe Board approved a dividend of 85 cents pershare, which is 21.4% above that of last year.A dividend cover ratio of 2.92 times headlineearnings per share was achieved in line with theBank’s dividend policy.ProspectsNedbank (Swaziland) Limited is well positioned totake advantage of any recovery in the country’seconomy. Emphasis will continue to be placed onthe improvement of operational efficiencies, whilethe training and development of staff remainsfundamental to ensuring sustainable solutions.Management believes the Bank is well equippedto deal with the challenges that will confrontit in the ensuing year and expects to improvethe level of profitability achieved in previousyears. The Bank will continue implementing itsappropriate strategies to ensure continuity in theimprovement of shareholder wealth.33Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWSALESSUPPORT AREASIan Lewis (55)Head of Sales36 years’ service• Diploma in Business Management• Diploma in Financial Management• EDP (Stellenbosch Business School)OVERVIEWNotwithstanding the challenging financialenvironment and the significantchanges in its leadership in 2010, thesales team was able to deliver on the strategicintentions of the previous year positioning theCorporate, Business Banking and Retail Businessesin good stead for the challenges of 2011.The amalgamation of the Head Sales Supportrole into Head Retail Banking further allowed forimprovement in the control and risk environment,efficiencies, cost management and focus on sales.The Key Strategic initiatives for 2010 lookedat accelerating our improvement and growthin the following areas in Customer Service,Improved Channel Management, Centralising ofadministrative functions and cost containment,Re-positioning SME and Institutional Banking,Leveraging off Synergies, Enhancing Productoffering and managing risk as an enabler.RetailThe Retail Banking Division focuses mainly onthe collection of customer deposits, transactionalbanking and lending to the Personal, Small andMedium Enterprises (SMEs) and institutionalbanking segments by providing broad-based,solution-driven products with focused services.This is supported by the branch network, whichprovides delivery to all customer segments froman account maintenance, transactional servicesand complaint resolution angle.Nedbank (Swaziland) Limited Annual Report 201034

2010 saw significant growth of 16% in the assetbase, considering that this impact was diluted byunexpected repayments received over the year.The liabilities book reflected a marginal increaseover this period.Performance - Personal BankingThe delayed implementation of the GovernmentLoan Scheme coupled with significant repaymentson the schemes book for 2010 was a key factorin the challenges faced in the personal bankingspace. Major corporate employers offered staffvoluntary exit packages, which allowed employeesto clear their loans sooner than expected. Againstthis backdrop, many of the low end transactionalaccounts needed to be closed during the year. Inan effort to mitigate this turn of events, focus wasplaced on primary banking clients with a combinedcampaign of home loans with personal lending. Tomatch the anticipated asset growth the SivunoCampaign was also dovetailed in this programmewith customer and staff incentives introducedto encourage participation and activity over thisperiod.Performance - SMEsThe 2010 SME environment remained in the higherrisk tier, which called for the continued focus bythe Monitoring Credit Committee. A low levelcampaign was run to focus on harnessing growthto the well-conducted SME accounts to encourageaccount usage and retention.The Arcade Branch was used as a pilot and set-upfor all the SME and institutional banking clients inthe Manzini area. This now offers improved servicewith an appropriate transactional banking areafor business customers and VIP clients. The otherpersonal segments are also now adequately dealtwith at Manzini Main Branch. The intention is tocontinue to refine the operating models in linewith expected value propositions and to allow easeof execution of the strategy for each segment.The year ahead will see a refocus on this strategicallyimportant aspect of the business.Social ResponsibilityThe branches continued to be visible and activewithin the communities in which they operate andhave now included participation in Soup Kitchensand Orphanages while maintaining focus on theunderprivileged communities. The approach ofincluding partnerships with major clothing retailersand donations of school uniforms to childrenin various schools throughout the country wasconsolidated into the LEAP Loan Campaign in thefirst quarter of 2010. This focus will continue in thenew year with the view of again partnering withsome of our key stakeholders to ensure greaterimpact and staff participation.Channel ManagementAll the branches received satisfactory InternalAudit reports, underpinning the focus of using riskas an enabler and ensuring that the basic disciplineto process and procedure remain key focus in thebusiness.35Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWSALES (continued)SUPPORT AREASAs part of improved channel management andproliferation, a new branch in Big Bend becamefully operational in January 2011, thus providinga greater network for growth in the lowveld areaof the Kingdom.Nedbank also installed four additional ATMsduring the year. Two were strategically placedat Galp Filling Stations (Oshoek Border Postand Manzini By-Pass Road) while two replacedredundant machines at the Gables and Simunyeto improve reliability. The redundant machineshave been placed in the high volume areas ofthe Gwamile Street branch and a new site atMatsapha Pick & Pay Supermarket, to offeralternatives and improve convenience. ATM andelectronic banking transactions grew by 11% andcash handled increased by 22% for the period.The Process Enhanced Groups continued toreview processes in line with the charter followingthe centralisation of key credit administrationfunctions, which were moved from the branches.This has improved controls and processes and hasfurther enhanced the turn around times.Customer ServiceThe focus on customer service continued withinternal and external campaigns to increaseawareness and action plans of the CustomerService Promise initiatives in the five key areas of:• Turn Around Times;• Knowledge and Competence;• Proactiveness;• Visibility;Nedbank (Swaziland) Limited Annual Report 2010• Problem Management.An External Satisfaction Survey conducted duringthe year using a quantative methodology withface-to-face interviews within all segments sawimproved results in the technical and operationalindices, while greater attention will be given tothe softer elements of the service initiatives.Key service tactics introduced include queuewalking, express tellers in the larger branches andimproved customer waiting areas.Nedbank will continue to operate in a restrictiveenvironment, one which will become more rigidby conformance, economic size and limitations.The bank will not, however, lose focus ondeveloping identified selected segments wherevalue can be derived.Prospects and strategic focus areas for the SalesDivision in 2011 are:• Remain and improve on being client-driven;• Manage for value;• Primary clients and cross sell;• Risk as an enabler;• Productivity and execution;• Unique and innovative culture, supported by acollaboration model;• Shared services and centralisation of non coresales functions.Private Banking Performance2010Nedbank Private Banking clients continue toenjoy the attention of dedicated private bankerswho are always in a position to take care of theirindividual banking needs and requirements. These36

ankers are the interface between the client andthe bank and act as the main point of contact forall banking needs.The focus is to strengthen the relationship with theclients in order to cultivate more business from apersonal point of view, as well as on the businessside, hence it could be direct and indirect.Nedbank Private Banking continues to offer:• Transactional Banking - current accounts thatlink ATM cards, Internet banking, and foreignexchange.• Lending - Home loans, vehicle finance,overdrafts and personal loans.• Investments and Savings - Fixed and primelinkeddeposits, offshore investments anddomestic treasury products.• Financial Planning and Wealth Creation.Satisfactory growth has been noted under thissegment despite the challenges of the past yearwith declines in disposable income levels due tojob losses and high personal debt.Nedbank anticipates future growth as it enhancesits offering in 2011, providing a full privatebanking suite and giving clients the opportunityto meet with the private banking staff to discusstheir needs.Corporate and Business BankingThe focus of the Corporate and Business Divisionis to provide expert end-to-end banking solutionsto a diverse portfolio of corporate clients throughthe use of cost-effective products and electronicbanking solutions. Nedbank has accordinglydeveloped suitable strategies and goals thatfocus on sustainable service delivery in a highlycompetitive environment in line with the visionof creating the most admired bank.Emphasis has been to provide business growthin the current Swaziland economic environment,which shows slow recovery exacerbated by verylittle growth in foreign direct investment coupledwith business closures. This has seen tightcompetition among local banks for the existinglimited business in the country. Nedbank’sgrowth will be achieved through the adoption ofrisk mitigation strategies to ensure a diversifiedand quality book.Nedbank continues to drive a highly focusedteam of managers who have been instrumental ingrowing business and meeting the set targets forthe year. The philosophy of the division is teamwork through leveraging on each others’ strengthsto ensure that each individual contributesqualitatively to the achievement of the sharedgoals. The ultimate objective is to be part ofa cohesive team, which includes the supportstructures of the bank that have a collectiveapproach to the provision of superior service tothe bank’s customers. Nedbank will continue totap into its Centres of Excellence for specialisedsupport in order to enhance the bouquet ofservices available to its clients. This will ensure thatthe corporate team, together with all stakeholders,derive value from the close association.37Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWTREASURYSUPPORT AREASOVERVIEWTreasury is involved in sales, managingthe Bank’s reserve and risk capitalrequirements and funding the balancesheet. The division plays a critical role in managingthe Bank’s interest rate risk and liquidity positions.Treasury focuses on minimising the cost ofliquidity to ensure that returns are maximised.An active role is also played in sourcing fundsto ensure liquidity to finance the Bank’s assetgrowth.Sales also forms a large part of Treasury’sstrategic focus and part of the function withinTreasury is client retention. This is solely becausethere has been limited growth in Swaziland andhence minimal foreign exchange growth. Clientacquisition is thus through superior service,assessment of client needs, introduction of newsolutions and continuous update of markets.Treasury is closely affiliated with Group Treasury’splatform to offer the Bank’s client base moreNedbank (Swaziland) Limited Annual Report 201038

complex products and services. This resultsin Treasury being able to provide customisedsolutions to its clients.the ultimate cost of funding or investmentyield, by providing the option of floating orfixed interest rates.The Treasury team has strong highly specialisedskills and is driven by passion to enhance client’sknowledge of foreign exchange and interestrate markets and solutions, as well as drivingprofitability for the Bank.Products & SolutionsSome of the products and solutions Treasury offersto its clients include but are not limited to:• Spot Enhancer Products - Enabling clientsto trade in foreign currencies at a rate that issignificantly better than the current spot rate.This is achieved by setting a cap/floor on afuture exposure of a different cash flow that isnot yet hedged.• Cross Currency Interest Rate Swaps - thesehave been used by some clients to swap thecapital and interest payments of one foreigncurrency for another currency’s capital andinterest. This is done to remove all currency riskand give participants the chance to manage• Forward Rate Agreements (FRAs) – Thisproduct fixes an interest rate on a notionalloan or deposit and its due to be introducedsometime in the future. Typically, borrowersbuy FRAs to hedge against rising interest rates,while investors sell FRAs to hedge againstfalling interest rates.• Yield Enhancement Products – This isan investment product that clients use inanticipation of an interest rate hike to achievea return on excess cash. The rate earned onthis type of investment is better than a fixedinvestment rate because the interest rateis reset every quarter. As a result the clientis able to improve the return on a longterminvestment if there is an upward trendin the interest rate yield curve. Returns onthis product are achieved only if funds areinvested for a minimum of 12 months. In 2010this product was not marketed due to theanticipated rate cuts.TREASURY WAS SUCCESSFUL IN CLIENT RETENTION DUE TORELATIONSHIP MANAGEMENT AND KNOWLEDGE OF CLIENTBUSINESS AND NEEDS. LIQUIDITY AND MARGIN MANAGEMENTREMAINED A KEY FOCUS IN 2010.39Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWTREASURY (continued)SUPPORT AREASReview Of The YearYear on Year PerformanceProfitJanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember2009 20102010 proved to be a challenging year with adecrease in foreign exchange volumes in themarket. Treasury did not meet its 2010 targetand was behind by 12.90%. Year on year, therewas a decline of 15.15%. This negative growthwas a result of the strengthening of the Lilangeniagainst major currencies while the client base ismainly export oriented. Foreign currency inflowswere reduced as most clients resorted to receivingpayment in Emalangeni to avoid fluctuations inexchange rates. The lack of new business withforeign exchange exposure was one of the majorchallenges that faced the division.The significant strengthening of the Lilangeniagainst major currencies also had an impact onNedbank (Swaziland) Limited Annual Report 2010Treasury volumes as previously mentioned. Mostof the NGO client base lost significant fundingfrom their overseas donors and some had theirfunding greatly reduced. This was also shown by adecrease in volumes by 15.25% in 2010 comparedwith growth of 6.83% in 2009.Treasury was successful in client retention dueto relationship management and knowledge ofclient business and needs.Liquidity and Margin management remaineda key focus in 2010. Treasury played a criticalrole in pricing the assets through ALCO and alsoby investing excess funds at profitable margins.2010 saw the repo rate decrease by a total of 15040

asis points. The asset sensitive position resultedin a negative impact due to the rate drops.investments meant that Treasury had to lookfor business from competitors. This involvedproviding new solutions, client care to attractThe challenges faced during a year of limitedgrowth in new business and foreign directbusiness and reduction in margins to make pricingmore attractive.Treasury TurnoverTurnover20052006 2007 2008 2009 2010YearForeign Exchange ProfitProfit2002 2003 2004 2005 2006 2007 2008 2009 2010Year41Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWTREASURY (continued)SUPPORT AREASProspectsIn 2011 Treasury will initially continue toexperience a number of challenges due to thecontinued slow economic recovery and also tolimiting trade competitiveness.Treasury will, however, continue to activelyincrease its client base with the assistance ofthe Corporate and Retail departments, as well asretain its current clients. Margin squeeze will stillbe prominent. Treasury will continue to offer itsclients tailor-made solutions with emphasis onincreased product range.Treasury will also continue to play a key role inthe funding of the Bank’s book through wholesalefunds and will strategically maintain liquidityequilibrium on core deposits and asset growthwithout compromising margins. Given the outlookfor generally flat interest rates in 2011, the need forinnovation will be called for to ensure a profitablebook, both on the assets and liabilities side.Treasury will drive liquidity and interest ratemanagement through the ALCO process, giventhe expected growth in the asset book and acompetitive investment environment.Nedbank (Swaziland) Limited Annual Report 201042

OPERATIONAL REVIEWCREDIT RISK MANAGEMENTSUPPORT AREASGoodmanChakanyuka (39)Chief Risk Officer4 years’ service• Masters of Business Administration (MBA)Bachelor of Science Economics• Bachelor of Science Economics (Hons)• Senior Management Programme (GIBS)• Institute of Bankers Diploma (IOB)• Institute of Chartered Secretaries andAdministrators Certificate (CIS)1. REVIEW OF THE YEARTThetough economic conditions andhigh levels of consumer indebtednesshave tested the effectiveness of lendingdecisions, risk-based pricing practices andcollection strategies implemented prior to thecycle turning. The 2009 and 2010 results reflectthe consequences of these practices, particularlythe Asset Based Finance (ABF), Home Loans andexposures to Small to Medium Enterprises (SMEs).environment, Nedbank (Swaziland) Limited embracedeffective risk management as a corecompetency- one that allows for optimised risktaking, is objective and transparent and ensures thatthe business prices risk appropriately, linking it toreturn. Nedbank instituted interventions to addressthese issues in terms of sourcing, assessment ofnew business, pricing and monitoring as well as thecollection and security realisation process.The credit crisis has forced banks to have a criticallook at how they manage risk and has exposedsome significant weaknesses in risk managementacross the financial service spectrum. Inresponse to the unfavourable macro-economicEffective risk management is critical in a complexorganisation like Nedbank (Swaziland) Limited,where a strong and solid risk management cultureexist. This culture ensures that sound businessdecisions that properly balance the diverse risksNedbank (Swaziland) Limited Annual Report 201044

are inherent in any transaction and rewards exist.A culture of risk awareness and compliance isembedded in Nedbank’s day - to - day activities.During the year ended December 2010, the Bankhad to deal with two types of risk. The first type ofrisk included credit risk and market risk, which areactively taken to generate profits, and the secondis operational risk that arises passively in thecourse of carrying out business. These risks weremanaged according to their specifics. Adherenceto effective policies and procedures is crucial forRisk Management. Policies are not designed tobe totally risk averse, but rather to minimise andcontrol risk for the various areas of bank operations.arising from total facilities granted to a client.Credit risk is the risk of loss due to borrower orcounter-party default. Large scale borrower defaultcan force a bank into bankruptcy hence, managingcredit has always been a focus area within theBank.In response to the economic instability,management significantly reduced the risk profileof the bank to ensure sustainability and increasedproactive risk management. This resulted in tightercredit lending criteria within the Personal and SMEbusiness units, more stringent risk acceptancecriteria, stronger emphasis on improving collectionsefficiency, as well as increased affordability buffers.2. Review for the Year2.1 Credit RiskNedbank defines client credit exposure as theamount representing the maximum potential lossAverage Exposure in 2010Year1,200,0001,000,000800,000600,000400,000200,0000Overdraft Overnight Home Loans ABF/Leases Other Loans TotalProduct2010 2009 200845Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWCREDIT RISK MANAGEMENTSUPPORT AREAS(continued)Notwithstanding the economic slowdown, thelending book grew 10% year-on-year on averageassisted by demand for financing infrastructureprojects. Growth in advances in Corporate andBusiness Banking remained strong, with the mixof the book shifting towards long-term advances.The bank adopted an approach of selectiveasset creation, with emphasis on creating highqualityadvances at attractive margins. The bankmaintained its focus on quality asset growthfrom its primary client base, while proactivelymanaging risk or reducing exposure to high riskindustries and individuals , in particular those witha single Nedbank lending product.Growth in advances took place across a numberof categories including overdrafts, mortgagesand leases. Overdrafts increased by 41% from anaverage of E100.5m in 2009 to E141.9m in 2010. Itis part of Nedbank’s strategy to continue to growhigh interest earning products such as overdraftsin order to boost the Bank’s margins. The homeloans and ABF/Lease portfolios continued toshow solid and consistent growth during theperiod under review despite the adverse economicconditions. Term loans recorded impressive growthdue to acquisition of new corporate clients andincreased utilisation by our existing clients. Otherloans portfolio has shown a modest decline ofless than 1% compared to the prior year. Overly,the advances book decreased by 8.9% and thisis largely explained by low utilisation on theovernight loans line.Credit Quality PerformanceAsset quality of a bank plays an important rolein determining the current and future profitabilityof the bank. During the period under review,borrowers continued to feel the impact of theadverse economic conditions. A number of ourclients struggled to meet monthly obligations.In the course of 2010 the Bank encountered aPercentageInstalment Arrears: Total Value as a % Total Book5.004.504.003.503.002.502.001.501.000.500YearValue%Number%20080.284.6020090.081.2320100.070.86Nedbank (Swaziland) Limited Annual Report 201046

significant increase in the number of vehiclesrepossessed as customers came under morefinancial stress.Proactive risk management practices ensurethat loan arrears are well managed. The numberof accounts in arrears improved from a peak of4.60% as at 31 December 2008 to 0.86% as at 31December 2010 (2009:1.23%). The arrears ratio inEmalangeni value terms at 0.07% remained withinthe set threshold of 0.25%. Numerous credit riskinterventions have been instituted over the yearsand are ongoing in respect of clients, industrysegments, geography and products, and these arereflected in arrears being well-contained. Theseinclude charging risk-based excess fees in order tochange client behavior.Although interest rates decreased significantlyduring the period under review, high andincreasing unemployment, a weak ABF marketand a fragile economic recovery exacerbatedcredit stress. However, it is important to mentionthat the rate of new defaults slowed down in thesecond half of 2010.A measure of credit risk faced by banks is the ratioof non-performing loans to total loans (NPL ratio).A high ratio indicates a high probability of the bankhaving financial distress. During the year, we routinelyreviewed the lending book to determine if any creditexposure should be placed on non-performing status.An asset is placed on non-performing status when itis determined that the principal and the interest arenot expected to be fully repaid in accordance with thecontractual terms.The non-performing book decreased by 15.75%to E21.63m by end of December 2010 (2009:E25.67m). The reduction was as a result ofsubstantial recoveries made and write-offs oflong outstanding debts. Increased attention wasgiven to improving the collection process. TheNPL ratio improved slightly from 1.87% to 1.76%during the period under review. The improvementwas mainly as a result of recovery of bad debtsamounting to E17m (against a set target ofE13m). In addition, a number of long outstandingdebts were written off during the review periodand are being managed off-balance sheet. It isalso true that the ratio improved as a result of thesignificant growth in the lending book.To hedge against unexpected losses, the had topro-actively raise significant provisions. Specificprovisions amounting to E8.32m were raisedduring the year, a 14.6% increase from E7.26mraised in 2009. It is imperative to mention that thebank’s provisioning decisions are not a function ofthe quality of the loan book alone, but are alsoassociated with economic growth, bank lendingbehavior and bank’s capital strength. We are in aposition to confirm that provisions were withinIAS39 and Central Bank requirements.47Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWCREDIT RISK MANAGEMENTSUPPORT AREAS(continued)Impaired Advances/Specific Impairments/Credit Loss Ratio %Value (E000)30,00025,00020,00015,00010,0005,00001.801.601.401.201.000.800.600.400.200Percentage2008 2009 2010Defaulted Advances Impairment Provision Credit Loss RatioThe credit loss ratio of 0.44% (2009: 0.67%)showed signs of improvement after havingpeaked at 1.53% as at December 2008. The creditcycle has to date largely impacted consumersand small businesses. The ratio is expected toremain under pressure because of high levelsof unemployment and lower levels of collateralvalues due to weak housing and vehicle markets.Total specific provisions held stood at E4.98m asat 31 December 2010 (2009: E3.79m).The Credit and Risk department reports to theRisk, Compliance and Loan Review Committeeon a quarterly basis, providing the Board withthe assurance that the various risk categoriesare being effectively managed and controlled toensure soundness and profitability.2.2 Enterprise-Wide RiskCredit risk is one of the 17 risks Nedbank as abusiness is inherently exposed to. Other keyrisks include market risk and operational risk. Thebank risk function ensures that risk is embeddedand embraced throughout the organisation,thus providing assurance that the bank is wellmanaged.Policy setting, risk frameworks,governance structures and robust risk reportingall contribute to achieving Nedbank’s aspirationof world-class risk management.During the period under review, we sustainedand maintained a holistic integrated Enterprise-wide Risk Management Framework (“ERMF”)and provided independent oversight ofimplementation thereof. Strong risk cultureprevailed, underpinned by sound governance andendorsed by the ERMF.Nedbank (Swaziland) Limited Annual Report 201048

Market risks- These risks emanate from changesin market variables such as interest rate changes,foreign exchange rates, and commodity pricesand cause uncertainties in a security’s price. Thisin turn causes variation in the economic valueof the Bank’s portfolios and can have seriousnegative implications if not properly managed.To ensure implementation of risk managementstrategies regarding market risks, Nedbankcreates a mutual checking system where decisionmaking, execution, and monitoring functionsare systematically separated and organised intodifferent units.Liquidity risk- This is the risk that the Bank willonly be able to meet liquid commitments atincreased costs or ultimately, be unable to meetits current or deferred obligations as they fall duebecause of inability to liquidate assets or obtainadequate funding. Sound liquidity managementis critical in protecting the Bank’s depositor base,maintaining market confidence and ensuringfuture growth.The bank’s funding and liquidity levels remainedsound as a result of an ongoing focus onincreasing and strengthening liquidity buffers andlengthening the funding profile as well as robustbalance sheet management.Liquidity risk in the Bank is managed throughthe Asset and Liability Committee (ALCO), whichreviews liquidity on a monthly basis in addition toassessing weekly funding requirements. Prudentcashflow management monitors any maturitymismatches and corrective action is takentimeously. This risk is also managed by diversifyingthe depositor base, looking for stable depositsand keeping short term assets. Diversificationis maintained across counterparties, types ofinstruments and maturity ladders.Interest rate risk- The bank’s lending, fundingand investment activities give rise to interestrate risk. This is the likelihood of losses due toadverse changes in interest rates. Interest raterisk generally stems from assets and liabilitiesmaturing and/or repricing at different timesand rates. The immediate impact of variation ininterest rate is on bank’s net interest income,while a long term impact is on bank’s net worthsince economic value of bank assets, liabilities andoff balance sheet exposures are affected.This risk is managed by ALCO through the analysisof rate sensitive assets and liabilities and the gapanalysis. The Bank performs stress scenarios tominimise risks and avoid sudden shocks.During the period under review, pressure oninterest margin increased as a result of continuednegative endowment. Margin management wasa permanent agenda item at ALCO meetingsthroughout the year.Capital Risk- A key feature of the year’sperformance was the strengthening of the bank’s49Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWCREDIT RISK MANAGEMENTSUPPORT AREAS(continued)capital ratios which are comfortably within ourtarget ranges. Tier 1 and Tier 2 capital held asat the end of December 2010 was 20% againsta statutory requirement of 8%. The capitaladequacy ratio is within the Bank’s guidelines of15% - 20%.Operational risk- This risk arises from humanerror or fraud, inadequate or failed internalprocesses and systems, non-adherence toprocedures or other external sources that resultin losses. Successful operational risk managementis particularly important in diversified financialservices like ours because of the nature, volumeand complexity of our various businesses.The Bank witnessed an overall good performancein 2010 in managing Operational Risk. ERCOprocesses are well embedded within the bank toensure operational risk exposures are escalatedand potential exposures mitigated. Our controlenvironment remained strong, as evident fromthe overall satisfactory audit opinions andrelative low levels of operational risk losses ofE135k against a threshold of E500k. The internalcontrol environment has improved greatly and issupported by knowledgeable senior and middlemanagers. The executive has set the right tonefor risk management and commitment was seenthroughout the year.In keeping with our governance structure, thelines of business are responsible for all the riskswithin the business, including operational risks.The Operational Risk Manager, reporting to theChief Risk Officer, provides oversight to facilitatethe consistency of effective policies, “bestindustry practices”, control and monitoring toolsfor managing and assessing operational risk acrossthe Bank. The Risk Function also works closelywith the Internal Audit Function and businessline managers to implement appropriate policies,processes, and assessments at the line of businesslevel. Compliance and operational risk awarenessis also driven across the Bank through training andstrategic communication efforts.The Risk, Compliance and Loan Review Committeeis responsible for monitoring operational andreputational risks. However, throughout theorganisation, management is responsible forintroducing and maintaining effective operationalpolicies and procedures. They are the frontline inmanaging operational risk.The previous year saw a continuous improvementin all departments in terms of improved internalaudit results, adoption of policies and reporting ofrisks and operational losses.3. ProspectsThe high level of consumer indebtedness andfragile economic recovery characterised by thehigh budget deficit and high unemployment ratemeans defaulted clients will take longer to cure.The improved trading conditions experienced inNedbank (Swaziland) Limited Annual Report 201050

2010 are expected to continue in 2011. However,economic recovery is sluggish and there iscontinued uncertainty that could negativelyimpact on businesses, particularly the SMEsegment.activities. Research in Nedbank Group hasshown that this programme is successful toprevent loss events, report any loss eventsimmediately to enable the bank to recoverfunds and raise the levels of awareness andfocus by staff regarding potential fraud.Strategic focus areas for 2011 include thefollowing:• The credit crunch redefined the world creditmarket and lenders are still recoveringfrom the fall. Nedbank will continuallyreview lending and credit risk managementprocesses in line with the ever dynamicoperating environment. Improving assetquality, particularly in ABF loans and SMEbusiness unit will remain a priority. Inaddition, the business will create focus onreducing economic losses through effectivecollection and risk management practiceswhile emphasizing selective asset growth andcapital optimisation.• Roll out of the Risk Control Self Assessment(‘RCSA”) for each business unit. The correctimplementation of RCSA will result in a proactiverisk monitoring function within eachdepartment• During 2011, the Bank plans to launch aprogramme called LPIS (Loss PreventionIncentive Scheme). This initiative plans toreward staff when they report any suspicious• Nedbank Group intends to evolve operationalrisk management from traditional Standardised“TSA” to modern Advanced ManagementApproach (“AMA”). The South Africa ReserveBank (SARB) has approved Nedbank SA’s applicationfor the conversion. Although NedbankSwaziland and other Nedbank Africasubsidiaries will remain on TSA for the nearfuture, we will try to learn as much as possiblefrom the Group to ensure that we stay“world-class at managing risks”• World wide, risk is still stigmatised as a backoffice support function. The bank continuesto take serious steps to improve risk expertiseand experience at senior management andboard level.• Up-skilling and training of staff will remain apriority• We will work towards further embedding thegroup wide risk plan and worldclassworldclasspractices, managing the bank within itsrisk appetite parameters and striving to havethe credit loss ratios maintained below thepeers.51Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWSUPPORT AREASHUMAN RESOURCESEdward Sithole (42)Head of HumanResources5 years’ service• BA (Soc Science) (Uniswa)• MBA (UKZN)REVIEW OF THE YEARToday’s businesses compete as much onthe strength of their intellectual capital,which resides in employees at all levelsof the organisation, as on that of their financialcapital.• The reduction of the entropy (limiting values)level in the cultural alignment survey from14% to 5%.• Sinakekelwe Employee Share OwnershipScheme paid dividends to staff for the firsttime.In 2010 companies around the world stood at theintersection between recession and recovery.• Implementation of the Smart HR electronicleave management system.• Commissioning of a remuneration surveyNedbank Swaziland’s belief is that great peoplewho listen to and understand client needs and areable to deliver make the organisation different.Thus there is strong focus on people and theculture and climate in which they operate. Thefollowing are some of the positive achievements:and implementation of the results.Human Resources StrategyThe planning for the next three-year phase hasbeen completed and the focus of the humanresources strategy is:Nedbank (Swaziland) Limited Annual Report 201052

Unique culture as an advantage:A differential corporate culture can build asustainable long-term competitive advantage andhelp to attract and retain talented staff.Talent management: Nedbank firmlybelieves that great things begin with great peopleand that it is through people that it is able todeliver its brand promise to Make Things Happen.Total Reward strategy:Rewards management will ensure that the bank’sperformance management, total remuneration,recognition and retirement fund management arerelevant and competitive and make a significantcontribution to the bank as being a great place towork. The objective is to ensure further alignmentof the total reward strategy with Nedbank Grouppeople practices.Management capability: The variousmanagement and leadership developmentprogrammes are key enablers. Nedbank seeks tobecome the employer of choice.Learn and grow: Implementing the ‘learnand grow’ employee initiative to enable superiordelivery to clients and create opportunities forcareer development.Culture and employees: A uniqueculture can build a sustainable long-term competitiveadvantage and help to attract and retain talent.The current organisational culture as perceivedby employees is measured by the Barrett Survey,focusing on the level of entropy and the gap betweenthe current and desired culture. In 2010 the entropylevels improved to 5% from 14% in 2009. Thisimprovement comes off the original base of 21%in 2006 and shows a marked improvement over thepast four years. International research shows that anentropy score of between 11% and 20% indicatesa well-functioning organisation and organisationsoperating at levels of 10% and below are consideredexceptional.The Nedbank Staff Survey measures employees’perceptions of organisational performance on 12dimensions, and there was a statistically significantdecline in the overall average of 72.2% in2009 to 66.7% in 2010. The management team hasstarted the process of developing action plans toaddress the decline in Nedbank Staff Survey duringthe coming year.Performance Management:In today’s complex world of work, performancemanagement is more important than ever.Performance management at Nedbank is acontinuous process whereby managers andemployees work together to:• Set performance expectations linked toorganisational objectives;• Establish criteria against which individualperformance may be measured;• Identify areas for competency improvementand areas of strengths that may be enhanced;• Provide performance feedback;53Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWHUMAN RESOURCES(continued)SUPPORT AREAS• Continually enhance performance; and• Reinforce and reward great performance.Two formal reviews take place annually (midyearand year-end), with the year-end ratingsimpacting on the following human resourcesprocesses:• Short term incentives;• Salary increases;• Recognition;• Individual development plans.Remuneration, Recognition andRewardsExceptional employee performance is vital toNedbank’s success and growth. Therefore thebank gives high priority to reinforcing behaviourthat drives performance. Nedbank has identifiedreward as a powerful instrument to change andestablishing and reinforcing employee output andbehavior, through which its strategic businessobjectives and results may be achieved.The bank defines total rewards as a combinationof financial and non-financial, direct and indirect,and intrinsic and extrinsic rewards. Its rewardstrategy and philosophy form an integral part ofthe Employee Value Proposition (EVP).Short Term Incentive scheme(STI)The short term incentive scheme is designedto produce specific incentives for agreeddelivery, that is, higher than median for superiorperformance (significantly ahead of targets),Nedbank (Swaziland) Limited Annual Report 2010median for on-target performance, lower quartileincentives for below-average performance andzero rewards for poor performance (below thethreshold).The short-term incentive scheme is intendedto incentivise particular behaviour and desiredresults. Distribution of the incentive pool is doneon the basis of individual performance againstcriteria set out in annual performance agreements.The Remunerations Committee reviews andapproves the STI Pool on an annual basis.Sinakekelwe Employee ShareSchemesNedbank Swaziland has two schemes for thebenefit of qualifying employees: the Broad-basedScheme and the Management Scheme. In addition,a long-term Incentive Plan (LTIP) is in placefor the benefit of qualifying employees. Theseschemes are managed on behalf of employees bytrustees appointed by the board. In addition, theboard has appointed AON Swaziland to provideadministration services for the schemes. In 2010the broad-based and management schemes had208 and 48 participants respectively.Learning and GrowthNedbank believes that the opportunity fordevelopment is key to attracting and retainingthe right people, and this forms a significantpart of the value proposition to current andfuture employees. The Education Policy saw10 employees being granted loans to further54

their academic studies towards bank relatedqualifications. The Management DevelopmentProgramme is aimed at establishing a commonvalue-based management approach within thebusiness. To this end 133 staff attended theemotional intelligence workshops this year andare now embarking on the practical application ofskills learnt at these workshops.Employee WellbeingThe Nedbank Employee Wellbeing Programmeoffers a holistic solution that focuses on allaspects of the individual functioning, providingassistance and support with a range of issues suchas emotional and personal difficulties; alcoholand drug abuse; HIV/AIDS; violence and trauma;bereavement and loss. The aim of this suite ofemployee wellness programmes is to form anintegral and integrated part of the bank’s overallhuman capital management strategy. The primarygoal of the employee wellness programmes is toinform and enable employees to take ownershipof their wellbeing and to provide them with thenecessary support and interventions to makeinformed decisions regarding their work andpersonal lives.Directors Affairs’ andRemunerations Committee(Incorporating Nominations)Membership and CharterThe Directors’ Affairs and RemunerationsCommittee (incorporating nominations) operatesaccording to a charter approved by the NedbankSwaziland Board. The committee’s prime objectiveis to be the Board’s expert monitor and soundingboard in respect of the following key risks aslisted and defined in the Enterprise-wide RiskManagement Framework:• Strategic risk;• Reputational risk (including CorporateGovernance);• People Risk; and• Social & Environmental Risk.The committee ensures that:• The directors and other senior staff membersof Nedbank (Swaziland) Ltd are fairlyrewarded for their individual contributionsto the overall performance of the business.• There is a fair differential between theremuneration of board members and otherlevels of management and staff.• It also fulfils the responsibilities of a NominationCommittee, as intended by King III.The committee satisfied its objectives for the yearin accordance with its charter.Composition of the CommitteeThe committee comprises M.D. Dlamini(Chairman), N. Hlatshwayo, S. Beyers, R.Cupido and M. Maziya. The Managing DirectorF. Nkosi and Head of Human Resources E.Sithole are permanent invitees to the meetings.The committee met five times in 2010.55Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWTECHNOLOGY & SUPPORT SERVICESSUPPORT AREASOVERVIEWTechnology and Support Services (TSS) isa support function (sub-unit) reportingwithin the Finance function. It isresponsible for all the IT Systems within Nedbank,comprising of Globus, Unix, D-bit, Exchange,Track-It, technology infrastructure and softwaredevelopment, as well as user support on a dailybasis. This is carried out in liaison with NedbankGroup Technology, ensuring that the Strategy issupported through enhanced IT initiatives anduser friendly systems.2010 IN REVIEWStabilityWith the initiatives that were implementedin 2008, the IT arena has greatly stabilised.No severe incidents were reported in the lastNedbank (Swaziland) Limited Annual Report 2010year due to the initiatives and systems upgrades.The ATMs channels and the Internet Bankingplatform have been available on average at 96%over the period.SupportIn terms of IT Infrastructure and Operations, thefollowing volumes and services were supportedby Technical Support Services during 2010. Onaverage 300 workstations are supported anda total of 825,516 ATM transactions valued atE668,034,942 were processed locally.Top ProjectsThe following projects were launched in 2010:• Swaziland IP Address Change: this hasenabled Nedbank to be in line with Group56

IN 2010 THE MARKET EXPERIENCED A CONTINUED INCREASEIN INTERNET FRAUD ATTEMPTS, PRIMARILY THROUGHPHISHING ATTACKS. A WELL-DEFINED PHISHING SOLUTIONWAS DEVELOPED AND IMPLEMENTED, ENSURING THATNEDBANK’S CLIENTS ARE PROTECTED.Standards and to minimise access risks to thesystems.• Additional Globus Licences: with the growthof the client base and branches, the systemusers increased in 2010. As a result of thegrowth 40 additional Globus Licences weresought thus increasing to make 110 licencesand keep with business needs.• Systems/Environmental Upgrades: TheBank Swaziland has increased its bandwidthto Nedbank Head Office from 128K to 256Kto create easier and faster access to systems.The Bank has installed a new 220KVAGenerator and UPS to create stability whenthere are power shortages.• Security Upgrades: Due to phishing scamswhich are on the increase in the market,Nedbank has created SMS Notifications -One Time Passwords (OTPs) that are instantwhen accessing internet banking, minimisingrisk to the Bank and its clients.• Balance of Payment (BOP) Version 2 Rollout:The Bank developed and rolled outthe BOP Version 2 in March 2010, inalignment with Regulatory requirements.The validations developed for thisversion has minimised human errorsand improved on efficiencies.Technical Support and Services fully supportsand contributes towards the Bank’s Strategy toincrease the client base and support businessthrough system-based and innovative solutions.PROSPECTS FOR 2011ABF Automation: The Bank has embarked onautomating its ABF processing to improveeffeciencies and minimise dependency on humaninterventions.BOP Balancing Module: The Bank is developingthe Balancing Module that will summarise allreportable and non-reportable transactions to theregulator.Equipment Upgrade: The Bank has started aproject of upgrading 155 computers bank-wide tobe completed in the first quarter of 2011.Disaster Recovery: A fully-fledged disasterrecovery site will be functional from May 2011.SUMMARYIn 2010 the market experienced a continuedincrease in internet fraud attempts, primarilythrough phishing attacks. A well-defined phishingsolution was developed and implemented, ensuringthat the Bank’s clients are protected. Compliance,risk and fraud containment remained key focus areasand it is expected that the demand for improvedinnovation in these areas will continue to rise.57Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWCENTRAL OPERATIONSSUPPORT AREASLeonard Dlamini (57)Head of CentralOperations37 years’ service• Diploma in Banking (IOB, SA)• MDP (KenyaTraditionally, Central Operations is referredto as the engine of the Bank, responsiblemainly for transactions processing andavailing resources. To successfully add value toclients, the whole organisation must saturateevery aspect of the organisation including CentralOperations. This demands the reorganisationof business structures and the capitalisation onopportunities introduced by the ever-changingsituation and new regulations.Following the Fit for Purpose initiative CentralOperations is undergoing transformation to closethe gap created by legacy systems which haveproved to be inadequate and vulnerable to newdemands.Review of the Year’s OperationsThe main focus of Central Operations in 2010 wasto improve through a reengineering process andoperational structures to gain efficiencies. The Sixkey critical success factors focused on were:• Automation of some manual processes;• Tracking data processing for decision making;• Managing risk (risk indicators data);• Measuring internal service delivery;• Timely implementation of initiatives;• Review of procedures; and• Fit for purpose.Nedbank (Swaziland) Limited Annual Report 201058

The focus areas when depicted shapes as shown below:Improved/Re-engineerOperational Processes & EfficienciesRe-engineerBusiness ProcessesInternal ServiceDeliveryManage RiskReview of Manuals& ProceduresTrack data fordecision makingTimeousImplementationof InitiativesActualFit for PurposeBenchmarkProspectsIn line with business dictates, Central Operationswill be transformed into Shared Services in orderto fulfill an identified strategic initiative ofcreating a culture of sales support as opposed toprocessing only. These will be achieved through;- Reducing branch back office and increasingfront office staff;- Applying effective economies of scale insome areas; and- Alignment of job streams to commondeliverables.Global BusinessThe customisation and individualisation offoreign-based transactions for trade purposesremains the focal point of the Global Businessteam for the purposes of reaping the benefits ofthis strategy. The team consists of highly skilledand specialised individuals who are dedicatedto delivering solutions to customers and noncustomers.59Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWINTERNAL AUDITSUPPORT AREASZakithi Dlamini (32)Head ofInternal Audit2 years’ service• BCom (Uniswa)• CA (Swaziland)The function of Internal Audit (IA) is toprovide management with an objectiveassessment of the adequacy and effectivenessof internal control, governance and riskmanagement. Internal audit is therefore a keyfunction of Nedbank’s internal control systemand is integral to the framework of assurance thatthe Audit Committee can place reliance on.The Financial Institutions Act requires thatthe Board of Directors assess the adequacyand effectiveness of internal controls. TheIA methodology, as guided by InternationalStandards on Auditing, is designed to assist theboard to make effective assessments on thebank’s internal control environment.IA assists management in meeting its businessobjectives by examining the bank’s activities,assessing the risks involved and evaluating theadequacy and effectiveness of processes, systemsand controls to manage these risks.Annually, IA conducts a formal risk assessmentof all business units from which a comprehensiverisk-based annual audit plan is derived. Theassessment is validated by management andapproved by the Audit Committee. The annualaudit plan is reviewed quarterly to ensurerelevance and responsiveness to the changing riskand operating environment. The Audit Committeeapproves all changes to the plan. IA also liaiseswith the external auditors to enhance efficiencies.Nedbank (Swaziland) Limited Annual Report 201060

IA IS COMMITTED TO EMBRACING GLOBAL CHANGES ANDINCREASED RESPONSIBILITY AS MANAGEMENT DEMANDS MOREVALUE CREATION AND PRESERVATION FROM THE DEPARTMENT.All high risk business units and risks are auditedannually. Other business units audited at regularperiods based on their risk profile. Exposure tohigh risks is monitored by the Enterprise-wide RiskCommittee and other committees charged with riskmanagement.Material or significant control weaknesses andmanagement remedial actions are reported tothe Audit Committee. These issues are trackedto ensure timely implementation of agreedmanagement action to enhance the controlenvironment. Overdue issues are reported to theGroup Audit Committee on a quarterly basis.During the year, over 75% of audit opinions issuedwere acceptable. As such, the 2011 audit plan hasbeen, reviewed in view of the improved controlenvironment.As regulatory compliance responsibilities increase,IA is expected to play a value add role to improvethe performance of the business. The link betweenIA and Enterprise Risk Management (ERM) has beenidentified as critical to effective internal controls.In this light, the bank has identified mandatoryprocesses that require a combined effort betweenIA and ERM for improved and effective riskmanagement.The bank also has a full Conformance Departmentthat contributes to the monitoring of operationalrisk and adherence to internal controls. This hascontributed to the enhanced control environmentin the branch network. In the future, conformancewill be introduced to other business units.IA is committed to embracing global changes andincreased responsibility as management demandsmore value creation and preservation from thedepartment.61Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEW SUPPORT AREASGOVERNANCE, COMPLIANCE & LEGALPanuel Gwebu (36)Chief ComplianceOffice, CompanySecretary & Legal5 years’ service• BA Law, LLB (Uniswa)• Certificate in Board Governance &Compliance Management• MDP (GIBS)The Compliance Department is primarilyresponsible for ensuring that the operationsof Nedbank comply with applicablelegislation and various codes impacting on thebank’s operations and ensures that there ispractical adherence to legislation and regulations.Practical monitoring of regulatory and compliancerisk is therefore at the core of the operations ofthe department.Governance and compliance policies andpractices have been incorporated into the day-todayoperations of the business to ensure that thebank achieves sustainable growth as a business.Corporate Strategy andObjectivesA framework that provides for the continuousadherence to compliance requirements hasbeen put in place to ensure ongoing focus onthe governance and compliance issues. Thebank’s strategic objectives are developed takinginto account the governance and complianceobligations, which promote accountability, valuecreation and optimal use of resources.The governance and compliance function continuesto operate in alignment with the fundamentalstructures of the bank at various levels,including the Board, Executive Management,Nedbank (Swaziland) Limited Annual Report 201062

Employees, Internal and External Stakeholders andsocial and environmental integrationThese levels are periodically appraised on thestatus of governance and compliance issues toensure that the bank’s strategic objectives are metwith minimum risk to supervisory and regulatorysanctions.ComplianceCompliance risk has been accepted within the bankto refer to the risk to earnings, capital and reputationarising from violations of or non-compliance withlaws, rules, regulations, supervisory requirements,prescribed practices or ethical standards. It hasbecome imperative, therefore, that complianceis not seen as an obligation placed on the bankby the diverse legislations and codes, but ratheras an opportunity for the bank to optimise itscompetitiveness. This approach has proven to beideal for an effective compliance risk managementmodel. Compliance risk is managed within the bankthrough several key activities including• Training;• Monitoring and reporting on levels ofcompliance;• Managing regulatory relations;• Advising and consulting with the variousbusiness units on compliance standards andrequirements.The compliance function remains centralised inalignment with the business model and the size ofthe business. There is, however, ongoing evaluationof the model to ensure that it is well positioned torespond to business needs and demands.King IIIThe bank has embraced the recommendationsoutlined in the King Code of GovernancePrinciples (King III) and will strive to apply therecom-mendations therein to the extent that it ispracticable for the business. The bank will disclosethe reasons for non- application of the code shouldthere be instances wherein it is unable to attain fullapplication and compliance. The board is of the viewthat the bank is already meeting most of the code’ssignificant requirements. There are some issues thatare not aligned to King III, including the following:IN THE COURSE OF THE YEAR THE BANK ENGAGED INREGULAR COMMUNICATION TO STAFF ON GOVERNANCEAND COMPLIANCE ISSUES...REGULAR COMPLIANCE FORUMSARE HELD WITH ALL BRANCH MANAGERS AND COMPLIANCECHAMPIONS TO FOSTER ONGOING GOVERNANCE ANDCOMPLIANCE AWARENESS TRAINING.63Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEW SUPPORT AREASGOVERNANCE, COMPLIANCE & LEGAL(continued)• The Chairman of the Board is a non executivedirector by virtue of his appointment bythe Swaziland Government in line with theShareholder’s Agreement.• Not all members of the Director’s Affairs andRemunerations Committee are independentnon executive directors. The Chairman is alsonot a non-executive independent director.These issues do not materially impact on theeffectiveness and functions of the board, whichmonitors and evaluates these issues on a quarterlybasis. As required by the King III, the bank willcontinuously disclose the reasons for not applyingthe code on these issues. With regard to otherissues regarding King III it may be noted that:• The majority of the board is composed of nonexecutivedirectors, the majority of whom areindependent non-executive directors.• At least 33% of the board members arefemale directors.• The Audit Committee and the Risk,Compliance and Loan Review Committeeare chaired by independent non-executivedirectors.• The Risk, Compliance and Loan ReviewCommittee is chaired by a female director.Governance and ComplianceCultureIn order to ensure that the compliance obligationsare satisfactorily discharged on an ongoing basis,it is imperative that the appropriate cultureof compliance is embedded at all levels of theorganisation. The bank has continued to encourageits employees to create the necessary awarenessfor their compliance obligations. All employeesare required to annually commit to the bank’s keypolicies, such as Code of Ethics Policy, Conflict ofInterest Policy and other compliance policies.In the course of the year the bank engaged inregular communication to staff on governanceand compliance issues. Formal training on Anti-Money Laundering was conducted for 202employees. Regular compliance forums areheld with all branch managers and compliancechampions to foster ongoing governance andcompliance awareness training.Corporate Governance StrategyThere is a concerted effort to ensure alignment ofthe Board objectives with the bank strategy. TheBoard held a strategy session with managementto approve the strategy document that wasdeveloped by management. The Board is able toperiodically review the performance of the bankagainst the set strategic objectives to ensurethat the business achieves the identified goals.The periodic review takes place on a quarterlybasis while management tracks progress on amonthly basis. The Board is satisfied that theprocess of crafting the strategy was thorough andsufficiently broad to embrace both financial andnon financial targets.Nedbank (Swaziland) Limited Annual Report 201064

Board of DirectorsThe Board has a unitary structure comprised ofnine directors. As at the 31 st December 2010 theBoard was composed as follows:• Independent non-executive directorso Lungile Dlaminio Muhawu Maziyao Christopher Pearce• Non-executive directorso Mabili Dlaminio Nomsa Hlatshwayo• Executive Directorso Fikile Nkosio Stanley Beyerso Ernest Davidsono Rory CupidoThe composition of the Board complies with theminimum requirements that are stipulated in theFinancial Institutions Act, 2005 that requires thatthe Board shall be composed of not less than 5members and not more than 15 members, of which50% should be Swazi citizens. The compositionof the Board as at 31 st December was 55% Swazicitizens and 45% non Swazi citizens. An importantdevelopment in the Board composition was theappointment of Ms Fikile Nkosi as ManagingDirector on 1 November 2010. This has increasedthe gender representation on the Board, which isnow composed of at least 33% female directors.The Board is currently satisfied with its skills levelas its members possess a wide range of experiencein commerce and banking.Board Appointments andEvaluationThere were two appointments during the year: thatof Ms Fikile Nkosi, who was appointed ManagingDirector to replace Ambrose Dlamini who resignedfrom the bank on the 31 st July 2010, and that of Mr.Rory Cupido, who replaced Ashley Sutton-Prycewho resigned early in the year.Board appointments are conducted by the Boardwith the assistance of the Directors AffairsCommittee. All appointments are carried out ina manner that is formal and transparent takinginto account the need to ensure an appropriatemix of skill, knowledge and expertise. Whilstthe chairman of the board is nominated forappointment by the Swaziland Government byvirtue of the shareholder’s agreement the boardis satisfied that the eventual appointment issufficiently transparent and takes into account theneed to balance the knowledge and expertise inthe board.The board conducted an assessment in terms ofthe Institute of Directors’ Government AssessmentInstrument to evaluate the bank’s alignment toKing III. The assessment was tabled to the Board fordiscussion and key issues arising are receiving theattention of the Board. The top issues identifiedas requiring attention by the assessment relate toaccountability, Board committee composition andindependence of the Chairman.65Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEW SUPPORT AREASGOVERNANCE, COMPLIANCE & LEGAL(continued)Board CommitteesThe Board committee structure has been putin place to ensure that the Board is adequatelyassisted in carrying out its duties and obligations.The structure remained unchanged and comprisesthe following committees:• Audit Committee;• Directors Affairs and RemunerationsCommittee;• Risk, Compliance and Loan ReviewCommittee.All the Board committees have documentedterms of reference that are reviewed on an annualbasis.Chairman and ManagingDirectorThe role of the Chairman and Managing Directorare separate and distinct, as required by theFinancial Institutions Act, 2005 and King III, toprovide for the balance of authority and power.This promotes responsibility, accountability andtransparency as there is no one individual thatthat has unlimited decision making powers.However, the demarcation of the roles does notprohibit the interaction between the Board andexecutive management. This is to ensure thatthe two work sufficiently in collaboration for theattainment of the Bank’s strategic objectives.Company Secretary andDirector DevelopmentAll directors are required to attend the GordonInstitute of Business Science (GIBS) BoardLeadership Programme. Two directors have notyet attended the training, which is intended toequip all directors with the skills and expertiserequired to discharge the onerous responsibilityplaced on them. General awareness trainingwas conducted over the year on corporategovernance and fiduciary responsibilities. Earlyin the year the Board attended a presentation ofthe King III Report on Corporate Governance. Allnew directors are informed of their duties andresponsibilities through an induction programmerun by the Company Secretary. In the course of theinduction, the new directors interact with seniormanagement, whereby they are also informed ofthe Bank’s strategies.Directors have unlimited access to the adviceand services of the Company Secretary andGovernance and Compliance. Both the CompanySecretary and the Governance and Compliancefunction have a responsibility for ensuring thatBoard procedures and applicable rules andregulations are complied with.Board MeetingsThe Board held five meetings during the year, oneof which was a special meeting to consider anextraordinary item. The Board is satisfied that theNedbank (Swaziland) Limited Annual Report 201066

number of meetings held was adequate for thedemands of the business and meet the minimumnumber of meetings as prescribed by the FinancialInstitutions Act, 2005.The frequency of the meetings was adequate tomeet with the demands of the business.The full record of attendance at Board andcommittee meetings for 2010 is at the end of thisreport.Business GovernanceCorporate governance principles have beenincorporated into the operations of the Bank. Therewere no significant issues of concern on businessgovernance over the year. The Board is satisfiedthat the established procedures and practicesenhance adherence to business governance. TheBank has facilitated the impact of corporategovernance on its daily operations throughbusiness governance. Two business governancemonitoring reviews were conducted during theyear, both of which revealed satisfactory levels ofbusiness governance.Risk ManagementThe Bank has continued to enforce a strong andsolid risk management culture in the organisationand has adopted the universally accepted riskmanagement methodology of enterprise wide riskmanagement. All employees of the organisationare required to embrace risk managementpractices for each and every transaction thattakes place in the organisation. The Bank hasrecognised that each transaction has potentialfor good rewards, while carrying underlying risk.To achieve a satisfactory level of profitabilityfor each transaction, the Bank must employ theappropriate risk management disciplines that willbalance the inherent risks associated with thetransaction and the rewards it presents.The Bank monitors risk management across theorganisation on an ongoing basis. Departmentalrisk management meetings are held on a monthlybasis while the executive meet on a quarterly basisto evaluate effectiveness of the risk managementframeworks. The Bank has to date identified 15types of risk as having an impact on its operations.The high priority risks have been identified ascredit risk, market risk and operational risk.Risk management is embodied in the Bank’scorporate governance structure and therespective lines of business are responsible formanaging their own risks. The Board is, however,ultimately responsible for managing risk and isassisted in this regard by the Risk, Compliance andLoan Review Committee. The committee reviewsand considers the status of risk management on aquarterly basis.67Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEW SUPPORT AREASGOVERNANCE, COMPLIANCE & LEGAL(continued)Internal ControlsThe Board has noted an overall improvement inthe systems of internal control over the year.These have been largely effective, which has led toan overall improved financial performance by theorganisation, as demonstrated by the 21% growthin headline earnings. The improvement in internalcontrols is attributed to a strong risk managementculture and increased awareness on the riskassociated with the operations of the business.The respective heads of department have been atthe centre of driving the culture of risk awarenessand reviewing the business risk profiles of theirbusiness units to ensure that prevailing internalcontrols meet with the risk demands placed onthe business. The Internal Audit Departmentperiodically reviews the operations of thebusiness units to assist management and theBoard to evaluate the adequacy and effectivenessof the system of internal controls. The reports onadequacy and effectiveness of internal controlsare discussed in various forums within the Bank’scorporate governance structure, including theAudit Committee, Management Committee, andthe Enterprise Wide Risk Committee.The Board is satisfied with the levels of internalcontrols and reports that:• No material malfunction in the Bank’sinternal control systems occurred during theperiod under review;• It is satisfied with the effectiveness of theBank’s internal controls and risk management;Nedbank (Swaziland) Limited Annual Report 2010• Whenever there is an indication of anysignificant business risk or any weakness incontrols that may result in loss or reputationaldamage, it is recorded and disclosed in aformal key issues control log, which is lodgedperiodically with the Board;• It has no reason to believe that the Bank willnot operate as a going concern for the yearahead;• It has no reason to believe that the Bank’scode of ethics has been transgressed in anymaterial respect;• It has no reason to believe that the Bank’spolicies and authority levels have not beenenforced and adhered to in all materialrespects;• There have been no material breaches ofcompliance with any laws and regulationsapplicable to the Bank during the periodunder review;• There is a documented and tested processin place that allows the Bank to continue itscritical business processes in the event of adisastrous incident affecting its activities.Code of EthicsNedbank is a value driven organization that firmlybelieves in conducting all its business dealings withhonesty and integrity. The Bank has developedorganisational values that provide a frameworkon which the culture of the organisation is built.The values align with those of the Nedbank Groupand are as follows:68

IntegrityBe honest, trustworthy, truthful, consistentand open. Act according to the highest ethicalstandards. We communicate openly, directly andethically.RespectTreat others as you would have them treat you.Use diversity as strength. Listen to others andtreat people with dignity. Provide individuals withfertile ground in which to grow. Treat everyonein the organisation as important. We fosterindividual strength to build the whole.AccountabilityBe prepared to make commitments and bejudged against your commitments. Deliver oncommitments. We take responsibility for our actions.Pushing beyond boundariesPlay to the maximum of your abilities – asindividuals, as teams and as an organisation –across boundaries. We always strive to break newground, fuelled by our passion and commitment.Being people-centredInvest in people. Create empowering environmentsthrough development, support, mentoring,coaching, recognition and reward. People are thesource of our strength.The organisational values have been incorporatedinto the Bank’s code of ethics which formsthe foundation of the Nedbank culture. TheNedbank code of ethics, which is binding to allemployees, seeks to provide for a framework thataddresses issues of conflict of interest, outside/external involvement, gifts and insider trading.Employees are required on a periodic basis toreaffirm their commitment to the code. In 2010the Bank conducted various training sessionsfor all employees to create awareness and theimportance of adherence to the code of ethics. Thenecessary procedures have been put in place toensure substantial compliance with the code. Theprocedures also provide for corrective proceduresto be implemented in the event of a breach of thecode. To promote strict observance of the code,the Bank has provided a tip-off anonymous linethat allows employees to confidentially reporton all issues of unethical behavior by fellowemployees and senior management.Anti-Money Laundering andCombating the Financing ofTerrorismThe Bank’s regulatory risk universe has identifiedthe Money Laundering (Prevention) Act and theSuppression of Terrorism Act as high prioritylegislations. In this regard, it has crafted acorresponding Anti-Money Laundering andAnti-Terrorist Financing Policy and Process toensure that the statutory obligations stipulatedin the two legislations are met. The policies alsofocus on the Bank’s commitment to anti-moneylaundering and terrorist financing. Following69Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEW SUPPORT AREASGOVERNANCE, COMPLIANCE & LEGAL(continued)the finalisation of revision of the Bank’s antimoney laundering training material, it rolledout the revised training to all employees in2010. As at the 31 st December 202 employeeshad successfully completed the training. Theremaining 13 employees are expected tocomplete the training by the end of the firstquarter of 2011. All new employees are requiredto undergo the training within the first threemonths of their engagement.The Bank anticipates that the Money Launderingand Financing of Terrorism (Prevention) Bill, 2009will be promulgated into law in the near futureand its policies, processes and systems will bereviewed to ensure that they meet any additionalstatutory obligations that may be introduced bythe new law.Nedbank has continued to focus on the client reverificationexercise to ensure that it meets theregulatory obligations prescribed by the CentralBank of Swaziland. To facilitate the heightenedfocus, the Bank rolled out a revised and updatedbanking platform functionality that allows forthe restriction of client’s accounts that have notbeen re-verified. It placed a restriction on all clientinitiated debit transactions on all accounts thatremained unverified as at the 14th November2010. The Bank has endeavored to contact allclients whose accounts remain unverified andhas also issued public notices through the printand electronic media advising on the accountrestriction exercise. As at the 31 st December2010 the Bank had managed to re-verify 89.5%of its client base. As at 28 th February 2011, 6461accounts that had been placed under restrictions.Corporate Social ResponsibilityA Corporate Social Responsibility Policy andEnvironmental Policy has been maintained bythe Bank to ensure that its business is conductedin a responsible manner that caters for theenvironment and the community. The Bank firmlybelieves that sustainable growth of a business mayonly be achieved through the pursuit of businessin a socially and environmentally responsiblefashion. The Corporate Social InvestmentReport details the Bank’s Social ResponsibilityProgramme.Nedbank (Swaziland) Limited Annual Report 201070

Attendance at Nedbank (Swaziland) Limited Board MeetingsBoard AuditCommitteeRisk Compliance& Loan ReviewCommitteeDirectors Affairs &RemunerationCommitteeNumber of Meetings 5 4 4 5DirectorsStatusS Beyers * 4/5 3/4 3/4 4/5R Cupido *1 2/3 3/3EM Davidson * 4/5 3/4 3/4AM Dlamini *2 2/2 2/2 2/2 2/2LG Dlamini ¤ 4/5 3/4 3/4MD Dlamini # 4/5 4/5NR Hlatshwayo # 5/5 4/4 5/5MI Maziya ¤ 4/5 3/4 4/5F Nkosi *3 3/3 3/3 3/3 3/3CJ Pearce ¤ 4/5 4/4 4/4APJ Sutton Pryce *4 1/1 1/1* executive director# non executive director¤ independent non executive director alternate director1 Appointed as a director with effect from 25 May 20102 Resigned as a director with effect from 31 July 20103 Appointed as a director with effect from 1 November 20104 Resigned as director with effect from 26 February 201071Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEW SUPPORT AREASCORPORATE SOCIAL RESPONSIBILITYOVERVIEWNedbank Swaziland understands thatwealth is measured not just by whatone has but also by what one gives.It is this understanding that has led to a strongculture of Corporate Social Investment (CSI)in selected projects throughout the country,touching the lives of both young and old throughthe CSI implementation. Nedbank is passionateabout the establishment of income-generatingprojects for underprivileged members of societyand the education of the younger generation, andhas adopted six focus areas/portfolios to ensurethe achievement of business objectives. Theseare Economic Development, HIV/AIDS Initiatives,Community Development, Education, Sports andthe Arts. The details of this involvement are:Nedbank (Swaziland) Limited Annual Report 20101. ECONOMIC DEVELOPMENTBusiness Woman of the Year Awards (BWYA)This year’s much anticipated Business Women ofThe Year Awards (BWYA) was held at the RoyalSwazi Sun Convention Centre on Wednesday29 September. The Prime Minister (representedby Minister Mtiti Fakudze) was guest of honorand the guest speaker was Kunyalala Maphisa,Head of International Acquisitions and GroupLegal Advisor at Amabhubesi Group, one of theleading black-owned companies in South Africa.By supporting the award, Nedbank hopes toraise the awareness of the crucial role womenplay in business, to recognise and honor theachievements of women business leaders, tohelp to create a cadre of women role models72

and to make contribution to the next generationof women business leaders. This year’s winnerin the Corporate Category was LomakhosetiveTshabalala-Nzuza, Chief Financial Officer at FirstNational Bank, while the Entrepreneurial Categorywas won by Julian Mlangeni, Managing Director ofEnvironmental and Social Management Services.The Honorary Award winner was Sarah Dlaminiand the Bursary Award winner was Ms Xolile Mnisi.Students in Free Enterprise (SIFE)SIFE is an international non-governmental organisationthat has the mandate of enriching andempowering young people in colleges and universitieswith business, economic and life skills suchas communication, leadership and teamwork. Theorganization implements its mandate throughsponsoring teams from tertiary institutions aroundthe country to set up income-generating projects,working with selected communities. These projectsinclude candle making, sewing and handicraft.SIFE promotes a culture of entrepreneurshipin Swaziland. This year, Nedbank once againsponsored SIFE for the financial literacy pillar,amounting to E100 000 with 75% (E75 000) goinginto the financial literacy pillar while 25% wenttowards supporting SIFE Swaziland Career Fair,which was held on 4th June, 2010.SIFE focuses on six key pillars: free market economics,success skills, entrepreneurship, businessethics, sustainability and financial literacy.Nedbank chooses to sponsor the financial literacykey focus area because it aligns well with thebank’s expertise. Nedbank also partnered with theSIFE SCOT team to launch the Student SavingsAccount Competition, which encourages studentsto start saving at an early age in order to increasetheir chances of success in the future.This year the SIFE Swaziland team attended theWorld Cup opening league on 11th October2010 in Los Angeles, California, competing andpresenting their projects to over 20 judges. SIFE73Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWSUPPORT AREASCORPORATE SOCIAL RESPONSIBILITY(continued)Nazarene, Swaziland was placed third in theleague after India and Guatemala. The SIFE teammost effectively empowers young people to applybusiness and economic concepts and to take anentrepreneurial approach to improve their qualityof life and standard of living.Technoserve “Grow to Get Gains” CompetitionNedbank partnered with Technoserve, a developmentorganisation originating from theUnited States of America and funded by theUS government, to launch the “Grow to GetGains” competition, which competition catersfor businesses which are already operating butwhich need to expand to the next level of profitgeneration and growth.Nedbank (Swaziland) Limited Annual Report 2010Swaziland Sugar Association Annual SmallholderSugarcane Growers CompetitionNedbank sponsored the SSA annual SmallholderSugarcane Growers Competition at SiphofaneniRDA on 21 st October 2010 with an amount ofE3 000. This sponsorship is aimed at encouragingsmallholder sugar farmers to improve theirfarming methods.2. HIV / AIDSHope HouseThis is a safe house for terminally ill people inSwaziland. It is made up of 14 fully furnishedunits, each of which is occupied by a patient anda minder who is a relative of the patient. HopeHouse incurs costs for the accommodation, foodand medication of the patients for the duration oftheir treatment. In 2010 August Nedbank donatedE10 000 to Hope House.74

Hospice at HomeThis is a community-based organisation that takescare of terminally ill people at their homes. TheHospice at Home nurses visit the communities,offering home-based care, and together withcounselors, provide medication and food supplies.In August 2010, Nedbank contributed E10 000 toHospice at Home.Swaziland AIDS Support Organisation (SASO)SASO is a support organisation for people livingwith HIV/AIDS. It was formed in 1993 as apositive living support group and has developedinto an organisation that encompasses all peopleinfected and affected by HIV/AIDS. The SASOvolunteers play a pivotal role in the bank’s HIV/AIDS awareness and training programme and inJune 2010 Nedbank donated E10 000 to SASO.Nedbank Sponsors Umbutfo Swaziland DefenceForce Prayer Day–HIV Programme.On 23 rd February 2010 Nedbank donated E16 000to the Swaziland Defence Force Prayer Day, whichis geared to supporting the combat of the spreadof HIV/AIDS nationwide. Nedbank has taken uponitself the task of supporting fight against thespread of HIV/AIDS.3. COMMUNITY DEVELOPMENTStaff Involvement -Nedstaff Charity Club Donates to SACRONedbank staff have formed their own charity club,known as the Nedstaff Charity Club. It obtainsfunding from monthly contributions and at theend of each year the bank matches the amountcontributed by staff members. The Club donatedschool uniforms, including track suits and shoes, to14 children from the SACRO Drop-in Centre, andmade a donation of school fees and uniforms for 36children in the Malindza area in the Lubombo region.75Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWSUPPORT AREASCORPORATE SOCIAL RESPONSIBILITY(continued)Nedstaff Charity Donates to Children inMbabane Government HospitalAs part of the Corporate Social InvestmentProgramme, Nedbank staff presented sick andneedy children at the Mbabane GovernmentHospital with snacks, sweets, toys and clothing.These items were collected by the bank’s stafffrom all eight branches.Nedbank Gables Branch - Seedlings, Manure andFood ItemsThe Nedbank Gables branch donated bags ofseedlings, manure and food items worth E4 000 tothe Sitjeni National Care Point (NCP). About 300orphaned and vulnerable children (OVCs) fromthe community benefited from the donation.The NCP provides the children with three mealsa day and pays for their education. These mealsare made possible by international donors fromSwitzerland and Germany, together with localdonors, including Government and Nedbank.Nedbank Donates E25 000 to Catholics SchoolsOn 25 th January 2010 Nedbank donated E25 000to Catholics Schools in Swaziland in recognitionof the contribution they make to underprivilegedchildren in Swaziland.Nedbank Nhlangano Branch donates to EvelynBaring Primary School, Nsongweni PrimarySchool and Ngwane Central High.On 9 th July 2010 the Nedbank Nhlanganobranch made a donation worth over E5 000 toEvelyn Baring and Nsongweni Primary Schoolscomprising uniforms and stationery to bedistributed by school’s authorities to needypupils. The bank also donated socks, shoes,trousers, shirts and mathematical instruments. Inanother development, the bank donated furnitureto Ngwane Central High.Nedbank Achiever’s AwardNedbank launched the ‘Nedbank Achiever’sAward’ at Ngwane Central High School during itsNedbank (Swaziland) Limited Annual Report 201076

speech and prize giving day. The award comprisedprizes of E500 for the best Form IV and Form Vpupils respectively. This money was depositedinto the pupils’ accounts with the bank.Nedbank Matsapha Donates to KwaluseniPrimaryThe Nedbank Matsapha Branch donated schoolshoes, stationery and uniforms worth E2 500 toKwaluseni Primary School, which is challengedwith a number of orphans and vulnerable children(OVCs): and the school finds itself carrying theburden of caring for these children. The bankdonation will benefit the neediest children atthe school. This is in line with the bank’s socialresponsibility to plough back into the community.Mbabane Branch Donates Food Hampers toLavumisa / kanqomintaba ConstituencyThe Nedbank Mbabane Branch donated foodhampers and clothes to the Lavumisa/QomintabaConstituency under Acting Chief MzweleniDlamini. This donation is to aid the draughtstricken community of Lavumisa and is part of thebank’s continuous corporate social investmentprogramme.Nedbank Simunye Branch Donates to Shewulaand Tsambokhulu Primary SchoolsOn 8 th June 2010 Nedbank donated schooluniforms and shoes to Shewula and TsambokhuluPrimary Schools. This donation was to aid theunderprivileged pupils, and amounted to E2 300.Nedbank Simunye Branch Donates to MalindzaCommunity Primary School.As part of Nedbank’s social responsibility,Nedbank Simunye donated its old furnitureto Malindza Community Primary School. Thisdonation was aimed addressing the furnitureshortages in the school.Nedbank (Swaziland) Limited Donation to SOSChildren’s Villages in SwazilandNedbank donated a sum of E5 000 towards theoperations of SOS Children’s Villages in Swaziland.The bank is cognizant of the vital role the SOSVillage plays in society by providing homes forvulnerable children, especially in the wake ofextreme poverty in society, which is aggravatedby HIV and Aids.4. EDUCATIONUNISWA FoundationIn 2006, Nedbank partnered with the UNISWAFoundation to fund the building of a sportsemporium at the University of Swaziland. TheUNISWA Foundation is an organisation thathas the mandate of raising funds to undertakedifferent types of infrastructural developmentprojects at the University in order to bring it tointernational standards. Nedbank’s sponsorshipformed the seed capital to build a sportsemporium and to create the Tree of Prominence,which recognises all the sponsors that havedonated to UNISWA Foundation.77Nedbank (Swaziland) Limited Annual Report 2010

OPERATIONAL REVIEWSUPPORT AREASCORPORATE SOCIAL RESPONSIBILITY(continued)5. SPORTS AND ARTSNedbank sponsors 2010 Orange CAF ChampionLeague Representatives - Mbabane SwallowsOn 10 th February 2010, Nedbank sponsoredMbabane Swallows Football Club with 23 tracksuits,30 sport bags and sets of soccer jerseys tobe used during the knockout phase of the AfricaChampions League. These items were valued atE30 000. Nedbank understands that football isa people’s game and encourages communityinvolvement.University of Swaziland Inter-Varsity GamesSponsorshipOn 5 th March 2010 Nedbank sponsored theUniversity of Swaziland Inter-varsity soccer teamwith a soccer kit to the value of E15 000. Nedbankunderstands the importance of supporting intervarsitygames because it encourages studentinteraction and “beating your personal best”through determination, commanding respect andpushing beyond educational boundaries, whichare the key elements of Deep Green Values.Royal Swazi Golf Course SponsorshipNedbank has a three-year agreement with theRoyal Swazi Sun to set up Nedbank-brandedsignage at the hotel’s golf course and halfwayhouse, consisting of flag poles, practice greenflags, tee box information, tee markers, yardmarkers, sandbags, bunker rakes and scorecards.This signage ensures that the golf courses aremaintained at international standards and attractgolfers from outside the country to play golf inSwaziland.Nedbank (Swaziland) Limited Annual Report 201078

Nedbank Sponsors the Golden Foot Tuff RunNedbank sponsored the Golden Foot Tuff Run onthe 21 February 2010 with branded sports bagsand 50 water bottles. This is sponsorship wasvalued at E2000.Sibebe Challenge SponsorshipNedbank is the main sponsor of the SibebeChallenge organised by the Rotary Club ofMbabane-Mbuluzi. The Sibebe Challenge is anevent whereby participants run or walk up theSibebe rock, which is the second largest graniterock in the world, in aid of nature conservationand community projects. On 28 May 2010Nedbank sponsored the Rotary Club with anamount of E100 000 to organize the challenge.The proceeds from this walk go towards theSibebe Trust’s ongoing projects.Imvelo Mountain Bike ClassicThe Imvelo Mountain Bike (MTB) Classic is thebiggest cycling race in Swaziland, attractingaround 500 cyclists within and outside Swazilandevery year. The aim of the MTB is to encouragethe positive and sustainable use of conservationareas through tourism in Swaziland. Nedbanksponsored the 2010 MTB with an amount of E50000. The Bank appreciates and supports this eventbecause of the impact it has on tourism and thepromotion of cycling in the country.Kip Kip SponsorshipKip Kip is a Swazi Dance Troupe made up ofchildren between the ages of 7 and 12 yearswho have performed all over the country andoverseas. This year Nedbank sponsored Kip Kipwith a sum of E10 000 on 26 th March 2010.The bank believes the arts can be an agent forsocial development and change. The arts canalso be used to communicate and educate socialinjustice in a more pleasant manner. Many youngpeople are enthusiastic about the arts but lackof financial support is a deterrent. By sponsoringKip Kip Academy, Nedbank is contributing to theempowerment of the youth in Swaziland.6. ENVIRONMENTNedbank Sponsors the Billion Tree CampaignNedbank sponsored the Billion Tree campaignwhereby the Swaziland Environmental Authority,together with ROTARACT, partnered in countrywidecampaign to plant trees in areas that havebeen ravaged by soil erosion. Countless trees wereplanted in enormous dongas that expand rapidlybecause of soil erosion in areas such Elangeni.Nedbank is doing its part towards conserving theenvironment and combating climate change inSwaziland.SUMMARYNedbank is committed to adhering to bestbusiness practice in all its dealings by giving backto its communities by contributing to the growthand development of all Swazis.79Nedbank (Swaziland) Limited Annual Report 2010

ANNUAL FINANCIAL STATEMENTSfor the year ended 31 December 2010CONTENTSPageDirectors’ Responsibility Statement 81Independent Auditors’ Report 82 to 83Report of the Directors 84 to 87Statement of Comprehensive Income 88Statement of Changes in Equity 89Statement of Financial Position 90Statement of Cash Flows 91Notes to the Financial Statements 92 to 149Nedbank (Swaziland) Limited Annual Report 201080

DIRECTOR’S RESPONSIBILITY STATEMENTfor the annual financial statementsfor the year ended 31 December 2010The directors are responsible for the preparation and fair presentation of the annual financial statementsof Nedbank (Swaziland) Limited, comprising the statement of financial position at 31 December 2010,and the statements of comprehensive income, changes in equity and cash flows for the year then ended,and the notes to the financial statements, which include a summary of significant accounting policiesand other explanatory notes, and the directors’ report, in accordance with Swaziland and InternationalFinancial Reporting Standards, and in the manner required by the Swaziland Companies Act 2009.The directors are also responsible for such internal control as the directors determine is necessary to enablethe preparation of financial statements that are free from material misstatement, whether due to fraudor error and for maintaining adequate accounting records and an effective system of risk management.The directors’ have made an assessment of the ability of the company to continue as going concern andhave no reason to believe that the business will not be a going concern in the year ahead.The auditor is responsible for reporting on whether the annual financial statements are fairly presented inaccordance with the applicable financial reporting framework.Approval of annual financial statementsThe annual financial statements of Nedbank (Swaziland) Limited, as identified in the first paragraph, wereapproved by the board of directors on 24 th March 2011 and signed on its behalf by……………………....………………M D DlaminiChairman…………………..........……………..F M NkosiManaging Director81Nedbank (Swaziland) Limited Annual Report 2010

INDEPENDENT AUDITOR’S REPORTTo the Members of Nedbank (Swaziland) LimitedReport on the Financial StatementsWe have audited the financial statements of Nedbank (Swaziland) Limited, which comprise thestatement of financial position at 31 December 2010, and the statements of comprehensive income,changes in equity and cash flows for the year then ended, and the notes to the financial statementswhich include a summary of significant accounting policies and other explanatory notes, and thedirectors’ report, as set out on pages 84 to 149.Directors’ responsibility for the financial statementsThe directors are responsible for the preparation and fair presentation of these financial statements inaccordance with Swaziland and International Financial Reporting Standards, and in the manner requiredby the Swaziland Companies Act, and for such internal control as the directors determine is necessaryto enable the preparation of financial statements that are free from material misstatement, whetherdue to fraud or error.Auditor’s responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. Weconducted our audit in accordance with International Standards on Auditing. Those standards requirethat we comply with ethical requirements and plan and perform the audit to obtain reasonableassurance whether the financial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial statements. The procedures selected depend on the auditor’s judgement, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity’spreparation and fair presentation of the financial statements in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by management, as wellas 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 forour audit opinion.Nedbank (Swaziland) Limited Annual Report 201082

OpinionIn our opinion, these financial statements present fairly, in all material respects, the financial positionof Nedbank (Swaziland) Limited at 31 December 2010, and its financial performance and cash flows forthe year then ended in accordance with Swaziland and International Financial Reporting Standards, andin the manner required by the Swaziland Companies Act.AuditorsKPMG Chartered Accountants (Swaziland)24 March 2011Mbabane83Nedbank (Swaziland) Limited Annual Report 2010

REPORT OF THE DIRECTORSfor the year ended 31 December 2010The Directors have pleasure in submitting their report together with the annual financial statements ofthe company for the financial year ended 31 December 2010.State of affairsThe Company, which is incorporated in the Kingdom of Swaziland, is a bank operating commercialbranches and agencies throughout the country.The state of affairs of the company at 31 December 2010 and the results of its operations for the yearthen ended are fully set out in the annual financial statements.Share capitalThe authorised and issued share capital changed to 26 650 000 (2009 : 24 000 000) and 26 511 108(2009 : 23 861 108) ordinary shares of 50c each respectively. The paid up value of the issued sharecapital remains unchanged E11 930 554.In terms of Section 20(1)(a)(iii) of the Financial Institutions Act 2005 (“the Act”), which was gazetted in2005 and has been deemed to have come into operation on 26 October 2005, the sum of capital andreserves shall not be less than eight per cent of the sum of the bank’s risk weighted assets computedin the manner prescribed by the Central Bank of Swaziland from time to time by notice in the Gazette.As at 31 December 2010 the bank’s risk weighted assets totalled E1 290 million (2009 : E1 347 million)requiring a minimum capital of E103.2 million (2009 : E107.8 million). This requirement has been metas the bank’s capital and reserves totalled E254.4 million (2009 : E213.7 million) providing a capitaladequacy ratio of 19.7 % (2009 : 15.9%).A further requirement under Section 20(1)(a)(i) of the Act is that a financial institution is requiredto maintain capital of at least five percent of its liabilities to the public in terms of the most recentstatement of financial position prepared in accordance with Section 35. As at 31 December 2010 thebank’s liabilities to the public totalled E1 900.2 million (2009 : E1 732.8 million) requiring a minimumcapital of E95.0 million (2009 : E86.6 million). This requirement has been met as the issued capital andreserves of E254.4 million (2009 : E213.7 million) are enough to cover both the Section 20 (1)(a)(iii) andthe Section 20(1)(a)(i) requirements providing a ratio of 13.4% (2009 : 12.3%).Nedbank (Swaziland) Limited Annual Report 201084

Results of operationsThe bank recorded a profit after tax for the year under review of E59 397 892 (2009 : E49 107 544).Transfer to statutory reserveIn terms of Section 20(1)(a)(ii) of the Act the bank is required to transfer not less than 10% of its netprofit to a statutory reserve account until the balance in this reserve account is equal to its minimumrequired capital. Accordingly an amount of E5 939 789 (2009 : E4 910 754) is transferred to theStatutory Reserve.Board of directorsThe directors who served during the year under review were:Mr M D Dlamini(Chairman)Mr A M Dlamini (Resigned 31 July 2010)Mr E M DavidsonMr D Denya (Resigned 30 April 2010)Mr S BeyersMs L G DlaminiMr C J PearceMr A P J Sutton-Pryce (Resigned 26 February 2010)Ms N R HlatshwayoMr M I MaziyaMr R Cupido (Appointed 25 May 2010)Ms F Nkosi (Managing Director - Appointed 1 November 2010)SecretaryMr P GwebuCommittees of the Board:Audit CommitteeMr C J PearceMr E M DavidsonMs L G DlaminiMr S BeyersMr M I Maziya(Chairman)85Nedbank (Swaziland) Limited Annual Report 2010

REPORT OF THE DIRECTORSfor the year ended 31 December 2010Risk, Compliance and Loan Review CommitteeMs L G Dlamini(Chairman)Mr E M DavidsonMr C J PearceMr S BeyersMs N R HlatshwayoDirectors Affairs and Remuneration Committee (incorporating nominations)Mr M D Dlamini(Chairman)Mr A P J Sutton-Pryce (Resigned 26 February 2010)Mr S BeyersMs N R HlatshwayoMr M I MaziyaMr R Cupido (Appointed 25 May 2010)Registered officeThird FloorNedbank CentreSwazi Plaza, MbabaneP O Box 68Mbabane SwazilandHolding companyThe bank’s immediate holding company is Nedbank Africa Investments Limited, registered in theRepublic of South Africa and a wholly-owned subsidiary of Nedbank Group Limited. The ultimateholding company is Old Mutual Plc, registered in the United Kingdom.Independent auditorsAt the annual general meeting, the shareholders will be asked to determine the remuneration of theauditors, KPMG, in respect of the past audit and to appoint auditors until the conclusion of the nextannual general meeting.Nedbank (Swaziland) Limited Annual Report 201086

DividendsDetails of dividends appear in note 4.2 to the annual financial statements.Events during the yearDuring the year, the Sinakekelwe Employee Share Trust was formed. The Trust acts as an agent for thebank, holding shares in trust of employees. Two schemes exist under the Trust, the Sinakekelwe Broad-Based Scheme and the Sinakekelwe Management Scheme. 2 650 000 shares were issued to the Trustand of these 537 716 shares and 923 765 share options were issued to employees and management.Subsequent eventsNo material events have occurred between the reporting date and the date of this report.87Nedbank (Swaziland) Limited Annual Report 2010

STATEMENT OF COMPREHENSIVE INCOMEfor the year ended 31 December 2010Note 2010 2009EEInterest income 2.0 163 905 572 158 409 386Interest expense 2.0 (54 203 072) (63 764 323)Net interest income 109 702 500 94 645 063Fees and other commission income 2.1 82 749 283 73 007 208Other income 2.1 2 372 459 767 988Foreign exchange trading and dealing gains 8 502 892 10 358 241Operating income 203 327 134 178 778 500Net impairment of advances 2.2 (7 330 538) (7 358 219)Income after impairment of advances 195 996 596 171 420 281Operating expenses 2.3 (114 976 594) (101 362 065)Profit before taxation 81 020 002 70 058 216Income tax expense 3.1 (21 622 110) (20 950 672)Profit for the year / Total comprehensiveincome for the year 59 397 892 49 107 544Basic and diluted earnings per share (cents) 4.1 248 206Nedbank (Swaziland) Limited Annual Report 201088

STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2010GeneralShare Share Revaluation Statutory risk Retainedcapital premium reserve reserve reserve income TotalE E E E E E EBalance at 31 December 2008 11 930 554 7 952 360 1 366 260 26 869 971 10 859 540 121 466 565 180 445 250Profit for the year / Total comprehensiveincome for the year - - - - - 49 107 544 49 107 544Transfer to statutory reserve - - - 4 910 754 - (4 910 754) -Transfer to general risk reserve - - - - 360 440 (360 440) -Central Bank of Swaziland reservemovement - - - - (1 525 803) 9 234 (1 516 569)Transactions with owners and recordeddirectly in equityDividend paid to shareholders - - - - - (14 316 665) (14 316 665)Balance at 31 December 2009 11 930 554 7 952 360 1 366 260 31 780 725 9 694 177 150 995 484 213 719 560Treasury shares (1 325 000) - - - - - (1 325 000)Profit for the year / Totalcomprehensive income for the year - - - - - 59 397 892 59 397 892Reversal of dividend on un-issuedtrust shares - - - - - 1 486 264 1 486 264Transfer to statutory reserve - - - 5 939 789 - (5 939 789) -Releases from general risk reserve - - - - (1 679 720) - (1 679 720)Transactions with owners recordeddirectly in equityDividend paid to shareholders - - - - - (18 557 776) (18 557 776)Issue of shares – employee trust 1 325 000 - - - - - 1 325 000Balance at 31 December 2010 11 930 554 7 952 360 1 366 260 37 720 514 8 014 457 187 382 075 254 366 220Note 2010 2009Dividends per share paid out ofprevious year’s profits (cents) 4.2 70.0 60.0Dividends per share proposed in respectof current year’s profits (cents) 4.2 85.0 70.089Nedbank (Swaziland) Limited Annual Report 2010

STATEMENT OF FINANCIAL POSITIONas at 31 December 2010Note 2010 2009EEASSETSCash and cash equivalents 5 498 673 125 353 862 094Government and public sector securities 6 368 044 121 175 846 668Amounts due from other banks 9 7 420 821 5 991 046Derivative assets held for risk management 25 19 717 564 34 090 933Loans and advances to customers 7 1 234 615 071 1 355 911 289Other receivables 10 5 730 357 34 499 379Investments 12 1 905 020 375 020Property and equipment 13 19 224 408 14 656 337Deferred tax asset 11 9 665 744 4 716 653Intangible assets 14 3 467 569 1 330 762Total assets 2 168 463 800 1 981 280 181EQUITY AND LIABILITIESShare capital 15 11 930 554 11 930 554Share premium and reserves 242 435 666 201 789 006Total equity attributable to equity holders of the bank 254 366 220 213 719 560Deposits from customers 16 1 802 802 688 1 685 798 083Deposits from banks 17 1 377 676 993 929Current tax liabilities 18 5 110 962 2 976 912Trade and other payables 20.1 74 134 196 36 566 056Payables for staff costs 20.2 8 285 931 6 403 759Employee benefits obligations 24 3 675 000 1 794 000Derivative liabilities held for risk management 25 18 654 426 32 868 154Funding from other banks 5 56 701 159 728Total equity and liabilities 2 168 463 800 1 981 280 181Guarantees on behalf of customers,excluded from liabilities 21 52 042 210 115 222 188Nedbank (Swaziland) Limited Annual Report 201090

STATEMENT OF CASH FLOWSfor the year ended 31 December 2010Note 2010 2009EECash flows from operating activitiesCash received from customers 23.1 93 536 101 80 043 208Cash paid to customers, staff and suppliers 23.2 (109 479 452) (96 872 047)Recoveries on loans previously written-off 1 448 557 409 367Interest received 2.0 163 905 572 158 409 386Interest paid 2.0 (54 203 072) (63 764 323)Cash generated by operating activities 23.3 95 207 706 78 225 591Change in working fundsIncrease in operating assets 23.4 (53 806 871) (605 365 421)Increase in operating liabilities 23.5 158 719 663 403 185 024Net increase/(decrease) in working funds 104 912 792 (202 180 397)Taxation paid 23.6 (24 437 151) (28 981 345)Net cash generated by/(used in)operating activities 175 683 347 (152 936 151)Cash flows from investment activitiesPurchase of property and equipment 13, 14 (12 217 184) (6 116 368)Proceeds from disposals of property and equipment 5 671 -Net cash used in investment activities (12 211 513) (6 116 368)Cash flows from financing activitiesDividends paid to shareholders 23.7 (18 557 776) (14 316 665)Loan repaid 23.8 - (49 850 808)Net cash used in financing activities (18 557 776) (64 167 473)Net increase/(decrease) in cash and cash equivalents 144 914 058 (223 219 992)Cash and cash equivalents at beginning of year 353 702 366 576 922 358Cash and cash equivalents at end of year 23.9 498 616 424 353 702 36691Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010Reporting entityNedbank (Swaziland) Limited (“the bank”) is a company domiciled in Swaziland. The bank’s holdingcompany is Nedbank Africa Investment Limited, a wholly-owned subsidiary of Nedbank Group Limited.The bank operates as a commercial bank, primarily involved in retail and corporate banking, in investmentbanking, and in providing asset management services.Basis of preparationi) Statement of complianceThe financial statements of Nedbank (Swaziland) Limited have been prepared in accordance withthe Swaziland and International Financial Reporting Standards (IFRS) and the requirements of theSwaziland Companies Act, 2009.These financial statements were approved and authorised for issue by the Board of Directors.ii)iii)iv)Basis of measurementThe financial statements have been prepared on the historical cost basis except for the following:• Derivative financial instruments are measured at fair value• Financial instruments at fair value through profit or loss are measured at fair valueFunctional and presentation currencyThese financial statements are presented in Emalangeni, which is the bank’s functional currency.Except as otherwise indicated, financial information presented in Emalangeni is rounded off to thenearest Lilangeni.Use of estimates and judgementThe preparation of financial statements in conformity with IFRS requires management to makejudgements, estimates and assumptions that affect the application of accounting policies and thereported amounts of assets, liabilities, income and expenses. Actual results may differ from theseestimates.Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accountingestimates are recognised in the period in which the estimate is revised and in any future periodsaffected.Information about critical judgements in applying accounting policies that have the most significanteffect on the amounts recognised in the financial statements are described in note 25.Nedbank (Swaziland) Limited Annual Report 201092

1. Significant accounting policiesThe accounting policies set out below have been applied consistently to all periods presented inthese financial statements.1.1 Financial instrumentsFinancial instruments as reflected in the statement of financial position include all financialassets and financial liabilities, including derivative instruments. Financial instruments aredisclosed/accounted for under IFRS 7 Financial Instruments: Disclosures, IAS 32: FinancialInstruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement. Thebank does not apply hedge accounting.1.1.1 Recognition and measurementFinancial instruments are recognised in the statement of financial position when the bankbecomes a party to the contractual provisions of a financial instrument. All purchases offinancial assets that require delivery within the time frame established by regulation or marketconvention (“regular way” purchases) are recognised at trade date, which is the date thatthe bank commits to purchase the asset. Regular way purchases and sales of financial assetsare recognised on the trade date at which the bank commits to purchase or sell the asset.Contracts that require or permit net settlement of the change in the value of the contract arenot considered ‘regular way’ and are treated as derivatives between the trade and settlement ofthe contract.1.1.2 Initial measurementFinancial instruments are initially measured at fair value plus, in the case of a financial assetor financial liability not at fair value through profit or loss, transaction costs that are directlyattributable to the acquisition or issue of the instrument.93Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)1. Significant accounting policies (continued)1.1.3 Subsequent measurementSubsequent to initial measurement, financial instruments are either measured at fair value oramortised cost, depending on their classification.Financial assets and financial liabilities at fair value through profit or lossFinancial instruments at fair value through profit or loss comprise trading instruments andinstruments where the bank has elected, on initial recognition date, to designate as at fair valuethrough profit or loss.Trading instruments are financial assets or financial liabilities that were acquired or incurredprincipally for the purpose of sale or repurchase in the near term, form part of a portfolio witha recent actual pattern of short-term profit-taking or are derivatives. The bank’s derivativetransactions include foreign exchange contracts.Financial assets and financial liabilities that the bank has elected, on initial recognition date, todesignate as at fair value through profit or loss are those that meet any one of the following criteria:• Where the fair value through profit or loss designation eliminates or significantly reduces ameasurement or recognition inconsistency that would otherwise arise from using differentbases to measure or recognise the gains and losses on financial assets and financial liabilities; or• The instrument forms part of a group of financial instruments that is managed, evaluated andreported using a fair value basis, in accordance with a documented risk management orinvestment strategy; or• The financial instrument contains an embedded derivative, which significantly modifies thecash flows of the host contract or where the embedded derivative clearly requires separation.Financial assets and financial liabilities at fair value through profit or loss are measured at fair value,with fair value gains and losses (excluding interest income and interest expense calculated on theamortised cost basis relating to those interest-bearing instruments that have been designated asfair value through profit or loss) reported in non-interest income as they arise. Interest income andinterest expense calculated on the amortised cost basis are reported in net interest income.Non-trading financial liabilitiesAll financial liabilities, other than those at fair value through profit or loss, are classified as nontradingfinancial liabilities and are measured at amortised cost, using the effective interest method.Nedbank (Swaziland) Limited Annual Report 201094

1. Significant accounting policies (continued)1.1.3 Subsequent measurement (continued)Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable paymentsthat are not quoted in an active market, other than those classified by the bank as at fair valuethrough profit or loss or available-for-sale. Financial assets classified as loans and receivables arecarried at amortised cost using the effective interest method, with interest income recognised inprofit or loss. The bank’s advances are included in the loans and receivables category.Available-for-sale financial assetsFinancial assets are classified as available-for-sale where the intention with regard to theinstrument and its origination and designation do not fall within the ambit of the other financialasset classifications or are designated as available-for-sale. Available-for-sale instruments aretypically assets that are held for a longer period and in respect of which short-term fluctuationsin value do not affect the bank’s hold or sell decision.Available-for-sale financial assets are measured at fair value, with fair value gains and lossesrecognised directly in other comprehensive income along with the associated deferred taxation.When available-for-sale equity instruments are determined to be impaired to the extent thatthere is a significant and/or prolonged decline in fair value below its original cost, the resultantlosses are recognised in profit or loss.Unquoted equity securities whose fair value cannot be reliably measured are measured at fairvalue as determined by management.When available-for-sale financial assets are derecognised, the cumulative gain or loss in equityis transferred to profit or loss.1.1.4 Measurement basis of financial instrumentsAmortised costThe amortised cost of a financial asset and financial liability is the amount at which the financialasset or financial liability is measured at initial recognition, minus principal repayments, plusor minus the cumulative amortisation using the effective interest method of any differencebetween that initial amount recognised and the maturity amount, less any cumulativeimpairment losses (in the case of financial assets).95Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)1. Significant accounting policies (continued)1.1.4 Measurement basis of financial instruments (continued)Fair valueFair value is the amount for which an asset could be exchanged, or a liability settled, betweenknowledgeable, willing parties in an arm’s length transaction on the measurement date.Direct and incremental transaction costs are included in the initial carrying amount and addedto the initial fair value of financial assets and financial liabilities, other than those at fair valuethrough profit or loss. The best evidence of the fair value of a financial asset or financial liability atinitial recognition is the transaction price, unless the fair value of the instrument is evidenced bycomparison with other current observable market transactions in the same instrument or based ona valuation technique whose variables include only market observable data.Where quoted market prices in an active market, or rates are available, such market data is used todetermine the fair value of financial assets and financial liabilities that are measured at fair value.The bid price is used to measure financial assets held and the offer price is used to measure the fairvalue of financial liabilities. Mid-market prices are used to measure fair value only to the extentthat the bank has assets and liabilities with offsetting risk positions.If quoted bid prices are unavailable, the fair value of financial assets and financial liabilities isestimated using pricing models or discounted cash flow techniques. Where discounted cash flowtechniques are used, estimated future cash flows are based on management’s best estimates andthe discount rate used is a market-related rate at the reporting date for an instrument with similarterms and conditions. Where pricing models are used, inputs are based on market-related measuresat the reporting date.The fair value of a financial liability with a demand feature is not less than the amount payable ondemand, discounted from the first date that the amount could be required to be paid.Investments in equity instruments that do not have a quoted market price in an active market andwhose fair value cannot be reliably measured and derivatives that are linked to and must be settledby delivery of such unquoted equity instruments are not measured at fair value but at cost. Fairvalue is considered reliably measurable if :• The variability in the range of reasonable fair value estimates is not significant for thatinstrument; or• The probabilities of the various estimates within the range can be reasonably assessed andused in estimating fair value.Nedbank (Swaziland) Limited Annual Report 201096

1. Significant accounting policies (continued)1.1.5 DerecognitionAll sales of financial assets that require delivery within the time frame established by regulationor market convention (‘regular way’ sales) are recognised at trade date, which is the date onwhich the bank commits to the sale of the asset.The bank derecognises a financial asset (or group of financial assets) when and only when:• The contractual rights to the cash flows arising from the financial assets have expired; or• It transfers the financial asset in a transaction in which substantially all the risks andrewards of ownership of the financial asset are transferred; or• It transfers the financial asset, neither retaining nor transferring substantially all the risksand rewards of ownership of the asset, but no longer retains control of the asset.A financial liability (or part of a financial liability) is derecognised when and only when theliability is extinguished, that is, when the obligation specified in the contract is discharged,cancelled or has expired.The difference between the carrying amount of a financial asset or financial liability (or partthereof) that is derecognised and the consideration paid or received, including any non-cashassets transferred or liabilities assumed, is recognised in profit or loss for the period.1.1.6 Impairment of financial assetsThe bank assesses at each reporting date whether there is objective evidence that a financialasset or group of financial assets is impaired. A financial asset or a group of financial assetsis impaired and impairment losses are incurred if, and only if, there is objective evidence ofimpairment as a result of one or more events that occurred after the initial recognition of theasset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cashflows of the financial asset or group of financial assets that can be reliably estimated. Objectiveevidence that a financial asset or group of financial assets is impaired includes observable datathat comes to the attention of the bank about the following loss events:• Significant financial difficulty of the issuer or obligor;• A breach of contract, such as a default or delinquency in interest or principal payments;• The bank, for economic or legal reasons relating to the borrower’s financial difficulty,granting to the borrower a concession that the bank would not otherwise consider;97Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)1. Significant accounting policies (continued)1.1.6 Impairment of financial assets (continued)• It becoming probable that the borrower will enter bankruptcy or other financial reorganisation;• The disappearance of an active market for that financial asset because of financial difficulties; or• Observable data indicating that there is a measurable decrease in the estimated future cashflows from a group of financial assets since the initial recognition of those assets, although thedecrease cannot yet be identified with the individual financial assets in the group, including:• Adverse changes in the payment status of borrowers in the group;• National or local economic conditions that correlate with defaults on the assets in the group;• Adverse prolonged changes in the market value of a financial asset.Assets measured at amortised costIf there is objective evidence that an impairment loss on loans and receivables or held-to-maturityinvestments measured at amortised cost has been incurred, the amount of the loss is measured asthe difference between the asset’s carrying amount and the present value of estimated future cashflows (excluding future credit losses that have not been incurred) discounted at the financial asset’soriginal effective interest rate. The carrying amount of the asset is reduced through the use of anallowance account and the amount of the loss is recognised in profit or loss.The bank first assesses whether objective evidence of impairment exists individually for financialassets that are individually significant, and individually or collectively for financial assets that arenot individually significant. If the bank determines that no objective evidence of impairment existsfor an individually assessed financial asset, whether significant or not, it includes the asset in agroup of financial assets with similar credit risk characteristics and collectively assesses them forimpairment.If, in a subsequent period, the amount of the impairment loss decreases and the decrease canbe related objectively to an event occurring after the impairment was recognised (such as animprovement in the debtor’s credit rating), the previously recognised impairment loss is reversedby adjusting the allowance account. The reversal does not result in a carrying amount of thefinancial asset that exceeds what the amortised cost would have been had the impairment notbeen recognised at the date the impairment is reversed. The amount of the reversal is recognisedin profit or loss.Statutory reserve requirements that exceed the allowance for impairment losses are recognised inthe reserves by a transfer directly from retained earnings to a separate category of equity.Nedbank (Swaziland) Limited Annual Report 201098

1. Significant accounting policies (continued)1.1.6 Impairment of financial assets (continued)Financial assets measured at costIf there is objective evidence that an impairment loss has been incurred on an unquoted equityinstrument that is not carried at fair value because its fair value cannot be reliably measured,or on a derivative asset that is linked to and must be settled by delivery of such an unquotedequity instrument, the amount of the impairment loss is measured as the difference betweenthe carrying amount of the financial asset and the present value of estimated future cash flowsdiscounted at the current market rate of return for a similar financial asset. Such impairmentlosses are not reversed.Available-for-sale financial assetsWhen a decline in the fair value of an available-for-sale financial asset has been recogniseddirectly in other comprehensive income and there is objective evidence that the asset isimpaired, the cumulative loss that had been recognised directly in equity is removed from equityand recognised in profit or loss even though the financial asset has not been derecognised. Theamount of the cumulative loss that is removed from equity and recognised in profit or loss isthe difference between the acquisition cost (net of any principal repayment and amortisation)and current fair value, less any impairment loss on that financial asset previously recognised inprofit or loss.Impairment losses recognised in profit or loss for an investment in an equity instrumentclassified as available for sale are not reversed through profit or loss.If, in a subsequent period, the fair value of a debt instrument classified as available-for-saleincreases and the increase can be objectively related to an event occurring after the impairmentloss was recognised in profit or loss, the impairment loss is reversed, with the amount of thereversal recognised in profit or loss. Any subsequent recovery in the fair value of an impairedavailable for sale equity instrument is recognised directly in comprehensive income.1.1.7 OffsetFinancial assets and financial liabilities are offset and the net amount reported in the statementof financial position only when there is a legally enforceable right to set off and there is anintention 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 permitted under IFRSs, or for gainsand losses arising from a group of similar transactions such as the bank’s trading activities.99Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)1. Significant accounting policies (continued)1.2 InterestInterest income and expense is recognised in profit or loss using the effective interest methodtaking into account the expected timing and amount of cash flows. The effective interest rate is therate that exactly discounts the estimated future cash payments and receipts through the expectedlife of the financial asset or liability to the carrying amount of the financial asset or liability.The effective interest method is a method of calculating the amortised cost of a financial asset orfinancial liability (or group of financial assets or financial liabilities) and of allocating the interestincome or interest expense over the relevant period. Interest income and expense include theamortisation of any discount or premium or other differences between the initial carrying amount ofan interest-bearing instrument and its amount at maturity calculated on an effective interest basis.Interest income and interest expense are calculated on the amortised cost basis for interest bearinginstruments that have been designated at fair value through profit or loss and are included in theinterest income and interest expense line items and not as part of non-interest income.1.3 Non-interest incomeFees and other commission incomeThe bank earns fees and commissions from a range of services it provides to customers and theseare accounted for as follows:• Income earned on the execution of a significant act is recognised when the significant act hasbeen performed;• Income earned from the provision of services is recognised as the service is rendered byreference to the stage of completion of the service;• Income that forms an integral part of the effective interest rate of a financial instrument isrecognised as an adjustment to the effective interest rate and recorded in non-interest income.• When a loan commitment is not expected to result in the drawdown of a loan, the related loancommitment fees are recognised on a straight line basis over the commitment period.Dividend incomeDivided income is recognised when the right to receive payment is established on the ex-dividenddate for equity instruments and is included in non interest income.Foreign exchange trading and dealing gainsNet trading income comprises all gains and losses from changes in the fair value of financial assetsand financial liabilities held for trading, all realised gains and losses for trading, together with therelated interest, expense and dividend.Nedbank (Swaziland) Limited Annual Report 2010100

1. Significant accounting policies (continued)1.3 Non-interest income (continued)OtherRevenue other than interest, fees and commission, foreign exchange trading and dealing gains isrecognised in profit or loss when the amount of revenue from the transaction or service can bemeasured reliably, it is probable that the economic benefits of the transaction or service will flowto the bank and the costs associated with the transaction or service can be measured reliably.Fair value gains or losses on financial instruments designated at fair value through profit orloss, are included in non-interest income. These fair value gains or losses are determined afterdeducting the interest component, which is recognised separately in interest income andexpense.Gains or losses on derecognition of any financial assets or financial liabilities are included innon-interest income.1.4 Cash and cash equivalentsCash and cash equivalents comprise notes and coins on hand, unrestricted balances held withcentral banks, short-term funds and call and current account balances with group companiesand other banks.Cash and cash equivalents are carried at amortised cost in the statement of financial position.Funding from other banks has been offset for the purposes of the statement of cash flows1.5 LeasesThe bank as lessee – Finance leasesLeases in respect of which the bank bears substantially all the risks and rewards incidental toownership are classified as finance leases. Finance leases are capitalised at the inception ofthe lease at the lower of the fair value of the lease property or the present value of the futureminimum lease payments. Each lease payment is allocated between the liability and financecharges so as to achieve a constant periodic rate of interest on the balance outstanding. Thecorresponding rental obligations, net of finance charges, are included in other payables. Theinterest element of the finance cost is recognised in profit or loss over the lease period. Theassets acquired under finance leases are depreciated over the shorter of the useful life of theasset and the lease term.101Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)1. Significant accounting policies (continued)1.5 Leases (continued)The bank as lessee – Operating leasesLeases in respect of which a significant portion of the risks and rewards of ownership are retainedby the lessor are classified as operating leases. Payments made under operating leases (net of anyincentives received from the lessor) are recognised in profit or loss on a straight-line basis over theterm of the lease. When another systematic basis is more representative of the time pattern of theuser’s benefit, then that method is used.The bank as lessor – Finance leasesWhere assets are leased out under a finance lease arrangement, the receivable to be recognisedequals the “gross investment” in the lease discounted at the rate implicit in the lease to obtain a“net investment” figure. The difference between the gross receivable and unearned finance incomeis presented in the statement of financial position. Finance lease income is allocated to accountingperiods so as to reflect a constant periodic rate of return on the bank’s net investment outstandingin respect of the leases.The bank as lessor - Operating leasesAssets leased out under operating leases are included under property and equipment in thestatement of financial position. They are depreciated over their expected useful lives on a basisconsistent with similar assets. Rental income (net of any incentives given to lessees) is recognisedon a straight-line basis over the term of the lease. When another systematic basis is morerepresentative of the time pattern of the user’s benefit, then that method is used.Recognition of lease of landLeases of land and buildings are classified as operating or finance leases in the same way as leasesof other assets. However, when a single lease covers both land and buildings, the future minimumlease payments at the inception of the lease (including any up-front payments) are allocatedbetween the land and the building in proportion to the relative fair values of the respectiveleasehold interests. These payments are amortised over the lease term in accordance with the timepattern of benefits provided. If the lease payments cannot be allocated reliably between these twoelements, the entire lease is classified as a finance lease, unless it is clear that both elements areoperating leases.Nedbank (Swaziland) Limited Annual Report 2010102

1. Significant accounting policies (continued)1.6 ProvisionsProvisions are recognised when the bank has a present legal or constructive obligation as a result ofpast events, for which it is probable that an outflow of economic benefits will occur, and where areliable estimate can be made of the amount of the obligation. Where the effect of discounting ismaterial, provisions are discounted and the discount rate used is a pre-tax rate that reflects currentmarket assessments of the time value of money and, where appropriate, the risks specific to theliability. The unwinding of discount is recognised as a finance cost.1.7 Property and equipmentItems of property and equipment are measured at cost less accumulated depreciation andaccumulated impairment losses.Items of property and equipment are initially recognised at cost if it is probable that any futureeconomic benefits associated with the items will flow to the bank and it has a cost that canbe measured reliably. Subsequent expenditure is recognised in the carrying amount of itemsof property and equipment if it is probable that future economic benefits associated with theexpenditure will flow to the bank and its cost can be measured reliably. All other expenses arerecognised in profit or loss as an expense when incurred.Land and buildings, whose fair values can be reliably measured, are measured at revalued amounts,being the fair value at the date of revaluation less any subsequent accumulated depreciation andimpairment losses. Revaluation increases are credited directly to other comprehensive incomeand presented in equity under the heading “revaluation reserve”. However, revaluation increasesare recognised in profit or loss to the extent that they reverse a revaluation decrease of the sameasset previously recognised in profit or loss. Revaluation decreases are recognised in profit or loss.However, decreases are debited directly to other comprehensive income to the extent of anycredit balances existing in the revaluation reserve in respect of the same asset.DepreciationEach component of property and equipment with a cost that is significant in relation to the totalcost of the item, or has a different useful life is depreciated separately. Items of property andequipment that are classified as held for sale under IFRS 5 are not depreciated. The depreciableamounts of property and equipment are recognised in profit or loss on a straight-line basis overthe estimated useful lives of the items of property and equipment, unless they are included inthe carrying amount of another asset. Useful lives, residual values and depreciation methods areassessed on an annual basis. Leased assets under finance leases are depreciated over the shorter ofthe lease term and their useful lives. Land is not depreciated.On revaluation, any accumulated depreciation at the date of the revaluation is eliminated againstthe gross carrying amount of the item concerned and the net amount restated to the revaluedamount. Subsequent depreciation charges are adjusted based on the revalued amount.103Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)1. Significant accounting policies (continued)1.7 Property and equipment (continued)The estimated useful lives for the current and comparative periods are as follows:• Computer equipment 4 -6 years• Vehicles 4 - 6 years• Furniture and other equipment 4 - 10 years• Freehold land and buildings 50 yearsDerecognitionItems of property and equipment are derecognised on disposal or when no future economic benefitsare expected from their use or disposal. The gain or loss on derecognition is recognised in profit orloss and is determined as the difference between the net disposal proceeds, if any, and the carryingamount of the item. On derecognition any surplus in the revaluation reserve in respect of individualitems of property and equipment is transferred directly to retained earnings. Compensation fromthird parties for items of property and equipment that were impaired, lost or given up is included inprofit or loss when the compensation becomes receivable.1.8 TaxationTaxation expense comprises current and deferred tax. Current and deferred tax is recognised inprofit or loss except to the extent that it relates to a business combination or items recogniseddirectly in equity, or other comprehensive income.Current taxationCurrent tax is the expected taxation payable on the taxable income for the year using the taxrates enacted or substantively enacted at the reporting date, and any adjustment of tax payable inrespect of previous years.Deferred taxationDeferred tax is recognised in respect of temporary differences between the carrying amounts ofassets and liabilities for financial reporting purposes and the amounts used for taxation purposes.The amount of deferred taxation provided is based on the expected manner of realisation orsettlement of the carrying amount of assets and liabilities and is measured at the taxation ratesthat are expected to be applied to the temporary differences when they reverse based on the lawsthat have been enacted or substantively enacted by the reporting date.The effect on deferred taxation of any changes in tax rates is recognised in profit or loss, except tothe extent that it relates to items previously recognised directly in other comprehensive income.Deferred taxation is not recognised for the following temporary differences: the initial recognitionof goodwill, the initial recognition of assets or liabilities in a transaction that is not a businesscombination and that affects neither accounting nor taxable profit, and differences relatingto investments in subsidiaries, associates and jointly controlled entities to the extent that it isprobable that they will not reverse in the foreseeable future.Nedbank (Swaziland) Limited Annual Report 2010104

1. Significant accounting policies (continued)1.8 Taxation (continued)Deferred taxation (continued)A deferred taxation asset is recognised to the extent that it is probable that future taxable incomewill be available, against which the unutilised taxation losses and deductible temporary differencescan be utilised. Deferred taxation assets are reviewed at each reporting date and are reduced tothe extent that it is no longer probable that the related taxation benefits will be realised.Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset currenttax assets and liabilities, and they relate to income taxes levied by the same tax authority on thesame taxable entity, or on different entities but they intend to settle on a net basis or their taxassets and liabilities will be realised simultaneously.1.9 Foreign currency transactionsTransactions in foreign currencies are translated into the functional currency of the bank at thedate of such transactions by applying to the foreign currency the spot exchange rate ruling at thetransaction date.Monetary assets and liabilities denominated in foreign currencies at reporting date are translatedinto the functional currency at the spot exchange rate on that date. Monetary assets and liabilitiesdenominated in foreign currencies that are measured at fair value are translated into the functionalcurrency at the spot rate at the date that the fair value was determined. Monetary assets andliabilities that are measured in terms of historical cost in a foreign currency are translated usingthe exchange rate at the date of the transaction.Exchange differences that arise on the settlement and translation of monetary items at ratesdifferent from those at which they were translated on initial recognition during the period or inprevious financial statements are recognised in profit or loss in the period they arise.1.10 Associate companiesAn associate is an entity, including an unincorporated entity such as a partnership, over whichthe bank has the ability to exercise significant influence, but not control or joint control, throughparticipation in the financial and operating policy decisions of the investee (and that is neither asubsidiary nor an investment in a joint venture).The investments in associates are incorporated in these financial statements at cost. The carryingamount of such investments is reduced to recognise any impairment in the value of individualinvestments.Where the company transacts with an associate of the bank, unrealised profits and losses areeliminated to the extent of the bank’s interest in the relevant associate.Investments in associates held with the intention to dispose thereof (once the appropriate level ofmanagement has committed to a plan to sell and there is in place an active programme to locatea buyer) within twelve months, are accounted for as non-current assets held for sale.105Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)1. Significant accounting policies (continued)1.11 Employee benefitsPost employment defined benefit plansThe net obligation in respect of the defined benefit pension plan is calculated by estimating theamount of future benefit that employees have earned in return for their service in the current andprior periods; that benefit is discounted to determine the present value, and the fair value of anyplan assets and unrecognised past service costs are deducted. The calculation is performed by aqualified actuary every year using the projected unit credit method. The discount rate is the yield atthe reporting date on high quality corporate bonds.When the benefits of a plan are improved, the portion of the increased benefit relating to past serviceby employees is recognised as an expense in profit or loss on a straight-line basis over the averageperiod until the benefits become vested. To the extent that the benefits vest immediately, the expenseis recognised immediately in profit or loss.In calculating the bank’s obligation in respect of a plan, to the extent that any cumulative unrecognisedactuarial gain or loss exceeds 10% of the greater of the present value of the defined-benefit obligationand the fair value of plan assets at the beginning of the reporting period, that portion is recognised inprofit or loss over the expected average remaining working lives of the employees participating in theplan. Otherwise, the actuarial gain or loss is not recognised.Where the calculation results in a benefit to the bank, the recognised asset is limited to the net totalof any cumulative unrecognised actuarial losses and past-service costs and the present value of anyfuture refunds from the plan or reduction in future contributions to the plan.Short-term benefitsShort term employee benefit obligations are measured on an undiscounted basis and are expensed asthe related service is provided.A liability is recognised for the amount expected to be paid under the short-term cash, annual andsick leave and performance bonus if the bank has a present legal or constructive obligation to paythis amount as a result of past service provided by the employee and the obligation can be estimatedreliably.Cash-settled share-based payment transactions with employeesThe services received in an cash-settled share-based payment transaction with employees aremeasured at the fair value of the equity instruments granted. The fair value of the equity instrumentsis measured at grant date and is not subsequently re-measured.If the equity instruments granted vest immediately and an employee is not required to complete aspecified period of service before becoming unconditionally entitled to the instruments, the servicesreceived are recognised in profit or loss for the period in full on grant date with a correspondingincrease in equity.Nedbank (Swaziland) Limited Annual Report 2010106

1. Significant accounting policies (continued)1.11 Employee benefits (continued)Cash-settled share-based payment transactions with employees (continued)Where the equity instruments do not vest until the employee has completed a specified period ofservice, it is assumed that the services rendered by the employee, as consideration for the equityinstruments, will be received in the future during the vesting period. The services are recognised inprofit or loss in the statement of comprehensive income as they are rendered during the vestingperiod, with a corresponding increase in equity. The share-based payment expense is adjusted fornon-market-related performance conditions, such as service period required to be completed.Where the equity instruments are no longer outstanding, the accumulated share-based paymentreserve in respect of those equity instruments is transferred to retained earnings.Measurement of fair value of equity instruments grantedThe equity instruments granted by Nedbank are measured at fair value at measurement date usingstandard option pricing valuation models. The valuation technique is consistent with generallyacceptable valuation methodologies for pricing financial instruments and incorporates all factorsand assumptions that knowledgeable, willing market participants would consider in setting theprice of the equity instruments. Service and non-market performance conditions, are not takeninto account in determining fair value. Vesting conditions are taken into account by adjusting thenumber of equity instruments included in the measurement of the transaction amount.1.12 Properties in possessionUnsold properties in possession are included under advances and valued at their net realisablevalue which is an indication of fair value. Cost includes the outstanding balance on repossession,which may not include capitalised interest incurred by the client, together with other chargesrelating to the repossession.107Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)1. Significant accounting policies (continued)1.13 Share capitalShare capital issued by the bank is measured at the proceeds received, net of direct issue cost. No gainis recognised in profit or loss on the purchase, sale, issue or cancellation of the entity’s share capitaland preference shares that are classified as equity.Ordinary and preference share capital is classified as equity if it is non-redeemable by the shareholder,dividends are discretionary and if it represents a residual interest in the assets of the entity afterdeducting all of its liabilities.Dividends are recognised as distributions within equity in the period in which they are approved by theshareholders. Dividends for the year that are declared after the reporting date are disclosed in the notes.1.14 Intangible assetsComputer software and capitalised development costsSoftware acquired by the bank is measured at cost less accumulated amortisation and accumulatedimpairment losses.Expenditure on research activities, undertaken with the prospect of gaining new scientific or technicalknowledge and understanding and expenditure on internally generated goodwill and brands, isrecognised in profit or loss as the expense is incurred.Expenditure on computer software and other development activities, whereby set procedures andprocesses are applied to a project for the production of new or substantially improved products andprocesses, is capitalised if the computer software and other developed products or processes aretechnically and commercially feasible, the bank has sufficient resources to complete development,the bank has the ability to use or sell the asset and the intangible asset will generate probable futureeconomic benefits and can reliably measure the expenditure attributable to the intangible asset. Theexpenditure capitalised includes the cost of materials and directly attributable staff and other costs.Computer development expenditure is amortised only once the relevant software is available foruse. Capitalised software is measured at cost less accumulated amortisation and impairment losses.Computer development expenditure, which has not yet been made available for use, is measured atcost less impairment losses.Amortisation on computer software and development costs is recognised in profit or loss on astraight-line basis over the estimated useful lives of these assets, not exceeding five years. The usefullives, amortisation methods and residual values are assessed at each reporting date. Subsequentexpenditure relating to computer software is only capitalised when it increases the future economicbenefits embodied in the specific asset to which it relates and can be measured reliably. All othersubsequent expenditure is recognised as an expense in the period in which it is incurred. Gains orlosses on the disposal of computer software are recognised in profit or loss in the period in which theyare incurred. The profit or loss is the difference between the net disposal proceeds and the carryingamount of the asset.Nedbank (Swaziland) Limited Annual Report 2010108

1. Significant accounting policies (continued)1.15 Impairment of non-financial assetsThe bank assesses all assets for indications of an impairment loss or the reversal of a previouslyrecognised impairment at each reporting date. Should there be indications of impairment, theassets’ recoverable amounts are estimated.Intangible assets not yet available for use are tested annually for impairment and when there is anindication of impairment, the impairment is recognised in the profit or loss whenever the carryingamount of an asset exceeds its recoverable amount.The recoverable amount of an asset is the higher of its fair value less cost to sell and its value in use.The fair value less cost to sell is determined by ascertaining the current market value of an assetand deducting any costs related to the realisation of the asset.In assessing value-in-use, the expected future cash flows from the asset are discounted to theirpresent value using a pre-tax discount rate that reflects current market assessments of the timevalue of money and the risks specific to the asset. For an asset whose cash flows are largelydependent on those of other assets, the recoverable amount is determined for the cash-generatingunit to which the asset belongs. An impairment loss is allocated pro – rata to all assets in a cash -generating unit.A previously recognised impairment loss will be reversed if the recoverable amount increases asa result of a change in the estimates used previously to determine the recoverable amount, butnot to an amount higher than the carrying amount that would have been determined, net ofdepreciation or amortisation, had no impairment loss been recognised in prior periods.1.16 Earnings per shareThe bank presents earnings per share for its ordinary shares, calculated by dividing the profit orloss attributable to ordinary shareholders of the bank by the weighted average number of ordinaryshares outstanding during the period. Diluted earnings per share is determined by adjusting theprofit or loss attributable to ordinary shareholders and the weighted average number of ordinaryshares outstanding for the effects of all dilutive potential ordinary shares.1.17 Financial guaranteesFinancial guarantees are contracts that require the bank to make specific payments to reimbursethe holder for a loss it incurs because a specified debtor fails to make payment when due inaccordance with the terms of a debt instrument. Financial guarantee liabilities are recognisedinitially at the fair value, and the initial fair is amortised over the life of the financial guarantee.The financial guarantee liability is subsequently carried at higher of this amortised amount andthe present value of any expected payment when a payment under the guarantee has becomeprobable. Financial guarantees are included within other liabilities.109Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)1. Significant accounting policies (continued)1.18 Standards and interpretations issued but not yet effectiveBelow is a list of standards and interpretations in issue at 31 December 2010 that are issued but notyet effective for periods beginning after 1 January 2010. These have been identified in the table below,together with the dates on which these were issued by the IASB. None of these will have an effect inthe financial statements.Effective dateStandard, amendment or interpretations1 February 2010 Amendment to IAS 32Financial instruments : Presentation – classification of rights issues1 July 2010 IFRIC 19Extinguishing financial liabilities with equity instrumentsAmendment to IFRS 3Business combinationsAmendment to IAS 27Consolidated and separate financial statements1 January 2011 IAS 24Related party disclosures (revised 2009)Amendments to IFRIC 14 IAS 19The limit on a defined benefits assets, minimum funding requirementsand their interactionIFRS 7Financial instruments : disclosuresIAS 1Presentation of financial statementsIAS 34Interim financial reportingIFRIC 13Customer loyalty programmes1 January 2013 IFRS 9Financial instrumentsNedbank (Swaziland) Limited Annual Report 2010110

2010 2009EE2. Income and expenses2.0 Interest incomeCash and cash equivalents 36 145 479 34 121 861Loans and advances to customers 111 606 068 113 990 153Government and public sector securities 16 154 025 10 297 372163 905 572 158 409 386Interest expenseDeposits from customers 54 123 175 63 655 185Other 79 897 109 138Interest expense 54 203 072 63 764 323Net interest income 109 702 500 94 645 063Included in interest income is a total of E2 295 314(2009: E739 702) accrued on impaired financial assetsTotal interest income and expense calculated using theeffective interest method reported above that relateto financial assets or financial liabilities not carriedat fair value through profit or loss are E111 606 068(2009: 113 990 153) and nil (2009 :nil) respectively.2.1 Non-interest incomeRetail and corporate customer fees 82 749 283 73 007 208Other income 2 372 459 767 98885 121 742 73 775 1962.2 Impairment of advancesSpecific impairments recognised 8 323 715 7 260 514Portfolio impairments (reversed)/recognised (993 177) 97 7057 330 538 7 358 219111Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)2010 2009EE2. Interest and expenses2.3 Operating expensesAuditors’ remuneration:- Audit fees - current year 571 247 5 900- prior year 634 324 437 854Depreciation and amortisation- Computer equipment 2 088 414 1 699 756- Furniture and other equipment 2 331 344 2 292 586- Vehicles 142 489 127 351- Land and buildings 71 373 71 372- Computer software 863 521 298 952Staff costs 57 017 604 54 678 495Operating lease expenses 6 495 018 5 945 869Management fees 20 839 057 11 900 000Other expenses 23 922 203 23 319 720114 976 594 101 362 0652.4 Directors’ emolumentsShort term employee benefits 897 056 1 445 734Post employment benefits 93 157 132 080Share based payments 322 523 -3. Taxation1 312 736 1 577 8143.1 Charge for the yearSwaziland normal taxation: recognised in profit or lossCurrent 26 571 201 24 590 656Deferred- charge for the year (4 949 091) (3 639 984)Total taxation on income 21 622 110 20 950 6723.2 Tax rate reconciliation % %Standard rate of Swaziland normal taxation 30.00 30.00The standard rate has been affected by:Effect of permanent differences (3.31) (0.10)Effective taxation rate 26.69 29.90Nedbank (Swaziland) Limited Annual Report 2010112

2010 2009EE4. Earnings per share and dividends4.1 Earnings per shareProfit for the year 59 397 892 49 107 544Headline earnings 59 397 892 49 107 544Weighted average number of shares for earnings pershare calculation 23 956 769 23 861 108Basic and diluted earnings per share (cents) 248 206Basic earnings and headline earnings per share are calculated by dividing the relevant earningsamount by the weighted average number of shares in issue. At year end the bank issued 2 650000 shares to employees under the Employee Share Ownership Programme. These shares havea dilutive impact on the ordinary shares in issue.4.2 DividendsSubsequent to the reporting date, the directors proposed a dividend of 85 cents (2009 :70 cents) per share : total E22 534 442 (2009 : E18 557 776).The dividend will have the following tax consequences:- Local residents with-holding tax amounting to 10% of dividend declared- Non resident with-holding tax amounting to 15%.- Non resident with-holding tax amounting to 12.5% if the shareholder is a companyincorporated or registered as such in Botswana, Lesotho, Namibia or the Republic of SouthAfrica and provided that it is neither a subsidiary nor a branch of a company incorporated orregistered outside any of such countries.2010 2009EE5. Cash and cash equivalents5.1 AnalysisCoins and banknotes 35 776 504 29 967 471Money at call and short notice 46 999 064 135 730 973Balance with Central Bank of Swaziland 61 588 108 59 021 295Other short term deposits 353 701 682 128 534 588Money market unit trust investments 607 767 607 767Total cash and cash equivalents 498 673 125 353 862 094Funding from other banks (56 701) (159 728)Net cash and cash equivalents 498 616 424 353 702 366The balance with the Central Bank of Swaziland has a restriction arising from regulatory liquidityrequirements. The Financial Institutions Act, 2005 prescribes that financial institutions shallmaintain reserves equal to 2.5% of total liabilities to the public in Swaziland excluding anybalances for which it is liable to any financial institution and such reserves may be maintainedby way of deposits with the Central Bank of Swaziland which bear no interest.113Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)2010 2009EE5. Cash and cash equivalents (continued)5.2 Currency analysisCommon Monetary Area currencies 450 464 930 217 745 049Customer deposits in foreign currencies 48 151 494 135 957 317498 616 424 353 702 366Included in cash and cash equivalents is an amountof E414 664 684 (2009: E278 446 140) which isinvested with other banks and is interest bearing.The remainder is invested with the Central Bank ofSwaziland is not interest bearing.6. Government and public sector securities– trading assetsTreasury bills at fair value 368 044 121 175 846 668All these securities mature within one year and arereadily convertible to cash.7. Loans and advances to customers – at amortised cost7.1 Category analysisHome loans 260 826 488 203 869 596Other loans and overdrafts 727 671 283 890 045 919Finance leases and instalment debtors 313 037 400 331 477 960Less: Unearned finance charges on finance leaseand instalment debtors (54 053 669) (59 299 951)1 247 481 502 1 366 093 524Impairment of advances (refer note 8 ) (12 866 431) (10 182 235)1 234 615 071 1 355 911 289Nedbank (Swaziland) Limited Annual Report 2010114

2010 2009EE7. Loans and advances to customers (continued)7.2 Sectoral analysisIndividuals:Home loans 260 826 458 203 869 596Personal loans 272 799 446 267 733 842533 625 904 471 603 438Manufacturing 49 615 763 35 098 943Wholesale and trade 166 097 573 519 722 350Retailers, catering and accommodation 43 275 508 46 589 222Agriculture, hunting, forestry and fishing 30 241 917 19 449 900Mining and quarrying - -Building and property development 154 961 722 63 157 863Transport, storage and communication 99 617 075 71 164 444Government and public sector 29 747 273 40 975 636Other 140 298 767 98 331 7281 247 481 502 1 366 093 5247.3 Maturity structureCall 410 395 216 476 914 099Less than 3 months 23 850 764 101 543 912Between 3 months and 1 year 215 349 126 31 456 665Between 1 year and 5 years 478 255 863 394 088 184Greater than 5 years 119 630 533 362 090 6641 247 481 502 1 366 093 524OutstandingSpecificbalanceimpairments2010 Security 2010E E E7.4 Non-performing advancesSectoral analysis 2010Individuals:Other personal loans 9 329 834 7 226 056 957 8909 329 834 7 226 056 957 890Manufacturing 561 131 - 68 684Retailers, catering and accommodation 2 701 114 4 771 062 457 066Building and property development 3 018 524 546 357 231 191Transport, storage and communication 3 296 421 2 316 619 388 388Other 2 725 144 1 434 352 2 884 64621 632 168 16 294 446 4 987 865115Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)7. Loans and advances to customers (continued)7.4 Non-performing advances (continued)Sectoral analysis 2009OutstandingSpecificbalanceimpairments2009 Security 2009E E EIndividuals:Other personal loans 8 711 009 6 863 221 1 153 7698 711 009 6 863 221 1 153 769Manufacturing 654 136 372 151 411 216Retailers, catering and accommodation 2 526 993 7 877 572 682 660Building and property development 3 498 848 160 000 662 362Transport, storage and communication 1 673 360 1 672 271 448 321Other 8 612 311 7 346 921 634 71525 676 657 24 292 136 3 993 0437.5 Finance lease receivablesLoans and advances to customers include the following finance lease receivables for leases ofcertain property and equipment where the bank is the lessor:2010 2009EEGross investment in finance leases receivable:Less than one year 19 742 107 18 719 946Between one and five years 288 631 129 303 192 046More than five years 4 664 164 9 565 968313 037 400 331 477 960Unearned finance income (54 053 669) (59 299 951)Net investment in finance leases 258 983 731 272 178 009Net investment in finance leases receivable:Less than one year 17 084 862 18 216 838Between one and five years 240 675 118 247 938 510More than five years 1 223 751 6 022 661258 983 731 272 178 009Nedbank (Swaziland) Limited Annual Report 2010116

2010 2009EE8. Allowance for impairment of advancesSpecificBalance at beginning of year 3 993 042 4 305 977Applied in respect of debts written off (7 790 841) (10 546 272)Interest suspended during the year 3 258 213 3 941 621Recoveries of previously recognised impairment losses (2 796 265) (968 798)(3 335 851) (3 267 472)Impairment of advances charged 8 323 715 7 260 5144 987 864 3 993 042PortfolioBalance at beginning of year 6 189 194 3 922 224Applied in respect of debts written off 167 753 86 398Recoveries of written off debts 2 514 797 2 082 8668 871 744 6 091 488Impairment of advances (reversed)/charged (993 177) 97 7057 878 567 6 189 193Comprising:-Specific impairments and interest in suspense 4 987 864 3 993 042Portfolio impairment 7 878 567 6 189 1939. Amounts due from other banks12 866 431 10 182 235Clearances with banks 6 479 981 5 553 231Remittances in transit 940 840 437 8157 420 821 5 991 046These are client cheques not yet cleared with other banks.117Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)2010 2009EE10. Other receivablesSundry debtors and accrued interest earned oninvestments 5 730 357 34 499 379The balance is made up as follows:Receivable arising from foreign exchange dealing - 22 684 574Sundry debtors 1 965 922 6 036 872Other receivables 3 764 435 5 777 93311. Deferred taxation5 730 357 34 499 37911.1 Recognised deferred tax assetsProperty and equipment 1 946 851 1 618 101Impairment of advances 3 859 929 461 014Unrealised gains/(losses) on FEC’s 47 892 (44 582)Operating leases 222 791 222 791Pension fund liability 1 102 500 538 201Other provisions 2 485 781 1 921 128Deferred tax assets 9 665 744 4 716 65311.2 Deferred taxation movements:(In statement of comprehensive income)Deferred tax assets - beginning of year 4 716 653 1 076 669Movements arising from:- Property and equipment 328 750 241 297- Impairment of advances 3 398 915 (520 856)- Leased assets - 1 151 518- Unrealised gains 92 474 250 649- Operating leases - 58 047- Pension fund liability 564 299 538 201- Other provisions 564 653 1 921 128Deferred tax assets - end of year 9 665 744 4 716 653There are no unrecognised deferred tax assets and liabilities at year end (2009 : Nil).There was no deferred tax charged directly to equity (2009: nil).Nedbank (Swaziland) Limited Annual Report 2010118

2010 2009EE12. InvestmentsUnlisted investments at cost : Associate company* 20 20: Other** - shares 375 000 375 000African Alliance Lilangeni Fund*** 1 530 000 -1 905 020 375 020Directors’ valuation : Associate company* 20 20: Other** - shares 375 000 375 000African Alliance Lilangeni Fund*** 1 530 000 -1 905 020 375 020Percentage Percentageholding holding* Swaziland Automated Electronic Clearing HouseLimited (SAECH) – refer note 25.8.3 20% 20%**Swaziland Industrial Development CompanyLimited – refer note 25.8.3 1.6% 1.6%*** This is a unit trust investment held by theEmployee Share Trust – refer 25.8.313. Property and equipmentFreeholdFurnitureland and Computer and otherbuildings equipment equipment Vehicles TotalE E E E ECostBalance at 1 January 2009 1 640 741 12 506 465 21 510 231 699 403 36 356 840Additions - 3 233 091 1 614 433 - 4 847 524Disposals - - (138 510) - (138 510)Balance at 31 December 2009 1 640 741 15 739 556 22 986 154 699 403 41 065 854Balance at 1 January 2010 1 640 741 15 739 556 22 986 154 699 403 41 065 854Additions - 5 267 658 3 767 646 181 552 9 216 856Disposals - (1 297 994) (3 437 927) - (4 735 921)Balance at 31 December 2010 1 640 741 19 709 220 23 315 873 880 955 45 546 789119Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)13. Property and equipment (continued)Depreciation andimpairment lossesFreeholdFurnitureland and Computer and otherbuildings equipment equipment Vehicles TotalE E E E EBalance at 1 January 2009 (212 113) (9 774 823) (11 825 929) (414 821) (22 227 686)Depreciation for the year (71 372) (1 699 757) (2 292 585) (127 351) (4 191 065)Disposals - - 9 234 - 9 234Balance at 31 December 2009 (283 485) (11 474 580) (14 109 280) (542 172) (26 409 517)Balance at 1 January 2010 (283 485) (11 474 580) (14 109 280) (542 172) (26 409 517)Depreciation for the year (71 373) (2 088 414) (2 331 344) (142 489) (4 633 620)Disposals - 1 297 994 3 422 762 - 4 720 756Balance at 31 December 2010 (354 858) (12 265 000) (13 017 862 (684 661) (26 322 381)Carrying amountsAt 1 January 2009 1 428 628 2 731 642 9 684 302 284 582 14 129 154At 31 December 2009 1 357 256 4 264 976 8 876 874 157 231 14 656 337At 1 January 2010 1 357 256 4 264 976 8 876 874 157 231 14 656 337At 31 December 2010 1 285 883 7 444 220 10 298 011 196 294 19 224 408Freehold land and buildings were valued by Ngwenya Wonfor and Associates, Property Valuers,on 31 December 2007 on the basis of open market value in continuation of existing use.Details of properties owned are available for inspection at the registered office of the company.All property and equipment is free of lien.There were no capitalised borrowing costs relating to the acquisition of equipment during the year(2009 : Nil). The initial cost of freehold land and buildings was E950 000 (2009 : E950 000).Nedbank (Swaziland) Limited Annual Report 2010120

14. IntangiblesComputersoftwareEBalance at 1 January 2009 11 208 781Acquisitions 1 268 844Disposals -12 477 625Balance at 1 January 2010 12 477 625Additions 3 000 328Disposals -Balance at 31 December 2010 15 477 953Amortisation and impairments lossesBalance at 1 January 2009 (10 847 911)Amortisation for the year (298 952)Disposals -Balance at 31 December 2009 (11 146 863)Balance at 1 January 2010 (11 146 863)Amortisation for the year (863 521)Disposals -Balance at 31 December 2010 (12 010 384)Carrying amountsAt 1 January 2009 360 870At 31 December 2009 1 330 762At 1 January 2010 1 330 762At 31 December 2010 3 467 569There were no capitalised borrowing costs related to the internal development of softwareduring the year (2009: Nil). The bank does not have restricted or pledged intangible assets andthere were no contractual commitments for acquisition of intangible assets at reporting date.121Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)2010 2009EE15. Share capital and reserves15.1 Share capital15.1.1 Authorised share capital26 650 000 (2009: 24 000 000) ordinary shares of50 cents each 13 325 000 12 000 00015.1.2 Issued and fully paid share capital26 511 108 (2009 : 23 861 108) ordinary shares of50 cents each 13 255 554 11 930 554Treasury shares (1 325 000) -11 930 554 11 930 554The holders of ordinary shares are entitled to receivedividends as declared from time to time and are entitledto one vote per share at meetings of the bank. Theunissued shares are under the control of the directors.15.2 Share premium and reserves15.2.1 Share premiumShare premium account 7 952 360 7 952 36015.2.2 Revaluation reserveGains on revaluation of commercial premises andresidential properties 1 366 260 1 366 260The property was last revalued on 31 December 2007in accordance with the bank’s accounting policy,by Ngwenya Wonfor and Associates, independentproperty valuers.15.2.3 Statutory reserveIn terms of Section 20(1)(a)(ii) of the FinancialInstitutions Act, 2005 37 720 514 31 780 72515.2.4 General risk reserveThis is a statutory general credit risk reserve, being thedifference between credit reserves as required by theCentral Bank of Swaziland and portfolio impairmentlosses on advances per the statement of financialposition (refer note 8).8 014 457 9 694 177Movements on reserves are disclosed in the statement of changes in equity set out on page 89.Nedbank (Swaziland) Limited Annual Report 2010122

2010 2009EE16. Amounts owed to depositors16.1 AnalysisCurrent accounts 458 636 402 333 103 173Savings deposits 150 671 696 139 800 328Other customer deposits and loan accounts 1 146 502 019 1 077 329 950Foreign currency deposits 46 992 571 135 564 6321 802 802 688 1 685 798 08316.2 Sectoral analysisIndividuals 651 823 287 639 771 124Corporates and other 1 150 979 401 1 046 026 9591 802 802 688 1 685 798 08316.3 Maturity structure – carrying amountsOn demand 1 545 795 421 1 375 561 607Less than 3 months 39 477 367 198 815 394Between 3 months and 1 year 226 066 793 118 745 168More than 1 year but less than 5 years 11 958 54 73317. Deposits from banks1 811 351 539 1 693 176 902Current accounts 1 377 676 993 929The deposits are repayable on demand.These accounts do not earn interest.18. Current taxation liabilitiesSwaziland normal current taxation liabilities 5 110 962 2 976 91218.1 Current taxation liabilitiesSwaziland normal current taxation liabilities 5 110 962 2 976 912Balance at beginning of the year 2 976 912 7 367 601Income tax expense for the year 26 571 201 24 590 656Income tax paid during the year (24 437 151) (28 981 345)5 110 962 2 976 912123Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)19. Employee share ownership schemeShare options over Nedbank (Swaziland) Limited shares and equity instruments in respect of Nedbank(Swaziland) Limited shares are granted to employees as part of their remuneration package as servicesare rendered as an incentive to retain business and develop growth within the bank.As the bank cannot estimate reliably the fair value of services received nor the value of additionalbusiness received, the group rebuts the presumption that such services and business can be measuredreliably. The bank therefore measures their fair value by reference to the fair value of the shares, shareoptions or equity instruments granted, in line with the group’s accounting policy. The fair value ofsuch shares, share options and equity instruments is measured at the grant date utilising the directorssimplified fair valuation model. The following are the share and share option schemes that have beenin place during the year.SchemeNedbank(Swaziland)Limited (2010)Share OptionScheme andrestrictedshare schemeTrust/specialpurposevehicle(SPV)*DescriptionTraditionalemployee schemesVestingrequirementsMaximumtermNedbankEmployeeShare Trust(SinakekelweManagementScheme)Share options and restrictedshares were granted tokey personnel to motivatesenior employees to remainwith the group. The grantingof share options wasbased on job level, meritand performance, and wasentirely at the discretionof the trustees acting onrecommendations ofexecutive managementShare optionsgranted onappointment aretime-based, ofwhich 33% vestafter three years,an additional33% after thefourth year andthe remaining34% after fifthyear.5 yearsNedbank(Swaziland)Limited (2010)employeeshare schemeNedbankEmployee ShareTrust (SinakekelweBroad-BasedScheme)Restricted shares weregranted to all otheremployees who do notqualify for any other sharescheme within the bankN/A5 years* The employee share trust scheme is treated as an agent of the bank.Nedbank (Swaziland) Limited Annual Report 2010124

19. Employee share ownership scheme (continued)Effect on profit and financial positionShare-basedexpenseShare-basedpaymentsliability2010 2009 2010 2009E E E ESinakekelwe broad-based scheme 465 669 - 465 669 -Sinakekelwe Management scheme (options) 818 500 - 818 500 -1 284 169 - 1 284 169 -Fair value of share options andassumptions 2010 2009Fair value at grant date 4.25 -Share price at grant date 4.25 -Exercise price - -Expected volatility 96% -Option life 48 months -Risk free interest rate - -Movement in number of instrumentsNumber of Weighted averageinstruments price per unit2010 2009 2010 2009E E E EShare optionsOutstanding at the beginning of the year - - - -Granted 923 765 - 4.25 -Forfeited 356 236 - 4.25 -Outstanding at the end of the year 567 529 - 4.25 -Exercisable at the end of the year - - - -Restricted sharesOutstanding at the beginning of the year - - - -Granted 537 716 - 4.25 -Forfeited 107 880 - 4.25 -Outstanding at the end of the year 429 836 - 4.25 -Exercisable at the end of the year - - - -125Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)2010 2009EE20.1 Trade and other payablesOther payables 45 772 613 34 262 966Provision for service fee 21 215 764 -Creditors and accruals 7 145 819 2 303 09074 134 196 36 566 05620.2 Payables for staff costsShare based payment liability 1 284 169 -Leave provision 2 735 734 2 735 734Bonus provision 3 116 028 3 668 025Provision for severance pay 1 150 000 -8 285 931 6 403 759Other payables relate to uncleared funds/chequesdue customers and other banks.21. Contingent liabilitiesConfirmed letters of credit anddiscounting transactions 60 270 451 2 740 008Liabilities under guarantees 52 042 210 115 222 188Other : Commitments to sell foreign currency underforward exchange contracts 166 798 997 142 886 775Unutilised facilities 403 340 760 231 300 431682 452 418 492 149 402Letters of credit and liabilities under guarantee arethose issued by the bank to its customers to presentto third parties. These have been stated at nominalvalue of the guarantee given.22. CommitmentsOperating lease commitmentsLess than one year 5 182 156 5 594 819Between one and five years 7 273 242 9 765 73412 455 398 15 360 553The bank leases 14 (2009: 10) properties. The leases typically run for an initial period of amaximum of three years, with an option to renew the lease after that date. Lease paymentsincrease annually by a fixed amount to reflect market rentals. There were no contractualcommitments to acquire property and equipment (2009 : Nil).Nedbank (Swaziland) Limited Annual Report 2010126

2010 2009EE23. Cash flow information23.1 Cash received from customersCommission and fees 82 749 283 73 007 208Foreign exchange dealing gains 8 502 892 10 358 241Net unrealised profit on foreign currency transactions(Note 25.8) (1 063 138) (1 222 779)Prior year’s net unrealised foreign currency gain nowrealised 1 222 779 1 074 172Other income 2 372 459 767 987Recoveries of impairment losses credited to statementof comprehensive income (248 174) (3 941 621)93 536 101 80 043 20823.2 Cash paid to customers, staff and suppliersStaff costs (57 017 604) (54 678 495)Other payments (52 461 848) (42 193 552)(109 479 452) (96 872 047)23.3 Cash generated by operating activitiesNet profit before taxation 81 020 002 70 058 216Adjustment for:- Depreciation and amortisation 5 497 143 4 490 017- Impairment of advances (net) 7 082 364 3 416 598- Net unrealised profit on foreigncurrency transactions (Note 25.8) (1 063 138) (1 222 779)- Prior year’s net unrealised foreign currencygain now realised 1 222 779 1 074 172- Recoveries of impairment losses credited to allowancefor credit impairments 1 448 557 409 36795 207 706 78 225 59123.4 Increase in operating assetsAdvances and other accounts 138 390 582 (566 170 135)Government and public sector securities (192 197 453) (39 195 286)(53 806 871) (605 365 421)127Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)2010 2009EE23. Cash flow information (continued)23.5 Increase in operating liabilitiesCurrent and savings accounts 136 410 766 82 099 651Other deposits and foreign currency liabilities (19 022 414) 305 447 751Creditors and other liabilities 41 331 311 15 637 622158 719 663 403 185 02423.6 Taxation paidAmounts payable at beginning of year (2 976 912) (7 367 601)Statement of comprehensive income charge (Note 3.1) (26 571 201) (24 590 656)Amounts payable at end of year 5 110 962 2 976 912(24 437 151) (28 981 345)23.7 Dividends paid to shareholdersDividends declared and paid during the year (18 557 776) (14 316 665)23.8 Loans from banksRepayment of loan to Standard Chartered Bank - (49 850 808)23.9 Cash and cash equivalentsCash and short-term funds 97 364 612 88 988 766Other short-term funds 94 639 513 141 783 608Deposits with banks within the group (refer to note 26) 306 669 000 123 089 720498 673 125 353 862 094Funding from other banks (56 701) (159 728)498 616 424 353 702 366Nedbank (Swaziland) Limited Annual Report 2010128

2010 2009EE24. Employee benefits obligations24.1 Recognised liability of definedbenefit obligationEstimated present value of plan obligations (94 424 000) (68 128 000)Fair value of plan assets 57 818 000 54 974 000Present value of unfunded obligations (36 606 000) (13 154 000)Unrecognised actuarial losses 32 931 000 11 360 000Recognised liability for defined benefit obligations (3 675 000) (1 794 000)The bank makes contributions to a defined benefit plan,the Nedbank Swaziland Pension Fund, that providespension benefits for employees upon retirement. Allpermanent employees are members of the fund. Inaccordance with the rules of the fund the financialposition of the fund is examined and reported upon bythe actuary at intervals not exceeding three years. Theavailable actuarial valuation was at 31 December 2010.Plan assets comprise collective investment schemes withAfrican Alliance made up of equities 60% (2009 : 60%),debt instruments 30% (2009 : 30%) and cash at bank10% (2009 : 10%). During the year, the bank changedtheir administrators and actuarial valuators fromAlexander Forbes to Aon Consulting (QED actuaries).A valuation of the fund for IAS 19 purposes wasperformed as at 31 December 2010 by independentexternal actuaries who estimate a deficit as reflectedabove.24.2 Expense recognised in the statement ofcomprehensive incomeCurrent service costs 2 780 000 3 103 000Interest on obligations 6 605 000 5 164 000Cost of risk benefits and expenses paid 5 164 000 -Expected return on plan assets (3 741 000) (3 920 000)Amortisation of unrecognised actuarial losses 233 000 702 00011 041 000 5 049 000The expected return on plan assets is based on marketyields on high quality corporate bonds at reporting date.129Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)2010 2009EE24. Employee benefits obligations (continued)24.3 Movement in plan assetsFair value of plan assets at 1 January 54 974 000 49 061 000Contribution paid into the plan 3 276 000 4 969 000Benefits paid by the plan (5 563 000) (4 789 000)Actuarial gains/(losses) (4 178 000) 1 813 000Expected return on plan assets 5 568 000 3 920 000Transfers in 3 741 000 -Fair value of plan assets at year end 57 818 000 54 974 00024.4 Movement in the present value of defined benefitobligationLiability for defined benefit obligation at 1 January 68 128 000 67 458 000Actuarial (gains)/losses 17 626 000 (4 522 000)Benefits paid by the plan (5 563 000) (4 789 000)Current service costs and interest 10 492 000 9 981 000Transfers in 3 741 000 -Liability for defined benefit obligations at year end 94 424 000 68 128 00024.5 Actuarial assumptions for definedbenefit obligationsPrincipal actuarial assumption at the date of the lastprovisional actuarial valuation(expressed as weighted averages):Discount rate at 31 December 8.5% 9.5%Expected return on plan assets at 31 December 10.2% 10%Future pension increases 2.2% 1.39%Inflation 6.2% 6%Nedbank (Swaziland) Limited Annual Report 2010130

24. Employee benefits obligations (continued)24.6 Historical information2010 2009 2008 2007 2006E’000 E’000 E’000 E’000 E’000Estimated present value of plan obligations 94 424 68 128 67 458 62 681 56 262Fair value of plan assets 57 818 54 974 49 061 51 063 42 525Deficit in the plan 36 606 13 154 18 397 11 618 13 737Experience adjustments arising on plan liabilities 2 844 670 4 777 6 419 5 531Experience adjustments arising on plan assets 2 800 5 913 (2 002) 8 538 5 879The bank expects to pay E5 588 995 (2010 : E3 382 173) in contributions in 2011.25. Financial risk managementThe bank’s financial instruments arise directly from its operations and comprise coin and banknotes, balances with central and other banks, treasury bills, investments, loans, overdrafts, leases,savings accounts, deposit and loan accounts, accrued interest and other creditors, remittances intransit, and indebtedness by and to the holding company and fellow subsidiaries. The main purposeof these financial instruments is to earn income from banking operations. The bank also enters intoderivative contracts principally forward foreign currency contracts on behalf of customers.The bank has exposure to the following risks from financial instruments:• Market risk• Credit risk• Liquidity riskRisk management frameworkThe Board together with Nedbank Africa (a division of Nedbank Limited), the Credit Committeeand the Assets and Liabilities Committee (ALCO) assess and monitor risks based on policiesformulated in conjunction with the holding company and approved by the Board of Directors.The bank’s risk management policies are established to identify and analyse the risks faced bythe bank, to set appropriate risks limits and controls, and to monitor risks and adherence tolimits. Risk management polices and systems are reviewed regularly to reflect changes in marketconditions, products and services offered.The Risk Committee is responsible for monitoring compliance with the bank’s risk managementpolicies and procedures, and for reviewing the adequacy of the risk management framework inrelation to the risks faced by the bank. Internal Audit undertakes both regular and ad-hoc reviewsof risk management controls and procedures.The methods for assessing and monitoring used in the current year are consistent with prioryears. There were no financial assets and liabilities reclassified in the current period (2009 : Nil).131Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)25. Financial risk management (continued)25.1 Market riskMarket risk is the risk of a decrease in the value of a portfolio as a result of an adverse move in marketvariables. This exists where the bank has a trading position or financial instrument denoted in foreigncurrencies. The bank’s major exposure from trading operations and financial instruments denoted inforeign currencies is undertaken in terms of general authority granted to ALCO by the Board of Directorsand is controlled within the treasury operations. Trading limits are pre-determined and exposure tomarket risk is limited as counterparty positions are taken with the holding company for all materialtrades of forward foreign currency contracts. The bank’s market risk comprises of interest rate risk andcurrency risk. The principal tool used to measure and control market risk is back to back hedging forforeign currency risk and repricing and gap analysis for the interest rate risk.25.2 Credit riskCredit risk is the risk of financial loss to the bank if a customer or counterparty to a financial instrumentfails to meet its contractual obligations. Direct credit risk arises as a result of traditional lending anddealing with others. Indirect credit risk arises as a result of issuing guarantees and similar undertakings.Generally lending decisions are made in accordance with credit management parameters laid downby AFCRAM (Africa Credit Risk Management Committee). There are reporting requirements designedto identify unsatisfactory accounts at an early stage. Distinction is drawn between the fundamentalcredit characteristics of corporate customers and smaller individual advances. Policies are in place toensure that the bank is not overexposed to particular concentrations of credit. Lending decisions aremade by credit managers or in the case of large exposures by the appropriate Credit Committee. Anyfacility requests in excess of the Credit Committee’s lending limit are referred to the Africa Credit RiskManagement Committee at Nedbank Limited. All facilities are risk rated against a standard rating scaleand are reviewed at least annually.Exposure to credit riskNote 2010 2009EELoans and receivables at amortised costLoans and advances 7 1 234 615 071 1 355 911 289Cash and cash equivalents 5 498 673 125 353 862 094Amounts due from banks 9 7 420 821 5 991 046Other receivables 10 5 730 357 34 499 3791 746 439 374 1 750 263 808Held for trading at fair value through profit or lossGovernment and public sector securities* 6 368 044 121 175 846 668Derivative assets held for risk management** 25 19 717 564 34 090 933Investments 12 1 905 020 375 020389 666 705 210 312 6212 136 106 079 1 960 576 429* Treasury bills with the Central Bank of Swaziland** Derivative assets are with related counterpartiesNedbank (Swaziland) Limited Annual Report 2010132

25. Financial risk management (continued)25.2 Credit risk (continued)Impaired loans and advancesFor individually assessed accounts, loans are treated as impaired as soon as there is objective evidencethat an impairment loss has been incurred. The criteria used by the bank to determine that there issuch objective evidence includes, inter alia:Known cash flow difficulties experienced by the borrower;Overdue contractual payments of either principal or interest;Breach of loan covenants or conditions;The probability that the borrower will enter bankruptcy or other financial realisation; andA significant downgrading in credit rating by an external credit rating agency.The IAS 39 impairment allowance is calculated based on the difference between the outstandingadvances balances and the present value of expected future cashflows.The Central Bank of Swaziland impairments are divided into two; namely Specific impairments whichare based on 100% of the loss position (Outstanding advances balance has the market value ofcollateral) and General impairments which are based on a certain percentage of performing advancesbook (based on the historical performance of the advances book).The difference between IFRS impairments and CBS impairments is credited to the general risk reserve.25.2.1 Credit commitments and guaranteesThe bank has outstanding, at any time, a significant number of commitments to extend credit.To accommodate major customers the bank also provides financial guarantees to third parties.These arrangements are subject to strict credit assessments. Guarantees specify limits to thebank’s obligations as set out in note 21. The bank has entered into contracts (letters of credit) thatrequire it to make specified payments to reimburse the holder for a loss it makes if a debtor fails tomake a payments when it falls due in accordance with the debt instrument in place. Because mostcommitments and almost all guarantees expire without being funded in whole or in part, the contractamounts are not estimates of future cash flows. Loan commitments, letters of credit and guaranteeshave off balance sheet credit risk amounts equal to the contractual amounts.133Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)25. Financial risk management (continued)25.2 Credit risk (continued)25.2.2 Concentrations of credit riskConcentrations of credit risk arising from financial instruments exist in relation to certain groups ofcustomers. A group concentration arises when a number of counterparties have similar economiccharacteristics that would cause their ability to meet contractual obligations to be similarly affected bythe changes in economic and other conditions. The bank has exposure to major concentrations of creditrisk which arise by customer type in relation to loans and credit commitments to specific industries(refer note 7.2 for sectoral analysis).The bank monitors concentrations of credit risk by sector. An analysis of concentrations of credit riskfrom loans and advances at reporting date is as follows:-- sugar wholesaling entity E20.4 million (2009 : E126.1 million)- public sector entity E29.7 million (2009 : E41.0 million)- construction company E155.0 million (2009 : E63.2 million)- manufacturing company E49.6 million (2009 : E35.1 million)- sugar packaging entity E15.6 million (2009 : E37.0 million)These facilities are subject to risk participation agreements between the bank and Nedbank Limited. Theeffect of these agreements is to limit the bank’s exposure for each of these facilities to 25% of the bank’spublished capital and reserves at the end of the previous year : E254.4 million (2009 : E213.7 million).25.2.3 Collateral and other credit enhancementsCollateral and other credit enhancement held by the bank at year end are disclosed in note 7.4 for nonperformingloans and advances. The value of all collateral that the bank is permitted to sell or repledgeheld at year end was E3 278 021 685 (2009: E418 621 517) all of which are readily convertible into cash.The bank holds collateral against loans and advances to customers in the form of mortgage interestover property, other registered securities and guarantees. The amount and type of collateral requireddepends on an assessment of the credit risk of the counterparty. The main types of collateral are asfollows:For commercial lending, charges over real estate properties, inventory, call and fixed deposits andtrade receivables; andFor retail lending, mortgages over residential properties and lien over call and fixed deposits.For non-performing advances, collateral are cash, funds on security realisation accounts, ABC,guarantees by CBS and mortgage bonds.At year end, the fair value of financial assets accepted as collateral that have been sold was E10 512 674(2009 : E6 720 362). These transactions are conducted under terms that are usual and customary tostandard lending transactions.Nedbank (Swaziland) Limited Annual Report 2010134

25. Financial risk management (continued)25.2 Credit risk (continued)25.2.4 Financial assets that are either past due or impairedPast due but not impaired loans and advances are those for which contractual interest or principalpayments are past due, but the bank believes that impairment is not appropriate on the basis of thestage of collection of amounts owed to the bank.Financial assets of the bank which were neither past due or impaired at year end amount to E1 221million (2009: E1 340 million) and are disclosed in note 7.1Financial assets of the bank which were either past due or impaired at year end are disclosed in note7.4 and in the past dues but not impaired below. Factors considered in deteriorating impairment aredisclosed in note 25.2Financial assets of the bank which were past due but not impaired are as follows:2010 Total 0 – 30 days 30 – 60 days 60 – 90 days +90 daysClass E E E E EMortgage loans 461 088 357 776 86 000 16 509 803Leases 1 536 218 1 051 764 416 285 57 554 10 614Personal loans 126 269 108 671 12 998 3 358 1 242Other loans 2 708 675 2 614 018 79 884 13 151 1 6234 832 250 4 132 229 595 167 90 572 14 2822009 Total 0 – 30 days 30 – 60 days 60 – 90 days +90 daysClass E E E E EMortgage loans 577 196 428 947 82 550 43 008 22 691Leases 1 318 479 837 383 352 865 86 375 41 856Personal loans 575 962 508 362 42 541 18 348 6 711Other loans 2 381 822 2 349 916 20 546 8 482 2 8784 853 459 4 124 608 498 502 156 213 74 136135Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)25. Financial risk management (continued)25.2 Credit risk (continued)25.2.5 Loans with re-negotiated termsLoans with re-negotiated terms are loans that have been restructured due to deterioration in theborrower’s financial position and where the bank has made concessions that it would not otherwiseconsider. Re-negotiated loans at year end are as follows:Class 2010 2009EEMortgage loans 255 886 2 663 591Leases 6 739 5 446 705Personal loans - 10 596Other loans - 549 025262 625 8 669 917The value of properties in possession at year end was E nil (2009: E87 514. This property was convertedinto cash).25.2.6 Write off policyThe bank writes off a loan and any related allowance for impairment losses when it is determined thatthe loan or security is uncollectible. This determination is made after consideration of information suchas the occurrence of significant changes in the borrower’s financial position such that the borrower canno longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entireexposure.25.3 Liquidity riskLiquidity risk is the risk that the bank will encounter difficulty in meeting obligations associated with itsfinancial liabilities that are settled by delivering cash or another financial asset. This risk arises mainly inthe treasury operations. ALCO is responsible for ensuring that the bank meets its planned commitmentsas they fall due. The maturities of assets and liabilities are closely monitored and diversified to avoid anyundue concentration of funding requirements at any one time or from any one source.Disclosure of a maturity analysis of financial liabilities is as follows:Nedbank (Swaziland) Limited Annual Report 2010136

25.3 Financial risk management (continued)E E E E E E EGross MoreCarrying nominal Less than 3 months thanNote amount outflow 1 month 1-3 months to 1 year 1-5 years 5 years31 December 2010Non-derivative liabilitiesTrade payables 20, 24 86 095 127 86 095 127 86 095 127 - - - -Deposits from banks 17 1 377 676 1 377 676 1 377 676 - - - -Deposits from customers 16 1 802 802 688 1 811 351 539 1 545 795 421 39 477 367 226 066 793 11 958 -Funding from other banks 5 56 701 56 701 56 701 - - -1 890 332 192 1 898 881 043 1 633 324 925 39 477 367 226 066 793 11 958 -Derivative liabilitiesRisk management 25.8 18 654 426 18 654 426 18 654 426 - - - -Financial guarantee contracts 21 52 042 210 52 042 210 52 042 210 - - - -31 December 2009Non-derivative liabilitiesTrade payables 20, 24 44 763 815 44 763 815 44 763 815 - - - -Deposits from banks 17 993 929 993 929 993 929 - - - -Deposits from customers 16 1 685 798 083 1 693 176 902 1 375 561 607 198 815 394 118 745 168 54 732 -Funding from other banks 5 159 728 159 728 159 728 - - - -1 731 715 555 1 739 094 375 1 421 479 079 198 815 394 118 745 168 54 732 -Derivative liabilitiesRisk management 25.8 32 868 154 32 868 154 32 868 154 - - - -Financial guarantee contracts 21 115 222 188 115 222 188 115 222 188 - - - -137Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)25. Financial risk management (continued)25.4 Interest rate sensitivity gap analysisInterest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuatebecause of changes in market interest rates.Part of the bank’s return on financial instruments is obtained from controlled mismatching of the dateson which interest receivable on assets and interest payable on liabilities are next reset to market rates or,if earlier, the dates on which the instruments mature. The ALCO is also responsible for management ofthe interest rate sensitivity gap using the re-pricing analysis of assets and liabilities as disclosed in note25.9. The concentration of interest rate risk is disclosed in note 25.9.To measure interest rate risk, the bank measures the responsiveness of the different portfolios to changesin interest rate. From the use of the Basel stress scenario based on a 1 st and 99 th percentile of observedinterest rate changes using a one year holding period and a minimum of five years of observation, thebank calculated 5% and 2.5% respectively. The bank uses this margin to shock its assets and liabilitiesto ascertain the impact of the interest rate changes in profit or loss. The sensitivity analysis is calculatedas follows:2010 2009EE500 bp instantaneous parallel decline in interest rates 33 709 35 062250 bp instantaneous parallel increase in interest rates 16 855 17 53125.5 Operational riskOperational risk is the risk of a loss arising from fraud, transactional or control error or system flaw.Exposures to operational risks are managed by an Operational Risk Committee (ORCO) which wasestablished in January 2006, through an ongoing review of transactional data and reconciling items,evaluation and adoption of international best practice and management of information technologyresources.25.6 Commercial riskThis is the risk of the adverse effect of initiating or suffering change in the scope or extent of businessactivities. The bank and the holding company constantly monitor trends and events and carry outappropriate research with a view to anticipating and avoiding adverse effects.Nedbank (Swaziland) Limited Annual Report 2010138

25. Financial risk management (continued)25.7 Currency riskCurrency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuatebecause of changes in foreign exchange rates.The following net foreign exchange assets recognised in the statement of financial position are notcovered by forward exchange contracts:2010 2010 2009 2009Foreign Local Foreign Localcurrency currency currency currencyE’000 E’000 E’000 E’000British Pounds 20 201 6 74United States Dollars 3 20 19 142Canadian Dollars 11 75 17 121Euros 31 271 33 348Botswana Pula 8 7 22 24Other 6 40 - 69614 778These assets make up less than 5% of the bank’s total assets. These funds do not belong to the bank,but held by the bank on behalf of clients, any foreign exchange exposure is directly taken by the client.As such, a sensitivity analysis is not included.Forward foreign exchange contracts are denominated mainly in British Pounds, United States Dollars andEuros and constitute of fully covered positions. When entering into forward foreign exchange contracts,credit risk is assessed with reference to customers’ available facilities.139Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)25. Financial risk management (continued)25.8 Derivative financial instrumentsThe following tables summarise the effect of trading forward exchange contracts entered into by the bank at the reporting date:-After 1 Net Netyear but Fair Fair contract/ Net Fair Fair contract/Within 1 within 5 After 5 Net fair value value of Notional fair value value of notionalyear years years value of assets liabilities Amount value of assets liabilities amount2010 2010 2010 2010 2010 2010 2010 2009 2009 2009 2009E’000 E’000 E’000 E’000 E’000 E’000 E’000 E’000 E’000 E’000 E’000Maturity analysis ofnet fair valueForeign exchangederivatives 1 063 - - 1 064 19 718 (18 654) 387 1 223 34 091 32 868 465Forwards - - - - - - - - - -Interest rate derivatives - - - - - - - - - -Swaps - - - - - - - - - - -Total derivative assets/(liabilities) held for trading 1 063 - - 1 064 19 718 (18 654) 387 1 223 34 091 32 868 465Nedbank (Swaziland) Limited Annual Report 2010140

25. Financial risk management (continued)25.8.1 Derivative financial instrumentsThese transactions have been entered into in the normal course of business and no material losses areanticipated other than those for which provision has been made in the statement of comprehensiveincome. There are no commitments or contingent commitments under derivative financial instrumentsthat are settled other than in cash.25.8.2 Notional principalRepresents the gross value of all outstanding contracts as at 31 December 2010. This gross notionalvalue is the sum of the absolute value of all purchases and sales of derivative instruments. This amountreflects the amount receivable or payable under a derivative contract. The notional amount representsonly the measure of involvement by the bank in derivative contracts and not its exposure to market orcredit risks arising from these contracts.25.8.3 Fair value of financial instrumentsThe amounts disclosed represent the fair value of all derivative financial instruments held as at 31December 2010. The fair value of a financial instrument is the amount at which the instrument couldbe exchanged in a current transaction between willing parties other than in a forced sale or liquidationsale. The fair value of a derivative financial instrument represents the market value if the rights andobligations arising from that instrument were closed out by the bank in normal trading conditions as at31 December 2010. Fair values are obtained from quoted market prices, discounted cash flow models,and market-accepted pricing models. All derivative financial instruments mature in less than 12 months.At 31 December 2010 the carrying amount of on-balance sheet assets and liabilities approximatedtheir fair values. Management’s valuation of unlisted investments is equal to the carrying value. Allunlisted investments were valued at cost at 31 December 2010. Disclosure of fair value is not providedbecause their fair value cannot be reliably measured. The SAECH investment is an investment in amutual breakeven entity that provides transaction processing and settlement services to all the banks inSwaziland. The bank does not have a significant influence over this investment as this is a shared serviceentity under the control of the Central Bank of Swaziland, the administrator. The investment in SIDC isin an entity that plays the role of a facilitator for private sector investments in Swaziland, in line withgovernment’s policy of supporting private sector development as a key factor for economic growth andemployment creation. The bank is not considering disposing these two investments due to the natureof investment and the unavailability of markets. The Lilangeni fund is a unit trust investment throughAfrican Alliance. The bank does not hold significant percentages nor have control of this investment.There have been no changes in valuation techniques during the year under review.141Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)25. Financial risk management (continued)25.8.3 Fair value of financial assets and liabilities (continued)Fair Value HierarchyThe bank measures fair values using the following fair value hierarchy that reflects the significance of theinputs 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 inputs, either directly (i.e as prices) or indirectly(i.e derived from prices). This category includes instruments valued using: quoted market pricesin active markets for similar instruments; quoted prices for identical or similar instruments inmarkets that are considered less than active; or other valuation techniques where all significantinputs are directly or indirectly observable from market data.• Level 3 : Valuation techniques using significant unobservable inputs. This category includes allinstruments where the valuation technique includes inputs not based on observable data andthe unobservable inputs have a significant effect on the instrument’s valuation. This categoryincludes instruments that are valued based on quoted prices for similar instruments wheresignificant unobservable adjustments or assumptions are required to reflect differences betweenthe instruments.Fair values of financial assets and financial liabilities that are traded in active markets are based on quotedmarket prices or dealer price quotations. For all other financial instruments the bank determines fair valuesusing valuation techniques.The table below analyses financial instruments measured at fair value at the end of the reporting period bythe level in the fair value hierarchy in to which the fair value measurement is categorisedLevel 1 Level 2 Level 3 TotalE E E E31 December 2010Trading assets - - - -Derivative assets held for risk management - 19 717 564 - 19 717 564Investment securities 368 044 121 2 137 767 375 000 370 556 888368 044 121 21 855 331 375 000 390 274 452Trading liabilitiesDerivative liabilities held for risk management - 18 654 426 - 18 654 426- 18 654 426 - 18 654 42631 December 2009Trading assets 87 514 - - 87 514Derivative assets held for risk management - 34 090 933 - 34 090 933Investment securities 175 846 668 607 767 375 000 176 829 435175 934 182 34 698 700 375 000 211 007 882Trading liabilitiesDerivative liabilities held for risk management - 32 868 154 - 32 868 154There were no movements (transfers) in level 3 and as such a reconciliation has not been included.25.8.4 Details of the bank’s risk management structure, policies and methods are set out in notes 25 to andthe interest rate risk analysis is detailed in note 25.9.Nedbank (Swaziland) Limited Annual Report 2010142

25. Financial risk management (continued)25.8.5 Capital managementThe bank’s capital management policies have not changed to those from prior years. The bankreports to the regulator which is the Central Bank of Swaziland (“CBS”) which monitor thebanks’ capital requirements.In implementing current capital requirements the bank has to maintain prescribed ratios ofcapital to total risk-weighted assets. The bank has complied with the externally imposedcapital requirements as in prior years.Capital is classified into two tiers for regulation purposes:Tier I capital, which includes ordinary share capital, share premium, retained earnings andother regulatory adjustments.Tier II capital, which includes qualifying subordinated liabilities and an element of the fairvalue reserve relating to unrealised gains on instruments classified as available for sale.The bank’s regulatory capital position at 31 December was as follows:2010 2009E’000 E’000Tier I CapitalOrdinary share capital 11 931 11 931Share premium 7 952 7 952Statutory reserves 37 722 31 781Retained earnings 127 984 101 888Profit for the year 59 398 49 107244 987 202 659Tier II CapitalGeneral debt provision 15 259 13 571Revaluation reserves 615 61515 874 14 186Total regulatory capital 260 861 216 845143Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)2010 2009EE25. Financial risk management (continued)25.8.5 Capital management (continued)Risk weighted assetsCBS calculated total 1 290 374 1 347 031Capital ratiosTotal capital as % of total risk weighted assetsCBS 20.2% 16.1%Total tier 1 as % of risk weighted assetsCBS 19.0% 15.4%Nedbank (Swaziland) Limited Annual Report 2010144

25. Financial risk management (continued)25.9 Repricing analysis of assets and liabilitiesCall and 2 3 4 - 6 7 - 9 10 - 12 Over 12 Non-rate1 month months months months months months months sensitive Total2010 E’000 E’000 E’000 E’000 E’000 E’000 E’000 E’000 E’000AssetsCash and short term funds 107 996 - - - - - - 83 401 191 397Other short-term funds 24 347 24 347Government and public sectorsecurities 109 470 64 873 24 675 169 026 - - - - 368 044Advances and other accounts- overdrafts 167 211 - - - - - - - 167 211- mortgages 260 826 - - - - - - - 260 826- other 797 812 - - - - - - 8 765 806 577Group companies 129 608 - 76 043 - 97 894 - - 3 124 306 669Investments - - - - - - - 983 983Fixed property and equipment - - - - - - - 22 692 22 692Derivative asset - - - - - - - 19 718 19 718Total assets 1 572 923 64 873 100 718 169 026 97 894 - - 163 030 2 168 464Liabilities and shareholders’ fundsCurrent accounts - - - - - - - 458 643 458 643Call and demand deposit accounts 871 089 - - - - - - - 871 089Savings deposits 150 672 - - - - - - - 150 672Group companies 57 - - - - - - - 57Other deposits and liabilities 38 668 7 494 8 428 62 062 128 496 30 254 12 139 570 414 983Derivative liabilities - - - - - - - 18 654 18 654Shareholders’ funds - - - - - - - 254 366 254 366Total liabilities and shareholders’funds 1 060 486 7 494 8 428 62 062 128 496 30 254 12 868 233 2 168 464Interest rate sensitivity gap 512 438 57 379 92 290 106 964 (30 602) (30 254) (12) (708 203) -Cumulative gap 512 438 569 817 662 107 769 071 738 469 708 215 708 203 - -145Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)25. Financial risk management (continued)25.9 Repricing analysis of assets and liabilities (continued)Call and 2 3 4 - 6 7 - 9 10 - 12 Over 12 Non-rate1 month months months months months months months sensitive Total2009 E’000 E’000 E’000 E’000 E’000 E’000 E’000 E’000 E’000AssetsCash and short term funds 141 176 - - - - - - 88 989 230 165Other short-term funds - - - - - - - 45 207 45 207Government and public sectorsecurities 91 639 64 91 7 - 19 290 - - - - 175 846Advances and other accounts - - - - - - - - -- overdrafts 89 839 - - - - - - - 89 839- mortgages 203 870 - - - - - - - 203 870- other 1 040 431 - - - - - - 21 771 1 062 202Group companies 123 090 - - - - - - - 123 090Investments - - - - - - - 983 983Fixed property and equipment - - - - - - - 15 987 15 987Derivative assets - - - - - - - 34 091 34 091Total assets 1 690 045 64 917 - 19 290 - - - 207 028 1 981 280Liabilities and shareholders’ fundsCurrent accounts - - - - - - - 333 103 333 103Call and demand deposit accounts 783 710 - - - - - - - 783 710Savings deposits 139 800 - - - - - - - 139 800Negotiated rate depositsForeign deposits - - - - - - - 994 994Group companies 160 - - - - - - - 160Other deposits and liabilities 109 620 40 498 27 758 12 292 4 420 98 979 53 183 305 476 925Derivative liabilities - - - - - - - 32 868 32 868Shareholders’ funds - - - - - - - 213 720 213 720Total liabilities and shareholders’funds 1 033 290 40 498 27 758 12 292 4 420 98 979 53 763 990 1 981 280Interest rate sensitivity gap 656 755 24 419 (27 758) 6 998 (4 420) (98 979) (53) (556 962) -Cumulative gap 656 755 681 174 653 416 660 414 655 994 557 015 556 962 - -Nedbank (Swaziland) Limited Annual Report 2010146

26. Related partiesRelated parties comprise the Nedbank Group Limited group of companies.26.1 Amounts due/to by holding company and fellow subsidiaries2010 2009E’000 E’000Amounts due by holding company and fellowsubsidiariesNedbank Limited (included in Note 5) 306 669 123 090Amounts due to holding company and fellowsubsidiariesNedbank Limited - overdraft (Note 5) 57 160Transactions with related companies are on an arm’slength basis and the terms and conditions are reflectedin the relevant note.26.2 Related party transactionsFunds are invested with and by correspondent banks(within the group) and interest at commercial rates hasbeen (received) and paid as follows:Interest received – Nedbank group (parent) 34 663 31 736Interest paid – Nedbank Lesotho (fellow subsidiary) 4 79Included in other operating expenses are the followingamounts paid to parent companyManagement fees paid 20 839 11 900Computer support 1 159 200Group insurance 657 657Risk participating fee 1 277 1 465No impairments have been recognised for loans granted to fellow related entities.147Nedbank (Swaziland) Limited Annual Report 2010

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2010 (continued)26. Related parties (continued)Transactions with key management personnelKey management personnel are those who have authority and responsibility for planning,directing and controlling the activities of the bank, directly or indirectly, including all directors ofthe company as well as close members of the family of any of these individuals.Details of compensation paid to the board of directors are disclosed in note 2.4 to the financialstatements.Transactions with key management personnel include salaries, bonuses and loans.Compensation paid to the board of directors and compensation paid to other key managementpersonnel, as well as shared-based payment transactions, are shown below:CompensationKeymanagementDirectors personnel TotalE E E2010Directors’ fees 264 915 - 264 915Remuneration 1 047 821 5 405 583 6 453 404Short term employee benefits 632 141 4 296 468 4 928 609Share based payments 322 523 583 822 906 345Post employment benefits 93 157 525 293 618 4501 312 736 5 405 583 6 718 319KeymanagementDirectors personnel TotalE E E2009Directors’ fees 276 299 - 276 299Remuneration 1 301 515 4 036 192 5 337 707Short term employee benefits 1 169 435 3 608 444 4 777 879Share based payments - - -Post employment benefits 132 080 427 748 559 8281 577 814 4 036 192 5 614 006Nedbank (Swaziland) Limited Annual Report 2010148

26. Related parties (continued)Transactions with key management personnel (continued)Number of restricted shares and share options2010 2009E’000 E’000Restricted SharesGranted 129 412 -Forfeited (82 353) -Outstanding at year end 47 059 -Share OptionsGranted 517 647 -Forfeited (329 412) -Outstanding at year end 188 235 -E’000 E’000Loans to key personnelMortgage lending and other secured loans 5 307 7 737Other loans 389 2695 696 8 006No impairments has been recognised for loans granted to key management. These loans arerepayable monthly over a period of 20 years for mortgages and these loans are collaterised bythe properties that were financed26.3 Related party contingent liabilities and commitmentsThere were no guarantees issued in favour of the holding company (2009 : Nil). Forward foreigncurrency exchange contracts are entered into with the holding company – refer note 25.8.27. Operating segmentsThe directors of the bank have determined that they operate the bank and report as onlyone segment, both in terms of business and geography after taking into consideration theinternal organisational and management structure, the system of internal financial reporting,the services/products offered, the markets and customers. As such, no segment reporting isnecessary.149Nedbank (Swaziland) Limited Annual Report 2010

ANNUAL GENERAL MEETINGNOTICE TO SHAREHOLDERSNotice is hereby given that the 36th Annual General Meeting of the members of Nedbank (Swaziland)Limited will be held on Friday 20 May, 2011 in the Boardroom at Mountain Inn, Princess Drive, MountainView, Mbabane at 14h15 hours to transact the following business:-1. To approve the Minutes of the Annual General Meeting held on 25 May 2010.2. To receive, consider and adopt the Annual financial Statements for the year ended31 December 2010, together with the Reports of the Directors and Auditors thereon.3. In order to comply with Section 20(1) of the Financial Institutions Act, 2005 SZL5 939 789.30to be transferred to a Statutory Reserve Account being an amount not less than 10% of the netprofit for the period.4. To note and confirm the final dividend of 85c per share for the year ended 31 December 2010,declared on 4 March, paid to members on 20 May 2011.5. To appoint Independent Auditors for the ensuing year and to authorise directors to determinethe remuneration of the company’s auditors and fix the remuneration of the Auditors for the pastyear.7. In accordance with Article 100 of the Articles of Association, Mr. R Cupido retire as a Directors andbeing willing and eligible offer themselves for re-election.8. To note and confirm the remuneration paid to Directors for the past financial year.By Order of the BoardP. GWEBUCOMPANY SECRETARYNedbank (Swaziland) Limited Annual Report 2010150

DEFINITIONSATMAutomated teller machine. A cash machine or free-standing device dispensing cash, which may alsoprovide other information or services to clients who have a card and a personal identifi cation number,password or other personal identification.BASEL CAPITAL ACCORD (BASEL II)The new Basel Capital Accord (Basel II) of the Bank for International Settlements is an improved capitaladequacy framework accomplished by closely aligning banks’ capital requirements with improvedmodern risk management practices and sophisticated risk assessment capabilities. It further ensuresthe risk sensitivity of the minimum capital requirements by including supervisory reviews and marketdiscipline through enhanced disclosure.CAPITAL ADEQUECY RATIO (CAR)The capital adequacy of South African banks is measured in terms of the South African Banks Actrequirements. The ratio is calculated by dividing the primary (Tier 1), secondary (Tier 2) and tertiary(Tier 3) capital by the risk-weighted assets.CAPITAL RISKThe risk that the group will become unable to absorb losses, maintain public confi dence and support thecompetitive growth of the business. This entails ensuring that opportunities can be acted on timeously,while solvency is never threatened.CASHFLOWFinancing activitiesActivities that result in changes to the capital and liability structure of the bank.Investment activitiesActivities relating to the acquisition, holding and disposal of subsidiaries, property and equipment andlong-term investments.Operating activitiesActivities that are not financing or investing activities and that arise from the operations conducted bythe bank.COMPLIANCE RISKThe risk to earnings and capital arising from violations of or non-compliance with laws, rules andregulations, as well as internal bank policies and authority levels, prescribed practices and ethicalstandards.CREDIT RISKThe risk to earnings and capital arising from the probability of borrowers and counterparties failing tomeet their repayment commitments, (including accrued interest). Credit concentration risk arises ona portfolio basis where the bank has significant aggregated exposures to particular credit segments,sectors of industry or other portfolio.151Nedbank (Swaziland) Limited Annual Report 2010

DEFINITIONSDEFERRED TAXATION ASSETSDeferred taxation assets are the amounts of income taxation recoverable in future years in respect of:• Deductible temporary differences arising from differences between the taxation and accountingtreatment of transactions; and• the carry-forward of unused taxation transactions.DEFERRED TAXATION LIABILITIESDeferred taxation liabilities are the amounts of income taxation payable in future years as a result ofdifferences between the taxation and accounting treatment of transactions.DIVIDEND DECLARED PER SHAREDividend per share is the actual interim dividend paid/capitalisation award issued and the final dividend/capitalisation award declared for the year under consideration, expressed in cents.EARNINGS PER SHARE (EPS)Basic earnings basisIncome attributable to equity holders for the year divided by the weighted average number of ordinaryshares in issue (net of shares held by bank entities) during the year.Headline earnings basisHeadline earnings divided by the weighted average number of shares in issue (net of shares held by bankentities) during the year.EFFICIENCY RATIO (COST-TO-INCOME RATIO)Total operating expenses (excluding indirect taxation) as a percentage of total income from normaloperations (net interest income plus non-interest revenue).ENTERPRISE-WIDE RISKAll risk types and categories across all business lines, functions, geographical locations and legal entitiesof the bank collectively known as its ‘risk universe’.ERCOEnterprisewide Risk Committee.ERMFEnterprisewide Risk Management Framework.Nedbank (Swaziland) Limited Annual Report 2010152

EXPENSES TO AVERAGE ASSETSOperating expenses for the year divided by average total assets.GROSS DOMESTIC PRODUCT (GDP)The total market value of the goods and services produced by a country’s economy during a specificperiod of time.HEADLINE EARNINGSHeadline earnings do not measure maintainable earnings. For purposes of definition and calculation theguidance given on headline earnings, as issued by the South African Institute of Chartered Accountants incircular 07/02 of December 2002, has been used. Headline earnings consist of the earnings attributableto ordinary shareholders, excluding non-trading and capital items.HEDGEA risk management technique used to insulate fi nancial results from market, interest rate of foreigncurrency exchange risk (exposure) arising from normal banking operations. The elimination or deductionof such exposure is accomplished by establishing offsetting positions. For example, assets denominatedin foreign currencies can be offset against liabilities in the same currencies or through the use of foreignexchange hedging instruments such as futures, options or foreign exchange contracts.IFRSInternational Financial Reporting Standards, as adopted by the International Accounting StandardsBoard, (IASB), and interpretations issued by the International Reporting Interpretations Committee(IFRIC) of the IASB. Nedbank Group’s consolidated financial statements are prepared in accordancewith (IFRS).IMPAIREMENT OF LOANS AND ADVANCESImpairment of loans and advances arises where there is objective evidence that the bannk will not beable to collect an amount due. The impairment is the difference between the carrying amount and theestimated recoverable amount.INTEREST RATE RISKInterest rate risk in the banking book is the risk that a bank’s earnings or economic value will decline asa result of changes of bank assets, liabilities and off-balance-sheet positions;• basis risk-imperfect correlation in the adjustment of the rates earned and paid on differentinstruments with otherwise similar repricing characteristics;• yield curve risk changes in the shape and slope of the yield curve; and• embedded-options risk – pertaining to interest-related options embedded in bank products.153Nedbank (Swaziland) Limited Annual Report 2010

DEFINITIONSKING III (THE CODE)The King Report on Corporate Governance 2002, which sets out principles of good corporate governancefor companies and organisations.MARKET RISKMarket risk is the potential impact on earnings of unfavourable changes in foreign exchange rates,interest rates, prices, market volatilities and liquidity. Market risk includes trading risk and, in terms ofthe banking book, derivative instruments used for hedging risk in non-trading portfolios, investment risk,translation risk and interest rate risk. Investment risk arises from changes in the fair value of investmentsand includes private equity and property as well as strategic investments.NON-INTEREST REVENUE TO TOTAL INCOMEIncome from normal operations, excluding net interest, as a percentage of total income from normaloperations.OPERATIONAL RISKThe risk loss resulting from inadequate or failed internal processes and systems, incompetent people orexternal events. This defi nition includes legal risk.ORDINARY SHAREHOLDERS’ FUNDSTotal equity attributable to equity holders of the parent.PERFORMING ADVANCESLoans and advances on which all instalments have been paid to date.RETURN ON TOTAL ASSETSHeadline earnings expressed as a percentage of average total assets.RETURN ON ORDINARY SHAREHOLDERS’ EQUITY (ROE)Headline earnings expressed as a percentage of average equity attributable to equity holders of theparent.STRATEGIC RISKStrategic risk relates to the consequences that arise when the environment in which decisions thatare hard to implement quickly and to reverse has an unattractive or adverse impact. Strategic riskultimately has two elements; doing the right thing at the right time; and doing it well.Nedbank (Swaziland) Limited Annual Report 2010154

NOTES155Nedbank (Swaziland) Limited Annual Report 2010

NOTESNedbank (Swaziland) Limited Annual Report 2010156

CONTACT DETAILSHEAD OFFICECnr. Dr. Sishayi & Sozisa RoadsP.O. Box 68, MbabaneTel: +268-408 1000Fax: +268-404 4060Website: www.nedbank.co.szGWAMILE STREET BRANCH, MBABANE21 Gwamile StreetP.O. Box 70, MbabaneTel: +268-404 8249Fax: +268-404 9132THE GABLESThe Gables Shopping Centre, EzulwiniP.O. Box 70, MbabaneTel: +268-416 3458Fax: +268-416 3476MATSAPHA BRANCHBig Tree Shopping CentreP.O. Box 325, MatsaphaTel: +268-518 5554Fax:+268-518 5727MANZINI BRANCHCnr. Nkoseluhlaza & Low StreetsP.O. Box 11, ManziniTel: +268-505 2441/3Fax: +268-505 2059ARCADE BRANCH, MANZINIAlidas Arcade, Tenbergen StreetP.O. Box 11, ManziniTel: +268-505 4510Fax: +268-505 4629SIMUNYE BRANCH, SIMUNYESimunye Plaza, Simunyec/o P.O. Box 325, MatsaphaTel: +268-383 8361/2Fax:+268-383 8361/2MANKAYANE AGENCY, MANKAYANEThuthuka Shopping Centre,MankayaneTel: +268-538 8209NHLANGANO BRANCHThuthuka Shopping Centre,P.O. Box 1352, NhlanganoTel: +268-207 7733/5Fax: +268-207 7758

www.nedbank.co.sz