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01Governance Financial Statements

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Overview

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Orient Bank LimitedAnnual Report 2015

Simply log on to www.orient-bank.com

UTILITIES

TAXES

SHOPPING

RENT

SUPPLIERS SALARIES

SCHOOLFEES

Log in

WELCOME TO ORIENT ONLINE!

User ID

Password

WITH ORIENT ONLINE

SNAPPY BANKINGNOW POSSIBLE

For details, ask any of our staff or;0800 144551 (Toll Free)

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Orient Bank Limited Annual Report 2015 04

OverviewOur profile 4

Our Delivery Channels and Products 6

Corporate Information 8

GovernanceChairman’s Statement 10

Managing Director/ CEO’s Statement 12

Board of Directors’ Profiles 14

Executive Committee 18

Directors’ Report 19

Statement of Directors’ Responsibilities 20

Report of the Independent Auditors 21

Financial StatementsConsolidated Statement of Comprehensive Income 22

Bank Statement of Comprehensive Income 23

Consolidated Statement of Financial Position 24

Bank Statement of Financial Position 25

Consolidated Statement of Changes in Equity 26

Bank Statement of Changes in Equity 27

Consolidated Statement of Cash flows 28

Bank Statement of Cash flows 29

Notes to the Financial Statements 30

Table of ConTenTs



Overview

S R

P

I

our Profile

ServiceCustomers will always want to talk to us and they believe we can solve their problems. This is why at Orient Bank, we care more than others. We take risk for the sake of service and we dream more than others think practical. We expect more than others think possible.

PassionEnthusiasm at Orient Bank is the most powerful engine of our success. When we do something, we do it with all our might. We put our soul into our work and stamp it with our own personality in order to accomplish our customers’ objectives. We believe that nothing great was ever achieved without enthusiasm.

InnovationAt Orient Bank, our discovery focuses on seeing what everybody has not seen and thinking what nobody has thought.” As Team members of Orient Bank, we make discovery and excite customers with our product offerings which we continuously develop to make your banking enjoyable and pleasurable.

ResilienceOrient bank’s resilience is rooted in a tenacity of spirit; a determination to embrace all that makes life worth living even in the face of overwhelming odds. When we have a clear sense of identity and purpose, we are more resilient, because we can hold fast to our vision of a better future.

IntegrityThe supreme quality for leadership is unquestionably integrity. Without it, no real success is possible, whether it is on a section gang, a football field, in an army, or in an office and most especially in Banking. At Orient Bank we lead with integrity.

TeamworkOur enduring success lies in collaborating and supporting each with the best teams to deliver value for our customers and stakeholders. At Orient Bank, coming together with our customers is a beginning, keeping together is progress and working together is success.

Orient Bank Limited is a leading private sector commercial Bank in Uganda. We have been in operation since 1993 and our performance since has been commendable. This steady growth can be attributed to the professional management and prudent lending and investment policies of the bank.

VisionTo be the pace setter and preferred financial partner for our stakeholders

MissionTo deliver service that provides superior value to our customers

Our Core ValuesWe summarise our core values as SPIRIT

I T


Internet Banking:This is a service that has been designed to enable our customers transact via the Internet. With this service, customers are able to check their account details, view and download account statements, and make internal transfers, among others.

Automated Teller Machines (ATMs):We currently have 23 VISA enabled ATM machines strategically located in different towns. Customers can withdraw money and deposit cash/cheques at the ATM.

Point of Sale (POS) Machines:Orient Bank gives one easy access to their money through our Point of Sale (POS) machines which enable the bank’s customers to pay for goods and services using their Orient Bank VISA CHIP and PIN debit Cards. These POS terminals are very strategically positioned at many merchants places of business and they accept VISA.

Mobile Banking:Orient Bank gives you a finger-tip convenient way of banking. One does not have to visit the Bank or ATM as they can now use their mobile phone to:• Check account balances top up Airtime on mobile phone among others

ORIENT VISA CHIP AND PIN:Our Visa card offers immense opportunities and access to a world of possibilities. Our Visa card is inbuilt with a chip and pin facility which allows for online transactions while enhancing the security features of the card. It can be used used worldwide at any VISA outlet

OUR BRANCH NETWORK:Orient Bank boasts of 21 branches spread across the three main regions of Uganda, including Central, Eastern and Nothern region. Customers can therefore access the Bank’s products and services from any Orient Bank Branch.

our Delivery Channels

DeliveryChannels



Overview

� Foreign Currency Accounts

� Telegraphic Transfer

� Forex

� Standard Current Account (Personal & Business)

� SME Daily Current Account

� Foreign currency current account (Personal & Business)

� Kyakala (Single Tariff ) Account (Personal & Business)

� Premium Account

� Sapphire account

� Classic Saving Accounts

� Dollar Savings Account (DOSA)

� Phuture Children’s Account

� CHAMA Investment Club Account

� Savings Account Plus

� Diaspora Account

� Smart Plan - Target Savings Account

� Commercial Loans

� Overdrafts

� Guarantees/ Perfomance/Bid bonds

We are a customer focused bank and have developed tailor-made products to efficirntly and effectively meet our customers needs

our ProDuCT PorTfolio

� Orient Salary Xpress Loans

� SME Loans

� Letters of Credit

� Guarantees/ Bid bonds

CURRENT ACCOUNTS

RETAIL CREDIT TRADE FINANCE CORPORATE CREDIT

SAVINGS ACCOUNTS

INTERNATIONAL CURRENCY SERVICES

OTHER SERVICES

We have considerable experience in the provision of customer payments and cash management services for big organizations both local and foreign which includes; � Salary Processing

� Internal transfers

� Safe custody

� Collections -

Bill Payments (URA taxes, UMEME, NWSC bills, KCCA charges, NSSF )


CorPoraTe informaTion

DIRECTORS

COMPANY SECRETARY

AUDITOR

REGISTERED OFFICE

COMPANY LAWYERS

Chairman

Vice Chairman

Director

Director

Director (Appointed 16 July 2015)

Director (Appointed 26 March 2015)

Director (Appointed 26 March 2015)

Director (Resigned 20 February 2015)

Director (Resigned 20 February 2015)

Executive Director (Resigned February 2016)

Managing Director

Mr. Michael Cook

Mr. Ketan Morjaria

Mr. Francis M. Byaruhanga

Mr. Joram Kahenano

Mr. Zhong Shuang Quan

Mr. Hemen Shashikant Shah

Mr. Dugald Komla Agble

Mr. Philip Ikeazor

Mr. Okwudili Chigbogwu

Mr. Bernard Magulu R.

Mr. Julius Kakeeto

Nicholas Ecimu C/O Sebalu & Lule AdvocatesCertified Public Secretaries (Uganda)P. O. Box 2255, Kampala

Shonubi Musoke & Company Advocates SM Chambers Plot 14, Hannington Road P. O. Box 3213, Kampala

PricewaterhouseCoopers Certified Public Accountants 10th Floor, Communications House 1 Colville Street, P O Box 882 Kampala

Orient Plaza Plot 6 & 6A, Kampala Road P O Box 3072 Kampala



Overview

branCh neTwork

Head Office/ Main BranchOrient PlazaPlot 6/6A Kampala RoadP.O. Box 3072, Kampala, UgandaTel: +256 414 236012/3/4/5Fax: +256 414 348039

Acacia BranchAcacia Mall - Kisementi+256 414 660924

Arua BranchPlot 12 Avenue Road, Arua TownTel: +256 393 280633

Ben Kiwanuka Street BranchHaider PlazaBasement level+256 414 230938

Bweyale BranchPlot 3c Gulu/ kampala Highway Tel +256 392 614161

Entebbe Town BranchPlot 29, Kampala RoadTel: +256 414 320960

Entebbe Airport BranchAirport Terminal Building Tel: +256 414 320193

Garden City BranchGarden City Mall Tel +256 414 343017

Gulu BranchPlot 15, Awere road, Tel:+256 471 432075

Jinja Town BranchPlot 8 Scindia Road, Tel: +256 434 120340

Branches

Kabalagala BranchKabalagalaTel:+256 414 510726

Katwe BranchMuganzirwazza Plaza+256 414 256227

Kawempe Branch78 Bombo Rd, Kawempe Tel: +256 414 568847

Kikuubo BranchGrand Corner HouseTel : +256 414 257451

Kisekka BranchNakivubo RoadTel : +256 414 255376

Kololo BranchWampewo AvenueTel : +256 414 532143

Makerere BranchHam Towers Makerere Hill Rd+256 414 532143

Mbale BranchPlot 23, Naboa RdTel: +256 454 432253

Nkrumah Road BranchSayuni Tower - Nasser Road+256 414 256243

Ntinda BranchCapital ShoppersTel : +256 414 289533

William Street BranchWilliam StreetTel : +256 414 344950

www.orient-bank.com


Mr. Michael CookChairman Board of Directors

Chairman’s sTaTemenT

2015 was the first full year of operation under the new ownership of the Founders’ Consortium and 8 Miles LLC. It was a challenging year especially in the build up to the February 2016 National Elections. However, in spite of these challenges, the bank was able to register significant improvement including a return to profitability and remains committed to creating value for its customers, shareholders, staff and all its stakeholders and to continually improving its services.

Operating EnvironmentThe Ugandan economy experienced modest in growth in 2015 with GDP growth rising from 4.8% in 2014 to 5% in 2015. This was off the back of increased public investment in energy and transport infrastructure. However growth was below expectation and was the slowest amongst the regional peers of Kenya, Tanzania and Rwanda.

There was exchange rate volatility in the early part of the year with the Uganda shilling depreciating sharply against the United States Dollar, and over the course of 2015 by 17.5%. This together with the rising food prices and rising electricity tariffs had an impact on inflation. Annual Headline Inflation increased from 1.3% in January to 9.3% in December 2015. Annual Core Inflation also rose sharply during the course of the year but stabilised in the last quarter increasing from 2.7% in January to 7.4% in December 2015.

Bank of Uganda took strong action to dampen inflationary pressures by tightening monetary policy from April 2015. The Central Bank Rate was increased steadily from 11% in January to 17% by December 2015. In line with this, there was an increase in lending and deposit rates. Weighted average lending increased from 20.7% in December 2014 to 24.6% in December 2015 resulting in a slowdown in private sector credit.



Overview

Michael Cook - Chairman Board of Directors

Economic activity in the last half of the year was also adversely affected by the build up to the national elections scheduled for February 2016.

Changes in Ownership and Board CompositionIn February 2015, ownership of the bank changed with the Founders’ Consortium led by Dr. Ketan Morjaria acquiring 49% and UK based 8 Miles LLC acquiring 42% of the bank. This resulted in changes to the composition of the board as is highlighted elsewhere in this Report.

Financial PerformanceIn spite of the tough operating environment, Orient Bank returned to profitability posting a modest profit before tax of UGX 492m for the year ending December 2015 versus the previous year’s loss of UGX 13.1bn.

Improved performance was particularly registered in the following areas; � The bank reviewed all its policies to position itself

better for growth

� The bank restructured its Treasury and Credit Operations to make them profitable. This resulted in a sharp drop in non-performing loans ratio from 7.4% to 3.1%

� Total assets grew from UGX 480bn to 551bn

Future OutlookGDP growth is projected at 5% for the year 2016. Growth will be driven by public investment in transport and energy infrastructure and foreign direct investments.

Strategy into the FutureWith new ownership and change in management, the bank reviewed its business strategy. Key to our strategy going forward are 4 pillars; Performance, Service, People and Controls.

The bank is in the process of upgrading its products and services and over the course of 2016 you can expect to see positive results in this area, with focus on digitisation.

ConclusionIn conclusion, the bank’s performance has greatly improved over the last one year with the major milestones being the rebuilding of the foundation and a return to profitability. I would like to thank our Auditors, Legal Advisers and Board Secretary for their professional input and advice. And as always, I am grateful to my fellow Board members for their support and expertise throughout the year.

Finally, on behalf of the Board of Directors I thank the bank’s management and staff for their dedicated service and tireless efforts towards driving the bank’s strategy and restoring profitability, and most of all thank our customers for your patronage and support.

3.1%

551bn

down from 7.4 %

Up from 480bn

Non-performing loans

Total Assets

In spite of the tough operating environ-ment, Orient Bank returned to profitabil-ity posting a modest profit before tax of UGX 492m for the year ending Decem-ber 2015 versus the previous year’s loss of UGX 13.1bn.


Mr. Julius KakeetoManaging Director/ CEO

managing DireCTor/ Ceo’s sTaTemenT

It is a pleasure to present Orient Bank’s annual financial report for the year 2015, a year that was remarkable in two ways;

First, in February 2015 the bank’s ownership was divested to ‘new’ ownership led by the Founder’s Consortium (49%) and the UK based Private Equity Firm - 8 Miles LLC (42%)

Second, in spite of a challenging operating environment, the bank was able to return to profitability posting a profit before tax of 492m versus a loss of 13bn the previous year.

OVERVIEW OF ACHIEVEMENTS FOR FY 2015At the start of the year, the bank was facing some legacy challenges in key areas like non-performing assets, quality of customer service, complex work processes and poor staff morale all of which were affecting the Bank’s performance. Over the last year, the Board and Management have been able to address several issues which in turn has had a positive impact on the bottom line.

Credit ManagementNew leadership was put in place in the Credit Department and this coupled with a new credit policy helped improve our credit analysis and monitoring and reduce our NPA from double digits the previous year to 3%.

Expansion of our Branch NetworkThe bank increased its branch network in Kikuubo which is the heartland of the Ugandan economy by opening our 21st branch on Ben Kiwanuka Street. The branch is already performing well and will help us strengthen our foothold in this segment.

Customer Service2015 saw a remarkable improvement in our customer service delivery and the results were evident on the bottom line. Focus will remain



Overview

on this core area as we look to fortify and build on our expertise in the middle market

FOCUS FOR 2016In 2016 the bank will continue to focus on improving our service delivery channels and strengthening our customer relationships. We shall be enhancing our internet platform, rolling out the VISA infinite and prepaid cards. Additionally, the bank will be integrating customers’ accounts with Mobile Money.

All the above are intended to facilitate customer self-service while expanding the bank’s service channels.

CONCLUSIONI am grateful to our esteemed and loyal customers who have stood by Orient Bank through the years.

The bank remains committed to delivering superior value to you and we look forward to an excellent year ahead.

Julius Kakeeto - Managing Director/ CEO

managing DireCTor/ Ceo’s sTaTemenT

At the start of the year, the bank was facing some legacy challenges in key areas like non-performing assets, quality of customer service, complex work processes and poor staff morale all of which were affecting the Bank’s performance. Over the year however, the Board and Management have been able to address several issues which has in turn had a positive impact on the bottom line.

492mUp from 13.1bn LOSS

Profit before Tax

Non-performing loans down from 7.4 %

3.1%

Current number of branches up from 18 in 2014

21


DUGALD AGBLENon Executive Director

Mr. Dugald Agble is a PhD holder in Chemical Engineering from Imperial College, London, UK. He has over 17 years related experience. He has worked for Private Real Estate Investment, London, UK from 2004 – 2006, and thereafter joined Helios Investment Partners, London, UK as Vice President from 2006 – 2010. Mr. Agble is a Partner at 8 Miles LLP as well as a member of the 8 Miles LLP Investment Committee.

JAY KARIA Non Executive Director

Mr. Karia is a business magnate with over 25 years diversified exposure in London, Kenya and Uganda. He has served in several managerial capacities as Manager Lloyds Exports UK, Manager Kabril Limited UK. He has also severed on several boards including Lloyds Exports and, Kabril Limited- in London UK, Orion FXB Ltd and Credit Bank in Nairobi Kenya.

FRANCIS MAGEMBE BYARUHANGA Non Executive Director

Mr. Byaruhanga holds a Masters Degree in Business Administration. He has over 25 years experience in the areas of Management, Finance, Accounting, Procurement and Logistics Management. He has worked with rural water and sanitation project on an executive level and was a Director Road Agency Formation Unit.

MICHAEL COOK Chairman

Michael Cook was a senior career diplomat and a former British High Commissioner to Uganda, with a wide range of political and commercial experience in Scandinavia, the Caribbean, Turkey and Africa. After retiring from the Diplomatic Service he was a member of a commission established by David Cameron before he became British Prime Minister, to advice on future aid policy.

HEMEN SHASHIKANT SHAH Non Executive Director

Mr. Hemen Shah is a graduate of Harvard University and a professional banker with over 23 years of cognitive experience. Mr. Shah has held several Board memberships including Directorships on the Boards of; SCB Sierra Leone, Gambia, Cameroon, Ghana and Chairman, Board of Directors for Standard Chartered Bank Cote d’Ivoire. Mr. Shah is a founding partner and Board member of 8 miles LLP.

KETAN MORJARIA Vice Chairman

Mr. Morjaria a founder and Board Member of both Orient Bank and Credit Bank in Kenya, and a strategic shareholder in both institutions, and has wide experience in commerce and property development in Africa, the United Kingdom, and the Middle East. He is a member of the Institute of Chartered Accountants of England and Wales and the Institute of Certified Public Accountants of Uganda.

boarD of DireCTors - 2015

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Overview

ZHONG SHUANG QUAN Non Executive Director

Mr. Zhong Shuang Quan holds a Bachelors of Arts in Business Management from the Sichuan Normal University. He is a prominent Businessman with diversified interests in East Africa, Asia and other parts of the world specializing in the fields of Manufacturing household plastics, Large Scale Rice farming, Import Trade in household goods and Road Transport. He has Managerial experience in Trade and Manufacturing Enterprise.

NICHOLAS ECIMUCompany Secretary

Mr. Ecimu practices law with Sebalu & Lule Advocates, a premier corporate and commercial law firm, where he is a Partner. He has previously served with the Privatisation & Utility Sector Reform Project (PUSRP) in Uganda’s Ministry of Finance, Planning and Economic Development and was attached to Edward Nathans Sonnenbergs, one of South Africa’s premier law firms, as visiting Attorney in 2006.

BERNARD ROBINSON MAGULU Executive Director

Bernard is a Fellow of Certified Chartered Accountant (FCCA). He previously worked with United Bank for Africa (UBA) as Chief Finance Officer and with the Bank of Uganda. He holds a First Class/Distinction Masters of Management and International Business, from the Southampton Business School, United Kingdom.

JULIUS KAKEETO Managing Director/ CEO

Mr. Kakeeto is a Fellow of the Association of Chartered Certified Accountants (FCCA) and holds an MBA from Manchester Business School, United Kingdom. He has served in several management capacities, among others, in Citigroup London as Business Manager in the Investment Banking Division for Emerging Markets, Vice President in EMEA Planning and Strategy and Finance Director Equity Bank, Uganda.

JORAM KAHENANONon Executive Director

Mr. Kahenano is a Fellow of the Uganda Institute of Bankers and a Fellow of Chartered Institute of Bankers. He has held various director positions in Bank of Uganda where he worked for 36 years. He has in addition served on various Boards including Uganda Institute of Bankers, Makerere University, Mengo Hospital, Church of Uganda and Uganda Christian University. Joram is currently a trustee of Uganda Small Scale Industries.

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Member of Credit Committee

Member of Asset and Liability Committee

KEY

Member of Audit Committee

Member of Risk/Compliance Committee

Member of Compensation Committee

Committee Chairman


exeCuTive CommiTTee - 2015

MILLIE NKAJA

Head of Credit

BERNARD ROBINSON MAGULU

Executive Director JULIUS KAKEETO

Managing Director/ CEO

PANKAJ SHARMA

Head of Operations



Overview

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18

DireCTors’ rePorTFor the year ended 31 December 2013

The directors present their report together with the audited consolidated financial statements of the Orient Bank Limited (the “Bank”) and its subsidiary (together ‘’the Group’’) for the year ended 31 December 2015.

ACTIVITIES

The principal activities of the group are the provision of commercial banking, stock brokering and related financial services under licences granted by the Bank of Uganda and Capital Markets Authority. RESULTS AND DIVIDEND

The profit for the year of UShs 1,558 million (2014: loss of UShs 8,028 million) has been transferred to retained earnings.The directors do not recommend payment of dividends for the year (2014: Nil). CORPORATE GOVERNANCE

Orient Bank Limited has established a tradition of best practices in corporate governance. The corporate governance framework is based on an effective independent board, the separation of the board’s supervisory role from the executive management and the constitution of board committees generally comprising a majority of non-executive directors and chaired by a non-executive director to oversee critical areas. BOARD OF DIRECTORS

Orient Bank Limited has a broad-based board of directors. The board functions either as a full board or through various committees constituted to oversee specific operational areas. The board has constituted five committees. These are the Risk/Compliance Committee, Asset & Liability Management Committee, Compensation and General Purpose Committee, Audit Committee and Credit Committee, Board Supervisory Committee. All of these Board Committees are constituted and chaired by non-executive directors. As at 31 December 2015, the board of directors consisted of 9 members.

a) Risk/Compliance committee This committee is headed by a Non Executive Director and meets quarterly. It is comprised of the following members:

i) Non-Executive Director ii) Non-Executive Director iii) Managing Director/CEO iv) Executive Director

b) Asset and Liability Committee

ALCO is headed by a Non Executive Director and meets quarterly. It also comprises the following:

i) Non-Executive Directorii) Non-Executive Directoriii) Managing Director / CEOiv) Executive Director

c) Compensation and General Purpose Committee This committee decides on recruitment at senior levels based on responsibilities and remuneration of Management staff and directors. The committee is headed by a Non-Executive Director and comprises of:

i) Non-Executive Director ii) Non-Executive Director iii) Non-Executive Director

d) Audit Committee This Committee is chaired by a Non-Executive Director. It meets every quarter and also comprises of:

i) Non-Executive Directorii) Non-Executive Directoriii) Non-Executive Director

e) Credit Committee The Board Credit Committee is chaired by the Non-Executive Director. It meets quarterly and comprises of:

i) Non-Executive Director ii) Non-Executive Directoriii) Non-Executive Directoriv) Non-Executive Director v) Executive Directorvi) Managing Director / CEO



Overview

DIRECTORS

The directors who held office during the year and up to the date of this report are as indicated on Page 10, under corporate information.

AUDITOR

The Bank’s external auditor, PricewaterhouseCoopers, is not eligible for reappointment having reached the mandatory limit of four years of continous service to the Bank as stipulated in the Ugandan Financial Institutions Act. Ernst and Young was appointed as the new auditor for the period effective 2016. BY ORDER OF THE BOARD

Nicholas EcimuC/O Sebalu & Lule AdvocatesKampala28 April 2016

In addition to the above committees, there are committees on a management level comprised of senior management whose frequency is daily, weekly, monthly and quaterly. DIRECTORS AND THEIR BENEFITS

During the financial year and up to the date of this report, other than as disclosed in Note 36 to the financial statements, no director has received or become entitled to receive any benefit other than directors’ fees, and amounts receivable by executive directors under employment contracts and the senior staff incentive scheme. The aggregate amount of emoluments for directors for services rendered in the financial year is disclosed in Note 36 to the financial statements

Neither at the end of the financial year nor at any time during the year did there exist any arrangement to which the Bank is a party whereby directors might acquire benefits by means of acquisition of shares in or debentures of the bank or any other body corporate


The Directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Bank and Group and of its profit in accordance with International Financial Reporting Standards and with the requirements of the Ugandan Companies Act and the Financial Institutions Act. The Directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Nothing has come to the attention of the Directors to indicate that the Bank and Group will not remain a going concern for at least twelve months from the date of this statement.

sTaTemenT of DireCTors’ resPosibiliTies For the year ended 31 December 2015

The Ugandan Companies Act requires the Directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Bank and Group as at the end of the financial year and of its results.

It also requires the Directors to ensure that the company keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the company. They are also responsible for safeguarding the assets of the Bank and Group.

The Directors accept responsibility for these financial statements, which have been prepared using appropriate accounting policies supported by reasonable estimates, in conformity with International Financial Reporting Standards, the requirements of the Ugandan Companies Act and the Financial Institutions Act.

Michael CookChairman

Ketan MorjariaVice Chairman

Julius KakeetoManaging Director/ CEO



Overview

REPORT ON THE FINANCIAL STATEMENTS

We have audited the accompanying financial statements of Orient Bank Limited (“the Bank”) and its subsidiary (together, “the Group”), as set out on pages 10 to 80. These financial statements comprise the consolidated statement of financial position for the year ended 31 December 2015, and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, together with the statement of financial position of the Bank standing alone as at 31 December 2015 and the statements of comprehensive income, changes in equity and cash flows of the Bank for the year then ended, and a summary of significant accounting policies and other explanatory notes. DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting standards and in the manner required by the Ugandan Companies Act and the Financial Institutions Act 2004, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement. AUDITOR'S RESPONSIBILITY

Our responsibility is to express an independent opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform our audit to obtain reasonable assurance that the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and

rePorT of The inDePenDenT auDiTor

fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. OPINION

In our opinion the financial statements give a true and fair view of the financial affairs of the Group and of the Bank as at 31 December 2015 and of the profit and cash flows of the Group and the Bank for the year then ended in accordance with International Financial Reporting Standards, the Ugandan Companies Act and the Financial Institutions Act. REPORT ON OTHER LEGAL AND REGULATORY

REQUIREMENTS

The Ugandan Companies Act requires that in carrying out our audit we consider and report to you on the following matters. We confirm that: 1. we have obtained all the information and

explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;

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

3. the Bank’s statement of financial position and statement of comprehensive income account are in agreement with the books of account.

Certified Public AccountantsKampala


ConsoliDaTeD sTaTemenT of ComPrehensive inCome For the year ended 31 December 2015

2015 2014Notes Ushs’000 Ushs’000

Interest and similar income 5 40,237,483 40,787,165

Interest and similar expenses 5 (17,243,228) (20,988,100)

Net interest income 22,994,255 19,799,065

Loan impairment charges 6 (5,668,591) (18,813,833)

Net interest income after loan impairment charges 17,325,664 985,232

Net fee and commission income 7 29,686,886 18,631,474

Net operating income 47,012,550 19,616,706

Net foreign exchange losses/gains 8 (4,529,013) 5,058,046

Employee benefits expenses 9 (14,213,247) (14,487,336)

General and administrative expenses 10 (9,899,087) (9,030,374)

Depreciation and amortisation 11 (5,228,391) (4,798,884)

Reversal of Charges 12 (1,139,542) (307,796)

Other operating expenses 13 (11,510,986) (9,190,546)

Profit/ (loss) before income tax 492,284 (13,140,184)

Income tax credit 14 1,065,371 5,111,599

Profit/ (loss) for the year 1,557,656 (8,028,585)

Other comprehensive income

Net fair value gain on available for sale financial assets 20 - 3,126

Deferred income tax thereon 31 - (938)

Revaluation surplus on land and buildings 24,25 14,524,944 1,489,113

Deferred income tax thereon 31 (4,357,483) (446,734)

10,167,461 1,044,567

Total comprehensive income/ (loss) for the year 11,725,117 (6,984,018)

PROFIT/ (LOSS) ATTRIBUTABLE TO:

Owners of the company 1,553,351 (8,047,065)

Non-controlling interests 4,305 18,480

1,557,656 (8,028,585)

OTHER COMPREHENSIVE INCOME ATTRIBUTABLE TO:

Owners of the company 10,167,461 1,044,129

Non-controlling interests - 438

10,167,461 1,044,567



Overview

bank sTaTemenT of ComPrehensive inCome For the year ended 31 December 2015


Interest and similar income 5 40,237,483 40,787,165

Interest and similar expenses 5 (17,243,228) (20,988,100)

Net interest income 22,994,255 19,799,065

Loan impairment charges 6 (5,668,591) (18,813,833)

Net interest income after loan impairment charges 17,325,664 985,232

Net fee and commission income 7 29,508,959 18,276,847

Net operating income 46,834,623 19,262,079

Net foreign exchange losses/gains 8 (4,529,013) 5,058,046

Employee benefits expenses 9 (14,114,279) (14,406,970)

General and administrative expenses 10 (9,889,088) (9,027,287)

Depreciation and amortisation 11 (5,226,581) (4,797,737)

Reversal of Charges 12 (1,139,542) (307,796)

Other operating expenses 13 (11,475,237) (9,052,809)

Profit/ (loss) before income tax 460,883 (13,272,474)

Income tax credit 14 1,075,249 5,151,488

Profit/ (loss) for the year 1,536,132 (8,120,986)

Other comprehensive income

Revaluation surplus on land and buildings 24,25 14,524,944 1,489,113

Deferred income tax thereon 31 (4,357,483) (446,734)

10,167,461 1,042,379

Total comprehensive income/ (loss) for the year 11,703,593 (7,078,607)


ConsoliDaTeD sTaTemenT of finanCial PosiTion



Nicholas EcimuCompany Secretary


For the year ended 31 December 2015


Assets

Cash and balances with Bank of Uganda 16 77,516,687 66,497,667

Deposits and balances due from banking institutions 18 141,003,197 106,452,225

Government securities – Held-to-maturity 19 98,362,345 116,001,140

Other investments 20a - 27,723

Loans and advances to customers 21 177,020,954 154,386,228

Other assets 22 5,538,588 3,378,352

Current income tax recoverable 30 349,942 261,196

Intangible assets 26 3,051,650 4,096,799

Deferred income tax asset 31 21,944,698 18,167,741

Operating lease prepayments 25 23,953 458,464

Property and equipment 23 11,214,515 11,133,818

Freehold land 24 15,100,000 -

Total assets 551,126,529 480,861,353

Liabilities

Deposits due to other banks 27 4,002,164 5,000,274

Customer deposits 28 440,372,643 388,101,601

Refinance loans 29 104,167 166,667

Other liabilities 32 11,228,063 8,255,918

Total liabilities 455,707,037 401,524,460

Capital and reserves

Share capital 33 76,500,000 76,500,000

Revaluation reserve 34 12,768,567 2,562,073

Transfer to credit risk reserve 35 225,098 5,005,634

Retained earnings/ (accumulated losses) 5,874,955 (4,783,738)

Non controlling interests 50,872 46,567

Available for sale fair value reserve - 6,357

Total equity 95,419,492 79,336,893

Total equity and liabilities 551,126,529 480,861,353

The financial statements on pages 10 to 80 were authorised for issue by the Board of Directors on 28 April 2016 and signed on its behalf by:



Overview


Assets

Cash and balances with Bank of Uganda 16 77,516,687 66,497,667

Deposits and balances due from banking institutions 18 140,957,123 106,445,193

Government securities – Held-to-maturity 19 98,362,345 116,001,140

Investment in subsidiary 20b 80,000 80,000

Loans and advances to customers 21 177,020,954 154,386,228

Other assets 22 5,427,910 3,267,013

Current income tax recoverable 30 354,615 266,103

Deferred income tax asset 31 21,945,634 18,168,677

Intangible assets 26 3,051,650 4,096,799

Operating lease prepayments 25 23,953 458,464

Property and equipment 23 11,208,927 11,131,811

Freehold land 24 15,100,000 -

Total assets 551,049,798 480,799,095

Liabilities

Deposits due to other banks 27 4,002,164 5,000,274

Customer deposits 28 440,526,762 388,300,294

Refinance loans 29 104,167 166,667

Other liabilities 32 11,176,616 8,152,847

Total liabilities 455,809,709 401,620,082

Capital and reserves

Share capital 33 76,500,000 76,500,000

Revaluation reserve 34 12,768,567 2,562,073

Transfer to credit risk reserve 35 225,098 5,005,634

Retained earnings/(accumulated losses) 5,746,424 (4,888,694)

Total equity 95,240,089 79,179,013

Total equity and liabilities 551,049,798 480,799,095

The financial statements on pages 10 to 80 were authorised for issue by the Board of Directors on 28 April 2016 and signed on its behalf by:



Nicholas EcimuCompany Secretary


bank sTaTemenT of finanCial PosiTion For the year ended 31 December 2015


ConsoliDaTeD sTaTemenT of Changes in equiTy


Share capital

Reval-uation

reserve

Statutory credit risk

reserve

Accumu-lated

losses / retained

earnings

Non-con-

trolling interest

Availa-ble

for sale fair

value reserve

Proposed dividends

Totalequity

Ushs’000 Ushs’000 Ushs’000 Ushs’000 Ushs’000 Ushs’000 Ushs’000

Year ended 31 December 2014

At start of year 50,000,000 1,558,727 - 8,229,928 28,087 4,169 - 59,820,911

Comprehensive loss:

Transfer of excess depre-ciation

- (55,761) - 55,761 - - - -

Deferred income tax on excess depreciation

- 16,728 - (16,728) - - - -

Increase in revaluation surplus on buildings

1,042,379 - - - 1,042,379

(Loss)/profit for the year - - - (8,047,065) 18,480 - - (8,028,585)

Other comprehensive income for the year

- - - - - 2,188 - 2,188

Total comprehensive loss - 1,003,346 - (8,008,033) 18,480 2,188 - (6,984,018)

Transfer to credit risk reserve

- - 5,005,634 (5,005,634) - - - -

Transactions with owners

Increase in Share Capital 26,500,000 - - - - - - 26,500,000

At end of year 76,500,000 2,562,073 5,005,634 (4,783,738) 46,567 6,357 - 79,336,893


At start of year 76,500,000 2,562,073 5,005,634 (4,783,738) 46,567 6,357 - 79,336,893

Comprehensive loss:

Deferred income tax on revaluation surplus

- (4,357,483) - 4,357,483 - - - -

Transfer of excess depre-ciation ( net of deferred tax)

- 39,033 - (39,033) - - - -

Increase in revaluation surplus on land

14,524,944 - - - - 14,524,944

Profit for the year - - - 1,553,351 4,305 - - 1,557,656

Other comprehensive income for the year

- - - 6,357 (6,357) - -

Total comprehensive loss - 10,206,494 - 5,878,157 50,872 (6,357) - 16,082,600

Transfer to credit risk reserve

- - (4,780,535) 4,780,535 - - - -

At end of year 76,500,000 12,768,567 225,098 5,874,956 50,872 - - 95,419,494



Overview

bank sTaTemenT of Changes in equiTy


Share capital

Revaluation reserve

Statutory credit risk

reserve

Accumulat-ed losses

/ retained earnings

Proposed dividends

Total eq-uity

Ushs’000 Ushs’000 Ushs’000 Ushs’000 Ushs’000 Ushs’000


At start of year 50,000,000 1,558,727 - 8,198,893 - 59,757,620

Comprehensive loss:

Transfer of excess depreci-ation

- (55,761) - 55,761 - -

Deferred income tax on excess depreciation

- 16,728 - (16,728) - -

Increase in revaluation sur-plus on buildings

- 1,042,379 - - - -

Loss for the year - - (8,120,986) - 1,042,379

Total comprehensive loss - 1,003,346 - (8,081,953) - (8,120,986)

Transfer to credit risk reserve - - 5,005,634 (5,005,634) - -

Transactions with owners:

Increase in Share Capital 26,500,000 - - - - 26,500,000

At end of year 76,500,000 2,562,073 5,005,634 (4,888,694) - 59,757,620


At start of year 76,500,000 2,562,073 5,005,634 (4,888,694) - 79,179,013

Comprehensive loss:

Deferred tax on revaluation suprlus

- (4,357,483) - 4,357,483 - -

Transfer excess depreciation net of deferred tax

- 39,033 - (39,033) - -

Increase in revaluation sur-plus on land

- 14,524,944 - - - 14,524,944

Profit for the year - - - 1,536,132 - 1,536,132

Total comprehensive loss - 10,206,494 - 5,854,582 - 16,061,076

Transfer to credit risk reserve - - (4,780,535) 4,780,535 - -

At end of year 76,500,000 12,768,567 225,098 5,746,424 - 95,240,089


ConsoliDaTeD sTaTemenT of Cash flows For the year ended 31 December 2015


Cash flows from operating activities

Profit before income tax 492,284 (13,140,184)

Adjustments:

Depreciation 23 2,769,076 2,743,175

Amortisation of operating lease prepayments 25 23,455 44,535

Amortisation of intangible asset 26 2,435,860 2,011,173

Profit on disposal of property and equipment (81,188) (17,150)

Fair value gain on investments - 3,126

Profit/ (loss) before working capital changes 5,639,487 (8,355,325)

(Increase)/ decrease in deposits due to banking institutions (998,110) 3,989,707

(Increase)/ decrease in loans and advances (22,634,726) 62,030,598

Decrease/ (Increase) in investment in government securities 24,074,205 (26,151,556)

Increase in other assets (2,161,148) (1,445,152)

Increase/ (decrease) in customer deposits 52,271,042 (32,195,410)

Decrease in BOU refinance loan (62,500) (118,600)

Increase/ (decrease) in other liabilities 2,972,146 (1,439,677)

Income taxes paid (2,803,233) (2,786,761)

50,657,676 1,883,150

Net cash generated from/ (used in) operating activities 56,297,164 (6,472,175)

Cash flows from investing activities

Purchase of property and equipment 23 (3,036,698) (1,791,201)

Sale of Shares 26,147 -

Proceeds from sale of property and equipment 129,980 115,810

Purchase of intangible assets 26 (1,056,275) (1,439,204)

Net cash used in investing activities (3,936,846) (3,114,595)

Cash flows from financing activities

Dividends paid - -

Increase in share capital - 26,500,000

Net cash generated from financing activities - 26,500,000

Cash and cash equivalents at start of year 196,036,629 179,123,399

Net cash from operating acitivities 56,297,164 (6,472,175)


Net cash used in financing activities - 26,500,000

Cash and cash equivalents at the end of the year 17 248,396,947 196,036,629



Overview

bank sTaTemenT of Cash flows For the year ended 31 December 2015


Cash flows from operating activities

Profit/ (Loss) before income tax 460,883 (13,272,474)

Adjustments:

Depreciation 23 2,767,266 2,742,028

Amortisation of operating lease prepayments 25 23,455 44,535

Amortisation of intangible asset 26 2,435,860 2,011,173

Profit on disposal of property and equipment (81,188) (17,150)

Profit/ (loss) before working capital changes 5,606,277 (8,491,888)

(Increase)/ decrease in deposits due to banking institutions (998,110) 3,989,707

(Increase)/ decrease in loans and advances (22,634,726) 62,030,598

Decrease/ (Increase) in investment in government securities 24,074,205 (26,151,556)

Increase in other assets (2,160,895) (1,435,089)

Increase/ (decrease) in customer deposits 52,226,468 (32,058,665)

Decrease in BOU refinance loan (62,500) (118,600)

Increase/ (decrease) in other liabilities 3,023,769 (1,469,846)

Income taxes paid (2,790,221) (2,758,061)

50,677,990 2,028,488

Net cash from operating activities 56,284,267 (6,463,400)

Cash flows from investing activities

Purchase of property and equipment 23 (3,036,698) (1,791,201)

Proceeds from sale of property and equipment 129,980 115,810

Purchase of intangible assets 26 (1,056,275) (1,439,204)


Cash flows from financing activities

Dividends paid - -

Increase in share capital - 26,500,000

Net cash from/(used in) financing activities - 26,500,000

Cash and cash equivalents at start of year 196,029,597 179,107,593

Net cash from operating acitivities 56,284,267 (6,463,401)


Net cash used in financing activities - 26,500,000

Cash and cash equivalents at end of year 17 248,350,872 196,029,597


noTes To The finanCial sTaTemenTs For the year ended 31 December 2015

1. GENERAL INFORMATIONOrient Bank Limited (the ‘Bank’) is incorporated in Uganda under the Companies Act as a limited liability company, and is domiciled in Uganda. The address of its registered office is:

Plot 6 & 6A, Kampala Road P O Box 3072 Kampala

For the Ugandan Companies Act reporting purposes, the balance sheet is represented by the statement of financial position and the profit and loss account by the statement of comprehensive income in these financial statements.

The financial statements for the year ended 31 December 2015 were approved for issue by the Board of Directors on 28 April 2016. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 BASIS OF PREPARATIONThe Bank’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared under the historical cost convention, except for available-for-sale financial assets, financial assets and financial liabilities held at fair value through profit or loss, which have been measured at fair value.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the directors to exercise judge-ment in the process of applying the Bank’s accounting policies. Changes in assumptions may have a significant impact on the financial statements in the period the as-sumptions changed.

The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed

in Note 4.

2.1.1 Changes in accounting policy and disclosures(a) New and amended standards adopted by the BankThe following standards and amendments have been applied by the Bank for the first time for the financial year beginning 1 January 2015:Annual Improvements to IFRSs 2010-2012 and 2011-2013 cycles. The following amendments are effective 1 July 2014:- � IFRS 2 – clarifies the definition of ‘vesting condition’

and now distinguishes between ‘performance condition’ and ‘service condition’

� IFRS 3 – clarifies that an obligation to pay contingent consideration is classified as financial liability or equity under the principles in IAS 32 and that all non-equity contingent consideration (financial and non-financial) is measured at fair value at each reporting date.

� IFRS 3 – clarifies that IFRS 3 does not apply to the accounting for the formation of any joint arrangement

� IFRS 8 – requires disclosure of the judgements made by management in aggregating operating segments and clarifies that a reconciliation of segment assets must only be disclosed if segment assets are reported.

� IFRS 13 confirms that short-term receivables and payables can continue to be measured at invoice amounts if the impact of discounting is immaterial.

� IFRS 13 – clarifies that the portfolio exception in IFRS 13 (measuring the fair value of a group of financial assets and financial liabilities on a net basis) applies to all contracts within the scope of IAS 39 or IFRS 9

� IAS 16 and IAS 38 – clarifies how the gross carrying amount and accumulated depreciation are treated where an entity measures its assets at revalued amounts

� IAS 24 – where an entity receives management personnel services from a third party (a management entity), the fees paid for those services must be disclosed by the reporting entity, but not the compensation paid by the management entity to its employees or directors.

� IAS 40 – clarifies that IAS 40 and IFRS 3 are not mutually exclusive when distinguishing between investment property and owner-occupied property



Overview

and determining whether the acquisition of an investment property is a business combination.

� Amendments to IAS 19,’Defined Benefit Plans: Employee Contributions’. Effective 1 July 2014. The amendments clarify the accounting for defined benefit plans that require employees or third parties to contribute towards the cost of the benefits. Under the previous version of IAS 19, most entities deducted the contributions from the cost of the benefits earned in the year the contributions were paid. However, the treatment under the 2011 revised standard was not so clear. It could be quite complex to apply, as it requires an estimation of the future contributions receivable and an allocation over future service periods. To provide relief, changes were made to IAS 19. These allow contributions that are linked to service, but that do not vary with the length of employee service (eg a fixed % of salary), to be deducted from the cost of benefits earned in the period that the service is provided. Therefore many entities will be able to (but not be required) continue accounting for employee contributions using their existing accounting policy.

The adoption of the improvements made in the 2012-2012 cycle has required additional disclosures in the segment note. Other than that, the adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods.

(b) New standards and interpretations not yet adopted

The Bank and Group has elected to adopt the following two amendments early

� Annual Improvements to IFRSs 2012-2014 Cycle. The latest annual improvements, effective 1 January 2016;

� IFRS 5 – when an asset (or disposal group) is reclassified from ‘held for sale’ to ‘held for distribution’ or vice versa, this does not constitute a change to a plan of sale or distribution and does not have to be accounted for as such.

� IFRS 7 – specific guidance for transferred financial assets to help management determine whether the terms of a servicing arrangement constitute ‘continuing involvement’ and, therefore, whether the asset qualifies for de recognition.

� IFRS 7 – that the additional disclosures relating to the offsetting of financial assets and financial liabilities only need to be included in interim reports if required by IAS 34.

� IAS 19 – that when determining the discount rate for post-employment benefit obligations, it is the currency that the liabilities are denominated in that is important and not the country where they arise.

� IAS 34 – what is meant by the reference in the standard to ‘information disclosed elsewhere in the interim financial report’ and adds a requirement to cross-reference from the interim financial statements to the location of that information.

� Amendments to IAS 1, ‘Presentation of Financial Statements’: The amendments are made in the context of the IASB’s Disclosure Initiative, which explores how financial statement disclosures can be improved. The amendments, effective 1 January 2016, provide clarifications on a number of issues,

� Materiality – an entity should not aggregate or disaggregate information in a manner that obscures useful information. Where items are material, sufficient information must be provided to explain the impact on the financial position or performance.

� Disaggregation and subtotals – line items specified in IAS 1 may need to be disaggregated where this is relevant to an understanding of the entity’s financial position or performance. There is also new guidance on the use of subtotals.

� Notes – confirmation that the notes do not need to be presented in a particular order.

� OCI arising from investments accounted for under the equity method – the share of OCI arising from equity-accounted investments is grouped based on whether the items will or will not subsequently be reclassified to profit or loss. Each group should then be presented as a single line item in the statement of other comprehensive income.

According to the transitional provisions, the disclosures in IAS 8 regarding the adoption of new standards/accounting policies are not required for these amendments.

As these amendments merely clarify the existing requirements, they do not affect the company’s accounting policies or any of the disclosures.


(c) New standards and interpretations not yet adopted

A number of new standards and amendments to stand-ards and interpretations are effective for annual periods beginning after 1 January 2015, and have not been applied in preparing these financial statement. None of these is expected to have a significant effect on the financial statements of the Company, except the follow-ing set out below. � IFRS 9, ‘Financial instruments’, addresses the

classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes.

� Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The company is yet to assess IFRS 9’s full impact.

� IFRS 15, ‘Revenue from contracts with customers’ deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount,

noTes To The finanCial sTaTemenTs

2. Summary of significant accounting policies (Continued)

timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’ and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted. The company is assessing the impact of IFRS 15.

� IFRS 11, ‘Joint arrangements’. This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendments specify the appropriate accounting treatment for such acquisitions. The amendment is effective for annual periods beginning on or after 1 January 2016.

� IAS 16, ‘Property, plant and equipment’, and IAS 41, ‘Agriculture,. These amendments change the financial reporting for bearer plants, such as grape vines, rubber trees and oil palms. The IASB decided that bearer plants should be accounted for in the same way as property, plant and equipment because their operation is similar to that of manufacturing. Consequently, the amendments include them within the scope of IAS 16, instead of IAS 41. The produce growing on bearer plants will remain within the scope of IAS 41. The amendments are effective for annual periods beginning on or after 1 January 2016.

� IAS 27, ‘Separate financial statements’. These amendments allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. The amendments are effective for annual periods beginning on or after 1 January 2016.

� IFRS 10, ‘Consolidated financial statements’ and IAS 28, ‘Investments in associates and joint ventures’. These amendments address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves




Overview

assets that do not constitute a business, even if these assets are housed in a subsidiary. The amendments are effective for annual periods beginning on or after 1 January 2016.

� IAS 1, ‘Presentation of financial statements’ These amendments are as part of the IASB initiative to improve presentation and disclosure in financial reports. Effective for annual periods beginning on or after 1 January 2016.

Annual improvements 2014. These set of amendments, effective 1 January 2016, impacts 4 standards:IFRS 5, ‘Non-current assets held for sale and discontin-ued operations’ regarding methods of disposal.

� IFRS 7, ‘Financial instruments: Disclosures’, (with consequential amendments to IFRS 1) regarding servicing contracts.

� IAS 19, ‘Employee benefits’ regarding discount rates.

� IAS 34, ‘Interim financial reporting’ regarding disclosure of information

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a ma-terial impact on the Bank.

2.2 FOREIGN CURRENCY TRANSLATION

(a) Functional and presentation currencyItems included in the Bank’s financial statements are measured using the currency of the primary economic environment in which the entity operates (‘the func-tional currency’). The financial statements are presented in Uganda shillings and figures are stated in thousands of Uganda shillings.

(b) Transactions and balancesForeign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.

Monetary items denominated in foreign currency are translated with the closing rate as at the reporting date. If several exchange rates are available, the forward rate is used at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred.

Non-monetary items measured at historical cost denominated in a foreign currency are translated with the exchange rate as at the date of initial recognition; non-monetary items in a foreign currency that are measured at fair value are translated using the exchange rates at the date when the fair value was determined.

Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

Changes in the fair value of monetary assets denomi-nated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in the am-ortised cost are recognised in profit or loss, and other changes in the carrying amount, are recognised in other comprehensive income.

Translation differences on non-monetary financial instruments, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary financial instruments, such as equities classified as available-for-sale financial assets, are included in other comprehensive income. 2.3 SALE AND REPURCHASE AGREEMENTS

Securities sold subject to repurchase agreements (‘repos’) are reclassified in the financial statements as pledged assets when the transferee has the right by contract or custom to sell or repledge the collateral; the counterparty liability is included in deposits from banks or deposits from customers, as appropriate. Securities purchased under agreements to resell (‘reverse repos’) are recorded as loans and advances to other banks or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also retained in the financial statements. 2.4 FINANCIAL ASSETS AND LIABILITIES

2.4.1 Financial assetsThe Bank classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity and availa-ble-for-sale financial assets. The directors determine the classification of its financial assets at initial recognition. The Bank uses trade date accounting for regular way contracts when recording financial asset transactions.

(a) Financial assets at fair value through profit or lossThis category comprises two sub-categories: financial assets classified as held for trading, and financial assets designated by the Bank as at fair value through profit or loss upon initial recognition.


A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of sell-ing or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking.

Derivatives are also categorised as held for trading unless they are designated and effective as hedging instruments. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative.

The Bank designates certain financial assets upon initial recognition as at fair value through profit or loss (fair value option). This designation cannot subsequently be changed and can only be applied when the following conditions are met: � the application of the fair value option reduces or

eliminates an accounting mismatch that would otherwise arise or

� the financial assets are part of a portfolio of financial instruments which is risk managed and reported to senior management on a fair value basis or

� the financial assets consist of debt host and an embedded derivatives that must be separated.

Financial instruments included in this category are recognised initially at fair value; transaction costs are taken directly to profit or loss. Gains and losses arising from changes in fair value are included directly in profit or loss and are reported as ‘Net gains/(losses) on financial instruments classified as held for trading’. Interest income and expense and dividend income and expenses on financial assets held for trading are included in ‘Net interest income’ or ‘Dividend income’, respectively.

Fair value changes relating to financial assets designated at fair value through profit or loss are recognised in ‘Net gains on financial instruments designated at fair value through profit or loss’.

(b) Loans and receivablesLoans and receivables are non-derivative financial as-sets with fixed or determinable payments that are not quoted in an active market, other than:


2. Summary of significant accounting policies (Continued) | 2.4.1 Financial assets | (a) Financial assets at fair value through profit or loss (continued)


(a) those that the Bank intends to sell immediately or in the short term, which are classified as held for trading, and those that the Bank upon initial recognition designates as at fair value through profit or loss;

(b) those that the Bank upon initial recognition designates as available-for-sale; or

(c) those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration.

Loans and receivables are initially recognised at fair value – which is the cash consideration to originate or purchase the loan including any transaction costs – and measured subsequently at amortised cost using the effective interest method.

(c) Held-to-maturity investmentsHeld-to-maturity investments are non-derivative finan-cial assets with fixed or determinable payments and fixed maturities that the directors have the positive in-tention and ability to hold to maturity, other than:

(a) those that the Bank upon initial recognition designates as at fair value through profit or loss;

(b) those that the Bank designates as available-for-sale; and

(c) those that meet the definition of loans and receivables.

Held-to-maturity investments are initially recognised at fair value including direct and incremental transaction costs and measured subsequently at amortised cost, us-ing the effective interest method. 2.4.2 Financial liabilitiesThe Bank’s holding in financial liabilities represents mainly deposits from banks and customers and other liabilities. Such financial liabilities are initially recognised at fair value and subsequently measured at amortised cost.

2.4.3 Determination of fair valueFor financial instruments traded in active markets, the determination of fair values of financial instruments is based on quoted market prices or dealer price quota-tions. This includes listed equity securities and quot-ed debt instruments on major exchanges and broker quotes from Bloomberg and Reuters.



Overview

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly avail-able from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market trans-actions on an arm’s length basis. If the above criteria are not met, the market is regarded as being inactive. Indi-cators that a market is inactive are when there is a wide bid-offer spread or significant increase in the bid-offer spread or there are few recent transactions.

For all other financial instruments, fair value is deter-mined using valuation techniques. In these techniques, fair values are estimated from observable data in respect of similar financial instruments, using models to esti-mate the present value of expected future cash flows or other valuation techniques, using inputs (for example, LIBOR yield curve, FX rates, volatilities and counterparty spreads) existing at the reporting dates.

The Bank uses widely recognised valuation models for determining fair values of non-standardised financial instruments of lower complexity, such as options or interest rate and currency swaps. For these financial in-struments, inputs into models are generally market-ob-servable.

For more complex instruments, the Bank uses internally developed models, which are usually based on valua-tion methods and techniques generally recognised as standard within the industry. Valuation models such as present value techniques are used primarily to value de-rivatives transacted in the over-the-counter market, un-listed debt securities (including those with embedded derivatives) and other debt instruments for which mar-kets were or have become illiquid. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions. The impact on net profit of financial instrument valuations reflect-ing non-market observable inputs (level 3 valuations) is disclosed in Note 3.

The Bank uses its own credit risk spreads in determining the current value for its derivative liabilities and all other liabilities for which it has elected the fair value option. When the Bank’s credit spreads widen, the Bank recog-nises a gain on these liabilities because the value of the liabilities has decreased. When the Bank’s credit spreads narrow, the Bank recognises a loss on these liabilities be-cause the value of the liabilities has increased.

The output of a model is always an estimate or approx-imation of a value that cannot be determined with certainty, and valuation techniques employed may not fully reflect all factors relevant to the positions the Bank holds. Valuations are therefore adjusted, where appro-priate, to allow for additional factors including model

risks, liquidity risk and counterparty credit risk. Based on the established fair value model governance policies, related controls and procedures applied, the directors believe that these valuation adjustments are necessary and appropriate to fairly state the values of financial in-struments carried at fair value. Price data and parame-ters used in the measurement procedures applied are generally reviewed carefully and adjusted, if necessary – particularly in view of the current market developments.

In cases when the fair value of unlisted equity instru-ments cannot be determined reliably, the instruments are carried at cost less impairment.

The fair values of contingent liabilities and irrevoca-ble loan commitments correspond to their carrying

amounts.

2.4.4 Derecognition Financial assets are derecognised when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred (that is, if substantially all the risks and rewards have not been transferred, the Bank tests control to ensure that continuing involve-ment on the basis of any retained powers of control does not prevent derecognition). Financial liabilities are derecognised when they have been redeemed or oth-

erwise extinguished.

2.5 IMPAIRMENT OF FINANCIAL ASSETS (a) Assets carried at amortised costThe Bank assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impair-ment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the es-timated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collective-ly for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk charac-teristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and


for which an impairment loss is or continues to be rec-ognised are not included in a collective assessment of impairment.

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss. If a loan or held-to-matu-rity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current ef-fective interest rate determined under the contract. As a practical expedient, the Bank may measure impairment on the basis of an instrument’s fair value using an ob-servable market price.

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

For the purposes of a collective evaluation of impair-ment, financial assets are grouped on the basis of sim-ilar credit risk characteristics (that is, on the basis of the Bank’s grading process that considers asset type, in-dustry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contrac-tual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the ef-fects of conditions in the historical period that do not currently exist.

Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indic-ative of changes in the probability of losses in the Bank and their magnitude).

The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and ac-tual loss experience.

When a loan is uncollectible, it is written off against the related allowance for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Impairment charges relating to loans and advances to banks and customers are classified in loan impairment charges.

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

In addition to the measurement of impairment losses on loans and advances in accordance with International Fi-nancial Reporting Standards as set out above, the Bank is also required by the Ugandan Financial Institutions Act, 2004 to estimate losses on loans and advances as follows: A specific allowance for impairment for those loans and advances considered to be non-performing based on criteria and classification of such loans and advances es-tablished by the Bank of Uganda, as follows:

a) substandard assets with arrears period between 90 and 180 days – 20%;

b) doubtful assets with arrears period between 181 days and 360 days – 50% and

c) loss assets with arrears period over 360 days – 100%.


2. Summary of significant accounting policies (Continued) | 2.5 Impairment of financial assets (continued) | (a) Assets carried at amortised cost (continued)




Overview

(b) Assets classified as available-for-sale In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is objective evidence of impairment resulting in the recognition of an impairment loss. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in profit or loss. Impairment losses recognised in profit or loss on equity instruments are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss. 2.6 OFFSETTING FINANCIAL INSTRUMENTSFinancial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. 2.7 CASH AND CASH EQUIVALENTSCash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. 2.8 PROPERTY AND EQUIPMENTProperty and equipment comprise mainly branches and offices and includes freehold land. All equipment used by the Bank is stated at historical cost less depreciation. Historical cost includes expenditure that is directly at-tributable to the acquisition of the items.

Subsequent expenditures are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future eco-nomic benefits associated with the item will flow to the Bank and the cost of the item can be measured relia-bly. The carrying amount of the replaced part is derec-ognised. All other repair and maintenance costs are charged to profit or loss during the financial period in which they are incurred.

Depreciation of assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows

Buildings 4% to 7%

Leasehold improvements 12.5%

Furniture, Fixtures, Strongroom & Safes

12.5%

Office Equipment 20.0%

Motor vehicles 25.0%

Computer Equipment, ATM, POS & SWIFT

33.3%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in ‘other operating expenses’ in profit or loss.

The bank assesses the fair value of the buildings at the end of each reporting period to determine the frequency of revaluation. If the difference between the fair value of the buildings and their respective carrying amounts is insignificant, the buildings will be revalued every five years.

2.9 INTANGIBLE ASSETSCosts associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Bank are recognised as in-tangible assets when the following criteria are met: � it is technically feasible to complete the software

product so that it will be available for use;

� management intends to complete the software product and use or sell it;

� there is an ability to use or sell the software product;

� it can be demonstrated how the software product will generate probable future economic benefits;

� adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and

� the expenditure attributable to the software product during its development can be reliably measured.

Directly attributable costs that are capitalised as part of the software product include the software develop-ment employee costs and an appropriate portion of rel-evant overheads.


Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an ex-pense are not recognised as an asset in a subsequent period.

Computer software development costs recognised as assets are amortised over their estimated useful lives, which does not exceed three years.

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised on the basis of the expected useful lives. Software has a

maximum expected useful life of 5 years.

2.10 IMPAIRMENT OF NON-FINANCIAL ASSETSAssets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The impairment test also can be performed on a single asset when the fair value less cost to sell or the value in use can be determined reliably. Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 2.11 EMPLOYEE BENEFITS(a) Pension obligationsThe Bank operates various pension schemes. The schemes are generally funded through payments to insurance companies or trustee-administered funds, determined by periodic actuarial calculations. The Bank has both defined benefit and defined contribution plans.

A defined contribution plan is a pension plan under which the Bank pays fixed contributions into a separate entity. The Bank has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relat-ing to employee service in the current and prior periods.


2. Summary of significant accounting policies (Continued) | 2.9 Intangible assets (continued)


A defined benefit plan is a pension plan that is not a de-fined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors, such as age, years of service and compen-sation.

The liability recognised in respect of defined benefit pension plans is the present value of the defined ben-efit obligation at the reporting date less the fair value of plan assets, together with adjustments for unrecog-nised actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obli-gation is determined by discounting the estimated fu-ture cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pen-sion liability.

Actuarial gains and losses arising from experience ad-justments and changes in actuarial assumptions in ex-cess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are charged or credited to profit or loss over the employees’ expect-ed average remaining working lives. Past-service costs are recognised immediately in profit or loss, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-ser-vice costs are amortised on a straight-line basis over the vesting period.

For defined contribution plans, the Bank pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

2.12 PROVISIONSProvisions for restructuring costs and legal claims are recognised when: the Bank has a present legal or con-structive obligation as a result of past events; it is prob-able that an outflow of resources will be required to



Overview

settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future op-erating losses.Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

2.13 INCOME TAX(a) Current income taxThe tax expense for the period comprises current and deferred income tax. Tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehen-sive income or directly in equity respectively.

The current income tax charge is calculated on the ba-sis of tax laws enacted or substantively enacted at the reporting date. The directors periodically evaluate po-sitions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpre-tation. They establish provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. (b) Deferred income tax Deferred income tax is recognised, using the liabili-ty method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognised if they arise from the in-itial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the re-porting date and are expected to apply when the relat-ed deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will

be available against which the temporary differences can be utilised.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets against current income tax liabiltites and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same entity or different taxable entities where there is an intention to settle the balances on a net basis. 2.14 DIVIDEND PAYABLE Dividends on ordinary shares are charged to equity in the period in which they are declared.

2.15 SHARE CAPITALOrdinary shares are classified as ‘share capital’ in equity. Any premium received over and above the par value of

the shares is classified as ‘share premium’ in equity.

2.16 LeasesLeases are divided into finance leases and operating

leases. (a) The Bank is the lessee (i) Operating lease Leases in which a significant portion of the risks

and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments, including pre-payments, made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.

The total payments made under operating leases are charged to ‘other operating expenses’ on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

(ii) Finance lease Leases of assets where the Bank has substantially all

the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges


so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in deposits from banks or deposits from customers depending on the counter party. The interest element of the finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

The leases entered into by the Bank are primarily operating leases.

(b) The Bank is the lessor When assets are held subject to a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method (before tax), which reflects a constant periodic rate of return.

(c) Fees paid in connection with arranging leases The Bank makes payments to agents for services in con-nection with negotiating lease contracts with the Bank’s lessees. For operating leases, the letting fees are capital-ised within the carrying amount of the related asset, and

depreciated over the life of the lease.

2.17 INTEREST INCOME AND EXPENSE Interest income and expense for all interest-bearing financial instruments are recognised in profit or loss using the effective interest method.

The effective interest method is a method of calculat-ing the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective in-terest rate, the Bank estimates cash flows considering all contractual terms of the financial instrument (for exam-ple, prepayment options) but does not consider future


2. Summary of significant accounting policies (Continued) |2.16 Leases (continued) | (a) The bank is the leasee (continued)


credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transac-tion costs and all other premiums or discounts.

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

2.18 FEE AND COMMISSION INCOMEFees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Loan syndication fees are recognised as revenue when the syndication has been completed and the Bank has retained no part of the loan package for itself or has retained a part at the same effective interest rate as the other participants.

Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party – such as the arrangement of the acquisition of shares or other securities, or the purchase or sale of businesses – are recognised on completion of the underlying transaction. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts, usually on a time-apportionate basis. Performance-linked fees or fee components are recognised when the performance criteria are fulfilled. 2.19 DIVIDEND INCOME Dividends are recognised in profit or loss when the Bank’s right to receive payment is established. 2.20 ACCEPTANCES AND LETTERS OF CREDIT Acceptances and letters of credit are accounted for as off-balance sheet transactions and disclosed as contin-gent liabilities.



Overview

3. FINANCIAL RISK MANAGEMENTThe Bank’s business involves taking on risks in a target-ed manner and managing them professionally. The core functions of the Bank’s risk management are to identify all key risks for the Bank, measure these risks, manage the risk positions and determine capital allocations. The Bank regularly reviews its risk management policies and systems to reflect changes in markets, products and best market practice.

The Bank’s aim is to achieve an appropriate balance be-tween risk and return and minimise potential adverse effects on the Bank’s financial performance.The Bank de-fines risk as the possibility of losses or profits foregone, which may be caused by internal or external factors.

Risk management is carried out by a central treasury department (Bank Treasury) under policies approved by the Board of Directors. Bank Treasury identifies, eval-uates and hedges financial risks in close co-operation with the Bank’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of deriv-ative financial instruments and non-derivative financial instruments. In addition, internal audit is responsible for the independent review of risk management and the control environment.

The risks arising from financial instruments to which the Bank is exposed are financial risks, which includes credit risk, liquidity risk and market risk.

3.1 CREDIT RISK Credit risk is the risk of suffering financial loss, should any of the Bank’s customers, clients or market counter-parties fail to fulfil their contractual obligations to the Bank. Credit risk arises mainly from commercial and con-sumer loans and advances, credit cards, and loan com-mitments arising from such lending activities, but can also arise from credit enhancement provided, financial guarantees, letters of credit, endorsements and accept-ances.

The Bank is also exposed to other credit risks arising from investments in debt securities and other expo-sures arising from its trading activities (‘trading expo-sures’), including non-equity trading portfolio assets, derivatives and settlement balances with market coun-terparties and reverse repurchase loans. Credit risk is the single largest risk for the Bank’s business; the directors therefore carefully manage the exposure to credit risk.

The credit risk management and control are centralised in a credit risk management team, which reports to the Board of Directors and head of each business unit reg-

ularly.

3.1.1 Credit risk measurementa) Loans and advances (including loan commitments and guarantees)The estimation of credit exposure is complex and re-quires the use of models, as the value of a product varies with changes in market variables, expected cash flows and the passage of time. The assessment of credit risk of a portfolio of assets entails further estimations as to the likelihood of defaults occurring, of the associated loss ratios and of default correlations between counterpar-ties.

The Bank has developed models to support the quanti-fication of the credit risk. These rating and scoring mod-els are in use for all key credit portfolios and form the basis for measuring default risks.In measuring credit risk of loan and advances at a counterparty level, the Bank considers three compo-nents: (i) the ‘probability of default’ (PD) by the client or counterparty on its contractual obligations; (ii) current exposures to the counterparty and its likely future de-velopment, from which the Bank derive the ‘exposure at default’ (EAD); and (iii) the likely recovery ratio on the defaulted obligations (the ‘loss given default’) (LGD). The models are reviewed regularly to monitor their robust-ness relative to actual performance and amended as necessary to optimise their effectiveness.

These credit risk measurements, which reflect expect-ed loss (the ‘expected loss model’), are required by the Basel Committee on Banking Regulations and the Su-pervisory Practices (the Basel Committee) and are em-bedded in the Bank’s daily operational management. The operational measurements can be contrasted with impairment allowances required under IAS 39, which are based on losses that have been incurred at the re-porting date (the ‘incurred loss model’) rather than ex-pected losses.

The Bank’s internal ratings scale and mapping of external ratings as supplemented by the Bank’s own assessment through the use of internal rating tools are as follows:


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

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

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

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

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


3. Financial Risk Management (Continued) |3.1 Credit Risk (continued)


3.1.2 Risk limit control and mitigation policies The Bank manages, limits and controls concentrations of credit risk wherever they are identified − in particular, to individual counterparties and banks, and to industries and countries.

The Bank structures the levels of credit risk it under-takes by placing limits on the amount of risk accepted in relation to one borrower, or banks of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annu-al or more frequent review, when considered necessary. Limits on the level of credit risk by product, industry sec-tor and country are approved quarterly by the Board of Directors.

The exposure to any one borrower including banks and brokers is further restricted by sub-limits covering on- and off-balance sheet exposures, and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts. Actual exposures against limits are monitored daily.

Lending limits are reviewed in the light of changing market and economic conditions and periodic credit reviews and assessments of probability of default.

Some other specific control and mitigation measures are outlined below:

(a) CollateralThe Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advances, which is common practice. The Bank implements guidelines on the ac-ceptability of specific classes of collateral or credit risk mitigation.

The principal collateral types for loans and advances are: � .Mortgages over residential properties.

� .Charges over business assets such as premises, inventory and accounts receivable.

� .Charges over financial instruments such as debt securities and equities.

� Collateral held as security for financial assets other than loans and advances depends on the nature of the instrument.

Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facil-ities are generally unsecured. In addition, in order to minimise the credit loss the Bank will seek additional collateral from the counterparty as soon as impairment indicators are identified for the relevant individual loans and advances.

(b) Lending limits (for derivative and loan books)The Bank maintains strict control limits on net open de-rivative positions (that is, the difference between pur-



Overview

chase and sale contracts) by both amount and term. The amount subject to credit risk is limited to expected fu-ture net cash inflows of instruments, which in relation to derivatives are only a fraction of the contract, or notional values used to express the volume of instruments out-standing. This credit risk exposure is managed as part of the overall lending limits with customers, together with potential exposures from market movements. Collateral or other security is not always obtained for credit risk exposures on these instruments, except where the Bank requires margin deposits from counterparties.

Settlement risk arises in any situation where a payment in cash, securities or equities is made in the expectation of a corresponding receipt in cash, securities or equities. Daily settlement limits are established for each counter-party to cover the aggregate of all settlement risk arising from the Bank’s market transactions on any single day.

(c) Master netting arrangementsThe Bank further restricts its exposure to credit losses by entering into master netting arrangements with coun-terparties with which it undertakes a significant volume of transactions. Master netting arrangements do not generally result in an offset of assets and liabilities of the statement of financial position, as transactions are either usually settled on a gross basis or under most netting agreements the right of set off is triggered only on de-fault.

However, the credit risk associated with favourable con-tracts is reduced by a master netting arrangement to the extent that if a default occurs, all amounts with the counterparty are terminated and settled on a net basis. The Bank’s overall exposure to credit risk on derivative instruments subject to master netting arrangements can change substantially within a short period, as it is af-fected by each transaction subject to the arrangement.

(d) Financial govenants (for credit related commitments and loan books)

The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guar-antees and standby letters of credit carry the same cred-it risk as loans.

Documentary and commercial letters of credit – which are written undertakings by the Bank on behalf of a cus-tomer authorising a third party to draw drafts on the

Bank up to a stipulated amount under specific terms and conditions – are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards (often referred to as financial covenants).

The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. 3.1.3 Impairment and provisioning policies The internal and external rating systems described in Note 3.1.1 focus on expected credit losses – that is, tak-ing into account the risk of future events giving rise to losses. In contrast, impairment allowances are recog-nised for financial reporting purposes only for losses that have been incurred at the reporting date based on objective evidence of impairment. Due to the different methodologies applied, the amount of incurred credit losses provided for in the financial statements is usually lower than the amount determined from the expected loss model that is used for internal operational management and banking reg-ulation purposes. The impairment allowance shown in the statement of financial position at year-end is derived from each of the four internal rating grades. However, the largest component of the impairment allowance comes from the default grade. The table below (Table: 1) shows the percentage of the Bank’s on- and off-balance sheet items, like financial guarantees, loan commitments and other credit related obligations, relating to loans and advances and the associated impairment allowance for each of the Bank’s internal rating categories.


3.1.4 Maximum exposure to credit risk before collateral held or other credit enhancements The directors are confident in the ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from both the loan and advances portfolio and debt securities based on the following:

� . 92.64% of the loans and advances portfolio is categorised in the top two grades of the internal rating system (2014: 92.64%);

Table 1: Bank’s rating

2015 2014

Credit risk exposure Impairment allowance Credit risk exposure Impairment allowance

1. Normal 86.90% 83.08%

2. Watch 10.01% 9.56%

3. Substandard 1.64% 0.79%

4. Doubtful 0.99% 1.63%

5. Loss 0.46% 4.94%

� . 83.08% of the loans and advances portfolio are considered to be neither past due nor impaired (2014: 83.03%);

All credit exposures arise in Uganda. The following table breaks down the Bank’s credit exposure at carrying amounts (without taking into account any collateral held or other credit support), as categorised by the industry sectors of the Bank’s counterparties.


3. Financial Risk Management (Continued) |3.1 Credit Risk (continued)




Overview

At 31 December 2015

Financial institutions

Ushs ‘000

Manufac-turing

Ushs ‘000Real estate

Ushs ‘000

Whole-sale and retail

tradeUshs ‘000

Public sector

Ushs ‘000

OthersUshs ‘000

TotalUshs ‘000

Balances with the Cen-tral Bank

77,516,687 - - - - - 77,516,687

Deposits and balances due from banking insti-tutions

140,957,123 - - - - - 140,957,123

Loans to Retail customers:

− Overdrafts - 30,764 90,163 1,188,795 - 2,051,762.59 3,361,485

− Term loans - 22,209 3,495,180 1,819,351 - 24,913,950.82 30,250,690

Corporate - 11,449,276 20,247,526 29,796,639 - 42,783,584.80 104,277,026

SME - 1,523,899 7,700,852 19,275,067 - 15,608,421.89 44,108,240

Financial assets

– Held to maturity 98,362,345 - - - - - 98,362,345

Other assets - - - - - 2,107,641 2,107,641

316,836,155 13,026,148 31,533,721 52,079,852 - 87,465,361 500,941,237

Credit risk exposures relating to off-balance sheet items are as follows:

Guarantees and perfor-mance bonds

- 2,570,124 - 21,460,395 - 23,682,113 47,712,631

Loan commitments and other credit related obligations

741,330 1,519,318 4,692,244 - 17,641,324 24,594,216

At 31 December 2015 - 3,311,454 1,519,318 26,152,639 - 41,323,437 72,306,847

At 31 December 2014

Balances with the Cen-tral Bank

66,497,667 - - - - - 66,497,667

Deposits and balances due from banking insti-tutions

106,445,193 - - - - - 106,445,193

Loans to Retail custom-ers:

− Overdrafts - 1,791,935 1,719,326 10,194,138 - 6,396,782 20,102,181

− Term loans - 1,423,294 7,162,440 10,559,665 - 15,177,743 34,323,142

Corporate - 4,491,797 30,023,104 19,606,335 - 34,751,574 88,872,810

HNWI - - 315,379 224,955 - 17,509,901 18,050,235

Public sector - - - - - - -

Financial assets

– Held to maturity 116,001,140 - - - - - 116,001,140

Other assets - - - - - 1,262,371 1,262,371

288,944,000 7,707,026 39,220,249 40,585,093 - 75,098,371 451,554,739

Credit risk exposures relating to off-balance sheet items are as follows:

Guarantees and perfor-mance bonds

- 1,636,590 - 4,963,245 - 29,232,980 35,832,815

Loan commitments and other credit related obligations

629,660 - 8,894,091 - 11,163,827 20,687,578

- 2,266,250 - 13,857,336 - 40,396,807 56,520,393



3. Financial Risk Management (Continued) | 3.1 Credit Risk (continued)


3.1.5 Loans and advancesLoans and advances are summarised as follows:

2015 2014

Ushs ‘000 Ushs ‘000

Neither past due nor impaired 158,155,736 134,053,927

Past due but not impaired 18,223,495 15,419,958

Individually impaired 5,618,210 11,874,484

Gross 181,997,441 161,348,369

Less: allowance for impairment (4,709,112) (5,877,826)

Less: Interest in suspense (267,375) (1,084,314)

Net 177,020,954 154,386,229

Loans and advances are summarised as per risk rating as follows:

NormalUshs ‘000

WatchUshs ‘000

Sub-standardUshs ‘000

DoubtfulUshs ‘000

LossUshs ‘000

TotalUshs ‘000

31 December 2015

Neither past due nor impaired 158,155,736 - - - - 158,155,736

Past due but not impaired - 18,223,495 - - - 18,223,495

Individually impaired - - 2,982,472 1,804,251 831,487 5,618,210

Gross 158,155,736 18,223,495 2,982,472 1,804,251 831,487 181,997,442

Less: allowance for impairment (3,336,436) (2,542,296) (1,664,729) (769,463) (8,312,924)

Net 154,819,300 18,223,495 440,176 139,522 62,024 173,684,518

31 December 2014

Neither past due nor impaired 134,053,927 134,053,927

Past due but not impaired 15,419,958 15,419,958

Individually impaired 1,278,045 2,633,471 7,962,968 11,874,484

Gross 134,053,927 15,419,958 1,278,045 2,633,471 7,962,968 161,348,368

Less: allowance for impairment (182,498) (672,043) (1,474,804) (4,815,292) (7,144,637)

Net 133,871,429 15,419,958 606,002 1,158,667 3,147,676 154,203,731



Overview

(a) Loans and advances neither past due nor impairedThe credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed

by reference to the internal rating system adopted by the bank.

OverdraftsUshs ‘000

Term loansUshs ‘000

CorporateUshs ‘000

HNWIUshs ‘000

Public sector

Ushs ‘000Total

Ushs ‘000

31 December 2015

Neither past due nor impaired

2,311,446 26,887,428 92,296,002 36,660,860 - 158,155,735

Total 2,311,446 26,887,428 92,296,002 36,660,860 - 158,155,735

31 December 2014

Neither past due nor impaired

6,947,214 33,756,661 75,685,251 17,664,801 - 134,053,927

Total 6,947,214 33,756,661 75,685,251 17,664,801 - 134,053,927

(b) Loans and advances past due but not impairedLate processing and other administrative delays on the side of the borrower can lead to a financial asset being past due but not impaired. Therefore, loans and advances less than 90 days past due are not usually considered impaired, unless other information is available to indicate the contrary.

Gross amount of loans and advances by class to customers that were past due but not impaired were as follows:

Overdrafts Term loans Corporate SME NBFI Total

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

31 December 2015

Past due but not impaired 1,897 1,128,964 11,865,648 5,226,986 - 18,223,495

Total 1,897 1,128,964 11,865,648 5,226,986 - 18,223,495

31 December 2014

Past due but not impaired 4,729,163 534,670 9,793,843 362,282 - 15,419,958

Total 4,729,163 534,670 9,793,843 362,282 - 15,419,958

(c) Loans and advances individually impaired(i) Loans and advances to customersThe individually impaired loans and advances to customers before taking into consideration the cash flows from collateral held is Ushs 5,618,211 (2014: 11,874,484).

The breakdown of the gross amount of individually impaired loans and advances by class are as follows:

OverdraftsUshs ‘000

Term loansUshs ‘000

CorporateUshs ‘000

SMEUshs ‘000

Public sector

Ushs ‘000Total

Ushs ‘000

31 December 2015

Individually impaired 1,048,143 2,234,298 115,376 2,220,394 - 5,618,211

Total 1,048,143 2,234,298 115,376 2,220,394 - 5,618,211

31 December 2014

Individually impaired 8,425,803 31,811 3,393,717 23,153 - 11,874,484

Total 8,425,803 31,811 3,393,717 23,153 - 11,874,484



3. Financial Risk Management (Continued)


3.2 MARKET RISKThe Bank takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are ex-posed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, foreign exchange rates and equity prices.

The Bank separates exposures to market risk into either trading or non-trading portfolios. The market risks aris-ing from trading and non-trading activities are concen-trated in Bank Treasury and monitored by two teams separately. Regular reports are submitted to the Board of Directors and heads of each business unit.

Trading portfolios include those positions arising from market-making transactions where the Bank acts as principal with clients or with the market.

Non-trading portfolios primarily arise from the interest rate management of the entity’s retail and commercial banking assets and liabilities. Non-trading portfolios also consist of foreign exchange and equity risks arising from the Bank’s held-to-maturity and available-for-sale financial assets.

3.2.1 Market risk measurement techniquesThe objective of market risk measurement is to man-age and control market risk exposures within accept-able limits while optimising the return on risk. The Bank Treasury is responsible for the development of detailed risk management policies and for day-to-day imple-mentation of those policies.

(a) Value at riskThe Bank applies a ‘value at risk’ (VAR) methodology to its trading and non-trading portfolios to estimate the market risk of positions held and the maximum losses expected, based upon a number of assumptions for var-ious changes in market conditions. The Board sets limits on the value of risk that may be accepted for the Bank, which are monitored on a daily basis by Bank Treasury. Interest rate risk in the non-trading book is measured through the use of interest rate repricing gap analysis (Note 3.2.3).

VAR is a statistically based estimate of the potential loss on the current portfolio from adverse market move-

ments. It expresses the ‘maximum’ amount the Bank might lose, but only to a certain level of confidence (98%). There is therefore a specified statistical probabil-ity (2%) that actual loss could be greater than the VAR estimate. The VAR model assumes a certain ‘holding pe-riod’ until positions can be closed (10 days). It also as-sumes that market moves occurring over this holding period will follow a similar pattern to those that have occurred over 10-day periods in the past. The Bank’s as-sessment of past movements is based on data for the past five years.

The Bank applies these historical changes in rates, pric-es, indices, etc. directly to its current positions − a meth-od known as historical simulation. Actual outcomes are monitored regularly to test the validity of the assump-tions and parameters/factors used in the VAR calcula-tion. The use of this approach does not prevent losses outside of these limits in the event of more significant market movements.

As VAR constitutes an integral part of the Bank’s mar-ket risk control regime, VAR limits are established by the Board annually for all trading portfolio operations and allocated to business units. Actual exposure against limits, together with a Bank-wide VAR, is reviewed daily by Bank Treasury. The quality of the VAR model is con-tinuously monitored by back-testing the VAR results for trading books.

All back-testing exceptions and any exceptional reve-nues on the profit side of the VAR distribution are inves-tigated, and all back-testing results are reported to the Board of Directors.

(b) Stress testsStress tests provide an indication of the potential size of losses that could arise in extreme conditions. The stress tests carried out by Bank Treasury include: risk fac-tor stress testing, where stress movements are applied to each risk category; emerging market stress testing, where emerging market portfolios are subject to stress movements; and ad hoc stress testing, which includes applying possible stress events to specific positions or regions − for example, the stress outcome to a region following a currency peg break.

The results of the stress tests are reviewed by senior management in each business unit and by the Board of Directors. The stress testing is tailored to the business and typically uses scenario analysis.



Overview

3.2.2 Foreign exchange riskThe Bank takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, which are monitored daily. The table below summarises the Bank’s exposure to foreign exchange risk at 31 December 2015. Included in the table are the Bank’s financial instruments at carrying amounts, categorised by currency.

At 31 December 2015UGX

Ushs ‘000USD

Ushs ‘000EUR

Ushs ‘000GBP

Ushs ‘000Other

Ushs ‘000Total

Ushs ‘000

Assets

Cash and balances with the Central Bank 52,694,879 22,841,576 809,703 1,119,162 51,367 77,516,687

Deposits and balances due from banking insti-tutions 2,000,959 127,962,801 6,398,253 3,580,398 1,014,712 140,957,123

Investment securities

– Held-to-maturity 98,362,345 - - - - 98,362,345

Investment in subsidiary 80,000 - - - - 80,000

Loans and advances to customers 71,728,161 105,291,988 805 - - 177,020,954

Other assets 4,622,034 721,630 81,623 2,623 - 5,427,910

Total financial assets 229,488,378 256,817,995 7,290,384 4,702,183 1,066,079 499,365,019

Liabilities

Deposits from banks 4,002,164 - - - - 4,002,164

Deposits from custom-ers 177,248,021 251,416,338 6,938,908 4,922,422 1,073 440,526,762

Refinance loans 104,167 - - - - 104,167

Other liabilities 6,111,249 5,039,934 20,102 5,311 20 11,176,616

Total financial liabilities 187,465,601 256,456,272 6,959,010 4,927,733 1,093 455,809,709

Net on-balance sheet financial position 42,022,777 361,723 331,374 (225,550) 1,064,986 43,555,310

Credit commitments 7,117,058 17,477,157 - - - 24,594,215


Ushs ‘000USD

Ushs ‘000EUR

Ushs ‘000GBP

Ushs ‘000Other

Ushs ‘000Total

Ushs ‘000

Assets

Cash and balances with the Central Bank 47,101,254 17,155,968 809,669 1,395,049 35,727 66,497,667

Deposits and balances due from banking insti-tutions 16,352,275 75,973,725 179,128 5,592,749 8,347,316 106,445,193


– Held-to-maturity 116,001,140 - - - - 116,001,140

Investment in subsidiary 80,000 - - - - 80,000

Loans and advances to customers 66,266,052 88,107,649 10,410 2,117 - 154,386,228

Other assets 2,951,242 315,771 - - - 3,267,013

Total financial assets 248,751,963 181,553,113 999,207 6,989,915 8,383,043 446,677,241



Ushs ‘000USD

Ushs ‘000EUR

Ushs ‘000GBP

Ushs ‘000Other

Ushs ‘000Total

Ushs ‘000

Liabilities

Deposits from banks 5,000,274 - - - - 5,000,274

Deposits from custom-ers 187,027,324 183,294,599 3,158,032 6,535,093 8,285,246 388,300,294

Refinance loans 166,667 - - - - 166,667

Provisions

Current income tax liabilities

Other liabilities 6,664,222 1,439,051 39,596 4,570 5,408 8,152,847

Total financial liabilities 198,858,487 184,733,650 3,197,628 6,539,663 8,290,654 401,620,082

Net on-balance sheet financial position 49,893,477 (3,180,537) (2,198,421) 450,252 92,389 45,057,160

Credit commitments 10,889,747 9,797,831 - - - 20,687,578


3. Financial Risk Management (Continued) | 3.2 Market risk (continued) | 3.2.2 Foreign exchange risk (continued)




Overview

3.2.3 Interest rate risk Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce

losses in the event that unexpected movements arise. The Board sets limits on the level of mismatch of interest rate repricing and value at risk that may be undertaken, which is monitored daily by Bank Treasury.

The tables below summarise the Bank’s non-trading book fair value exposure to interest rate risks. It includes the Bank’s financial instruments at carrying amounts (non-derivatives), categorised by the earlier of contrac-tual repricing (for example for floating rate notes).

0 to 3Months

Ushs ‘000

4 to 6Months

Ushs ‘000

7 to 12Months

Ushs ‘000

Over1 year

Ushs ‘000

Over5 years

Ushs ‘000

NonInterest bearing

Ushs ‘000Total

Ushs ‘000

As at 31 December 2015

Assets

Cash and balances with the Bank of Uganda - - - - - 77,516,687 77,516,687

Deposits and balances due from banking institutions 129,799,642 11,157,481 - - - - 140,957,123

Investment securities - - - - - - -

– Held-to-maturity 25,956,217 18,296,051 24,691,516 28,386,332 1,032,230 - 98,362,345

Investment in subsidiary 80,000 80,000

Loans and advances to customers 31,974,918 11,204,197 34,319,957 93,863,702 5,658,181 177,020,954

Other assets 5,427,910 5,427,910

Freehold - - - - - 15,100,000 15,100,000

Property and equipment - - - - - 11,208,927 11,208,927

Operating lease pre-payments - - - - - 23,953 23,953

Intangible assets - - - - - 3,051,650 3,051,650

Deferred income tax asset - - - - - 21,945,634 21,945,634

Current income tax recoverable - - - - - 354,615 354,615

Total financial assets 187,730,777 40,657,729 59,011,473 122,250,034 6,690,411 134,709,376 551,049,798

Liabilities

Deposits from banks 4,002,164 4,002,164

Deposits from customers 150,012,906 27,149,136 47,114,621 5,794,871 5,917 210,449,311 440,526,762

Refinance loans - - 104,167 - - - 104,167

Other liabilities - - - - - 11,176,616 11,176,616

Total financial liabilities 154,015,070 27,149,136 47,218,788 5,794,871 5,917 221,625,927 455,809,709


0 to 3Months

Ushs ‘000

4 to 6Months

Ushs ‘000

7 to 12Months

Ushs ‘000

Over1 year

Ushs ‘000

Over5 years

Ushs ‘000

NonInterest bearing

Ushs ‘000Total

Ushs ‘000

Interest sensitivity gap 33,715,707 13,508,592 11,792,685 116,455,165 6,684,494 (86,916,551) 95,240,089


Assets

Cash and balances with the Central Bank - - - - - 66,497,667 66,497,667


Investment securities -

– Held-to-maturity 22,122,433 20,195,756 15,141,793 57,504,651 1,036,506 - 116,001,140

Investment in sub-sidiary 80,000 80,000

Loans and advances to customers 57,777,816 15,069,559 21,541,318 56,364,637 3,632,898 - 154,386,228

Other assets - - - - - 3,267,013 3,267,013

Property and equip-ment - - - - - 11,131,811 11,131,811

Operating lease pre-payments - - - - - 458,464 458,464





Liabilities


Deposits from cus-tomers 112,725,441 48,210,248 38,797,101 13,801,455 5,834 174,760,215 388,300,294

Refinance loans - - 166,667 - - - 166,667

Other liabilities - - - - - 8,152,847 8,152,847

Total financial liabilities 117,725,715 48,210,248 38,963,768 13,801,455 5,834 182,913,062 401,620,082

Total interest repricing gap 57,462,246 (1,787,453) 2,280,657) 100,067,833 4,663,572 (78,946,528) 79,179,013


3. Financial Risk Management (Continued) | 3.2 Market risk (continued) | 3.2.3 Interest rate risk (continued)




Overview

3.3 LIQUIDITY RISKLiquidity risk is the risk that the Bank is unable to meet its obligations when they fall due as a result of custom-er deposits being withdrawn, cash requirements from contractual commitments, or other cash outflows, such as debt maturities or margin calls for derivatives.

Such outflows would deplete available cash resources for client lending, trading activities and investments. In extreme circumstances, lack of liquidity could result in reductions in the statement of financial position and sales of assets, or potentially an inability to fulfil lending commitments.

The risk that the Bank will be unable to do so is inherent in all banking operations and can be affected by a range of institution-specific and market-wide events includ-ing, but not limited to, credit events, merger and acqui-sition activity, systemic shocks and natural disasters.

3.3.1 Liquidity risk management processThe Bank’s liquidity management process, as carried out within the Bank and monitored by a separate team in Bank Treasury, includes:

� Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they mature or are borrowed by customers. The Bank maintains an active presence in global money markets to enable this to happen;

� Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow;

� Monitoring the liquidity ratios of the statement of financial position against internal and regulatory requirements; and

� Managing the concentration and profile of debt maturities.

Monitoring and reporting take the form of cash flow measurement and projections for the next day, week and month respectively, as these are key periods for li-quidity management. The starting point for those pro-jections is an analysis of the contractual maturity of the financial liabilities and the expected collection date of the financial assets (Notes 3.3.3).

Bank Treasury also monitors unmatched medium-term assets, the level and type of undrawn lending commit-ments, the usage of overdraft facilities and the impact of contingent liabilities such as standby letters of credit and guarantees.

3.3.2 Funding approachSources of liquidity are regularly reviewed by a separate team in Bank Treasury to maintain a wide diversification by currency, provider, product and term.

3.3.3 Non-derivative financial liabilities and assets held for managing liquidity riskThe table below presents the cash flows payable by the Bank under non-derivative financial liabilities and assets held for managing liquidity risk by remaining contrac-tual maturities at the reporting date. The amounts dis-closed in the table are the contractual undiscounted cash flow, whereas the Bank manages the liquidity risk based on a different basis (see Note 3.3.1 for details), not resulting in a significantly different analysis.



0 to 3Months

Ushs ‘000

4 to 6Months

Ushs ‘000

7 to 12Months

Ushs ‘000

Over1 year

Ushs ‘000

Over5 years

Ushs ‘000Non Liquid

Ushs ‘000Total

Ushs ‘000

Assets

Cash and balances with the Central Bank 77,516,687 - - - - - 77,516,687



– Held-to-maturity 25,956,217 18,296,051 24,691,516 28,386,332 1,032,230 - 98,362,345

Investment in subsidiary 80,000 - 80,000


Other assets 5,427,910 - - - - - 5,427,910

Freehold 15,100,000 15,100,000

Operating lease prepayments - - - - - 23,953 23,953

Current income tax recov-erable - - - - - 354,615 354,615





Liabilities

Deposits from banks 4,002,164 - - - - - 4,002,164

Deposits from customers 360,462,217 27,149,136 47,114,621 5,794,871 5,917 - 440,526,762

Refinance loans - - 104,167 - - - 104,167

Other liabilities 11,176,616 - - - - - 11,176,616

Total financial liabilities 375,640,997 27,149,136 47,218,788 5,794,871 5,917 - 455,809,709

Total equity - - - - - 95,240,089 95,240,089

Total financial liabilities and equity 375,640,997 27,149,136 47,218,788 5,794,871 5,917 95,240,089 551,049,798

On-balance sheet liquidity gap (104,965,624) 13,508,592 11,792,685

116,455,162

6,764,494 (43,555,311) -

Off-balance sheet items

Loan Commitments 3,832,902 2,726,419 18,034,895 - - - 24,594,216

Guarantees 19,522,764 7,166,370 12,573,513 5,912,693 - - 45,175,340

Performance bonds 1,974,967 245,405 316,920 - - - 2,537,291

Letters of credit 38,615,395 4,989,559 4,234,065 - - 47,839,019

Total off-balancesheet items 63,946,028 15,127,753 35,159,393 5,912,693 - - 120,145,867

Net mismatch (168,911,651) (1,619,161) (23,366,709) 110,542,468 6,764,494 (43,555,311) (120,145,867)


3. Financial Risk Management (Continued) | 3.3 Liquidity risk (continued) | 3.3.3 Non-derivative financial liabilities and assets held for managing liquidity risk (continued)




Overview


0 to 3Months

Ushs ‘000

4 to 6Months

Ushs ‘000

7 to 12Months

Ushs ‘000

Over1 year

Ushs ‘000

Over5 years

Ushs ‘000Non Liquid

Ushs ‘000Total

Ushs ‘000

Assets

Cash and balances with the Central Bank 66,497,667 - - - - - 66,497,667



– Held-to-maturity 22,122,433 20,195,756 15,141,793 57,504,651 1,036,506 - 116,001,140

Investment in subsidiary 80,000 - 80,000


Other assets 3,267,013 - - - - - 3,267,013

Operating lease prepayments - - - - - 458,464 458,464






Liabilities

Deposits from banks 5,000,274 - - - - - 5,000,274

Deposits from banks

Deposits from customers 287,485,656 48,210,248 38,797,101 13,801,455 5,834 - 388,300,294

Refinance loans - - 166,667 - - - 166,667

Other liabilities 8,152,847 - - - - - 8,152,847

Total financial liabilities 300,638,777 48,210,248 38,963,768 13,801,455 5,834 - 401,620,082

Total equity - - - - - 79,179,013 79,179,013

Total financial liabilities and equity 300,638,777 48,210,248 38,963,768 13,801,455 5,834 79,179,013 480,799,095

On-balance sheet liquidity gap (55,686,136) (1,787,453) (2,280,657)

100,067,833

4,743,571 (45,057,160) -

Off-balance sheet items

Loan Commitments 4,017,650 4,883,730 11,786,198 - - - 20,687,578

Guarantees 8,367,564 7,432,918 12,407,812 3,607,171 - - 31,815,464

Performance bonds 2,515,794 416,680 1,084,877 - - - 4,017,350

Letters of credit 29,382,780 6,419,046 7,305,964 - 172,172 - 43,279,961

Total off-balancesheet items 44,283,787 19,152,374 32,584,851 3,607,171 172,172 - 99,800,355

Net mismatch (99,969,923) (20,939,827) (34,865,508) 96,460,662 4,571,399 (45,057,160) (99,800,355)


3.3.4 Assets held for managing liquidity riskThe Bank holds a diversified portfolio of cash and high-quality highly-liquid securities to support pay-ment obligations and contingent funding in a stressed market environment. The Bank’s assets held for managing liquidity risk com-prise: � Cash and balances with central banks; � Certificates of deposit; � Government bonds and other securities that are

readily acceptable in repurchase agreements with central banks; and

� Secondary sources of liquidity in the form of highly liquid instruments in the Bank’s trading portfolios.

3.3.5 Off-balance sheet items (a) Loan commitmentsThe dates of the contractual amounts of the Bank’s


3. Financial Risk Management (Continued) | 3.3 Liquidity risk (continued)


off-balance sheet financial instruments that it commits to extend credit to customers and other facilities (Note 35) are summarised in the table below.

(b) Other financial facilitiesOther financial facilities (Note 35) are also included in the table below, based on the earliest contractual maturity date.

(c) Operating lease commitmentsWhere the Bank is the lessee, the future minimum lease payments under non-cancellable operating leases, as disclosed in Note 35, are summarised in the table below.

(d) Capital commitmentsCapital commitments for the acquisition of buildings and equipment (Note 35) are summarised in the table below.

At 31 December 2015

No later than 1 year

Ushs ‘0001-5 yearsUshs ‘000

Over 5 yearsUshs ‘000

TotalUshs ‘000

Loan commitments 24,594,216 - - 24,594,216

Letters of credit 47,839,019 - - 47,839,019

Guarantees 39,262,647 5,912,693 - 45,175,340

Performance bonds 2,537,291 - - 2,537,291

Capital commitments 1,033,756 - - 1,033,756

Total 115,266,929 5,912,693 - 121,179,622 At 31 December 2014Loan commitments 20,687,578 - - 20,687,578

Letters of credit 43,107,789 - 172,172 43,279,961

Guarantees 28,208,294 3,607,171 - 31,815,464

Performance bonds 4,017,350 - - 4,017,350

Capital commitments 947,160 - - 947,160

Total 96,968,171 3,607,171 172,172 100,747,513



Overview

3.4 FAIR VALUE OF FINANCIAL INSTRUMENTS(a) Financial instruments not measured at fair valueThe following table summarises the carrying amounts and fair values of those financial assets and liabilities not presented on the Bank’s statement of financial position at their fair value:

Carrying Value Fair value

2015 2014 2015 2014

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

Financial assets

Deposits and balances due from banking institutions

140,957,123 106,445,193 140,957,123 106,445,193

Loans and advances to customers 177,020,954 154,386,228 177,020,954 154,386,228

Investment securities (held-to-maturity) 98,362,345 116,001,140 98,362,345 116,001,140

416,340,422 376,832,561 416,340,422 376,832,561

Financial liabilities

Deposits from banks 4,002,164 5,000,274 4,002,164 5,000,274

Deposits from customers 440,526,762 388,300,294 440,526,762 388,300,294

Refinance loan 104,167 166,667 104,167 166,667

444,633,093 393,467,235 444,633,093 393,467,235

Off-balance sheet financial instruments

Loan commitment 24,594,215 20,687,578 24,594,215 20,687,578

Guarantees, acceptances and other financial facilities

95,551,651 79,112,776 95,551,651 79,112,776

120,145,866 99,800,355 120,145,866 99,800,355

(i) Loans and advances to banksLoans and advances to banks include inter-bank place-ments and items in the course of collection.The carrying amount of floating rate placements and overnight deposits is a reasonable approximation of fair value. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using pre-vailing money-market interest rates for debts with simi-lar credit risk and remaining maturity.

(ii) Loans and advances to customersLoans and advances are net of charges for impairment. The estimated fair value of loans and advances repre-sents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair val-ue.

(iii) Investment securities The fair value for loans and receivables and held-to-ma-turity financial assets is based on market prices or bro-ker/dealer price quotations. Where this information is not available, fair value is estimated using quoted mar-ket prices for securities with similar credit, maturity and yield characteristics.

Investment securities (available-for-sale) disclosed in the table above comprise only those equity securities held at cost less impairment. The fair value for these as-sets is based on estimations using market prices and earning multiples of quoted securities with similar char-acteristics. All other available-for-sale financial assets are already measured and carried at fair value.

(iv) Deposits from banks and customers The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand.

The estimated fair value of fixed interest-bearing deposits not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar remaining maturity.

(v) Off-balance sheet financial instrumentsThe estimated fair values of the off-balance sheet finan-cial instruments are based on markets prices for similar facilities. When this information is not available, fair val-ue is estimated using discounted cash flow analysis.


(b) Fair value hierarchyIFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation tech-niques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Bank’s market assumptions.

These two types of inputs have created the following fair value hierarchy:

� Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level includes listed equity securities and debt instruments on exchanges (for example, Uganda Stock Exchange).

� Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).

� Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components.

This hierarchy requires the use of observable market data when available. The Bank considers relevant and observable market prices in its valuations where possible.

At 31 December 2014 and 2015, the Bank had no finan-

cial assets measured at fair value.3.5 CAPITAL MANAGEMENTThe Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of the statement of financial position, are: � To comply with the capital requirements set by the

Central Bank;

� To safeguard the Bank’s ability to continue as a going concern so that it can continue to provide


3. Financial Risk Management (Continued) | 3.4 Fair value of financial instruments (continued)


returns for shareholders and benefits for other stakeholders; and

� To maintain a strong capital base to support the development of its business.

Capital adequacy and the use of regulatory capital are monitored daily by the Bank’s management, employ-ing techniques based on the guidelines developed by the Basel Committee, as implemented by the Bank of Uganda (the Authority), for supervisory purposes. The required information is filed with the Authority on a quarterly basis. The Bank maintains a ratio of total regu-latory capital to its risk-weighted assets (the ‘Basel ratio’) above a minimum level agreed with the Central Bank which takes into account the risk profile of the Bank.

The regulatory capital requirements are strictly ob-served when managing economic capital. The Bank’s regulatory capital is managed by its Bank Treasury and

comprises two tiers: � Tier 1 capital: Permanent shareholders’ equity in

the form of issued and fully paid- up shares plus all disclosed reserves, less goodwill and any intangible assets.

� Tier 2 capital: General provisions which are held against the future and current unidentified losses that are freely available to meet the losses which subsequently materialize, revaluation reserves on banking premises, and any other form of capital as may be determined from time to time by the Central Bank.

The risk weighted assets are measured by means of a hi-erarchy of 4 risk weights. Risk weights are assigned to as-sets and off balance sheet items according to the Bank’s own estimates of probabilities of default (PD), loss given default (LGD) and credit fonversion factors (CCF) for re-tail business and claims to central governments, institu-tions and corporates.

Own estimates of risk parameters are in accordance to the minimum requirements set out by Basel II.



Overview

The table below summarises the composition of regulatory capital and the ratios of the Bank for the years ended 31 December 2014 and 2013. During those two years, the Bank complied with all of the externally imposed capital requirements to which they are subject.

2015Ushs ‘000

2014Ushs ‘000

Tier 1 capital

Share capital 76,500,000 76,500,000

Retained earnings 5,746,424 (4,888,694)

Less: Intangible assets (3,051,650) (4,096,799)

Less: Deferred income tax asset (21,945,634) (18,168,677)

Less: Unrealized foreign exchange gains - (22,469)

Less: Investment in subsidiary (80,000) (80,000)

Total qualifying Tier 1 capital 57,169,139 49,243,361

Tier 2 capital

Revaluation reserve 12,768,567 2,562,073

General provisions 2,761,323 2,309,121

Total qualifying Tier 2 capital 15,529,891 4,871,194

Total regulatory capital 72,699,030 54,114,555

Risk-weighted assets:

On-balance sheet 273,420,825 213,580,224

Off-balance sheet 68,308,898 52,823,922

Total risk-weighted assets 341,729,723 266,404,146

Core capital ratio 16.73% 18.48%

Total capital ratio 21.27% 20.31%


Nominal statement of financial position amounts

Risk Weight

Risk weighted amounts

2015Shs ‘000

2014Shs ‘000

2015Shs ‘000

2014Shs ‘000

Balance sheet assets (net of provisions)

Cash balances 77,516,687 66,497,667 0% - -

Deposits and balances due from 25,281,027 35,027,108 20% 5,056,205 7,005,422

banking institutions

Due from banks outside Uganda

with long-term ratingsas follows;

Rated AAA to AA(-) 21,758,869 7,442,696 20% 4,351,774 1,488,539

Rated A (+) to A (-) 83,153,932 63,934,899 50% 41,576,966 31,967,449

Rated A (-) to non-rated 10,763,295 40,490 100% 10,763,295 40,490

Government securities 98,362,345 116,001,140 0% - -

Loans and advances to customers 179,557,179 157,954,933 100% 179,557,179 157,954,933

Investment in subsidiary 80,000 80,000 0% - -

Property and equipment 11,208,927 11,131,811 100% 11,208,927 11,131,811

Freehold land 15,100,000 - 100% 15,100,000 -

Operating lease prepayments 23,953 458,464 100% 23,953 458,464

Other assets 5,427,910 3,267,013 100% 5,427,910 3,267,013

Current income tax recoverable 354,615 266,103 100% 354,615 266,103

Total assets 528,588,739 462,102,324 273,420,825 213,580,224

Off-balance sheet positions

Performance bonds 2,537,291 4,017,351 50% 1,268,645 2,008,676

Letters of guarantee 45,175,340 31,815,465 100% 45,175,340 31,815,465

Letters of credit 47,839,019 43,279,961 20% 9,567,804 8,655,992

Unutilised commitments 24,594,216 20,687,578 50% 12,297,108 10,343,789

120,145,867 99,800,355 68,308,898 52,823,922

Total risk-weighted assets 648,734,606 561,902,679 341,729,722 266,404,146


3. Financial Risk Management (Continued) | 3.4 Capital Management (continued)




Overview

4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

In addition, objective evidence of impairment may be deterioration in the financial health of the investee, in-dustry and sector performance, changes in technology, and operational and financing cash flows.

(c) Fair value of financial instrumentsThe fair value of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. In these cases, the fair values are estimated from observ-able data in respect of similar financial instruments or using models. Where market observable inputs are not available, they are estimated based on appropriate as-sumptions.

Where valuation techniques (for example, models) are used to determine fair values, they are validated and pe-riodically reviewed by qualified personnel independent of those that sourced them. All models are certified be-fore they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices.

To the extent practical, models use only observable data; however, areas such as credit risk (both own credit risk and counterparty risk), volatilities and correlations require management to make estimates.

(d) Held-to-maturity investmentsIn accordance with IAS 39 guidance, the Bank classifies some non-derivative financial assets with fixed or deter-minable payments and fixed maturity as held-to-matu-rity. This classification requires significant judgement. In making this judgement, the Bank evaluates its intention and ability to hold such investments to maturity.

If the Bank were to fail to keep these investments to ma-turity other than for the specific circumstances – for ex-ample, selling an insignificant amount close to maturity – the Bank is required to reclassify the entire category as available-for-sale.

Accordingly, the investments would be measured at fair value instead of amortised cost. If all held-to-maturity investments were to be so reclassified, the carrying val-ue would increase by C62, with a corresponding entry in the fair value reserve in shareholders’ equity.

The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. All estimates and assumptions required in conformity with IFRS are best estimates un-dertaken in accordance with the applicable standard. Estimates and judgements are evaluated on a contin-uous basis, and are based on past experience and oth-er factors, including expectations with regard to future events.

Accounting policies and directors’ judgements for cer-tain items are especially critical for the Bank’s results and financial situation due to their materiality.

(a) Impairment losses on loans and advancesThe Bank reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in profit or loss, the Bank makes judgements as to whether there is any ob-servable data indicating an impairment trigger followed by measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with that portfolio.

This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a bank, or national or local eco-nomic conditions that correlate with defaults on assets in the Bank. The directors use estimates based on his-torical loss experience for assets with credit risk charac-teristics and objective evidence of impairment similar to those in the portfolio when scheduling future cash flows.

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

(b) Impairment of available-for-sale equity investments

The Bank determines that available-for-sale equity in-vestments are impaired when there has been a signif-icant or prolonged decline in the fair value below its cost. This determination of what is significant or pro-longed requires judgement. In making this judgement, the Bank evaluates among other factors, the volatility in share price.


noTes To The finanCial sTaTemenTs For the year ended 31 December 2015 (continued)

5. INTEREST INCOME AND INTEREST EXPENSES 2015 2014


Group and Bank

Interest income

Loans and advances 24,982,644 26,198,156

Deposits and balances due from banking institutions 1,746,298 1,692,455

26,728,942 27,890,611

Investment securities:

- Held-to-maturity 13,508,541 12,896,554

40,237,483 40,787,165

Interest expense


Deposits from customers 15,833,915 19,877,561

BOU refinance schemes 13,542 19,389

17,243,228 20,988,100

6. LOAN IMPAIRMENT CHARGES2015 2014


Group and Bank

Loans and advances to customers (Note 20)

Net Increase in impairment 5,668,591 18,813,833

5,668,591 18,813,833

- identified 2,332,155 18,631,335

- unidentified 3,336,436 182,498

5,668,591 18,813,833

7. NET FEE AND COMMISSION INCOME 2015 2014


Group

Fee and commission income

Credit related fees and commissions 2,255,705 2,324,618

Commission income 20,520,976 12,803,686

Commission on trade 181,533 347,908

Other operating income 6,728,672 3,155,262

29,686,886 18,631,474



Overview

8. NET FOREIGN EXCHANGE GAINS/ (LOSSES) 2015 2014


Group and Bank

Unrealised exchange gain - 22,469

Realised exchange losses/gains (4,529,013) 5,035,577

(4,529,013) 5,058,046

Foreign exchange net trading income includes gains and losses from spot and forward contracts.

9. EMPLOYEE BENEFITS EXPENSES2015 2014


Group

Wages and salaries 11,105,506 11,170,773

National Social Security Fund contributions 1,146,734 1,174,193

Other staff costs 1,255,323 1,400,857

Defined benefit pension fund contributions 705,684 741,513

14,213,247 14,487,336

Bank

Wages and salaries 11,018,006 11,109,768

National Social Security Fund 1,137,984 1,168,092

Other staff costs 1,252,605 1,387,597

Defined benefit pension fund contributions 705,684 741,513

14,114,279 14,406,970

10. General and administrative expenses

2015 2014


Group

IT and software costs 2,306,933 1,221,159

Occupancy, furniture and equipment 4,418,777 4,100,487

Marketing and public relations 726,950 864,433

Travel and entertainment 84,717 172,592

Telecommunication and postage 1,424,365 1,542,646

Other administrative expenses 937,345 1,129,057

9,899,087 9,030,374

Bank

IT and software costs 2,306,933 1,221,159

Occupancy, furniture and equipment 4,418,777 4,100,487

Marketing and public relations 719,301 863,983

Travel and entertainment 84,717 172,592

Telecommunication and postage 1,422,015 1,540,846

Other administrative expenses 937,345 1,128,220

9,889,088 9,027,287


11. DEPRECIATION AND AMORTISATION 2015 2014


Group

Depreciation of property and equipment (Note 22) 2,769,076 2,743,176

Amortisation of intangible assets (Note 25) 2,435,860 2,011,173

Amortisation of operating lease prepayments (Note 24) 23,455 44,535

5,228,391 4,798,884

Bank

Depreciation of property and equipment (Note 22) 2,767,266 2,742,029

Amortisation of intangible assets (Note 25) 2,435,860 2,011,173

Amortisation of operating lease prepayments (Note 24) 23,455 44,535

5,226,581 4,797,737

12. REVERSAL OF CHARGES2015 2014


Group and Bank

Reversal of Charges 1,139,542 307,796

1,139,542 307,796

Reversal of charges relates to concessions given to customers.

13. OTHER OPERATING EXPENSES2015 2014


Group

Audit fees 199,990 92,000

Other general expenses 11,310,996 9,098,546

11,510,986 9,190,546

Bank

Audit fees 199,990 92,000

Other general expenses 11,275,248 8,960,809

11,475,238 9,052,809




Overview

14. INCOME TAX CREDIT 2015 2014


Group

Current income tax 2,711,586 3,071,942

Deferred income tax (Note 30) (3,776,957) (8,183,541)

Income tax credit (1,065,371) (5,111,599)

The tax on the Group’s profit before income tax differs from the theoretical amount as follows:

2015 2014



Tax calculated at the tax rate of 30% (2014: 30%) 147,685 (3,942,055)

Effect of:

- Final tax on government securities 2,701,708 3,032,053

- Income not subject to tax (3,776,957) (8,183,541)

- Expenses not deductible for tax purposes (137,806) 3,981,944


2015 2014


Bank

Current income tax 2,701,708 3,032,053

Deferred income tax (Note 29) (3,776,957) (8,183,541)


The tax on the Bank’s profit before income tax differs from the theoretical amount as follows:

2015 2014



Tax calculated at the tax rate of 30% (2013: 30%) 138,265 (3,981,742)

Effect of:

- Final tax on Government securities 2,701,708 3,032,053

- Income not subject to tax (3,776,957) (8,183,541)

- Expenses not deductible for tax purposes (138,265) 3,981,742



15. FINANCIAL INSTRUMENTS BY CATEGORYLoans and

receivablesHeld to

maturity TotalUshs ‘000At 31 December 2015 Ushs ‘000 Ushs ‘000

Financial assets

Cash and bank balances with the Central Bank - 77,516,687 77,516,687

Deposits and balances due from banking institutions - 140,957,123 140,957,123

Investment securities - 98,362,345 98,362,345

Loans and advances to customers 177,020,954 - 177,020,954

177,020,954 316,836,155 493,857,109

Financial liabilities at amortised cost

Deposits from banks - 4,002,164 4,002,164

Deposits from customers - 440,526,762 440,526,762

- 444,528,926 444,528,926

At 31 December 2014

Financial assets

Cash and bank balances with the Central Bank - 66,497,667 66,497,667

Deposits and balances due from banking institutions - 106,445,193 106,445,193

Investment securities - 116,001,140 116,001,140

Loans and advances to customers 154,386,228 - 154,386,228

154,386,228 288,944,000 443,330,228

Financial liabilities at amortised cost

Deposits from banks - 5,000,274 5,000,274

Deposits from customers - 388,300,294 388,300,294

- 393,300,568 393,300,568

16. CASH AND BALANCES WITH CENTRAL BANK 2015 2014


Group and Bank

Cash in hand 27,117,381 24,230,201

Balances with the Central bank other than mandatory reserve deposits

50,399,306 42,267,466

Included in cash and cash equivalents (Note 16) 77,516,687 66,497,667

Mandatory reserve deposits with Central Bank - -

77,516,687 66,497,667

Mandatory reserve deposits are not available for use in the Bank’s day-to-day operations. Cash-in-hand and bal-ances with the Central Bank and mandatory reserve deposits are non-interest-bearing.




Overview

17. CASH AND CASH EQUIVALENTSFor the purpose of the statement of cash flows, cash and cash equivalents include:

2015 2014


Group and Bank

Cash and balances with the Central Bank (Note 16) 77,516,687 66,497,667

Deposits and balances due from banking institutions (Note 18) 140,957,123 106,445,193

Treasury bills maturing within 90 days 15,283,923 14,743,586

Treasury bonds maturing within 90 days 14,593,138 8,343,151

248,350,871 196,029,597

For the purposes of the statement of cash flow, cash and cash equivalents comprise balances with less than 90 days maturity from the date of acquisition including: cash and balances with central banks, treasury bills and other eligible bills, and amounts due from other banks.

The required cash reserve with Bank of Uganda as at 31 December 2015 was Ushs: 34,880 million. The cash ratio requirement is non-interest earning and is based on the value off customer deposits as adjusted by the Bank of Uganda. The cash reserves held are allowed to flactuate to not less than 50% of the mandatory requirement on a given day provided the average for the specified two weeks period is not lower than minimum requirements, and are subject to sanctions for non-compliance.

18. DEPOSITS AND BALANCES DUE FROM BANKING INSTITUTIONS2015 2014


Group

Balances due from other banking institutions 106,272,877 71,590,550

Placements with other banks 34,730,320 34,861,675

141,003,197 106,452,225

Bank

Balances due from other banking institutions 106,226,803 71,583,518

Placements with other banks 34,730,320 34,861,675

140,957,123 106,445,193


19. GOVERNMENT SECURITIES 2015 2014


Group and Bank

Securities held-to-maturity

Treasury bills

Face value

Maturing within 90 days 11,000,000 14,743,586

Maturing after 90 days 31,104,000 29,837,114

42,104,000 44,580,700

Unearned interest (2,319,604) (1,671,464)

39,784,396 42,909,236

Treasury Bonds

Face value

Maturing within 90 days 17,731,347 8,343,151

Maturing after 90 days 49,120,568 64,748,753

66,851,915 73,091,904

Unearned interest (8,273,966) -

58,577,949 73,091,904

Total government securities 98,362,345 116,001,140

20 (A) OTHER INVESTMENTS2015 2014


Group

Investment in quoted shares - 27,723

Total Investment in quoted shares - 27,723

20 (B) INVESTMENT IN SUBSIDIARY2015 2014


Bank

Equity securities – at cost:

– Equity Stock Brokers Ltd 80,000 80,000

Total investment in subsidiary 80,000 80,000




Overview

21. LOANS AND ADVANCES TO CUSTOMERS 2015 2014

Ushs ‘000 Ushs ‘000Group and Banka) Analysis of loan advances to customers by category:Retail- Overdrafts 3,361,485 7,281,756

- Term loans 30,250,690 33,778,214

33,612,175 41,059,970 Corporate 104,277,026 85,106,107

SME 44,108,240 35,182,293

181,997,441 161,348,368 Gross loans and advances to customers 181,997,441 161,348,368

Less: Interest in suspense (267,375) (1,084,314)

Less: allowance for impairment (4,709,112) (5,877,826)

Net loans and advances to customers 177,020,954 154,386,228

b) Gross advances to customers by industry composition:- Trade and commerce 52,079,852 40,585,093

- Agriculture 13,051,873 21,448,196

- Manufacturing 13,026,149 7,707,026

- Transport & communication 14,127,152 10,478,898

- Building and construction 54,566,507 39,220,250

- Personal, service industry and others 35,145,908 41,908,905

Gross advances to customers 181,997,441 161,348,368 Reconciliation of allowance account for losses on loans and advances to customers is as follows:

At 1 January 5,877,826 37,947,767 Increase in the provision for loan impairment

. Individually assessed as Per IAS 39 8,717,465 35,766,848

. Collectively assessed as Per IAS 39 3,336,436 182,498

Recoveries and allowances no longer required (6,385,310) (17,135,513)

Write offs during the year (6,837,305) (50,883,773)

At 31 December 4,709,112 5,877,826 Identified Impairment 1,372,676 4,706,398

Unidentified Impairment 3,336,436 1,171,429

4,709,112 5,877,826 Charge to the statement of comprehensive incomeNet increase in the provision for loan impairment 5,668,591 18,813,832

22. OTHER ASSETS GroupPrepayments 3,430,947 2,115,983

Other receivables 2,107,641 1,262,368

5,538,588 3,378,352 BankPrepayments 3,320,269 2,004,642

Other receivables 2,107,641 1,262,371

5,427,910 3,267,013



23. PROPERTY AND EQUIPMENT - GROUP

Buildings

Leasehold improve-

ments

Furniture, Fixtures,

Strong-room &

Safes

Computer Equip-ment,

ATM, POS & SWIFT

Motor vehicles

Office Equip-

mentWork In

Progress Total

Group Ushs’000 Ushs’000 Ushs’000 Ushs’000 Ushs’000 Ushs’000 Ushs’000 Ushs’000

COST or VALUATION

At 1 January 2014 5,773,310 3,564,052 2,656,194 7,548,322 1,461,045 4,172,431 729,825 25,905,180

Additions 50,000 169,345 127,557 318,198 78,470 270,115 777,516 1,791,201

Disposals - - (149,527) (4,435) (113,422) (6,764) - (274,149)

Transfer from WIP - 573,879 106,807 109,003 148,075 385,143 (1,442,241) (119,334)

Elimination of accum-mulated depreciation (2,505,045) - - - - - - (2,505,045)

Increase on revaluation 1,489,113 - - - - - - 1,489,113

At 31 December 2014 4,807,377 4,307,276 2,741,031 7,971,087 1,574,168 4,820,925 65,100 26,286,965

At 1 January 2015 4,807,377 4,307,276 2,741,031 7,971,087 1,574,168 4,820,925 65,100 26,286,965

Additions - 86,301 99,652 723,226.09 - 547,227 1,421,682 2,878,088

Disposals - - - (1,406) (350,197) - - (351,603)

Transfer from WIP - 313,092 32,987 31,459 - 69,264 (446,801) -

At 31 December 2015 4,807,377 4,706,668 2,873,670 8,724,366 1,223,971 5,437,416 1,039,981 28,813,449

ACCUMULATED DEPRECIATION

At 1 January 2014 2,951,245 1,246,548 1,627,076 5,641,878 817,562 2,784,896 - 15,069,205

Charge for the year 211,460 480,559 218,349 975,629 328,906 528,273 - 2,743,175

Eliminated on disposal - - (54,685) (4,433) (93,458) (1,612) - (154,188)


At 31 December 2014 657,660 1,727,107 1,790,739 6,613,074 1,053,010 3,311,557 - 15,153,147

At 1 January 2015 657,660 1,727,107 1,790,739 6,613,074 1,053,010 3,311,557 - 15,153,146

Charge for the year 225,516 530,833 219,776 1,010,978 234,680 547,292 - 2,769,076

Eliminated on disposal - - - (1,406) (321,850) (32) - (323,288)

At 31 December 2015 883,176 2,257,940 2,010,516 7,622,646 965,840 3,858,817 - 17,598,935

NET BOOK VALUE

At cost - 2,448,728 863,154 1,101,719 258,131 1,578,600 1,039,981 7,290,313

At valuation 3,924,201 - - - - - - 3,924,201

At 31 December 2015 3,924,201 2,448,728 863,154 1,101,719 258,131 1,578,600 1,039,981 11,214,515

At 31 December 2014 4,149,718 2,580,169 950,292 1,358,013 521,158 1,509,368 65,100 11,133,818

The buildings at Plot 6 and 6A, Kampala Road were revalued on 20th March 2014 by Bageine & Company Limited. The revaluation reserve arising out of this has been disclosed adequately in the financials.



Overview

PROPERTY AND EQUIPMENT - BANK

Buildings

Leasehold improve-

ments

Furniture, Fixtures,

Strong-room &

Safes

Computer Equip-ment,

ATM, POS & SWIFT

Motor vehicles

Office Equip-

mentWork In

Progress Total

Group Ushs’000 Ushs’000 Ushs’000 Ushs’000 Ushs’000 Ushs’000 Ushs’000 Ushs’000

COST or VALUATION

At 1 January 2014 5,773,310 3,564,052 2,656,194 7,542,466 1,461,045 4,172,431 729,825 25,899,324

Additions 50,000 169,345 127,557 318,198 78,470 270,115 777,516 1,791,201

Disposals - - (149,527) (4,435) (113,422) (6,764) - (274,149)

Transfer from WIP - 573,879 106,807 109,003 148,075 385,143 (1,442,241) (119,334)


Increase on revaluation 1,489,113 - - - - - - 1,489,113

At 31 December 2014 4,807,377 4,307,276 2,741,031 7,965,232 1,574,168 4,820,925 65,100 26,281,109

At 1 January 2015 4,807,377 4,307,276 2,741,031 7,965,232 1,574,168 4,820,925 65,100 26,281,109

Additions - 86,301 99,652 717,836 - 547,227 1,421,682 2,872,698

Disposals - - - (1,406) (350,197) - - (351,603)

Transfer from WIP - 313,092 32,987 31,459 - 69,264 (446,801) -

At 31 December 2015 4,807,377 4,706,668 2,873,670 8,713,120 1,223,971 5,437,416 1,039,981 28,802,204

ACCUMULATED DEPRECIATION

At 1 January 2014 2,951,245 1,246,548 1,627,076 5,639,177 817,562 2,784,896 - 15,066,504

Charge for the year 211,460 480,559 218,349 974,482 328,906 528,273 - 2,742,028

Eliminated on disposal - - (54,685) (4,433) (93,458) (1,612) (154,188)


At 31 December 2014 657,660 1,727,107 1,790,739 6,609,226 1,053,010 3,311,557 - 15,149,298

At 1 January 2015 657,660 1,727,107 1,790,739 6,609,226 1,053,010 3,311,557 - 15,149,299

Charge for the year 225,516 530,833 219,776 1,009,168 234,680 547,292 - 2,767,266

Eliminated on disposal - - - (1,406) (321,850) (32) - (323,288)

At 31 December 2015 883,176 2,257,940 2,010,516 7,616,989 965,840 3,858,817 - 17,593,277

NET BOOK VALUE

At cost - 2,448,728 863,154 1,096,131 258,131 1,578,600 1,039,981 7,284,725

At valuation 3,924,201 - - - - - - 3,924,201

At 31 December 2015 3,924,201 2,448,728 863,154 1,096,131 258,131 1,578,600 1,039,981 11,208,927

At 31 December 2014 4,149,718 2,580,169 950,292 1,356,006 521,158 1,509,368 65,100 11,131,811

The buildings at Plot 6 and 6A, Kampala Road were revalued on 20th March 2014 by Bageine & Company Limited. The reval-uation reserve arising out of this has been disclosed adequately in the financials.


24. FREEHOLD LAND2015 2014


Group and Bank

Cost

At 1 January and 31 December - -

Transfer from operating lease 15,100,000 -

At 31 December 15,100,000 -

The Land on Plot 6 and 6A, Kampala Road was converted to freehold during the year and revalued by independ-ent and professional revaluers Bageine & Company Limited on 20th April 2015. The revaluation reserve arising out

of this has been adequately reported in the financials (refer to note 33).

25. OPERATING LEASE PREPAYMENTSGroup and Bank

Cost

At 1 January and 31 December 1,046,652 1,046,652

Additions 164,000

Elimination of accumulated depreciation (607,096) -

Increase on revaluation 14,524,944 -

Transfer to Freehold (15,100,000) -

At 31 December 635,596 1,046,652

Accumulated amortisation

At 1 January 588,188 543,653

Amortisation charge 23,455 44,535

Effect of revaluation (607,096)

At 31 December 611,643 588,188

Net book value 23,953 458,464

26. INTANGIBLE ASSETSGroup and Bank

Cost

At 1 January 8,942,000 7,383,462

Additions 1,056,275 1,439,204

Transfer from work in progress 334,436 119,334

At 31 December 2015 10,332,711 8,942,000

Accumulated amortisation

At 1 January 4,845,201 2,834,028

Amortisation charge 2,435,860 2,011,173

At 31 December 2015 7,281,061 4,845,201

Net book value 3,051,650 4,096,799




Overview

27. DEPOSITS FROM BANKS2015 2014


Group and Bank

Deposits from other banks 4,002,164 5,000,274

4,002,164 5,000,274

28. CUSTOMER DEPOSITSDeposits due to customers primarily comprise savings deposits, amounts payable on demand, and term deposits.

2015 2014


Group

Demand deposits 227,705,328 190,429,875

Time deposits 135,198,539 142,179,417

Savings accounts 77,468,775 55,492,309

440,372,642 388,101,601

Banks and financial institutions - -

Private enterprises and individuals 408,665,404 347,052,679

Government and parastatals 31,707,239 41,048,922

440,372,643 388,101,601

Bank

Demand deposits 227,759,448 190,478,568

Time deposits 135,298,539 142,329,417

Savings accounts 77,468,775 55,492,309

440,526,762 388,300,294

Segment analysis

Corporate 113,362,007 98,352,107

Retail 200,249,010 169,882,261

NBFI 45,466,840 41,166,666

SME 81,448,906 78,899,260

440,526,762 388,300,294

Private enterprises and individuals 408,819,525 347,251,372

Government and parastatals 31,707,237 41,048,922

440,526,762 388,300,294

29. REFINANCE LOANS2015 2014


APEX III/Agricultural Credit Facility (ACF) Loans 104,167 166,667

104,167 166,667

These refinance loans are denominated in Uganda Shillings (Ushs) and are unsecured. They attract interest of 10% and mature in July 2016.


30. CURRENT INCOME TAX RECOVERABLE 2015 2014


Group

Balance as at 1 January (261,196) (543,619)

Current tax charge 2,711,586 3,071,942

Tax paid - current year (2,803,233) (2,789,519)

2,902

(349,942) (261,196)

Bank

Balance as at 1 January (266,103) (540,095)

Current tax charge 2,701,708 3,032,053

Tax paid - current year (2,790,221) (2,758,061)

(354,615) (266,103)




Overview

31. DEFERRED INCOME TAX Deferred income tax is calculated using the enacted income tax rate of 30% (2014: 30%). The movement on the deferred income tax account is as follows:

Acceler-ated tax

deprecia-tion

Charges for loan impair-

ment Tax Losses

Deferred tax on revalua-

tion surplus

Reval-uation loss on invest-ments Total

Group Shs’000 Shs’000 Shs’000 Shs’000 Shs’000 Shs’000

At 1 January 2015 158,077 (411,905) (18,653,797) 292,214 447,670 (18,167,741)

Charged/credited to income statement (631,394) (1,056,411) (2,089,152) - - (3,776,957)

Charged/credited to other comprehensive income - - - - - -

At 31 December 2015 (473,317) (1,468,316) (20,742,949) 292,214 447,670 (21,944,698)

At 1 January 2014 543,503 (657,415) (10,665,933) 347,975 (2) 10,431,872)

Charged/credited to income statement (385,426) 245,510 (7,987,864) (55,761) 18,480 (8,165,061)

Charged/credited to other comprehensive income - - - - 429,192 429,192

At 31 December 2014 158,077 (411,905) (18,653,797) 292,214 447,670 18,167,741)

Bank

At 1 January 2015 158,077 (411,905) (18,653,797) 738,948 (18,168,677)

Charged/credited to income statement (631,394) (1,056,411) (2,089,152) - (3,776,957)

Charged/credited to other comprehensive income - - - - -

At 31 December 2015 (473,317) (1,468,316) (20,742,949) 738,948 (21,945,634)

At 1 January 2014 543,503 (657,415) (10,665,933) 347,975 (10,431,870)

Charged/credited to income statement (385,426) 245,510 (7,987,864) (55,761) (8,183,541)

Charged/credited to other comprehensive income - - - 446,734 446,734

At 31 December 2014 158,077 (411,905) (18,653,797) 738,948 (18,168,677)



32. OTHER LIABILITIESThe other liabilities mentioned below relates to margins held for off balance sheet items, transit liability accounts and statutory deductions payable among others.

2015 2014


Group

Provisions and accruals 2,555,148 2,101,399

Other 8,672,915 6,154,519

Total 11,228,063 8,255,918

Bank

Provisions and accruals 2,540,979 2,096,072

Other 8,635,637 6,056,775

Total 11,176,616 8,152,847

33. SHARE CAPITALNumber of

shares issued & fully paid

(thousands) Value per shareTotal value of shares

Ushs ‘000

2014

At 1 January 2014 50,000 1,000 50,000,000

Shares issued at par 26,500 1,000 26,500,000

At 31 December 2014 76,500 1,000 76,500,000

2015

At 1 January 2015 and December 2015 76,500 1,000 76,500,000

76,500 1,000 76,500,000

The total number of ordinary shares paid up at year end was 76.5 million (2014: 76.5 million) with a par value of Ushs 1,000 per share (2014: Ushs 1,000 per share). The total number of ordinary shares authorised for issue is 100 million



Overview

34. REVALUATION RESERVE

The revaluation reserve shows the effects from the revaluation of buildings after deduction of deferred income taxes. Any gains or losses are not recognised in profit or loss until the asset has been sold or impaired.

2015 2014


At start of year 2,562,073 1,558,727

Deferred tax on revaluation surplus (4,357,483) (55,761)

Transfer of excess depreciation net of tax 39,033 16,728

Increase in revaluation surplus 14,524,944 1,042,379

At end of year 12,768,567 2,562,073

35. STATUTORY CREDIT RISK RESERVEThe statutory credit risk reserve represents an appropriation of retained earnings to comply with the Financial Institutions Act, 2004. The balance in the reserve represents the extent to which provisions for loan losses deter-mined in accordance with the Financial Institutions Act, 2004 exceed amounts determined in accordance with IFRS. The reserve is not distributable. Below is the reconciliation of the statutory credit risk reserve per the Bank of Uganda and per IFRS:

2015 2014


Provisions as per Bank of Uganda guidelines

Specific provisions 2,172,887 8,574,341

General Provisions 2,761,323 2,309,121

4,934,210 10,883,462

Provisions as per IFRS guidelines

Individual impairment 1,372,676 4,706,398

Collective impairment 3,336,436 1,171,429

4,709,112 5,877,827

Statutory credit risk reserve 225,098 5,005,634

36. DIVIDENDS PAYABLEThe directors do not recommend the payment of dividends for the year (2014: Nil).


37. CONTINGENT LIABILITIES AND COMMITMENTS (a) Legal proceedingsThe Bank is a litigant in several other cases which arise from normal day to day banking. The directors have carried out an assessment of all the cases outstanding as at 31 December 2015 - supported by independent professional legal advice - and where considered necessary based on the merits of each case, a provision has been raised. In aggregate the total provisions amounting to Shs 748 million (2014: Shs 854 million) has been made.

The directors believe that the resolution of pending legal cases will not give rise to losses above amounts already provided.

(b) Capital commitmentsAt 31 December 2015, the Bank had capital commitments of Shs 1,033 million (2014: Shs 947 million).

(c) Loan commitments, guarantee and other financial facilitiesIn common with other banks, the Bank conducts business involving acceptances, letters of credit, guarantees and performance bonds. The majority of these facilities are offset by corresponding obligations of third parties.

2015 2014


Loan commitments 24,594,216 20,687,578

Performance Bonds 2,537,291 4,017,350

Guarantees 45,175,340 31,815,464

Documentary and letters of credit 47,839,019 43,279,961

Total 120,145,867 99,800,355




Overview

38. RELATED-PARTY DISCLOSURESKeystone Bank Limited, incorporated in Nigeria, held 80% of the ordinary shares of the Bank until 20 February 2015 when those shares were sold to a consortium of four shareholders. Related parties and their disclosures have been identified and made based on relationships that existed as of 31 December 2015.

Transactions and balances with related parties as at the year end were as follows:

2015 2014


a) Related party balances

Deposits from directors and shareholders 5,644,577 6,348

b) Related party transactions

Interest:

Interest paid to related parties/directors 352,301 26,693

Directors’ remuneration

Directors’ fees 668,168 686,841

Other emoluments 387,051 249,575

1,055,219 936,416

c) Key management compensation

Salaries and short-term benefits 916,344 560,648

d) Services rendered

Rent and service charges for premises 16,000 24,000

Head Office/ Main BranchOrient PlazaPlot 6/6A Kampala RoadP.O. Box 3072, Kampala, UgandaTel: +256 414 236012/3/4/5Fax: +256 414 348039

Acacia BranchAcacia Mall - Kisementi+256 414 660924

Arua BranchPlot 12 Avenue Road, Arua TownTel: +256 393 280633

Ben Kiwanuka Street BranchHaider PlazaBasement level+256 414 230938

Bweyale BranchPlot 3c Gulu/ kampala Highway Tel +256 392 614161

Entebbe Town BranchPlot 29, Kampala RoadTel: +256 414 320960

Entebbe Airport BranchAirport Terminal Building Tel: +256 414 320193

Garden City BranchGarden City Mall Tel +256 414 343017

Gulu BranchPlot 15, Awere road, Tel:+256 471 432075

Jinja Town BranchPlot 8 Scindia Road, Tel: +256 434 120340

Branches

Kabalagala BranchKabalagalaTel:+256 414 510726

Katwe BranchMuganzirwazza Plaza+256 414 256227

Kawempe Branch78 Bombo Rd, Kawempe Tel: +256 414 568847

Kikuubo BranchGrand Corner HouseTel : +256 414 257451

Kisekka BranchNakivubo RoadTel : +256 414 255376

Kololo BranchWampewo AvenueTel : +256 414 532143

Makerere BranchHam Towers Makerere Hill Rd+256 414 532143

Mbale BranchPlot 23, Naboa RdTel: +256 454 432253

Nkrumah Road BranchSayuni Tower - Nasser Road+256 414 256243

Ntinda BranchCapital ShoppersTel : +256 414 289533

William Street BranchWilliam StreetTel : +256 414 344950

www.orient-bank.com



Overview

QUICK ACCESS TO UNSECURED LOANS OF UP TO UGX 150,000,000

SALARY LOAN

48hrs

48 hour response

Flexible & friendly terms

Competitive interest rates

Loan tenure of up to 5 years

0800 144551 (Toll Free) 0701 144551 (WhatsApp) [email protected]

Terms and Conditions Apply



Orient Bank Limited

Orient Plaza, Plot 6/6A Kampala Road, | P. O. Box 3072 Kampala - Uganda Tel: +256 417 719100 | [email protected] | Fax: +256 414 348039

www.orient-bank.com

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