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Annual report 2005

Stand

ard B

ank G

roup

ann

ual rep

ort 20

05

www.standardbank.co.za

STD bank cover 15mm 4/3/06 5:47 PM

Standard Bank Group annual report 2005

Contact details

Chief financial officer

Simon RidleyTel: +27 11 636 3756e-mail: [email protected]

Registered address

9th FloorStandard Bank Centre5 Simmonds StreetJohannesburg 2001

PO Box 7725Johannesburg 2000

Group secretary

Loren WulfsohnTel: +27 11 636 5119e-mail: [email protected]

Contact details

Tel: +27 11 636 9111

Fax: +27 11 636 4207

e-mail: shareholder queries:[email protected]

e-mail: customer queries: [email protected]

Director, investor relations

Kim HowardTel: +27 11 636 7811e-mail: [email protected]

Printed by Ince (Pty) Ltd


Contents

01 Financial highlights

02 Chairman and chief executive’s review

06 Economic review

08 Group at a glance

10 Financial objectives

12 Our vision and values

14 Executive management

16 Sustainability reporting – highlights

18 Operational reviews

18 Personal & Business Banking

22 Corporate & Investment Banking

26 Investment Management & Life Insurance

28 Board of directors

30 Corporate governance

45 Risk management and control

67 Financial review

84 Seven-year review

90 Financial definitions

91 Annual financial statements

92 Report of the independent auditors

93 Directors’ responsibility for financial reporting

93 Group secretary’s certification

94 Directors’ report

100 Balance sheet

101 Income statement

102 Statement of changes in shareholders’ funds

104 Cash flow statement

105 Accounting policies

124 Notes to the annual financial statements

178 Standard Bank Group Limited – company annual financial

statements

182 Annexure A – implementation of IFRS

193 Annexure B – currency balance sheet

194 Annexure C – subsidiaries

198 Annexure D – associates and joint ventures

200 Annexure E – equity-linked transactions

203 Additional information

203 Abridged financial statements of principal banking

subsidiary

204 Standard Bank operations average balance sheet

206 International representation

209 Shareholders’ information

210 Chairman’s letter to shareholders

211 Notice to members

215 Proxy form

218 Directorate

219 Shareholders’ diary

220 Shareholder analysis

221 Share statistics

222 Instrument codes

223 Credit ratings

ibc Contact details

Our stakeholders are our business.

STD bank cover 15mm 4/3/06 5:49 PM

S t a n d a rd Bank Group annual report 2005 P • 01

Headline earnings per share

Dividends per share

Normalised

Headline earnings and dividendsper share (cents)

99 00 01 02 03 04N 05N0

100

200

300

400

500

600

700

Normalised headline earnings 20%

Dividends 26%

CAGR (1999 – 2005):

N

Financial highlights

• Normalised1 ROE increased from 24,2% to

25,2%.

• Normalised1 headline earnings grew by 20%to R9 013 million.

• Normalised1 headline earnings per ordinary

share of 666,0 cents, 19% higher.

• The credit loss ratio improved from 0,43% to

0,41%.

• Total dividends declared grew by 15% to267 cents per share, a dividend cover ratio

of 2,5 times.

1Results normalised to reflect substance of Black Economic

Empowerment Ownership initiative and group shares held for

the benefit of policyholders, refer to page 75 for explanation.


Chairman and chief executive’s review

Overview

In 2005, financial activity in emerging markets continued to

increase. Higher commodity prices, improved macroeconomics

and strengthening local currencies, which reduced fo r e i g n

currency debt burdens and dampened inflation, served to boost

investment ratings in key developing countries. This, coupled with

a growing appetite for diversified country risk among large global

investors in search of yield, resulted in intensified interest – and

competition – in emerging markets.

South Africa benefited from this trend. Underpinned by

consistently prudent monetary and fiscal policy, the economy

continued its structural move to lower inflation and interest rate

levels. South Africa’s improved investment ratings and some high

profile foreign direct investment inflows enhanced its global

standing.

For financial services, conditions have been buoyant in South

Africa, the group’s largest market. Sustained growth in consumer

spending drove credit demand and strong growth was posted

across the full spectrum of retail banking. After a slow start,

corporate lending increased momentum towards the end of 2005.

Equity markets performed strongly with the local bourse, the JSE

Limited, recording a 43% increase in the All Share Index in 2005.

Performance

The Standard Bank Group was well positioned to capitalise on

these favourable macroeconomic conditions and exceeded its

principal financial objectives for 2005 – growing normalised

headline earnings per share by 19% and achieving a normalised

return on equity (ROE) of 25,2%.

In 2005, the re-alignment of executive focus areas and reporting

lines has been implemented to support the group’s growth

objectives and to provide more flexibility for the deployment of

capital, particularly against the backg round of the recent

dispensation announced by the Minister of Finance. T h i s

dispensation allows a portion of a bank’s assets to co m p r i s e

exposures in the rest of Africa and, to a lesser extent, internationally

without Exchange Control approval.

The re-alignment involves the de-emphasis of geogra p h i c a l

segmentation of businesses in favour of focusing on the three key

business segments of the group: Personal & Business Banking,

C o r p o rate & Investment Banking and Investment Management &

Life Insurance. This refocusing enables the leveraging of skills,

e conomies of scale and synergies, regardless of geogra p h y, and

facilitates enhanced customer focus. It is anticipated that the

financial results of the group will be presented on this basis fro m

2006 onwards. For 2005, however, the geographical segmentation

has been maintained.

On this new basis, Personal & Business Banking comprises 44% of

the group’s headline earnings, and grew these earnings in 2005

by 22%. Corporate & Investment Banking comprises 45% and

grew by 7%, and Investment Management & Life Insurance

comprises 7% and grew by 51%.

In South Africa, Personal & Business Banking enjoyed another

good year, with the benefits of strong asset growth more than

offsetting the effects of tighter margins and higher credit

provisioning. Overall, the division maintained a strong focus on

s e rvice levels and operational efficiencies, notwithstanding

increased business volumes and compliance requirements.

In the rest of Africa, earnings growth was somewhat lower than

that of recent years as management attention was somewhat

deflected by the need to focus on the alignment of products,

policies, procedures and systems with those of the South African

operations.

Corporate & Investment Banking in South Africa generated a

better than expected 15% earnings growth, off a high base, while

internationally, earnings contribution was 28% lower through the

combination of lower proprietary trading profits and significantly

increased competition in emerging markets.

Whereas the group’s growth has beenlargely organic for the last number ofyears, we are confident that it is wellpositioned to grow acquisitivelyoutside South Africa.

Jacko Maree

Chief executive officer

Derek Cooper

Chairman


Liberty Life, the group’s life insurance arm, reported a substantial

increase in earnings despite a significant provision for potential

costs arising from the Statement of Intent relating to the Pension

Fund Adjudicator (PFA) rulings. Highlights of Liberty Life’s results

included improved investment returns and strong growth in new

business.

Strategy

Over the last number of years, the Standard Bank Group has

consolidated its position as a diversified business with a strong

capital position and proven track record in South Africa. We

believe we have a significant talent base and have structured the

group to deploy key skills across its operations. The functional

overlaps and redundancies that previously existed have been

steadily eliminated to achieve efficient operating structures. We

have also focused on implementing a custo m e r-centric and

service-driven model in all our businesses.

As part of the recent structural re-alignment of our businesses,

we have identified opportunities to leverage off our existing

infrastructure and specific country knowledge across emerging

markets.

Driving organic growth

A key growth challenge for Personal & Business Banking in South

Africa is to find ways to extend appropriate and affordable

financial services to the un-banked and under-banked market

segments. The division continued to attract customers through

various targeted products. Since it introduced the Standard Bank

Mzansi Blue Account in October 2004, over 300 000 Mzansi

clients have been acquired.

A related challenge is the increasing complexity of regulatory

frameworks to protect the consumer and the associated costs of

compliance, which had to be balanced against the need to simplify

products and pricing structures for mass market customers.

As a bank committed to providing access to financial services for

all South Africans, our guiding principles when structuring

our prices are to ensure affordable banking products across a

b road customer base, balanced against the sustainable

profitability of our business. This balance is reflected in the

average increase in our bank charges for personal transactional

accounts for 2006 falling below the inflation rate.

Standard Bank has continued to invest in initiatives to broaden its

distribution reach and deal with the threat of disintermediation. It

has entered into partnerships and alliances that allow it to grow

market share through new distribution mechanisms, such as

banking by mobile phone, or to acquire access to the established

customer bases of retailers to grow product categories such as

credit cards and consumer finance. Specific examples of these

initiatives are provided in the operational reviews.

The group’s African operations are continually improving, having

been integrated by business line into the group structure. A key

objective of this process has been to align the African operations

with our South African operating standards, and good progress has

been made in this regard. The optimisation of both Personal &

Business Banking and Corporate & Investment Banking in

different countries, relative to their operational maturity and

market opportunities, continues and areas of furt h e r

i m p rovement have been identified. The launch of personal

lending products in seven African countries is planned in 2006.

In South Africa, infrastructure and empowerment financing are

the main growth areas for Corporate & Investment Banking as the

socioeconomic development of South Africa and the continent

accelerates.

Escalating acquisitive growth

Whereas the group’s growth has been largely organic in recent

years, we are confident that we are now well positioned to grow

acquisitively outside South Africa. The experience and expertise in

the group, together with its presence on the ground across a

broad geographic footprint, enables us to adopt a bolder line in

our African and international strategy.

Our growing experience brings with it a better ability to identify

and pursue new growth opportunities. Having built a track record

in both Personal & Business and Corporate & Investment Banking,

we have a comprehensive range of competencies that are

transportable and exportable. We believe we understand the

complexities of operating in emerging markets, and the

challenges in building an internationally competitive group while

responding to the developmental needs in emerging economies

and societies.

Based on this, we have allocated the necessary senior resources

to evaluate countries, markets and companies to seek value

accretive acquisitions.

In December 2005, Standard Bank, with a consortium of local

i n v e s tors, entered into an agreement to buy BankBosto n

Argentina from Bank of America. This transaction remains subject

to fulfilling the p rovisions of the agreement and obtaining the

n e c e s s a ry regulato ry approvals in South Africa and A rgentina. T h e

acquisition is only expected to be concluded in the third quarter of

2006 and is not anticipated to materially affect the coming year’s

results. Although we are well aware of the potential challenges, this

acquisition provides us with a relatively low cost opportunity to

d e m o n s t rate our ability to grow in emerging markets.

Given the importance of Nigeria, we have invested approximately

USD185 million in our existing banking operation to meet the

new minimum capital requirement set by the Central Bank of

Nigeria. This enables us to continue to evaluate suitable

acquisition opportunities in this important market.

Chairman and chief exe c u t i v e ’s review co n t i n u e dc e m b e r 2 0 0 5

The integration of Capital Alliance Holdings Limited (CAHL) into

Liberty Life is on track and benefits are beginning to be extracted.

Capital and dividend cover

The group remains strongly capitalised despite healthy growth in

risk-weighted assets and a reduced dividend cover. In light of the

g ro wth experienced and our plans to expand the gro u p ’ s

international footprint, the current dividend cover of 2,5 times

calculated on normalised headline earnings per share is

considered appropriate.

Corporate governance and directorate

The group continues to maintain high standards of co r p o ra t e

governance and complies with the requirements of the Code of

C o r p o rate Practices and Conduct (King Code). This includes our

commitment to advancing the principles and practice of sustainable

development. The co r p o rate governance overv i e w, starting on page

30 of this report, provides a concise update on our governance

structures and undertakings. Further detail on co r p o ra t e

governance can be found in our 2005 Sustainability and Black

E conomic Empowerment Report (Sustainability Report).

It is worth commenting on the ownership structure of Libert y

Holdings which has given rise to some criticism about its implications

for co r p o rate governance. The issue has been properly addressed

with the Liberty Holdings and Liberty Life boards conducting their

own assessments. As the parent entity, Standard Bank paid a

premium for co n t rol of Liberty Life, which it wishes to maintain. A l l

the relevant boards have agreed that it is in the best interests of all

the shareholders concerned to maintain the current structure.

Conrad Strauss retires as director of the group at our forthcoming

annual general meeting. He has been with the group for over

43 years in influential leadership positions, culminating in his

appointment as chairman in 1992, a position he held for 10 years.

We thank him for his valued service and counsel. Trevor Evans has

resigned as a director of the group effective 8 March 2006 – we

thank him for his contribution at both board and board committee

level.

Sustainability

Fundamental to our ability to grow over the long term is our status

as a corporate citizen. We acknowledge our responsibility as a

major organisation to remain accountable to various stakeholders

for our financial and non-financial impacts in all the markets in

which we operate.

Moreover, we embrace our role as an active participant in

socioeconomic development in South Africa – from business

i m p e ratives like implementing the Financial Sector Chart e r

(charter), to broad-based corporate social investment.

Implementing the charter was a feature of the year for the sector.

Standard Bank has made sound progress in meeting its charter

commitments and looks forward to reporting against a finalised

scorecard.

We continued to implement our Black Economic Empowerment

Ownership (Tutuwa) initiative and completed the seco n d

allocation of shares to black managers in 2005. The third

allocation will be made in 2006. Since we announced this

initiative in July 2004, the Standard Bank share price has risen

substantially, creating considerable value for black employees

included in the initiative.

Considerable planning has gone into the last phase of the

initiative – the regional business and community allocation – to be

implemented in 2006. Half of this allocation is to be made to

a p p roximately 250 black small and medium enterprises, as

defined by the charter, who employ 10 or more people. We

believe that nurturing entrepreneurial activity is critical to address

the national priorities of job creation and sustainable economic

growth in South Africa. The other half will be allocated to social

development pro g rammes that are primarily directed at

developing and empowering previously disadvantaged

communities.

Standard Bank’s vision statement recognises that its people are its

most important competitive advantage, and ongoing focus is

given to building stronger and deeper teams of talented people.

We recognise that continual improvement is required in our

people management processes to ensure we attract and retain

talent. Among other initiatives, new management review

processes were implemented in 2005, which will provide a

yardstick for ongoing improvements.

We direct stakeholders to our Sustainability Report, which

incorporates a Financial Sector Charter Report, for comprehensive

information on the group’s non-financial performance.

Brand development

The Standard Bank brand, rated the most valuable brand in South

Africa's Most Valuable Brands survey conducted by Interbrand

Sampson, is being repositioned to make it more relevant to the

local and international markets in which we operate. As a unitary

brand, it is important to ensure a single, unified positioning and

consistent brand experience across our operations.

As part of the repositioning, we are replacing our advert i s i n g

payoff line “Simpler. Better. Fa s t e r.” with the more relevant

“Inspired. Motivated. Involved”. Although the previous payoff line

s e rved us well for many years, we operate in a highly co m p e t i t i v e

e n v i ronment and must stay abreast of constantly evolving

stakeholder needs. Following a comprehensive stakeholder

feedback process, the new payoff line was chosen to encapsulate

the essence of what we are trying to achieve – to make a real


difference to the lives of our customers, shareholders, employees

and other stakeholders in all the markets we operate in.

Prospects

The Personal & Business Banking division is set to continue

benefiting from sustained positive economic fundamentals in

South Africa, as well as the increased economic development and

organic business growth anticipated across the African continent.

Corporate & Investment Banking should benefit from potential

g ro wth in South African infra s t r u c t u ral and empowerment

financing, and increasing corporate credit demand. As we improve

our regional infrastructure and trading teams across our emerging

markets footprint, the division should be well placed to take

advantage of opportunities in our chosen markets.

Investment Management & Life Insurance earnings may be lower

in 2006 due to the potential impact of a lower assumed equity

and bond market performance although real growth in embedded

value and dividends should be achieved.

Taking the above factors into account, we believe that the group’s

diversified business spread will underpin returns to shareholders

in 2006 that are in line with our principal financial objectives of

normalised ROE of 24,0% (revised upwards) and normalised

headline earnings per share growth of South African inflation

(CPIX) plus 10 percentage points.

Conclusion

In South Africa, Standard Bank is a strong competitor across the

financial services spectrum. But we know we must anticipate and

stay responsive to changing needs and expectations to maintain

our position in increasingly competitive markets. In Africa, we are

becoming a better and bigger contender as we leverage our

abilities to provide solutions across the banking spectrum. In other

emerging markets, we are positioned to pursue attractive organic

and acquisitive growth opportunities.

We believe we have the ability to move beyond the longer-term

constraints of being a major financial services group in a relatively

small economy. We are well aware that a bolder approach is

required outside South Africa to continue to deliver our financial

and strategic objectives.

It is important to note our firm intention to remain based in and

focused on South Africa. Standard Bank has played a central role

in the development of the southern African economy for more

than 140 years. It has done this by constantly aligning its

presence in the marketplace to the evolving needs of the

economy, and delivering relevant banking and financial services.

Standard Bank will continue to play this role and will stay listed on

the JSE Limited and headquartered in downtown Johannesburg.

The astute non-aligned positioning achieved by the Government

since 1994 facilitates our acceptability as an investor and

business partner in other developing countries. Furthermore, the

products and services developed for the South African market

tend to be suitable for developing countries both in Africa and

beyond.

As we grow, through organic expansion or acquisition, we will stay

true to our values. These values reflect the character of Standard

Bank built up over many years of operation, and were updated in

2005 to ensure relevance to both our people and markets. They

form the ethical backbone that makes Standard Bank what it is

across all operations in all territories. Within this framework, we

will continue to work hard to understand and internalise that

which is culturally appropriate in different countries.

Acknowledgements

Our sincere thanks go to our customers, staff and other

stakeholders for their continued support over the last year, which

has enabled us to deliver an excellent set of financial results and

substantive progress across our businesses. We look forward to

another year of creating value for all stakeholders and assure you

that we guard against the dangers of arrogance and complacency.

The guidance and support of our board gives us added confidence

in believing that we have the skills and resources to take Standard

Bank to the next level.

Derek Cooper

Chairman

Jacko Maree

Chief executive officer



Economic review

Resilient global economy in 2005

A fter expanding by 5,1% in 2004, the world economy is

estimated to have grown by 4,3% last year. In the face of record

high oil prices and despite mounting global imbalances, corporate

p rofitability remained firm, bond yields low and underlying

inflation muted. The global economy’s resilience in 2005 was

centrally tied to excess market liquidity brought about by the

major central banks’ monetary accommodation.

The United States led the positive economic performance, while

the Japanese and Euro-zone economies showed identifiable signs

of recovery. Of the East-Asian economies, China aggressively

leveraged its export prowess, while India benefited from external

cyclical stimuli. Relative to other emerging markets, by recent

historical contrast, Latin America and Africa recorded above-

average economic performance.

Sustained, firm growth for major economies

In 2006, the global economy is likely to closely match the growth

rate recorded in 2005, aided by the increasing thrust from

Germany and Japan.

Aggressive restructuring by firms in conjunction with moderate

wage increments should help Germany expand at twice the pace

it did in 2005 and, accordingly, act as Europe’s growth engine.

Japan’s economy should find relief from the combination of rising

personal incomes, company profitability and sustained

accommodative monetary policy. Japan’s investment cycle should

underpin future growth.

Meanwhile, the United States is expected to maintain its

established performance, despite the successive increments in

short-term interest rates since June 2004. Prospective economic

growth should be supported by healthy employment and income

growth, strengthening capital expenditure and a firm external

dynamic.

Favourable prospects for emerging economies

E m e rging economies have profited from the benign global

conditions in recent years. Investment inflows to these markets,

aided by global liquidity and enhanced investor risk appetite, have

buoyed economic growth. Also, strengthening local currencies

reduced foreign-currency debt burdens and dampened inflation.

C o n s e q u e n t l y, many emerging economies have experienced

structural changes.

The outlook for emerging economies in 2006 is reasonably

positive, given the excess global market liquidity. However, in

some markets, concerns will centre on overvalued local currencies

and prudent monetary management as foreign capital flows

inwards.

Among the key markets, the Chinese and Indian economies are

likely to expand by 8,5% and 6,5% respectively in 2006, both

modestly softer than in 2005. In China, exports are showing signs

of fatigue and the fixed investment cycle is straining due to

overcapacity and falling profits. In India, a likely rise in short-term

rates will weigh on the strong leveraged consumption growth,

although the economy should be cushioned by a pick-up in

corporate investment.

Russia’s economy is extremely energy-dependent and a buoyant

commodity cycle will sustain growth momentum. Strong export

income has raised Russia’s domestic demand and consumer

confidence is high. Latin America should be supported by positive

global conditions and should record above-trend growth. Africa

also appears to be establishing superior trend gro wt h ,

strengthened by a more productive political and macroeconomic

profile as well as lively commodity markets. Debt relief should

unlock financial resources for social and infrastructure investment.

South Africa’s internal growthdynamic, on the back of stronghousehold expenditure, was themainstay of its economic performancein 2005.

Goolam Ballim

Group economist


Positive outlook for South Africa

A benign global environment bodes well for South A f r i c a .

Domestic export growth was reasonably healthy in 2005 because

of firm global aggregate demand and the strong commodity cycle,

despite a generally strong rand. The expected recovery in Europe

should be positive for the local economy as Europe absorbs more

than one-third of South Africa’s manufacturing output.

South Africa’s internal growth dynamic, on the back of strong

household expenditure, was the mainstay of its eco n o m i c

performance in 2005. In 2006, households’ real income growth

should slip, but only moderately. Household credit demand is

likely to move sideways. Households have also found relief in tax

and interest rate reductions. The fixed investment cycle is likely to

surge and therefore contribute more to total output this year,

especially as the private sector is more enthused and the public

sector has a renewed focus on meeting delivery targets. South

Africa’s economy is therefore expected to expand by 4,8% in

2006, about matching last year’s vigorous performance.

Households’ demand for credit has risen appreciably over the last

two years – the aggregate household debt to income ratio has

risen from 53,9% in the first quarter of 2004 to 65,6% in the last

three months of 2005. Notably, though, households’ debt finance

costs as a proportion of income rose far less sharply, from 6,3% to

7% over the period. Fundamentally, this reflects the favourable

impact of the structural decline in interest rates on debt

affordability, and the prospect that further credit deepening can

be absorbed by the economy.

In summary, the South African economy is underpinned by

responsive monetary and fiscal policies, as well as a developing

and constructive structural strategy. Other emerging economies

generally also demonstrate healthy internal growth dynamics, and

will benefit from a benign global economic climate. Africa is

leveraging the heightened demand for resources and, coupled

with an improving political and economic context, should grow

faster in 2006.

There are, however, a few notable assumptions underlying this

baseline scenario:

• the normalisation of excessive US consumption, alongside

increased internally generated demand and reduced savings

in Asia, will be orderly;

• any slackening in global residential property markets will not

be perceptible;

• China’s pending slowdown must not be marked;

• oil quotes must not experience renewed and sustained

surges; and

• the US dollar must not fall sharply.

Global economic growth could fall significantly should these

assumptions not materialise, and the world economy is perhaps

more fragile than it was in 2005.

-2

-1

0

1

2

3

4

5

South Africa GDPand expenditure contribution (%)

98 99 00 01 02 03 04 05E 06F

GDP growth

Household spending (contribution to growth)

Fixed investment (contribution to growth)

Estimate

Forecast

E

F

98

2

3

4

5

6

7

8

99 00 01 02 03 04 05E 06F

World

Emerging economies

Africa

Estimate

Forecast

Real GDP growth (%)

E

F

Source: World Economic Outlook – September 2005 IMF

Sources: SA Reserve Bank, Standard Bank


Normalised headline earnings contributionby major product areas (%)

Personal & Business Banking 44% (2004: 44%)

Corporate & Investment Banking 45% (2004: 50%)

Investment Management & Life

Insurance 7% (2004: 5%)

Central and other 4% (2004: 1%)

Normalised headline earnings contributionby geographic business unit (%)

Personal & Business Banking SA 41% (2004: 40%)

Corporate & Investment Banking SA 36% (2004: 37%)

Rest of Africa 8% (2004: 8%)

Corporate & Investment Banking International 5% (2004: 9%)

Liberty Life 6% (2004: 5%)

Stanlib and other 4% (2004: 1%)

Group at a glance

Personal & BusinessBanking

Banking and other financial services to

individual customers and small to medium-

sized enterprises throughout South Africa

and in the rest of Africa.

C o m m e rcial and investment banking

s e rvices to larger co r p o rates, financial

institutions and international co u n t e r-

parties focused on emerging markets.

Life insurance and asset management

activities by group companies Liberty Life

and Stanlib.

Corporate & InvestmentBanking

Investment Management& Life Insurance

Personal & BusinessBanking SA

Corporate & Investment Banking SA

Corporate & Investment Banking International

Rest of Africa Stanlib

Liberty Life


• Listed on JSE Limited, share code SBK.

• Market capitalisation R103 billion

(USD16 billion).

• Total assets R756 billion (USD119 billion).

• Operates in 17 African countries and

21 countries outside Africa.

• 40 245 employees, 32 632 in South Africa.

• 746 branches in South Africa, 238 in the

rest of Africa.

• 3 768 ATMs in South Africa, 383 in the

rest of Africa.

Our people are our greatest asset.

0

5

10

15

20

25

30

1999

Target – as disclosed in each annual report

Actual

Normalised

Return on equity (%)

2000 2001 2002 2003 2004N 2005N

N

0

5

10

15

20

25

30

1999

Headline earnings per share growth (%)

2000 2001 2002 2003 2004N 2005N

Target – assumed target of CPIX plus 10%

Actual

Normalised

Target – assumed target of CPIX plus 10%

Actual

NormalisedN

Financial objectives

S t a n d a rd Bank Group annual report 2005 P • 1 0

Performance against 2005 objectives1

2005 2005 2005

IFRS Normalised Objective

% % %

Return on equity 27,8 25,2 22,5

Headline earnings per share growth 23,1 19,3 13,92

Cost-to-income ratio 56,6 ≤55,5

Credit loss ratio 0,41 <0,75

1The group’s 2005 performance against objectives is discussed on page 70 in the financial review.

2Average CPIX for 2005 of 3,9% plus 10,0%.


2006 objectives

• Normalised return on equity of 24,0%.

• Normalised headline earnings per share growth

to exceed domestic CPIX by 10 percentage

points.

• Credit loss ratio to be contained within 0,75% of

average advances.

• Cost-to-income ratio to be at or better than

55,5%.

Medium!term objectives

• Normalised return on equity of 22,5%.

• Normalised headline earnings per share growth

to exceed domestic CPIX by 10 percentage

points.

• Credit loss ratio to be contained within 1,00%

of average advances.

• Cost-to-income ratio to reflect a continuous

improvement over the medium term.

We are committed to providingappropriate long-term returns toour shareholders.

We understand that we earn the right to exist by providingappropriate long-term returns to our shareholders.


Our vision and values

We are passionateabout serving ourcustomers.

Early in 2005 a launch of the group’s revised visions and values wascompleted. This entailed 15 presentations in South Africa, eight inthe rest of Africa, and two internationally to a total of 28 000employees by the chief executive, Jacko Maree.


Our vision

Our values

• Serving our customers

We do everything in our power to ensure thatwe provide our customers with the products,services and solutions to suit their needs,provided that everything we do for them isbased on sound business principles.

• Growing our people

We enco u rage and help our people todevelop to their full potential, and measureour leaders on how well they grow andchallenge the people they lead.

• Delivering to our shareholders

We understand that we earn the right to existby providing appropriate long-term returns toour shareholders. We try extremely hard tomeet our various targets and deliver on ourcommitments.

• Being proactive

We strive to stay ahead by anticipating ratherthan reacting, but our actions are alwayscarefully considered.

• Working in teams

We, and all aspects of our work, arei n t e rdependent. We appreciate that, as teams,we can achieve much greater things than asindividuals. We value teams within and acro s sbusiness units, divisions and co u n t r i e s .

• Guarding against arrogance

We have confidence in our ability to achieveambitious goals and we celebrate success,but we must never allow ourselves to becomearrogant.

• Respecting each other

We have the highest regard for the dignity ofall people. We respect each other and whatStandard Bank stands for. We recognise thatthere are corresponding obligationsassociated with our individual rights.

• Upholding the highest levels of integrity

Our entire business model is based on trust andintegrity as perceived by our stakeholders,especially our custo m e r s .

• We are committed to making a real difference to

financial services in South Africa and other

e m e rging markets.

• We will ensure long-term sustainability by

harmonising the needs of our customers, our

people and our shareholders and by being relevant

to the societies in which we opera t e .

• We will only succeed if we are able to attract,

retain, develop and deploy teams of people with

energy, passion and skills.


Executive management

Delivering good results through living the group’s vision and valuesremains the driving force for our executive management team.

Rob Leith (43)Chief executive – Corporate & InvestmentBanking International

BCom (Hons) (Cape Town), CA (SA)

Joined the group 1991, appointed to exco2003

Chris Lombard (59)Leadership Development and Training

BA (Hons) (Stellenbosch), PMD (Harv a rd )


Jacko Maree (50)Group chief executive

BCom (Stellenbosch), MA (Oxford),PMD (Harvard)


David Munro (35)Deputy chief executive – Corporate &Investment Banking SA

BCom (PGDA) (Cape Town), CA (SA),AMPC (Harvard)


Tina Eboka (46)Corporate Affairs

BS Applied Mathematics (New York),BS Textile Engineering (Philadelphia), MBA (Philadelphia), SEP (Harvard)


Arnold Gain (51)Credit

BCom (Hons) (Cape Town)


Ben Kruger (46)Chief executive – Corporate & InvestmentBanking

BCom (Hons) (Pretoria), CA (SA),AMP (Harvard)



Sipho Ngidi (50)Human Resources

BAdmin (Zululand), BCom (Hons) (Natal)


Simon Ridley (50)Finance

BCom (Natal), CA (SA), AMP (Oxford)


Myles Ruck (50)Chief executive – Liberty Life

BBus Sc (Cape Town), PMD (Harvard)


Myles Ruck has decided to re t i re with effe c tf rom 31 May 2006. Bruce Hemphill has beenappointed as chief executive of Liberty Lifewith effect from 1 June 2006.

Paul Smith (51)Risk

BCom (Natal), CA (SA)


Sim Tshabalala (38)Deputy chief executive – Personal & BusinessBanking

BA LLB (Rhodes), LLM (University of NotreDame USA), H Dip Tax (Wits)


Peter Wharton!Hood (40)Chief executive – Personal & BusinessBanking

BCom (Hons) (Wits), CA (SA)


Sustainability reporting – highlights


This summary sets out the group’s sustainability highlights in 2005 and what we aim to achieve looking ahead. A complete Sustainability

and Black Economic Empowerment Report has been included in electronic format with this report. It can also be accessed on our corporate

website www.standardbank.co.za. Printed copies of the report can be requested from the group secretary (see inside back cover for contact

details).

Highlights

Corporate governance

• The successful launch of the bank’s revised vision and values focused on aligning high standards of governance and ethics with daily

operational realities.

• The bank kept pace with the implementation of new regulatory frameworks, including Financial Intelligence Centre Act (FICA), Financial

Advisory and Intermediary Services Act (FAIS) and the Protection of Constitutional Democracy Against Terrorist and Related Activities

Act.

• The bank was included on the JSE SRI Index (JSE Limited Socially Responsible Investment Index) and the Dow Jones Sustainability

Index.

Economic performance and contribution

• Group financial performance was in line with stated targets.

• Wealth created by the group increased by 11% to R23 billion, with 43% allocated to employees; 14% to governments; 18% to

shareholders; and 25% retained to fund future growth.

• Good progress was made towards meeting charter targets. In 2005 we achieved an audited score of 80,73% and an A rating (still to

be confirmed by the governing body of the charter).

• The value attributable to staff participating in the Tutuwa initiative amounted to R1,5 billion at year end.

• The bank was involved in empowerment financing deals worth R8,6 billion in 2005.

• Standard Bank was rated South Africa’s most valuable brand (worth R10,2 billion) in South Africa’s Most Valuable Brands survey,

conducted by Interbrand Sampson.

• Five supplier summits that focused on improving supply chain management and supplier transformation were held across the country.

Social performance

• The bank extended its financial services reach in South Africa through various products including MTN Banking and the Mzansi Blue

Account.

• Employment equity targets in 2005 for gender and racial representation were reached. The percentage of black managers in South

Africa has increased from 19% in 2000 to 37% in 2005.

• A health risk management programme was adopted by the bank to assist in guiding employees toward a healthier lifestyle.

• The bank spent R60 million on social responsibility initiatives.

• Liberty Life spent R18 million on social responsibility initiatives.

Environmental performance

• The bank formalised an environmental policy and compiled an environmental legislation register.

• The bank was involved in the financing, development and successful inauguration of a Geothermal Power Project in Nicaragua.

• A new Occupational Health and Safety learning programme was developed.


We will ensure long-termsustainability by harmonisingthe needs of our custo m e r s ,our people and ourshareholders and by beingrelevant to the societies inwhich we opera t e .

Looking ahead we will:

• Continue to embed sustainability thinking and practice across all operations.

• Continue the process of reaching our charter targets.

• Continue to improve people management to make Standard Bank an employer of choice.

• Encourage employees to live the values.

• Continue making our values a definitive part of the Standard Bank brand experience for all stakeholders.

• Finalise a revised code of ethics to align with our values.

Operational review: Personal & Business Banking

Overview

The group’s Personal & Business Banking franchise continues to

develop, a process facilitated by the economic tailwind in the

South African market. Over the past three years the division has

rebuilt its domestic market shares across most deposit and loan

categories in line with its branch representation, and its systems

and processes continue to be upgraded.

Steady improvements in its customer segmentation capabilities

and customer service focus has enabled the division to steadily

eliminate potential disconnects between customer needs and the

appropriate products and distribution channels, while continuing

to simplify and streamline value propositions and cost structures.

These achievements allowed the division to capitalise on the

excellent conditions for retail banking in South Africa in 2005,

with healthy consumer fundamentals underpinning stro n g

t ransactional and lending gro wth. The division was able to

maintain high customer service levels despite significantly

increased business volumes and compliance requirements.

Although the credit environment in South Africa remained benign,

the division has continued to improve its credit systems and

collections capabilities, in part through new technology. This has

positioned it well to support the growth in targeted product

categories, such as credit cards, as well as to deal with a more

challenging credit environment expected to materialise in due

course.

Given the increasing mismatch between retail asset growth and

retail deposits, necessitating the utilisation of more expensive

wholesale funding, the division has concentrated on improving its

deposit gathering capabilities to ease margin contraction. Market

share of deposits has increased to 27% from 24% in 2002.

A key focus area for the year was restructuring the branch

network and head office to eliminate functional overlaps and raise

employee productivity. Executive responsibilities were redefined

to clarify lines of accountability and authority, and ensure the

n e c e s s a ry strategic focus to continue driving gro wth in an

increasingly competitive South African market.

In the rest of Africa, sustained disinflation and positive GDP

growth trends were experienced although decreasing country

treasury bill rates resulted in margin contraction, which was

exacerbated by the low loan to deposit ratio characteristic of

banking in most African countries.

Management invested considerable time and focus integrating

co u n t ry operations into the group structure. Management

structures were streamlined and in-country finance and banking

skills strengthened, and good progress was made upgrading

systems and standardising processes.

The combination of better macro e conomic conditions and

operational improvements underpinned good growth in fee and

commission revenue.

Strategy

Growth opportunities through partnerships

Partnerships and alliances have become an important way to

advance market penetration and customer acquisition as well as

deal with disintermediation.

SA Home Loans, a residential mortgage-backed securitisation

company that is 43% owned by Standard Bank, was the first non-

bank mortgage lender in South Africa. Since inception in 1999, it

has securitised five tranches of its debtors’ book with a total value

of around R10 billion. It has recently introduced a fixed rate

20-year mortgage product, and continues to improve its

turnaround times and efficiencies.

In 2005, we partnered with Edcon, one of South Africa’s leading

retailers, to provide a pre-approved credit card to qualifying

customers. Edcon currently has in excess of 3,8 million store-card

customers, of which 68% do not have a bank credit card. This

venture has provided a means to lower barriers of entry in this

category and leverage popular brands to attract new customers.

The joint venture has performed well, achieving sales of 300 000

cards and debtor balances of R500 million in four months.

To increase its involvement in the consumer finance secto r, the

division acquired an interest in RCS Investment Holdings fro m

Foschini, another leading local retailer. RCS has a personal loans

business and offers credit cards to merchants outside the Fo s c h i n i

G roup. RCS has a five-year track reco rd and a customer base of

a round 160 000. The RCS business will combine the best practice in

the Foschini Group gained through many years of consumer lending

in the South African middle market with Standard Bank’s banking

e x p e rtise. This will enable this business to explore new co n s u m e r

lending possibilities and gain a bigger share of this important market.

Extending financial services reach

Extending the reach of financial services in South Africa is a key

challenge, compounded by increasingly complex and co s t l y

regulatory obligations. In this environment, ongoing development

is required to design and deliver simple, cost-effective products

and services wanted by the emerging customer which constitutes

an important component of our customer base.

Specific focus was given to growing our presence in un-banked and

u n d e r-banked market segments in 2005. Since the introduction of

the Standard Bank Mzansi Blue A ccount in October 2004, the bank

has acquired in excess of 300 000 Mzansi clients representing a

market share of 15% which, considering the Postbank’s larg e

presence in this product, is satisfacto ry.



During 2005, the bank announced a 1,3% price increase in fees

on the Mzansi account, as well as a 3,1% increase in our

transactional E Plan savings and investments accounts, which are

t a rgeted at low-income customers. Va l u e - fo r-money pricing

continues to be a priority.

In our constant drive to provide affordable products and services

to all our customers, opportunities to establish lower- co s t

distribution channels beyond the branch network are provided by

new technologies. Standard Bank’s joint venture with mobile

telephone operator MTN to offer MTN Banking was a first of its

kind mobile banking solution. Its SIM card embedded banking

functionality provides a new level of convenience, enabling

a ccounts to be opened and activated telephonically within

minutes. It is among the most widely accessible banking products

in South Africa. Although uptake has been slower than

anticipated, with appropriate education and marketing this

product should provide a viable option for previously un-banked

customers. With MTN’s vast reach into Africa, we expect this

partnership to create further opportunities for Standard Bank to

increase its market share across the continent.

Shift in international strategy

Providing an important basis for our growth strategy in Personal &

Business Banking are the banking commonalities that exist in

developing countries. These include emerging classes of

borrowers, under-serviced regions and a desire for reasonably

priced and reliable banking services. We believe that the

successes achieved – and lessons learned – in South African retail

banking can be replicated in other emerging markets. This can be

achieved on a modular basis, increasing the flexibility we have to

create and unlock value in other emerging markets.

As such, our strategic approaches to achieving retail growth across

the group’s emerging markets footprint can be described as

follows:

• “Optimise to gro w ” – applicable in markets defined by mature

i n f rastructure and operational stability, such as South Africa. In

these markets, our strategic focus is on retaining existing

c u s tomers, growing market share, building volume in pro f i t a b l e

segments, extracting efficiencies and optimising operations.

• “Invest to grow” – applicable in markets with potential upside

for economic growth, such as Angola. These markets tend to

be characterised by low Standard Bank penetration, non-

integrated systems, and customer service and satisfaction that

could be markedly improved. Alternatively, they are markets

where we would like to be represented but there are no

acquisition opportunities available. Here, it is necessary to

establish infrastructure and drive organic growth to build

market share.

• “A c q u i re to grow” – applicable in markets where Standard Bank

is under-represented relative to the co u n t ry’s economic potential

and where there are attractive acquisition opportunities, such as

Nigeria and A rgentina. These are strategic markets for long-term

g ro wth, where South African expertise can add value.

Executive focus and resources have been allocated to acc e l e ra t e

this international gro wth stra t e g y. The group’s existing geogra p h i c

footprint provides the basis for this gro wth plan, and gro wth in

Personal & Business Banking will be leveraged off our existing and

expanding Corporate & Investment Banking presence.

Financial performance

Personal & Business Banking generated 44% of the group’s

headline earnings, and grew earnings by 22% in 2005. The

division achieved an ROE of 30,9% and reduced its cost-to-

income ratio from 62,8% to 60,0% in 2005.

Operational performance

South Africa

Home loans

The division continued to benefit from the domestic housing

boom, with property prices up 21% in 2005 on 2004 and

substantial growth in industry-wide mortgage lending. Standard

Bank grew its mortgage book by 32%, with registra t i o n s

increasing 25%. Market share has declined marginally from

28,2% to 27,5%. This decline includes a R4,5 billion

securitisation of our home loan book, which if adjusted for would

increase market share to 28,2%. We are satisfied we have

managed to maintain market share considering the higher levels

of competition in this market both in terms of pricing and credit

granting.

The average size of a home loan written in 2005 was R395 000

(2004: R350 000), the average loan-to-value ratio of the home

loan book is 70% (2004: 69%) and the average instalment to

income ratio is approximately 22% (2004: 20%). Non-performing

loans as a percentage of book improved from 1,51% in 2004 to

1,21% in 2005 and the number of properties in possession

decreased by 49% in 2005 illustrating the low levels of defaults

experienced and improved credit control in this business.

Vehicle and asset finance

The vehicle and asset finance motor book grew by 29% against a

26% gro wth in industry sales of new vehicles. The non-motor book

g ro wth was 1% with market share decreasing from 36% to 33%.

This was mainly as a result of lost share in the other goods

c a t e g o ry, which includes unsecured personal loans that we acco u n t

for in other lending rather than in vehicle and asset finance.

We believe we can improve our performance in this category and

are investing in our sales force to drive this objective in the year

O p e rational review: Personal & Business Banking co n t i n u e dc e m b e r 2 0 0 5

ahead. Our sales team has been increased across all channels and

in certain cases the division has re-entered the dealer market.

These initiatives have begun to show good results. While

turnaround times of finance applications have improved markedly,

there is scope to reduce these further in 2006.

Card

The card business continued to perform well with significant

i m p rovements in earnings in this category. Cardholder spending

increased by 30% and the lending book by 55%. For stores with

S t a n d a rd Bank card terminals, credit card sales increased by 29%.

This gro wth came primarily from first-time credit card holders ra t h e r

than multiple cards being issued to existing holders. While bad debt

ratios have increased, this was a planned feature of our acc e l e ra t e d

g ro wth strategy in this category. These ratios remain well within our

internal targets and are better than international benchmarks.

Other lending

Balance growth of 21% in overdrafts, revolving credits and

medium-term loans was due to a 16% increase in new customers,

a higher demand for credit, continued focus on cross-selling loans

to our current account base and general process improvements.

Transaction and savings

The transactional business achieved strong year-on-year growth

of 15% in the number of personal and business current accounts.

Although the number of active E Plan accounts only grew by 5%,

the balances on these accounts grew by 24%. This is important as

it demonstrates a growing savings culture among low-income

earners. The number of Maestro users increased by 33% with

volumes increasing by 48%. Maestro is a simple card-based

payment system that allows customers to make electro n i c

payments directly from their accounts to retailers. The Standard

Bank cheque card achieved a 55% growth in the number of cards

and the number of transactions increased by 69%.

Together with the growth in savings and investment deposit

accounts, market share gains of approximately 2% were achieved

in retail deposits.

ATMs experienced a 12% increase in the volume of transactions.

Extending the reach of financial services in South Africa is a keychallenge, compounded by increasingly complex and costlyregulatory obligations, and pressing developmental issues.

Loans and deposits by product

Change 2005 2004% Rm Rm

Gross loans and advances 28 205 066 160 472

Instalment sale and finance leases 16 40 178 34 704Mortgage lending 31 124 137 94 490Card debtors 52 11 967 7 852Transactional products 23 28 784 23 426

Credit impairments for performing and non-performing loans 17 (2 264) (1 940)

Net loans and advances 28 202 802 158 532

Client deposit and current accounts 27 118 693 93 163

Current accounts 20 34 871 28 941Cash management deposits 46 3 788 2 595Call deposits 40 30 689 21 952Savings accounts 22 14 085 11 544Term deposits (8) 22 699 24 583Securitised funding 7 326 –Other funding and loans 48 5 235 3 548

Interdivisional funding 28 70 287 55 093

Total 27 188 980 148 256



Rest of Africa

The 16 countries throughout the rest of Africa in which we

operate have been ranked and prioritised according to the growth

opportunities they offer and the most relevant strategic approach

in each case has been determined. This has enabled the most

appropriate management teams and capital structures to be put in

place in each case.

The first phase of a comprehensive customer segmentation

e x e rcise has been completed, with further phases being

continued in 2006. Significant system upgrades were carried out

where necessary and systems across the continent are now more

standardised. It is now possible to launch products simultaneously

in all our African markets. The process of aligning our African

o p e rations to South African operating standards positively

impacted service levels, with the independent Custo m e r

Evaluation of Banks Survey showing a meaningful improvement

from 8,42 (out of a total of 10) in 2004 to 8,97 in 2005.

Although it is reasonable to expect a three- to fo u r- y e a r

timeframe before the full performance benefits of our strategic

initiatives in Africa begin to flow through, the groundwork is done.

It is pleasing that significant improvements in service levels have

already been achieved and our various in-co u n t ry pro d u c t

strategies have started to gain momentum.

Focus areas for 2006

Going forward, Personal & Business Banking aims to balance between managing a mature business in a domestic market where

growth in credit extension is expected to moderate, with potential growth opportunities outside South Africa.

In South Africa, specific focus areas will include:

•Reviewing, managing and reducing costs, closing revenue leakages and product gaps, and driving the profitability

of direct channels through volume increases.

•Improving people management, with leadership support and branch management training targeted at further improving service levels.

•Driving our customer acquisition strategies through new and existing partnerships and existing channels within the bank.

•Continuing to drive deposit gathering to limit further margin erosion.

In the rest of Africa, focus areas will include:

•Continuing to apply the South African model of getting the basics of service and sales right.

•Streamlining the business banking segment by transferring the larger corporate clients to Corporate & Investment Banking

and the small and medium corporate segment to Personal & Business Banking to improve service levels to these customers.

•Launching lending products (credit cards, home loans and vehicle and asset finance) into seven African countries.

Points of representation

2005 2004

ATMs 4 151 3 603

Total points of representation 984 975

Operational review: Corporate & Investment Banking

Overview

The group’s Corporate & Investment Banking franchise is

underpinned by two main centres in Johannesburg and London,

which work together to support its operations across a broad

international footprint.

The division posted a good performance in 2005, off a high base,

despite fewer trading opportunities domestically and

i n t e r n a t i o n a l l y. The performance of our international operation was

disappointing with lower revenue being generated across most

t rading areas. Low levels of credit impairment charges were

experienced during the year with recoveries of prior period credit

impairments and the reversal of surplus provisions resulting in an

o v e rall reco v e ry for the year.

After a period of strong organic growth in the South African

market, our focus has been on aligning our businesses in the rest

of Africa and internationally along the lines of the successfully

implemented customer-centric model established in South Africa

over the past five years.

Operational focus over the last year was on structuring executive

reporting lines, teams and systems to ensure competitive services

and structured products across all operations. We continued to

invest significantly in retaining and incentivising teams of talent.

Strategy

Besides the ongoing process of integration and alignment, the

year was one of reflection given the changes in global wholesale

banking markets. Emerging markets continued to gain in

p o p u l a r i t y, with developing countries improving their credit

ratings and a growing appetite for emerging markets risk among

i n v e s tors. In this environment, traditional emerging market

p a rticipants like ourselves are encountering increased

competition from the large established global banks in our chosen

markets.

In the face of these new challenges, we have had to reconsider

the best way to reposition the business for sustainable growth. We

identified that although we are in the appropriate markets, to

remain competitive we need to enhance our regional and in-

country capabilities with urgency. This has been set as a key

strategic imperative in the years ahead, and will require significant

further investment in people and infrastructure. The cost of this

investment will inevitably have an impact on returns in the short

term.

Corporate & Investment Banking has formulated a three-part

growth strategy.

Growing off a high base in South Africa

This will involve:

• positioning the bank to maximise exposure to Black Economic

Empowerment (BEE) activity, in terms of both empowerment

financing and advisory services;

• capitalising on the financing needs arising from the

infrastructure development activity planned in South Africa in

the short to medium term, and the rest of A f r i c a ’ s

development in the longer term; and

• increasing the proportion of net interest income to total

income due to the increased potential for corporate loan

growth.

Growing our business in the rest of Africa

This will involve:

• ensuring that we capture the banking business associated with

t rade flows intra -Africa and between Africa and other

emerging markets;

• maintaining focus on providing customer-centric solutions to

corporate customers, whilst leveraging off the group’s skills

and products; and

• focusing on banking the Government and International

Organisation (GIO) sector and donor flows on the continent.

Growing the regions outside of Africa

This will involve:

• building depth and scale in regional businesses in emerging

markets in Asia, the Americas, Europe and the Middle East;

• driving penetration of core competencies such as resource

banking and global markets capabilities into the regions;

• identifying specific regional product opportunities; and

• linking existing investment banking businesses in key markets

with the acquisition of commercial banks such as the pending

transaction in Argentina.


Corporate & Investment Banking comprises 45% of the group’s

earnings (2004: 50%). Headline earnings grew by 7% in 2005,

off a high base in the prior year. This headline earnings growth

was made up of an 8% decline in global markets, an 8% increase

in banking and trade finance and a 27% increase in the

investment banking category.



An ROE of 27,0% (2004: 27,2%) was achieved. The cost-to-

income ratio of 54,0%, compared to 51,5% in the prior year,

worsened due to reduced revenue in the international business.

Costs were well contained to a 7% increase.

Operational performance

Global markets

Global markets house the division’s financial markets and treasury

activities including the resource banking and money market funding

units.

Tough trading conditions were experienced particularly in

international emerging markets where low volatility, a tightening

of spreads from increased competition and high levels of global

liquidity significantly reduced trading opportunities.

Trading income in our international business was also adversely

impacted by a continued shift from a reliance on proprietary

trading, with lower value at risk utilisation, to becoming more

client focused. Our strategy to build and develop a structured

product capability in the international business started to yield

positive results towards the end of the year, with strong customer

demand for tailored solutions in capital markets and access to

local emerging markets.

The foreign exchange market continued its trend of low volatility

and spread tightening particularly in our core rand product. The

foreign exchange business achieved good results despite the

environment presenting limited opportunities.

The equities trading business performed well with increased

business confidence in South Africa boosting local equity markets

and strong business flows.

S t rong revenue flows were generated by the securitisation and

debt origination businesses. The securitisation team also

s u ccessfully concluded the group’s first asset-backed securitisation

t ransactions: R4,5 billion of mortgage loans and R3 billion of

vehicle and asset finance receivables.

The debt securities business experienced strong flows during the

year notwithstanding tough market conditions. The international

principal trading business generated increased revenues relative

to 2004, despite running a lower level of market risk.

In precious metals trading, strong physical related short-dated

trading flows were experienced from a well-diversified global

client base. However, a strict anti-hedging stance among precious

metal producers continued in 2005, resulting in a lack of long-

dated transactions which dampened revenues. Base metals

t rading reported good revenues against a backg round of

significant interest in the metals markets and 20-year price highs.

The growth of the Chinese economy coupled with increased

hedge fund activity, continued to drive the market. Although the

volatility in oil prices during the year augured well for the

commodity trading business, structural changes to the team

outside of Africa resulted in lower than expected revenues.

The mining finance and structured commodity finance businesses

continue to be regarded as leading arrangers and providers of

structured financing facilities for metal producers and the

development of mining projects. The buoyant metals markets

seen in 2005 resulted in increased competition from financial

institutions not previously as active in the mining and metals

sector. Consequently, the market also experienced downward

pressure on returns and loan terms.

The energy finance team had a strong year and benefited from an

expanded client base. This resulted in a well-diversified spread of

risk and transaction structures. Progress was made in expanding

the team’s transaction capability in the power and renewable

energy sectors.

The treasury funding unit in South Africa experienced continued

margin pressure as a result of the significant amounts of term

funding required to support the strong asset growth across the

South African business, together with increasing the average

long-term structure of the funding book in line with internal

prudential guidelines.

Major IT investment in 2005 and 2006 will see the implementation

of the latest global systems in interest rates and equities tra d i n g ,

credit trading and energy trading. This will enable us to introduce a

fuller product range, leading to an improved customer serv i c e

offering across the range of our global markets activities.

We have a strong and mature global markets team in South Africa

as evidenced by the following recently awarded accolades:

• In Risk Magazine’s South African market survey, Standard

Bank was rated first overall and ranked first in nine categories

across the interest rate and equity derivative businesses.

• Standard Bank was voted “Best Bond House” for 2005 by the

Bond Exchange of South Africa Spire Awards, and also won

awards in four other categories.

The challenge going forward is to export this model to the rest of

our operations by scaling up our regions, completing the IT

infrastructure implementation and hiring and up-skilling staff.

O p e rational review: Corpora te & Investment Banking co n t i n u e dc e m b e r 2 0 0 5

Banking and trade finance

The banking and trade finance business encompasses corporate

lending, transactional banking businesses, custodial services and

trade finance business.

Competition in the vanilla corporate lending market generally

remained fierce with margins coming under pressure. T h e

transactional banking business grew volumes, introduced new

products and won major new accounts.

The electronic banking business grew market share substantially

by focusing on enhancing customer service and impro v i n g

technology. The project to roll out corporate electronic banking

technology in the rest of Africa is progressing well.

The custody business also had a great year, achieving record

volumes and assets under management.

Specialised finance continued to broaden its business, with

innovative transactions closed in Turkey, Asia, the Middle East,

Russia and Mexico. Most notable was the joint underwriting of a

major acquisition of South-East Europe’s largest oil refinery. The

group also established its credentials in the rapidly expanding

Islamic finance market with two significant tra n s a c t i o n s

u n d e rwritten and subsequently oversubscribed in genera l

syndication.

Telecommunications finance posted strong growth. The scale of

transactions increased significantly, new risk distribution channels

were developed and the client base doubled. Major successes

included the largest project financing deal in the Ukraine and a

first mandate in Pakistan.

Trade finance had a good year – despite further tightening of

margins in key markets. Good volumes in the trade finance

business also contributed significantly to the gro wth in

profitability.

The distribution group had another successful year placing over

USD10 billion of syndicated loans, trade finance and forfaiting

p a p e r, and successfully arranging 45 syndicated financings,

primarily in Russia, the former Commonwealth of Independent

States (CIS), Eastern Europe and the Middle East. The business

retained its position as a market leader in the arranging and

placing of emerging market syndicated debt and was ranked by

Loanware as the top arranger and distributor of syndicated loans

for financial institutions in Russia, Ukraine and Kazakhstan.

Investment banking

Investment banking includes the equity investment and advisory

businesses, project finance, structured and pro p e rt y - r e l a t e d

lending as well as the off-shore asset management and wealth

management units.


For Corporate & Investment Banking to remain competitiveinternationally, we need to enhance our regional and in-countrycapabilities with urgency.

Loans and advances by product

Change 2005 2004

% Rm Rm

Gross loans and advances 30 133 620 102 662

Overnight lending 35 27 477 20 365

Term lending 17 47 639 40 610

Loans granted under resale agreements 48 26 291 17 750

Commercial property finance 34 16 196 12 095

Other loans and advances 35 16 017 11 842

Credit impairments for performing and non-performing loans (4) (1 439) (1 494)

Net loans and advances 31 132 181 101 168


The specialist corporate finance advisory team, the mining and

metals advisory group and the equity investments businesses

performed well during the year. In South Africa, BEE deals

continued to drive business growth. Major transactions concluded

during the year included introducing BEE partners into Medi-

Clinic, SA Eagle, Assore and Tiger Brands.

Other notable deals included a fair and reasonable opinion for the

Venfin board in respect of the Vodafone offer as well as a number

of transactions and assignments in Papua New Guinea,

Scandinavia, Central Europe and the Americas.

Standard Bank, as the global adviser for the Celtel International

B.V. Group, was mandated to raise medium-term financing for

Celtel Kenya Limited through a floating rate secured bond on the

Nairobi Stock Exchange. The deal is the largest corporate bond on

the Nairobi Stock Exchange and also in the East A f r i c a n

Community region. Furthermore, this is the first time that Kenyan

Shilling denominated debt has been placed outside of Kenya.

The low interest rate environment resulted in robust increases in

property prices in South Africa. This boosted performance in the

property finance and advisory services business with positive

mark-to-market profits being generated and sizeable realisations

in the listed pro p e rty investment port folio. There was also

significant gro wth in the pro p e rty lending book, which

contributed to increased profitability.

Structured finance encompasses longer-term structured lending

to corporates, primarily in the form of asset- or project-backed

financing. The structured finance division won a number of major

mandates in 2005 that should generate good returns in the

coming years. The project finance division is currently focused on

infrastructure investment in Africa and in particular the Gautrain

p roject which, in spite of a number of delays and some

controversy, appears to be moving towards finalisation. The

G a u t rain is a 77km high-speed rail link that will co n n e c t

Johannesburg and Pretoria.


Standard Bank’s Corporate & Investment Banking business is focused on becoming a strong emerging markets

contender and is pursuing new opportunities in market sectors that show strong growth potential.

Focus areas in the year ahead will include:

•A continued focus on building our customer base and offering better services.

•Retaining key staff and completing the programme of hiring and up-skilling staff in the

international businesses to enhance our regional and in-country capabilities.

•Driving people and infrastructure development aggressively and achieving greater economies

of scale in the international businesses.

•Acquisition opportunities in key markets focusing on product related businesses and commercial banking

opportunities in conjunction with Personal & Business Banking.

Operational review: Investment Management & Life Insurance

Overview

For the life insurance industry, 2005 could well be regarded as a

significant turning point. The unfavourable rulings against life

insurance companies, including Liberty Life, by the Pension Fund

Adjudicator (PFA) and the associated negative sentiment led to an

industry-wide rethink of business models. Encouragingly, in spite

of the negative perceptions, Liberty Life managed to deliver a

strong financial performance for the year.

In April 2005, Liberty Life concluded the acquisition of Capital

Alliance Holdings Limited (CAHL), and for the rest of the year a

major focus was to ensure the swift and smooth merging of the

businesses. CAHL employees were moved from their head office

into Liberty Centre with the process being managed carefully to

limit disruption and employee concerns. The integration provided

the opportunity to restructure Liberty Life’s business model to

position the company to serve both intermediaries and

policyholders more effectively and efficiently into the future.

We took the decision to consider the disposal of our offshore

asset manager, Liberty Ermitage, and the Australian life insurance

business, Prefsure, which was included in the acquisition of CAHL.

Liberty Life also disposed of Hightree, a small UK distribution

business, during the year.

Liberty Active was launched during the year, and subsequently

integrated with CAHL to offer a simple, streamlined range of

value-for-money risk products at the lower end of the market.

Another milestone for Liberty was that it became the first South

African life insurer to issue a listed corporate bond. Applications

for the bond outstripped initial expectations and R2,0 billion was

raised at a very competitive long-term rate of 8,93%. This will be

used primarily to fund working capital requirements.

Liberty Life won both categories of the South African Financial

S e rvices Intermediaries Association (SAFSIA) awards for life

insurers (individual and corporate). This is the first time that

SAFSIA, the largest intermediary body, has given both awards to

one company in the same year.

Stanlib had its best year since it was formed in 2002. Its

performance in equity markets continued to improve both in

absolute terms and relative to its peers. The Alexander Forbes

Global Manager Watch survey placed Stanlib third for 2005, with

its preferred asset portfolio returning 34,6% for the year. Costs

were well controlled.

New chief executive of Liberty Life

During February 2006 it was announced that Myles Ruck, chief

executive of Liberty Life, wished to retire as chief executive, for

personal reasons, after his service retention agreement expires on

31 May 2006. Bruce Hemphill, currently chief executive of

Stanlib, will succeed Myles with effect from 1 June 2006. Myles

has been invited to remain on the board of the Standard Bank

Group as a non-executive director.

Securing sustainability by committing to change

Whilst there were aspects of the PFA rulings that we disagreed

with, many of the issues dealt with and rulings made were valid.

However, for Liberty Life whether or not the rulings were legally

defendable was of seco n d a ry importance. We were more

concerned about the fairness of past practices in the industry,

particularly in light of the way circumstances have changed since

the products were first developed.

To bring about meaningful change, industry-wide consensus was

needed. Under the auspices of the Life Offices Association (LOA),

extensive discussions on reforming savings products took place

internally and externally with parties such as the National Treasury

and the Financial Services Board. The complex challenge was to

find solutions that took into account future business, existing in-

force books as well as business on the books that had already

been terminated prior to the maturity of the contracts. The multi-

lateral process culminated in a December meeting and signing of

a Statement of Intent between the five largest members of the

LOA and the Minister of Finance.

It is important to note that the issues raised in the settlement relate

to a small and specific part of a life insurer’s business. In general, it

has been shown that customers who take out and maintain a

retirement or endowment product to maturity will have invested

wisely and at reasonable cost to themselves – although the choice of

investment asset may impact that return. It has been primarily in

situations where policies have been prematurely or part i a l l y

terminated where the perceived high costs have been co n t e n t i o u s .

It is hoped that this has now been dealt with and we look fo rw a rd to

continuing to give our policyholders peace of mind in planning fo r

the future.

The strong growth enjoyed in the South African investment marketsduring the latter half of 2004 continued throughout 2005. LibertyLife and Stanlib were beneficiaries of this growth.



Strategy

Becoming the life insurer and investment manager ofchoice

Our strategy is simple – we intend to become the South African

life insurer and investment manager of choice for those who wish

to buy and to sell life insurance and investment products. To do

this we need to offer products that are relevant, easy to

understand and provide real value for money.

We are reassessing the relevance of all products provided by

Liberty Life and Stanlib, and will discontinue any we find to be no

longer suitable for the markets we operate in. Similarly, where we

find that inappropriate advice is being given or product sold – be

it through our tied agency force or independent brokers – we will

remove the party's contract to sell our products.

In addition, to be the life insurer and investment manager of choice

means that we provide service excellence and put the customer at

the fo r e f ront of everything we do.

The life insurance operations have made good progress but

understand that they still have a long way to go. The decision to move

the back office onto one delivery platform over the next few years will

go some way to w a rds helping us deliver on our service promise.

In the life insurance operations, we will also continue to focus on

extending our distribution reach. Specifically, in the coming year

we will ensure the efficient distribution of our Liberty Active

products. In keeping with our philosophy of providing the right

products for the right markets, we have discontinued selling

savings products into the lower end of the market, as we believe

they do not offer sufficient value for money when compared to

alternatives such as unit trusts or bank savings accounts.

To be competitive, profitable and provide value for money means

that we cannot be complacent when it comes to costs. We are

constantly evaluating our processes to streamline them and

extract value from cost efficiencies wherever possible.


Investment Management & Life Insurance comprises 7% of the

group’s headline earnings, and grew normalised headline earnings

in 2005 by 51%. The division achieved a ROE of 24,1%, grew

funds under management by 27% and grew normalised

embedded value by 16%.

Liberty Life had a very good year and increased normalised

headline earnings by 47%, notwithstanding a once-off

R321 million after tax provision for the Statement of Intent

relating to the PFA rulings. Significant gains on investments held

in the shareholders’ portfolio more than offset this provision.

These gains were previously accounted for directly in equity.

The strong growth enjoyed in the South African investment

markets during the latter half of 2004 continued throughout

2005. Liberty Life and Stanlib were beneficiaries of this growth in

a number of areas. Indexed new business grew by 12% over

2004, from R4,3 billion to R4,9 billion, albeit at a slightly lower

m a rgin compared with 2004. Investment management fees

earned grew by 14%.

Net cash inflows from insurance operations were up from

R3,2 billion in 2004 to R5,7 billion, and net inflows into Stanlib

amounted to a further R13 billion.

In the insurance operations, policy expense increases of a

recurring nature were in line with actuarial assumptions (4,25%

per annum) for the third year in a row although non-recurring

items were considerably higher than 2004, due mainly to the

restructuring and integration costs incurred with respect to the

restructuring into three main divisions and the integration of

CAHL. The capital adequacy requirement ratio remained strong at

2,0 times cover.

Stanlib’s profit before tax was R348 million and third-party

assets under management grew by 27% to R186 billion as at

31 December 2005.


Investment Management & Life Insurance earnings may be lower in 2006 due to the potential impact of a lower assumed equity and

bond market performance although real growth in embedded value should be achieved.

Specific focus areas in 2006 will include:

•Continuing to refine our new business model and implement our strategy to become the life insurer of choice.

•Driving the distribution of Liberty Active products.

•Bringing out the best in our people.

•Improving and expanding Stanlib’s equity business.


Board of directors

Sir Paul Judge (56)1, 4

MA (Cambridge), MBA (Pennsylvania)Appointed: 2003

Directorships: Standard Bank Group, The StandardBank of South Africa, Schroder Income Growth Fund,Tempur-Pedic International

Thulani Gcabashe (48)1

BA (Botswana and Swaziland), Masters in Urban andRegional Planning (Ball State)Appointed: 2003

Directorships: Standard Bank Group, The StandardBank of South Africa, Eskom Enterprises (chairman),Eskom Holdings (chief executive)

Committee member: Group risk management

Buddy Hawton (68)1

FCIS (Natal)Appointed: 1995

Directorships: Standard Bank Group, The StandardBank of South Africa, International Resorts, LibertyGroup, Liberty Holdings, Nampak, Royale ResortsHoldings (chairman), Royale Holdings (Bermuda),Royale Resorts International, Stanlib, Sun Hotels, Sun International (chairman), Woolworths Holdings(chairman)

Committee member: Group remuneration(chairman), group risk management

Sam Jonah KBE (56)1, 5

ACSM, MSc, DIC, DSc (Exeter)Appointed: 2006

Directorships: Standard Bank Group, The StandardBank of South Africa, AngloGold Ashanti, Anglo Platinum Corporation, Bayport Holdings,Equator Exploration, Equinox Minerals, Mittal Steel,MotoGold Mines, Titanium Resources Group,Transnet, Uramin

Saki Macozoma (48)2

BA (Unisa), BA (Honours) (Boston)Appointed: 1998

Directorships: Standard Bank Group, The StandardBank of South Africa, Andisa Capital (chairman),Business Trust (co-chairman), Iliso Consulting(chairman), Liberty Group, Liberty Holdings, Murray and Roberts Holdings, Safika Holdings(deputy chairman), Stanlib (chairman), TutuwaStrategic Holdings 2, VW South Africa

Committee member: Allocation (chairman), directors’affairs, group audit, group credit, groupremuneration, group risk management, grouptransformation (chairman)

Jacko Maree (50)3

BCom (Stellenbosch), MA (Oxford), PMD (Harvard)Appointed: 1997

Directorships: Standard Bank Group (chiefexecutive), The Standard Bank of South Africa (chiefexecutive), Liberty Group, Liberty Holdings, StanbicAfrica Holdings, SBIC Investments SA, StandardInternational Holdings SA, Standard Bank Plc(chairman)

Committee member: Africa credit, allocation, blackownership initiative, group credit, grouptransformation

The directors address key issues, ensuring that debate on matters of policy, strategy and performance is critical, informed andconstructive.

Doug Band (61)2

BCom (Wits), CA (SA)Appointed: 1997

D i re c to r s h i p s : S t a n d a rd Bank Group, The StandardBank of South Africa, Electronic Media Network (M-Net), Gymnogene Investments, Mobile T e l e p h o n eNetworks Holdings, MTN Group, MTN International,Stanlib, The Bidvest Group, Tiger Bra n d s

Committee member: Africa credit, black ownershipinitiative, directors’ affairs, group audit, group credit,group remuneration

Elisabeth Bradley (67)1

BSc (Free State), MSc (London)Appointed: 1986

Directorships: Standard Bank Group, The StandardBank of South Africa, AngloGold Ashanti, MetairInvestments (chairman), Sasol, The Tongaat-HulettGroup, Toyota SA (chairman), Wesco Investments(chairman)

Committee member: Black ownership initiative,directors’ affairs, group audit

Derek Cooper (65)1

CA (SA)Appointed: 1993

Directorships: Standard Bank Group (chairman), TheStandard Bank of South Africa (chairman), LibertyGroup (chairman), Liberty Holdings (chairman),Standard Bank Plc, Business Leadership South Africa(president)

Committee member: Africa credit, black ownershipinitiative (chairman), directors’ affairs (chairman),group credit (chairman), group remuneration, grouprisk management, group transformation


Rick Menell (50)1

MA (Cambridge), MSc (Stanford)Appointed: 1997

Directorships: Standard Bank Group, The StandardBank of South Africa, African Rainbow Minerals(deputy chairman), Anglovaal Holdings, Mutual &Federal, National Business Initiative, South AfricanTourism Board (chairman), Teal Exploration & MiningIncorporated (director, president and CEO), VillageMain Reef Gold Mining (chairman)

Committee member: Group remuneration, group riskmanagement

Kgomotso Moroka (51)1

BProc (University of the North), LLB (Wits)Appointed: 2003

Directorships: Standard Bank Group, The StandardBank of South Africa, Electronic Media Network (M-Net), Gobodo Forensic & InvestigativeAccounting (chairman), New Seasons InvestmentsHoldings, South African Breweries

Chris Nissen (47)1

BA Hons, MA Humanities (Cape Town), Diploma inTheologyAppointed: 2003

Directorships: Standard Bank Group, The StandardBank of South Africa, Boschendal (chairman),Randgold & Exploration Company, Sea HarvestCorporation (chairman), Tiger Brands, Umoya Fishing,Woolworths Holdings

Committee member: Group transformation

Cyril Ramaphosa (53)2

BProc (Unisa)Appointed: 2004

Directorships: Standard Bank Group, The StandardBank of South Africa, Alexander Forbes, MacsteelHoldings, Mondi South Africa, MTN Group(chairman), MTN International (chairman), SAB Miller, SASRIA, Shanduka Group (chairman), The Bidvest Group (chairman), Tutuwa StrategicHoldings 1

Mamphela Ramphele (58)1

BCom (Unisa), MBChB (Natal), PhD (Cape Town)Appointed: 2005

Directorships: Standard Bank Group, The StandardBank of South Africa, Circle Capital Ventures(chairman), Medi-Clinic Corporation, MellonFoundation, Nelson Mandela Foundation, RockefellerFoundation

Myles Ruck (50)3

BBus Sc (UCT), PMD (Harvard)Appointed: 2002

Directorships: Standard Bank Group, Capital AllianceHoldings, Liberty Group (chief executive), StandardBank Plc, Stanlib

Committee member: Africa credit (chairman), groupcredit

Martin Shaw (67)1

CA (SA)Appointed: 2004

Directorships: Standard Bank Group, The StandardBank of South Africa, Illovo Sugar, JD Group, LibertyGroup, Liberty Holdings, Murray & Roberts Holdings,Pretoria Portland Cement, Reunert

Committee member: Group audit (chairman), grouprisk management (chairman)

Sir Robert Smith (61)1, 4

CA and Fellow of the Institute of Bankers (inScotland), Honorary Degrees (Edinburgh, Glasgow,Paisley) Appointed: 2003

Directorships: Standard Bank Group, The StandardBank of South Africa, Aegon UK, Inchmarnock,Scottish and Southern Energy (chairman), The WeirGroup (chairman)

Conrad Strauss (70)1

BA, PhD (Rhodes), MS (Cornell), AMP (Harvard),FIBSA, DEcon (hc) (Rhodes), DSc (hc) (Pretoria)Appointed: 1984

Directorships: Standard Bank Group, The StandardBank of South Africa, African Oxygen, HansMerensky Holdings

1Independent non-executive director 2Non-executive director 3Executive director

4British 5Ghanaian


Corporate governance

Standard Bank Group views the implementation of corporate

governance practices as integral to its operations. The group is

committed to the principles of the Code of Corporate Practices

and Conduct (King Code) and complied with the King Code during

the period under review.

The board of directors is committed to the ongoing

implementation of initiatives to improve corporate governance for

the benefit of all stakeholders. All group operations are subject to

an effective governance framework. This provides direction for

subsidiary entities, which structure their respective governance

frameworks according to group standards.

Furthermore, this framework enables our directors to balance

their responsibility to provide oversight with their role as providers

of strategic counsel, thereby achieving a proper balance between

conformance and performance.

The Standard Bank of South Africa Limited is a major subsidiary of

the group as defined in the JSE Limited Listings Requirements.

Liberty Group Limited (Liberty Life) is also a significant subsidiary

of the group, which complies with its own set of regulatory and

legislative requirements. Compliance is documented in its annual

report, which can be found at www.liberty.co.za. Stanlib has its

own governance framework coordinated by Liberty Life.

Codes and regulations

Compliance with applicable legislation, regulations, standards and

codes is an essential part of the group’s operations. The board

monitors regulatory compliance through management reporting.

The group applies the code of banking practice (the code) and

subscribes to the values underlying the code. There are systems

in place to ensure compliance with the principles and

recommendations set out in the code.

As part of educating and training staff on the code, material from

Bankseta was used and customised to make it Standard Bank

specific, and delivered using an e-learning channel.

Compliance with the code is audited by the group internal audit

function.

Board and directors

Board structure

The group is led by an effective board that is ultimately

responsible for corporate governance within the group. The board

consists of a strong contingent of independent non-executive

d i r e c tors, which includes the chairman. This ensures that

independent thought is brought to bear on board decisions.

There are no shadow directors on the board.

The board is also responsible for ensuring that the group has

effective management and adequate succession plans are in

place. The chief executive presents his succession plans to the

b o a rd annually. The executive committee is invited to attend all

b o a rd meetings. The full board (including executive directo r s )

meets without other management present during closed

s e s s i o n s .

Access to company information, resources required to carry out

responsibilities or access to external legal advice are readily

available at the group’s expense. Board committees assist the

board to fulfil the group’s stated objectives. All committees

operate according to agreed mandates that are reviewed annually

to keep pace with material developments.

The key terms of reference in the board's mandate, which forms

the basis for its responsibilities, are to:

• agree the group's objectives, strategies and plans fo r

achieving those objectives;

• annually review the corporate governance process and assess

achievement against objectives;

• review its mandate at least annually and approve reco m m e n d e d

c h a n g e s ;

• delegate to the chief executive or any director holding any

executive office or any senior executive any of the powers,

authorities and discretions vested in the board's directors,

including the power of sub-delegation. Delegate similarly such

powers, authorities and discretions to any committee and

subsidiary company boards as may exist or be created from

time to time;

• determine the terms of reference and procedures of all board

committees and subsidiary companies, and review their

reports and minutes;

• consider and evaluate reports submitted by members of the

executive management committee;

Independent non-executive directors 72% (13)

Non-executive directors 17% (3)

Executive directors 11% (2)

Independent non-executive directors 72% (13)

Non-executive directors 17% (3)

Executive directors 11% (2)

Unitary board (%)

• ensure that an effective risk management process exists and

is maintained throughout the group;

• review and monitor the performance of the chief executive

and the executive team;

• ensure consideration is given to succession planning for the

chief executive, and other executive directors and executive

management;

• establish and review annually, and approve major changes to,

relevant group policies;

• ap p rove the remuneration of non-executive directors on the

b o a rd and board committees, based on recommendations made

by the group remuneration committee, and recommend to

shareholders for appro v a l ;

• approve capital funding for the group, and the terms and

conditions of rights or other issues and any prospectus in

connection therewith;

• ensure an adequate budget and planning process exists, that

performance is measured against budgets and plans, and

approve annual budgets for the group;

• a p p rove significant acquisitions, mergers, take-overs,

divestments of operating companies, equity investments and

new strategic alliances by the group;

• consider and approve capital expenditure recommended by

the group executive committee;

• consider and approve any significant changes proposed in

a ccounting policy or practice, and consider the reco m m e n d a t i o n s

of the group audit co m m i t t e e ;

• consider and approve the annual financial statements, interim

statements, dividend announcements and notices to

shareholders, and consider and agree the basis for considering

the group to be a going concern as per the recommendation

of the group audit committee;

• assume ultimate responsibility for financial, operational and

internal systems of control, and ensure adequate reporting on

these by committees to which they are delegated;

• take ultimate responsibility for regulatory compliance and

ensure that reporting to the board is comprehensive;

• ensure a balanced and understandable assessment of the

group's position in reporting to stakeholders;

• review non-financial matters that have not been specifically

delegated to a committee; and

• specifically agree from time to time matters that are reserved

for its decision, retaining the right to delegate any of these

matters to any committee from time to time in accordance

with the articles of association.

Strategy

The board considers and approves the group’s strategy at an

annual meeting with executive management. On an annual basis,

the board agrees financial objectives and corporate governance

objectives for the year ahead. The board then monito r s

performance against financial objectives and detailed budgets

t h rough management’s quarterly reporting. Corpora t e

governance objectives are monitored by the directors’ affairs

committee and reviewed by the board annually.

Appointments

The board reviews the group’s nominations and appointments

policy annually.

All board appointments are made in line with the requirements of

the Companies Act, Banks Act, JSE Limited Listings Requirements

as well as the group’s policy in this regard.

The nominations and appointments policy defines the process to

be followed for the nomination and appointment of directors, by

setting out who makes recommendations and who authorises and

a p p roves appointments. The policy distinguishes between

executive and non-executive appointments as well as internal and

external entities. In terms of the policy, executive management

require permission to be appointed to external boards to reduce

the potential for conflicts of interest, and to ensure they can

dedicate sufficient time and resources to group business.

Delegation of authority

The ultimate responsibility for the group’s operations rests with

the board. The board retains effective control through a well-

developed governance structure of board committees. These

committees provide in-depth focus on specific areas of board

responsibility.

In addition, authority has been delegated to the chief executive

to manage the business and affairs of the group. The group

executive committee assists the chief executive to manage the

business of the group when the board is not in session, subject to

statutory limits and the board’s limits on the delegation of

authority to the chief executive.

Board-delegated authorities are regularly monitored by the group

secretary’s office.

Chairman and chief executive

The roles of chairman and chief executive are separate and distinct

and the chairman is an independent non-executive directo r.

Board meetings

The board meets once every quarter with an additional meeting

to discuss strategy. Ad hoc meetings are held when necessary.


C o r p o ra te governance co n t i n u e dc e m b e r 2 0 0 5

Board effectiveness

The board, through the directors’ affairs committee (DAC ) ,

annually considers the performance of the board and its

committees against their respective mandates. External auditors

review these findings and a report is submitted to the DAC.

The DAC also considers methodologies for conducting evaluations

and makes recommendations to enable the board to determine

the adequacy and efficacy of its own performance. The aim of

these evaluations is to assist the board and committees to

constantly improve their effectiveness.

The board performs an annual assessment of co r p o ra t e

governance performance against its objectives, in compliance with

Regulation 38 of the Banks Act. In terms of the assessment for

the period under review, the board materially achieved its

corporate governance objectives.

Board evaluation

The board sets the criteria relating to its evaluation and

p e rformance and that of its committees. In 2005 the board agreed

to focus on evaluating its committees, with a full board evaluation

to be conducted every alternate year. A detailed questionnaire was

sent to each member of each committee. The co n s o l i d a t e d

feedback was provided to the board and it highlighted the need fo r

development in certain areas which resulted in a tra i n i n g

p ro g ramme being agreed to address this.

Induction and training

On appointment, each new director receives a governance manual

that includes all relevant information such as mandates, minutes,

management structures, significant reports and import a n t

legislation. In addition, one-on-one meetings are scheduled with

management to properly introduce new directors to the group, its

operations and key management.

D i r e c tors are kept abreast of all relevant legislation and

regulations as well as macro developments that could potentially

impact the group and its operations.

As part of their ongoing training, presentations on risk-specific

matters follow most of the board meetings. Topics covered

included such matters as liquidity risk and retail credit risk. Where

appropriate, external specialists are used to supply training.


During 2005, five board meetings were held:

Board of directors Mar May Aug Oct Dec

DE Cooper (chairman)1 ✓ ✓ ✓ ✓ ✓

DDB Band2 ✓ ✓ ✓ ✓ ✓

E Bradley1 ✓ ✓ ✓ ✓ ✓

T Evans1, 6 ✓ ✓ ✓ ✓ ✓

TS Gcabashe1 ✓ ✓ A ✓ ✓

DA Hawton1 ✓ ✓ ✓ ✓ ✓

Sir Paul Judge1 ✓ ✓ ✓ ✓ ✓

SJ Macozoma2 ✓ ✓ ✓ ✓ ✓

JH Maree3 ✓ ✓ ✓ ✓ ✓

RP Menell1 ✓ ✓ ✓ A A

Adv KD Moroka1 ✓ ✓ A ✓ ✓

AC Nissen1 ✓ ✓ ✓ ✓ ✓

RA Plumbridge1, 5 ✓ ✓ – – –

MC Ramaphosa2 ✓ ✓ A ✓ ✓

Dr MA Ramphele1, 4 – A ✓ ✓ ✓

MJD Ruck3 ✓ ✓ ✓ ✓ ✓

MJ Shaw1 ✓ ✓ ✓ ✓ ✓

Sir Robert Smith1 ✓ ✓ ✓ ✓ ✓

Dr CL Stals1,5 ✓ ✓ – – –

Dr CB Strauss1 ✓ ✓ ✓ ✓ ✓

✓ = Attendance

A = Apology1Independent non-executive director.2Non-executive director.3Executive director.4Appointed on 17 March 2005.5Retired on 25 May 2005.6Resigned on 8 March 2006.

Board committees

Board committees operate in terms of agreed mandates reviewed and approved by the board on an annual basis. The mandates set out

their roles, responsibilities, scope of authority, composition, and procedures for reporting to the board.

Group audit committee

Member Feb Mar May Jun1 Aug Nov

MJ Shaw

(chairman)2 ✓ ✓ ✓ ✓ ✓ ✓

RA Plumbridge3 ✓ ✓ ✓ – – –

DDB Band A ✓ ✓ ✓ ✓ ✓

E Bradley ✓ ✓ ✓ ✓ ✓ A

SJ Macozoma ✓ ✓ ✓ ✓ ✓ ✓

✓ = Attendance

A = Apology1Trilateral meeting held with SARB.2Appointed as chairman on 25 May 2005.3Retired as chairman and member on 25 May 2005.

The role of the group audit committee is to review the group’s

financial position and make recommendations to the board on all

financial matters including assessing the integrity and

effectiveness of accounting, financial, compliance and other

co n t rol systems. The committee also ensures effective

communication between the internal auditors, external auditors,

the board, management and regulators. The committee’s key

terms of reference are divided into various categories and

responsibilities, and include the following:

• review the group audit plan with the joint auditors, with

specific reference to the proposed audit scope and approach

to group risk activities, and the audit fee;


Group audit committee

Chairman: Martin Shaw

Six meetings held in 2005

Group credit committee

Chairman: Derek Cooper

Four meetings held in 2005

Black ownership initiativecommittee


One meeting held in 2005

Group risk management committee

Chairman: Martin Shaw


Group remuneration committee

Chairman: Buddy Hawton

Two meetings held in 2005

Group transformation committee

Chairman: Saki Macozoma


Directors’ affairs committee


Two meetings held in 2005

Board of directors


• approve the guidelines for using the external auditors for non-

audit work, annually assess the work done to ensure the

independence of the external auditors is retained;

• meet with external auditors to discuss audit findings and co n s i d e r

detailed internal audit reports with the internal audito r s ;

• annually evaluate the role, independence and effectiveness of

the internal audit function in the overall context of the gro u p ’ s

risk management system;

• receive and review reports on the adequacy of capital, pro v i s i o n s

for bad debts and diminution in the value of other assets;

• review the accounting policies adopted by the group and all

proposed changes in accounting policies and practices;

• consider the adequacy of disclosures and the reasons for

fluctuations in ratios reported in published documentation;

• review the effectiveness of financial management and the

quality of internal accounting control systems and reports

produced by financial management;

• review significant differences of opinion between management

and the internal audit function;

• review the group compliance plan, with specific reference to the

p rocedures for identifying regulato ry risks and co n t rolling their

impact on the group, as well as ensuring that the group’s policy

complies with relevant regulato ry and legal requirements;

• monitor ethical conduct of the group, executives and other

senior officials; and

• review and make recommendations on any potential conflicts

of interest relating to situations of a material nature.

Group risk management committee

Member Feb May Aug Nov

MJ Shaw (chairman)1 A ✓ ✓ ✓

RA Plumbridge2 ✓ ✓ – –

DE Cooper ✓ ✓ ✓ A

TS Gcabashe4 – – – ✓

DA Hawton ✓ ✓ ✓ ✓

SJ Macozoma ✓ ✓ ✓ ✓

RP Menell ✓ ✓ A ✓

CL Stals3 ✓ ✓ – –

✓ = Attendance

A = Apology1Appointed as chairman on 25 May 2005.2Retired as chairman and member on 25 May 2005.3Retired on 25 May 2005.4Appointed on 23 November 2005.

The board has ultimate responsibility for risk management. The

main purpose of this committee is to provide independent and

objective oversight of risk management within the group. It

achieves this by reviewing and assessing the integrity of risk

control systems and ensuring that risk policies and strategies are

effectively managed and contribute to a climate of discipline and

control that will reduce the opportunity for fraud. A detailed risk

management section starts on page 45.


Member Feb May Aug Nov

DE Cooper (chairman) ✓ ✓ ✓ ✓

DDB Band A ✓ ✓ ✓

AG Gain1 ✓ ✓ ✓ ✓

SJ Macozoma ✓ ✓ ✓ ✓

JH Maree ✓ ✓ ✓ ✓

T Moodley1 ✓ ✓ ✓ ✓

SP Ridley1 ✓ ✓ ✓ A

MJD Ruck ✓ ✓ ✓ ✓

PJ Smith1 ✓ ✓ ✓ ✓

✓ = Attendance

A = Apology1Co-opted executive members.

The role of this committee is to ensure that effective credit

governance is in place across the group. This involves ensuring

that the credit committees across the group operate within clearly

defined mandates and delegated authority as well as to provide

for the adequate management, measurement, monitoring and

control of credit risk, including country risk. In addition, the

committee sets the group’s credit policy, strategy and philosophy,

and ensures compliance therewith. The committee report s

quarterly to the group risk management committee and group

audit committee on the group credit portfolios, the adequacy of

provisions and status of non-performing loans.

In line with other changes being considered to align governance

frameworks with Basel II requirements, the credit risk governance

structure is in the process of being reviewed.

Directors’ affairs committee

Member May Nov

DE Cooper (chairman) ✓ ✓

DDB Band ✓ ✓

E Bradley ✓ A

SJ Macozoma ✓ ✓

✓ = Attendance

A = Apology

The committee assists the board in its determination and

evaluation of the adequacy, efficiency and appropriateness of the

corporate governance structures and practices in the group. The

role of the committee is also to identify, evaluate and recommend

nominees to the board and board committees to ensure that the

board is able to fulfil its mandated obligations.


The committee also ensures that an appropriate induction course

is in place for all new directors and that there is a plan in place to

provide ongoing development and training for directors, to enable

them to remain up to date on relevant business and statutory

developments.

Group transformation committee

Member Feb Jun Sep Nov

SJ Macozoma (chairman) ✓ ✓ ✓ ✓

DE Cooper ✓ ✓ ✓ ✓

JH Maree ✓ ✓ ✓ ✓

AC Nissen ✓ ✓ ✓ ✓

✓ = Attendance

This committee is responsible for guiding tra n s formation initiatives

within the group by considering appropriate policies and appro a c h e s .

In addition, the committee monitors the implementation of

t ra n s formation policies, practices and procedures to ensure

compliance with current and evolving legislation and related

r e g u l a t i o n s .

Black ownership initiative committee

Member Dec

DE Cooper (chairman) ✓

DDB Band ✓

E Bradley ✓

JH Maree ✓

✓ = Attendance

This committee is responsible for considering and approving share

awards to black managers and qualifying black non-executive

directors. A management committee, the allocation committee,

which is chaired by a non-executive director (Saki Macozoma),

recommends allocations for approval by the black ownership

initiative committee.

In 2005, shareholders approved the allocation of 125 000 shares

to Mamphela Ramphele in terms of the group’s Tutuwa initiative.

Previous recipients of the same allocation were Thulani Gcabashe,

Kgomotso Moroka and Chris Nissen in 2004.

Group remuneration committee

The group remuneration committee (remco) determines and

reviews the remuneration policy and strategy for the group.

Further detail on this committee’s role and responsibilities, and

attendance at meetings is set out in the remuneration review

starting on page 37.

Group secretary

The group secretary provides members of the board with

guidance on their responsibilities and keeps them up to date with

changes to relevant legislation as well as governance best

practices. The group secretary oversees the induction of new

directors, including directors of significant subsidiaries.

All directors have access to the services of the group secretary.

The group secretary is also responsible to the board for ensuring

that board procedures are followed and that compliance with

applicable legislation or regulation is maintained.

Going concern

The directors review the basis of going concern for the

preparation of financial statements at the year end and renew this

conclusion at the interim reporting period. The directors have

sufficient reason to believe that the group has adequate

resources to continue operating as a going concern.

Financial Sector Charter

The Financial Sector Charter (charter) is a gro u n d b r e a k i n g

document that sets out the commitment of banks and other

players in the financial services sector to achieving the ideals of

transformation and empowerment in our society. As a signatory to

the charter, the group has made considerable progress in meeting

the objectives of the charter.

The charter provides the framework for promoting black eco n o m i c

empowerment in the financial services secto r. In addition to skills

development and increased participation of black people in the

leadership of the group, the commitment to pro m o t e

empowerment through procurement, enterprise development,

a ccess to financial services, empowerment financing, ownership and

co n t rol is fundamental in the operations of the group. A detailed

analysis of group performance against charter requirements is set

out in the charter section in the Sustainability Report .

Dealing in securities

The group has policies in place to restrict the dealing in securities

by directors and employees in the group. A personal account

trading policy and directors dealing policy are in place to prohibit

embargoed employees and directors from trading in securities

during closed periods, which are from 1 June to the publication of

the interim results, and from 1 December to publication of final

results. Compliance with the policies is monitored on an ongoing

basis. This is in line with the group’s commitment to conducting

business professionally and ethically.

C e rtain nominated staff are also prohibited from trading in

designated securities as a result of price sensitive information they

may from time to time obtain by virtue of their positions. All dealing

in Standard Bank securities by these staff members must take place

t h rough the group share incentive scheme administration division.

Sustainability

Social and environmental responsibility remains an important part of

the group’s culture. The monitoring and reporting of sustainability



issues is still an evolving discipline within our organisation. T h e

Sustainability Report aims to provide comprehensive co m m e n t a ry

and a technical overview of the group's progress in its sustainability

and tra n s formation effo rts, and includes key non-financial

p e rformance indicators. The report presents a balanced view, with

relevant and material information disclosed.

As part of the group’s operational commitment to sustainability, it

participated and was included in two key sustainability indices,

namely, the Dow Jones Sustainability Index and the JSE Socially

Responsible Investment Index.

A brief summary of the report can be found on page 16 and it has

been included in electronic format with this report. It can also be

accessed on the website: www.standardbank.co.za. Printed copies

of the report can be obtained from the group secretary.

Ethics and organisational integrity

The group is in the process of revising its code of ethics to bring

it into line with the group’s redefined vision and values. Revising

the vision and values involved a wide-ranging co n s u l t a t i v e

process. This included broad employee feedback, dedicated one-

on-one and group discussions, as well as board and group exco

deliberations. The process culminated in a facilitated debate held

at group exco level to finalise and adopt the vision and values.

These were then launched to the group through a series of road

shows attended by the chief executive, who discussed the

implications of the vision and values with employees at all levels.

The group’s code of ethics, and vision and values are readily

available to all staff through the intranet. The board, through the

group audit committee, assesses the ethical climate of the group

through work conducted by the forensic audit team. To ensure

that ethical conduct remains integral to the culture of the group,

there are guidelines, performance measurements and leadership

development initiatives in place.

Political contributions

In 2004, the group announced a departure from its policy of not

making political donations. In recognition of South Africa’s tenth

a n n i v e r s a ry of democra c y, R5 million was donated to w a rd s

funding the national election. Fifty percent was distributed to

political parties according to representation in Parliament prior to

South Africa’s 2004 general election. The remaining 50%

was distributed acco rding to the same formula based on

representation post the election.

The group believes that active and strong civil society fo r m a t i o n s

are critical in strengthening a multi-party democracy system. In

light of this, the group has again reviewed its political party funding

p o l i c y. An amount of R10 million has been approved to pro v i d e

funding to political parties over the next five years acco rding to

representation in Parliament.

Relationship with shareholders

The group views communication with shareholders as an

important part of its operations. Shareholders are invited by the

chairman to attend the annual general meeting (AGM). The

chairmen of the group’s audit committee and remuneration

committee are available at the meeting to respond to questions

from shareholders.

T h rough our investor relations team we interact with our

shareholders in various ways including meetings and presentations.

During the year the group ran a pro g ramme to assist shareholders

holding less than one hundred shares to dispose of their holdings in

a convenient manner. For more information on our relationship with

shareholders, please refer to our Sustainability Report .

Relationship with external auditors

The group has a formal policy on fees for non-audit services. The

purpose of this policy is to ensure that the independence of

auditors is not impaired.

In terms of the policy, all non-audit services assigned to the group

auditors that are individually greater than 20% of the audit fee of

the previous year of that business unit or subsidiary must be pre-

approved by the respective board audit committees of the

subsidiary entities on a project-by-project basis. Sensitive non-

audit assignments, even if below the threshold of 20% of audit

fees, must be pre-approved by the respective board audit

committees’ chairmen.


Re m u n e ra t i o n

I n t ro d u c t i o n

The purpose of this section is to provide stakeholders with an

understanding of the remuneration philosophy and policy applied

a c ross the group for board members (executive and non-executive

d i r e c tors) and employees.

Highlights in 2005

Key developments during the year included:

• r e m co conducting a self-assessment of its activities; and

• the group adopting a new long-term incentive scheme to align

with recent developments including tax and accounting changes.

Re m u n e ration philosophy

The group is committed to a remuneration philosophy that

emphasises the value of its people and their fundamental role in

ensuring sustainable gro wth. This approach is imperative in an

e n v i ronment where skills remain scarce.

The board sets the principles for the group‘s remunera t i o n

philosophy in line with approved business strategy and objectives.

This philosophy, which is informed by remco’s deliberations, aims to

maintain an appropriate balance between employee and shareholder

interests.

Key success factors for the group are its ability to attract, retain and

motivate the talent it requires to achieve its strategic and opera t i o n a l

objectives. The group’s remuneration philosophy includes short- t e r m

and long-term incentives to support this ability.

S h o rt-term incentives, which are delivery specific, are viewed as

s t rong drivers of competitiveness and performance. A significant

p o rtion of top management’s reward is therefore variable, being

determined by profits achieved and personal contribution, to ensure

the commitment and focus required to achieve targets.

Long-term incentives are used to ensure that the objectives of

management and shareholders are closely aligned over longer time

p e r i o d s .

Re m u n e ration policy

R e m co assists the board in monitoring the implementation of the

g roup remuneration policy by ensuring:

• r e w a rd strategies and remuneration are competitive, and

facilitate the recruitment, motivation and retention of high

calibre staff at all levels;

• s a l a ry structures and policies, as well as cash and equity

compensation plans motivate sustained high performance and

are linked to co r p o rate perfo r m a n c e ;

• stakeholders are able to make a reasonable assessment of reward

p ractices and the governance process; and

• all applicable laws and codes are complied with.

Re m u n e ration governance

B o a rd re s p o n s i b i l i t y

The board remains ultimately responsible for the remunera t i o n

p o l i c y. Remco operates in terms of an agreed mandate appro v e d

annually by the board. On remco’s recommendation, the board will in

some instances refer matters to shareholders for approval, fo r

example, new share incentive schemes and board and co m m i t t e e

f e e s .

Subsidiaries and group opera t i o n s

C o r p o ra te & Investment Banking Inte r n a t i o n a l

S t a n d a rd Bank Plc operates in a regulato ry environment that requires

it to have its own remuneration committee. The board of Standard

Bank Plc approves this committee’s mandate, which acco rds with the

g roup remuneration philosophy. The committee is chaired by an

independent non-executive director of Standard Bank Plc, and

reviews remuneration practices in the group’s international

o p e rations based on best practice within specific jurisdictions.

C e rtain matters considered by the committee are subject to final

a p p roval by remco.

Rest of A f r i c a

The remuneration of board members in African countries outside of

South Africa is assessed in each co u n t ry and noted at remco. T h e

r e m u n e ration of executive management in these countries is

reviewed and approved by remco.

A project has been initiated to integrate and align reward policies and

p rocedures in the African operations with those of the group.

The specific guidelines in this regard, which will underpin

an integrated approach to the rest of Africa reward stra t e g y, are to :

• develop reward policies and procedures that support the

achievement of business goals;

• p rovide rewards that attract, retain and motivate staff and

develop a high performance culture;

• maintain competitive remuneration in line with the co u n t ry

specific markets and trends;

• r e w a rd people acco rding to their co n t r i b u t i o n ;

• allow a reasonable degree of flexibility in remuneration pro c e s s e s

and the choice of benefits by employees; and

• move to a cost to company (CTC) remuneration philosophy.

L i b e rty Life

The Liberty Life board determines the remuneration philosophy

and policy for Liberty Life. It has an established remuneration

committee that monitors the implementation of practices within

that group.

Re m co operation

Buddy Hawton, an independent non-executive directo r, chairs

r e m co. He also chairs the Liberty Life and Stanlib remunera t i o n

committees to ensure consistency across group operations. Remco



comprises a majority of independent non-executive directors. All its

members have the relevant skills and experience to perform their

d u t i e s .

The key terms of reference set out in remco’s mandate include:

• reviewing group remuneration philosophy and policy;

• determining the remuneration of executive directors, as well as

the chairman and non-executive directors, which are subject to

shareholder approval;

• considering the guaranteed remuneration, annual perfo r m a n c e

bonuses and pension incentives of the group’s highest- p a i d

executive managers, excluding Liberty Life and Stanlib

executives and directo r s ;

• considering the average percentage increases of the guara n t e e d

r e m u n e ration of executive management across the group, as well

as long-term and short-term incentives;

• agreeing incentive schemes and awards across the group;

• ensuring adequate retirement funding and healthcare benefits;

• agreeing the co m p u l s o ry employee benefits applicable to all

levels and categories of employees in the group, notably

retirement funding and healthcare benefits; and

• reviewing the performance measures and criteria to be used fo r

annual incentive payments for all employees.

R e m co held two meetings during the year, with attendance reco rd e d

b e l o w :

M e m b e r M a r A u g

DA Hawton (chairman)1 ✓ ✓

DDB Band2 ✓ ✓

DE Cooper1 ✓ ✓

T Evans1, 3 ✓ ✓

SJ Maco z o m a2 ✓ ✓

RP Menell1 ✓ ✓

✓ = A tt e n d a n ce1Independent non-executive dire c to r.2N o n - e xecutive dire c to r.3Resigned on 8 March 2006.

The chief executive attends meetings by invitation. Other members

of executive management are invited to attend when appro p r i a t e .

No individual, irrespective of position, is present when his or her

r e m u n e ration is discussed.

To determine the remuneration of executive and non-executive

d i r e c tors as well as senior executives, remco reviews market and

competitive data, and takes into account group performance using

i n d i c a tors such as headline earnings.

R e m co utilises the services of a number of suppliers and advisors to

assist it in tracking market trends relating to all levels of staff. In

2005 the following suppliers were used:

• Deloitte & To u c h e ;

• Ernst & Yo u n g ;

• Global Remuneration Solutions (GRS);

• Hay Renwick;

• Mclagans; and

• Monks Pa rt n e r s h i p .

Based on the input of these suppliers, remco makes its decisions on

m a r k e t-related guaranteed remuneration and total remuneration. It

also assesses market practice in relation to equity co m p e n s a t i o nplans and considers market-related information in its review of board

and committee fees. The board then reviews these proposals and,

where required, makes recommendations to shareholders fo r

a p p roval at the AG M .

A self-assessment of remco was conducted during the year. T h e

objectives of the review were to assess the committee’s perfo r m a n c e

on three levels:

• s t r u c t u r e ;

• p rocess; and

• e f f e c t i v e n e s s .

The findings were reviewed by the committee and reported to the

b o a rd.

Re m u n e ration structure

N o n ! e xecutive dire c to r s

Terms of serv i ce

All non-executive directors are provided with a letter of appointment

setting out the terms of their engagement.

In terms of the articles of association, non-executive directors are

required to retire at 70. Directors are appointed by the shareholders

at the AGM and interim board appointments are allowed between

AGMs. The interim appointees are required to retire at the next AG M

where they make themselves available for election by shareholders.In addition, one-third of the non-executive directors are required to

retire at each AGM and may offer themselves for re-election. If

r e commended by the directors’ affairs committee and supported by

the board, the board then proposes their re-election to the

shareholders. There is no limitation to the number of times a non-

executive director may stand for re-election.

Fe e s

Non-executive directors receive fixed fees for service on boards and

b o a rd committees. The group does not make provision fo r

compensation for loss of office. Non-executive directors do not

receive short-term incentives, nor do they participate in any long-

term incentive schemes.


Fees payable for the period 1 March to 28 February to non-

executive directors were as fo l l o w s :

C a te g o ry 2 0 0 5 2 0 0 4

C h a i r m a n1 R2 464 105 R2 044 900

D i r e c to r R100 000 R83 000

International directo r £24 000 £20 000

G roup risk management co m m i t t e e :

– chairman R114 000 R94 500

– member R57 000 R47 250

G roup audit co m m i t t e e :

– chairman R171 000 R142 000

– member R85 500 R71 000

G roup credit co m m i t t e e :

– member per meeting R10 000 R9 000

D i r e c tors’ affairs co m m i t t e e :

– member R22 000 R18 000

Tra n s formation co m m i t t e e :

– chairman R86 000 R71 000

– member R43 000 R35 500

R e m co :

– chairman R100 000 R83 000

– member R50 000 R41 500

Ad hoc meeting attendance2 R10 000 R9 000

1S t a n d a rd Bank group chairman’s fees include the board, subsidiary

b o a rd and all co m m i ttee memberships but do not include fees fo r

L i b e rty Holdings Limited, Liberty Group Limited or Standard Bank

P l c. The chairman is currently the chairman of the black owners h i p

initiative, dire c to rs’ affa i rs and group credit co m m i ttees and is a

member of the A f r i ca credit, group re m u n e ration, group risk

management and group tra n s formation co m m i tt e e s .

2Fee per meeting for att e n d a n ce by non-executive dire c to rs or pers o n s

acting in an alternate ca p a c i ty (not a member of the co m m i ttee). T h e

same fee is applicable to all co m m i ttees where att e n d a n ce is on an

ad hoc or alternate ca p a c i ty, including the black ownership initiative

co m m i tt e e .

Re t i rement benefits

P r e v i o u s l y, non-executive directors were provided with the

o p p o rtunity to participate in a pension scheme. Only two directo r s

still participate in this pension scheme, Elisabeth Bradley and Buddy

H a wton.

E xecutive dire c to r s

Both executive directors, unless specifically stated, receive

r e m u n e ration packages and qualify for long-term incentives on the

same basis as other employees. For further information, refer to the

discussion below on long-term incentives for executive and

m a n a g e r s .

In terms of the articles of association, executive directors are not

subject to rotational requirements.

Chief exe c u t i v e

J a c ko Maree does not have an employment co n t ract that co n t a i n s

any termination provisions. Consistent with other internationally

mobile executives of the group, he is paid a portion of his

r e m u n e ration internationally and is required to give six month’s

notice of resignation.

His bonus is subject to an assessment by remco of perfo r m a n c e

against various criteria. The agreed criteria are weighted such that

a p p roximately 70% applies to the financial performance of the gro u p

and 30% applies to qualitative aspects of performance. He is not

subject to a retention agreement.

Po s t-retirement benefits operate in the same manner as managers

and general staff. Refer to these sections below for more

i n formation.

E xecutive dire c to r

Myles Ruck is subject to a three-month notice period in terms of his

agreement with Liberty Life. His remuneration, including post-

retirement benefits, is agreed acco rding to Liberty Life’s governance

structure. He has a retention agreement with Liberty Life, which

terminates in May 2006. He retires with effect from 31 May 2006

as chief executive of Liberty Life but will remain on the Standard

Bank Group board .

E xecutive and managers

Terms of serv i ce

The minimum terms and conditions for South African managers are

governed by relevant legislation. The notice period for these

managers is one month, unless otherwise stated in their co n t ract of

employment. International assignees have notice periods of three

m o n t h s .

The terms and conditions of employment of all managers within the

rest of Africa are guided by the legislation of specific countries and

are aligned to group practice. Notice periods vary from one month

( p a rticularly where stipulated by legislation) to three months. In

some countries notice periods also depend on the level of

responsibility of a particular manager and whether or not they are

leaving to join a co m p e t i to r.

For Standard Bank Plc employees, depending on the number of

years of completed service, notice periods vary from one month to

three months. Notice periods in excess of three months are

d i s co u raged unless explicitly agreed with the chief executive of

S t a n d a rd Bank Plc.

F i xed re m u n e ra t i o n

In South Africa and other African countries, the managerial

r e m u n e ration approach is either based on, or moving to w a rds, a to t a l

C TC philosophy. CTC comprises a fixed cash portion, co m p u l s o ry

benefits (medical aid and retirement fund membership) and optional

benefits. Market data is used to benchmark salary levels and

benefits. Salaries are normally reviewed annually in Marc h .

It should be noted that operations in most of the African co u n t r i e s

outside of South Africa offer co u n t ry specific benefits.

S t a n d a rd Bank Plc salaries and benefits are arrived at aft e r

co n s i d e ration of independent salary and benefit surveys. Peer gro u p

comparisons are regularly done. Salaries are normally reviewed

a n n u a l l y.



For all staff, performance related payments have formed an

increasing pro p o rtion of total remuneration over time. This is

premised on the need to sustain performance to achieve objectives,

and to reward individual co n t r i b u t i o n .

All employees (executives, managers and general staff) are ra n k e d .

During the first stage the employees are ranked by their line

managers based on their performance (following the outcome of

their appraisal discussion) and the consistent demonstration of

agreed behaviours. The individual is ranked in one of three gro u p s ,

the top 20%, next 70% and bottom 10%.

The second stage is a moderation stage. The combined ranking of

the division is then submitted to the divisional exco for final

m o d e ration. Ranking and the consequent pay decision is driven at an

individual basis. There is therefore a direct link between their ra n k i n g

and the reward process. It is in this manner that a link is established

between the employees’ performance and their reward .

S h o rt ! term ince n t i v e s

Executives and managers in South Africa and other African co u n t r i e s

p a rticipate in a bonus scheme. Individual awards are based on a

combination of business unit performance, job level and individual

p e rformance. In keeping with the remuneration philosophy, the

bonus scheme gives high-performing managers the opportunity to

earn in line with the philosophy to attract and retain talent.

All staff internationally may participate in the Standard Bank Plc

incentive plan. There are no grade or level restrictions. The level of

a w a rd received by each employee will be related to the fo l l o w i n g

f a c to r s :

• p rofit performance;

• divisional performance; and

• individual performance and contribution to the team and/o r

g ro u p .

As well as taking performance factors into account, the size of award

is assessed in terms of market related issues for each skill set (e.g.

s c a rcity of skills).

Lo n g ! term ince n t i v e s

It is essential for the group to retain key individuals over the longer

term. This is done particularly through equity compensation plans.

The purpose of these is to align the interests of the group, its

subsidiaries and their respective employees, as well as to attract and

retain skilled and competent people.

Group share incentive scheme (GSIS)

Share options are granted to qualifying employees (including

executive directors) in terms of the fo l l o w i n g :

• the specific grant is not subject to prior shareholder approval as

a p p roval for the scheme has already been obtained;

• no options are issued at a pricing discount nor can they be

repriced; and

• the directors have the discretion to vary the vesting period.

Equity growth scheme (EGS)

In line with recent developments, including changes in South A f r i c a n

tax legislation and international accounting practice, the board

r e considered the structure of the GSIS and proposed a revisedscheme to shareholders. The basis for participation, award and

vesting remains the same. The EGS was approved by shareholders at

the 2005 AGM.

The maximum award to an employee, in terms of the GSIS and EGS,is not more than 2,5% of the total number of shares reserved fo r

both schemes.

The table below sets out the general conditions of the variousoptions, or participation rights issued:

Vesting cate g o ry Ye a r % E x p i ry

A 3, 4, 5 50, 75, 100 10 years

B 5, 6, 7 50, 75, 100 10 years

C 2, 3, 4 50, 75, 100 10 years

Shadow share schemes

In addition to the GSIS and EGS, there are other schemes that

p rovide longer-term benefits targeted at a small number of specialistinvestment banking staff in South Africa, and internationally. T h e y

p rovide cash incentives to select managers based on the relevant

business unit’s performance and valuation.

L i b e rty Life has its own incentive schemes. For further info r m a t i o n ,please refer to Liberty Life’s annual report .

Re tention agre e m e n t s

As part of the group’s strategy to retain highly mobile and talented

employees, the group will selectively enter into agreements in terms

of which retention payments are made. This payment would have to

be repaid should the individual concerned leave within a stipulated

period.

Po s t ! re t i rement benefits

P e n s i o n

Retirement benefits are typically provided on the same basis for all

levels of employee. Traditionally the group adopted retirement

funding on a defined benefit basis but in line with market and legal

changes across the group’s operations, almost all defined benefit

funds have been co n v e rted to a defined contribution basis for new

members. New funds will be defined contribution funds. Death

benefit cover is provided in almost all countries, in most cases fro m

s e l f - i n s u rance within the pension fund, in other cases thro u g hexternal underw r i t i n g .


Membership of the principal fund, the Standard Bank Gro u p

Retirement Fund (SBGRF) exceeds 95% of Standard Bank

o p e rations’ permanent staff in South Africa. Membership and benefit

criteria are as fo l l o w s :

• employees who were members of the fund on 31 December

1994 have guaranteed benefits available under the rules of the

defined section of the fund; and

• new members from 1 January 1995 participate only in the

benefits of the defined contribution section of the fund.

In addition, a defined contribution supplementary plan, the FlexibleExecutive Option (FEO) is available as an option for senior managers

and executives whose remuneration passes a threshold as defined by

r e m co. Under this arrangement, participation in the SBGRF

continues up to the defined threshold, and above it contributions are

placed in the FEO. The threshold is reviewed on an annual basis by

r e m co .

Employees in territories beyond South African jurisdiction are

members of either defined contribution or defined benefit plans

governed by legislation in their respective co u n t r i e s .

H e a l t h c a r e

In South Africa, post-retirement healthcare funding is made availablet h rough a fund (the Provider Fund) which was set up on

1 March 2000. Membership and benefit criteria are as fo l l o w s :

• staff in service on 29 February 2000, who received a medical aidsubsidy from the bank, became Provider Fund members on

1 March 2000, effective from the date of joining the bank. Staff

in service on 29 February 2000, who join the bank’s medical aid

at a later date, become members from the date of joining the

medical aid;

• members receive a benefit to assist them in meeting their post-

retirement medical aid costs. This benefit is a lump sum, based on

a defined rand target benefit adjusted annually in line with CPIX

plus 2%. The lump sum must be used to buy an annuity which is

expected to be applied to w a rds post-retirement healthcare co s t s .

The lump sum takes into account normal retirement age (NRA)

and years of service. Any shortfall in the medical aid co n t r i b u t i o nis the responsibility of the employee; and

• employees recruited from 1 March 2000 do not receive this

p o s t-retirement healthcare benefit.

In other African countries, a pension payout is the most co m m o n

p o s t-retirement benefit. In a limited number of countries, post-

retirement medical aid subsidies may continue from the employer,

usually for a limited period.

In addition to pension payouts in terms of a defined co n t r i b u t i o n

scheme, retired Standard Bank Plc employees are eligible to apply

for healthcare cover with the current provider at the employees’e x p e n s e .

L i b e rty Life has its own post-retirement benefits schemes. Fo r

f u rther details please refer to Liberty Life’s annual report .

Please refer to note 33 of the annual financial statements on page

173 for further detail on post-retirement benefits.

G e n e ral staff

Terms of serv i ce

The notice period for general staff in Africa is one month. Most of

the general staff in Africa are unionised. Their terms and co n d i t i o n s

of employment are therefore guided by the respective co l l e c t i v e

agreement(s) in particular countries.

F i xed re m u n e ra t i o n

R e m u n e ration of all general staff, both local and international, is

based on a basic salary plus benefits, which generally includes

medical aid, retirement fund membership, housing benefit and a

t ravel allowance for select levels.

G e n e ra l l y, salary increases are negotiated on an annual basis, usually

in March. Salary increases are based on similar factors as those

considered when reviewing managerial staff increases.

I n ce n t i v e s

All general staff in South Africa participate in the general staff bonus

scheme. The bonus is contingent on the group reaching its annual

financial and yearly specific targets (set in terms of goals based on

g roup strategy). For the past four years, these have included

c u s tomer service objectives. Similar remuneration philosophies are

applied in other African opera t i o n s .

S t a n d a rd Bank Plc general staff participate in the co m p a n y ’ s

incentive plan, outlined in the section on managers’ short- t e r m

incentives above.

Po s t ! re t i rement benefits

Po s t-retirement benefits for general staff are principally the same as

for the executive and managers. Refer to this section under

executive and managers for an outline of these benefits.

Re m u n e ration for 2006

Details on the proposed 2006 remuneration packages for non-

executive directors can be found in the notice to members on page

211. These are subject to shareholder approval at the AGM on

24 May 2006.

Challenges for 2006

The group will continue to ensure its remuneration policies and

p ractices remain competitive, incentivise performance and are

aligned across the group. Individual reviews of remunera t i o n

p a c kages will continue for all levels of staff in 2006.




Directors’ emoluments 2005

Bonus and Otherwise in

Services pension connection

Services as incentives/ with the Total Fair

as director directors Cash performance Pension affairs of annual value of Value of

of Standard Committee of group portion of related Other contri! SBG and its remune! options total

Bank Group fees subsidiaries package payments5 benefits butions subsidiaries ration granted6 package

R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000

Executive directors

JH Maree 3 743 10 326 175 588 14 832 14 832

MJD Ruck 341 3 041 6 000 304 303 9 989 2 108 12 097

– – 341 6 784 16 326 479 891 – 24 821 2 108 26 929

Non!executive directors

DE Cooper (chairman) 2 394 1 526 28 3 948 3 948

DDB Band 97 193 281 7 286)1 7 857 7 857

E Bradley 68 114 97 279 279

T Evans2 97 49 97 243 243

TS Gcabashe 97 6 97 200 200

DA Hawton 68 153 462 683 683

Sir Paul Judge 275 275 550 550

SJ Macozoma 97 331 942 1 370 1 370

RP Menell 97 104 97 298 298

Adv KD Moroka 97 97 194 194

AC Nissen 97 42 97 236 236

MC Ramaphosa 97 97 194 194

Dr MA Ramphele3 83 83 166 166

MJ Shaw 97 225 387 709 709

Sir Robert Smith 275 275 550 550

Dr CB Strauss 97 97 194 194

4 133 1 217 5 007 – – – – 7 314 17 671 – 17 671

Former non!executive

directors

RA Plumbridge4 37 107 59 66 269 269

Dr CL Stals4 37 21 37 95 95

74 128 96 – – – – 66 364 – 364

Total 4 207 1 345 5 444 6 784 16 326 479 891 7 380 42 856 2 108 44 964

1This amount was payable to Doug Band by Gymnogene Investments, a company in which he is a 33% shareholder and which had a contractual relationship with the bank.

The payment arises from a share of the profit on disposal of private equity investments in a portfolio sourced and arranged by Gymnogene Investments on behalf of the bank.

Although the contract expired on 31 December 2004, payments of this nature are likely to recur if and when the three remaining investments in this portfolio are realised on

a profitable basis to the bank.

2Resigned on 8 March 2006.

3Appointed on 17 March 2005.

4Retired on 25 May 2005.

5In order to align incentive awards with the performance to which they relate, bonuses above reflect the amounts accrued in respect of each year and not the amount paid.6Calculated in terms of International Financial Reporting Standards (IFRS) on share-based payments (IFRS 2). This is considered to be the most appropriate quantification of

the benefit awarded in the year under review.


Directors’ emoluments 2004

Bonus and Otherwise in

Services pension connection

Services as incentives/ with the Total Fair

as director directors Cash performance Pension affairs of annual value of Value of

of Standard Committee of group portion of related Other contri! SBG and its remune! options total

Bank Group fees subsidiaries package payments4 benefits butions subsidiaries ration granted5 package

R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000

Executive directors

JH Maree 3 540 9 065 168 566 13 339 3 700 17 039

MJD Ruck 348 3 047 5 040 306 303 9 044 3 690 12 734

– – 348 6 587 14 105 474 869 – 22 383 7 390 29 773

Non!executive directors

DE Cooper (chairman) 2 014 1 364 32 3 410 3 410

DDB Band 81 145 141 2 549 2 916 2 916

E Bradley1 56 105 81 242 242

T Evans 81 40 81 202 202

T S Gcabashe 81 81 162 162

DA Hawton 56 127 346 529 529

Sir Paul Judge 241 241 482 482

SJ Macozoma 81 86 1 401 1 568 1 568

RP Menell 81 86 81 248 248

Adv KD Moroka 81 81 162 162

AC Nissen 81 34 81 196 196

RA Plumbridge 81 230 127 84 522 522

MC Ramaphosa2 14 14 28 28

MJ Shaw3 37 53 267 357 357

Sir Robert Smith 241 241 482 482

Dr CL Stals 81 46 81 208 208

Dr CB Strauss 81 81 162 162

3 469 952 4 790 – – – – 2 665 11 876 – 11 876

Total 3 469 952 5 138 6 587 14 105 474 869 2 665 34 259 7 390 41 649

1Individual not recipient of fees paid for January and February 2004 – fees paid to company. From March 2004 fees paid directly to individual.

2Appointed on 1 November 2004.

3Appointed on 22 July 2004.

4In order to align incentive awards with the performance to which they relate, bonuses above reflect the amounts accrued in respect of each year and not the amount paid.

5Calculated in terms of IFRS 2. This is considered to be the most appropriate quantification of the benefit awarded in the year under review.

Share incentivesStandard Bank Group Limited

Balance Number Balanceof options Number of options of options

as at of options exercised as at Number1 Jan allocated in Issue during 31 Dec of Issue Issue Vesting Expiry

Director’s name 2005 2005 date the year 2005 options date price category date

JH Maree 1 750 000 – – 250 000 1 500 000 975 000 13/3/01 31,90 A 13/3/11

25 000 23/5/01 33,50 A 23/5/11

500 000 11/3/04 40,65 C 11/3/14

MJD Ruck 506 900 – – 258 500 248 400 60 000 13/3/01 31,90 A 13/3/11

180 000 13/3/02 27,80 A 13/3/12

5 000 14/4/99 17,15 B 14/4/09

2 5001 15/3/00 25,00 – 14/4/09

9001 27/11/00 26,40 – 14/4/09

Liberty Group

MJD Ruck 366 000 100 000 21/4/05 – 466 000 166 000 2/6/03 48,50 A 31/3/13

200 000 15/3/04 54,25 A 31/3/14

100 000 21/4/05 62,00 A 21/4/15

13 400 of MJD Ruck’s share options have further conditions attached to them in terms of the Standard Corporate and Merchant Bank (SCMB) Shadow Share Scheme. His last

allocation in terms of this scheme was on 27 November 2000.

Gains on the exercise of share incentives granted in previous years

Exercise/ Gains onIssue market exercise of share

Number Issue price Exercise price incentivesof options date (R) date (R) (R)

JH Maree 250 000 15/3/00 25,00 8/4/05 63,35 9 587 500

MJD Ruck 10 800 15/3/00 25,00 22/8/05 72,00 507 600

5 000 14/4/99 17,15 22/8/05 72,00 274 250

37 500 30/11/98 14,15 22/8/05 72,00 2 169 375

2 500 15/3/00 25,00 23/8/05 71,50 116 250

800 27/11/00 26,40 23/8/05 71,50 36 080

16 100 15/3/00 25,00 23/8/05 71,50 748 650

20 600 27/11/00 26,40 23/8/05 71,50 929 060

10 000 1/9/97 20,50 24/8/05 70,49 499 900

70 000 13/3/02 27,80 24/8/05 70,49 2 988 300

37 500 30/11/98 14,15 30/11/05 69,31 2 068 500

27 000 15/3/00 25,00 30/11/05 69,31 1 196 370

20 700 27/11/00 26,40 30/11/05 69,31 888 237

12 422 572

Gains on exercise of equity participation

rights under the SCMB Shadow Share

Scheme (2004: R1 580 000) 834 104

13 256 676

22 844 176




Risk management and co n t ro l

46 Introduction

46 Risk management approach

47 Risk responsibilities and governance structure

48 Risk appetite and risk tolerance

48 Basel II

49 Risk management in main risk types

49 Credit risk

57 Country risk

57 Liquidity risk

58 Market risk

61 Operational risk

62 Compliance risk

63 Reputational risk

63 Insurance-related risk

66 Taxation risk

66 Group audit assurance

66 Risk management focus for 2006

Risk management and co n t rol

Introduction

Managing risk effectively in a diverse and complex organisation

such as the Standard Bank Group requires a strong risk

management culture. Our culture supports sound commercial

decision-making that adequately balances risk and reward.

Risk management approach

The group’s risk management approach is based on a combination

of strong risk oversight at group level and independent risk

management structures within the business units.

During 2005, the group’s risk management structures, policies

and processes were reviewed. The process of updating them is

underway. In future all principal risks will be subject to overarching

governance standards. All standards are to be applied consistently

across the group and owned by the group risk management

committee (GRMC), in line with the group’s minimum control

requirements for each risk type.

The standards will form an integral part of the group’s governance

infrastructure, reflecting the expectations and requirements of

the board in respect of key areas of control across the group.

The standards will ensure alignment and consistency in the way

that prevalent risk types are managed across the group with

regard to:

• identification;

• measurement;

• management and control; and

• reporting of risk.

The standards will underpin the group’s risk governance principles,

which are:

• Shareholder value based

The group’s primary objective is to protect and enhance

shareholder value. As such, this objective drives the group’s

system of internal control.

• Embedded

The culture of the group reflects its appetite for risk.

A suitable organisational structure, policies and procedures,

and appropriate staff training are in place to enable risk to be

managed at all levels of the business.

• Supported and assured

The system of governance and internal control provides

management with assurance that risks are being managed

appropriately. The board of directors regularly receives and

reviews reports on governance and control processes.

• Reviewed

The board of directors undertakes a specific review of the

effectiveness of the internal co n t rol system and risk

management processes at least annually.

Major risk categories

Risks to which the group is exposed can be classified into the

following major categories:

• credit risk – arises from customer or counterparty non-

performance or default;

• co u n t ry risk – arises from the uncertainty that obligors in a

p a rticular co u n t ry may not be able to fulfil their obligations to the

g roup because of political or economic conditions in that co u n t ry ;

• liquidity risk – arises if any of the banks in the group have

insufficient funds or marketable assets available to fulfil their

future cash flow obligations;

• market risk – arises from a decrease in the market value of a

portfolio of financial instruments caused by an adverse move

in market variables such as equity, bond and commodity prices,

currency exchange rates, interest rates and credit spreads, and

implied volatilities on all of the above;

• operational risk – results from inadequate or failed internal

processes, people and systems or from external events;

• compliance risk – arises from regulatory sanctions, financial

loss, or loss to reputation as a result of failure to comply with

applicable laws, regulations, codes of conduct and standards

of good practice;

• reputational risk – results from damage to the group's image,

which may impair its ability to retain and generate business;

• insurance!related risks – are unique to the business of life

insurance, including investment and underwriting risks. The

g roup is exposed to insurance-related risks through its

effective 30% shareholding in Liberty Life and short-term

insurance activities; and

• taxation risk – that the group will incur a financial loss due to

an incorrect interpretation and application of taxation

legislation or due to the impact of new taxation legislation on

existing business.

For financial institutions, a combination of these major risks

occurring at the same time would be the most likely cause of

significant losses. It is therefore important to ensure a holistic risk

management approach – that risk types are not managed in

isolation. This approach is followed at a business unit as well as

group level.



Risk responsibilities and governance structure

Due to the nature and complexity of, and risk inherent in, the

group's activities, a robust risk management structure is in place

to ensure adequate oversight. The principal responsibilities set

out below extend throughout the group:

• the board of directors reviews and accepts the risk pro f i l e

a p p ropriate to the group’s gro wth stra t e g y, and requires that

management maintains an appropriate system of internal

co n t rol. The board delegates risk-related responsibilities to

three committees, the group risk management committee, the

g roup audit committee and the group credit co m m i t t e e ;

• the director, group risk is responsible for setting a framework

that ensures effective risk management and control for all risk

types excluding credit and country risk, within the group;

• the directo r, group credit is responsible for setting a fra m e w o r k

that ensures the effective management and alignment of credit

risk, including co u n t ry risk, within the gro u p ;

• in each business unit, the heads of risk are responsible for

developing and implementing risk policies and procedures

specific to their business unit’s risk profile but in compliance

with the group’s overarching governance standards, as well as

managing risk and risk reporting to relevant committees;

• risk type heads are appointed for each risk area and are

responsible for coordinating and managing a specific risk type

within their business unit;

• group internal audit independently audits the adequacy and

effectiveness of the group's risk management, control and

governance processes. The director: group internal audit

reports and provides independent assurance to the group

audit committee and has unrestricted access to the chief

executive and chairman of the board; and

• group compliance is an independent core risk management

activity. The director: group compliance reports to the group

audit committee and has unrestricted access to the chief

executive and chairman of the board.

Group board

Group risk management

committee

Chief executive

Group credit

committee

Group audit

committeeBoard

oversight

Matrix of risk

responsibilitiesDirector group risk Director group creditInternal audit/Compliance

Business units

heads of risk

Personal & BusinessBanking

Corporate & InvestmentBanking

Investment Management& Life Insurance

The group’s governance structure and risk responsibilities matrix is summarised in the diagram below.

Risk management and co n t rol continued

Risk appetite and risk tolerance

Risk appetite is the quantum of risk the group is willing to accept in

the normal course of business in pursuit of its strategic and financial

objectives. Risk taken within “appetite” may give rise to expected

losses, but these should be covered by expected earnings.

Risk tolerance is an assessment of the maximum risk the group is

willing to sustain for short periods of time. It emphasises the

“downside” of the risk distribution, and the group’s capacity to

survive unexpected losses. The capacity to take unexpected

losses depends on having sufficient capital and liquidity available

to avoid insolvency. Risk tolerance typically provides a useful

upper boundary for the group’s risk appetite.

The board has delegated its risk-related responsibilities primarily

to three committees, the group risk management committee, the

group audit committee and the group credit committee, with each

committee focusing on different aspects of risk management.

The process to quantify risk appetite is being reviewed and is

discussed later in this report.

Basel II

The Basel II Capital Adequacy Framework (Basel II) aims to

incentivise banks, through lower capital requirements, to improve

their risk management processes.

In June 2004, the Bank of International Settlement released the

final version of Basel II. The revisions focused mainly on improving

the quantification and management of credit and operational

risks, enhancements to the supervisory review process and more

extensive risk disclosure.

The South African Reserve Bank (SARB) has announced that the

South African implementation date of Basel II will be 1 January

2008, with local banks and the regulator evaluating the impact of

the new framework on capital requirements and risk management

processes during a parallel run to be conducted for a year prior to

implementation (i.e. commencing on 1 January 2007).

The group is currently working towards meeting the “advanced

approaches” requirements for all risk categories. The approaches

on commencement will be Advanced IRB (Internal Ratings Based)

for Personal & Business Banking, Foundation IRB for Corporate &

Investment Banking and standardised approach for operational

risk. A detailed migration plan for all the entities across the group

has been prepared for approval by the SARB. The group’s Basel II

programme of initiatives is on track to meet the regulatory

timeline of January 2008.

Progress has been significant in aligning Probability of Default

(PD) for credit risk rating models with Basel II specifications. Loss

Given Default (LGD) and Exposure At Default (EAD) models are

being tested and validated by way of initiatives that focus on

enhancing the group’s own internal data history by analysing

world-wide external data. As LGD significantly impacts the level of

capital required under Basel II, much focus is being placed on

ensuring that collateral and other credit risk mitigations meet the

Basel II eligibility criteria. The group will however be able to

leverage off recent investments in sophisticated collateral and

collections management systems.

The group’s operational loss database has been in use since

2003. It is being supplemented with risk and control self-

assessments and Key Risk Indicators (KRIs) in the identification

and monitoring of operational risks in line with Basel II

requirements. No significant additional initiatives are required to

achieve Basel II market risk compliance for the group. Applications

for regulatory approval for internal models for market risk are in

p rogress and other aspects such as changes to regulato ry

reporting are being addressed.

The implementation of Basel II across the group’s geographically

diverse operations is a major challenge, as the group has to meet

the requirements of 30 regulators world-wide. Focus has been

placed on raising awareness of Basel II even in countries where it

will not be adopted. This will enable the group to meet the SARB

requirement for group-wide implementation.

The group continues to participate in industry consultations on

the development and implementation of Basel II and has

30 representatives involved in 23 SARB Basel II task groups.

Implications of Basel II for the group

Capital

Based on the regulato ry and other internal quantitative studies

conducted by the group, the overall regulato ry capital requirement

is expected to remain largely neutral. Changes to the capital

requirement within the different port folios are however observ e d ,

i.e. the capital for the Personal & Business Banking port folio (with

r e g a rd to credit risk) will be substantially lower but this will be

offset by the new capital charge for operational risk, as well as by

the increase in the capital requirement for Corporate & Investment

Banking in emerging markets. The group continues to assess any

potential impact as outstanding areas of uncertainty around the

Basel II acco rd are clarified and continues to participate in the

e f fo rts to refine these future capital standard s .

Processes and systems

In addition to meeting Pillar 1 (minimum capital) requirements,

p rocesses and systems solutions are being implemented to

address the Pillar 2 (supervisory review) and Pillar 3 (disclosure)

requirements in terms of governance, stress testing and scenario

planning, internal capital adequacy assessment, regulato ry

reporting and disclosure. A leading industry capital calculation

solution is being implemented which will leverage off the risk

systems investments made by the business entities.

Business benefits

The cost estimate for the Basel II implementation up to January

2008 will be in the region of R250 million. These costs can be

attributed mainly to the significant strategic investment in risk IT

a rchitecture and solutions and includes a number of projects that

would have been initiated regardless of Basel II imperatives. T h e s e

investments will enable sophisticated port folio analysis and

scenario planning. Direct benefit will be derived from the

enhancement of co l l a t e ral management and collections pro c e s s e s ,



t h rough the minimisation of credit losses. Other business pro c e s s e s

also benefit from the enhanced information availability, fo r

example, new product development, pricing and pro v i s i o n i n g .

Risk management in main risk types

Credit risk

Considerable resources, expertise and controls are in place toensure efficient and effective management of credit risk.

In lending transactions, credit risk arises through non-

performance by a counterparty for facilities used. These facilities

are typically loans and advances, including the advancement ofsecurities and contracts to support customer obligations such as

letters of credit and guarantees. In trading activities, credit losses

arise due to non-performance by a counterparty for paymentslinked to trading-related financial obligations.

There are three components to credit risk:

• settlement risk – arises in transactions involving the non-simultaneous exchange of values when the group honours its

obligations to deliver value and the counterparty does not;

• pre-settlement risk – arises where a counterparty is unable or

unwilling to honour its future obligation. The group is thenexposed to replacement cost risk when it subsequently

arranges a transaction with a second counterparty to replace

the defaulted deal; and

• issuer risk – arises where the issuer of a debt instrumentdefaults on a particular principal payment or set of paymentsdue under the instrument or where an equity instrumentcollapses in price.

Market risk and credit risk overlap in traded credit products(whether traded as principal or held as collateral) including debtinstruments and credit derivatives. In these circumstances, issuerconcentration and default risks are managed through credit andcountry risk processes, and market price sensitivity throughmarket risk processes.

Approach to managing credit risk

Credit risk is managed by means of a governance structure withclearly defined mandates and delegated authorities. The group creditcommittee delegates authority to the African and Standard BankLondon Plc credit committees for the approval of credit pro p o s a l s .These committees further delegate authority within their limits. T h edelegated authorities are documented and take into co n s i d e ra t i o ncredit quality, size of facility, and committee representation.

The primary responsibility for credit risk lies with the director,

group credit. He is responsible for coordinating the management

of credit risk and ensuring the level of risk is maintained within the

approved credit risk profile across the group.

Credit risk heads have been appointed for both Personal & Business

Banking credit (including SMEs) and Corporate & Investment

Banking credit.

In the year under review the credit risk committee structure was as follows:

Credit risk committee structure

Primary responsibilities

Ensures appropriate credit governance structures and

processes are in place, approves delegated authorities and sub-

committee mandates and reviews the credit portfolios against

the group credit risk profile.

A p p roves credit proposals, including large exposures, and reviews:

• portfolio exposures and trends;

• problematic exposures and impairment levels; and

• large exposures.

A p p roves co u n t ry limits and monitors watchlisted co u n t ry

exposures.

Rest of

Africa

Domestic

banking

Country risk

committee,

Johannesburg

Country risk

committee,

London


African credit

committee

Standard Bank

London Plc,

credit

committee

International

operations


Credit risk management in the business units

Corporate & Investment Banking

Credit exposure to sovereign states, co r p o rates and financial

institutions is usually in the form of short- and long-term loans and

advances, advancement of securities and co n t racts to support

c u s tomer obligations, such as letters of credit and guarantees, and

exposures created through derivative co n t racts. In these instances,

credit risk management is characterised by a close working

relationship between the co u n t e r p a rt y, the customer relationship

team and an independent credit officer. Credit decisions are based

on an in-depth knowledge of the co u n t e r p a rty and the industry in

which it operates, as well as an assessment of the creditwort h i n e s s

of the co u n t e r p a rty based on a review of audited financial

i n formation and underlying risk para m e t e r s .

The use of sophisticated credit rating modelling techniques,

combined with an in-depth knowledge and understanding of each

c u s to m e r, is essential in assessing the credit risk of each co u n t e r p a rt y

dealt with. To this end, a common credit rating framework has been

developed to house credit rating models for each co u n t e r p a rty type.

The probabilities of default produced by these models are an

i m p o rtant component of the formal credit assessment process fo r

new and existing business. In addition, these models form the basis

for continual monitoring of changes in credit quality. The validation

and ongoing enhancement of these models remains a focus area.

Initiatives to advance credit management practices include the

enhancement of default management and co l l a t e ral management

systems. Together these initiatives will allow the group to understand

and manage the risk of the credit port folio more dynamically, and to

meet the requirements of Basel II.

Personal & Business Banking

Credit exposures include lending to individuals in the form of

mortgage loans, credit card facilities, personal loans, overdrafts

and asset finance facilities, as well as lending to small and

medium-sized businesses.

The underlying method for credit extension is determined by the

nature of the product and the strength of historical data available.

In the case of individuals, and selected small and medium-sized

businesses, application and behavioural scoring techniques are

widely applied throughout the credit life cycle. In all other cases

conventional and intuitive methods are applied to loans with

decisions taken in a centralised environment strategically placed

within provinces, countries and regions.

A diverse range of performance analysis techniques are applied

across product sets in recognition of differing asset and maturity

profiles. Defaulting accounts receive prompt attention, and in

instances where loss is anticipated, are handled centrally by

collection functions. Collections are a key component of the credit

cycle and the underlying philosophy is to collect appropriately and

promptly, using available technologies as the principal driver. The

various credit portfolios are monitored regularly to evaluate the

level of risk assumed against expected risk levels.

Credit risk on trading activities

The group enters into fo rw a rd, swap and option co n t racts, both

e xc h a n g e - t raded and over- t h e - co u n t e r, on a range of underlying

instruments. Counterparties to these co n t racts may be the co n s u m e r

market, co r p o rate companies, other financial institutions or market

p rofessionals. The co n t racts enable the group and its customers to

manage (reduce, take-on or eliminate) their foreign exc h a n g e ,

interest rate, credit, co m m o d i t y, precious metal and equity risks.

To the extent that a derivative co n t ract requires performance by the

co u n t e r p a rty at a future date, it may create credit risk for the gro u p .

This is mitigated by master-netting agreements, such as

International Swaps and Derivatives Association (ISDA) agreements,

between the group and its co u n t e r p a rties, which permit the offset


Current credit exposure Potential credit exposure

2005 2004 2005 2004

Foreign exchange contracts

Less than one year 4 291 6 126 6 235 9 218

One to five years 3 361 1 100 2 913 1 718

More than five years 3 338 415 4 068 769

Interest rate contracts

Less than one year 324 563 6 368 8 727

One to five years 781 1 691 9 072 11 630

More than five years 909 887 8 426 24 821

Commodities and other

Less than one year 17 511 2 475 32 400 6 642

One to five years 4 081 911 7 042 2 107

More than five years 85 869 643 347

Total 34 681 15 037 77 167 65 979

1The exposures for Rest of Africa have not been included in the above table. The amounts involved are not material in a group context.

Credit exposure related to derivative financial instruments at 31 December (Rm)1


of amounts due from, and due to, a co u n t e r p a rty in the event of

default. Master-netting agreements are enfo rceable in the

jurisdictions of most of our major co u n t e r p a rties. Entering into

co l l a t e ral arrangements with many of our co u n t e r p a rties pro v i d e s

f u rther protection against default.

Credit risk exposure on derivatives and foreign exc h a n g e

contracts is measured in terms of current exposure and potential

future exposure, which are explained below.

• Current credit exposure represents the loss to the group

assuming the customer defaults at the time the exposure is

being measured.

• Potential future credit exposure represents an estimate of the

potential loss to the group assuming the counterparty defaults

at some future date over the remaining term of the

t ransaction. Potential credit exposure is estimated by

simulating the impact of expected changes in market rates

over the life of the contract using either simple add-on factors

or more complex simulation techniques.

Credit risk measurement

Probability of default – internal risk ratings

The group has developed rating models for all banking facilities.

These models are used to assist the group in front-line credit

decisions on new commitments and in managing the portfolio of

existing exposures. The group assesses the credit quality and

assigns an internal risk rating to all borrowers and other

counterparties, including consumers.

Banking book credit exposures

Risk profile of customer exposures

Personal & Business Banking SA portfolio

The graph below shows the exposure of the scored Personal &

Business Banking SA portfolios (other than for SME lending)

across PD bands.

Corporate & Investment Banking portfolio

The Corporate & Investment Banking port folio includes primary

and contingent exposure to co u n t e r p a rties across instruments in

the banking book, and is divided into three major categories, being

financial institutions, co r p o rates and sovereigns, as detailed in the

g raph below.

91% of the sovereign exposures in the graph above are to the

South African Government.

The group is now using an internationally comparable rating scale

to aggregate exposures across its Corporate & Investment

Banking portfolio as detailed below.

International Banks Other

rating PD bands (%) PD bands (%)

AAA/AA/A 0 - 0,035 0,0005 - 0,0621

BBB 0,065 - 0,208 0,1235 - 0,4357

BB 0,356 - 0,961 0,7739 - 2,1850

B 2,322 - 3,466 3,4768 - 7,9144

CCC 7,128 - 13,214 15,7018 - 27,3347

CC/C 17,326 - 22,173 34,4325 - 42,1267

Where an exposure is in the local currency and is not cross-border

(i.e. the Standard Bank entity and obligor have the same domicile)

then an internationally comparable local rating is used. The PD

associated with these ratings will be a component of the group's

internal ratings-based application under Basel II.

Personal & Business Banking SA exposuredistribution across PD bands (%)

0

5

10

15

20

25

30

35

Financial Institutions 46%

Corporates 39%

Sovereigns 15%

Corporate & Investment Bankingexposure (%)


Financial institution exposures mainly comprise placements and

pre-settlement risk to domestic and international money centre

banks, which the group uses to deploy its surplus liquidity and as

counterparties in foreign exchange, derivatives, and commodity

transactions. Sub-investment grade exposures are typically to the

larger banks in emerging market countries, where the rating is

capped at the country ceiling, or trade finance and capital markets

business with smaller banks.

Some 70% of Corporate & Investment Banking’s co r p o ra t e

exposures are domestic. The balance is diversified across a broad

range of industries and a large number of countries. The group

makes extensive use of physical and financial collateral to mitigate

corporate credit risk.

Industry analysis

The group analyses its customers per industry using SARB

categories as shown in the following graph. Going forward, the

industry analysis will also be done using the International Standard

Industrial Classification (ISIC) codes.

The group’s largest industry exposure is to mortgage advances in

Personal & Business Banking, which is included in the “individuals”

c a t e g o ry above. This exposure comprises a high number of acco u n t s

and has been a high gro wth area over the last five years.

In respect of the mortgage advances portfolio, the graph below

shows the distribution of the loan-to-value ratios of each loan

based on the value of the respective mortgaged properties as

determined at the time of the last credit decision.


Financial institution exposuresby international rating (%)

0

10

20

30

40

50

60

70

AAA/AA A BBB BB B CCC/CC/C

2005

2004

Customer loans and advancesby industry (Rm)

0

20

40

60

80

100

120

140

160

180

Corporate exposures by international rating (%)

0

5

10

15

20

25

30

35

AAA/AA/A BBB BB B CC/CCCC

0

5

10

15

20

25

30

35

40

Granted loan-to-value (LTV) distributionof the total mortgage advances book (%)Granted loan-to-value (LTV) distributionof the total mortgage advances book (%)


Many customers request the highest possible bond to be

registered with a resulting high loan-to-value ratio. In addition,

due to the sharp increase in property prices over the past few

years, the current loan-to-value ratios will generally be

considerably lower than they were at the time of registration. This

impact is reflected in the graph below.

The current market values used above have been calculated using

a valuation model that considers property price inflation.

Maturity analysis of the banking book for the group

An analysis of contractual maturity is set out in the graph below.

Almost 60% of the loans to customers have a maturity of more

than 12 months, the majority of which are mortgage advances.

0

10

20

30

40

50

60

70

80

90

100

Cumulative BTV distribution (RHS)

BTV distribution

Balance to current market value (BTV) of thetotal mortgage advances book (%)

0

2

4

6

8

10

12

14

16

Maturing greater than 12 months

Maturing greater than 6 months but within 12 months

Maturing greater than one month but within 6 months

Maturing within one month

Repayable on demand

Maturity analysis of loans andadvances to customers (%)

2004 2005

0

10

20

30

40

50

60

70

80

90

100

Standard and current Items that are fully current and the full repayment of the contractual principal and interest

amounts are expected.

Special mention Items for which the borrower is experiencing difficulties. Ultimate loss is not expected but could

occur if adverse conditions persist.

Sub-standard1 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 group relies to a large

extent on the available security.

Doubtful1 Items that are considered to be impaired, but are not yet considered final losses because of

some pending factors which may strengthen the quality of the items.

Loss1 Items that are considered to be uncollectable and where the realisation 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 group.

1Classified as non-performing for accounting purposes.

Gross NPLs are net of interest in suspense.

Loans and advances exclude any contingents and the derivative portfolios.

Loan impairments

Non!performing loans (NPLs) and special mention loans

A high-level summary of total loans and advances is provided on the following page and has been prepared in accordance with the SARB

guidelines set out below.



Grossadvances Non!performing loans Performing loans

Sub! SpecialTotal standard Doubtful Loss Total mention Standard

Rm Rm Rm Rm Rm Rm Rm

2005

Domestic Banking 274 150 1 770 1 259 390 3 419 3 066 267 665

Personal & Business

Banking SA 196 393 1 423 1 222 325 2 970 3 033 190 390

Corporate & Investment

Banking SA 77 581 347 37 26 410 33 77 138

Other domestic operations 176 – – 39 39 – 137

Rest of Africa 14 413 134 43 134 311 882 13 220


Banking International 49 359 101 – 313 414 502 48 443

Other 67 – – – – – 67

Gross loans and advances 337 989 2 005 1 302 837 4 144 4 450 329 395

Percentage of total book (%) 100,0 0,6 0,4 0,2 1,2 1,3 97,5

Domestic Banking 100,0 0,7 0,5 0,1 1,3 1,1 97,6


International, Rest of Africa

and Other 100,0 0,3 0,1 0,7 1,1 2,2 96,7

2004

Domestic Banking 216 087 1 647 1 198 406 3 251 2 399 210 437

Personal & Business

Banking SA 153 141 1 142 1 101 321 2 564 2 380 148 197


Banking SA 62 884 505 97 43 645 19 62 220

Other domestic operations 62 – – 42 42 – 20

Rest of Africa 12 287 95 36 77 208 581 11 498


Banking International 34 286 124 192 135 451 442 33 393

Other 9 – – – – – 9

Gross loans and advances 262 669 1 866 1 426 618 3 910 3 422 255 337

Percentage of total book (%) 100,0 0,7 0,6 0,2 1,5 1,3 97,2

Domestic Banking 100,0 0,7 0,6 0,2 1,5 1,1 97,4


International, Rest of Africa

and Other 100,0 0,5 0,5 0,4 1,4 2,2 96,4

Standard Bank Group’s external loans and advances in line with the South African Reserve Bank regulatory definitions


Gross Net after

NPLs (net Securities and securities and Gross

of interest in expected expected Impairments for impairment

suspense) recoveries recoveries NPLs coverage

2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Rm Rm Rm Rm Rm Rm Rm Rm % %

Personal & Business

Banking SA 2 970 2 564 1 855 1 406 1 115 1 158 1 115 1 158 38 45

Mortgage advances 1 702 1 375 1 373 913 329 462 329 462 19 34

Card debtors 161 104 47 30 114 74 114 74 71 71

Instalment sale and finance

leases 474 463 230 226 244 237 244 237 51 51

Other personal and business 633 622 205 237 428 385 428 385 68 62


Banking SA 410 645 168 366 242 279 242 279 59 43


Banking SA 100 314 25 188 75 126 75 126 75 40

Property finance 310 331 143 178 167 153 167 153 54 46

Other domestic operations 39 42 2 4 37 38 37 38 95 90

Domestic Banking 3 419 3 251 2 025 1 776 1 394 1 475 1 394 1 475 41 45

Rest of Africa 311 208 142 19 169 189 169 189 54 91


Banking International 414 451 44 4 370 447 370 447 89 99

Total group 4 144 3 910 2 211 1 799 1 933 2 111 1 933 2 111 47 54

Staff home loan impairment in terms of IAS 39 90 92

Impairments for country risk 30 64

Credit risk inherent in off-balance sheet exposures and other asset classes 107 68

Total group impairments 2 160 2 335

NPL coverage % to gross advances

2005 2004

% %

Gross NPLs 1,2 1,5

Less: Securities and collateral (0,6) (0,7)

Less: Impairments for non-performing loans (0,6) (0,8)

Net NPLs 0 0

Coverage: Gross1 47 54

Coverage: Net2 100 100

Gross advances (Rm) 337 989 262 669

1Gross coverage = Impairment for NPLs/Gross NPL.2Net coverage = Impairment for NPLs/(Gross NPL – Security).

Analysis of NPLs per business unit balance sheet impairment



The graph below details balance sheet NPLs and the income

statement total impairment charge as a percentage of total loans

and advances for the last seven years.

The graph below details the movement during 2005 of total

balance sheet credit impairments.

NPLs

Performing loans

Total balance sheet impairments onperforming loans and NPLs (Rm)

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

96 98 01 02 0599 0397 00 04

Total impairments (%)

NPLs

Impairment charge

NPLs

Impairment charge

99

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

00 02 03 0501 04

Movements in credit impairmentsfor loans and advances (Rm)

2 500

3 000

3 500

4 000

4 500

5 000

NPL and special mention loan percentages

NPLs and special mention loans as a percentage of loans and

advances have improved over the last five years primarily due to

benign credit conditions and continuous improvements in credit

lending and collection processes.

There are rigorous processes in place to determine the

appropriate level of impairment for NPLs.

For the larger NPLs, impairments are generally determined on an

individual account basis taking into account expected recoveries.

Where impairments are determined on a portfolio basis, recent

portfolio recovery and loss history combined with an intuitive

oversight review is generally used to determine impairment

adequacy.

The group impairs its performing loans and advances on an

incurred loss model and is accordingly in compliance with the

revised IAS 39 requirements, effective 1 January 2005.

The graph below shows total balance sheet impairments for the

last ten years.

Special mention loans as % of loans and advances

NPLs as % of loans and advances

NPLs and special mention loans aspercentage of loans and advances (%)

01

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

02 03 04 05


Country risk

Country risk is the risk of loss arising when political or economic

conditions or events in a particular country reduce the ability of

counterparties in that country to meet their financial obligations

to the group.

Country risk is monitored through reviews of economic and

political data by the country risk teams based in Johannesburg and

London. The group uses its extensive network of representative

offices and subsidiaries, travels to countries when necessary and

uses external sources of information to assess each country to

which it is exposed.

A co u n t ry - rating model is used across the group to determine the

relative ranking of each co u n t ry. The internal model is co n t i n u o u s l y

updated to reflect economic and political changes in individual

countries. The results of this process are compared with those of

reputable rating agencies to validate the consistency of our model.

Mitigants such as political risk insurance are used to reduce

country risk as appropriate.

The geographical analysis of loans and advances shown in the

graph below is based on the location of the office recording the

transaction.

Liquidity risk

Liquidity risk management framework

The nature of banking, investment and trading activities results in a

continuous exposure to liquidity risk. Liquidity obligations arise fro m

requirements to repay deposits, advance committed funds, and

make interest and other expense payments. The group’s liquidity

risk management framework is designed to identify, measure and

manage the liquidity risk position to protect the group’s deposito r

base, maintain market confidence and ensure future gro wth. T h e

g roup asset and liability committee (group A LCO) sets liquidity risk

s t a n d a rds to ensure that the measurement, reporting, monito r i n g

and management of the liquidity risks associated with Personal &

Business Banking and Corporate & Investment Banking business

activities across the group follow a common governance fra m e w o r k .

Each bank within the group has an asset and liability co m m i t t e e

( A LCO) to monitor compliance with group liquidity risk standard s .

Both the Africa A LCO and International A LCO report into the gro u p

A LCO, chaired by the group chief executive.

Approach to managing liquidity

Liquidity management within the group has several elements.

These include:

• maintenance of a structurally sound balance sheet with

restricted mismatches between anticipated inflows and

outflows within different time buckets;

• maintenance of a portfolio of liquid and marketable assets over

and above prudential requirements;

• daily and forecast cash flow management;

• implementation of long-term funding strategies;

• diversification of funding;

• undertaking of regular stress testing; and

• maintenance of adequate contingency plans.

The cumulative impact of these various elements is monitored on

at least a monthly basis by the group’s ALCOs.

Structural requirements

Structural liquidity limits and guidelines are set to restrict the

mismatches between cash inflows and outflows in different time

buckets. These limits and guidelines are set by group ALCO and

conform to international best practice.

Significant sources of structural liquidity are provided by term

liabilities, port folios of highly liquid assets, as well as co r e

consumer and corporate customer deposits, mainly in the form of

current and savings accounts. Although these deposits are mostly

repayable on demand, or at short notice, diversification in terms

of depositors, products and instruments assists in protecting

against unexpected fluctuations.

Western Europe 19,25% (17,40%)

Eastern Europe 0,11% (0,07%)

South America 0,12% (0,03%)

Nor th America 0,01% (0,00%)

Far East 0,71% (0,55%)

Africa (excluding South Africa) 4,26% (4,61%)

South Africa 75,54% (77,34%)

Geographical analysis ofloans and advances (%)

2004 2005

0

10

20

30

40

50

60

70

80

90

100



By way of illustration, the one-month mismatch guideline is a

maximum net liability outflow of 5,0%, taking behavioural profiles of

d e p o s i tors and borrowers into account. During 2005, the avera g e

one-month liquidity gap, as a percentage of total liabilities, was

1,1% for Domestic Banking and 0% for Corporate & Investment

Banking International.

Domestic Banking also observes a ratio of long-term funding,

defined as those deposits where the remaining term to maturity

exceeds six months, to total funding. The ratio has actively been

increased from 15,8% in December 2004 to 16,1% in December

2005, thereby further enhancing a structurally sound balance

sheet.

Liquid and marketable assets

The group maintains a port folio of highly marketable assets above

the required statuto ry ratio that can easily be liquidated as

p rotection against any unexpected interruption in cash flows. T h e

a v e rage amount of surplus, unencumbered marketable assets in

Domestic Banking was R22,3 billion in 2005 (2004: R18,8 billion).

Cash flow management and long!term fundingstrategies

To retain and generate adequate funding, the group has

implemented cash flow management strategies. The daily

management of funding is achieved by monitoring future cash

flows to ensure cash requirements can be met. Monitoring and

reporting take the form of cash flow projections, particularly over

a short-term horizon.

Funding strategies, based on forecasted balance sheet structures,

are used to anticipate and plan for future funding and structura l

liquidity requirements. The group is committed to maintain and

increase core deposits, and improve the long-term maturity pro f i l e

of the deposit port folio. Securitisation represents a relatively small

p o rtion of the group’s funding stra t e g y, but provides additional

flexibility in Domestic Banking. During 2005, the group securitised

R3,0 billion of vehicle loans and R4,5 billion of home loans.

Diversity of funding

F unding diversification and the constant monitoring of depositor

concentrations are other key elements of liquidity management.

Diversification is maintained across co u n t e r p a rt y, instrument,

industry sector and term. To ensure that a bank does not place

undue reliance on a single entity as a funding source, limits are set

on the amount of deposits accepted from any one entity and from

the top-ten entities. Depositor concentrations and compliance to

limits are reviewed at monthly A LCO meetings. In banking

o p e rations where depositor co n c e n t ration levels periodically

exceed the limits set at a group level, a portfolio of unencumbered

marketable assets, in excess of prudential requirements, is held to

mitigate the concentration risk and cater for the possibility of

significant outflows.

Liquidity stress testing

The group’s asset and liability management functions develop and

implement a process for subjecting anticipated cash flows to stress

scenarios, to evaluate the impact of unlikely but plausible events on

liquidity positions. The scenarios are based on historical events (such

as the emerging market crisis of 1998) or modelled using

hypothetical events such as a rating downgrade. The output of stress

testing forms the basis of the group’s contingency funding plans.

Contingency plans

The group’s contingency funding plans comprise both quantitative

and pro c e d u ral elements. Quantitative elements include

establishing the estimated value of funding sources under stress

conditions, as well as selling assets under fo rced-sale conditions and

adjusting the funding cost of liabilities. Pro c e d u ral elements deal

with roles and responsibilities at various levels of management,

actions to be executed, as well as communication requirements,

both internal (such as management information requirements) and

external (such as communications with regulato r s ) .

Market risk

Market risk exists wherever the group has trading, banking or

investment positions. Major exposures to market risk occur in

markets served by formal financial exchanges and over-the-

counter markets. These exposures arise from customer-driven

business and from proprietary positions.

Approach to managing market risk

Market risk exposure on trading positions and capital funds

Market risk exposures as a result of trading activities are

contained within Corporate & Investment Banking’s tra d i n g

operations. The board grants general authority to take on market

risk exposure to the group ALCO. Group ALCO sets market risk

standards to ensure that the measurement, reporting, monitoring

and management of market risk associated with Corporate &

Investment Banking across the group follow a co m m o n

governance framework. Each bank within the group has ALCOs to

monitor compliance with these market risk standards. Both the

Africa ALCO and International ALCO report into the group ALCO,

chaired by the group chief executive.

The group manages market risk through risk limits. The group uses

a range of risk measurement methodologies and tools to establish

limits, including Value-at-Risk (VaR), stress testing, loss triggers

and basic risk management measures.

The group generally uses the historical VaR approach to derive

quantitative measures, specifically for market risk under normal

market conditions. While VaR, calculated daily, provides an

indication of possible losses under normal market conditions, the

group supplements VaR with stress tests. The stress testing takes

into account likely events that characterise the markets in which

the group operates.


The group back-tests its VaR models to verify the predictive power

of the VaR calculations. Back-testing compares the daily profit and

losses under the buy and hold assumption with the estimates our

VaR models had forecast.

Loss triggers are designed to contain daily, monthly and year-to-

date losses for individual business units by enforcing management

i n t e rvention at predetermined loss levels. Other basic risk

measures specific to individual business units are also used. These

measures include permissible instruments, co n c e n t ration of

exposures, gap limits and maximum tenor.

The table below shows the aggregated historical VaR calculations

for Corporate & Investment Banking in the markets in which the

group holds trading positions. The minimum and maximum VaR

amounts show the bands in which the values fluctuated during the

periods specified. The group calculates historical VaR with a

holding period of one day and a confidence interval of 95%.

Market risk management units – independent of tra d i n g

operations and accountable to business unit ALCOs – monitor

market risk exposures due to trading activities. These units

monitor exposures and respective excesses daily, and report

monthly to ALCO and quarterly to the group risk management

committee.

Normal VaR2 Stress VaR3

Market variable Maximum1 Minimum1 Average 31 Dec Maximum1 Minimum1 Average

2005Credit derivatives 43,3 12,3 26,0 39,3 266,8 66,3 138,3Equity – other 0,8 0,3 0,5 0,6 4,4 1,3 2,7Foreign interest rate and foreign exchange 32,1 11,0 18,4 20,0 182,4 64,9 108,8Energy 9,3 0,6 3,1 2,4 49,3 3,1 16,3Interest rates – SA 16,5 6,9 11,2 14,4 214,0 64,7 129,1Equities – SA 27,5 – 3,4 4,7 87,1 – 22,9Base metals 8,0 0,1 3,0 5,7 42,1 0,3 15,8Precious metals 12,9 1,4 6,2 1,9 78,1 9,5 40,0Commodities 1,9 – 0,9 0,6 4,9 0,1 2,1Diversification benefit4 (37,1) (42,4) (245,8)

Aggregate 49,4 22,9 35,7 47,0 342,8 146,8 230,1

2004Credit derivatives 46,0 10,5 33,3 29,0 223,0 96,4 156,4Equity – other 38,4 1,9 10,8 2,2 202,6 10,3 57,1Foreign interest rate and foreign exchange 32,4 6,3 17,9 11,0 122,2 39,2 86,9Energy 25,5 0,1 5,4 19,0 134,9 0,8 28,3Interest rates – SA 25,1 5,6 12,1 5,8 171,6 23,7 67,1Equities – SA 12,3 – 0,9 5,0 97,9 – 25,6Base metals 9,0 0,3 3,5 2,4 47,5 1,8 18,7Precious metals 8,5 2,7 5,3 4,4 69,2 13,8 37,2Commodities 1,7 – 0,2 0,1 5,1 0,1 0,7Diversification benefit4 (45,9) (37,8) (257,9)

Aggregate 65,3 28,4 43,5 41,1 333,2 141,7 220,1

1The maximum (and minimum) VaR figures reported for each market variable did not necessarily occur on the same days. As a result, theaggregate VaR will not equal the sum of the individual market VaR values, and it is inappropriate to ascribe a diversification effect to VaRwhen these values may have occurred on different dates.

2Normal VaR is based on a holding period of one day and a confidence interval of 95%.

3Stress VaR is based on a holding period of between 10 and 20 days and a confidence interval of 99,7%.

4Diversification benefit is the benefit of measuring the VaR of the trading portfolio as a whole. That is the difference between the sum of theindividual VaRs and measuring the VaR of the whole trading portfolio.

Trading book value!at!risk analysis (Rm)


The graph below shows the frequency distribution of daily income

during 2005. It indicates to what degree the realised income and

loss distribution deviates from a normal (symmetrical) distribution.

In this case the distribution is skewed to the profit side. The graph

details that income of R5 million – R10 million was realised on the

majority of trading days (66 days).

The graph below shows the value-at-risk analysis and actual

income of trading units throughout the year.

Market risk on equity investments

Equity management committees approve investments in listed and

unlisted entities within an approval limit framework. Market risk on

investments is managed in acco rdance with the purpose and stra t e g i c

benefits of such investments, rather than purely on mark-to - m a r k e t

co n s i d e rations. Periodic reviews and reassessments are undertaken.

Market risk exposure on banking positions

Banking-related market risk exposure is primarily due to structural

interest rate risk arising from the differing repricing characteristics

of banking assets and liabilities. Structural interest rate risk, which

is the potential adverse effect of interest rate movements on net

interest income, is transferred to and managed by the group’s

treasury operations. Changes to the interest rate profile are

achieved mainly by using derivatives, particularly interest rate

swaps, where the shape of the yield curve and the group’s own

view of interest rates are used as inputs to defining hedging

strategies.

Asset and liability management (ALM) functions monito r

exposures to interest rate risk. Banking-related interest rate risk

in the group’s Domestic Banking operation is monitored by the

ALM function in Johannesburg. Within the African operations, the

in-country ALM teams monitor banking-related interest rate risk,


January

Income of trading units and value-at-risk (Rm)

-400

-350

-300

-250

-200

-150

-100

-50

0

50

100

-400

-350

-300

-250

-200

-150

-100

-50

0

50

100

-400

-350

-300

-250

-200

-150

-100

-50

0

50

100

2005 December

Income of trading units

Normal VaR (including diversification benefit)

Stress VaR (including diversification benefit)

0

10

20

30

40

50

60

70

Distribution of incomeof trading units 2005

Frequency of trading days

Rm


with oversight by the ALM function in Johannesburg. Within

C o r p o rate & Investment Banking International’s treasury,

banking-related interest rate risk, which is primarily in US dollars

and sterling, is managed on an integrated basis together with the

trading book interest rate risk, overseen by the International

ALCO.

The primary banking positions of the group reside in the Domestic

Banking operation. The main analytical techniques used to measure

banking book interest rate risk are earnings-based measures such as

fo rw a rd looking dynamic scenario analyses, including Monte Carlo

simulations, and static repricing gap analyses, which measure

interest rate risk at a point in time, as well as valuation-based

measures in the form of economic value of equity. The results

obtained from these analytical techniques assist the group in

evaluating the optimal hedging strategies on a risk-return basis.

The repricing gap for the Domestic Banking operation for the

financial year end is shown below. All assets, liabilities and derivative

instruments are placed in gap intervals based on their repricing

c h a racteristics. Assets and liabilities for which no specific co n t ra c t u a l

repricing or maturity dates exist are placed in gap intervals based on

management’s judgement and statistical analysis, as applicable,

based on the most likely repricing behaviour. Comparing the

repricing gap as at December 2004 with December 2005, it is

evident that the asset sensitivity of the Domestic Banking opera t i o n

has increased. The extent of banking book interest rate exposure

remains within limits set by Africa A LCO.

The Domestic Banking operation remains asset-sensitive and is

therefore positioned to benefit from an anticipated rate hiking

cycle. A 1% parallel increase in the yield curve is forecast to result

in a favourable R415 million annualised net interest income

impact, which represents 3,9% of net domestic interest income

for a projected twelve-month period.

Operational risk

The group recognises the significance of operational risk, which is

inherent in all areas of our business. Operational risk is managed

within acceptable levels through an appropriate level of

management focus and resources.

Approach to operational risk management

The aim of the operational risk management function is to provide

oversight and control of operational risk across the bank and to

ensure that this remains within acceptable levels, based on an

operational risk appetite set by the board of directors. The prime

responsibility for the management of operational risk remains

embedded in line management in order for the risks to be

managed where they arise.

To support this, an operational risk management framework has

been established to ensure that an integrated and effective risk

management approach is applied consistently across the group.

This framework exceeds the Basel II minimum requirements for

the standardised approach and inco r p o rates the qualitative

requirements of the advanced measurement approach (AMA) to

ensure a smooth conversion when and if the group decides to

adopt AMA. It facilitates the identification and assessment of

risks, the control of those risks and the ongoing monitoring and

reporting of the operational risk profile.

Domestic Banking operations Call 4 – 6 7 – 12 Over Non!rate

in South Africa 3 months months months 12 months sensitive Total

2005

Total assets 297 541 12 666 7 987 14 617 94 305 427 116

Total liabilities and shareholders’ funds 268 846 7 079 3 364 31 584 116 243 427 116

Interest rate sensitivity gap 28 695 5 587 4 623 (16 967) (21 938) –

Cumulative interest rate sensitivity gap 28 695 34 282 38 905 21 938 – –

Cumulative interest rate sensitivity gap as

percentage of total assets 6,7% 8,0% 9,1% 5,1%

2004

Total assets 244 344 6 255 6 264 12 928 111 896 381 687

Total liabilities and shareholders’ funds 223 693 5 798 3 804 12 070 136 322 381 687

Interest rate sensitivity gap 20 651 457 2 460 858 (24 426) –

Cumulative interest rate sensitivity gap 20 651 21 108 23 568 24 426 – –

Cumulative interest rate sensitivity gap as

percentage of total assets 5,4% 5,5% 6,2% 6,4%

Repricing analysis of assets, liabilities and shareholders’ funds as at 31 December 2005 (Rm)


Independent operational risk functions perform co n t rol and

oversight, including the setting of appropriate policies,

governance standards and tools, which include:

• a centralised operational loss database providing management

reports used to identify improvements to processes and

controls;

• risk and control self-assessment through which existing and

potential future risks and their related controls are identified

and assessed; and

• key risk indicators which measure specific factors to provide an

early warning to proactively address potential exposures.

The group’s operational risk strategy provides for continuous

development to keep abreast of legislative and regulato ry

requirements. In addition, we continue to develop and enhance

our standards, policies, methodologies and systems in line with

leading practice.

The group maintains a comprehensive insurance programme to

cover losses from fraud, theft and damage to physical assets and

professional liability claims.

Whilst all elements of operational risk are managed diligently, key

areas requiring specific focus are discussed below.

Business continuity management

Business continuity ensures the availability of all key processes

required to support essential activities in the event of an

interruption to, or disruption of, business. Within the group,

business continuity management has been strengthened through

good governance, improved recovery plan quality and advanced

levels of testing.

A group-wide simulation was conducted during 2005 and

particular attention was given to testing and business continuity

management within Personal & Business Banking SA. T h i s

programme, together with the 2004 initiatives conducted by

C o r p o rate & Investment Banking, has significantly advanced

group-wide resilience. Going forward, focus will be placed on

longer-term sustainability of recovery, including hard-core testing

and the completion of contingency facilities, such as

geographically separated processing centres, to enable continued

business operations in the event of a disaster.

Information risk management

I n formation risk is the possibility of loss or damage arising from a

breach in the co n f i d e n t i a l i t y, integrity or availability of the gro u p ’ s

i n formation. The group’s information risk management pra c t i c e s

play a key role in protecting information from a wide range of

threats to ensure business co n t i n u i t y, minimise business damage

and to maximise return on investments and business opport u n i t i e s .

Fraud risk management

F raud risk management is applied throughout the group and is

s u p p o rted by the group’s forensic services function that opera t e s

under the group internal audit mandate set by the group audit

committee. The strategic approach focuses on fraud prevention,

detection, investigation and whistle blowing activities. The gro u p

maintains a zero - to l e rance approach to w a rds fraud and dishonesty.

Risks associated with outsourcing arrangements

The group ensures these risks are adequately managed. This

includes a structured approach to ensure:

• alignment of the outsourcing proposal with the gro u p ’ s

business objectives and operating imperatives;

• potential risks which could arise from an outsourc i n g

arrangement are identified and addressed;

• responsibilities for all outsourcing arrangements are clearly

understood;

• all outsourcing arrangements comply with regulato ry

requirements; and

• all the outsourcing objectives are achieved.

Compliance risk

The group is subject to extensive supervisory and regulatory

regimes in all countries in which it operates. While executive

management remains responsible for overseeing the

management of the bank’s compliance risk, group compliance

actively engages with management and compliance officers within

business units and subsidiaries to proactively support the

g e n e ration of legal, ethical and profitable business. This is

achieved via three service delivery streams: administration and

support services; regulatory services and analysis; and monitoring.

Specialist support units aid higher exposure compliance risk

requirements. The support and regulatory services ensure that

management and staff are kept informed of regulato ry

developments and trained as necessary. The monito r i n g

department uses a risk-based methodology, integrated with the

methodologies used by the group’s other risk assura n c e

functions, to review and report on the compliance risk exposures

and the efficacy of the compliance risk management system.

Business units are required to report to the group function on a

quarterly basis or more regularly if appropriate.

Group compliance is the prime interface between the South

African regulators and the group. Bank supervision and oversight

became increasingly rigorous in 2005. The Bank Supervision

Department of the SARB is our lead regulator while the Financial

Services Board (FSB) has jurisdiction over consumer protection

issues relating to bancassurance products. In addition, our

offshore operations are subject to the regulations imposed by

their respective host country regulators. Key challenges locally

during 2005 have continued to relate to Financial Intelligence

Centre Act (FICA) requirements for the re-identification and

verification of clients, and the FSB’s accreditation of financial

service providers.

Money laundering co n t rol and occupational health and safety

(including aspects of environmental risk management) are managed



within group compliance and there are increasingly onero u s

legislative requirements being imposed in both these areas.

Reputational risk

The group manages reputational risk through its evaluation and

control of the major risk types as set out above. In addition, there

is an open communication culture that allows for all issues to be

appropriately dealt with in a timely manner.

Insurance!related risk

The Liberty Group (Liberty) board of directors acknowledges its

responsibility for establishing and communicating appropriate risk

and control policies, and ensuring that adequate risk management

processes are in place. Liberty has a number of committees which

deal with the various policies for accepting insurance risks,

including selection and approval of risks to be insured, use of

limits and avoiding undue concentrations of risk, underwriting

s t rategies to ensure the appropriate risk classification and

premium levels, among others, as detailed below.

Responsibility for risk management

A Liberty group risk management committee, being a committee

of the Liberty board, is in place to assist the board in discharging

its risk management obligations.

The principal objectives of Liberty’s risk management committee

are to:

• review Liberty’s risk philosophy, stra t e g y, policies and

processes recommended by executive management;

• review compliance with risk policies and with the overall risk

profile of Liberty;

• review and assess the integrity of the processes and pro c e d u r e s

for identifying, assessing, reco rding and monitoring risk;

• review the adequacy and effectiveness of Liberty’s risk

management and its implementation by management;

• ensure that material corporate risks have been identified,

assessed and receive attention; and

• provide the board with an assessment of the state of risk

management within Liberty.

A significant part of Liberty’s business involves accepting and

managing risk. Primary responsibility for risk management at an

o p e rational level rests with the executive committee. Management

and various specialist committees are tasked with integrating the

management of risk with the day-to-day activities of Libert y.

These committees are outlined below.

• Audit and actuarial co m m i t te e – principal objectives

(pertaining to risk) are as follows:

– act as an effective communication channel between the

board on one hand and the external auditors and the head

of internal audit on the other;

– satisfy the board that adequate internal, financial and

operating controls are being identified, addressed and

monitored by management; and

– enhance the quality, effectiveness, relevance and

communication value of the published financial statements

and other public documentation of a financial nature issued

by Liberty.

• Capital management committee – is responsible for the

management and investment of Liberty’s capital.

• Asset/liability matching co m m i t te e – focuses on the matching

of assets and liabilities. It also oversees the high-level mix

p a rameters for various products and port folios, and is tasked with

agreeing benchmarks and mandates for performance of each

investment port folio in conjunction with the asset managers.

• P roduct approval co m m i t te e – assesses whether all new

p roducts co n form to Liberty’s predetermined requirements and

s t a n d a rds, such as meeting policyholder needs; appro p r i a t e

m a rgins; investment backing; legal, underwriting and taxation

co n s i d e rations; and, where appropriate, currency risks; as well as

L i b e rty’s administrative capabilities for managing these pro d u c t s .

• Underwriting committee – reviews underwriting standards

and claims experience as well as monitoring reinsurance

retention limits and stop loss limits.

Management of insura n ce and financial risk on co n t ra c t u a lobligations to policyholders

Liberty issues contracts that expose it to insurance risk or financial

risk, or in some cases, both of these. Set out below are Liberty’s

objectives in managing risks from insurance contracts and its

policies for mitigating those risks.

The Capital Adequacy Requirement (CAR) as part of the riskmanagement framework

CAR is intended to approximate a risk-based capital measure. It is

calculated based on a number of stress tests, specified in actuarial

guidance, PGN 104, which are intended to provide approximately

a 95% confidence level that the insurer will be able to meet all

obligations over time under a variety of scenarios.

L i b e rty is in the process of developing economic capital models to

better understand its capital requirements and the underlying risks,

in order to continually improve the management of these risks.

Market risk

L i b e rty is exposed to market risk through its financial assets,

financial liabilities (investment co n t racts and borrowings), and

i n s u rance liabilities. In part i c u l a r, the key financial risk is that the

p roceeds from its financial assets are not sufficient to fund the

obligations arising from its insurance and investment co n t racts. T h e

most important components of this financial risk are interest ra t e

risk, equity price risk and currency risk. These risks arise from open

positions in interest rate, currency and equity products, all of which

are exposed to general and specific market movements.

L i b e rty manages these positions within an asset liability

management (ALM) framework that aims to match assets to the

liabilities arising from insurance and investment contracts by

currency, nature and term. For each distinct category of liabilities

in terms of the ALM framework, a separate asset profile is

maintained. In some instances, segregated portfolios of assets are

held for books of business within these broad categories.

Interest rate and equity price risk

These risks have very different impacts on the various categories

of business used in Liberty’s ALM framework. Interest rate and

equity price risk are discussed together since they interact on

certain types of liabilities.

(a) Guaranteed maturity values

Embedded derivatives in the form of guaranteed maturity

values are attached to a significant portion of unit linked

business. Liabilities arising from these embedded derivatives

are valued in accordance with valuation techniques described

in actuarial guidance PGN 110, issued by the Actuarial Society

of South Africa. These liabilities are essentially put options on

the underlying unit linked liabilities and as such are sensitive

to movements in interest rates and equity prices. Liberty is

investigating ways in which this interest rate and equity risk

exposure could be more closely hedged than it is at present.

(b) Guaranteed annuity options

G u a ranteed annuity options (GAOs) give the policyholder the

option to co n v e rt the maturity proceeds of a retirement annuity

i n to an annuity at a pre-defined rate. GAOs are no longer sold

on new business. As in the case of guaranteed maturity values,

liabilities arising from these embedded derivatives are valued in

a cco rdance with valuation techniques described in PGN 110.

GAOs expose Liberty to significant interest rate risk. Liberty is

investigating ways in which interest rate and equity risk

exposure on GAOs could be more closely hedged. To some

extent the upside equity risk exposure on GAOs can be offset

against the downside equity price risk exposure on guaranteed

maturity values.

(c) Unit linked business

For unit linked co n t racts, Liberty holds the assets on which the

unit prices are based. As a result, there is no mismatch. Gro s s

unit liabilities are however reduced by the present value of

future expenses and risk claims less the present value of future

c h a rges for purposes of this matching exercise. Some interest

rate, equity price, credit and currency risk is co n s e q u e n t l y

retained on this business to the extent that present value of

future expenses and risk claims less the present value of future

c h a rges do not move in line with gross unit liabilities.

Within this category of business there are insurance contracts

with minimum guaranteed death benefits and universal life

type contracts in terms of which the sum at risk depends on

the fair value of the underlying investments. These contract

features mean that fluctuations in market prices affect

Liberty’s exposure to mortality risk.

(d) Non-participating annuities

Non-participating annuities have benefit payments that are

fixed and guaranteed at inception of the contract (although a

small proportion of the business provides inflation related

increases on annuities in payment). These liabilities are backed

largely by fixed income securities, with other assets held only

to support the longest dated cashflows arising from a portion

of these liabilities. Liberty’s primary financial risk on these

co n t racts is the risk that interest income and capital

redemptions from the financial assets backing the liabilities is

insufficient to fund the guaranteed benefits payable.

L i b e rty monitors interest rate risk in this business by

comparing the modified duration and convexity of the

investment portfolio and the liabilities issued.

(e) Long-term insurance contracts with discretionary participating

features (DPF)

L i b e rty has a number of books of long-term insura n c e

contracts with DPF, most of which have been acquired from

other insurers. Each book of business is backed by a distinct

asset profile, often as a result of conditions included in the

Scheme of Transfer in terms of which the business was

acquired. The assets backing these liabilities are generally

segregated from Liberty’s other assets to ensure that the

assets are used exclusively to provide benefits for the relevant

policyholders.

Liberty recognises the full value of the backing assets as a

liability. However, Liberty only bears interest rate risk in

relation to the guaranteed benefits under these contracts, and

not in respect of the DPF component of the liability.

Furthermore, Liberty is only exposed to equity price risk on

this business to the extent that equities are held to back the

guaranteed portion of the liability.

(f) Guaranteed capital bonds

Guaranteed capital bonds have benefit payments that are

fixed and guaranteed at inception of the contract. The ALM

framework dictates that assets are selected to provide a cash

flow match to these liabilities. There is consequently very little

interest rate risk on these products and no equity price risk.

On this business the risk of a change in tax laws is mitigated

through policy terms and conditions which enable this risk to

be passed back to the policyholder.

Currency risk

Offshore assets are held in policyholder assets to match the

corresponding liabilities. As a result, the group is exposed to

currency risk through maturity guarantees issued on contracts

invested in offshore portfolios. Maturity guarantees are no longer

offered on new business invested in offshore portfolios. The rand

denominated value of management fees derived from these




contracts is also subject to currency risk. Strengthening of the

rand against the offshore currencies reduces the value of

management fees and increases the liability in respect of

embedded derivatives on this business.

Insurance risk

Insurance risk is the risk that future claims and expenses will

exceed the value placed on insurance liabilities. It occurs due to

the uncertainty of the timing and amount of future cash flows

arising under insurance co n t racts. The timing is specifically

influenced by future mortality, morbidity, and withdrawal rates

about which assumptions are made in order to place a value on

the liabilities. Deviations from assumptions will result in actual

cash flows differing from those projected in liability calculations.

As such, each assumption represents a source of uncertainty.

Policyholder behaviour risk

Policyholders have the option to discontinue or reduce

contributions or withdraw benefits prior to expiry of the contract

term. As a result, policyholder behaviour contributes to insurance

risk. The main risk posed by this behaviour is the risk that

expenses and commissions incurred early in the term of the

contract but priced to be recovered by means of ongoing charges

over a longer period are not recovered prior to the decision by the

policyholder to cease or reduce contributions.

On co n t racts where a withdrawal benefit is payable, this risk is

mitigated by conditions built into policy co n t racts which enable

L i b e rty to recoup these unrecovered expenses by means of a lump

sum charge. However, the Pension Funds A d j u d i c a tor has recently

challenged the practice of levying charges of this sort on retirement

annuity co n t racts, by issuing a number of determinations against life

insurers, including Libert y. This is symptomatic of growing co n s u m e r

dissatisfaction with this practice. Charges of this sort will therefo r e

be limited in terms of an industry agreement with National Tr e a s u ry.

This will increase Liberty’s exposure to the risks associated with

policyholder behaviour.

Mortality and morbidity risk

Procedures to control and manage the underwriting risks at a

Liberty level are in operation, of which the more significant are

discussed below.

The statutory actuary reports annually on the actuarial soundness

of the premium rates in use and the profitability of the business,

taking into consideration the reasonable benefit expectations of

policyholders. All new premium rates are approved and authorised

by the statuto ry actuary prior to being issued. Regular

investigations into mortality and morbidity experience are

conducted. Catastrophe insurance is in place for single event

disasters. Assumptions are made concerning the expected deaths

and disabilities (including disease claims) that will occur in each

future time period. The significant classes of business most

affected by mortality and morbidity risk are:

(a) Life annuity business

In terms of life annuity business, the life insurer undertakes

to pay a series of future payments contingent on the

policyholder’s survival. The most significant insurance risk on

these liabilities is continued medical advances and

improvements in social conditions that will lead to increases

in longevity. A proportion of both group and individual

disability income business is reinsured on a proportionate

quota share basis, so a proportion of all annuities arising from

disability income claims are reinsured. No additional

reinsurance is purchased in respect of this class of business.

(b) Group mortality and morbidity business

The risks for this class of business are very similar to those for

individual insurance business. The most important differences

result from the greater correlation between individual risks

on group schemes because lives assured work in the same

location, industry etc. For this reason, Liberty attempts to

ensure that a diversified portfolio of schemes is insured.

(c) Individual insurance business

Individual insurance contracts are those issued to individuals

where death or disability is the insured risk. The most

significant factors that could increase the frequency of

mortality claims are epidemics, such as AIDS and Asian bird

flu, or lifestyle changes such as eating, drinking and exercise

habits, resulting in earlier or more claims than expected. The

health condition and family medical history of applicants are

assessed at inception of new co n t racts as part of the

u n d e rwriting process with premiums and terms and

conditions being varied accordingly. Special risks, such as

hazardous pursuits and unusual medical conditions, are also

assessed at underwriting stage. The underwriting committee

determines underwriting guidelines concerning authority

limits and procedures to be followed.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument

will fail to discharge an obligation and cause Liberty to incur a

financial loss.

Provisions of the Long Term Insurance Act 1998 have the effect

of limiting exposure to individual issuers due to the inadmissibility

of assets for regulatory purposes if specified limits are breached.

Credit ratings of reinsurers are taken into account in reinsurance

placement decisions. Credit exposure to reinsurers is also limited

t h rough the use of a number of reinsurers. Scrip lending

co u n t e r p a rties are restricted to appropriately acc r e d i t e d

institutions.

L i b e rty has no significant co n c e n t ration of credit risk in terms of

i n s u rance and other receivables due to the relative significance of

the total value and the wide spread of individual debtors. Derivative

co u n t e r p a rties and cash transactions are limited to high credit

quality financial institutions. Liberty has policies that limit the

amount of the credit exposure to any one financial institution.

L i b e rty is exposed to tenant default within its investment pro p e rt y

p o rt folio. This exposure risk is mainly attributable to policyholders

and the shareholder exposure is limited to management fees and

p rofit margins. The managed diversity of the pro p e rty port folio and

the existence of multi-tenanted buildings significantly reduces

exposure to this credit risk.

Liquidity risk

Net cash flows are closely monitored. Over the last few years

Liberty has experienced positive net cash flows. In addition,

Liberty has significant credit lines over and above the liquid assets

held to meet cash demands.

Liquidity requirements and cash resources are monitored on a

monthly basis by the capital management committee.

Embedded derivatives not valued at fair value

G u a ranteed maturity values, guaranteed annuity options and a return

of contributions on death are features of insurance co n t racts written

by Libert y. These are valued in acco rdance with PGN 110.

Taxation risk

Taxation risk is the risk that the group will incur a financial loss due to

an incorrect interpretation and application of taxation legislation or

due to the impact of new taxation legislation on existing business.

During the development stage of any new product and prior to

any corporate transactions the taxation resources of the group,

and if required external resources, identify and advise on any

potentially material taxation impact.

Proposed new taxation legislation is researched fully by the legal

and taxation resources to identify any potential impact to the

group and where appropriate representation is made to the

relevant government minister, including lobby groups, to assist in

ensuring the fairness of new taxation legislation.

Taxation risk is further mitigated through co n t ract and policy terms

and conditions which, in most instances, enable the risk to be

passed back to the custo m e r.

Group audit assurance

The group internal audit function operates under a mandate fro m

the group audit committee and has the authority to determine the

s cope and extent of work to be performed. Group internal audit’s

p r i m a ry objective is the provision of assurance to the group audit

committee. It assists the executive management team in meeting

their business objectives by examining the group’s activities,

assessing the risks involved, and evaluating the adequacy and

effectiveness of processes, systems and co n t rols to manage these

risks. A risk-based audit approach has been adopted. Material or

significant co n t rol weaknesses and planned management remedial

actions are reported to the group audit committee and to subsidiary

audit committees. These issues are tracked to ensure that agreed

remedial actions have been implemented. Overdue issues are

r e p o rted to the group audit committee on a quarterly basis.



Risk management focus for 2006

The group is currently in the process of quantifying itslevel of risk appetite and risk tolerance which will take intoaccount:

• the level of earnings volatility it is prepared to acceptaround its budgeted earnings; and

• the risk profile it is going to tolerate to generate theexpected earnings.

In this context, risk profile is the allocation of risk appetitea c ross the various risk categories (e.g. market risk, credit risk,o p e rational risk).

The process to determine both “risk appetite” and “risktolerance” takes external and internal inputs into account,including:

External

• shareholder expectations;

• rating considerations;

• regulatory constraints;

• securities market data;

• analyst views;

• providers of funding/liquidity; and

• economic environment.

Internal

• group and business area objectives and strategic plans;

• growth targets; and

• capital management.

The amount of risk the group is prepared to accept will belinked to its financial and strategic objectives as detailed inits overall business plan and budget. Specifically, thereneeds to be congruency between:

• budgeted earnings (which take account of maturationeffects and forecast changes in the eco n o m i cenvironment);

• earnings volatility around the budget;

• risk limits; and

• capital.


Financial re v i e w

68 Overview of financial results

68 Key factors impacting the results

69 Business units

70 Performance against objectives

70 Banking operations

74 Liberty Life

74 Equity attributable to ordinary shareholders

74 Dividends


75 Normalised results

77 Capital adequacy and allocation

83 Group finance focus for 2006


Financial review continued

This review provides context to the financial performance of the

group’s banking and insurance operations as detailed in the

financial statements. The group’s performance over the past

seven years is detailed on pages 84 to 89 and the financial ratios

generally quoted are defined on page 90.

Overview of financial results

Standard Bank Group headline earnings per share for the year to

December 2005 increased by 23% to 702,3 cents per share and

a return on equity of 27,8% was achieved. These results are based

on International Financial Reporting Standards (IFRS). Certain of

the accounting conventions under IFRS distort the results from an

economic perspective. As discussed under the normalised results

section on page 75 of this review, the effect of these distortions

has been adjusted for in calculating normalised results. On a

normalised basis, headline earnings per share grew 19% and the

return on equity was 25,2% (2004: 24,2%).

Broadly, 2005 was positive for emerging market economies as

macroeconomic fundamentals and demand for exports from these

markets improved. Investment inflows to these markets, aided by

global liquidity and increased investor risk appetite, lift e d

economic activity but reduced profit margins of our corporate and

investment banking activities.

South Africa’s strong economic growth stemmed substantially

f rom strong local demand. High consumer spending was

underpinned by relatively low inflation and interest rates. Net job

creation, the positive effect of rising equity and house prices,

increased household disposable income and the growing middle

class resulted in improved consumer confidence and provided a

strong platform for consumer and business banking in South

Africa.

Financial highlights

2005 2004

Return on equity (%)1 25,2 24,2

Headline earnings (Rm)1 9 013 7 511

Headline earnings growth (%)1 20 20

Headline earnings per

share (cents)1 666,0 558,1

Headline earnings per share

g ro wth (%)1 19 19

Total dividends declared (cents) 267,0 231,5

Net interest margin (%) 2,93 3,07

Cost-to-income ratio (%) 56,6 58,0

Credit loss ratio (%) 0,41 0,43

1Normalised results.

Key factors impacting the results

• Increased consumer activity in South Africa

2005 saw continued strong growth in the residential property

market and record new vehicle sales. A further 50 basis points

reduction in the prime interest rate together with a

strengthening economy was conducive to sustained growth in

lending and transaction volumes.

• Rehabilitation of previously impaired loans

C o r p o rate & Investment Banking in South Africa and

internationally experienced credit recoveries during the year

as improved economic conditions in emerging markets led to

the recovery of previously distressed counterparties. This

helped reduce the group’s credit loss ratio to a historic low,

despite an increase in the credit loss ratio in Personal &

Business Banking SA.

• Increased funding requirements

Customer deposits continue to grow at a slower pace than

consumer lending, resulting in an increased reliance on more

expensive wholesale funding. In addition, the proportion of

term deposits has been increased to lengthen the structure of

the funding book in line with internal prudential liquidity

guidelines. Consequently, average long-term funding as a

percentage of total funding has increased from 15% to 18%.

During the year, the group successfully concluded its first

a s s e t-backed securitisation transactions: R4,5 billion of

mortgage loans and R3,0 billion of vehicle and asset finance

receivables.

• Strong equity markets

Investment Management & Life Insurance benefited from a

strong run in equity markets. Higher listed property fund

prices assisted Corporate & Investment Banking SA to achieve

sizeable gains on its property investment portfolio.

99 00 01 02 03 04 050

4 000

8 000

12 000

16 000

20 000

24 000

28 000

32 000

Headline earnings (Rm)

99 00 01 02 03 04N 05N0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

Standard Bank operations

Liberty Life

Normalised

Standard Bank Group 21%Standard Bank operations 23%

CAGR (1999 - 2005) –

N


• Intensified competition in emerging markets

E m e rging markets became increasingly popular with global

i n v e s tors as developing countries’ credit ratings continued to

i m p rove. In this environment, traditional emerging market players

like ourselves are encountering increased competition from the

l a rge established global banks in our chosen markets.

C o n s e q u e n t l y, trading margins have co n t racted. In addition, these

more stable environments have reduced trading opportunities fo r

the group’s international operations. These trends have led to the

international operations’ 2005 results being below expectation.

• Higher compliance costs

Increased regulations are becoming a feature in most of the

jurisdictions in which the group operates. Staff costs in South

Africa were significantly impacted by additional staff

requirements to comply with the Financial Intelligence Centre

Act (FICA) and other regulations. FICA requirements were also

the main driver behind increased communication costs.

• Adjustments for deemed treasury shares

The group’s results have been affected by required accounting

conventions that do not reflect the underlying economic

substance of transactions. Group shares purchased by

empowerment partners and group shares held for the benefit

of policyholders of Liberty Life are deemed to be treasury

shares in terms of IFRS. Consequently the number of shares

used for per share calculation purposes is materially lower than

the shares enjoying an economic interest in the gro u p ,

resulting in inflated per share ratios. In addition, fair value

adjustments relating to group shares held for the benefit of

policyholders and dividends received are eliminated from the

group’s income statement without a corresponding elimination

in policyholders’ liabilities, resulting in a mismatch in the

income statement.

The unaudited table below indicates the significant impact

that the deemed treasury shares have on the results.

Normalised IFRS

Headline earnings (Rm) 9 013 8 464

Headline earnings

growth (%) 20 12


share (cents) 666,0 702,3


share growth (%) 19 23

F u rther details of the accounting treatment and the calculation

of normalised results are discussed on page 75.

Business units

The refocusing of operations on key business lines, as described in

the chairman and chief executive review, as opposed to

geographic segmentation aims to encourage the leveraging of

skills, economies of scale and synergies. This basis will be followed

as the primary segmentation from 2006 onwards.

On this new basis, Personal & Business Banking comprises 44% of

the group’s headline earnings, and grew these earnings in 2005

by 22%. Corporate & Investment Banking comprises 45% and

grew by 7%, and Investment Management & Life Insurance

comprises 7% and grew by 51%.

On a geographical basis, South African banking increased headline

earnings by 21% with growth of 23% in Personal & Business

Banking SA. The favourable economic conditions benefited the

consumer market and underpinned transactional and lending

growth. The division maintained a strong focus on service levels

and operational efficiencies notwithstanding increased business

volumes and compliance requirements. The home loans business

concluded another successful year with a 25% growth in new

loans registered and low credit losses. Specific focus on the card

business resulted in substantial growth in both balances and

turnover.

Corporate & Investment Banking SA increased headline earnings

by 15%. The benefits of strong loan growth in commercial

property lending was partly offset by lower interest margins

resulting from more expensive and longer dated funding. Fees

and commissions benefited from increased corporate transaction

volumes and new electronic banking products. South African

trading income increased by 8%, dampened by low volatility in

foreign exchange markets. Other income increased following the

revaluation and realisation of listed property investments. A net

reversal of credit losses occurred for the third consecutive year

supported by an exceptionally favourable credit environment.

Operating cost growth was contained to 3% largely through lower

IT costs, savings on depreciation and premises costs.

Corporate & Investment Banking International’s headline earnings

were 28% lower following increased competition and tightening

spreads against a background of increased global liquidity across

most of its markets. Trading income was also adversely impacted

by a continued shift from a reliance on proprietary trading, with

lower value-at-risk utilisation, to becoming more client focused. A

net reversal of credit losses resulted from previously impaired

accounts now performing. Strategies to improve performance in

this operation are being implemented including an increase in the

talent pool, particularly in client facing areas, improved systems

and a change in emphasis from product to client focus. In addition,

the appointment of Ben Kruger as chief executive of Corporate &

Investment Banking across the group should quicken the pace of

implementing these strategies.

Following strong earnings growth in Rest of Africa over a number

of years, headline earnings growth of 17% was slightly below



expectation. Lower lending margins restricted income growth, off

a higher cost base. Management’s attention in 2005 was mostly

i n w a rdly focused on the alignment of products, policies,

p rocedures and systems across all African countries, and

integrating these with the South African operations. The focus for

2006 will be to increase transaction flows through the stronger

base that has now been established.

Liberty Life had a very good year and increased normalised

headline earnings by 47%, notwithstanding a once-off

R321 million after tax provision for the Statement of Intent

relating to the Pension Funds A d j u d i c a tor (PFA) rulings.

Significant gains on investments held in the shareholders’

portfolio, previously accounted for directly in equity, more than

offset this provision. Highlights of Liberty Life’s results were

improved investment returns and strong growth in new business.

The Capital Alliance Holdings Limited (CAHL) integration is on

track and benefits are beginning to be extracted.

The group will continue to invest in expanding its activities in

emerging markets outside of South Africa. In December 2005, a

consortium led by Standard Bank entered into an agreement to

buy BankBoston Argentina from Bank of America. This transaction

remains subject to fulfilment of provisions of the agreement and

obtaining the necessary regulatory approvals in both South Africa

and Argentina. The acquisition is only expected to be concluded in

the third quarter and is not anticipated to materially affect the

2006 results. Given our interest in Nigeria, we have invested

approximately USD185 million in our existing banking operation

to meet the new minimum capital requirement set by the Central

Bank of Nigeria. This enables us to comprehensively evaluate

suitable acquisition opportunities.

Performance against objectives

One of the group’s eight values is delivering to its shareholders.

The group sets medium-term objectives that are reviewed

annually in the context of expected economic conditions to ensure

this value is measured and lived. These medium-term objectives,

as well as the actual performance against these objectives for the

past seven years, are illustrated on page 10. The group achieved

three of its four stated objectives in 2005:

• Return on equity (RO E ): The group considers ROE as a

measure of quantifying its delivery to shareholders. T h e

g roup’s normalised achievement of 25,2%, co m p a r e s

f a v o u rably to its normalised objective of 22,5%.

• Growth in headline earnings per share: The group’s objective

is to grow normalised headline earnings per share in excess of

domestic inflation (CPIX) plus 10%. The group achieved this

objective by increasing headline earnings per share on a

normalised basis by 19% compared to the objective of 13,9%,

based on average CPIX of 3,9%.

• Cost!to!income ratio: Despite restricting cost growth to single

digits, this objective was not achieved in 2005. The ratio of

56,6% is above the set objective of 55,5%. The group has

improved on its performance of 58,0% in 2004 but lower than

expected income growth in its international operations limited

this improvement.

• Credit loss ratio: In 2004, the group separated its objective for

credit losses into a short-term and medium-term objective. The

short-term objective was set at a ratio of less than 0,75% of

gross loans and advances. The group achieved this challenging

objective comfortably with a credit loss ratio of 0,41% (2004:

0,43%). The low credit loss ratio came as a result of the

favourable credit climate domestically, sound internal risk

processes and recoveries in Corporate & Investment Banking

locally and internationally.

Following a review early in 2006, the revised published objectives

are:

2006 Medium!term

Normalised return on equity (%) 24,0 22,5Normalised headline earnings

per share growth >domestic CPIX >domestic CPIX+10 % +10 %

Credit loss ratio (%) <0,75 <1,00Cost-to-income ratio (%) ≤55,5 Continuous

improvement

Banking operations

Income statement analysis

Net interest income (NII)

2005 2004

% %

Growth in NII 13 0

Net interest margin – group 2,93 3,07

Net interest margin – Domestic

Banking 3,16 3,40

Despite lower margins, strong South African asset growth resulted

in increased group net interest income.

Overall, minimal erosion of lending yields was experienced despite

increased amortisation of mortgage origination costs. The group’s

domestic bank generally avoided market share gains at the

expense of low margins.

The lower interest earned on shareholders’ funds and

transactional deposits such as current accounts continued to

squeeze margins as the average prime rate reduced by 66 basis

points to 10,65% in 2005 following a further 50 basis points

reduction in the domestic prime rate.

Jan Dec8,0

8,5

9,0

9,5

10,0

10,5

11,0

11,5

12,0

Domestic prime interest rate (%)

Prime interest rate 2005

Prime interest rate 2004


On the funding and liquidity management side, increased

utilisation of more expensive wholesale funding to fund asset

growth, the lengthening of the average long-term funding ratio

from 15% to 18%, and maintaining a prudent liquid assets surplus,

impacted margins.

Lending growth was the main contributor to higher net interest

income in Rest of Africa and internationally but falling interest

rates in key African markets and high levels of global liquidity

resulted in tighter margins, partly reducing this benefit.

Non!interest revenue (NIR)

2005 2004

% %

Growth in NIR 11 15

NIR as a % of total income 56,3 56,7

Growth in non-interest revenue resulted from a 14% increase in

fee and commission revenue and growth of 25% in other sources

of non-interest revenue. Net trading revenue was marginally

lower.

In South Africa, fees and commission benefited from a growing

customer base and higher transaction volumes, resulting in growth

of 16% despite below inflation price increases. These increased

volumes were particularly evident in card-based commissions,

point of representation fees and electronic banking where income

growth rates of 29%, 13% and 19%, respectively, were achieved.

Migration to electronic banking is continuing as the number of

Internet transactions increased by 85% and the number of new

Internet users increased by 27%. Increased deal flow benefited

the co r p o rate finance advisory business and co n t r i b u t e d

significantly to growth in knowledge-based fees. Rest of Africa

recorded fees and commissions growth of 15%, resulting mainly

from increased volumes and repricing of electronic banking and

point of representation fees. Stanlib benefited from increased

assets under management and grew fees by 14%. Internationally,

competitive pressures and lower fund management fees led to a

reduction of 9% in fee revenue.

Trading revenue grew by 8% in South Africa with improved deal

flow in client-based derivative trading. Foreign exchange trading

recorded a marginal increase, off a high base, with volumes and

market conditions to a large extent the same as in 2004. Buoyant

precious metal prices resulted in reduced hedging activity by

99 00 01 02 03 04 050,5

1,5

2,5

3,5

4,5

5,5

Net interest margin before impairment charges

Net interest margin after impairment charges

Net interest margin before impairment charges

Net interest margin after impairment charges

Group net interest margin (%)

99 00 01 02 03 04 050

4 000

8 000

12 000

16 000

20 000

24 000

28 000

32 000

Non-interest revenue

99 00 01 02 03 04 050

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

18 000

20 000

35

40

45

50

55

60

65

70

30

Rm %

Non-interest revenue

Non-interest revenue to total income


mines and a consequent reduction in commodity trading revenue.

In Rest of Africa, strong growth occurred in foreign exchange

trading with favourable spreads and increased volumes from

higher volatility being the main drivers.

Corporate & Investment Banking International reported a 9%

reduction in trading revenue. Favourable economic conditions in

emerging markets resulted in substantially increased competition

and tighter spreads, reducing foreign exchange and debt

securities trading profits. In commodity markets, revenue was

lower, off a high base, as the re-establishment of the energy

business team following some key departures is only expected to

take effect in 2006.

In South Africa, growth in the other income category resulted

mainly from gains in listed property investments and an improved

underwriting performance in the short-term insurance operation.

Credit impairment charges

2005 2004

% %

Change in the impairment charge 15 (43)

Credit loss ratio 0,41 0,43

Balance sheet impairment as a

% of gross loans and advances 1,14 1,45

Gross NPLs (Rm) 4 144 3 910

Gross coverage ratio 47 54

The credit impairment charge increased by 15% off a low base.

This growth is made up of a decrease in the charge for non-

performing loans and a significant increase in the portfolio charge

for performing loans. The benign South African credit conditions of

the past two years played a significant role in the low credit losses

on non-performing loans.

The charge for non-performing loans was also assisted by the

corporate and investment banking businesses in South Africa and

internationally ending the year with net recoveries following the

rehabilitation of previously non-performing exposures. In Personal

& Business Banking SA, strong gro wth in all categories of

consumer lending, especially in card, resulted in a substantially

increased charge in rand terms.

This translated into a net credit loss ratio of 0,41% compared to a

ratio of 0,43% the prior year. All businesses reflected lower credit

loss ratios for the year, except for Personal & Business Banking SA

where the ratio increased from 0,59% in 2004 to 0,73% in 2005.

This was mainly as a result of a planned increase in risk appetite

on credit card lending and the impact of prudent risk

quantifications on a relatively young consumer loan book.

Operating expenses

2005 2004

% %

Growth in Domestic Banking 9 17

Growth in the international and

rest of Africa operations (rands) 11 5

Growth in total operating

expenses 9 10

Cost-to-income ratio 56,6 58,0

Banking operations contained its overall growth in operating

expenses to 9% with staff costs increasing by 12% and other

operating expenses growing by 6%.

Staff cost growth resulted mainly from a 2% increase in headcount

necessitated by additional volume and compliance requirements

and new IT initiatives. A focus on efficiencies at branch level and

productivity at head office resulted in containment of staff

numbers despite increased business volumes. In line with the

group’s remuneration policy, increased profitability resulted in

higher incentive payments. Staff costs were further increased by

the phase-in of share-based payments relating to the group’s

equity compensation plans as well as a full year’s expense relating

to rights to shares acquired by black managers in terms of the

Tutuwa initiative, both now required in terms of IFRS.

Growth in other operating expenses resulted mainly from an

increase in IT contractor fees as a number of system-based

projects in response to operational and regulatory requirements

are in progress, including compliance with Basel II. Increased

business volumes, higher communication costs and additional

client interaction to meet FICA requirements resulted in increased

costs in South Africa. Other operating expenses in Rest of Africa

grew by 17% due to continued investment in improved IT systems

and processes across the continent. Internationally, increasing


99 00 01 02 03 04 050

1

2

3

4

5

6

Credit loss history (as a percentageof gross loans and advances) (%)

NPLs

Balance sheet impairments

Credit loss ratio


investment in IT infrastructure and network capabilities coupled

with the expansion of regional offices resulted in 6% cost growth.

Across the group, additional compliance related costs amounted to

approximately R200 million in 2005.

Taxation

2005 2004

% %

Effective taxation rate 27,4 28,3

Direct taxation rate 22,6 24,5

Indirect taxation rate 4,8 3,8

The direct taxation rate reduced by 1,9% mainly as a result of a

1% reduction in the South African co r p o rate tax rate, re-

evaluation of past liabilities and a release of deferred taxation

following the cut in the South African corporate tax rate. This was

p a rtly offset by a significantly increased seco n d a ry tax on

companies cost following the higher dividend payout ratio.

Growth in indirect taxes resulted mainly from an increase in

expenses subject to VAT relative to net income before taxation.

Balance sheet analysis

Banking assets

2005 2004

% %

Growth in total banking assets 17 14

Growth in total banking assets

excluding derivative assets 29 12

Growth in loans and advances 29 17

Strong growth in banking assets excluding derivatives occurred

across the group with growth of 28% in Personal & Business

Banking SA, 35% in Corporate & Investment Banking SA, 18% in

Rest of Africa and 14% in Corporate & Investment Banking

International.

Most consumer lending categories in South Africa benefited from

lower interest rates:

• mortgage loans increased by 32% following an increase in the

volume and value of new registrations;

• instalment finance was up 15%, mainly as a result of volume

growth as average lending values remained largely unchanged.

Results reflect an above expectation performance in motor

vehicle business for consumers and a disappointing growth

rate in the non-motor book; and

• a strong focus was placed on growth in card debtors with a

resulting 55% growth in card balances. Growth resulted mainly

from new card openings through targeted campaigns and joint

ventures, higher levels of revolving credit facilities and

increased consumer spending.

The group’s market share in South Africa increased in credit card

d e b tors to 35,1% (2004: 32,8%) and decreased in both

mortgage lending, down marginally to 25,6% (2004: 25,8%) and

in instalment finance down to 20,3% (2004: 22,1%). Both

mortgage lending and instalment finance market share statistics

were impacted by securitisations, which reduced the ratios by

0,6% and 1,1% respectively.

Corporate & Investment Banking SA recorded growth in external

loans and advances of 24%, mainly from increased commercial

property lending, new term deals to corporate customers and

increased structured trade finance transactions. Internationally,

external loan growth of 45% resulted mainly from increased

structured and trade finance deals.

99 00 01 02 03 04 050

4 000

8 000

12 000

16 000

20 000

24 000

28 000

32 000

Cost and income growth

99 00 01 02 03 04 050

5

10

15

20

25

30

52

54

56

58

60

62

64

Growth % Ratio %

Total income growth

Total cost growth

Cost-to-income ratio

Mortgage advances

Instalment finance

Card debtors

Key market shares (%)

02 03 04 05

15

20

25

30

35

40


Liberty Life

2005 was a good year for Liberty Life. Indexed new business

premiums increased by 12%. Net cash inflows from insura n c e

o p e rations amounted to R5,7 billion – the highest level to date. In

addition, Stanlib and Liberty Ermitage net cash inflows amounted to

R13,3 billion and R0,4 billion respectively. Normalised embedded

value per share was 15% higher than last year. During the course of

2005 Liberty Life initiated the disposal of its offshore asset

m a n a g e r, Liberty Ermitage, and the A u s t ralian life insura n c e

business, Prefsure, which was included in the acquisition of CAHL.

Liberty Life’s published earnings are adjusted to exclude the

results relating to Stanlib, this entity’s results being consolidated

into those of Standard Bank operations.

Equity attributable to ordinary shareholders

2005 2004

% %

Growth in ordinary shareholders’

funds 13 1

Net asset value per share

– normalised (cents) 2 830 2 464

Net asset value as defined by ord i n a ry shareholders’ equity grew by

13% to R33 billion. In 2004, the group reported a R4,2 billion

elimination against equity attributable to ord i n a ry shareholders fo r

shares acquired in terms of the Tutuwa initiative, deemed to be

t r e a s u ry shares. Following the adoption of IFRS, a further elimination

was required for group shares held for the benefit of Libert y

policyholders amounting to R1,1 billion, net of minority interest. On

a normalised basis (adding these eliminations back) net asset value

increased by 15% to R38 billion, representing mainly the retention

of earnings and a R0,4 billion net increase in the translation reserve.

Dividends

2005 2004

% %

Dividend cover (times) 2,5 2,5

Growth in dividends per share 15 53

Dividend yield 3,5 3,5

In March 2005, the group announced a revised dividend policy

using a consistent dividend cover ratio for both interim and year-

end dividends. This has resulted in a more even spread between

interim and final dividends. Due to the much higher number of

shares eliminated in terms of IFRS from 2005, dividend cover has

now been applied to normalised headline earnings per share for

the purpose of arriving at dividend declarations, slightly reducing

the reported dividend growth.

At December 2004 the cover ratio was 2,5 times, down from

3,1 times in 2003. The dividend cover for 2005 has remained

unchanged, resulting in total dividends declared of 267,0 cents,

15% higher than the total dividend declared in 2004. The total

dividend of 267,0 cents is made up of a final dividend of

145,0 cents (20% lower than 2004) and an interim dividend of

122,0 cents (142% higher than 2004).

The dividend policy is subject to annual review and may be

adjusted for business growth, acquisition activity, the impact of

Basel II or changes in reported earnings resulting from applying

fair value accounting principles.

Accounting policies

Basis of preparation

The consolidated financial statements are prepared in accordance

with, and comply with IFRS and the South African Companies Act

of 1973. The consolidated financial statements are prepared in

accordance with the going concern principle under the historical

cost basis as modified by the revaluation of financial instruments

classified as available-for-sale, financial assets and liabilities held

at fair value through profit or loss, investment properties and

derivative instruments.

Changes in accounting policies

The accounting policies are consistent with those adopted in the

previous year, except for changes made as a result of the adoption of

IFRS. The revised IFRS policies have been consistently applied to

both years presented with the exception of IAS 32 – Financial

Instruments: Disclosure and Presentation, IAS 39 – Financial

Instruments: Recognition and Measurement and IFRS 4 – Insura n c e

C o n t racts, where the group elected to apply IFRS with effect from

1 January 2005 as permitted by IFRS 1 – First time adoption of IFRS.

A detailed report summarising the impact of the IFRS co n v e r s i o n

was published during the 2005 interim results announcement and

is available on www. s t a n d a rd b a n k . co.za under financial results. T h e

final impact of conversion to IFRS is provided on page 182 and a

s u m m a ry is provided on the following page. With the exception of

reallocations in the income statement and balance sheet line items,

mainly in the life insurance operations, since the interim

publication, no adjustments have been made impacting profit and

equity attributable to ord i n a ry shareholders.


99 00 01 02 03 04 050

40

80

120

160

200

240

280

Dividends per share (cents)


Summary of IFRS adjustments

Profit

attributable to

ordinary

Total assets Equity shareholders

Rm Rm Rm

Reported at/for the year ended 31 December 20041 615 596 38 564 7 741

Share-based payment expense 4 (132) (116)

Deferred taxation adjustment on investment properties and present value

of in-force business 47 – –

Revaluation of residual values 46 46 12

Accounting for leases on a straight-line basis 266 (15) (5)

Spreading of deferred acquisition costs on instalment finance transactions – (3) 3

Consolidation of mutual funds 3 647 (1) –

Reversal of goodwill amortisation 112 112 98

Goodwill impairment (48) (48) (45)

Reclassification of financial instruments on adoption of IAS 39 10 12 (2)

Accounting for credit losses on an incurred loss basis (2) (2) (2)

Reclassification of reinsurance contracts to liabilities 495 – –

IFRS values at/for the year ended 31 December 2004 620 173 38 533 7 684

Revaluations resulting from the reclassification of insurance contracts

as investment contracts – (12)

Spreading of deferred acquisition costs in Liberty Life 99 41

Elimination of deemed treasury shares (3 703) (3 703)

Reclassification of financial instruments on adoption of IAS 39 (39) (39)

Deferral of profit on initial recognition of unlisted instruments (21) (21)

Accounting for credit losses on an incurred loss basis 115 77

IFRS values at 1 January 2005 616 624 34 876

1Total assets have been adjusted for additional goodwill on acquisition of Standard Bank Mozambique in terms of IFRS 3.

Normalised results (unaudited)

Headline earnings have been adjusted in calculating normalised

headline earnings for required accounting conventions that do not

reflect the underlying economic substance of transactions. A

common element in these transactions relates to shares in issue

deemed by accounting convention to be treasury shares.

Consequently the number of shares used for per share calculation

purposes are materially lower than the economic substance, resulting

in inflated per share ratios. With regard to segmental report i n g ,

normalised adjustments have been made within central funding and

L i b e rty Life with the results of the other business units unaffected.

Black Economic Empowerment Ownership initiative

The group concluded its Black Economic Empowerment

Ownership (Tutuwa) initiative in October 2004 when it sold an

effective 10% interest in its South African banking operations to

a broad-based grouping of black entities.

The group subscribed for 8,5% redeemable cumulative

preference shares issued by special purpose vehicles (SPVs)

controlled by Standard Bank Group (SBG). The initial repurchase

of SBG shares by the SPVs is treated as a reduction in the group’s

equity. Subsequent to the repurchase of the SBG shares, the SPVs

containing these shares were sold to the black participants. The

capital and dividends on the preference shares are repayable from

future ordinary dividends received on SBG shares. As a result of

SBG’s right to receive its own dividends back in the form of

preference dividends and capital on the preference shares, the

subsequent sale of the SPVs and consequent delivery of the SBG

shares to the black participants (although legally effected) is not

accounted for as a sale. The preference share investment in the

SPVs is also not accounted for as an asset. The preference share

asset is effectively eliminated against equity as a negative

empowerment reserve.

As a consequence of the above, the accounting treatment

followed until full redemption, or third party financing is:

• the 8,5% redeemable, cumulative preference shares issued by

the SPVs and subscribed for by SBG are not recognised as

financial assets, but eliminated against equity;

• the preference dividends received from the SPVs are

eliminated against the ordinary dividends paid on the SBG

shares held by the SPVs;

• for purposes of the calculation of earnings per share, the

weighted average number of shares in issue is reduced by the

Adjustments to normalised number of shares

2005 2004

Weighted Weighted

Issued average Issued average

number number number number

of shares of shares of shares of shares

Million Million Million Million

IFRS 1 207 1 205 1 253 1 322

Add back: SBG shares held by Tutuwa SPVs 99 99 99 24

Add back: SBG shares held in policyholder funds 46 49

Normalised 1 352 1 353 1 352 1 346



number of shares held by those SPVs that have been sold to

the black participants. The shares will be restored on full

redemption of the preference shares, or to the extent that the

preference share capital is financed by a third party; and

• perpetual preference shares issued by the group for the

purposes of facilitating the repurchase of SBG shares, are

classified as equity. Dividends paid are accounted on declara t i o n

and not on an accrual basis.

The “normalised” calculation:

• reverses the elimination of preference shares against equity;

• adjusts headline earnings for preference dividends receivable

not recognised in income;

• adds back the number of shares held by the Tu t u w a

participants to the weighted number of shares in issue, in

calculating normalised headline earnings per share; and

• adjusts dividends declared on perpetual preference shares to

an accrual basis.

Shares held for the benefit of policyholders

G roup companies’ shares held by Liberty Life are invested for the

risk and reward of its policyholders, not its shareholders, and

consequently the group’s shareholders are exposed to an

insignificant portion of the fair value changes on these shares. In

terms of IAS 32, Standard Bank and Liberty Holdings shares held by

L i b e rty Life on behalf of policyholders are deemed to be treasury

shares for accounting purposes, with effect from January 2005, and

eliminated. The corresponding movement in policyholders’ liabilities

is however not eliminated resulting in a mismatch in the overa l l

equity and income statement of the group.

The accounting consequences in the consolidated financial

statements are:

• the investment in group shares is set off against equity in the

group financial statements;

• within equity, the cost price of the group shares is eliminated

against ordinary shareholders’ funds and minority interests;

• the fair value movements are eliminated from the income

statement, reserves and minority interests;

• dividends received on group shares are eliminated against

dividends paid; and

• no adjustment is, however, made for policyholder liabilities.

Increases in the fair value of group shares and dividends

declared on these shares increases the liability to policyholders.

The increase in the liability to policyholders is accounted for in

the income statement. The increase in assets held to match the

liability position is however eliminated against equity. T h i s

results in a mismatch in the income statement.

The equity and profit impact is attributable to Standard Bank

ordinary shareholders to the extent of the effective holding in

Liberty Life (30%).

The weighted average number of shares in issue for earnings per

share is calculated by deducting the full number of group shares

held (100%) and not the effective 30% owned by the group, as

the accounting standard IAS 33 – Earnings per share does not

contemplate minority portions of treasury shares. This further

exaggerates the reduction in the number of shares for purposes

of calculating per share ratios.

For purposes of calculating the normalised results, the adjustments

described above are reversed and the group shares held on behalf of

policyholders are treated as issued to parties external to the gro u p .


Capital adequacy and allocation

The group manages its capital base to achieve a balance between

maintaining prudent capital ratios to support business growth and

depositor confidence, and the objective to provide competitive

returns to shareholders.

Regulatory capital

The group is subject to regulation and supervision by a number of

South African and international regulators.

The 25 banks in the group are required to meet minimum capital

requirements of regulators in those countries in which they

o p e rate. Banking regulations are generally based on the

guidelines developed by the Basel Committee under the auspices

of the Bank for International Settlements. In addition to the

requirements of host country regulators, all banking operations

are also expected to comply with the capital adequacy

requirements in terms of South African banking regulations. As a

consequence, the group’s individual banking operations are

capitalised at the higher capital adequacy levels in terms of either

host country or South African requirements.

The capital adequacy ratio, which reflects the capital strength of

an entity compared to the minimum regulatory requirement, is

calculated by dividing capital by risk-weighted assets.

Capital is split into three tiers. Tier I (primary capital) represents

the permanent forms of capital such as share capital, share

premium and retained earnings. Perpetual, non-cumulative

preference shares also qualify as tier I capital. Tier II (secondary

capital) includes medium- to long-term subordinated debt,

revaluation reserves and general debt provisions. Tier III (tertiary

capital) represents short-dated subordinated debt instruments to

support a bank’s trading activities.

Risk-weighted assets are determined by applying prescribed risk

weightings to on- and off-balance sheet exposures acco rding to the

relative credit risk of the co u n t e r p a rt y. Included in overall risk-

weighted assets is a notional risk weighting for market risks,

co u n t e r p a rty risks and large exposure risks relating to trading activity.

The use of non-equity forms of regulatory capital plays an

important part in the group’s capital management process:

• Domestically, Standard Bank of South Africa (SBSA) redeemed

R2,7 billion of tier II capital bonds that were eligible for

redemption during June and December 2005. As part of a

refinancing programme and also to strengthen the bank’s

capital base in view of strong risk-weighted assets growth,

SBSA issued R3 billion 10 year tier II bonds at a spread of

10 basis points over the R157 bond in May 2005 following an

earlier issue of R2 billion tier II capital during November 2004.

• International operations raised USD250 million of tier II bonds

in October 2005 at a spread of 115 basis points over LIBOR.

This issue was part of a strategy to improve the gearing of the

r e g u l a to ry capital base of the group’s London based opera t i o n s

and to refinance the redemption of USD100 million of tier II

bonds that were eligible for redemption in November 2005.

The proceeds of the above issue were also used to repay, to the

pool of strategic capital, USD53 million of capital invested by

the group in its international opera t i o n s .

• Within Rest of Africa, Standard Bank Swaziland issued

E35 million tier II bonds, the first bank tier II issue in

Swaziland. The optimisation of capitalisation levels and

Adjustments to normalised results

Ordinary

shareholders’

Headline earnings equity

Standard Bank

operations Liberty Life Group Group

Rm Rm Rm Rm

IFRS values – 2004 7 187 351 7 538 29 064

Preference dividend accrual (114) (114) (114)

8,5% cumulative redeemable preference dividend and

shares recognised 83 4 87 4 360

Normalised values – 2004 7 156 355 7 511 33 310

IFRS values – 2005 8 145 319 8 464 32 931

Preference dividend accrual 3 3 (111)

8,5% cumulative redeemable preference dividend

and shares recognised 342 25 367 4 378

Fair value movements and dividends received on deemed

treasury shares 179 179 1 072

Normalised values – 2005 8 490 523 9 013 38 270


structuring in the African operations will receive greater focus

during 2006.

The group’s life insurance operations based in South Africa are

regulated by the Financial Services Board. The capital

requirements are calculated by a statuto ry actuary in terms of the

guidance notes issued by the Actuarial Society of South A f r i c a .

Consistent with the group focus on optimising capital utilisation

and shareholder value, Liberty Life similarly has an ongoing

p rocess to review its capital structure, which led to a R2 billion

tier II bond issue during July 2005.

Capital adequacy ratios

The group's capital adequacy ratio reduced to 14,2% from 15,0%

at December 2004, still well above the weighted avera g e

regulatory requirement of 10,3% for the 25 banks across the

group. Tier I capital adequacy reduced from 11,0% to 10,5% due

to strong growth in risk-weighted assets marginally exceeding

retention of capital following the reduction in dividend cover. In

addition, the group utilised R677 million to buy back 10,2 million

shares thus counteracting the impact on earnings per share of

shares issued in relation to the group’s equity compensation

plans.

The group’s target level of capitalisation (excluding strategic

pools of surplus capital that might be held from time to time)

approximates 9% for tier I and 13% for total capital adequacy. A

broad mix is targeted of 60% ordinary shareholders‘ funds, 10%

other forms of tier I capital such as preference shares and 30%

tier II and tier III capital instruments. Capital management

activities take place against the backdrop of these guidelines and

the demands on capital arising from the group’s opera t i n g

requirements.

Liberty Group is well capitalised with a capital adequacy cover of

2,0 times (2004: 2,5 times) the minimum regulatory capital

requirement (CAR). Liberty Life’s long-term CAR ratio target is

1,7 times.


Tier I capital

Tier II capital

Tier III capital

Required capital

Capital adequacy (%)

99 00 01 02 03 04 05

0

2

4

6

8

10

12

14

16


2005 2004

Rm Rm

Regulatory capitalOrdinary shareholders’ equity 32 931 29 064

Minority interest 281 318

Perpetual preference shares 2 983 2 983

Elimination of insurance operations1 (2 122) (2 872)

Impairments and other (520) (382)

Tier I capital 33 553 29 111

Preference share capital 8 8

Tier II bonds 9 467 8 042

Credit impairments for performing loans 1 236 1 036

Revaluation reserve 210 243

Tier II capital 10 921 9 329

Tier III capital 854 1 282

Total capital 45 328 39 722

Risk!weighted assets (closing balances)On-balance sheet 257 424 212 218

Off-balance sheet 20 834 15 742

Trading activity notional assets 40 021 37 188

Standard Bank operations 318 279 265 148

1In accordance with Basel II principles relating to the treatment of insurance entities, insurance operations are excluded from the capital base

of the banking group and its related risk-weighted assets. Capital in insurance operations in excess of statutory minimum requirements is

accordingly not recognised in group capital. Comparatives have been restated accordingly.

Regulatory capital and risk!weighted assets

Effective

group

constraint SARB

(including regulatory

buffers) constraint Target 2005 2004

% % % % %

Standard Bank Group

Total capital adequacy ratio 13,4 10,0 13,0 14,2 15,0

Tier I capital adequacy ratio 9,4 6,0 9,0 10,5 11,0

Preference shares as % of Tier I 20,0 8,9 10,2

Tier II and Tier III as % of Tier I 100,0 35,1 36,5

Lower Tier II as % of Tier I 50,0 28,2 27,6

Ordinary equity as % of capital 60,0 67,4 65,8

Preference shares as % of capital 10,0 6,6 7,5

Tier II and Tier III as % of capital 30,0 26,0 26,7

Capital adequacy ratios and targets



Capital adequacy of banking subsidiaries

2005 2004 2005Host

Tier I Tier II Tier III Total Tier I Tier II Tier III Total regulatorycapital capital capital capital capital capital capital capital requirement

% % % % % % % % %

Standard Bank Group 10,5 3,4 0,3 14,2 11,0 3,5 0,5 15,0 –

The Standard Bank of South Africa 8,6 3,6 0,3 12,5 9,1 3,8 0,5 13,4 10

Rest of AfricaStanbic Bank Botswana 12,1 3,7 – 15,8 11,9 4,1 – 16,0 15Stanbic Bank Congo 11,0 – – 11,0 10,8 – – 10,8 10Stanbic Bank Ghana 18,0 0,3 – 18,3 16,8 – – 16,8 10Stanbic Bank Kenya 14,7 0,7 – 15,4 19,8 – – 19,8 12Stanbic Bank Malawi 15,0 4,2 – 19,2 14,8 4,9 – 19,7 10Standard Bank Mauritius 24,0 0,7 – 24,7 17,6 0,6 – 18,2 10Standard Bank Mozambique 13,5 – – 13,5 18,4 – – 18,4 10Stanbic Bank Nigeria1 307,0 – – 307,0 26,8 0,3 – 27,1 10Stanbic Bank Tanzania 9,2 0,9 – 10,1 8,8 0,8 – 9,6 10Stanbic Bank Uganda 14,6 1,1 – 15,7 17,3 0,5 – 17,8 12Stanbic Bank Zambia 21,5 0,1 – 21,6 18,6 0,1 – 18,7 10Stanbic Bank Zimbabwe 22,4 3,8 – 26,2 15,3 3,7 – 19,0 10Standard Bank Lesotho 17,2 0,4 – 17,6 10,0 0,5 – 10,5 8Lesotho Bank (1999) 16,1 0,7 – 16,8 21,9 0,7 – 22,6 8Standard Bank Namibia 9,7 3,5 – 13,2 9,0 3,8 – 12,8 10Standard Bank Swaziland 6,1 3,2 – 9,3 7,7 0,8 – 8,5 8

SIH, incorporating 8,1 5,7 0,5 14,3 8,2 6,1 0,8 15,1 10!12– Standard Bank London– Standard Bank Asia Limited– Standard Merchant Bank

Asia– Banco Standard de

Investimentos Anonima– ZAO Standard BankStandard Bank Jersey 9,1 2,3 – 11,4 9,5 2,5 – 12,0 10Standard Bank Isle of Man 5,9 5,2 – 11,1 7,1 4,4 – 11,5 10

Aggregate regulatory capital requirement 10,3 10,5

Liberty Life (calculated in terms of the Long-term Insurance Act) – CAR – times covered 2,0 2,5

1High levels of capital in Nigeria relative to risk-weighted assets were due to a further capitalisation of the bank to meet new local minimum capital requirements.


2005 2005 2004 2004

Unweighted Risk!weighted Unweighted Risk-weighted

assets assets assets assets

Rm Rm Rm Rm

On!balance sheet assets

Domestic Banking 452 038 215 219 391 668 179 845

Rest of Africa 30 043 17 075 25 348 14 641

Corporate & Investment Banking International 122 660 23 861 107 128 15 207

Stanlib and central funding (including

group eliminations) (11 013) 1 269 (18 124) 2 525

593 728 257 424 506 020 212 218

Off!balance sheet assets

Domestic Banking 16 861 12 462

Rest of Africa 1 685 1 831

Corporate & Investment Banking International 2 288 1 449

20 834 15 742

Trading notional assets

Domestic Banking 11 623 14 264

Corporate & Investment Banking International 28 398 22 924

40 021 37 188

Standard Bank operations 593 728 318 279 506 020 265 148

Analysis of risk!weighted assets

Risk-weighted assets

Total assets

Standard Bank operations’ risk!weightedassets trend (closing balances) (Rm)

99 00 01 02 03 04 05

100 000

200 000

300 000

400 000

500 000

600 000

700 000



Economic capital

The group’s approach to the measurement and management of

economic risk capital is being aligned to be consistent with

Basel II requirements in relation to the internal capital adequacy

assessment process (ICAAP).

The allocation of economic capital to business units considers both

risk capital as well as regulato ry capital requirements in order to

ensure that the business units focus on generating adequate returns

for actual capital that needs to be held. Economic capital is therefo r e

set at the higher of risk or regulato ry capital requirements.

Return on equity based on economic capital allocations forms part

of a balanced set of business unit financial perfo r m a n c e

indicators, which are monitored regularly. Cost of equity and

weighted average cost of capital estimates are calculated for each

market in which the group operates to serve as objective

performance benchmarks and investment criteria.

Currency profile of group capital

A significant proportion of the group's activities are based outside

South Africa. The group’s plans for acquisitions also lie

predominantly outside South Africa. As a consequence, 39%

(2004: 35%) of the group's shareholders’ funds are foreign

currency denominated; 12% (2004: 8%) is deployed in African

o p e rations and 27% (2004: 27%) supports international

operations or is held as surplus capital for future expansion. The

increase in capital deployed in African operations results from the

further capitalisation of the group’s Nigerian subsidiary to be in

compliance with new minimum capital levels of Naira 25 billion

(approximately R1,2 billion).

Appropriate hedging strategies are implemented to create a more

balanced currency profile given an overweight position of the

US dollar in the group's foreign capital base in favour of a more

balanced spread of exposures to US dollar, sterling and euro.

Before accounting for currency hedging initiatives, 16% (2004:

16%) of the group’s shareholder funds was exposed to US dollar,

3% (2004: 5%) to sterling and 7% (2004: 6%) to euro. After

hedging, the main non-rand currency exposures of shareholder

funds are 11% (2004: 8%) US dollar, 10% (2004: 13%) sterling

and 5% (2004: 6%) euro.

The group remains averse to an overconcentration of its net asset

value in US dollars and has hedges in place to support this

strategy. The strengthening of the USD relative to GBP and euro

has accordingly given rise to losses on currency hedges on USD

invested in Corporate & Investment Banking International.

Given the group’s presence in many countries, its shareholder

funds will always be exposed to currency movements. Current

South African Reserve Bank exchange controls do not allow for

hedging of foreign currency risks on external capital into rand.

A cco rd i n g l y, the group’s currency hedging is limited to

movements within the basket of external currencies.Shareholders’ funds (average)

Tutuwa impairments

Policyholders’ treasury shares

Return on ordinary equity

99 00 01 02 03 04N 05N0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

0

3

6

9

12

15

18

21

24

27

30

Rm %

N

ROE

Normalised

Economic returns generated by Standard Bank Group

Change 2005 2004

% Rm Rm

Average ordinary equity (normalised) 15 35 743 31 073

Headline earnings (normalised) 20 9 013 7 511

Cost of equity charge 3 (4 289) (4 164)

Economic profits on normalised headline earnings 41 4 724 3 347

Other changes in net asset value 514 (1 237)

Translation gains/(reversals) 397 (1 272)

Other reserve movements 117 35

Total economic return >100 5 238 2 110


Total Rand Dollar Sterling Euro Other

ZAR

linked Various


Closing currency exposureDecember 2005 underlying

exposures 32 931 20 188 5 162 1 194 2 317 854 3 216

Currency profile changes

due to hedging strategies (1 601) 2 191 (526) (64)

December 2005 actual exposures 32 931 20 188 3 561 3 385 1 791 854 3 152

December 2004 exposures

excluding hedging activities 29 064 18 889 4 738 1 414 1 819 768 1 436

Currency profile changes

due to hedging strategies (2 402) 2 402

December 2004 actual exposures 29 064 18 889 2 336 3 816 1 819 768 1 436

% % % % % % %

Closing currency profile ofshareholders’ funds2005 before hedging 100 61 16 3 7 3 10

2005 after hedging 100 61 11 10 5 3 10

2004 before hedging 100 65 16 5 6 3 5

2004 after hedging 100 65 8 13 6 3 5

Closing shareholders’ funds exposure to currencies

Group finance focus for 2006

The group’s finance function strives to constantly enhance

decision making by providing information relevant to

management, regulators, investors and other parties. This is

done through a disciplined and comprehensive approach to

financial reporting.

As internal operational needs and external regulatory and

i n v e s tor requirements are constantly evolving, the

following matters will receive increased focus in 2006:

• further alignment of reporting segments, previously

largely geographically based, into business segments

based on main product groupings;

• embedding principles required for compliance with

Basel II in 2008;

• co o rdination of a group-wide economic capital

allocation process to ensure optimum allocation of

capital in line with quantified risk appetite; and

• further alignment of financial disclosure and timing of

reporting with international best practice.

Consolidated balance sheet1

2005 2005 2005 CAGR)2

US$m UK£m €m %

AssetsBanking assets 93 353 54 222 78 953 21

Cash and short-term negotiable securities 13 970 8 114 11 815 18

Trading assets 6 045 3 511 5 113 39

Investments 2 885 1 676 2 440 15

Loans and advances 52 536 30 514 44 432 19

Current and deferred tax assets 142 82 120

Derivative and other assets 17 029 9 892 14 403 37

Interest in associates and joint ventures 128 74 108 52

Goodwill and other intangible assets 96 56 81

Property and equipment 522 303 441 3

Insurance assets 25 464 14 790 21 536 15

Total assets 118 817 69 012 100 489 20

Equity and liabilities

Equity 6 284 3 650 5 314 11

Equity attributable to ordinary shareholders 5 178 3 008 4 378 15

Preference share capital and premium 470 273 398

Minority interest 636 369 538 (8)

Liabilities 112 533 65 362 95 175 21

Banking liabilities 87 931 51 072 74 367 22

Deposit and current accounts 64 853 37 668 54 849 17

Derivative, trading and other liabilities 20 786 12 073 17 580 48

Current and deferred tax liabilities 627 364 530 11

Subordinated bonds 1 665 967 1 408

Insurance liabilities 24 602 14 290 20 808 17

Total equity and liabilities 118 817 69 012 100 489 20

1The group implemented IFRS from 1 January 2005. As permitted by IFRS, 2004 results have not been restated for IAS 32, IAS 39

and IFRS 4. With the exception of the reallocation of accrued interest to the relevant line items, results prior to 2004 have not been

restated for the adoption of other IFRS statements.

2CAGR refers to compound annual growth rate based on rand amounts for the period 1999 to 2005.

Exchange rates utilised to convert the 31 December 2005 balance sheet: US$ – 6,36 (2004: 5,63)

UK£ – 10,95 (2004: 10,82)

Euro – 7,52 (2004: 7,66)


Seven!year re v i e w

2005 2004 2003 2002 2001 2000 1999


593 728 506 020 444 371 307 592 306 196 209 337 185 087

88 848 52 787 44 521 48 583 43 908 31 648 32 452

38 446 32 438 33 722 26 781 23 548 9 484 5 414

18 347 20 068 20 421 18 964 23 804 7 818 7 959

334 128 258 873 222 100 180 418 178 094 139 089 119 863

902 1 093 803 460 1 322 – –

108 312 136 911 118 715 28 528 31 881 18 274 16 557

815 296 541 276 187 100 65

610 540 508 671 714 216 –

3 320 3 014 3 040 2 911 2 738 2 708 2 777

161 950 114 153 96 195 85 761 89 038 75 643 68 866

755 678 620 173 540 566 393 353 395 234 284 980 253 953

39 964 38 533 35 264 32 060 31 666 25 116 21 079

32 931 29 064 28 835 26 054 25 685 18 292 14 576

2 991 2 991 8 8 8 8 8

4 042 6 478 6 421 5 998 5 973 6 816 6 495

715 714 581 640 505 302 361 293 363 568 259 864 232 874

559 239 476 153 417 518 283 614 282 694 193 644 173 034

412 462 322 477 278 899 245 333 241 568 172 136 158 272

132 199 140 607 128 560 28 953 31 294 15 272 12 596

3 988 3 409 2 826 2 415 3 804 2 686 2 131

10 590 9 660 7 233 6 913 6 028 3 550 35

156 475 105 487 87 784 77 679 80 874 66 220 59 840

755 678 620 173 540 566 393 353 395 234 284 980 253 953


Seven!year review continued


Consolidated income statement1

2005 2005 2005 CAGR)2

US$m UK£m €m %

Banking operationsNet interest income 2 042 1 122 1 642 11

Non-interest revenue 2 629 1 445 2 114 16

Total income 4 671 2 567 3 756 14

Credit impairment charges 190 104 153 (4)

Income after credit impairment charges 4 481 2 463 3 603 16

Operating expenses 2 644 1 454 2 126 12

Net income before goodwill 1 837 1 009 1 477 22

Goodwill impairment 4 2 3

Net income from banking operations 1 833 1 007 1 474 22

Income from associates and joint ventures 31 17 25 65

Net income before indirect taxation 1 864 1 024 1 499 22

Indirect taxation 89 49 71 7

Profit before direct taxation 1 775 975 1 428 24

Direct taxation 421 231 339 26

Profit for the year 1 354 744 1 089 23

Attributable to minorities and preference shareholders 60 33 48 52

Banking profit attributable to ordinary shareholders 1 294 711 1 041 22

Insurance operationsNet income before goodwill 460 253 370 (1)

Goodwill impairment 62 34 50

Net income from insurance operations 398 219 320 (4)

Indirect taxation 33 18 27 6

Profit before direct taxation 365 201 293 (4)

Direct taxation 257 141 207 12

Profit for the year 108 60 86 (17)

Attributable to minorities 76 42 61 (17)

Insurance profit attributable to ordinary shareholders 32 18 25 (17)

Group profit attributable to ordinary shareholders 1 326 729 1 066 18

Headline earnings 1 331 732 1 070 20

Normalised headline earnings3 1 417 779 1 139 21

1The group implemented IFRS from 1 January 2005. As permitted by IFRS, 2004 results have not been restated for IAS 32, IAS 39

and IFRS 4. Excluding exceptional items, which have been reallocated and included in the relevant income or expense categories,

results prior to 2004 have not been restated for the adoption of other IFRS statements.

2CAGR refers to compound annual growth rate based on rand amounts for the period 1999 to 2005.

3Prepared on a normalised basis (refer page 75 for an explanation of normalised results).

Average exchange rates utilised to convert the 2005 income statement: US$ – 6,36 (2004: 6,44)

UK£ – 11,57 (2004: 11,80)

Euro – 7,91 (2004: 8,01)


2005 2004 2003 2002 2001 2000 1999


12 987 11 492 11 437 10 520 8 177 7 229 6 761

16 718 15 044 13 091 11 448 9 135 7 430 6 746

29 705 26 536 24 528 21 968 17 312 14 659 13 507

1 207 1 050 1 848 1 955 1 603 1 406 1 527

28 498 25 486 22 680 20 013 15 709 13 253 11 980

16 817 15 384 13 938 12 738 10 005 8 655 8 457

11 681 10 102 8 742 7 275 5 704 4 598 3 523

24 48 – – – – –

11 657 10 054 8 742 7 275 5 704 4 598 3 523

200 97 102 96 49 16 10

11 857 10 151 8 844 7 371 5 753 4 614 3 533

565 389 388 382 309 341 381

11 292 9 762 8 456 6 989 5 444 4 273 3 152

2 678 2 484 2 353 2 053 1 447 993 668

8 614 7 278 6 103 4 936 3 997 3 280 2 484

383 124 104 122 77 68 31

8 231 7 154 5 999 4 814 3 920 3 212 2 453

2 927 2 848 2 408 1 215 3 401 1 260 3 162

397 – 63 – – – –

2 530 2 848 2 345 1 215 3 401 1 260 3 162

213 262 239 223 185 169 154

2 317 2 586 2 106 992 3 216 1 091 3 008

1 634 792 823 368 1 123 457 849

683 1 794 1 283 624 2 093 634 2 159

482 1 264 904 441 1 488 447 1 522

201 530 379 183 605 187 637

8 432 7 684 6 378 4 997 4 525 3 399 3 090

8 464 7 538 6 280 5 263 4 419 3 673 2 892

9 013 7 511 6 280 5 263 4 419 3 673 2 892

Seven!year review continued

Statistics, returns and capital adequacy

CAGR)1

% 2005 2004 2003 2002 2001 2000 1999

Standard Bank GroupShare statisticsNumber of ordinary shares in

issue (thousands)

Listed on the JSE Limited

– weighted average 1 353 382 1 345 786 1 334 099 1 328 192 1 318 6964 1 295 8414 1 277 0184

– end of period 1 352 383 1 352 108 1 338 730 1 331 078 1 324 938 1 309 1794 1 279 3134

In terms of IFRS2

– weighted average 1 205 169 1 321 666 1 334 099 1 328 192 1 318 696 1 295 841 1 277 018

– end of period 1 206 704 1 252 918 1 338 730 1 331 078 1 324 938 1 309 179 1 279 313

Dividend cover (times) 2,53 2,5 3,1 3,2 3,3 3,3 3,3

Dividend yield (%) 3,5 3,5 3,9 4,1 3,3 2,8 2,7

Earnings yield (%) 9,3 8,7 12,0 13,1 10,7 9,3 8,9

Price earnings ratio (times) 10,8 11,5 8,3 7,6 9,3 10,8 11,3

Normalised price earnings ratio (times)3 11,4 11,8 8,3 7,6 9,3 10,8 11,3

Price-to-book (times) 3,1 3,1 1,8 1,5 1,6 2,2 2,2

Normalised price-to-book (times)3 2,7 2,7 1,8 1,5 1,6 2,2 2,2

Share price (cents) – high 7 875 6 750 3 960 3 810 3 605 3 120 2 650

Share price (cents) – low 5 750 3 686 2 650 2 595 2 600 2 000 1 590

Share price (cents) – closing 20 7 581 6 580 3 918 3 015 3 120 3 050 2 555

Number of shares traded (thousands) 841 835 892 633 908 179 673 703 511 549 434 756 401 884

Turnover in shares traded (%) 62,2 66,0 67,8 50,6 38,6 33,2 31,4

Market capitalisation (Rm) 21 102 524 88 969 52 451 40 132 41 338 39 930 32 686

Share statistics per ordinary share (cents)Earnings 19 699,7 581,4 478,1 376,2 343,1 262,3 242,0

Normalised earnings3 18 663,6 569,0 478,1 376,2 343,1 262,3 242,0

Headline earnings 21 702,3 570,3 470,7 396,3 335,1 283,4 226,5

Normalised headline earnings3 20 666,0 558,1 470,7 396,3 335,1 283,4 226,5

Dividends 26 267,0 231,5 151,0 124,0 102,0 85,0 68,0

Net asset value 16 2 729 2 320 2 154 1 957 1 939 1 397 1 139

Normalised net asset value3 16 2 830 2 464 2 154 1 957 1 939 1 397 1 139

Selected returns (%)Return on equity 27,8 26,0 22,9 20,3 20,1 22,4 20,9

Normalised return on equity3 25,2 24,2 22,9 20,3 20,1 22,4 20,9

1CAGR refers to compound annual growth rates for the period 1999 to 2005.

2Shares in issue reduced by shares issued in terms of the Tutuwa initiative and deemed treasury shares held for the benefit of Liberty Life policyholders.


4The number of shares has been adjusted for treasury shares acquired and cancelled in 2001.



Statistics, returns and capital adequacy continued

CAGR)1

% 2005 2004 2003 2002 2001 2000 1999

Exchange rates at 31 DecemberUS$ 1 6,36 5,63 6,68 8,58 12,00 7,57 6,16

UK£ 2 10,95 10,82 11,95 13,82 17,45 11,30 9,92

Euro 3 7,52 7,66 8,42 9,01 10,68 7,10 6,17

Market indicators at 31 DecemberPrime overdraft rate (%) 10,50 11,00 11,50 17,00 13,00 14,50 15,50

JSE All Share Index – closing 14 18 097 12 657 10 387 9 277 10 457 8 164 8 357

JSE Banks Index – closing 15 29 234 22 975 14 153 12 035 12 812 13 697 12 482

Standard Bank operations2

Selected returns and ratiosHeadline earnings (Rm) 22 8 145 7 187 6 010 4 965 3 985 3 249 2 428

Normalised headline earnings (Rm)3 23 8 490 7 156 6 010 4 965 3 985 3 249 2 428

Return on equity (%) 28,2 27,2 24,0 21,2 19,9 22,1 20,7

Normalised return on equity (%)3 25,8 25,1 24,0 21,2 19,9 22,1 20,7

Price-to-book (times) 3,1 3,2 1,8 1,5 1,6 2,1 2,2

Normalised price-to-book (times)3 2,7 2,7 1,8 1,5 1,6 2,1 2,2

Normalised return on risk-weighted

assets (%)3 2,9 2,9 2,6 2,3 2,1 2,2 1,8

Net interest margin (%) 2,93 3,07 3,46 3,22 3,31 3,77 3,94

Non-interest income to total income (%) 56,3 56,7 53,4 52,1 52,8 50,7 49,9

Cost-to-income ratio (%) 56,6 58,0 56,8 58,0 57,8 59,0 62,6

Credit loss ratio (%) 0,41 0,43 0,90 1,07 0,99 1,06 1,27

Effective tax rate (%) 27,4 28,3 31,0 33,0 30,5 28,9 31,4

Normalised headline earnings

per employee (rand)3 21 231 449 199 777 171 548 143 876 120 444 107 175 74 394

Number of employees at year-end 2 36 682 35 820 35 034 34 509 33 086 30 315 32 637

Capital adequacy4

Risk-weighted assets (Rm) 14 318 279 265 148 236 346 225 995 219 773 158 451 142 498

Tier I capital (Rm) 16 33 553 29 111 25 289 23 277 22 637 16 954 13 680

Total capital (Rm) 19 45 328 39 722 33 797 31 187 29 669 22 500 16 245

Tier I capital to risk-weighted assets (%) 10,5 11,0 10,7 10,3 10,3 10,7 9,6

Total capital to risk-weighted assets (%) 14,2 15,0 14,3 13,8 13,5 14,2 11,4

1CAGR refers to compound annual growth rates for the period 1999 to 2005.

2Standard Bank Group excluding Liberty Life.


4In accordance with Basel II principles relating to the treatment of insurance entities, insurance operations are excluded from the capital base of the banking

group and its related risk-weighted assets. Capital in insurance operations in excess of statutory minimum requirements is not recognised in group capital.

Comparatives have been restated accordingly.

Financial definitions

S t a n d a rd Bank Gro u p

C AGR (%) Compound annual gro wth ra t e .

Dividend cover (times) Normalised headline earnings per share divided by ord i n a ry dividends per share.

Dividends per share (ce n t s ) Total ord i n a ry dividends declared per share in respect of the year.

Dividend yield (%) Dividends per share as a percentage of the closing share price.

Earnings attributable to ord i n a ry P rofit for the year attributable to ord i n a ry shareholders, calculated as profit for the s h a reholders (Rm) year less dividends on non-redeemable, non-cumulative, non-participating preference

shares declared before year end, less minority interests.

Earnings per share (EPS) (ce n t s ) Earnings attributable to ord i n a ry shareholders divided by the weighted average numberof ord i n a ry shares in issue.

Earnings yield (%) Headline earnings per share as a percentage of the closing share price.

Headline earnings (Rm) Earnings attributable to ord i n a ry shareholders excluding goodwill impairment, capitalp rofits and losses, and recycled profits and losses on available-fo r-sale financiali n s t r u m e n t s .

Headline earnings per share (HEPS) (ce n t s ) Headline earnings divided by the weighted average number of ord i n a ry shares in issue.

Net asset value (Rm) Equity attributable to ord i n a ry shareholders.

Net asset value per share (ce n t s ) Net asset value divided by the number of ord i n a ry shares in issue at year end.

Normalised re s u l t s The financial results and ratios restated on an economic substance basis to adjusta ccounting anomalies on preference dividends receivable and payable, resulting from theTutuwa initiative, and to reinstate deemed treasury shares eliminated against equity, butheld for the benefit of policyholders.

P r i ce earnings ratio (times) Closing share price divided by headline earnings per share.

P r i ce ! to!book (times) Market capitalisation divided by net asset value.

P rofit for the year (Rm) Annual income statement profit attributable to ord i n a ry shareholders, minorities andpreference shareholders.

Return on equity (ROE) (%) Headline earnings as a percentage of monthly average ord i n a ry shareholders’ funds.

S h a res in issue (number) Number of ord i n a ry shares in issue at year end after deducting ord i n a ry shares issued interms of the Tutuwa transaction, of which dividends are retained to finance the purc h a s eco n s i d e ration and after deducting shares held for the benefit of policyholders deemed tobe treasury shares.

Tu t u w a Tutuwa is the group’s Black Economic Empowerment Ownership initiative entered into interms of the Financial Sector Chart e r.

We i g h ted average number of share s ( n u m b e r ) Weighted average number of ord i n a ry shares in issue after deducting ord i n a ry shares,issued in terms of the Tutuwa transaction, of which dividends are retained to settle thep u rchase co n s i d e ration and after deducting shares held for the benefit of policyholdersdeemed to be treasury shares.

S t a n d a rd Bank opera t i o n s

C o s t ! to ! i n come ratio (%) O p e rating expenses as a percentage of total inco m e .

C redit loss ratio (%) Total credit impairment charges per the income statement as a percentage of avera g edaily and monthly gross loans and advances.

E f fective taxation ra te (%) Direct and indirect taxation as a percentage of net income before taxation.

G ross co v e rage ratio (%) N o n - p e rforming loan impairments as a percentage of gross non-performing loans.

Impairment of non!performing loans (Rm) Impairment for specific identified credit losses, net of the present value of estimatedr e co v e r i e s .

Impairment of performing loans (Rm) Po rt folio based impairment for incurred credit losses inherent in the performing loanb o o k .

Net inte rest margin (%) Net interest income (NII) as a percentage of daily and monthly average total assets,e xcluding trading derivative assets.

N o n ! i n te rest revenue to total income (%) Non-interest revenue as a percentage of total inco m e .

Return on equity (ROE) (%) Headline earnings, excluding income from Liberty Life, as a percentage of monthlya v e rage ord i n a ry shareholders’ funds, after deducting capital relating to Liberty Life.

Return on risk!weighted assets (%) Headline earnings, excluding income from Liberty Life, as a percentage of daily andmonthly average risk-weighted assets of the banking opera t i o n s .


Standard Bank Group annual report 2005 P • 91

Annual financial statements





100 Balance sheet






Note

124 1 Segment reporting

129 2 Key management assumptions

133 3 Cash and balances with banks

133 4 Short-term negotiable securities

133 5 Derivative instruments

138 6 Trading assets

139 7 Investments

142 8 Loans and advances

145 9 Current and deferred taxation

145 10 Other assets

145 11 Interest in associates and joint ventures

146 12 Goodwill and other intangible assets

148 13 Property and equipment

149 14 Share capital

151 15 Trading liabilities

152 16 Deposit and current accounts

153 17 Current and deferred taxation

155 18 Other liabilities

155 19 Policyholders’ liabilities

156 20 Subordinated bonds

158 21 Empowerment reserve

159 22 Contingent liabilities and capital commitments

160 23 Supplementary income statement information

163 24 Emoluments of Standard Bank Group directors

163 25 Taxation

165 26 Dividends

166 27 Headline earnings

166 28 Earnings per share

167 29 Cash flow statement notes

169 30 Disposal groups held for sale

170 31 Third party funds under management

170 32 Related party transactions

173 33 Pensions and other post-retirement benefits

178 Standard Bank Group Limited – company annual

financial statements






Additional information


subsidiary




Report of the independent auditors

To the members of Standard Bank GroupLimited

We have audited the annual financial statements and group

annual financial statements of Standard Bank Group Limited set

out on pages 94 to 202 for the year ended 31 December 2005.

These financial statements are the responsibility of the company’s

directors. Our responsibility is to express an 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 plan and

perform the audit to obtain reasonable assurance about whether

the financial statements are free of material misstatement.

KPMG Inc.

Registered Accountants and Auditors

An audit includes examining, on a test basis, evidence supporting

the amounts and disclosures in the financial statements. An audit

also includes assessing the accounting principles used and

significant estimates made by management, as well as evaluating

the overall financial statement presentation. We believe that our

audit provides a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all

material respects, the financial position of the company and of the

group at 31 December 2005, and the results of their operations

and cash flows for the year then ended in accordance with

International Financial Reporting Standards and in the manner

required by the Companies Act of South Africa.

PricewaterhouseCoopers Inc.

Registered Accountants and Auditors

Johannesburg

8 March 2006


Directors’ responsibility for financial reporting

In accordance with Companies Act requirements, the directors are

responsible for the preparation of the annual financial statements

which conform with International Financial Reporting Standards

(IFRS) and which, in accordance with those statements, fairly

present the state of affairs of the company and the group as at

the end of the financial year, and the net income and cash flows

for that period.

It is the responsibility of the independent auditors to report on

the fair presentation of the financial statements.

The directors are ultimately responsible for the internal controls.

Management enables the directors to meet these responsibilities.

Standards and systems of internal control are designed and

implemented by management to provide reasonable assurance as

to the integrity and reliability of the financial statements in

accordance with IFRS and to adequately safeguard, verify and

maintain accountability for group assets. Accounting policies

supported by judgements, estimates and assumptions, which

comply with IFRS, are applied on a consistent and going concern

basis. Systems and controls include the proper delegation of

responsibilities within a clearly defined framework, effective

accounting procedures and adequate segregation of duties.

Derek Cooper

Chairman

Systems and controls are monitored throughout the group.

Greater detail of such, including the operation of the internal

audit function, is provided in the corporate governance and the

risk management sections of the report starting on pages 30 and

45 respectively.

Based on the information and explanations given by management

and the internal and external auditors, the directors are of the

opinion that the accounting controls are adequate and that the

financial records may be relied upon for preparing the financial

statements in accordance with IFRS and maintaining

accountability for the group’s assets and liabilities. Nothing has

come to the attention of the directors to indicate that any

breakdown in the functioning of these controls, resulting in

material loss to the group, has occurred during the year and up to

the date of this report. The directors have a reasonable

expectation that the company and the group have adequate

resources to continue in operational existence for the foreseeable

future. For this reason, they continue to adopt the going concern

basis in preparing the financial statements.

The financial statements, prepared in accordance with IFRS, which

appear on pages 94 to 202, were approved by the board of

directors on 8 March 2006 and signed on its behalf by:

Jacko Maree

Chief executive

Group secretary’s certification

Compliance with Companies Act 61 of 1973

In terms of the Companies Act 61 of 1973 (the Act), and for the

year ended 31 December 2005, I certify that Standard Bank

Group Limited has lodged all returns required by the Act with the

Registrar of Companies and that all such returns are true, correct

and up to date.

Loren Wulfsohn

Group secretary

8 March 2006

Directors’ report for the year ended 31 December 2005

Principal activities

Standard Bank Group Limited is the holding company for the interests of the Standard Bank Group.

Group results

A general review of the business and operations of major subsidiaries is given in the 2005 chairman and chief executive’s review and

operational reviews commencing on pages 2 and 18 respectively.

A financial review on the results of the Standard Bank Group for the year is given on pages 67 to 83.

Property and equipment

There was no change in the nature of the fixed assets of the group or in the policy regarding their use during the year.

Share capital

Ordinary shares

During the year, 10 439 067 ordinary shares (2004: 13 378 700 ordinary shares) were issued in terms of the equity compensation plans.

Surplus capital was utilised to repurchase 10 164 515 ordinary shares to counteract the impact of the shares issued under the equity

compensation plans.

Directors’ interest in shares

At the date of this report, the directors held, directly and indirectly, interests in the company’s ordinary issued share capital as reflected in

the tables that follow:

Ordinary shares

Direct beneficial1 Indirect beneficial1 Indirect non�beneficial1

Director 2005 2004 2005 2004 2005 2004

DDB Band 11 017 11 017 – – – –

E Bradley – – 274 494 262 258 351 962 391 467

DE Cooper – – – – 13 243 13 243

T Evans – – 6 773 4 273 – –

TS Gcabashe2 – – 125 000 125 000 – –

DA Hawton 11 977 11 977 – – – –

SE Jonah KBE – N/A – N/A – N/A

Sir Paul Judge – – – – – –

SJ Macozoma3 – – 4 826 582 4 826 582 – –

JH Maree 299 001 174 001 – – – –

RP Menell – – – – – –

Adv KD Moroka2 554 554 125 000 125 000 – –

AC Nissen2 – – 125 000 125 000 – –

MC Ramaphosa4 2 495 2 495 5 775 810 5 775 810 – –

Dr MA Ramphele2 – N/A 125 000 N/A – N/A

MJD Ruck 420 647 340 647 – – – –

MJ Shaw – – – – – –

Sir Robert Smith – – – – – –

Dr CB Strauss 1 567 1 567 112 150 112 150 – –

Total 747 258 542 258 11 495 809 11 356 073 365 205 404 710

1Defined as per requirements of the JSE Limited.

2Includes an allocation of 125 000 shares in terms of the Tutuwa Management Trust – special conditions apply for qualifying black non-

executive directors.

3SJ Macozoma has a 20% interest in Safika Holdings (Proprietary) Limited (Safika) which acquired 24 132 911 shares in terms of the Tutuwa

initiative.

4MC Ramaphosa has a 35,9% interest in Shanduka Group (Proprietary) Limited (Shanduka) which acquired 16 088 608 shares in terms of

the Tutuwa initiative.

N/A Not yet appointed.

P • 94Standard Bank Group annual report 2005


6,5% first cumulative preference shares

Indirect non�beneficial1

Director 2005 2004

E Bradley 47 000 47 000

Non�redeemable, non�cumulative, non�participating preference shares2

Direct beneficial1 Indirect beneficial1 Indirect non�beneficial1

Director 2005 2004 2005 2004 2005 2004

DDB Band – – 9 406 9 406 – –

E Bradley – – 1 559 1 559 30 000 30 000

DE Cooper – – – – 1 140 1 140

T Evans – 7 817 – – – –

TS Gcabashe 863 – – – – –

SJ Macozoma 1 140 1 140 – – – –

JH Maree 1 559 1 559 – – 1 279 1 279

Adv KD Moroka 1 000 1 000 – – – –

MJD Ruck 1 559 1 559 – – – –

Total 6 121 13 075 10 965 10 965 32 419 32 419

1Defined as per requirements of the JSE Limited.

2Second preference shares.

No directors, other than disclosed above, have preference share holdings.

No director owns, directly or indirectly more than 1% of the total issued share capital of the company. The company has not been informed

of any changes in these holdings at the date of this report.

Equity compensation plans

Information on options granted to executive directors under the equity compensation plans is given in the remuneration review on

page 44. Details of options granted to all employees under the equity compensation plans are given in Annexure E on page 200.

Directors’ emoluments

Directors’ emoluments are disclosed on page 163. Information relating to the determination of directors’ emoluments, share option

allocations and related matters are contained in the remuneration review commencing on page 37.

Shareholder analysis

The analysis of ordinary shareholders is given on page 220.

Shareholders at the close of the financial year, holding beneficial interests in excess of 5% of the issued share capital, determined from

the share register and investigations conducted on our behalf, were as follows:

% heldPublic Investment Corporation 12,95

Old Mutual Group 11,15

Distribution to ordinary shareholders

Interim

On 17 August 2005, an interim dividend of 122,0 cents per share (2004: 50,5 cents) was declared to shareholders recorded at the close

of business on 16 September 2005 and paid on 19 September 2005.

Final

On 8 March 2006, a final dividend of 145,0 cents per share (2004: 181,0 cents) was declared to shareholders recorded at the close of

business on 13 April 2006 and to be paid on 18 April 2006.


Directors’ report for the year 31 December 2005 continued

Distribution to preference shareholders


On 17 August 2005, a dividend of 3,25 cents per share (2004: 3,25 cents) was declared to shareholders recorded at the close of business

on 9 September 2005 and paid on 12 September 2005.

On 8 March 2006, a dividend of 3,25 cents per share (2004: 3,25 cents) was declared to shareholders recorded at the close of business

on 7 April 2006 and to be paid on 10 April 2006.

Non�redeemable, non�cumulative, non�participating preference shares

On 17 August 2005, a dividend of 374,74 cents per share was declared to shareholders recorded at the close of business on 9 September

2005 and paid on 12 September 2005.

On 8 March 2006, a dividend of 370,52 cents per share (2004: 379,34 cents) was declared to shareholders recorded at the close of

business on 7 April 2006 and to be paid on 10 April 2006.

Directorate

The directorate is listed on page 218.

The following changes in directorate have taken place since the last annual report:

Standard Bank Group LimitedAppointmentsDr MA Ramphele as director 17 March 2005

SE Jonah KBE as director 1 February 2006

RetirementsRA Plumbridge as director 25 May 2005

Dr CL Stals as director 25 May 2005

ResignationT Evans as director 8 March 2006

The Standard Bank of South Africa LimitedAppointmentsDr MA Ramphele as director 17 March 2005

SP Ridley as director 5 August 2005

SE Jonah KBE as director 1 February 2006

RetirementsRA Plumbridge as director 25 May 2005

Dr CL Stals as director 25 May 2005

ResignationsMJD Ruck as director 5 August 2005

T Evans as director 8 March 2006

Standard Bank Plc AppointmentsME Austen as director 4 November 2005

BJ Kruger1 as deputy chairman 10 November 2005

HE Staunton as director 1 December 20051Previously alternate to MJD Ruck.

ResignationsRM Mansell-Jones as director 5 May 2005

WS Dorson as director 1 June 2005

D Feld as director 1 June 2005

IG Gibson as director 1 June 2005

NJ Holden as director 1 June 2005

JMK Pearson as director 1 June 2005

MJ Wilde as director 1 June 2005


Liberty Holdings LimitedResignationsMJD Ruck as chief executive and director 12 December 2005

AWB Band as director 12 December 2005

Prof L Patel as director 12 December 2005

Dr SP Sibisi as director 12 December 2005

Liberty Group LimitedResignationMJD Ruck as chief executive and director with effect from 31 May 2006

Group secretary and registered office

The group secretary is Loren Wulfsohn. The address of the group secretary is that of the registered office, 9th floor, Standard Bank Centre,

5 Simmonds Street, Johannesburg, 2001.

Restructurings and acquisitions during the year

Capital Alliance Holdings Limited (CAHL)

On 1 December 2004, Liberty Group Limited (Liberty Life) announced its proposed acquisition of CAHL, a South African life insurance

group listed on the JSE Limited. In terms of the proposal, Liberty Life made an offer to acquire, for an amount of R3 billion, 98% of the

issued share capital of CAHL. This deal was completed in April 2005. On 30 January 2006, Liberty Life announced the sale of Prefsure

Holdings Limited (Prefsure), CAHL’s Australian life insurance business to Tower Limited for AUS$145 million. The decision to dispose of

Prefsure is in line with Liberty Life’s stated intention of focusing on the domestic life assurance market for the foreseeable future. The

agreement is subject to certain conditions precedent including, inter alia, regulatory approval from the South African Reserve Bank. Should

the conditions precedent be met, it is expected that the net amount to be received by Liberty Life will be approximately AUS$84 million.

Liberty Ermitage Jersey Limited

Liberty Life is currently under negotiations regarding the possible sale of Liberty Ermitage, Liberty Life’s offshore hedge fund asset

manager. Further details can be found in Liberty Life’s 2005 annual report.

Integrated Processing Solutions

Given the declining volume of cheques in the market, Standard Bank entered into a joint venture with ABSA during January 2005, in a bid

to capitalise on the benefits of economies of scale. Under the terms of the agreement, a new company, Integrated Processing Solutions

(Proprietary) Limited (IPS), was formed with the purpose of combining the cheque clearing facilities of both banks. In addition to purchasing

50% of the share capital of IPS, Standard Bank transferred certain assets and resources to the joint venture.

Andisa Capital

On 14 April 2005, Standard Bank announced its intention to acquire a majority interest in Andisa Capital (Proprietary) Limited (Andisa

Capital), from a consortium led by Andisa Capital’s former chief executive, Ronnie Ntuli. In terms of the transaction, Standard Bank and

Safika increased their respective shareholdings in Andisa Capital while Ntuli (through the Nduna Trust) and Simeka Investment Holdings

(Proprietary) Limited (Simeka) reduced their shareholdings in Andisa Capital. At the same time, control of the existing private equity

business of Andisa Capital was transferred to the Nduna Trust and Simeka with Standard Bank and Safika retaining a minority stake. Standard

Bank’s interest in Andisa Capital increased from 49% to 77%. This transaction was approved by the Competition Tribunal in October 2005.

Safika

On 20 June 2005, Standard Bank acquired a 20% shareholding in Safika, a prominent empowerment company. The acquisition of this

holding was strategic in nature. This transaction was approved by the Competition Tribunal on 16 May 2005. On 25 October 2005 Standard

Bank sold a 5% shareholding in Safika to Liberty Life.

Argentina

ING

On 22 July 2005 an agreement was signed with ING Bank N.V. to acquire the operating infrastructure of its branch in Argentina. To this

end, Standard Bank Argentina S.A., with capital of approximately USD25 million, is in the process of being established as a licensed bank,

and is expected to become operational in March 2006.

BankBoston

On 15 December 2005, an agreement was signed with Bank of America N.A. to acquire the activities of BankBoston N.A.’s Argentine

Branch. This transaction is consistent with the group’s strategy of increasing its emerging market operations, and is subject to fulfilment of

provisions of the agreement and obtaining the necessary regulatory approvals. Subject to these, the acquisition is expected to be

completed in the second half of 2006.

Directors’ report for the year 31 December 2005 continued

MTN Mobile Money Holdings

On 10 August 2005, Standard Bank announced its intention to create a joint venture with MTN Group, and MTN Mobile Money Holdings

(Proprietary) Limited (MMMH) was formed. The joint venture will leverage the convergence of cellular technology and banking products

and services to create accessible low-cost banking, especially to the historically disadvantaged. A cash injection was made by both Standard

Bank and MTN Group to the joint venture.

Barclaycard joint venture

Following completion of the acquisition of a majority stake in ABSA Group Limited by Barclays Bank Plc (Barclays), it became necessary to

terminate the credit card collaborative venture between Standard Bank and Barclays (acting through its division Barclaycard International),

which commenced in August 2003. The early termination was concluded on 18 August 2005, and it was agreed that, amongst other

provisions, Standard Bank will increase its participation in the net assets of the collaborative venture (approximately 375 000 credit cards

and R1,55 billion outstanding balances) from 50% to 100%, and the existing Barclaycard customers will be re-issued with a Standard Bank

branded card.

Edcon

On 23 August 2005, Standard Bank entered into an agreement with Edcon Group Limited (Edcon) to offer eligible Edcon customers an

Edgars or Jet branded MasterCard Credit Card. The Edcon Co-Brand Card Programme is run in the Bluebean division of Standard Bank. The

bank also manages the programme, with Edcon contributing qualifying customer details on an agreed basis. Eligible customers are those

current Edcon store card holders who have a proven history of managing their finances. The initial roll-out of these cards took place in

August 2005.

RCSIH

On 29 August 2005, Standard Bank acquired an initial 25% of RCS Investment Holdings (RCSIH) for R358 million with an option to acquire

a further 20%. RCSIH is the financial services division of the Foschini Group, a major fashion retailer.

Stanbic Bank Nigeria

The Central Bank of Nigeria implemented new minimum capital requirement regulations, effective 1 January 2006, of N25 billion

(USD189 million). In order to comply with the new regulations and maintain a presence in this important market, Standard Bank injected

approximately USD185 million capital into Stanbic Bank Nigeria during December 2005.

Management by third parties

None of the businesses of the company or its subsidiaries had, during the financial year, been managed by a third party or a company in

which a director had an interest. Up to 31 December 2004, a company in which Doug Band, a director of Standard Bank Group, has a

beneficial interest, provided consulting and certain management services to the capital investment division of Standard Bank. In terms of

the agreement, he will receive a performance related share of the profit on the sale of equity-related interests in future years. Further

details can be found in the directors’ emoluments disclosure on page 42.

Subsidiaries, associates and joint ventures

The interests in subsidiaries, and in associates and joint ventures, where considered material in the light of the group’s financial position

and results, are set out in Annexure C on page 194, and Annexure D on page 198 respectively.

Special resolutions during the year

Group companies passed the following special resolutions during the year for the purposes indicated:

Amendments to memorandum and articles of association:

Increase in the authorised share capital:

– Banco Standard de Investimentos S.A.;

– ZAO Standard Bank;

– Stanbic Africa Holdings Limited; and

– Stanbic Bank Nigeria Limited.

Name changes:

– Standard Bank London Limited to Standard Bank Plc;

– Standard Resources Limited to Standard Debt Finance Plc;

– SBIC International Limited to Standard Bank Group International Limited;

– Main Street 240 (Proprietary) Limited to MTN Mobile Money Holdings (Proprietary) Limited;

– Mogwele Trading 130 (Proprietary) Limited to Integrated Processing Solutions; and

– To change the Chinese name of Standard Bank Asia Limited.


Authorise the acquisition of shares by the company or a subsidiary:

– Standard Bank Group Limited;

– Liberty Group Limited;

– Liberty Holdings Limited; and

– Capital Alliance Investment Holdings (Proprietary) Limited.

Other:

– Standard Bank Plc:

Re-registered as a public company;

– Standard Bank Asia Limited:

Amendment to the articles of association to authorise the company to purchase its own shares (including any redeemable shares);

– Stanbic Africa Holdings Limited:

Amendment to the articles of association to authorise the creation of non-cumulative, redeemable preference shares and the issue of

shares to SML Limited;

– Standard Debt Finance Plc:

Amendments to the memorandum and articles of association to allow for the company to re-register as a public company;

– Stanbic Finance Zimbabwe Limited:

To wind up the company in terms of section 242(b) of the Act; and

– Stanbic Bank Nigeria Limited:

Approval of a rights issue.

Contracts

Saki Macozoma, a director of the group, has a shareholding of 20% in Safika, which is a member of three different consortia that were

party to the Andisa, Stanlib and Tutuwa transactions. Safika holds effective interests of 23,4% of Andisa Capital, 12,85% of Stanlib, 2,23%

of Liberty Group and 1,78% of Standard Bank Group. The group has an effective interest of 16,5% in Safika.

Cyril Ramaphosa, a director of the group, has a 35,9% shareholding in Shanduka, which is a member of the Tutuwa consortium. Shanduka

holds an effective interest of 1,48% of Liberty Group and 1,19% of Standard Bank Group. The group holds an effective interest of 15,3%

in Shanduka.

In January 2006, Standard Bank advanced a loan to Circle Capital Ventures (Proprietary) Limited (Circle Capital Ventures). A portion of the

loan is convertible into 15% of the issued share capital of Circle Capital Ventures. Mamphela Ramphele, chairman of this group, has a

37,45% shareholding in this company.

Insurance

The group protects itself against banker’s comprehensive crime and professional indemnity by maintaining a comprehensive insurance

programme.

Events subsequent to balance sheet date

There is no material fact or circumstance that has occurred between the balance sheet date and the date of this report.


Balance sheet at 31 December 2005


Group

2005 2004

Note Rm Rm

AssetsCash and balances with banks 3 70 852 37 842

Short-term negotiable securities 4 30 313 21 461

Derivative assets 5 100 188 124 236

Trading assets 6 38 446 32 438

Investments 7 153 404 118 677

Loans and advances 8 334 128 258 873

Current and deferred taxation 9 990 1 094

Other assets 10 13 003 17 223

Disposal groups held for sale 30 2 380 –

Interest in associates and joint ventures 11 4 985 3 250

Goodwill and other intangible assets 12 2 453 965

Property and equipment 13 4 536 4 114

Total assets 755 678 620 173

Equity and liabilities

Equity 39 964 38 533

Equity attributable to ordinary shareholders 32 931 29 064

Ordinary share capital 14 135 135

Ordinary share premium 14 2 107 2 541

Reserves 30 689 26 388

Preference share capital and premium 14 2 991 2 991

Minority interest 4 042 6 478

Liabilities 715 714 581 640

Derivative liabilities 5 98 826 116 214

Trading liabilities 15 21 462 14 410

Deposit and current accounts 16 412 462 322 477

Current and deferred taxation 17 6 926 4 812

Other liabilities 18 21 292 16 074

Disposal groups held for sale 30 1 267 –

Policyholders’ liabilities 19 140 835 97 993

Subordinated bonds 20 12 644 9 660

Total equity and liabilities 755 678 620 173

Income statement for the year ended 31 December 2005


Group

2005 2004

Note Rm Rm

Income from banking operations 29 705 26 536

Net interest income 12 987 11 492

Interest income 23.1 38 697 35 247

Interest expense 23.2 25 710 23 755

Non-interest revenue 23.3 16 718 15 044

Income from life insurance operations 51 127 32 311

Net insurance premiums 23.4 18 979 12 406

Investment income and gains 23.5 30 982 18 830

Management and service fee income 1 166 1 075

Total income 80 832 58 847

Credit impairment charges 23.6 1 207 1 050

Benefits due to policyholders 41 004 24 809

Net insurance benefits and claims 32 816 19 115

Fair value adjustment to policyholders’ liabilities under investment contracts 6 834 4 666

Fair value adjustment on third party fund interests 1 354 1 028

Income after credit impairment charges and policyholders’ benefits 38 621 32 988

Operating expenses in banking operations 16 817 15 384

Staff costs 23.7 9 613 8 610

Other operating expenses 23.8 7 204 6 774

Operating expenses in life insurance operations 7 222 4 684

Acquisition costs – insurance and investment contracts 3 594 1 920

Other operating expenses 23.8 3 628 2 764

Net income before goodwill 14 582 12 920

Goodwill impairment 23.9 421 48

Net income from banking and insurance 14 161 12 872

Income from associates and joint ventures 11 226 127

Net income before indirect taxation 14 387 12 999

Indirect taxation 25.1 778 651

Profit before direct taxation 13 609 12 348

Direct taxation 25.2 4 312 3 276

Profit for the year 9 297 9 072

Attributable to minorities 639 1 388

Attributable to preference shareholders 226 –

Attributable to ordinary shareholders 8 432 7 684

Earnings per share (cents) 28 699,7 581,4

Fully diluted earnings per share (cents) 28 668,4 571,3

Dividends per share (cents) 26 267,0 231,5

Statement of changes in shareholders’ funds for the year ended 31 December 2005

Ordinary

share Hedge Statutory

capital Empower� Trans� of net credit

and ment lation investment risk

premium reserve reserve reserve reserve

Note Rm Rm Rm Rm Rm

Balance at 1 January 2004 as previously reported 2 407 413 68 –

Adjustment on adoption of IFRS Annexure A 2

Restated balance at 1 January 2004 2 407 413 68 2

Currency translation movement and hedging (1 360) 88

Increase in statutory credit risk reserve 1

Fair value adjustments

Financial instrument reclassifications

Realised fair value adjustments recycled to the income statement

Impairment resulting from Tutuwa initiative 21 (4 360)

Unrecognised profit on sale of subsidiary shares 21 114

Increase in minorities resulting from acquisitions

Issue of share capital and share premium 269

Share issue and repurchase costs

Equity-settled share-based payment transactions

Other

Attributable earnings for the year

Net dividends paid

Balance at 31 December 2004 2 676 (4 246) (947) 156 3

Balance at 1 January 2005 2 676 (4 246) (947) 156 3

Adjustment on adoption of IFRS Annexure A

Restated balance at 1 January 2005 2 676 (4 246) (947) 156 3

Currency translation movement and hedging 626 (229)

Increase in statutory credit risk reserve 23

Fair value adjustments

Realised fair value adjustments recycled to the income statement

Net decrease in treasury shares

Change in shareholding of subsidiaries

Increase in minorities resulting from acquisitions

Issue of share capital and share premium 246

Share buy-backs (677)

Share issue and repurchase costs (3)

Equity-settled share-based payment transactions

Other

Attributable earnings for the year

Net dividends paid

Dividends paid to equity holders 26

Dividends received from Tutuwa initiative and policyholders’

deemed treasury shares

Balance at 31 December 2005 2 242 (4 246) (321) (73) 26

All balances are stated net of applicable tax.



Available� Preference

for� Re� Share� Ordinary share

Cash flow sale valuation based share� capital

hedging revaluation and other Treasury payment Retained holders’ and Minority Total

reserve reserve reserves shares reserve earnings funds premium interest equity

Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm

44 484 224 25 195 28 835 8 6 421 35 264

93 23 (209) (91) (5) (96)

44 484 317 23 24 986 28 744 8 6 416 35 168

(1 272) (103) (1 375)

(1) – –

(5) 138 133 369 502

24 24 24

(123) (7) (130) (109) (239)

(4 360) (908) (5 268)

114 94 208

6 6

269 3 000 138 3 407

(57) (57) (17) (16) (90)

70 70 14 84

(5) (5) (14) (19)

7 684 7 684 1 388 9 072

(2 150) (2 150) (797) (2 947)

39 499 305 93 30 486 29 064 2 991 6 478 38 533

39 499 305 93 30 486 29 064 2 991 6 478 38 533

(399) (354) (148) (901) (2 756) (3 657)

39 100 305 (354) 93 30 338 28 163 2 991 3 722 34 876

397 (21) 376

(28) 5 – –

(140) 126 (14) (14)

18 (64) (46) (46)

(171) 180 9 197 206

(288) (288)

– 161 161

246 71 317

(677) (677)

(3) (3)

160 160 31 191

21 (10) 11 18 29

8 432 8 432 226 639 9 297

(3 747) (3 747) (226) (488) (4 461)

(4 107) (4 107) (226) (649) (4 982)

360 360 161 521

(83) 162 298 (525) 253 35 198 32 931 2 991 4 042 39 964

Cash flow statement for the year ended 31 December 2005


Group

2005 2004

Note Rm Rm

Operating activities

Cash receipts from customers 29.2 83 535 72 393

Cash paid to customers, employees and suppliers 29.3 (67 527) (58 330)

Dividends received 29.4 3 012 2 487

Net cash flows from operating activities 29.1 19 020 16 550

Changes in operating funds

Increase in income-earning assets 29.5 (58 829) (48 374)

Increase in deposits and other liabilities 29.6 89 143 51 784

Net cash flows from operating funds 30 314 3 410

Taxation paid 29.7 (2 419) (2 883)

Investing activities

Capital expenditure on – property (395) (147)

– equipment, furniture and vehicles (1 054) (1 094)

– intangible assets (203) (142)

Proceeds from sale of – property 124 130

– equipment, furniture and vehicles 187 194

Net (purchase)/sale of investment properties (709) 338

Proceeds from sale of shares in business operations – 26

Net increase in investments by insurance operations (682) (1 196)

Net disposal of reinsurance assets and other investments 73 654

Net cash (paid)/received on acquisition of subsidiaries 29.8 (1 771) 1 688

Increase of investments in existing subsidiaries (526) –

Investment in associates (421) –

Net cash flows (used in)/from investing activities (5 377) 451

Financing activities

Proceeds from issue of share capital to shareholders 245 3 252

Net proceeds from issue and repurchase of share capital to minorities 22 93

Repurchase of company shares (679) –

Repayment of convertible debentures – (1 541)

Net Tutuwa transaction payment – (4 885)

Tutuwa transaction payment – (5 341)

Proceeds received by Liberty Holdings – 456

Increase in subordinated bonds 2 966 2 627

Dividends paid 29.9 (4 461) (2 947)

Net cash flows used in financing activities (1 907) (3 401)

Effects of exchange rate changes on cash and cash equivalents 2 368 (4 402)

Net increase in cash and cash equivalents 41 999 9 725

Cash and cash equivalents at beginning of the year 59 303 49 578

Reclassified to disposal groups held for sale 30 (137) –

Cash and cash equivalents at end of the year 29.10 101 165 59 303

Accounting policies


The principal accounting policies applied in the presentation of the

financial statements are set out below.

1 Basis of presentation

These consolidated financial statements are prepared in

accordance with, and comply with International Financial

Reporting Standards (IFRS) and the South African

Companies Act of 1973. The consolidated financial

statements are prepared in accordance with the going

concern principle under the historical cost basis as modified

by the revaluation of financial instruments classified as

available-for-sale, financial assets and liabilities held at fair

value through profit or loss, derivative instruments and

investment properties.

The accounting policies are consistent with those adopted in

the previous year, except for changes made as a result of the

adoption of IFRS. The revised IFRS policies have been

consistently applied to both years presented with the

exception of policies where the group elected to apply IFRS

with effect from 1 January 2005 as described below.

The key principle of IFRS 1 – First-time Adoption of

International Financial Reporting Standards is full

retrospective application of IFRS but this statement provides

exemptions from retrospective application in certain

instances. The group’s transitional elections are set out below:

Elections applicable 1 January 2004

• Business combinations: The group elected not to

retrospectively apply the requirements of IFRS 3 for

business combinations that occurred prior to 1 January

2004. As a result, the carrying amount of goodwill is the

amortised amount on 31 December 2003, and previously

amortised goodwill and goodwill eliminated against

reserves were not reinstated.

• Property, equipment and intangible assets: A first-time

adopter may elect to use the fair value of individual

property, equipment and intangible assets at transition

date as the deemed cost. The group did not make use of

this transitional exemption and elected to measure

individual items of property, equipment and intangible

assets at depreciated cost determined in accordance with

IFRS.

• Employee benefits: The group elected not to apply the

exemption to account for all deferred actuarial gains or

losses, including a 10% tolerance limit for differences in

actuarial assumptions, in opening equity as at 1 January

2004. This exemption was not elected as the group’s

accounting policy for employee benefits under previous

South African Generally Accepted Accounting Practice

(SA GAAP) was already substantially in compliance with

IAS 19 – Employee Benefits. After consideration of

retrospective application of IAS 19 on adoption of IFRS,

no adjustments were required.

• Cumulative foreign currency translation adjustment: The

cumulative foreign currency translation reserve existing on

transition to IFRS has been retained and the option to reset

the reserve to zero was not elected as the group’s

accounting for translation adjustments under previous SA

GAAP was already substantially in compliance with IAS 21 –

The Effects of Changes in Foreign Exchange Rates. After

consideration of retrospective application of IAS 21, no

adjustments were required.

• Share-based payments: The group elected not to apply

the provisions of IFRS 2 – Share-based Payments to

equity-settled awards granted on or before 7 November

2002, or to awards granted after that date but which had

vested prior to 1 January 2005.


• Comparative numbers restated for financial instruments

and insurance contracts: The group elected the

exemption not to restate its comparatives for IAS 32 –

Financial Instruments: Disclosure and Presentation,

IAS 39 – Financial Instruments: Recognition and

Measurement and IFRS 4 – Insurance Contracts. The

group has therefore applied SA GAAP applicable as at

31 December 2004 to financial instruments and

insurance contracts in its 2004 numbers disclosed as

comparatives for the 2005 IFRS results.

• Designation of financial assets and financial liabilities in

terms of IAS 39: In terms of the transitional arrangements

the group elected the option to reclassify certain financial

assets and liabilities. These reclassifications were not

material.

There are no changes to estimates made under previous

SA GAAP for transition to IFRS. Where estimates have

previously been made under SA GAAP, consistent estimates

(after adjustments to reflect any difference in accounting

policies) have been made at the same date.

Primary differences between SA GAAP applicable at31 December 2004 and IFRS

The primary differences between SA GAAP and IFRS are set

out on the next page and the quantification of the

restatements and opening reserve adjustments, following the

adoption of IFRS, are set out in Annexure A.


Accounting policies continued

Accounting policies before adoption of IFRS Accounting policies adopted for IFRS

Elimination of treasury shares

Shares held in group companies for the benefit of

policyholders are now treated as treasury shares for

accounting purposes. The cost of treasury shares acquired is

eliminated against equity. The elimination of the cost of the shares

is split between shareholders’ equity and minorities based on the

effective interest of the group’s shareholding in the equity of the

subsidiary company where the shares are accounted for. No fair

value movements on treasury shares are recognised in the income

statement. The corresponding fair value movements on

policyholders’ liabilities relating to these shares are however

recognised in the income statement and not eliminated.

In calculating earnings per share the weighted number of shares

are reduced by the total number of treasury shares within the

group and not only the portion relating to ordinary shareholders.

This treatment is required in terms of IAS 33.

Impairment for credit losses

Impairment for credit losses on performing loans is now

based on an incurred loss model and estimated future

cash flows are discounted using the original effective

interest rate inherent in the loan, including the credit

premium.

Origination fees received on financial assets

All origination fees received on financial assets are now

accounted for as part of the carrying value of the

financial asset and recognised in income by adjusting

the effective interest rate over the term of the financial asset.

Equity-linked transactions

Equity-linked instruments issued after 7 November

2002 that have not vested by 31 December 2004 are now

accounted for at the fair value of the instruments granted

and expensed over the vesting period of the instruments.

Goodwill

Goodwill arising on acquisitions after 31 December 2003

and the carrying values of goodwill that existed at this date

are not amortised, but allocated to cash generating units

and tested annually for impairment.

Depreciation of buildings and equipment

The residual values of buildings and equipment are now

reassessed at each balance sheet date. Depreciation ceases

when the carrying value of the asset equals the residual value. The

carrying values that were previously fully depreciated have been

partially reinstated to reflect the residual value at the time when

the carrying value equalled the revalued residual value.

Shares held in group companies to cover obligations to

policyholders in the group’s insurance operation were disclosed

as part of investments. Fair value changes on these shares

were accounted for in the income statement.

Impairment for credit losses on performing loans was based on

an expected loss model. In terms of this model expected future

cash flows were discounted using the effective interest rate

excluding the credit premium inherent in the contract.

Some origination fees received, including documentation and

assessment fees, were previously accounted for as income

when the related origination services were performed. Where

origination fees were deferred it was generally brought to

income on a straight-line basis.

Equity-linked instruments issued in terms of the group’s equity

compensation plans and the Tutuwa initiative were accounted

for at the value of the cash consideration received, when the

cash was received.

Goodwill arising on the acquisition of subsidiaries, associates or

joint ventures occurring on or after 1 January 2000 was

capitalised and amortised over its estimated useful life.

Goodwill arising on acquisitions before 1 January 2000 was

accounted for in equity.

Depreciation of buildings and equipment

Buildings and equipment were previously depreciated on a

straight-line basis to their estimated residual values. These

residual values were fixed at the date of acquisition and not

reassessed annually.


Accounting policies before adoption of IFRS Accounting policies adopted for IFRS

Profit on initial recognition

Unquoted financial instruments are now recognised at fair

value on initial recognition. Any profit or loss on initial

recognition, calculated based on valuation models that include

unobservable market data, is deferred and recognised on a

straight-line basis over the life of the instrument. Any profit or loss

on initial recognition, based only on observable market data, is

recognised immediately.

Deferred acquisition costs (DAC) on investment contracts

Commissions paid and other acquisition costs are incurred when

new investment contracts are obtained or existing investment

contracts renewed. These costs, if attributable to a specific contract,

are deferred and amortised over the expected life of the contract. A

DAC balance is recognised for all applicable policies with the

amortisation being calculated on a portfolio basis.

An impairment test is conducted annually on the DAC balance to

ensure that the amount will be recovered from future revenue

from the applicable remaining investment contracts.

Deferred revenue liability on investment contracts

A deferred revenue liability is recognised when initial fees, which

are directly attributable to an investment contract, are charged for

securing the management service responsibility. The liability is

recognised as revenue over the expected duration of the services

to be provided.

Classification of insurance and investment contracts

The group issues contracts that transfer insurance risk or

financial risk or, in some cases, both. Insurance contracts are

those contracts that transfer significant insurance risk, which

can be defined as the possibility of having to pay benefits on the

occurrence of an insured event that are at least 10% more than

the benefits payable if the insured event did not occur.

All contracts that do not fall within the definition of an insurance

contract have been classified as investment contracts and

measured at fair value through profit or loss under IAS 39.

Consolidation of mutual funds

Mutual funds, in which the group has a greater than 50%

economic interest, have been consolidated. The consolidation

principles as contained in the existing basis of consolidation

accounting policy have been applied.

Straight-lining of leases

Lease payments with fixed escalation clauses are recognised on

a straight-line basis over the term of the lease.

Deferred tax on present value of in-force (PVIF) business and

investment properties

The PVIF is based on pre-tax cash flows with a corresponding

deferred tax liability recognised.

Deferred tax is now raised on a blended rate based on the

expected method of use and is accounted for as a reduction of

policyholders’ liabilities.

Unquoted financial instruments acquired were previously

recognised at cost and any profit or loss on remeasurement to

fair value based on valuation models was accounted for on the

date of remeasurement.

Commission expense was recognised upfront when it was paid.

Service fees were recognised upfront when received.

Policyholder contracts that do not transfer significant insurance

risk are classified in the financial statements at fair value, with

changes in fair value being accounted for in the income

statement.

Not consolidated under SA GAAP.

Lease income was previously recognised based on the amount

accrued in terms of the lease agreement. Lease income and

expenses were only spread for balloon payments.

The carrying value of PVIF was based on after-tax cash flows.

Deferred tax on investment properties was previously raised at

the capital gains tax rate, being the tax payable on sale of

investment properties.


Due to the specialised nature of banking and life insurance

businesses, the accounting policies appropriate to each

business, where required, are separately detailed below.

2 Basis of consolidation

The financial statements of subsidiaries are consolidated

from the date on which the group acquires effective control,

up to the date that such effective control ceases. For this

purpose, subsidiaries are companies over which the group,

directly or indirectly, has the power to govern the financial

and operating policies to obtain the benefits from its

activities. The existence and effect of potential voting rights

that are currently exercisable or convertible are considered

when assessing whether the group controls another entity.

Special purpose entities, including securitisation vehicles,

are consolidated when the substance of the relationship

between the group and the special purpose entity indicates

that the group effectively controls the entity.

Mutual funds in which the group has more than 50%

economic interest or control are consolidated.

The purchase method of accounting is used to account for

the acquisition of subsidiaries. The cost of an acquisition is

measured as the fair value of the assets given, equity

instruments issued and liabilities incurred or assumed at the

date of exchange, plus costs directly attributable to the

acquisition. Identifiable assets acquired and liabilities and

contingent liabilities assumed in a business combination are

measured initially at their fair values at the acquisition date,

irrespective of the extent of any minority interest. The

excess of the cost of an acquisition over the fair value of

identifiable net assets acquired is recorded as goodwill and

accounted for in terms of accounting policy 14. Negative

goodwill arising on acquisition is recognised directly in the

income statement.

Inter-company transactions, balances and unrealised gains

and losses within banking and insurance operations are

eliminated on consolidation. Equity instruments of group

entities held by subsidiaries are classified as treasury shares

and accounted for in terms of accounting policy 23.

Accounting policies of subsidiaries conform to the policies

adopted by the group for its banking and insurance

operations.

Investments in subsidiaries and associates are accounted for

at cost in the company accounts. The carrying amounts of

these investments are reviewed annually and written down

for impairment where considered necessary.

3 Foreign currency translations

Functional and presentation currency

Items included in the financial statements of each of the

group’s entities are measured using the currency of the

primary economic environment in which the entity operates

(functional currency). Standard Bank Group’s company and

consolidated functional and presentation currency is rands

and all amounts, unless otherwise indicated, are stated in

millions of rands (Rm).

Group companies

The results and financial position of all foreign operations

(excluding those in hyperinflationary economies) that have a

functional currency different from the group’s presentation

currency are translated into the presentation currency as

follows:

• assets and liabilities are translated at the closing rate on

the balance sheet date; and

• income and expenses are translated at average exchange

rates for the year, to the extent that such average rates

approximate actual rates.

On consolidation, exchange differences arising from the

translation of the net investment in foreign operations, and

of borrowings and other currency instruments designated as

hedges of such investments, are accounted for directly in a

separate component of equity. On disposal of foreign

operations, such exchange differences are recognised in the

income statement as part of the profit or loss on disposal.

Goodwill and fair value adjustments arising on the

acquisition of foreign operations are treated as assets and

liabilities of the foreign operation and translated at closing

rates at balance sheet date.

The revenues and expenses of foreign operations in

hyperinflationary economies are translated to rand at the

foreign exchange rates ruling at the balance sheet date.

Transactions and balances

Foreign currency transactions are translated into the

functional currency using the exchange rates prevailing at

the date of the transactions. Foreign exchange gains and

losses resulting from the settlement of such transactions and

from the translation at year-end exchange rates of monetary

assets and liabilities denominated in foreign currencies, are

recognised in the income statement except when deferred

in equity as qualifying cash flow hedges and qualifying net

investment hedges. Exchange differences on non-monetary

items are accounted for based on the classification of the



underlying items. Foreign exchange gains and losses on

equities classified as available-for-sale financial assets are

included in the available-for-sale reserve in equity whereas

the exchange differences on equities held at fair value

through profit or loss are reported as part of the fair value

gain or loss.

4 Cash and cash equivalents

Cash and cash equivalents disclosed in the cash flow

statement consist of cash and balances with banks and short-

term negotiable securities. Cash flows arising from operating

funds are stated after excluding the impact of foreign

currency translation differences on asset and liability classes.

Cash and balances with banks comprise coins and bank notes

and balances with central and other banks. Short-term

negotiable securities are highly liquid investments that are

readily convertible to known amounts of cash and which are

subject to an insignificant risk of changes in value.

5 Short�term negotiable securities, tradingassets and investment securities

Recognition and measurement

Financial assets are held for liquidity, investment, trading or

hedging purposes. All financial assets are initially recognised

at fair value plus transaction costs, except those carried at

fair value through profit or loss. These financial assets

are recognised on the date the group commits to purchase

the assets (trade date) and are derecognised when the

rights to receive cash flows from the financial assets have

expired or where the group has transferred substantially

all the risks and rewards of ownership. Gains or losses

on disposal are determined using the average costing

method.

Classification

Management determines the appropriate classification of

financial assets on acquisition.

Held�to�maturity

Short-term negotiable securities and investment securities

with fixed maturity and fixed or determinable payments,

where management has both the intent and the ability to

hold the securities to maturity, are classified as held-to-

maturity. Were the group to sell more than an insignificant

amount of held-to-maturity assets, the entire category

would be tainted and reclassified as available-for-sale assets

and the difference between amortised cost and fair value

will be accounted for in equity. Financial assets classified as

held-to-maturity by the group are carried at amortised cost,

using the effective interest method, less any provisions for

impairment.

Financial assets at fair value through profit or loss

• Financial assets that the group holds for short-term profit

taking (trading assets) are classified as financial assets at

fair value through profit or loss. Subsequent to initial

recognition, these trading assets are measured at fair

value. All related realised and unrealised gains and losses

arising from the change in fair value are included in

trading revenue under non-interest revenue in the

income statement. Interest earned and dividends

received while holding trading assets at fair value

through profit or loss are included in trading revenue.

• Financial assets that the group designates at inception as

financial assets at fair value through profit or loss are

carried at fair value subsequent to initial recognition. All

income and realised and unrealised gains and losses

arising from the change in fair value of these financial

assets are included in interest income for all dated

financial assets and in other revenue within non-interest

revenue for all undated financial assets. Such

classification is not changed subsequent to initial

recognition.

Available�for�sale

Available-for-sale financial assets are held for an indefinite

period of time and may be sold in response to needs for

liquidity or changes in interest rates, exchange rates or

equity prices. Financial assets that are not classified as loans

and receivables, held-to-maturity or financial assets at fair

value through profit or loss, are classified as available-for-

sale assets and carried at fair value. Unrealised gains or

losses arising from the changes in the fair value of available-

for-sale assets are recognised in equity. On disposal of

available-for-sale assets, the fair value adjustments

accumulated in equity are recognised in the income

statement. Interest, calculated using the effective interest

method, and dividends received on available-for-sale

instruments are recognised directly in the income

statement.

Fair value

The best evidence of the fair value on initial recognition is

the transaction price, unless the fair value is evidenced by

comparison with other observable current market

transactions in the same instrument or based on discounted

cash flow models and option pricing valuation techniques

whose variables include only data from observable markets.



When such valuation models, with only observable market

data as input, indicate that fair value differs from cost on

initial recognition, the resulting profit or loss is recognised

immediately. If non-observable market data is used as part

of the input to the valuation models, any resulting profit or

loss is deferred and recognised over the period of the

instrument.

Subsequent to initial recognition, the fair values of financial

assets are based on quoted bid prices, excluding transaction

costs. If the market for a financial asset is not active or the

instrument is an unlisted instrument, the fair value is

estimated using applicable valuation techniques. These

include the use of recent arm’s length transactions,

discounted cash flow analyses, pricing models and valuation

techniques commonly used by market participants.

Where discounted cash flow analyses are used, estimated

future cash flows are based on management’s best

estimates and the discount rate is a market-related rate at

the balance sheet date for a financial asset with similar terms

and conditions. Where pricing models are used, inputs are

based on observable market indicators at the balance sheet

date and profits or losses are only recognised to the extent

that they relate to changes in factors that market

participants will consider in setting a price.

6 Repurchase and resale agreements andlending of securities

Securities sold subject to linked repurchase agreements are

retained in the financial statements as trading or investment

securities and valued in terms of accounting policy 5. The

liability to the counterparty is included under deposit and

current accounts.

Securities purchased under agreements to resell are

recorded as loans granted under resale agreements and

included under loans and advances to other banks or clients

as appropriate.

The difference between the sale and repurchase price is

treated as interest and accrued over the life of the

repurchase agreement using the effective interest method.

Securities lent to counterparties are retained in the financial

statements and are classified and measured in accordance

with accounting policy 5. Securities borrowed are not

recognised in the financial statements unless these are sold

to third parties. In these cases, the obligation to return the

securities borrowed is recorded at fair value as a trading

liability.

Income and expenses arising from the securities borrowing

and lending business are recognised on an accrual basis over

the period of the transactions.

7 Derivative financial instruments

A derivative is a financial instrument whose value changes in

response to an underlying variable, that requires little or no

initial investment and that is settled at a future date. All

derivatives are accounted for as trading instruments unless

they meet the criteria for hedge accounting. Derivatives are

initially recognised at fair value on the date on which the

derivatives are entered into and subsequent to initial

recognition remeasured at fair value as described in

accounting policy 5.

All derivative instruments of the group are carried as assets

when the fair value is positive and as liabilities when the fair

value is negative, subject to offsetting principles as

described in accounting policy 22.

Embedded derivatives included in hybrid instruments are

treated and disclosed as derivatives when their risks and

characteristics are not closely related to those of the host

contract and the host contract is not carried at fair value with

fair value changes recognised in the income statement.

Where separated from the host contracts, embedded

derivatives are accounted for and measured at fair value with

any gains or losses from the change in fair value included in

the income statement. The host contracts are accounted for

and measured applying the rules of the relevant category of

that financial instrument.

8 Hedge accounting

On the date that a derivative contract is designated as a

hedging instrument, the group designates the derivative as

either:

• a hedge of the fair value of a recognised asset or liability

or a firm commitment (fair value hedge); or

• a hedge of a highly probable future cash flow

attributable to a recognised asset or liability or a forecast

transaction (cash flow hedge); or

• a hedge of a net investment in a foreign entity.

A hedging relationship exists where:

• at the inception of the hedge there is formal

documentation of the hedge;

• the hedge is expected to be highly effective;

• the effectiveness of the hedge can be reliably measured;

• the hedge is highly effective throughout the reporting

period; and

• for a hedge of a forecast transaction, the transaction is

highly probable and presents an exposure to variations in

cash flows that could ultimately affect net profit.


Hedge accounting requires that the hedging instrument be

measured at fair value. The fair value of a derivative hedging

instrument is calculated in the same manner as the fair value

of a trading instrument.

Fair value hedges

Where a hedge relationship is designated as a fair value

hedge, the hedged item is stated at fair value in respect of

the risk being hedged. Gains or losses on the

remeasurement of both the fair value hedge and the hedged

item are recognised in the income statement. Fair value

adjustments relating to the hedged instrument are allocated

to the same income statement category as the related

hedged item. If the hedge relationship is discontinued on a

hedged debt instrument carried at amortised cost, the fair

value adjustment to the carrying value of the hedged item is

amortised over the debt instrument’s remaining life using

the effective interest rate method.

Cash flow hedges

The effective portion of changes in the fair value of

derivatives that are cash flow hedges are recognised in

equity. The ineffective part of any gain or loss is recognised

in the income statement as trading revenue. Where a

forecast transaction results in the recognition of a non-

financial asset, non-financial liability, income or expense, the

cumulative gains or losses previously deferred in equity are

transferred from equity and included in the initial

measurement of the cost of the non-financial asset, liability,

income or expense. If the hedged transaction subsequently

results in the recognition of a financial asset or financial

liability, the associated gains and losses that were recognised

directly in equity are classified into the income statement in

the same period or periods during which the asset or liability

affects the income statement (i.e. when interest income and

expense is recognised) and into the same income statement

line item.

When a hedging instrument or hedge relationship is

terminated, but the hedged transaction is still expected to

occur, the cumulative gains or losses recognised in equity

remain in equity and are recognised in accordance with the

above policy. If the hedged transaction is no longer

expected to occur, the cumulative gains or losses recognised

in equity are immediately recognised in the income

statement and are classified as trading revenue.

Hedge of a net investment in a foreign entity

Where considered appropriate, the group hedges net

investments in foreign entities using derivative instruments.

For such hedges, the foreign exchange difference arising on

the hedging instrument and relating to the effective portion

of the hedge, is recognised directly in equity. Any ineffective

portion is immediately recognised in the income statement.

On the disposal of a foreign entity, the cumulative gains or

losses relating to the effective portion of the hedge are

recognised in the income statement as part of the profit or

loss on disposal.

9 Policyholder insurance and investmentcontracts

Insurance and investment contract classification

The group issues contracts that transfer insurance risk or

financial risk or both.

An insurance contract is a contract under which the group

(insurer) accepts significant insurance risk from the

policyholder by agreeing to compensate the policyholder if a

specified uncertain future event (the insured event)

adversely affects the policyholder. Such contracts may also

transfer financial risk. The group defines significant

insurance risk as the possibility of having to pay benefits on

the occurrence of an insured event that are significantly

more than the benefits payable if the insured event did not

occur.

Investment contracts are those contracts that transfer

financial risk with no significant insurance risk. Financial risk

is the risk of a possible future change in one or more of a

specified interest rate, financial instrument price,

commodity price, foreign exchange rate, index of prices or

rates, credit rating or credit index or other variable, provided

in the case of a non-financial variable that the variable is not

specific to a party to the contract.

Discretionary participation features (DPF)

A number of insurance and investment contracts contain a

discretionary participation feature (DPF). This feature

entitles the policyholder to receive, as a supplement to

guaranteed benefits, additional benefits or bonuses:

• that are likely to be a significant portion of the total

contractual benefits;

• whose amount or timing is contractually at the discretion

of the group; and

• that are contractually based on:

• the performance of a specified pool of contracts or a

specified type of contract; and/or

• realised and/or unrealised investment returns on a

specified pool of assets held by the group.

The terms and conditions or practice of these contracts set

out the bases for the determination of the amounts on which

the additional discretionary benefits are based (the DPF



eligible surplus) and within which the group may exercise its

discretion as to the quantum and timing of their payment to

policyholders. Typically at least 90% of the eligible surplus

must be attributed to policyholders as a group (which can

include future policyholders), while the amount and timing

of the distribution to individual policyholders is at the

discretion of the group, subject to the advice of the

statutory actuary.

Insurance contracts

Measurement

These contracts are valued in terms of the Financial

Soundness Valuation (FSV) basis, on a gross premium

valuation methodology described in Practice Guidance Note

(PGN) 104 issued by the Actuarial Society of South Africa

and the liability is reflected as “Policyholders’ liabilities

under insurance contracts”. PGN 104 is available on the

website of the Actuarial Society of South Africa

(www.assa.org.za).

The liability is based on assumptions of the best estimate of

future experience, plus compulsory margins as required in

terms of PGN 104, plus additional discretionary margins.

Discretionary margins are added so that the shareholders’

participation in profits emerges in the year in which it is

earned. These discretionary margins include an allowance

for the shareholders’ participation in the reversionary and

terminal bonuses expected to be declared each year in

respect of with-profit business, an allowance for the

shareholders’ participation in the bonus expected to be

declared and a portion of the management fees levied under

certain classes of market related business. In addition to the

provision made in the basic reserves, discretionary margins

are held for further possible deviations in risk experience

and in respect of minimum investment guarantees.

Liabilities for individual market related policies where

benefits are dependent on the performance of underlying

investment portfolios (including business with stabilised

bonuses where bonuses were taken at full value) are taken

as the aggregate value of the policies’ investment in the

investment portfolio at the valuation date, reduced by the

excess of the present value of the expected future risk

benefits and expenses on a policy by policy cash flow basis.

Reversionary bonus and the major non-profit classes of

policies are valued by discounting the expected future cash

flows at a market related rate of interest reduced by an

allowance for investment expenses and the relevant

prescribed margins. Future bonuses have been allowed for at

the latest declared rates.

Annuities, other than term certain annuities, are valued by

discounting annuity instalments and expenses at the rate of

return yielded by the matching assets reduced by an

allowance for investment expenses and the relevant

compulsory margin.

Liabilities for group benefit policies (including policies where

bonuses are stabilised) are established as the value of the

policies’ investment in the respective investment portfolios,

including the face value of all bonuses (vested and

unvested) declared up to the balance sheet date.

In respect of insurance contracts with DPF where bonuses

are stabilised, bonus stabilisation reserves are held arising

from the difference between the after-tax investment

performance of the assets net of the relevant management

fees and the value of the bonuses declared.

A reserve for minimum investment return guarantees is

calculated on a stochastic basis in accordance with PGN 110

issued by the Actuarial Society of South Africa. PGN 110 is

available on the website of the Actuarial Society of South

Africa.

The liability calculation methodology and assumptions are

periodically reviewed, with any changes in estimates

reflected in the income statement as they occur.

Outstanding claims provisions

Provision is made in the policyholders’ liabilities under

insurance contracts for the estimated cost of claims

outstanding at the end of the year, including those incurred

but not reported at that date. Outstanding claims and

benefit payments are stated gross of reinsurance.

Embedded derivatives

The group does not separately measure any derivatives

embedded in insurance contracts as they are measured as

part of the insurance contracts.

Liability adequacy test

At each balance sheet date, liability adequacy tests are

performed to ensure the adequacy of the insurance contract

liabilities net of any related intangible PVIF assets. Since the

liability is calculated in terms of the FSV basis, and the FSV

basis meets the minimum requirement of the liability

adequacy test, it is not necessary to perform a liability

adequacy test on the liability component. However it is still

necessary to perform an impairment test on the intangible

PVIF asset. In performing this test the current PVIF in respect

of the acquired book is compared to the intangible PVIF asset.

Any deficiency is immediately charged to profit or loss initially

by writing off the intangible PVIF asset and by subsequently

establishing a provision for losses arising from the liability

adequacy tests (the unexpired risk provision).

Any intangible PVIF asset written off as a result of this test

cannot subsequently be reinstated.


Investment contracts

Investment contracts without DPF

The group issues investment contracts without fixed

benefits (unit linked and structured products) and

investment contracts with fixed and guaranteed benefits

(term certain annuity).

Investment contracts without fixed benefits are financial

liabilities whose fair value is dependent on the fair value of

the underlying financial assets, derivatives and/or

investment property (unit linked) and are designated at

inception as fair value through profit or loss.

The fair value at inception and each reporting date is

measured with reference to the designated matching

financial instruments.

The group’s valuation methodologies incorporate all factors

that market participants would consider and are based on

observable market data. The fair value of a unit linked

financial liability is determined using the current unit

price that reflects the fair values of the financial assets

contained within the group’s unitised investment funds

linked to the financial liability, multiplied by the number

of units attributed to the policyholder at the balance

sheet date.

If the investment contract is subject to a put or surrender

option, the fair value of the financial liability is never

less than the amount payable on the put or surrender

option.

For investment contracts with fixed and guaranteed terms,

future benefit payments and premium receipts are

discounted using the rates implied by the government

zero-coupon yield curve at the relevant balance sheet

date. Any adjustments are immediately recognised as

income or expense in the income statement.

Investment contracts with DPF

Within the group all monies invested in investment

smoothed bonus portfolios are classified as investment

contracts with DPF. The classification between investment

and investment contracts with DPF is not done at a contract

level, but at a portfolio level within each contract (i.e. a

contract can have investment without DPF and investment

with DPF component).

For the investment with DPF component, the unit linked

financial liability is taken as the value of units attributable to

the policyholders along with the bonus stabilisation reserve

at the balance sheet date. The bonus stabilisation reserve

represents the difference between the bonus declared and

what is earned on the underlying policyholder assets.

If the investment contract is subject to a put or surrender

option, the value of the financial liability is never less than

the amount payable on the put or surrender option.

Value of business acquired

On acquisition of a portfolio of contracts, either directly from

another insurer or through the acquisition of a subsidiary

undertaking, the group recognises an intangible asset

representing the PVIF. PVIF represents the present value of

future profits embedded in acquired insurance contracts.

The group amortises the cost of PVIF over the effective life

of the acquired contracts on a straight-line basis.

Reinsurance contracts held

Reinsurance contracts are contracts entered into by the

group with reinsurers under which the group is compensated

for the entire or a portion of losses arising on one or more of

the insurance contracts issued by the group.

The benefits to which the group is entitled under its

reinsurance contracts held are recognised as reinsurance

assets. These assets consist of short-term balances due from

reinsurers (classified within other assets) as well as longer-term

receivables (classified as reinsurance assets) that are

dependent on the present value of expected claims and

benefits arising net of expected premiums payable under the

related reinsurance contracts. Amounts recoverable from or

due to reinsurers are measured consistently with the amounts

associated with the reinsured insurance contracts and in

accordance with the terms of each reinsurance contract.

The group reinsurance assets are assessed for impairment. If

there is objective evidence that the reinsurance asset is

impaired, the group reduces the carrying amount of the

reinsurance asset to its recoverable amount and recognises

that impairment loss in the income statement.

Receivables and payables related to insurance

contracts and investment contracts

Receivables and payables are recognised when due. These

include amounts due to and from agents, brokers and

policyholders. If there is objective evidence that the

insurance receivable is impaired, the group reduces the

carrying amount of the insurance receivable accordingly and

recognises that impairment loss in the income statement.

10 Loans and advances

Loans and advances are classified on initial recognition as

loans and receivables or financial assets at fair value through

profit or loss. Loans and advances classified as financial

assets at fair value through profit or loss are accounted for in

terms of accounting policy 5.



Loans and advances classified as loans and receivables are

financial assets with fixed or determinable payments that

are not quoted in an active market and include purchased

loans. Loans and receivables are accounted for at amortised

cost using the effective interest method. Origination

transaction costs and origination fees received are capitalised

to the value of the loan and amortised through interest income.

Where the group has elected to classify and account for any

loan as a financial asset at fair value through profit or loss,

the movement in the fair value is accounted for in the

income statement as interest income.

11 Impairment of financial assets

Financial assets are reviewed at each balance sheet date to

determine whether there is objective evidence of

impairment. A financial asset or group of financial assets is

impaired and impairment losses are incurred if there is

objective evidence of impairment, resulting from one or

more loss events that occurred after initial recognition but

before the balance sheet date, that indicates that it is

probable that the group will be unable to collect all

amounts due. The carrying amount of a financial asset

identified as impaired is reduced to its estimated

recoverable amount.

Available�for�sale financial assets

An available-for-sale equity financial instrument is generally

considered impaired if a significant or prolonged decline in

the fair value of the instrument below its cost has occurred.

An available-for-sale debt instrument is impaired if there is

objective evidence of impairment, resulting from one or

more loss events that occurred after initial recognition but

before the balance sheet date, that indicates that it is

probable that the group will be unable to collect all amounts

due. Where an available-for-sale asset, which has been

remeasured to fair value directly through equity, is impaired,

the impairment loss is recognised in the income statement.

If any loss on the financial asset was previously recognised

directly in equity as a reduction in fair value, the cumulative

net loss that had been recognised in equity is transferred to

the income statement and is recognised as part of the

impairment loss. The amount of the loss recognised in the

income statement is the difference between the acquisition

cost and the current fair value, less any previously

recognised impairment loss.

If, in a subsequent period, the amount relating to an

impairment loss decreases and the decrease can be linked

objectively to an event occurring after the write-down,

where the instrument is a debt instrument, the write-down

is reversed through the income statement. An impairment

loss in respect of an equity instrument classified as available-

for-sale is not reversed through the income statement but

accounted for directly in equity.

Loans and receivables

Non-performing loans are impaired for doubtful debts

identified during periodic evaluations of advances. The

impairment to non-performing loans takes account of past

loss experience adjusted for changes in economic conditions

and the nature and level of risk exposure since the recording

of the historic losses. The methodology and assumptions

used for estimating future cash flows are reviewed regularly

to reduce any differences between loss estimates and actual

loss experience.

Retail loans and advances are considered non-performing

when amounts are due and unpaid for three months.

Corporate loans are analysed on a case-by-case basis taking

into account breaches of key loan conditions.

When a loan carried at amortised cost has been identified as

impaired the carrying amount of the loan is reduced to an

amount equal to the present value of expected future cash

flows, including the recoverable amount of any collateral,

discounted at the instrument’s original effective interest

rate. The resulting loss is accounted for as a credit

impairment of a financial asset in the income statement.

Subsequent to impairment, the effects of discounting

unwind over time as interest income.

Impairment of performing loans can only be accounted for if

there is objective evidence that a loss event has occurred

after the initial recognition of the financial asset but before

the balance sheet date. In order to provide for latent losses

in a portfolio of loans that have not yet been individually

identified as impaired, a credit impairment for incurred but

not reported losses is created based on historic loss patterns

and estimated emergence periods. Loans are also impaired

when adverse economic conditions developed after initial

recognition which may impact future cash flows.

Increases in loan impairments and any subsequent reversals

thereof, or recoveries of amounts previously impaired, are

reflected in the income statement. Advances impaired are

written off once all reasonable attempts at collection have been

made and there is no realistic prospect of recovering

outstanding amounts. Any subsequent recoveries or reductions

in amounts previously impaired are accounted for as a reduction

in impairment for credit losses in the income statement.

12 Assets leased to clients and instalmentsale contracts – lessor accounting

Lease and instalment sale contracts are primarily financing

transactions in the banking operations, with rentals and

instalments receivable, less unearned finance charges, being

included in loans and advances on the balance sheet.

Finance charges earned are computed using the net

investment method which reflects a constant periodic return


on the investment in the finance lease. Initial direct costs

paid are capitalised to the value of the lease amount

receivable and accounted for over the lease term as an

adjustment to the effective rate of return. The benefits

arising from investment allowances on assets leased to

clients are accounted for in tax.

Leases of assets under which the lessor effectively retains all

the risks and benefits of ownership are classified as

operating leases. Receipts of operating leases from

properties held as investment properties in the group’s

insurance operations are accounted for as income on the

straight-line basis over the period of the lease. When an

operating lease is terminated, any payment required by the

lessee by way of penalty is recognised as income in the

period in which termination takes place.

13 Interest in associates and joint ventures

Associates and jointly controlled entities

An associate is an entity, not being a subsidiary, in which an

investment is held and over whose financial and operating

policies the group is able to exercise significant influence.

Investments in mutual funds in which the group has between

20% and 50% of the economic interest are deemed to be

associates.

A jointly controlled entity is a contractual arrangement that

establishes joint control over the economic activity of an entity.

Interests in associates and jointly controlled entities are

accounted for using the equity method and are carried in the

balance sheet at an amount that reflects the group’s share of

the net assets of the associate or jointly controlled entity and

includes goodwill. Equity accounting involves recognising the

investment initially at cost, including goodwill, and

subsequently adjusting the carrying value for the group’s

share of the associate’s profit or loss for the year, recognised

in the income statement, and other direct reserve

movements. Equity accounting of losses in associates or joint

ventures is restricted to the interests in these entities,

including unsecured receivables or other commitments.

Inter-company profits and losses are eliminated in

determining the group’s share of equity accounted profits.

This method is applied from the date on which the enterprise

becomes an associate, up to the date on which it ceases to be

an associate. Accounting policies of associates and joint

ventures have been changed where necessary to ensure

consistency with the policies of the group.

Where a mutual fund investment is acquired and held for the

purposes of investment activities within the insurance

operations, it is not accounted for under the equity method

but classified as held at fair value through profit or loss and

accounted for on the basis set out in accounting policy 5.

Investments in associates and joint ventures are accounted

for at cost in the investor’s separate financial statements.

Jointly controlled operations

Jointly controlled operations exist where two or more

venturers combine their operations, resources or expertise

to market or distribute jointly a particular product. Each

venturer recognises the assets it controls, the liabilities and

expenses that it incurs, and its share of the income in

respect of its interest in the joint venture.

14 Goodwill

Goodwill represents the excess of the cost of an acquisition

over the fair value of the group’s share of the net assets of

the acquired subsidiary, associate or joint venture at the

date of acquisition. Acquisition costs include any directly

attributable transaction costs.

Goodwill arising on the acquisition of subsidiaries, associates

or joint ventures occurring on or after 1 January 2000, is

reported in the balance sheet as an intangible asset.

Goodwill arising on acquisitions on or after 1 January 2000

but before or on 31 December 2003 has been amortised

using the straight-line method over its estimated useful life

and is carried at cost less any accumulated amortisation

recognised up to 31 December 2003.

Goodwill arising on acquisitions after 31 December 2003

and the carrying values of goodwill that existed on this date

are not amortised, but allocated to cash generating units and

is tested annually for impairment. Cash generating units are

the smallest identifiable groups of assets that generate cash

inflows that are largely independent of cash inflows from

other assets or groups of assets. An impairment loss is

recognised if the carrying amount of a cash generating unit

exceeds its recoverable amount. Negative goodwill is

recognised as income in the period in which it arises. Gains

or losses on the disposal of an entity include the carrying

amount of goodwill relating to the entity sold.

15 Other intangible assets

Computer software

Generally, costs associated with developing or maintaining

computer software programs and the acquisition of software

licences are recognised as an expense as incurred. However,

direct computer software development costs that are clearly

associated with an identifiable and unique system, which will

be controlled by the group and have a probable benefit

exceeding one year, are recognised as intangible assets.

Direct costs include software development employee costs

and an appropriate portion of relevant overheads.



Direct computer software development costs recognised as

assets are amortised on the straight-line basis at rates

appropriate to the expected useful lives of the assets (two

to five years), and are carried at cost less any accumulated

amortisation and any accumulated impairment losses. The

carrying amount of capitalised computer software is

reviewed annually and is written down when the carrying

amount exceeds the recoverable amount.

Present value of acquired in�force life insurancebusiness

Where a portfolio of life contracts is acquired, the PVIF

business on the portfolio, being the net present value of

estimated future pre-tax cash flows of the existing contracts,

is recognised as an intangible asset and amortised on a

straight-line basis at rates appropriate to the expected life of

the purchased contracts (five to 15 years). The PVIF is

carried in the balance sheet at cost less any accumulated

amortisation and impairment losses.

16 Fixed assets

Equipment and owner�occupied properties

Equipment, furniture, vehicles and other tangible assets are

stated at historical cost less accumulated depreciation.

Historic cost includes expenditure that is directly

attributable to the acquisition of property and equipment.

Subsequent costs are included in the asset’s carrying

amount or are recognised as a separate asset, as

appropriate, only when it is probable that future economic

benefits will flow to the group and the cost of the item can

be measured reliably. Maintenance and repairs, which do not

meet these criteria, are charged against income as incurred.

Gains or losses on disposal of assets are included in the

income statement.

Owner-occupied properties are held for use in the supply of

services or for administrative purposes.

Property and equipment are depreciated on the straight-line

basis over the estimated useful lives of the assets to the

current values of their expected residual values. The assets’

residual values and useful lives are reviewed, and adjusted if

appropriate, at each balance sheet date and the

depreciation method is reviewed annually.

Freehold buildings, comprising mainly offices and branches,

are generally classified as owner-occupied properties and

accounted for in terms of the cost method. These buildings

are depreciated on the straight-line basis over their

estimated useful lives to the current value of their estimated

residual value. The freehold land portion is not depreciated.

Leasehold buildings are depreciated over the period of the

lease or over such lesser period as is considered appropriate.

The carrying value of assets is reviewed regularly to assess

whether there is any indication of impairment and where the

carrying amounts of assets are greater than their

recoverable amounts, the assets are written down to these

recoverable amounts. The recoverable amount is the greater

of the fair value of the asset less costs to sell or the value in

use. Depreciation and impairment losses are included in the

income statement.

The estimated useful lives of tangible assets are asfollows:

Property – 40 years

Computer equipment – 3 to 5 years

Motor vehicles – 5 years

Office equipment – 5 to 10 years

Furniture and fittings – 5 to 13 years

Capitalised leased assets – over the shorter of the lease

term or its useful life

There has been no change to useful lives from those applied

in the previous financial year.

Investment properties and properties under

development

Investment properties are held to earn rental income and for

capital appreciation.

Investment properties are reflected at valuation based on

open-market fair value at the balance sheet date. If this

information cannot be reliably determined, the group uses

alternative valuation methods such as discounted cash flow

projections or recent prices on active markets. The fair

values are the estimated amounts for which a property could

be exchanged on the date of valuation between a willing

buyer and a willing seller in an arm’s length transaction. The

open-market fair value is determined annually by

independent professional valuators.

Fair value adjustments on investment properties are

included in the income statement as investment returns in

the period in which these gains or losses arise and are

adjusted for any double counting arising from the

recognition of lease income on the straight-line basis

compared to the accrual basis normally assumed in the fair

value determination.

Properties under development are properties not yet

available to earn investment returns or for use. Properties

under development form part of the carrying value of

investment properties. Once development is complete, the

properties are transferred to investment properties or

owner-occupied properties as appropriate. Properties under

development are carried at cost less any required

impairment.


17 Financial liabilities

Financial liabilities are recognised initially at fair value,

generally being their issue proceeds net of transaction costs

incurred. Financial liabilities are subsequently stated at

amortised cost and interest is recognised over the period of

the borrowing using the effective interest method.

Preference shares, which carry a mandatory coupon, or are

redeemable on a specific date, at the option of the

shareholder or if dividend payments are not discretionary,

are classified as financial liabilities. All other preference

shares are classified as equity. Dividends on preference

shares classified as financial liabilities are recognised in the

income statement as interest expense on an amortised cost

basis using the effective interest methodology.

The group classifies certain liabilities at fair value through

profit or loss, mainly to match the accounting classification

of assets with similar risks. Such liabilities are accounted for

at fair value with changes in fair value recognised in the

income statement.

18 Lessee accounting

Leases, where the group assumes substantially all the

benefits and risks of ownership, are classified as finance

leases. Finance leases are capitalised at the lower of the fair

value of the leased asset and the present value of the

minimum lease payments. Lease payments are separated

using the interest rate implicit in the lease to identify the

finance cost, which is charged against income over the lease

period, and the capital repayment, which reduces the

liability to the lessor.

Leases of assets are classified as operating leases if the

lessor effectively retains all the risks and benefits. Payments

made under operating leases are charged to the income

statement on a straight-line basis over the period of the

lease, unless another systematic basis is more representative

of the time pattern in which the benefit is derived from the

leased asset.

19 Provision for leave pay

Employee benefits in the form of annual leave entitlements

are provided for when they accrue to employees with

reference to services rendered up to the balance sheet date.

20 Other provisions

Provisions are recognised when the group has a present

legal or constructive obligation as a result of past events, it

is probable that an outflow of resources embodying

economic benefits will be required to settle the obligation

and a reliable estimate of the amount of the obligation can

be made.

When the effect of discounting is material, provisions are

discounted using a pre-tax discount rate that reflects current

market assessments of the time value of money and, where

appropriate, the risks specific to the liability.

21 Tax

Normal tax

Income tax and capital gains tax on the profit or loss for the

year comprise current and deferred tax. Current tax

represents the expected tax payable on taxable income for

the year, using tax rates enacted at the balance sheet date,

and any adjustments to tax payable in respect of previous

years.

Deferred income tax and deferred capital gains tax are

provided for on the comprehensive basis, using the balance

sheet liability method, for all temporary differences arising

between the tax bases of assets and liabilities and their

carrying values for financial reporting purposes, using tax

rates enacted at the balance sheet date. Deferred tax is not

recognised on

• temporary differences relating to goodwill;

• the initial recognition of assets and liabilities which affect

neither accounting nor taxable profits or losses; and

• investments in subsidiaries and joint ventures (excluding

mutual funds) where the group controls the timing of the

reversal of temporary differences and it is probable that

these differences will not reverse in the foreseeable future.

Deferred tax assets are recognised to the extent that it is

probable that future taxable income will be available against

which the unused tax losses can be utilised. The amount of

deferred tax provided is based on the expected manner of

realisation or settlement of the carrying amount of the asset

or liability and is not discounted.

Deferred tax relating to items which are charged or credited

directly to equity, is also charged or credited directly to

equity and is subsequently recognised in the income

statement when the related deferred gain or loss is

recognised.

Secondary tax on companies (STC)

To the extent that it is probable that dividends will be

declared against which unused STC credits can be utilised, a

deferred tax asset is recognised for STC credits.

The STC effect of dividends paid on equity instruments is

recognised in the period in which the company declares the



dividend. For financial instruments that are classified as

liabilities, the STC relating to any contractual payments is

accrued in the same period as the interest accrual.

Indirect tax

Indirect taxes, including non-recoverable value added tax

(VAT), regional service council (RSC) levies, skills

development levies and other duties for banking operations

are separately disclosed in the income statement.

22 Offsetting

Financial assets and liabilities are offset and the net amount

reported on the balance sheet when there is a legally

enforceable right to set-off the recognised amount and

there is an intention to settle on a net basis, or to realise the

asset and settle the liability simultaneously.

23 Equity

Re�acquired equity instruments

Where companies within the group purchase the reporting

entity’s equity instruments, the consideration paid is

deducted on consolidation from total shareholders’ equity as

treasury shares until they are sold. Fair value changes

recognised in the subsidiary’s financial statements on equity

investments in the holding entity’s shares, are reversed on

consolidation and dividends received are eliminated against

dividends paid. Where such shares are subsequently sold or

re-issued, any consideration received is included in

shareholders’ equity.

Share issue costs

Incremental external costs directly attributable to a

transaction that increases or decreases equity is deducted

from equity, net of related tax. All other share issue costs are

expensed immediately.

Dividends on ordinary shares

Dividends are recognised in the period in which they are

declared. Dividends declared after balance sheet date are

disclosed in the dividends note.

24 Equity�linked transactions


The group operates equity-settled share-based compensation

plans. All share options issued after 7 November 2002 that

have not vested by 31 December 2004 are accounted for as

share-based payment transactions. The fair value of share

options is determined on the grant date and is accounted for

as an employee services expense over the vesting period of

the share options, with a corresponding increase in the

share-based payment reserve. Non-market vesting

conditions are not considered in the valuation but are

included in the estimate of the number of options expected

to vest. At each balance sheet date the estimate of the

number of options expected to vest is reassessed and

adjusted against income and equity over the vesting period.

On exercise of share options, proceeds received are credited

to share capital and premium. On vesting of share options,

amounts previously credited to the share-based payment

reserve are released to retained earnings through an equity

transfer.

Equity participation plans

Where participants use dividends on ordinary shares to repay

a purchase consideration for an acquisition of an entity’s

ordinary equity, the outstanding purchase consideration

receivable is not recognised as an asset but is recognised as

a reduction in equity as it represents cash flows generated

by the entity in the form of the return of ordinary dividends.

Equity will be reinstated in future to the extent that the

purchase consideration is not backed by the reporting

entity’s equity.

Consideration paid to acquire the reporting entity’s equity

instruments for purposes of the Tutuwa transaction

concluded in 2004 is therefore recognised as a reduction in

equity. The amount receivable from the black participants

resulting from the legal transfer of those equity instruments

is not recognised as an asset on the basis that it will be

recovered from ordinary dividend cash flows generated by

the group.

Equity participation rights issued in terms of the group’s

Tutuwa initiative to black managers have not vested by

31 December 2004 and are accounted for as equity-settled

share-based payment transactions as described under equity

compensation plans above.

25 Revenue and expenditure

Revenues described below represent the most appropriate

equivalent of turnover.

Banking operations

Revenue is derived substantially from the business of

banking and related activities and comprises net interest

income and non-interest revenue.

Net interest income

Interest income and expenses are recognised in the income

statement for all interest-bearing instruments on an accrual

basis using the effective interest method. In terms of the


effective interest method, interest is recognised at a rate

that exactly discounts estimated future cash payments or

receipts through the expected life of the financial

instrument to the carrying amount on the financial

statements. Direct incremental transaction costs incurred

and origination fees received as a result of bringing margin-

yielding assets on balance sheet, are capitalised to

the carrying amount of financial instruments (excluding

financial instruments at fair value through profit or loss) and

amortised as interest income over the life of the

asset.

Where financial assets have been impaired, interest income

continues to be recognised on the impaired value based on

the original effective interest rate. Net interest income

includes fair value adjustments on interest-bearing financial

instruments held at fair value, excluding financial

instruments held for trading. Dividends received on

preference share investments form part of the group’s

lending activities and are included in interest income.

Non�interest revenue

Non-interest revenue includes dividends from investments,

fees and commission from banking, insurance and related

transactions, net revenue from exchange and securities

trading and net gains on the realisation or revaluation of

investment banking assets.

Dividends are recognised in the period in which right to

receipt is established. Scrip dividends are recognised as

dividends received to the extent that they compare to cash

dividends in a similar entity. Fees and commission are

generally recognised on an incurred basis when the related

services are provided or on execution of a significant act.

Fees charged for servicing a loan are recognised as revenue

as the service is provided.

Loan syndication fees, where the group does not participate

in the syndication or participate at the same effective

interest rate for comparable risk as other participants, are

recognised as revenue when the syndication has been

completed. Syndication fees that do not meet these criteria

are capitalised as origination fees and amortised as interest

income.

Insurance contracts

Premium income on insurance contracts

Premiums and annuity considerations on insurance

contracts, other than in respect of the Lifestyle series of

policies and group schemes, are recognised when due.

Premiums receivable in respect of group schemes are

recognised when there is reasonable assurance of collection

in terms of the policy contract. Premiums in respect of the

Lifestyle series of policies are recognised on a cash receipt

basis as failure to pay a premium will result in either a lapse

of the policy or reduction of attributable fund value.

Premium income on insurance contracts is shown gross of

reinsurance. Premiums are shown before deduction of

commission.

Reinsurance premiums are recognised when due for

payment.

Claims and policyholders’ benefits

Claims on insurance contracts, which include death,

disability, maturity, surrender and annuity payments, are

charged to income as incurred based on the estimated

liability for compensation owed to policyholders. They

include claims that arise from events that have occurred up

to the balance sheet date even if they have not been

reported to the group. The group does not discount its

liabilities for unpaid claims other than for disability claims.

Liabilities for unpaid claims are estimated using the input

of assessors for individual cases reported to the group

and statistical analyses for the claims incurred but not

reported.

Reinsurance recoveries are accounted for in the same period

as the related claim.

Acquisition costs for insurance contracts

Acquisition costs for insurance contracts represent

commission and other costs (including bonuses payable and

company’s contribution to agents’ pension and medical aid

funds) that relate to the securing of new contracts and the

renewing of existing contracts.

The FSV method for valuing insurance contracts makes

implicit allowance for the deferral of acquisition costs and

hence no explicit deferred acquisition cost asset is

recognised in the balance sheet for insurance contracts.

Commission expense

Commissions, comprising commissions on new insurance and

investment policies along with renewal commissions, as well as

expenses related thereto including bonuses payable, and the

company’s contribution to agents’ pension and medical aid

funds, are shown gross of reinsurance commission received.

Commissions relating to unearned premiums are deferred in

liabilities on insurance policies and accounted for in the same

period in which those premiums are accounted for.

Investment contracts

Amounts received and claims incurred

Amounts received under investment contracts, such as

premiums and investment returns, are recorded as deposits

to investment contract liabilities whereas claims incurred are

recorded as deductions from investment contract liabilities.



Service fees on investment contracts

Service fee income on investment contracts (including

contracts with DPF) is recognised on an accrual basis as and

when the services are rendered. Fees charged for

investment management service contracts in the asset

management segment are also recognised on this basis.

Deferred revenue liability (DRL) on investment contracts

A DRL is recognised in respect of fees, which are directly

attributable to a contract, that are charged for securing the

investment management service contract. The liability is

then recognised as revenue when the services are provided,

over the expected duration of the contract.

A DRL has been recognised for all applicable policies on

transition to IFRS as at 1 January 2005.

Deferred acquisition costs (DAC) on investment contracts

Commissions paid and other acquisition costs are incurred

when new investment contracts (including those contracts

with DPF) are renewed. These costs, if specifically

attributable to an investment contract with an investment

management service element, are deferred and amortised

over the expected life of the contract as they represent the

right to receive future management fees. A DAC asset is

recognised for all applicable policies with the amortisation

being calculated on a portfolio basis.

An impairment test is conducted annually on the DAC

balance to ensure that the amount will be recovered from

future revenue from the applicable remaining investment

contracts.

DAC have been recognised for all applicable policies on

transition to IFRS as at 1 January 2005.

Investment income

Investment income comprises income from financial services

activities, rental income from properties, interest and

dividends. Dividends are recognised when the right to

receive payment is established. Interest and other

investment income are accounted for on an accrual basis.

Net rental income comprises rental income net of property

expenses. Rental income in respect of group owner-

occupied properties is eliminated on consolidation.

26 Non�current assets and disposal groupsheld for sale

Non-current assets and disposal groups are classified as held

for sale if their carrying amount will be recovered through a

sale transaction rather than continuing use. This

classification is only met if the sale is highly probable and the

assets or disposal groups are available for immediate sale.

Non-current assets held as investments as part of the

group’s operating activities are not classified as held for sale

as ongoing investment management implies regular

purchases and sales in the ordinary course of business.

Immediately before classification as held for sale, the

measurement (carrying amount) of assets and liabilities in

relation to a disposal group is recognised based upon the

appropriate IFRS standards. On initial recognition as held for

sale, the non-current assets and liabilities are recognised at

the lower of the carrying amount and fair value less costs to

sell. Any impairment losses on initial classification as held for

sale are recognised in the income statement.

Non-current assets and disposal groups held for sale are

reclassified immediately when there is a change in intention

to sell. Subsequent measurement of the asset or disposal

group at that date, is the lower of:

• its carrying amount before the asset or disposal group

was classified as held for sale, adjusted for any

depreciation, amortisation or revaluations that would

have been recognised had the asset or disposal group

not been classified as held for sale; and

• its recoverable amount at the date of the subsequent

decision not to sell.

27 Post�retirement benefits

The group operates a number of defined contribution plans,

based on a percentage of pensionable earnings funded by

both employer companies and employees, the assets of

which are generally held in separate trustee-administered

funds. Contributions to these plans are charged to the

income statement in the period to which they relate.

The group also operates a number of defined benefit funds,

with membership generally limited to employees who were in

the employment of the various companies at specified dates.

These funds are governed by the Pension Funds Act 1956.

Employer companies contribute to the cost of benefits taking

account of the recommendations of the actuaries. Statutory

actuarial valuations are required every three years using the

projected unit credit method. Interim valuations are also

performed annually at the balance sheet date.

These obligations are measured at the present value of the

estimated future cash outflows using interest rates of

government bonds with maturity dates that approximate the

expected maturity of the obligations.

The group’s current service costs to the defined benefit

funds are recognised as expenses in the current year.

Past service costs, experience adjustments and the effect of

changes in actuarial assumptions are recognised as expenses

or income in the current year to the extent that they relate

to retired employees or past service. For active employees,


these items are recognised as expenses or income

systematically over a period not exceeding the expected

remaining service period of employees.

The group operates a number of unfunded post-retirement

medical aid schemes, with membership limited to employees

who were retired or in the employment of the various

companies at specified dates and complying with specific

criteria. For past service, the group recognises and provides

for the actuarially determined present value of post-

retirement medical aid employer contributions on an accrual

basis using the projected unit credit method. Independent

qualified actuaries carry out annual valuations of these

obligations. Unrecognised actuarial gains or losses are

accounted for over a period not exceeding the remaining

working life of active employees.

28 Segment reporting

A segment is a distinguishable component of the group

engaged in providing products or services within a particular

economic environment, which is subject to risks and rewards

that are different from those of other segments. The group’s

primary business segmentation is based on the group’s

internal reporting format to management. It represents the

classification of the group’s activities in segments that

reflect the risk and return of the group’s product offerings

in different geographical markets. The secondary format is a

product segmentation.

Segments with a majority of income earned from external

clients and whose total income, operating profit or total

assets are 10% or more of the group total, are reported

separately. Transactions between segments are priced at

market-related rates.

29 Fiduciary activities

The group commonly acts as trustees and in other fiduciary

capacities that result in the holding or placing of assets on

behalf of individuals, trusts, retirement benefit plans and

other institutions. These assets and the income arising

thereon are excluded from these financial statements, as

they are not assets of the group.

30 Comparative figures

Where necessary, comparative figures within notes have

been reclassified to conform to changes in presentation in

the current year and for changes relating to the

implementation of IFRS as described in Annexure A.



Standards and interpretations not yet effective

Standard/interpretation

Exploration for and Evaluation of Mineral Resources

This statement is not applicable to the business of the group.

Financial Instruments: Disclosures (including amendments to IAS 1,

Presentation of Financial Statements: Capital Disclosures)

The statement deals mainly with the disclosure of financial instruments

and the related qualitative and quantitative risks. Most of these disclosure

requirements are currently provided in terms of IAS 30 and IAS 32. The

statement will therefore not impact the results of the group but will impact

the format of disclosure of financial instruments.

Employee Benefits (December 2004)

The statement permits an entity to recognise all actuarial gains and

losses in the period in which they occur, outside profit or loss, in a

statement of recognised income and expense. The group will consider

the appropriateness of this option.

Financial Instruments: Recognition and Measurement (April 2005) – Cash

flow hedge accounting of forecast intragroup transactions

The amendment to IAS 39 allows the designation, as a hedged item in consolidated

financial statements, of the foreign currency risk of a highly probable forecast

intragroup transaction under certain conditions. The group will consider the

amendment but the application is expected to be limited.

Financial Instruments: Recognition and Measurement (June 2005) – Fair value option

The revisions to IAS 39 restrict the extent which entities can designate a financial

asset or financial liability as fair value through profit or loss only to specific situations.

The statement is not expected to reduce the group’s current application

of the fair value option materially.

Financial Instruments: Recognition and Measurement (August 2005) and Insurance

Contracts – Financial Guarantee Contracts

Under the revised statements the issuer of a financial guarantee contract would

generally measure the contract:

• initially at fair value; and

• subsequently at the higher of the amount determined in accordance with IAS 37

and the amount initially recognised less, when appropriate, cumulative amortisation.

The group’s current policy is substantially in line with this approach and no significant

adjustment is expected.

Effective date1

Annual periods

commencing on or after

1 January 2006

Annual periods


1 January 2007

Annual periods


1 January 2006

Annual periods


1 January 2006

Annual periods


1 January 2006

Annual periods


1 January 2006

Standard

IFRS 6

IFRS 7

IAS 19

amendment

IAS 39

amendment

IAS 39

amendment

IAS 39 and

IFRS 4

amendment

1The group will comply with the new standards and interpretations from the effective date.


Standards and interpretations not yet effective

Standard/interpretation

The Effects of Changes in a Foreign Operation (December 2005)

The amendment clarifies that a group entity that may have a monetary item

receivable from or payable to a foreign operation, which is classified in substance as

part of the net investment in a foreign operation, may be any subsidiary of the group

and not only the parent. The amendment further specifies that the exchange

differences arising from the translation of these monetary items will be classified in

equity in the consolidated financial statements. The amendment will not have a

significant impact on the group’s results.

Determining Whether an Arrangement Contains a Lease

This interpretation provides guidance on determining whether an arrangement that

does not take the legal form of a lease contains a lease and should be accounted for

in terms of IAS 17 Leases. An arrangement contains a lease if the fulfilment of the

arrangement is dependent on the use of a specific asset or assets, and the

arrangement conveys the right to use the asset. This interpretation is substantially in

line with the group’s current application of the standard.

Rights to Interests arising from Decommissioning, Restoration and Environmental

Rehabilitation Funds


Liabilities Arising from Participating in a Specific Market – Waste Electrical and

Electronic Equipment


Applying the Restatement Approach under IAS 29 Financial Reporting in

Hyperinflationary Economies

IAS 29 Financial Reporting in Hyperinflationary Economies requires that the financial

statements of an entity that reports in the currency of a hyperinflationary economy

should be stated in terms of the measuring unit current at the balance sheet date.

Comparative figures for prior periods should be restated into the same current

measuring unit. IFRIC 7 contains guidance on how an entity would restate its financial

statements in the first year it identifies the existence of hyperinflation in the

economy of its functional currency. The group’s adjustments relating to operations in

hyperinflationary economies are not material.

Scope of IFRS 2

The interpretation clarifies that IFRS 2 applies to transactions in which the entity

cannot specifically identify the goods or services received in return for a share-based

payment, but where other circumstances indicate that goods or services have been

received.

This interpretation is consistent with the group’s application of IFRS 2 for shares

issued in terms of its Tutuwa initiative.

Effective date

Annual periods


1 January 2006

Annual periods


1 January 2006

Annual periods


1 January 2006

Annual periods


1 December 2005

Annual periods


1 March 2006

Annual periods


1 May 2006

Standard

IAS 21

amendment

IFRIC 4

IFRIC 5

IFRIC 6

IFRIC 7

IFRIC 8

Notes to the annual financial statements for the year ended 31 December 2005


1 Segment reporting

Domestic BankingPersonal & Corporate & Other

Business Investment domesticBanking SA Banking SA operations Total

2005 Rm Rm Rm Rm

Income from banking operations 16 434 6 451 (99) 22 786

Net interest income 8 474 2 400 (191) 10 683

Interest income 19 899 19 541 (5 494) 33 946 Interest expense 11 425 17 141 (5 303) 23 263

Non�interest revenue 7 960 4 051 92 12 103

Fee and commission revenue 7 445 1 412 (27) 8 830 Trading revenue – 1 577 4 1 581 Other revenue 515 1 062 115 1 692

Income from life insurance operations – – – –

Net insurance premiumsInvestment income and gainsManagement and service fee income

Total income 16 434 6 451 (99) 22 786

Credit impairment charges 1 273 (2) (21) 1 250

Benefits due to policyholders – – – –

Net insurance benefits and claims – – – –Fair value adjustment to policyholders’ liabilities under

investment contracts – – – –Fair value adjustment on third party fund interests – – – –

Income after credit impairment charges and policyholders’ benefits 15 161 6 453 (78) 21 536

Operating expenses in banking operations 9 727 2 649 (319) 12 057

Staff costs 3 172 1 455 2 051 6 678 Other operating expenses 6 555 1 194 (2 370) 5 379

Operating expenses in life insurance operations – – – –

Acquisition costs – insurance and investment contracts – – – –Other operating expenses – – – –

Net income before goodwill 5 434 3 804 241 9 479 Goodwill impairment 13 – – 13

Net income from banking and insurance 5 421 3 804 241 9 466 Income from associates and joint ventures 141 58 – 199

Net income before indirect taxation 5 562 3 862 241 9 665 Indirect taxation 222 75 165 462

Profit before direct taxation 5 340 3 787 76 9 203 Direct taxation 1 686 528 (98) 2 116

Profit for the year 3 654 3 259 174 7 087

Attributable to minorities – 1 (1) –Attributable to preference shareholders – – – –Attributable to ordinary shareholders 3 654 3 258 175 7 087

Headline earnings 3 664 3 213 114 6 991Return on equity (%) 31,2 40,6 33,6Average ordinary shareholders’ equity 11 757 7 913 1 110 20 780Cost�to�income ratio (%) 59,2 41,1 52,9Net interest margin (%) 4,81 1,56 3,16Credit loss ratio (%) 0,73 (0,00) 0,50Total assets 197 897 246 674 7 467 452 038Average assets (excluding derivatives) 176 181 154 044 7 319 337 544Total liabilities 184 922 238 122 5 923 428 967Interest in associates and joint ventures 203 561 764Capital expenditure 435 154 488 1 077Depreciation and amortisation 328 130 206 664Impairment of non-financial assets 13 13 Number of employees 17 653 3 213 7 652 28 518


Corporate & EliminationInvestment of treasury

Banking Central Standard Bank shares and Standard BankRest of Africa International Stanlib funding operations Liberty Life Tutuwa Group

Rm Rm Rm Rm Rm Rm Rm Rm

2 955 3 130 762 72 29 705 – – 29 705

1 609 630 (28) 93 12 987 – – 12 987

2 499 3 111 72 (931) 38 697 38 697 890 2 481 100 (1 024) 25 710 25 710

1 346 2 500 790 (21) 16 718 – – 16 718

898 731 753 (40) 11 172 11 172 378 1 770 21 (8) 3 742 3 742

70 (1) 16 27 1 804 1 804

– – – – – 51 821 (694) 51 127

18 979 – 18 979 31 676 (694) 30 982

1 166 – 1 166

2 955 3 130 762 72 29 705 51 821 (694) 80 832

38 (100) – 19 1 207 1 207

– – – – – 41 004 – 41 004

– – – – – 32 816 – 32 816

– – – – – 6 834 – 6 834 – – – – – 1 354 – 1 354

2 917 3 230 762 53 28 498 10 817 (694) 38 621

1 854 2 525 414 (33) 16 817 – – 16 817

850 1 776 243 66 9 613 9 613 1 004 749 171 (99) 7 204 7 204

– – – – – 7 222 – 7 222

– – – – – 3 594 – 3 594 – – – – – 3 628 – 3 628

1 063 705 348 86 11 681 3 595 (694) 14 582 – 11 – – 24 397 – 421

1 063 694 348 86 11 657 3 198 (694) 14 161 1 – – – 200 26 – 226

1 064 694 348 86 11 857 3 224 (694) 14 387 52 36 3 12 565 213 – 778

1 012 658 345 74 11 292 3 011 (694) 13 609 241 204 142 (25) 2 678 1 634 – 4 312

771 454 203 99 8 614 1 377 (694) 9 297

49 – 106 2 157 997 (515) 639 – – – 226 226 – – 226

722 454 97 (129) 8 231 380 (179) 8 432

721 465 97 (129) 8 145 498 (179) 8 46427,4 8,2 57,7 28,2 17,8 27,8

2 630 5 667 168 (317) 28 928 2 791 (1 235) 30 48462,7 80,7 54,3 56,6 56,65,78 0,59 2,93 2,930,28 (0,22) (0,15) 0,41 0,41

30 043 122 660 787 (11 800) 593 728 161 950 755 67827 837 106 124 1 433 (29 649) 443 28926 155 117 924 528 (14 335) 559 239 156 475 715 714

2 3 46 815 4 170 4 985148 72 9 1 306 346 1 652130 38 25 1 858 327 1 185

11 24 397 4216 119 1 494 551 36 682 3 563 40 245

Notes to the annual financial statements for the year ended 31 December 2005 continued

1 Segment reporting continued

Domestic BankingPersonal & Corporate & Other

Business Investment domesticBanking SA Banking SA operations Total

2004 Rm Rm Rm Rm

Income from banking operations 13 734 6 188 (88) 19 834

Net interest income 7 144 2 374 (168) 9 350

Interest income 14 788 20 178 (3 733) 31 233 Interest expense 7 644 17 804 (3 565) 21 883

Non�interest revenue 6 590 3 814 80 10 484

Fee and commission revenue 6 250 1 265 100 7 615 Trading revenue – 1 516 (51) 1 465 Other revenue 340 1 033 31 1 404

Income from life insurance operations – – – –

Net insurance premiumsInvestment income and gainsManagement and service fee income

Total income 13 734 6 188 (88) 19 834

Credit impairment charges 786 31 (12) 805

Benefits due to policyholders – – – –

Net insurance benefits and claims – – – –Fair value adjustment to policyholders' liabilities under

investment contracts – – – –Fair value adjustment on third party fund interests – – – –

Income after credit impairment charges and policyholders' benefits 12 948 6 157 (76) 19 029

Operating expenses in banking operations 8 588 2 577 (83) 11 082

Staff costs 2 873 1 333 1 781 5 987 Other operating expenses 5 715 1 244 (1 864) 5 095

Operating expenses in life insurance operations – – – –

Acquisition costs – insurance and investment contracts – – – –Other operating expenses – – – –

Net income before goodwill 4 360 3 580 7 7 947 Goodwill impairment – – – –

Net income from banking and insurance 4 360 3 580 7 7 947 Income from associates and joint ventures 85 10 2 97

Net income before indirect taxation 4 445 3 590 9 8 044 Indirect taxation 171 50 99 320

Profit before direct taxation 4 274 3 540 (90) 7 724 Direct taxation 1 309 735 (105) 1 939

Profit for the year 2 965 2 805 15 5 785

Attributable to minorities – – – –Attributable to preference shareholders – – – –Attributable to ordinary shareholders 2 965 2 805 15 5 785

Headline earnings 2 985 2 805 5 790Return on equity (%) 34,7 37,8 32,0Average ordinary shareholders' equity 8 593 7 420 2 081 18 094Cost�to�income ratio (%) 62,5 41,6 55,9Net interest margin (%) 5,36 1,76 3,40Credit loss ratio (%) 0,59 0,05 0,41Total assets 154 205 229 407 8 056 391 668Average assets (excluding derivatives) 133 338 134 992 6 936 275 266Total liabilities 144 555 221 892 5 575 372 022Interest in associates and joint ventures 114 132 246Capital expenditure 397 134 256 787Depreciation and amortisation 297 84 341 722Impairment of non-financial assets 14 13 27Number of employees 17 587 3 029 7 492 28 108



Corporate & EliminationInvestment of treasury

Banking Central Standard Bank shares and Standard BankRest of Africa International Stanlib funding operations Liberty Life Tutuwa Group

Rm Rm Rm Rm Rm Rm Rm Rm

2 666 3 308 663 65 26 536 – – 26 536

1 520 562 (44) 104 11 492 – – 11 492

2 416 2 226 65 (693) 35 247 35 247 896 1 664 109 (797) 23 755 23 755

1 146 2 746 707 (39) 15 044 – – 15 044

779 805 662 (45) 9 816 9 816 296 1 941 38 48 3 788 3 788

71 – 7 (42) 1 440 1 440

– – – – – 32 311 – 32 311

12 406 – 12 406 18 830 – 18 830

1 075 – 1 075

2 666 3 308 663 65 26 536 32 311 – 58 847

45 146 – 54 1 050 1 050

– – – – – 24 809 – 24 809

– – – – – 19 115 – 19 115

– – – – – 4 666 – 4 666 – – – – – 1 028 – 1 028

2 621 3 162 663 11 25 486 7 502 – 32 988

1 611 2 318 449 (76) 15 384 – – 15 384

752 1 612 233 26 8 610 8 610 859 706 216 (102) 6 774 6 774

– – – – – 4 684 – 4 684

– – – – – 1 920 – 1 920 – – – – – 2 764 – 2 764

1 010 844 214 87 10 102 2 818 – 12 920 (2) 50 – – 48 – 48

1 012 794 214 87 10 054 2 818 – 12 872 – – – – 97 30 127

1 012 794 214 87 10 151 2 848 – 12 999 50 7 – 12 389 262 651

962 787 214 75 9 762 2 586 – 12 348 261 190 97 (3) 2 484 792 3 276

701 597 117 78 7 278 1 794 – 9 072

64 – 61 (1) 124 1 264 1 388 – – – – – – –

637 597 56 79 7 154 530 7 684

616 647 56 78 7 187 351 7 53829,1 12,1 35,0 27,2 13,5 26,0

2 116 5 335 160 750 26 455 2 609 (114) 28 95060,4 70,1 67,7 58,0 58,06,08 0,57 3,07 3,070,38 0,37 (1,42) 0,43 0,43

25 348 107 128 1 868 (19 992) 506 020 114 153 620 17324 996 97 940 1 381 (24 869) 374 71422 810 103 042 1 601 (23 322) 476 153 105 487 581 640

2 48 296 2 954 3 250263 60 16 1 126 257 1 383115 51 25 913 186 1 099

(2) 50 75 755 799 1 376 537 35 820 3 260 39 080


1 Segment reporting continued

The principal business units in the group are as follows:

Business unit Scope of operations

Domestic Banking Represents mainly banking operations in South Africa and consists of:

Personal & Business Banking SA Banking, investment, insurance and other financial services to individual

customers and small to medium-sized enterprises.

Corporate & Investment Banking SA Commercial and investment banking services to larger corporate clients,

in South Africa, foreign banks and international counterparties.

Other domestic operations Support functions to business units and advisory services.

Rest of Africa Commercial, retail, insurance and investment banking services in Botswana,

Democratic Republic of Congo, Ghana, Kenya, Lesotho, Madagascar,

Malawi, Mauritius, Mozambique, Namibia, Nigeria, Swaziland, Tanzania,

Uganda, Zambia and Zimbabwe.

Corporate & Investment Banking International International investment banking headquartered in London and related

banking services in Asia, Europe and the Americas, and offshore banking

services in Isle of Man, Jersey and Mauritius.

Stanlib Management of institutional and retail funds and investment portfolios,

and provision and marketing of a wide range of financial products to

mainly retail clients.

Central funding Consolidation unit housing group investments, capital activities and

funding initiatives as well as costs.

Liberty Life Investment and risk products designed to cater for personal and

corporate investment, life assurance, disability, health insurance and

retirement needs.

Where reporting responsibility for individual divisions within business units changes, the segmental analysis is reclassified accordingly.

Secondary product segmentation

2005 2004

Rm Rm

Segment revenuePersonal & Business Banking 18 207 15 334

Corporate & Investment Banking 10 720 10 516

Investment Management & Life Insurance 51 889 32 974

Other operations and eliminations 16 23

80 832 58 847

Segment assetsPersonal & Business Banking 213 704 167 566

Corporate & Investment Banking 372 752 329 175

Investment Management & Life Insurance 162 737 116 021

Other operations and eliminations 6 485 7 411

755 678 620 173

Capital expenditurePersonal & Business Banking 583 660

Corporate & Investment Banking 226 194

Investment Management & Life Insurance 355 273

Other operations and eliminations 488 256

1 652 1 383



2 Key management assumptionsIn preparing the financial statements estimates and assumptions are made that could affect the reported amounts of assets and

liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on factors such as historical

experience and current best estimates of uncertain future events.

2.1 Credit impairment losses on loans and advancesPerforming loansThe group assesses its loan portfolios for impairment at each balance sheet date. In determining whether an impairment loss

should be recorded in the income statement, the group makes judgements as to whether there is observable data indicating

a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be allocated to

an individual loan in that portfolio. Estimates are made of the duration between the occurrence of a loss event and the

identification of a loss on an individual basis. The impairment for performing loans is calculated on a portfolio basis, based on

historical loss ratios, adjusted for national and industry-specific economic conditions and other indicators present at the

reporting date that correlate with defaults on the portfolio. These include early arrears and other early indicators of potential

default. These annual loss ratios are applied to loan balances in the portfolio and scaled to the estimated loss emergence

period. At the year end, the group applied the following loss emergence periods:

Average lossemergence

period Sensitivity)1

2005 2005Months Rm

Personal & Business Banking SA 3�6 110Corporate & Investment Banking SA 15 27Rest of Africa 3�18 6Corporate & Investment Banking International 3 30

173

1Sensitivity is based on the effect of a change of one month in the emergence period on the value of the impairment.

Non�performing loansRetail loans are individually impaired if amounts are due and unpaid for three or more months. Corporate loans are analysed

on a case-by-case basis taking into account breaches of key loan conditions. Management’s estimates of future cash flows

on individually impaired loans are based on historical loss experience for assets with similar credit risk characteristics. 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. Recoveries of individual loans as a percentage

of the outstanding balances are estimated as follows:

Recoveries as a percentage Impairment lossof impaired loans sensitivity1

2005 2004 2005 2004

% % Rm Rm

Personal & Business Banking SA 62 55 19 14

Corporate & Investment Banking SA 41 57 2 4

Rest of Africa 46 9 1 –

Corporate & Investment Banking International 11 1 – –

22 18

1Sensitivity is based on the effect of a change of one percentage in the value of the estimated recovery on the value of the

impairment.



2 Key management assumptions continued

2.2 Fair value of derivativesThe fair value of financial instruments that are not quoted in active markets is determined by using valuation techniques.

Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically

reviewed by independent qualified senior personnel. All models are certified before they are used, and models are calibrated

and back tested 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 and counterparty), volatilities and correlations require

management to make estimates.

2.3 Impairment of available�for�sale equity investmentsThe group determines that available-for-sale equity investments are impaired and recognised as such in the income

statement, when there has been a significant or prolonged decline in the fair value below their cost. This determination of

what is significant or prolonged requires judgement. In making this judgement, the group evaluates among other factors, the

normal volatility in share prices. In addition, impairment may be appropriate when there is evidence of a deterioration in the

financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash

flows.

Had the declines of financial instruments with fair values below cost been considered significant or prolonged, the group

would suffer an additional loss of R24 million (2004: R7 million) in its financial statements, being the transfer of the negative

revaluations within the available-for-sale reserve to the income statement.

2.4 Securitisations and special purpose entitiesThe group sponsors the formation of special purpose entities (SPEs) primarily for the purpose of allowing clients to hold

investments for asset securitisation transactions and for buying or selling credit protection. The group consolidates SPEs that

it controls in terms of IFRS. As it can sometimes be difficult to determine whether the group controls an SPE, it makes

judgements about its exposure to the risks and rewards, as well as its ability to make operational decisions for the SPE in

question. In many instances, elements are present that, considered in isolation, indicate control or lack of control over a SPE,

but when considered together make it difficult to reach a clear conclusion.

The group has consolidated SPEs with assets of R17 747 million (2004: R9 966 million) and profit of R10 million (2004:

Rnil). The group has not consolidated SPEs with assets of R250 million (2004: Rnil) and no profit (2004: Rnil) as these

entities were not considered to be controlled by the group.

2.5 Held�to�maturity investmentsThe group follows the guidance of IAS 39 on classifying certain non-derivative financial assets with fixed or determinable

payments and fixed maturity, as held-to-maturity. This classification requires judgement of the group’s ability to hold such

investments to maturity. If the group fails to keep these investments to maturity other than for specific defined

circumstances, it will be required to classify the entire class as available-for-sale. The investments would therefore be

measured at fair value and not amortised cost. If the entire class of held-to-maturity investments were tainted, the fair value

would increase by R67 million (2004: R357 million), with a corresponding entry in the available-for-sale reserve in

shareholders’ equity.

2.6 Income taxesThe group is subject to direct taxation in a number of jurisdictions. There may be transactions and calculations for which the

ultimate tax determination has an element of uncertainty during the ordinary course of business. The group recognises

liabilities based on estimates of the quantum of taxes that may be due. Where the final tax determination is different from

the amounts that were initially recorded, such differences will impact the income tax and deferred tax expense in the period

in which such determination is made.

2.7 Financial risk managementThe group’s risk management policies and procedures are disclosed in risk management and control starting on page 45 of

the annual report. The repricing analysis on page 61 forms part of the audited annual financial statements.

2.8 Long�term insurance contracts – process used to decide on assumptions, changes in assumptions andsensitivity analysisThe value of insurance liabilities is based on best estimate assumptions of future experience plus prescribed margins as

required in terms of PGN 104, plus additional discretionary second tier margins determined by the statutory actuary.

The process of deriving the best estimate assumptions relating to future mortality, morbidity, medical, withdrawals,

investment returns, maintenance expenses, expense inflation and tax are described below.



2.8 Long�term insurance contracts – process used to decide on assumptions, changes in assumptions andsensitivity analysis continuedMortalityAn appropriate base table of standard mortality is chosen depending on the type of contract and class of business. Industrystandard tables are used for smaller classes of business, while company specific tables are used for larger classes.

Investigations into mortality experience is performed annually. The period of investigation extends over the latest three fullyears for larger classes of business. Investigations relating to smaller classes usually extend over five years in order to gainsufficient credibility of the data.

The results of the investigation are used to set the valuation assumptions, which are taken as an adjustment to the respectivestandard table.

In setting the assumptions, provision is made for the expected increase in AIDS-related claims. In general, Actuarial Societyof South Africa (ASSA) models are used to allow for AIDS-related claims. The practice differs by class of business, howeverfor major classes of business, a basic allowance for AIDS-related deaths is included in the base mortality rates against whichannual mortality investigations are conducted. A further discretionary margin is then held using the ASSA2000lite model.

For contracts insuring survivorship, an allowance is made for future mortality improvements based on trends identified in thedata and in the continuous mortality investigations performed by independent actuarial bodies.

MorbidityThe incidence of disability claims is derived from industry experience studies, adjusted where appropriate for Liberty Life’sown experience. The same is true for the incidence of recovery from disability.

MedicalThe incidence of medical claims is derived from the risk premium rates determined from annual investigations. This isadjusted where appropriate to allow for future expected experience.

WithdrawalThe withdrawal assumptions are based on the most recent withdrawal investigations taking into account past as well asexpected future trends. The withdrawal rates are analysed by product type and policy duration. These withdrawal rates varyconsiderably by duration, policy term and company. Typically the rates are higher for risk type products versus investmenttype products, and are higher at early durations.

Investment returnFuture investment returns are set for the main asset classes as follows:

• Gilt rate – Effective 10 year rate at the balance sheet date off the yield curve rounded to nearest 0,25 percentage point(2005: 7,5%);

• Equity rate – Gilt rate plus 2 percentage points as an adjustment for risk (2005: 9,5%);

• Property rate – Gilt rate plus 1 percentage point as an adjustment for risk (2005: 8,5%); and

• Cash rate – Gilt rate less 1,5 percentage points (2005: 6,0%).

The overall investment return for a block of business is based on the investment return assumption allowing for the currentmix of assets supporting the liabilities.

The pre-taxation discount rate is set at the same rate. For the major classes of business the rate used is 9,0% per annum in2005 (2004: 9,7% per annum). Where appropriate the investment return assumption will be adjusted to make allowancefor investment expenses, taxation and the relevant prescribed margins as per PGN 104.

For annuity and guaranteed capital bond business, discount rates are set at the rate of return yielded by the assets matchingthe respective business, reduced by an allowance for investment expenses and the relevant prescribed margin.

ExpensesAn expense analysis is performed on the actual expenses incurred in the calendar year preceding the balance sheet date.The expenses are split between acquisition, maintenance and non-recurring expenses. The individual annual maintenancecost per policy, which forms the base for future projections, are as follows:

2005 2004Rands Rands

Liberty Life 258 248Liberty Active 139 154CAHL – complex 221 2171

CAHL– simple 98 801

The expenses derived from this analysis are adjusted accordingly by an expense inflation assumption to obtain an appropriateexpense base assumption to be used in the calculation of the insurance liabilities.

1These figures have been provided for comparative purposes only as Liberty acquired CAHL on 1 April 2005 and the numbersare applicable at 31 March 2005.


Key management assumptions continued

2.8 Long�term insurance contracts – process used to decide on assumptions, changes in assumptions andsensitivity analysis continued

Expense inflationThe inflation rate is set at 3,5 percentage points lower than the gilt rate investment return assumption prevailing at the

balance sheet date, resulting in a best estimate expense inflation of 4,0% at 31 December 2005.

TaxationFuture taxation and taxation relief are allowed for at the rates and on the bases applicable to Section 29A of the Income Tax

Act at the balance sheet date. Each company's current tax position is taken into account, and the taxation rates, consistent

with that position and the likely future changes in that position are allowed for. In respect of capital gains taxation (CGT),

taxation is allowed for at the full CGT rate. Provision is made for CGT on unrealised gains/(losses), at the valuation date, at

the full undiscounted value.

CorrelationsNo correlations between assumptions are allowed for.

Contribution increasesIn the valuation of the liabilities, voluntary premium increases that give rise to expected profits are not allowed for. However,

compulsory increases and increases that give rise to expected losses are allowed for. This is consistent with requirements of

PGN 104.

Embedded investment derivative assumptionsThe assumptions used to value embedded investment derivatives, in respect of policyholder contracts, are set in accordance

with PGN 110. The expected investment return assumptions are set to be consistent with the Financial Soundness

Valuations, while also taking account of the yield curve at the valuation date. Both implied market volatility and historical

volatility are taken into account when setting volatility assumptions. Correlations between asset classes are set based on

historical evidence.

Changes in assumptionsModelling and other changes were made to the valuation to realign valuation assumptions with expected future experience.

These changes resulted in a net increase in policyholders’ liabilities of R14 million in 2005.

The primary items were:

• a reduction in the inflation gap from 4,0 percentage points to 3,5 percentage points, increasing the liability by

R131 million;

• setting up a liability in anticipation of the move from a real world model to a market consistent model for the calculation

of the liabilities in respect of minimum investment guarantees, increasing the liability by R340 million;

• an adjustment to policyholders’ liabilities in respect of prepaid commission, which was previously recognised as a current

asset. This resulted in a decrease of the policyholders’ liability in respect of insurance contracts of

R1 013 million (2004: R1 096 million). The basis change is offset by a reduction in the current asset;

• a change in the economic valuation assumptions to re-align the economic assumptions with expected future experience,

resulting in an increase of R653 million. It should be noted that the majority of this change is offset by a corresponding

change in the value of the relevant matching assets;

• the demographic experience assumptions were adjusted to reflect expected future experience, amounting to a decrease

in the liability of R37 million; and

• the balance of other modelling changes amounted to a decrease in liability of R60 million.

In addition, an allowance has been made for the adjustment to early termination values in terms of the Statement of Intent.

On 12 December 2005 a Statement of Intent was agreed between the Minister of Finance and the long-term insurance

industry. In terms of the statement, minimum standards will be implemented on early termination values of retirement

annuity contracts, as well as certain other contracts. Full provision has been made for the cost of these adjustments. The

following adjustments amounting to R359 million are included as a basis change in the liabilities under insurance contracts:

• an amount of R172 million in respect of the retrospective cost over the period 1 January 2001 to 31 December 2005.

• an amount of R187 million in respect of the prospective cost of the adjustment to termination values and rates on

in-force policies.




2.8 Long�term insurance contracts – process used to decide on assumptions, changes in assumptions andsensitivity analysis continued

Sensitivity analysisShown in the table below are the sensitivities of the value of insurance liabilities disclosed in this note to various changes in

assumptions used in the estimation of the insurance liabilities. Each value is shown with only the indicated assumption being

changed and holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the

assumptions may be correlated.

It should be noted that the sensitivities ignore any changes in matched assets. This is particularly relevant to the sensitivity

changes in future investment returns.

Change in policyholders’ liabilitiesunder insurance contracts

2005Rm

VariableFuture investment returns reduce by a 15% relative reduction in the valuation rate,

with bonus rate changing commensurately 2 265Assurance mortality and morbidity increase by 10%, annuity mortality decrease by 10% 1 900Withdrawal rates increase by 10% 172Maintenance expenses (other than commission) increase by 10% 339Expense inflation rate increase by 1% 268

2005 2004

Rm Rm

3 Cash and balances with banksCoins and bank notes 6 112 4 055

Balances with central banks 6 669 7 325

Balances with other banks 58 071 26 462

70 852 37 842

Cash and balances with banks include R5 382 million (2004: R4 337 million)

that is not available for use by the group. These balances comprise

primarily reserving requirements held with central banks and cash held

on behalf of policyholders.

4 Short�term negotiable securitiesOriginated by the entity – 103

Held at fair value 29 867 20 937

Accrued interest 446 421

30 313 21 461

Fair value 30 313 21 461

5 Derivative instrumentsAll derivatives are classified as either derivatives held for trading or derivatives held for hedging.

5.1 Fair valuesThe fair value of a derivative financial instrument represents, for quoted instruments, the quoted market price and for

unquoted instruments, the present value of the positive or negative cash flows, which would have occurred if the rights and

obligations arising from that instrument were closed out in an orderly market place transaction at year end.

5.2 Notional amountThe gross notional amount is the sum of the absolute value of all bought and sold contracts. The amount cannot be used to

assess the market risk associated with the position and should be used only as a means of assessing the group's participation

in derivative contracts.



5 Derivative instruments continued

5.3 Derivative assets and liabilities

2005

Maturity analysis of net fair value

1 – 5 Net fair

<1 year years >5 years value

Rm Rm Rm Rm

Derivatives held for trading

Foreign exchange derivatives 1 294 1 591 (2 104) 781

Forwards 1 069 274 151 1 494

Futures – – – –

Options 225 1 317 (2 255) (713)

Interest rate derivatives 1 864 (1 698) 300 466

Bonds and options (25) – (489) (514)

Caps and floors 1 42 (9) 34

Future options 14 15 – 29

Forwards (2) (18) – (20)

Swaps 1 856 (1 732) 798 922

Swaptions 20 (5) – 15

Commodity derivatives 112 313 131 556

Forwards 2 089 41 (5) 2 125

Futures – – – –

Options (1 977) 272 136 (1 569)

Credit derivatives (230) (404) 4 (630)

Credit default swaps 226 7 4 237

Total return swaps (456) (411) – (867)

Equity derivatives 182 (264) – (82)

Forwards 55 – – 55

Futures 7 9 – 16

Index options 207 (299) – (92)

Options (33) 5 – (28)

Swaps (9) 18 – 9

Other (45) 3 – (42)

Total derivative assets/(liabilities) held for trading 3 222 (462) (1 669) 1 091

Derivatives held for hedging

Derivatives designated as fair value hedges 379 794 (835) 338

Currency futures – – – –

Interest rate swaps 379 794 (835) 338

Cross currency interest rate swaps – – – –

Derivatives designated as cash flow hedges (18) (28) 7 (39)

Currency swaps (20) (25) – (45)

Interest rate swaps 2 (3) 7 6

Derivatives designated as fair value portfolio

hedges – interest rate swaps – – – –

Derivatives designated as hedge of net investment

in subsidiaries (4) (24) – (28)

Currency options 3 – – 3

Forward exchange contracts (7) (24) – (31)

Total derivative assets/(liabilities) held for hedging 357 742 (828) 271

Total derivative assets/(liabilities) 3 579 280 (2 497) 1 362


2005 2004

Contract/ Contract/

Fair value Fair value notional Net fair Fair value Fair value notional

of assets of liabilities amount value of assets of liabilities amount


15 598 (14 817) 901 358 2 190 24 131 (21 941) 366 580

8 999 (7 505) 799 584 2 405 17 418 (15 013) 255 647

1 (1) 17 558 ( 61) 384 (445) 11 860

6 598 (7 311) 84 216 (154) 6 329 (6 483) 99 073

49 757 (49 291) 2 212 444 5 912 74 767 (68 855) 2 639 374

1 459 (1 973) 120 743 (390) 1 386 (1 776) 115 010

124 (90) 41 458 72 177 (105) 38 686

60 (31) 143 876 70 112 (42) 60 202

230 (250) 298 355 118 998 (880) 540 557

47 700 (46 778) 1 595 328 6 034 72 028 (65 994) 1 880 426

184 (169) 12 684 8 66 (58) 4 493

28 071 (27 515) 444 676 437 18 731 (18 294) 351 411

18 589 (16 464) 289 419 406 14 362 (13 956) 251 038

1 (1) 217 1 1 – 100

9 481 (11 050) 155 040 30 4 368 (4 338) 100 273

646 (1 276) 41 037 428 580 (152) 16 262

595 (358) 39 157 125 276 (151) 15 067

51 (918) 1 880 303 304 (1) 1 195

3 499 (3 581) 119 617 (360) 1 608 (1 968) 117 605

367 (312) 3 172 41 44 (3) 239

129 (113) 83 978 6 19 (13) 79 907

2 850 (2 942) 29 440 (473) 1 079 (1 552) 31 224

76 (104) 267 42 427 (385) 4 803

38 (29) 2 628 22 37 (15) 1 426

39 (81) 132 2 2 – 6

97 571 (96 480) 3 719 132 8 607 119 817 (111 210) 3 491 232

2 589 (2 251) 54 914 (155) 3 550 (3 705) 54 394

– – – 4 4 – 603

2 589 (2 251) 54 914 (199) 3 506 (3 705) 53 132

– – – 40 40 – 659

25 (64) 5 213 (23) 96 (119) 821

3 (48) 1 632 (20) 49 (69) 21

22 (16) 3 581 (3) 47 (50) 800

– – – (419) 761 (1 180) 3 200

3 (31) 616 12 12 – 1 839

3 – 557 – – – –

– (31) 59 12 12 – 1 839

2 617 (2 346) 60 743 (585) 4 419 (5 004) 60 254

100 188 (98 826) 3 779 875 8 022 124 236 (116 214) 3 551 486



5.4 Use and measurement of derivative instrumentsIn the normal course of business, the group enters into a variety of derivative transactions for both trading and hedging

purposes. Derivative financial instruments are entered into for trading purposes and for hedging foreign exchange and

interest rate exposures. Derivative instruments used by the group in both trading and hedging activities include swaps,

options, forwards, futures, and other similar types of instruments based on foreign exchange rates, interest rates, credit risk

and the prices of commodities and equities.

The risks associated with derivative instruments are monitored in the same manner as for the underlying instruments. Risks

are also measured across the product range in order to take into account possible correlations.

The fair value of all derivatives is recognised on the balance sheet and is only netted to the extent that a legal right of set-

off exists and there is an intention to settle on a net basis.

Swaps are transactions in which two parties exchange cash flows on a specified notional amount for a predetermined period.

The major types of swap transactions undertaken by the group are as follows:

• Interest rate swap contracts generally entail the contractual exchange of fixed and floating rate interest payments in a

single currency, based on a notional amount and an interest reference rate.

• Cross currency interest rate swaps involve the exchange of interest payments based on two different currency principal

balances and interest reference rates and generally also entail exchange of principal amounts at the start and/or end of

the contract.

• Credit default swaps are the most common form of credit derivative, under which the party buying protection makes one

or more payments to the party selling protection during the life of the swap in exchange for an undertaking by the seller

to make a payment to the buyer following a credit event, as defined in the contract, with respect to a third party.

• Total return swaps are contracts in which one party (the total return payer) transfers the economic risks and rewards

associated with an underlying asset to another counterparty (the total return receiver). The transfer of risk and reward

is effected by way of an exchange of cash flows that mirror changes in the value of the underlying asset and any income

derived therefrom.

Options are contractual agreements under which the seller (writer) grants the purchaser the right, but not the obligation,

either to buy (call option) or to sell (put option) by or at a set date, a specified amount of a financial instrument or commodity

at a predetermined price. The seller receives a premium from the purchaser for this right. Options may be traded over-the-

counter (OTC) or on a regulated exchange.

Forwards and futures are contractual obligations to buy or sell financial instruments or commodities on a future date at a

specified price. Forward contracts are tailor-made agreements that are transacted between counterparties in the OTC

market, whereas futures are standardised contracts transacted on regulated exchanges.

5.5 Derivatives held for tradingThe group trades derivative instruments on behalf of customers and for its own positions. The group transacts derivative

contracts to address customer demands both as a market maker in the wholesale markets and in structuring tailored

derivatives for customers. The group also takes proprietary positions for its own account. Trading derivative products include

the following derivative instruments:

5.5.1 Foreign exchange derivatives

Foreign exchange derivatives are used to hedge foreign currency risks on behalf of customers and for the group's

own positions. Foreign exchange derivatives primarily consist of forward exchange contracts, foreign exchange

futures, and foreign exchange options.

5.5.2 Interest rate derivatives

Interest rate derivatives are used to modify the volatility and interest rate characteristics of interest-earning assets

and interest-bearing liabilities on behalf of customers and for the group's own positions. Interest rate derivatives

primarily consist of forward rate agreements, caps and floors, swaps, swaptions, future options, and bond and options.

5.5.3 Commodity derivatives

Commodity derivatives are used to address customer commodity demands and to take proprietary positions for the

group’s own account. Commodity derivatives primarily consist of commodity forwards, commodity futures, and

commodity options.




5.5 Derivatives held for trading continued

5.5.4 Credit derivatives

Credit derivatives are used to hedge the credit risk from one counterparty to another and manage the credit

exposure to selected counterparties on behalf of customers and for the group’s own positions. Credit derivatives

primarily consist of credit default swaps, credit linked notes, and total return swaps.

5.5.5 Equity derivatives

Equity derivatives are used to address customer equity demands and to take proprietary positions for the group’s

own account. Equity derivatives primarily consist of options, index options, forwards, futures, swaps and other

equity related financial derivative instruments.

5.6 Derivatives held for hedgingThe group enters into derivative transactions, which are designated and qualify as either fair value, cash flow, or net

investment hedges for recognised assets or liabilities or forecasted transactions. Derivatives held for hedging consist of:

5.6.1 Derivatives designated as fair value hedges

The group’s fair value hedges principally consist of currency futures, interest rate swaps and cross currency interest

rate swaps that are used to protect against changes in market interest rates and movements in exchange rates.

5.6.2 Derivatives designated as cash flow hedges

The group uses currency swaps and exchange traded currency options to protect against changes in cash flows of

certain variable rate debt issues. The group applies hedge accounting for its non-trading interest rate risk in major

currencies by analysing expected cash flows on a group basis. The objective is to protect against changes in future

interest cash flows resulting from the impact of changes in market interest rates, and reinvestment or reborrowing

of current balances.

5.6.3 Derivatives designated as fair value portfolio hedges

The group uses interest rate swaps for portfolio hedging of interest rate risk.

5.6.4 Derivatives designated as hedges of net investments in subsidiaries

The objective of the hedge of net investments is to limit the risk of a decline in net asset value of the investment

in a foreign entity brought about by changes in exchange rates. To limit the risk, currency option contracts have

been purchased where considered appropriate.


2005 2004

Rm Rm

6 Trading assetsListed 28 068 19 480

– Securities of, or guaranteed by, the South African Government 5 636 3 004

– Other 22 432 16 476

Unlisted 10 056 12 724


38 446 32 438

Dated assets 33 830 27 970

Undated assets 4 294 4 234


38 446 32 438

Maturity analysis

The maturities represent periods to contractual redemption of the trading assets recorded.

– Redeemable on demand 4 630 2 893

– Maturing within 1 month 2 492 2 296

– Maturing after 1 month but within 6 months 5 389 7 893

– Maturing after 6 months but within 12 months 4 105 3 773

– Maturing after 12 months 17 536 11 349

– Undated assets 4 294 4 234

38 446 32 438

Redemption value

Dated trading assets had a redemption value at 31 December 2005 of R37 701 million (2004: R31 455 million).

Directors’ valuation

The directors’ valuation of unlisted investments is equal to the carrying value. All unlisted investments were valued at 31 December 2005.



2005 2004

Rm Rm

7 InvestmentsInvestment securities held in banking operations (note 7.1) 18 347 20 068

Investments held by insurance operations (note 7.2) 135 057 98 609

153 404 118 677

7.1 Investment securities held in banking operationsListed 13 977 15 241

– Securities of, or guaranteed by, the South African Government 11 151 13 940

– Other 2 826 1 301

Unlisted 3 998 4 464


18 347 20 068

Comprising:

Investment securities held at fair value through profit or loss 13 378 13 961

Investment securities available-for-sale 1 491 625

Investment securities held-to-maturity 3 106 5 119


18 347 20 068

Dated securities 13 648 14 473

Undated securities 4 327 5 232


18 347 20 068

Fair value 18 414 20 425

Maturity analysis

The maturities represent periods to contractual redemption of the investment

securities recorded.


– Maturing within 1 month 1 270 54


– Maturing after 6 months but within 12 months 331 761


– Undated securities 4 327 5 232

18 347 20 068

Redemption value

Dated investment securities had a redemption value at 31 December 2005 of R13 156 million (2004: R14 122 million).

Investment registers

Registers of investment securities are available for inspection by members, or their authorised agents, at the registered

offices of the company and its subsidiaries.


The directors’ valuation of unlisted investments is equal to the carrying value. All unlisted investments were valued at

31 December 2005.


2005 2004

Rm Rm

7 Investments continued

7.2 Investments held by insurance operationsFinancial instruments (note 7.3) 123 953 89 469

Investment properties (note 7.4) 11 104 9 140

135 057 98 609

7.3 Financial instrumentsGovernment, municipal and utility stocks 20 413 13 328

Debentures 9 911 6 280

Listed equities 59 744 48 799

Mutual funds 25 218 15 426

Unlisted equities 2 404 2 017

Loans and receivables1 2 028 663

Money market securities 3 356 2 118

Insurance policies 879 838

123 953 89 469

Comprising:

Held at fair value through profit or loss 121 925 85 254

Available-for-sale2 – 3 816

Loans and receivables 2 028 399

123 953 89 469

Maturity analysis

– Maturing within 1 year 3 668 2 579

– Maturing after 1 year but within 5 years 12 253 7 350

– Maturing after 5 years but within 10 years 4 739 3 377

– Maturing after 10 years 9 618 6 566

– Variable1 2 074 399

– Undated assets 91 601 69 198

123 953 89 469

1Instruments in this category comprise loans secured against policyholder contracts. The maturity profile is not determinable

as the holder has the option to settle at any time prior to the policy maturity date.

2As allowed on adoption of IFRS, assets have been reclassified as held at fair value through profit or loss with effect from

1 January 2005.



2005 2004

Rm Rm

7 Investments continued

7.4 Investment propertiesCompleted properties

Fair-market value at beginning of the year1 9 140 9 554

Restatement on the adoption of IFRS – (593)

Restated fair-market value at beginning of the year 9 140 8 961

Net revaluations 859 494

Gross revaluations 818 531

Net movements on straight-lining of operating leases in terms of IFRS 41 (37)

Additions – property acquired 865 –

Additions – capitalised subsequent expenditure 22 190

Additions through business acquisition 258 –

Disposals (134) (466)

Reclassifications from/(to) owner-occupied properties 56 (39)

Transfers to properties under development (8) –

Fair�market value at end of the year 11 058 9 140

Properties under development

Cost at beginning of the year – –

Additions – capitalised subsequent expenditure 38 –

Transfers from completed properties 8 –

Cost at end of the year 46 –

Total investment properties 11 104 9 140

Classified as follows:

Investment properties at fair value 11 104 9 140

Operating lease – accrued income 849 891

Operating lease – accrued expense (260) (261)

11 693 9 770

Comprising:

Office buildings 1 339 1 228

Shopping malls 8 710 7 099

Hotels 1 332 1 133

Other 312 310

11 693 9 770

Investment properties were independently valued as at 31 December 2005 by a professional valuer registered with the

South African Council for the Property Valuers Profession as well as a member of the Institute of Valuers of South Africa.

At 31 December 2005 the value of unlet investment properties amounted to R82 million (2004: R47 million).

The property rental income earned by the group from its investment property, leased out under operating leases, amounted

to R1 233 million (2004: R1 181 million). Direct operating expenses arising on the investment property amounted to

R242 million (2004: R209 million).

1At 1 January 2004, R170 million relating to the investment in The Cullinan Hotel (Proprietary) Limited has been reclassified

to interest in associates and joint ventures.


2005 2004

Rm Rm

8 Loans and advancesThe group extends advances to the personal, commercial and corporate sectors as well

as to the public sector. Advances made to individuals are mostly in the form of mortgages,

instalment credit, overdrafts and credit card borrowings. A significant portion of the group’s

advances to commercial and corporate borrowers consists of advances made to

companies engaged in manufacturing, finance and service industries.

8.1 Loans and advances net of impairmentLoans and receivables 335 886 258 219

Loans and advances to banks

– Call loans 7 708 3 635

– Loans granted under resale agreements 17 431 10 329

Loans and advances to customers

– Overnight lending 32 743 25 965

– Card debtors 11 967 7 852

– Revolving credit accounts 6 461 5 772

– Term lending 57 480 47 882

– Loans granted under resale agreements 8 860 6 918

– Instalment sales and finance leases1 (note 8.2) 42 125 34 844

– Mortgage lending1, 2 125 942 95 172

– Commercial property finance 16 196 12 095

– Other loans and advances 8 973 7 755

Held�to�maturity

– Instalment sale and finance leases to customers3 – 689

Held at fair value through profit or loss 35 2 039

Loans and advances to banks

– Call loans 10 138

– Loans granted under resale agreements – 503

Loans and advances to customers

– Term lending 25 –

– Mortgage lending3 – 1 398

Accrued interest 2 068 1 722

337 989 262 669

Credit impairments for loans and advances (note 8.3) (3 861) (3 796)

334 128 258 873

Fair value 337 959 262 646

Loans and advances included net positive fair value adjustments of R1 077 million (2004: R1 242 million) relating to loans and receivables which were subject to specific hedging relationships and were therefore only fair valued for the risk subject to hedging.1Loans and advances securitised

Mortgage lending 4 258 –Instalment sale and finance leases 2 633 –

6 891 –

The group retained the credit risk in both securitisation vehicles which is considered to be substantially all of the risks relatingto these loans. The securitisation vehicles containing these loans have therefore been consolidated and the liability tonoteholders has been disclosed as part of deposits, refer note 16.

2Mortgage lending includes capitalised origination costs of R696 million (2004: R475 million).

3On adoption of IFRS, the held-to-maturity loans and certain of the loan books held at fair value were reclassified to loans andreceivables. The reclassification is only applicable from 1 January 2005.



2005 2004

Rm Rm

8 Loans and advances continued

8.1 Loans and advances net of impairment continued

Maturity analysis

The maturity analysis is based on the remaining periods to contractual

maturity from year end.






337 989 262 669

Segmental analysis – industry

Agriculture 7 869 7 373

Construction 2 529 3 938

Electricity 1 904 1 223

Finance, real estate and other business services 75 046 55 601

Individuals 168 677 125 640

Manufacturing 19 683 16 565

Mining 8 139 4 710

Other services 40 353 34 531

Transport 7 500 7 930

Wholesale 6 289 5 158

337 989 262 669

Segmental analysis – geographic area

The following table sets out the distribution of the group’s loans and advances by geographic area where the loans are

recorded. The geographic spread of loans and advances within the various regions of South Africa closely follows the

demographic and economic activities within the country.

2005 2005 2004 2004

% Rm % Rm

South Africa 76 255 333 77 203 138

Rest of Africa 4 14 412 5 12 109

Rest of world 20 68 244 18 47 422

100 337 989 100 262 669


2005 2004

Rm Rm

8 Loans and advances continued

8.2 Instalment financeGross investment in instalment finance 50 026 41 811

Unearned finance charges deducted 7 901 6 967

Net investment in instalment finance 42 125 34 844

8.3 Credit impairments for loans and advancesBalance at beginning of the year 3 796 3 908

Adoption of IFRS (109)

Restated balance 3 687 3 908

Acquisition of subsidiaries – 32

Non-performing loans written off (1 097) (1 122)

Discount element recognised in interest income (note 23.1) (240) (258)

Net impairments raised (note 23.6) 1 491 1 427

Exchange and other movements 20 (191)

Balance at end of the year 3 861 3 796

Comprising:

Impairments for non-performing loans 2 160 2 335

Impairments for performing loans 1 701 1 461

3 861 3 796

Segmental analysis of impairments for non�performing loans – industry

Agriculture 61 51

Construction 47 39

Electricity 1 1

Finance, real estate and other business services 375 367

Individuals 744 848

Manufacturing 161 184

Mining 205 244

Other services 374 458

Transport 31 24

Wholesale 161 119

2 160 2 335

Segmental analysis of impairments for non�performing loans – geographic area

The following table sets out the distribution of the group’s impairments by geographic area where the loans are recorded.

2005 2005 2004 2004

% Rm % Rm

South Africa 69 1 480 65 1 527

Rest of Africa 10 221 12 278

Rest of world 21 459 23 530

100 2 160 100 2 335



2005 2004

Rm Rm

9 Current and deferred taxationCurrent taxation assets 422 537

Deferred taxation assets (note 17.1) 568 557

990 1 094

10 Other assetsTrading settlement assets 3 883 6 174

Items in the course of collection 750 639

Operating lease – accrued income 849 891

Insurance prepayments and reinsurance assets 2 962 2 690

Other debtors 4 559 6 829

13 003 17 223

11 Interest in associates and joint venturesAssociates and joint ventures accounted for under the equity method 1 048 496

Associates held at fair value1 3 937 2 754

4 985 3 250

Equity accounted associates and joint ventures

Carrying value at beginning of the year 496 711

Share of profit 226 127

Acquisition resulting in associate becoming a subsidiary – (231)

Net acquisitions/(disposals) 421 (31)

Distribution of profit (95) (80)

Carrying value at end of the year 1 048 496

Comprising:

Cost of investments 736 340

Share of reserves 396 240

Goodwill impairment (84) (84)

1 048 496


The directors’ valuation of the investments in associates and joint ventures is

R5 257 million (2004: R3 347 million).

Equity accounted associates and joint ventures and the group’s interests therein are

listed in Annexure D on page 198.

1Key financial information of associates held at fair value

Investments 11 300 9 887

Current assets 233 669

Current liabilities (96) (43)

Total fair value 11 437 10 513

Associates held at fair value consist of units or shares in mutual funds held by Liberty Life. The units or shares are by their nature

demand deposits and are held at fair value. The net income or loss is capitalised to unit values within each fund and is equivalent to

the fair value adjustments.


2005 2004

Rm Rm

12 Goodwill and other intangible assetsGoodwill (note 12.1) 639 473

Other intangible assets (note 12.2) 1 814 492

2 453 965

12.1 GoodwillGoodwill on subsidiariesCost at beginning of the year 625 449

Acquisitions 703 186

Negative goodwill recognised – 2

At acquisition fair value adjustment1 – 24

Disposals2 (237) (9)

Exchange movements 2 (27)

Cost at end of the year 1 093 625

Accumulated impairment at beginning of the year (152) (106)

Goodwill impairment charge (note 23.9) (421) (48)

Negative goodwill recognised – (2)

Disposals2 119 –

Exchange movements – 4

Accumulated impairment at end of the year (454) (152)

Net goodwill 639 473

1R19 million relates to a 2005 adjustment after initial recognition, which restated the prior year number.

2Disposals of R118 million relate to assets transferred to assets held for sale.

2005 2004

Gross Accumulated Net Net

goodwill impairment goodwill goodwill

Rm Rm Rm Rm

Goodwill comprises:Capital Alliance Holdings Limited 397 (397) – –

Liberty Ermitage Jersey Limited – – – 81

Liberty Group Limited 309 – 309 94

Liberty Holdings Limited 34 – 34 –

Melville Douglas Investment

Management (Proprietary) Limited 45 (18) 27 27

SBBL Limited 20 – 20 22

Stanbic Bank Limited (Malawi) 33 – 33 32

Stanbic Bank Uganda Limited 10 – 10 9

Stanbic Bank Nigeria Limited 4 – 4 –

Standard Bank Asia Limited 44 (15) 29 25

Standard Bank s.a.r.l Mozambique 98 – 98 98

Standard Yatirim Menkul Kiymetler A.S. 2 (1) 1 1

Stanlib Limited 56 – 56 56

Triskelion Trust Company Limited 41 (23) 18 28

1 093 (454) 639 473

Impairment testingFor the purposes of impairment testing, the goodwill is allocated to the smallest cash generating unit. The cash generating

units are defined as the corporate entities listed above. The goodwill is tested annually for impairment and in the majority of

cases the impairment is tested using the value in use as the recoverable amount.

The largest impairment incurred was that of Capital Alliance Holdings Limited (CAHL). The goodwill arose from the residual

cost of CAHL over its embedded value. All the cash flows from the entity’s cash generating units have been taken into account

in calculating the embedded value. As there are no further cash flows to attribute to the goodwill it is impaired in full.



2005 2004

Accu� Accu-

mulated Net book mulated Net book

Cost amortisation value Cost amortisation value

Rm Rm Rm Rm Rm Rm

12 Goodwill and other intangible assets continued

12.2 Other intangible assetsSummary

Computer software 904 531 373 758 422 336

Present value of acquired

in-force life insurance business 1 624 183 1 441 189 33 156

2 528 714 1 814 947 455 492

Movement

2004 2005

Carrying Exchange Carrying

value Additions)1 Disposals)2 Impairments Amortisation movements value


Computer software 336 147 – – (114) 4 373

Present value of

acquired in-force

life insurance

business 156 1 483 (44) – (154) – 1 441

492 1 630 (44) – (268) 4 1 814

2003 2004


value)3 Additions)4 Disposals Impairments Amortisation movements value


Computer software 320 164 (1) (12) (132) (3) 336

Present value of

acquired in-force

life insurance

business 175 – – – (19) – 156

495 164 (1) (12) (151) (3) 492

1Includes additions arising from a business combination of R1 427 million.

2Disposals of R44 million relate to assets transferred to assets held for sale.

3The 2003 carrying value has been restated by R53 million on adoption of IFRS.

4Included in the additions of computer software is R22 million due to an acquisition resulting in an associate becoming a

subsidiary.


2005 2004

Accu� Accu-

mulated Net book mulated Net book

Cost depreciation value Cost depreciation value

Rm Rm Rm Rm Rm Rm

13 Property and equipment13.1 Summary

Property

Freehold 1 962 283 1 679 1 680 276 1 404

Leasehold 265 103 162 195 82 113

2 227 386 1 841 1 875 358 1 517

Equipment

Computer equipment 3 386 1 989 1 397 3 312 1 942 1 370

Motor vehicles 673 295 378 696 308 388

Office equipment 366 184 182 386 207 179

Furniture and fittings 1 455 717 738 1 482 822 660

5 880 3 185 2 695 5 876 3 279 2 597

8 107 3 571 4 536 7 751 3 637 4 114

13.2 Movement

2004 2005


value)1 Additions)2, 3 Disposals)4 Impairments Depreciation movements value


Property

Freehold 1 404 350 (59) – (16) – 1 679

Leasehold 113 64 (1) – (18) 4 162

1 517 414 (60) – (34) 4 1 841

Equipment

Computer equipment 1 370 598 (34) – (549) 12 1 397

Motor vehicles 388 197 (67) – (143) 3 378

Office equipment 179 50 (9) – (43) 5 182

Furniture and fittings 660 233 (16) – (148) 9 738

2 597 1 078 (126) – (883) 29 2 695

Total 4 114 1 492 (186) – (917) 33 4 536

1Opening balances have been restated for IFRS by R46 million (2004: R40 million).

2Includes additions arising from a business combination of R43 million.

3Includes transfer to investment properties of R56 million (2004: transfer from: R39 million).

4Included in disposals is R16 million relating to business disposals and assets transferred to assets held for sale.



2003 2004


value Additions Disposals Impairments Depreciation movements value


13 Property and equipment continued

13.2 Movement continued

Property

Freehold 1 413 110 (70) (13) (15) (21) 1 404

Leasehold 117 37 (20) – (15) (6) 113

1 530 147 (90) (13) (30) (27) 1 517

Equipment

Computer equipment 1 498 595 (51) (2) (636) (34) 1 370

Motor vehicles 352 234 (79) – (114) (5) 388

Office equipment 189 65 (13) – (43) (19) 179

Furniture and fittings 599 237 (33) – (125) (18) 660

2 638 1 131 (176) (2) (918) (76) 2 597

Total 4 168 1 278 (266) (15) (948) (103) 4 114

13.3 ValuationThe fair-market value of freehold property, based on valuations undertaken during 2005 and 2004 by valuers registered

under the Valuers Act 1982, was estimated at R2 033 million (2004: R1 907 million). Registers of property are available

for inspection by members, or their authorised agents, at the registered offices of the company and its subsidiaries. Valuation

was generally in terms of the investment method whereby net income is capitalised having regard to tenancy, location and

the physical nature of the property.

2005 2004

Rm Rm

14 Share capital14.1 Authorised

1 750 000 000 (2004: 1 750 000 000) ordinary shares of 10 cents each 175 175

8 000 000 (2004: 8 000 000) 6,5% first cumulative preference shares

of R1 each 8 8

1 000 000 000 (2004: 1 000 000 000) non-redeemable, non-cumulative,

non-participating preference shares of R0,01 each 10 10

193 193


2005 2004

Rm Rm

14 Share capital continued

14.2 Issued Ordinary share capital 135 135

1 352 382 919 (2004: 1 352 108 367) ordinary shares

of 10 cents each

Ordinary share premium 2 107 2 541

A premium of R245 million, net of R1 million costs,

(2004: R268 million) was raised on the allotment and issue

during the year of 10 439 067 ordinary shares (2004: 13 378 700).

A premium of R679 million, including R2 million costs, was utilised

on the buy-back of 10 164 515 ordinary shares.

Preference share capital and premium 2 991 2 991

8 000 000 (2004: 8 000 000) 6,5% first cumulative preference shares

of R1 each – first preference shares 8 8

30 000 000 (2004: 30 000 000) non-redeemable, non-cumulative,

non-participating preference shares of R0,01 each – second

preference shares – –

Preference share premium – non-redeemable, non-cumulative,

non-participating preference shares – second preference shares 2 983 2 983

The non-redeemable, non-cumulative, non-participating preference shares

are entitled to an annual dividend, if declared, payable in two semi-annual

instalments of not less than 70% of the prime rate multiplied by the

subscription price of R100 per share.

5 233 5 667

The number of options and appreciation rights available to be granted under the terms of the group's equity compensation

plans as at the end of the year was 65 983 431 (2004: 55 300 684).

The group’s equity compensation plans reconciliations are given in Annexure E on page 200.

Number of ordinary

shares

Reconciliation of shares issuedShares in issue at 1 January 2004 1 338 729 667

Shares issued during 2004 in terms of the group’s equity compensation plans 13 378 700

Shares in issue at 31 December 2004 1 352 108 367

Shares held in terms of the Tutuwa initiative (note 21) 99 190 197

Shares held by other shareholders 1 252 918 170

Shares issued during 2005 in terms of the group’s equity compensation plans 10 439 067

Shares repurchased and cancelled during the year (10 164 515)

Shares in issue at 31 December 2005 1 352 382 919

Shares held in terms of the Tutuwa initiative (note 21) 99 190 197

Treasury shares held by Liberty Life for the benefit of policyholders 46 488 554

Shares held by other shareholders 1 206 704 168



2005 2004

Rm Rm

14 Share capital continued

14.3 Unissued shares262 406 244 (2004: 262 680 796) ordinary shares of 10 cents each, of

which 67 605 418 (2004: 133 872 967) are under the general authority

of the directors which authority expires at the annual general meeting to be

held on 24 May 2006. 26 26

135 210 837 (2004: 135 210 837) ordinary shares of 10 cents each are

reserved to meet the requirements of the group’s equity compensation plans

in terms of the authority vested in the directors by members’ resolution

dated 25 May 2005. 14 14

970 000 000 (2004: 970 000 000) non-redeemable, non-cumulative,

non-participating preference shares of R0,01 each are under the general

authority of the directors which authority expires at the annual general

meeting to be held on 24 May 2006. 10 10

50 50

14.4 Interest of directors in service at 31 December 2005 in the capital of the companyThe directors’ interests are listed on pages 44, 94 and 95.

Number of shares as at 31 December

Beneficial ordinary shares 12 243 067 11 898 331

Beneficial non-redeemable, non-cumulative, non-participating preference shares 17 086 24 040

Options 1 748 400 2 256 900

15 Trading liabilitiesListed 17 680 8 734

Unlisted 3 782 5 676

21 462 14 410

Dated liabilities 11 812 11 137

Undated liabilities 9 650 3 273

21 462 14 410

Maturity analysis

The maturity analysis is based on the remaining periods to contractual

maturity from year end.

– Repayable on demand – 100

– Maturing within 1 month 174 254

– Maturing after 1 month but within 6 months 1 048 988

– Maturing after 6 months but within 12 months 1 333 773


– Undated liabilities 9 650 3 273

21 462 14 410


2005 2004

Rm Rm

16 Deposit and current accountsDeposit products include cheque accounts, savings accounts, call and

notice deposits, fixed deposits and negotiable certificates of deposit.

The repricing maturities analysis for banking operations in South Africa

for December 2005 is disclosed on page 61.

Held at amortised cost 384 441 308 596

Deposits and loans from banks

– Deposits from banks and central banks 8 187 15 758

– Deposits from banks under repurchase agreements 8 778 7 773

Deposits and loans from customers

– Current accounts 47 811 38 487

– Cash management deposits 55 003 44 667

– Card creditors 1 188 1 059

– Call deposits 66 512 43 397

– Savings accounts 15 478 11 566

– Term deposits 104 542 103 020

– Negotiable certificates of deposit 43 544 26 363

– Repurchase agreements 12 488 3 718

– Securitisation fundings 7 326 –

– Other funding and loans 13 584 12 788

Held at fair value through profit or loss 22 888 7 996

Deposits and loans from banks

– Deposits from banks and central banks 9 245 5 695

– Deposits from banks under repurchase agreements 60 6

Customer call deposits 13 583 2 295

Accrued interest 5 133 5 885

412 462 322 477

Deposit and current accounts were increased by fair value adjustments of R436 million

(2004: R575 million) relating to deposit and current accounts which were subject to

specific hedging relationships and were therefore only fair valued for the risk

subject to hedging.

Maturity analysis

The maturity analysis is based on the remaining periods to contractual maturity

from year end.

– Repayable on demand 207 089 175 207





412 462 322 477



2005 2005 2004 2004

% Rm % Rm

16 Deposit and current accounts continued

Segmental analysis – geographic area

The following table sets out the distribution of

the group's deposit and current accounts by

geographic area. The geographic spread of

deposit and current accounts within the various

regions of South Africa closely follows the

demographic and economic activities within

the country.

South Africa 79 324 678 80 255 496

Rest of Africa 5 22 981 6 20 884

Rest of world 16 64 803 14 46 097

100 412 462 100 322 477

2005 2004

Rm Rm

17 Current and deferred taxationCurrent taxation liability 2 145 1 014

Deferred taxation liability 4 781 3 798

6 926 4 812

17.1 Deferred tax analysisAccrued interest receivable 22 39

Assessed losses (69) (79)

Assets on lease 208 208

Capital gains tax 1 019 616

Credit impairment charges (559) (463)

Deferred acquisition costs 82 –

Deferred revenue liability (18) –

Depreciation 77 112

Derivatives 2 172 1 761

Fair value adjustments of financial instruments 84 96

Intangible asset – PVIF 421 47

Investment properties surplus 806 564

Net prepaid commission – 19

Policyholder change in valuation basis 416 –

Post-retirement benefits (378) (233)

Secondary tax on companies (66) (223)

Special transfer to life fund (361) –

Other differences 357 777

Deferred tax closing balance 4 213 3 241

Deferred tax liability 4 781 3 798

Deferred tax asset (note 9) (568) (557)


2005 2004

Rm Rm

17 Current and deferred taxation continued

17.2 Deferred tax reconciliationDeferred tax at beginning of the year 3 241 2 104

Change in company tax rate (89) –

Adoption of IFRS 21 703

Restated balance 3 173 2 807

Various categories of originating/(reversing) temporary differences for the year: 1 040 434

Accrued interest receivable (15) 16

Assessed losses 7 –

Assets on lease 6 (199)

Capital gains tax 411 296

Credit impairment charges (141) 139

Deferred acquisition costs 82 –

Deferred revenue liability (18) –

Depreciation (32) 45

Derivatives 473 48

Fair value adjustments of financial instruments (11) 98

Intangible asset – PVIF 375 –

Investment properties surpluses 242 (121)

Net prepaid commission (19) 34

Policyholder change in valuation basis 416 –

Post-retirement benefits contributions (149) (61)

Secondary tax on companies 158 (47)

Special transfer to life fund (361) –

Other differences (384) 186

Deferred tax at end of the year 4 213 3 241

Temporary differences for the year comprise:

Recognised directly in equity 45 161

Recognised in the income statement 708 273

Acquisitions 287 –

1 040 434

Subsequent to year end a final ordinary dividend of 145,0 cents per share (2004: 181,0 cents per share) was declared. In

addition, the half yearly dividend on the non-redeemable, non-cumulative, non-participating shares of 370,52 cents per

share (2004: 379,34 cents per share) was declared. The declarations will result in a secondary tax on companies charge of

R259 million (2004: R320 million).



2005 2004

Rm Rm

18 Other liabilities 18.1 Summary

Trading settlement liabilities 2 028 1 644

Items in the course of transmission 496 974

Provision for post-retirement benefits (note 18.2) 1 086 937

Third party liabilities arising on consolidation of mutual funds 4 877 3 523

Operating lease – accrued expense 260 261

Cash-settled share-based payment liability 177 136

Insurance payables 3 765 2 058

Other liabilities 8 603 6 541

21 292 16 074

18.2 Provision for post�retirement benefitsBalance at beginning of the year 937 727

Net provision raised 149 210

Balance at end of the year 1 086 937

Details on post-retirement benefits are provided in note 33 on page 173.

19 Policyholders’ liabilitiesPolicyholders’ liabilities under insurance contracts (note 19.1) 103 979 65 972

Policyholders’ liabilities under investment contracts (note 19.2) 36 856 32 021

140 835 97 993

19.1 Policyholders’ liabilities under insurance contractsInsurance contract liabilities before deferred taxation adjustment

as previously reported 66 414 56 296

Total deferred taxation applicable to fair value adjustments on investment properties (442) (527)

Balance at beginning of the year as restated for IFRS 65 972 55 769

Reclassification of contracts on adoption of IFRS 4 611 –

Revaluation on adoption of IFRS (28) –

Balance at beginning of the year as restated for IFRS on 1 January 2005 70 555 55 769

Additions through business acquisition 15 211 –

Transfer to policyholders’ liabilities 18 958 9 710

Bases changes 373 –

Other 18 762 9 625

Movement in deferred taxation applicable to fair value adjustments

on investment properties (177) 85

Reclassification of reinsurance assets – 493

Disclosed as disposal groups held for sale (745) –


Insurance contracts before deferred taxation adjustment 104 598 66 414

Total deferred taxation applicable to fair value adjustments on investment property (619) (442)


2005 2004

Rm Rm

19 Policyholders’ liabilities continued

19.2 Policyholders’ liabilities under investment contractsInvestment contract liabilities before deferred taxation adjustment

as previously reported 32 128 27 544

Total deferred taxation applicable to fair value adjustments on investment properties (107) (128)

Balance at beginning of the year as restated for IFRS 32 021 27 416

Reclassification of contracts on adoption of IFRS (4 611) –

Revaluation on adoption of IFRS 41 –

Balance at beginning of the year as restated for IFRS on 1 January 2005 27 451 27 416

Additions through business acquisition 2 606 –

Fair value adjustment 6 834 4 666

Service fee income from investment contracts (720) (700)

Fund flows from investment contracts 767 639

Inflows 8 312 8 148

Payments (7 545) (7 509)

Disclosed as disposal groups held for sale (82) –


Investment contracts before deferred taxation adjustment 37 006 32 128

Total deferred taxation applicable to fair value adjustments on investment property (150) (107)

Carrying Notional Carrying Notional

value)* value value)* value

2005 2005 2004 2004

Rm Rm Rm Rm

20 Subordinated bondsUnsecured, subordinated, redeemableQualifying as secondary capital in terms of

applicable banking legislation: 9 591 9 467 8 211 8 042

Redeemable in 2010 (SBK 1)1 1 219 1 200


Redeemable in 20103 563 563

Redeemable in 20114 150 150 150 150

Redeemable in 20135 58 58 66 66

Redeemable in 2013 (SBK 3)6 2 050 2 000 2 066 2 000

Redeemable in 20147 635 635 563 563

Redeemable in 20158 1 589 1 589Redeemable in 20159 35 35Redeemable in 2016 (SBK 5)10 2 067 2 000 2 084 2 000


Qualifying as tertiary capital in terms of

applicable banking legislation: 854 854 1 282 1 282


Redeemable in 200513 282 282

Redeemable in 2007 (SBK 6)14 600 600Redeemable in 200715 254 254

Qualifying as secondary capital for the

insurance operations16 2 000 2 000Accrued interest 199 167

12 644 12 321 9 660 9 324

Fair value 13 402 9 878



20 Subordinated bonds continued

The group did not default on principal or interest and no other breaches with respect to these liabilities occurred during the year.

*The difference of R124 million (2004: R169 million), after excluding accrued interest, between the carrying and notional valuerepresents subordinated bonds fair valued for interest rate risk as the hedged items in interest rate hedging relationships. Certainhedge relationships expired in prior years and the fair value adjustments are now amortised over the remaining lives of the bonds.

115,5% bonds issued in rands and paid a fixed semi-annual coupon. The bonds carried an option to be called at their nominal value on1 June 2005 or on any interest payment date thereafter. The option was exercised on 1 June 2005 and the bonds were redeemed atthe nominal value.

213,75% bonds issued in rands and paid a fixed semi-annual coupon. The bonds carried an option to be called at their nominal valueon 2 December 2005 or on any interest payment date thereafter. The option was exercised on 2 December 2005 and the bonds wereredeemed at the nominal value.

3Bonds issued in US dollars (US$100 million) and paid interest at a floating rate equal to the aggregate of 3% per annum and theoffered rate for three-month US dollar deposits in the London interbank market. The bonds carried an option to be called at theirnominal value on 25 November 2005 or on any interest payment date thereafter. The option was exercised on 25 November 2005and the bonds were redeemed at the nominal value.

412% bonds issued in Namibian dollars (N$150 million) and paying a fixed semi-annual coupon. The bonds carry an option to be calledat their nominal value on 20 November 2006 or on any interest payment date thereafter. After this option date, the coupon switchesto the bid yield rate for the Republic of Namibia GC10 12% Bond plus 280 basis points, until maturity on 20 November 2011.

5Bonds issued in Botswana pula (BP50 million) and paying interest at a floating rate equal to 125 basis points over three-monthBotswana Certificates. The bonds convert into preference shares in the event that Stanbic Bank Botswana eliminates its net worth. After12 December 2008, the coupon switches to 200 basis points over three-month Botswana Certificates, until maturity on 12 December 2013.

611,25% bonds issued in rands and paying a fixed semi-annual coupon. The bonds carry an option to be called at their nominal valueon 31 October 2008 or on any interest payment date thereafter. After this option date, the coupon switches to floating at the averagemid-market yield rate per annum for three-month ZAR deposits plus 209 basis points, until maturity on 31 October 2013.

7Bonds issued in US dollars (US$100 million) bearing interest from issue date 14 July 2004 to 15 July 2009 at a floating rate equalto the aggregate of 2,5% per annum and the offered rate for three-month U.S. dollar deposits in the London interbank market. Thebonds carry an option to be redeemed in full at their nominal amount on or after 15 July 2009. After this option date, the couponswitches to a rate per annum equal to the aggregate of 3% per annum and the offered rate for three-month US dollar deposits in theLondon interbank market, until maturity on 14 July 2014.

8Bonds issued in US dollars (US$250 million) bearing interest from issue date 7 October 2005 to 8 October 2010 at a floating rateequal to the aggregate of 1,15% per annum and the offered rate for three-month US dollar deposits in the London interbank market.From 8 October 2010 to 7 October 2015, the date of their redemption, these bonds bear interest at a rate per annum equal to theaggregate of 1,65% per annum and the offered rate for three-month US dollar deposits in the London interbank market. The issuermay, on 8 October 2010 or on any subsequent interest payment date, redeem in full, the notes at their nominal value.

9Bonds issued in Emalangeni (E35 million) bearing interest from issue date 15 September 2005 to 15 September 2010 at a fixed rateof 9,73% per annum. From 15 September 2010 to 15 September 2015, the date of their redemption, they bear interest at a floatingrate per annum determined by the calculation agent. The issuer may, on 15 September 2010 or on any subsequent interest paymentdate, redeem in full the notes at their nominal value.

109,5% bonds issued in rands and paying a fixed annual coupon. The bonds carry an option to be called at their nominal value on 17 November 2011 or on any interest payment date thereafter. After this option date, the coupon rate switches to a three-monthfloating Johannesburg interbank agreed rate plus 162 basis points, until maturity on 17 November 2016.

119,63% bonds issued in rands and paying a fixed semi-annual coupon. The bonds carry an option to be called at their nominal valueon 24 May 2015 or on any interest payment date thereafter. After this option date, the coupon rate switches to a three-monthfloating Johannesburg interbank agreed rate plus 197 basis points, until maturity on 24 May 2020.

1212,5% bonds issued in rands and paid a fixed semi-annual coupon. The bonds were redeemed on 15 February 2005. 13Bonds issued in US dollars (US$50 million) and paid interest at a floating rate equal to the aggregate of 2,75% per annum and the

offered rate for three-month US dollar deposits in the London interbank market. The bonds were redeemed on 22 February 2005 atthe nominal value.

147,7% bonds issued in rands and paying a fixed semi-annual coupon. SBSA is entitled to defer the due date for payment of any principalor interest in respect of the bonds if so required by the Registrar of Banks. Such deferment would be subject to conditions prescribedby the Registrar of Banks. The bonds are redeemable on 1 March 2007.

15Bonds issued in US dollars (US$40 million) at a floating rate equal to the aggregate of 1,5% per annum and the offered rate for US dollar deposits in the London interbank market. The bonds are redeemable on 15 April 2007.

168,93% bonds issued in rands and paying a fixed semi-annual coupon. The bonds carry an option to be called at their nominal amounton 12 September 2012 by Liberty. After this option date, the coupon switches to a three-month floating Johannesburg interbankagreed rate plus 186 basis points payable quarterly, until maturity on 12 September 2017.


2005 2004

Rm Rm

21 Empowerment reserveStandard Bank Group and Liberty Life entered into a series of transactions during 2004

whereby investments totalling R4 017 million and R1 251 million respectively, were made

in cumulative redeemable preference shares.

Number of Issue priceBeneficiary preference shares per share (R)Shanduka – Tutuwa Strategic Holdings 1

(Proprietary) Limited1 651 589 1 000 652 652

Safika – Tutuwa Strategic Holdings 2


Black Managers’ Trust – Staff Holdings 1–3

(Proprietary) Limited1 1 573 746 1 000 1 574 1 574

The Community Trust – Community Holdings


Standard Bank operations investment 4 017 4 017

Liberty Life investment 1 251 1 251

Total investment 5 268 5 268

Attributable to minorities of Liberty Life (908) (908)

Empowerment reserve 4 360 4 360

Unrecognised profit on sale attributable to Standard Bank Group (114) (114)

Liberty Holdings – unrecognised profit on sale of shares in subsidiary (208) (208)

Unrecognised profit on sale attributable to minorities 94 94

Standard Bank Group empowerment reserve 4 246 4 246

The cumulative redeemable preference shares owned by Standard Bank attract dividends at 8,5% per annum, whilst those of Liberty

Life accrue dividends at 66% of the Standard Bank prime lending rate. The dividend obligation of the preference shares compound

on each date the issuing company receives a dividend from Standard Bank or Liberty Life respectively. The legal accrual of the

preference dividend does not result in an accounting entry but rather lengthens the repayment period. At year end the accumulated

obligation, including accrued dividends, was R4 143 million (2004: R4 100 million) for Standard Bank and R1 279 million

(2004: R1 264 million) for Liberty Life.

The preference shares do not meet the definition of a financial asset in terms of IFRS and therefore the preference shares are treated

as a reduction of equity and are stated in the analysis of equity as a debit empowerment reserve. This will apply until third party financing

or full redemption of the preference shares. The transaction is accounted for as a derivative equity-linked instrument. On receipt,

preference share dividends are credited directly to reserves. The profit realised by Liberty Holdings as a result of the buy-back of shares

by Liberty Group was not recognised as the sale of special purpose vehicles to the black participants was not accounted for. As the

preference share capital is repaid by the black participants, Liberty Holdings will recognise the profit over the repayment term.

For the purposes of the earnings per share calculation the weighted average number of company shares in issue is reduced by the number

of shares held by the empowerment companies bought with the proceeds received from the preference shares (note 28).

The group adopted IFRS 2 – Share-based Payments, from 1 January 2005. IFRIC 8 – Scope of IFRS 2, was recently issued which

concluded that IFRS 2 is applicable to transactions in which an entity cannot identify specifically some or all of the goods or services

received. As a result of this interpretation the group has early adopted IFRIC 8 and applied IFRS 2 to the Tutuwa transaction.

The instrument was valued using a number of valuation techniques that included the Black-Scholes and discounted cash flow methods.

Due to the uniqueness of the instrument, the mid-point of the range of valuations was used arriving at a value of

R8,50 per Standard Bank Group instrument at 4 October 2004. IFRS 2 is only applicable to instruments that had not vested by

31 December 2004. As the group elected not to apply the provisions of IFRS 2 to equity-settled awards granted which had vested prior

to 1 January 2005, the instruments relating to Shanduka, Safika and the Community Trust vested on 4 October 2004 and are therefore

not subject to IFRS 2. The instruments relating to the Standard Bank operations Black Managers’ Trusts are accounted for over the vesting

period ending 31 December 2010 resulting in an annual expense, until 2010, of approximately R66 million (2004: R16 million). Liberty

Life has applied similar principles and has accounted for an expense of R25 million (2004: R4 million).

1The above SPVs owned 99 190 197 ordinary shares of Standard Bank Group on 31 December 2005 and 31 December 2004.



2005 2004

Rm Rm

22 Contingent liabilities and capital commitments22.1 Contingent liabilities

Letters of credit 5 398 4 827

Guarantees 16 309 17 520

Irrevocable unutilised facilities 26 417 18 497

48 124 40 844

No material losses are anticipated as a result of these transactions.

22.2 Capital commitmentsCapital Alliance Holdings Limited acquisition – 3 094

Contracted capital expenditure 552 664

Capital expenditure authorised but not yet contracted 876 768

1 428 4 526

The expenditure will be funded from the group’s internal resources.

22.3 Financial assets pledgedAssets are pledged as collateral under repurchase agreements with other banks and for security deposits relating to local

futures, options and stock exchange memberships.

Asset Related liability

2005 2004 2005 2004

Rm Rm Rm Rm

Trading assets subject to repurchase

commitments 16 253 7 397 19 294 6 585

Trading assets pledged as security 1 003 – 1 007 –

Investment securities subject to

repurchase commitments 1 602 2 148 1 302 1 931

18 858 9 545 21 603 8 516

Financial assets of securitisation and other special purpose vehicles amounting to R17 747 million (2004: R9 966 million)

have been pledged (note 2.4).

22.4 Operating lease commitmentsThe future minimum payments under non–cancellable operating leases are as follows:

2005 2004

Rm Rm

Properties

Within 1 year 477 231

After 1 year but within 5 years 1 116 949

After 5 years 560 1 249

2 153 2 429

Equipment

Within 1 year 43 13

After 1 year but within 5 years 57 5

After 5 years – 3

100 21


2005 2004

Rm Rm

23 Supplementary income statement information 23.1 Interest income

Interest on loans and advances and short-term funds 35 636 29 838

Interest on investment securities 1 989 4 508

Discount element recognised from credit impairments for

loans and advances (note 8.3) 240 258

Fair value adjustments on dated financial instruments 163 51

Dividends on dated, unlisted investment securities 669 592

38 697 35 247

23.2 Interest expenseCurrent accounts 350 386

Savings and deposit accounts 3 587 3 235

Market bid accounts 4 057 3 162

Foreign finance creditors 344 249

Subordinated bonds 1 229 916

Other interest-bearing liabilities 16 143 15 807

25 710 23 755

23.3 Non–interest revenueFee and commission revenue 11 172 9 816

Point of representation fees 4 887 4 371

Card-based commission 1 845 1 437

Knowledge-based fees and commission 1 335 1 255

Electronic banking fees 879 706

Insurance: fees and commission 503 422

Foreign currency service fees 549 472

Documentation and administration fees 282 239

Other 892 914

Trading revenue 3 742 3 788

Foreign exchange 1 681 1 725

Debt securities 1 019 1 216

Commodities 721 779

Equities 326 38

Other (5) 30

Other revenue 1 804 1 440

Banking and other 388 409

Property related revenue 782 612

Insurance: underwriting and bancassurance profit 570 419

Profit on realisation of available-for-sale financial assets 64 –

16 718 15 044

Interest and dividend income included in trading income:

Interest income 727 528

Dividend income 324 231

1 051 759



2005 2004

Rm Rm

23 Supplementary income statement information continued

23.4 Net insurance premiumsInsurance premium revenue 19 229 12 631

Reinsurance premiums (250) (225)

18 979 12 406

23.5 Investment income and gainsInvestment income 6 957 5 542

Investment gains 24 025 13 288

30 982 18 830

Comprising:

Investment income 6 957 5 542

Interest income 3 784 2 777

Interest income excluding mutual funds 3 038 2 234

Mutual funds 746 543

Dividends received 1 924 1 582

Listed shares 1 728 1 331

Unlisted shares 139 194

Mutual funds 57 57

Rental income1 1 233 1 181

Scrip lending fees 2 1

Sundry income 14 1

Sundry income excluding mutual funds 13 –

Mutual funds 1 1

Investment gains 24 025 13 288

Investment properties 908 535

Financial instruments 20 842 13 043

Foreign exchange differences 852 (1 252)

Mutual funds 1 423 962

30 982 18 830

1Notional rent relating to owner-occupied properties of R113 million

(2004: R110 million) has been eliminated.

23.6 Credit impairment chargesNet credit impairments raised and released for loans and advances (note 8.3) 1 491 1 427

Recoveries on loans and advances previously written off (284) (377)

1 207 1 050

Comprising:

Credit impairment charges for non-performing loans 1 006 1 041

Credit impairment charges for performing loans 201 9

1 207 1 050


2005 2004

Rm Rm


23.7 Staff costs (banking operations)Salaries and allowances 8 692 7 805

Equity-linked transactions 171 111

Group equity compensation plans 105 95

Group equity participation plans (note 21) 66 16

Retirement benefit costs 750 694

9 613 8 610

23.8 Other operating expensesBanking operations 7 204 6 774

Insurance operations 3 628 2 764

10 832 9 538

The following items, amongst others, are included in other operating expenses:

Amortisation – intangible assets 268 151

Auditors’ remuneration 107 83

Audit fees

– Current year 81 54

– Prior year 2 1

Fees for other services 24 28

Depreciation (note 13.2) 917 948

Property

– Freehold 16 15

– Leasehold 18 15

Equipment

– Computer equipment 549 636

– Motor vehicles 143 114

– Office equipment 43 43

– Furniture and fittings 148 125

Impairment – property and equipment (note 13.2) – 15

Impairment of intangibles (note 12.2) – 12

Loss on sale of businesses and divisions 2 5

Operating lease charges 792 706

Properties 741 618

Equipment 51 88

Professional fees 870 771

Managerial 289 239

Technical and other 581 532

Profit on sale of property and equipment (64) (40)

Recoveries on motor vehicle disposals (79) (18)

Restructuring costs 184 –

Retrenchment and other staff related costs 80 –

Infrastructure and office costs 70 –

Systems and processes 32 –

Consolidation of marketing and distribution 2 –



2005 2004

Rm Rm


23.9 Goodwill impairmentGoodwill impairment charge for subsidiaries (note 12.1) 421 48

421 48

24 Emoluments of Standard Bank Group directors Executive directors

Emoluments of directors in respect of services rendered:1

While directors of Standard Bank Group

– as directors of subsidiary companies 25 22

– otherwise in connection with the affairs of

Standard Bank Group or its subsidiaries2 23 41

Non–executive directors

Emoluments of directors in respect of services rendered:

As directors of Standard Bank Group 6 4

While directors of Standard Bank Group

– as directors of subsidiary companies 5 5

– otherwise in connection with the affairs of

Standard Bank Group or its subsidiaries 7 3

Pensions of past directors 1 1

67 76

1In order to align emoluments with the performance to which they relate,

emoluments reflect the amounts accrued in respect of each year and not

the amounts paid.

2Including gains on exercise of options and other related payments.

Details of directors’ emoluments are given on pages 42 to 44.

25 TaxationIndirect taxation (note 25.1) 778 651

Direct taxation (note 25.2) 4 357 3 437

5 135 4 088

25.1 Indirect taxationRegional services council levies 124 110

Value added tax 583 515

Duties 6 (5)

Financial services levy 8 5

Skills development levy 57 26

778 651


2005 2004

Rm Rm

25 Taxation continued

25.2 Direct taxationCurrent year 4 370 3 426

– South African normal tax 2 744 2 515

– South African deferred tax 40 (20)

– Normal secondary tax on companies 166 74

– Deferred secondary tax on companies 158 (47)

– Foreign normal and withholding tax 604 241

– Foreign deferred tax (98) 221

– Retirement fund tax 147 101

– Capital gains tax current 266 69

– Capital gains tax deferred 432 272

– Attributable to decrease in tax rate (89) –

Prior years (13) 11

– South African normal tax (164) (15)

– South African deferred tax 162 8

– Foreign normal and withholding tax (70) 18

– Foreign deferred tax 59 –

4 357 3 437

Charged directly to equity (45) (161)

Direct taxation per the income statement 4 312 3 276

In 2005, the South African government decreased the corporate tax rate

from 30% to 29%.

Future tax reliefThe group has estimated tax losses of R238 million (2004: R261 million)

which are available for set-off against future taxable income. These amounts

were utilised to reduce the deferred tax balance.

Rate reconciliation including indirect and direct taxation (%) The total tax charge for the year as a percentage of net income

before indirect taxation: 35 30

Regional services council levies and stamp duties (1) (1)

Value added tax (4) (4)

Duties and skills development levy (1) –

Secondary tax on companies (2) –

Capital gains tax (1) –

Tax on policyholder funds

– Normal tax (3) –

– Retirement fund tax (1) (1)

– Capital gains tax (4) (2)

Tax relating to prior years – –

Net tax charge 18 22

The charge for the year has been reduced as a consequence of:

– Dividends received 4 3

– Other non-taxable income 5 5

– Other permanent differences 1 –

– Change in the company tax rate 1 –

Standard rate of South African tax 29 30



2005 2004

Rm Rm


25.2 Direct taxation continued

Rate reconciliation of direct taxation (%)

The direct taxation charge for the year as a percentage of profit

before direct taxation: 32 27

Secondary tax on companies (2) –

Capital gains tax (1) –

Tax on policyholder funds

– Normal tax (3) –

– Retirement fund tax (1) (1)

– Capital gains tax (4) (2)

Tax relating to prior years – –

Net tax charge 21 24

The charge for the year has been reduced/(increased) as a consequence of:

– Dividends received 3 3

– Other non-taxable income 5 5

– Other permanent differences (1) (2)

– Change in the company tax rate 1 –


26 DividendsOrdinary shares1

2004 final No. 71 of 181,0 cents per share (2003: 109,5 cents per share), paid on

18 April 2005 to shareholders registered on 15 April 2005. 2 453 1 469

Interim No. 72 of 122,0 cents per share (2004: 50,5 cents per share), paid on

19 September 2005 to shareholders registered on 16 September 2005. 1 654 681

4 107 2 150

A final dividend No. 73 of 145,0 cents per share, payable on 18 April 2006 was declared

to shareholders, registered on 13 April 2006, bringing the total dividends declared in

respect of 2005 to 267,0 cents per share (2004: 231,5 cents).

Preference shares

6,5% first cumulative preference shares:

Dividend No. 71 of 3,25 cents per share (2003: 3,25 cents per share) paid on

11 April 2005 to shareholders registered on 8 April 2005.

Dividend No. 72 of 3,25 cents per share (2004: 3,25 cents per share) paid on

12 September 2005 to shareholders registered on 9 September 2005.

Non-redeemable, non-cumulative, non-participating preference shares:

Dividend No. 1 of 379,34 cents per share (2003: nil cents per share), paid

on 11 April 2005 to shareholders registered on 8 April 2005. 114 –

Dividend No. 2 of 374,74 cents per share (2004: nil cents per share), paid

on 12 September 2005 to shareholders registered on 9 September 2005. 112 –

226 –

6,5% first cumulative preference shares dividend No. 73 of 3,25 cents per share (2004: 3,25 cents per share) payable on 10 April

2006 was declared to shareholders registered on 7 April 2006.

Non-redeemable, non-cumulative, non-participating preference shares dividend No. 3 of 370,52 cents per share (2004: 379,34 cents)

payable on 10 April 2006 was declared to shareholders registered on 7 April 2006.

1Dividends paid on ordinary shares are stated before the deduction of dividends received on treasury shares, R360 million, net of

minorities.


2005 2004

Rm Rm

27 Headline earnings Group profit for the year 9 297 9 072

Attributable to minorities (639) (1 388)

Attributable to preference shareholders (226) –

Attributable to ordinary shareholders 8 432 7 684

Headline earnings adjustable items added back or reversed 293 (563)

Goodwill impairment 421 48

Profit on sale of properties and equipment (64) (44)

Impairment of properties and equipment – 15

Impairment of intangibles – 12

Recycled investment gains on available-for-sale assets (64) (599)

Other capital losses – 5

Taxation on headline earnings adjustable items 20 8

Minority share of headline earnings adjustable items (281) 409

Headline earnings 8 464 7 538

28 Earnings per share The calculations of basic earnings and headline earnings per share and diluted

earnings and diluted headline earnings per share are as follows:

Earnings based on weighted average shares in issue

Headline earnings (Rm) 8 464 7 538

Earnings attributable to ordinary shareholders (Rm) 8 432 7 684

Weighted average number of ordinary shares in issue (number of shares)

Weighted average number of ordinary shares in issue before adjustment 1 353 381 571 1 345 785 610

Adjusted for shares issued in terms of the Tutuwa initiative (99 190 197) (24 120 021)

Adjusted for deemed treasury shares held on behalf of policyholders (49 022 454) –

1 205 168 920 1 321 665 589

Headline earnings per share (cents) 702,3 570,3

Earnings per share (cents) 699,7 581,4

Fully diluted earnings

Weighted average number of ordinary shares in issue (number of shares) 1 205 168 920 1 321 665 589

Adjusted for the following potential dilution:

Standard Bank Group Share Incentive Scheme 23 010 133 17 714 035

Standard Bank Equity Growth Scheme 693 164 –

Tutuwa 32 654 765 5 612 305

– Tutuwa consortium and Community Trust 22 716 931 5 612 305

– Black Managers’ Trust 9 937 834 –

Fully diluted weighted average number of ordinary shares

in issue (number of shares) 1 261 526 982 1 344 991 929

Fully diluted headline earnings per share (cents) 670,9 560,4

Fully diluted earnings per share (cents) 668,4 571,3



2005 2004

Rm Rm

29 Cash flow statement notes29.1 Reconciliation of net income before goodwill to cash flows

from operating activities

Net income before goodwill 14 582 12 920

Adjusted for:

Amortisation of intangible assets 268 151

Bond hedging relationships (45) 43

Credit impairment charges on loans and advances 1 207 1 050

Depreciation – property and equipment 917 948

Discount element recognised from credit impairments for loans and advances (240) (258)

Dividends from associates 95 80

Equity-settled share-based payments 191 84

Fair value adjustments on dated financial instruments (163) (51)

Impairment losses – 27

Indirect taxation (778) (651)

Investment gains (24 547) (13 286)

Investment gains attributable to third party liabilities 1 354 1 028

Investment gains on treasury shares 522 –

Loss on sale of businesses and divisions 2 5

Net fund flows after service fees on policyholder investment contracts 47 (61)

Policyholders’ liability transfers 25 630 14 376

Profit on sale of property and equipment (64) (40)

Provision for post-retirement benefits 149 210

Recoveries on motor vehicles (79) (18)

Other (28) (7)

Net cash flows from operating activities 19 020 16 550

29.2 Cash receipts from customersInterest income 41 512 37 119

Fee and commission revenue 11 172 9 816

Trading and other income 30 851 25 458

83 535 72 393

29.3 Cash paid to customers, employees and suppliersInterest expense (25 791) (23 841)

Total operating expenses (including indirect taxation expense) (41 736) (34 489)

(67 527) (58 330)

29.4 Dividends receivedDividends from investment securities and preference shares 2 917 2 407

Dividends from associates 95 80

3 012 2 487

29.5 Increase in income�earning assetsNet derivative assets 6 365 (1 850)

Trading assets (2 738) (2 988)

Investment securities 1 929 145

Loans and advances (70 880) (45 132)

Other assets 6 495 1 451

(58 829) (48 374)


2005 2004

Rm Rm

29 Cash flow statement notes continued

29.6 Increase in deposits and other liabilitiesDeposit and current accounts 80 920 55 556

Trading liabilities 5 858 (2 113)

Other liabilities 2 365 (1 659)

89 143 51 784

29.7 Taxation paidTaxation payable and deferred taxation at beginning of the year (3 718) (3 164)

Addition through business combination (303) –

Direct taxation attributable to group (4 357) (3 437)

Charged directly to equity (45) (161)

Charged to income statement (4 312) (3 276)

Taxation payable and deferred taxation at end of the year 5 936 3 718

Reclassified as disposal groups held for sale 23 –

(2 419) (2 883)

29.8 Investment resulting in acquisition of subsidiariesNet cash cost of acquisition of subsidiaries (1 771) 1 606

Effects of exchange rate changes – 82

(1 771) 1 688

Comprising:Cash and balances with banks (1 445) (1 606)

Investments (16 629) (21)

Loans and advances – (303)

Current and deferred taxation (263) –

Other assets (2 720) (23)

Interest in associates and joint ventures (129) –

Goodwill and other intangible assets (1 467) (22)

Property and equipment (43) (37)

Total assets acquired (22 696) (2 012)

Deposit and current accounts – 1 797

Current and deferred taxation 566 –

Other liabilities and provisions 1 333 56

Policyholders’ liabilities 17 817 –

Net asset value (2 980) (159)

Minority interests 161 6

Net assets acquired (2 819) (153)

Goodwill (397) (78)

Carrying amount previously accounted for as an associate – 231

Cash consideration1 (3 216) –

Less: cash and cash equivalents acquired 1 445 1 606

Net cash purchase price (1 771) 1 606

Effects of exchange rate changes – 82

(1 771) 1 688

1The subsidiaries acquired consisted of Capital Alliance Holdings Limited (CAHL) R3 047 million and Wedeline Investments 1

(Proprietary) Limited (Wedeline) R169 million. The only asset of Wedeline was an investment property of R169 million.

The remaining assets and liabilities listed above relate to the acquisition of CAHL.



2005 2004

Rm Rm

29 Cash flow statement notes continued

29.9 Dividends paidAmounts unpaid at beginning of the year – –

Dividends to ordinary shareholders (4 107) (2 150)

Dividends to preference shareholders (226) –

Dividends received in terms of the Tutuwa initiative 373 –

Dividends received on deemed treasury shares 148 –

Dividends to minority shareholders in subsidiaries (649) (797)

Amounts unpaid at end of the year – –

(4 461) (2 947)

29.10 Cash and cash equivalentsCash and balances with banks 70 852 37 842

Short-term negotiable securities 30 313 21 461

101 165 59 303

30 Disposal groups held for saleAs notified to Liberty Life shareholders on 21 November 2005, the group is currently in negotiations to dispose of its interests in

Liberty Ermitage Jersey Limited (Ermitage) and Prefsure Holdings Limited (Prefsure). An agreement for the disposal of Prefsure

(including minority interests) for AUS$145 million was entered into on 30 January 2006. The effective date of disposal will be 1 April

2006.

The sale is subject to the various regulatory approvals in South Africa and Australia. Ermitage is incorporated in Jersey, Channel Islands

and Prefsure is incorporated in Australia. Both are group subsidiaries and are included in the consolidated financial statements of

Liberty Life.

Based on the requirements of IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations, the assets and liabilities

attributable to Ermitage and Prefsure have been disclosed as a disposal group, and separately disclosed on the balance sheet.

The major classes of assets and liabilities comprising the disposal groups classified as held for sale are as follows:

2005Rm

Total assets classified as held for sale 2 380

Equipment 16Intangible assets 162Reinsurance assets 501Financial instruments 1 152Prepayments, insurance and other receivables 412Cash and cash equivalents 137

Total liabilities classified as held for sale (1 267)

Policyholders’ liabilities – insurance contracts (745)Policyholders’ liabilities – investment contracts (82)Provisions (11)Insurance and other payables (406)Current and deferred taxation (23)

Net assets of disposal groups 1 113

In accordance with requirements of IFRS 5, no comparative information has been disclosed. The potential sale is not a discontinued

operation as defined and therefore, the income statement has not been restated to separately disclose the results of the disposal

groups.

The proceeds of the disposal are expected by the directors to exceed the net carrying amount of the relevant assets and liabilities

and therefore, no impairment is considered necessary. The anticipated profit on disposal of Prefsure per the sale agreement is subject

to the Australian dollar exchange rate, but is expected to be in the region of R20 million.


2005 2004

Rm Rm

31 Third party funds under managementMembers of the group provide discretionary and non-discretionary investment

management services to institutional and private investors. Commissions and fees

earned in respect of trust and management activities performed are included in the

income statement. Assets managed on behalf of third parties include:

Asset management 97 444 81 927

Fund management 216 407 196 018

313 851 277 945

Geographical area

Africa (including Stanlib) 212 461 176 266

International 101 390 101 679

313 851 277 945

32 Related party transactions32.1 Group entities and related parties

32.1.1 Parent

Standard Bank Group Limited is the ultimate holding company for the Standard Bank Group of companies.

32.1.2 Subsidiaries

Details of effective interest, investments and loans to subsidiaries are disclosed in Annexure C.

32.1.3 Associates and joint ventures

Details of effective interest, investments and loans to associates and joint ventures are disclosed in Annexure D.

Standard Bank paid South African Home Loans (Proprietary) Limited R88 million (2004: R69 million) with regards

to origination fees.

32.1.4 Key management personnel

Key management personnel has been defined as: Standard Bank Group Limited board of directors and Standard

Bank Group Limited executive committee. The definition of key management includes the close members of family

of key management personnel and any entity over which key management exercise control. Close members of

family are those family members who may be expected to influence, or be influenced by that individual in their

dealings with Standard Bank Group. They may include the individual's domestic partner and children, the children

of the individual's domestic partner, and dependents of the individual or the individual’s domestic partner.

2005 2004

Rand Rand

Key management compensation

Salaries and other short-term benefits 98 911 917 87 192 427

Post-employment benefits 3 337 297 3 113 063

Other long-term benefits 22 255 325 30 729 564

IFRS 2 value of share options and rights expensed 8 580 597 5 489 205

133 085 136 126 524 259

Mortgage loans

Loans outstanding at beginning of the year 5 764 440 4 328 379

Loans granted during the year 8 081 394 5 011 985

Loan repayments during the year (6 363 624) (4 092 951)

Interest earned 601 945 517 027

Loans outstanding at end of the year 8 084 155 5 764 440

Average effective interest rate earned for the year 8,69% 10,25%

No credit impairments have been recognised in respect of loans granted to key management (2004: nil). Mortgage

loans are repayable monthly over 20 years. These loans are collaterised by properties with a total fair value of

R31 238 293.



2005 2004

Rand Rand

32 Related party transactions continued

32.1 Group entities and related parties continued

32.1.4 Key management personnel continued

Other loans

Loans outstanding at beginning of the year – 2 200 000

Net repayments – (2 200 000)

Loans outstanding at end of the year – –

The interest rate on other loans was 14,5%.

Vehicle and asset finance

Loans outstanding at beginning of the year 3 982 250 405 015

Net new loans granted 2 597 203 3 927 076

Net repayments (1 630 595) (487 393)

Net interest earned 409 466 137 552

Loans outstanding at end of the year 5 358 324 3 982 250


Credit card accounts

Balance outstanding at beginning of the year 737 856 555 089

Annual spend 8 747 960 7 666 595

Annual fees 12 024 4 380

Net interest earned 16 180 12 859

Repayments (8 693 991) (7 501 067)

Balance outstanding at end of the year 820 029 737 856


No credit impairments have been recognised in respect of credit cards,

and vehicle and asset finance lending to key management (2004: nil).

Credit card loans are unsecured. The effective interest rates disclosed

are calculated on a simple average. The effective interest rate for credit

card accounts is low as interest is only charged on amounts not settled

in the month following the card transactions. Interest rates charged on

card and vehicle and asset lending are in line with rates available to staff.

Cheque and current accounts

Credit balance at beginning of the year 35 432 835 43 183 128

Interest paid 726 872 776 536

Interest earned (474 593) (517 140)

Net deposits and withdrawals 565 977 (5 256 884)

Net service fees and bank charges (76 616) (138 347)

Exchange difference (126 624) (2 614 458)

Credit balance at end of the year 36 047 851 35 432 835

Average effective interest rate paid for the year 2,03% 1,98%


2005 2004

Rand Rand



32.1.4 Key management personnel continued

Savings accounts

Credit balance at beginning of the year 18 199 541 13 571 847

Interest paid 1 018 103 1 088 896

Net new investments 816 566 3 538 798

Credit balance at end of the year 20 034 210 18 199 541

Average effective interest rate paid for the year 5,33% 6,85%

Insurance and investment contracts

Details of key management personnel’s investment transactions

and balances with Standard Bank Group.

Insurance:

Life and disability insurance

Aggregate insured cover 9 887 000 4 138 000

Premiums received 99 997 71 284

Claims paid 10 218 8 000

Surrender value 187 000 138 000

Other insurance

Premiums received 351 134 336 543

Claims paid 26 266 –

Investment products

Fund value balance at beginning of the year 168 822 525 91 679 921

Deposits 13 196 587 36 810 304

Net investment return credited 48 690 787 41 154 403

Commission and other transaction fees (991 956) (822 103)

Fund value balance at end of the year 229 717 943 168 822 525

Other fees

Financial consulting fees and commissions received 11 474 28 957

Shares and share options and rights held

Aggregate details of Standard Bank Group Limited shares,

share options and rights held by key management personnel.

Shares beneficially owned1 2 010 775 1 425 273

Share options held 7 301 082 8 062 482

32.1.5 Post�employment benefit plans

Details of transactions between Standard Bank Group Limited

and the group's post-employment benefit plans are listed below:

Asset management fee income 39 366 000 46 892 000

Deposits held with the bank 324 132 000 237 110 000

Deposits held in bonds and money market 281 642 000 269 093 000

Interest paid 54 588 000 48 380 000

Value of assets under management 14 258 526 000 12 132 464 000

Number of Standard Bank Group shares held 8 479 770 9 519 817

On 1 July 2005 Liberty Life purchased Main Street 9 (Proprietary) Limited, a property holding company, from

Standard Bank Group Retirement Fund for R709 million.

1The beneficial ownership of shares held by Saki Macozoma and Cyril Ramaphosa are excluded from these shares

as it is discussed in note 32.1.6.





32.1.6 Other contractsSaki Macozoma, a director of the group, has a shareholding of 20% in Safika, which is a member of three different

consortia that were party to the Andisa, Stanlib and Tutuwa empowerment transactions in the prior years. Safika

holds effective interests of 23,4% in Andisa Capital, 12,85% in Stanlib, 2,23% in Liberty Group and 1,78% in

Standard Bank Group. The group holds an effective interest of 16,5% in Safika.

Cyril Ramaphosa, a director of the group, has a 35,9% shareholding in Shanduka, which is a member of the Tutuwa

consortium. Shanduka holds an effective interest of 1,48% in Liberty Group and 1,19% in Standard Bank Group.

The group holds an effective interest of 15,3% in Shanduka.

Doug Band, a director of the group, has a shareholding of 33% in Gymnogene Investments. This company had a

contractual relationship with the bank. Payments arise from a share of the profit on disposal of private equity

investments in a portfolio sourced and arranged by Gymnogene Investments on behalf of the bank. Although the

contract expired on 31 December 2004, payments relating to this contract are likely to occur if and when the three

remaining investments in the private equity portfolio are realised on a profitable basis to the bank.

After year end, Standard Bank advanced a loan to Circle Capital Ventures. A portion of the loan is convertible into

15% of the issued share capital of Circle Capital Ventures. Mamphela Ramphele, a director of the group, has a

37,45% shareholding in this company.

2005 2004

Rm Rm

33 Pensions and other post�retirement benefitsAmounts recognised in the balance sheet (note 18.2)

Standard Bank operationsRetirement funds (note 33.1) 414 354

Post-retirement healthcare benefits (note 33.2) 453 423

– Provider fund 13 21

– Other funds 440 402

Liberty Life 219 160

Post-retirement healthcare benefits (note 33.3) 196 160

Retirement funds (note 33.4) 23 –

1 086 937

The total amount recognised as an expense for the defined contribution plans operated by the group amounted to R648 million

(2004: R569 million).

33.1 Standard Bank retirement fundsMembership of the principal fund, the Standard Bank Group Retirement Fund (SBGRF), exceeds 95% of Standard Bank

operations’ permanent staff in South Africa. The fund, one of the largest in South Africa, is a trustee-administered defined

contribution fund governed by the Pension Funds Act, 1956. Member-elected trustees represent 50% of the trustee board.

The assets of the fund are held independently of the group’s assets.

The fund is subject to statutory financial review by actuaries at an interval of not more than three years. As a result of delays

in relevant regulations and pension fund guidelines being published in late 2004, the Financial Services Board (FSB)

approved an extension in submitting the 31 December 2001 valuation, which has since been submitted.

Employees who were members of the fund on 31 December 1994 have guaranteed benefits available under the rules of

the defined benefit fund. A specific liability has been recognised within the fund to provide for the guaranteed benefits which

may arise under the rules of the scheme. New members from 1 January 1995 participate only in the benefits of the defined

contribution fund.

As previously reported, an employer surplus account was created on approval from the FSB. This surplus has now been

utilised (2004: R122 million). At 31 December 2005, the valuation of the fund, the determination of its financial position

and the determination of any shortfall or surplus position has been finalised but has not yet been approved by the Registrar

of Pension Funds in terms of the Pension Fund Second Amendment Act, 39 of 2001. Consequently no account has been

taken of any potential shortfall or surplus.

The majority of employees in South Africa who are not members of the SBGRF are members of two other funds designed for

their occupational groups. Employees in territories beyond South African jurisdiction are members of either defined

contribution or defined benefit plans governed by legislation in their respective countries.


2005 2004

Rm Rm

33 Pensions and other post�retirement benefits continued

33.1 Standard Bank retirement funds continued

The amounts recognised in the balance sheet in respect of the retirement

funds are determined as follows:

Present value of unfunded obligations 17 199 13 146

Fair value of plan assets (17 159) (13 232)

Unfunded obligation/(surplus) 40 (86)

Unrecognised actuarial gains 374 440

Included in other liabilities and provisions in the balance sheet 414 354

Unrecognised actuarial gains or losses are deferred and recognised in

the income statement over a period not exceeding the estimated

service lives of the employees.

Movement in the liability recognised in the balance sheet

Balance at beginning of the year 354 180

Income statement charge 165 181

Contributions paid (105) (7)

Balance at end of the year 414 354

The amounts recognised in the income statement are determined as follows:

Current service cost 258 270

Interest cost 1 214 1 025

Expected return on plan assets (1 265) (1 087)

Net actuarial gain recognised in the year (42) (27)

Included in staff costs 165 181

33.2 Standard Bank post�retirement healthcare benefitsThe bank provides the following post-retirement healthcare benefits to its employees:

Provider fund

A post-retirement healthcare benefit fund provides eligible employees, who were employed in South Africa on 1 March 2000

with a lump sum benefit on retirement enabling them to purchase an annuity to be applied towards their post-retirement

healthcare costs. This benefit is pre-funded in a provident fund. Any shortfall in the payment to be made by these employees

towards their healthcare costs subsequent to retirement is not the responsibility of the bank. The last actuarial valuation was

performed on 1 March 2001 and reflected an excess in the fund.

In the prior year, the group received approval from the FSB to transfer the excess in this fund to an employer reserve.

Other

The largest portion of this liability represents a South African post-retirement healthcare benefit scheme that covers all

employees who went on retirement before 1 March 2000. The liability is unfunded and is valued every year using the

projected unit credit method. The latest full actuarial valuation was performed on 31 December 2004.



2005 2004

Rm Rm


33.2 Standard Bank post�retirement healthcare benefits continued

The amounts recognised in the balance sheet in respect of post�retirement

healthcare benefits are determined as follows:

Present value of unfunded obligations 1 399 1 155

Fair value of plan assets (1 051) (846)

Unfunded obligation 348 309

Unrecognised actuarial gains 105 114

Included in other liabilities and provisions in the balance sheet 453 423








Interest cost 103 89

Expected return on plan assets (76) (70)

Net actuarial loss/(gain) recognised in the year 3 (3)


33.3 Liberty Life post�retirement healthcare benefitsLiberty operates an unfunded post-retirement medical aid benefit for

employees who joined before 1 July 1998. For past service of employees,

Liberty recognises and provides for the actuarially determined present value

of post-retirement medical aid employer contributions on an accrual basis

using the projected unit credit method.







Interest cost 23 20

Net actuarial loss/(gain) recognised in the year 7 (21)



2005 2004

Rm Rm


33.4 Liberty Life retirement funds1

The Liberty defined benefit pension scheme closed to new employees from

1 March 2001 and with effect from this date, the majority of employees accepted

an offer to convert their retirement plans from defined benefit to defined

contribution. Employees joining after 1 March 2001 automatically become

members of the defined contribution schemes. The ACA, Rentmeester and Alnet

defined benefit pension schemes are all fully funded. All funds are governed by

the Pension Funds Act, 1956.

The amounts recognised in the balance sheet in respect of the retirement

benefit obligation are determined as follows:

Present value of funded obligations 680 561

Fair value of plan assets (1 355) (1 093)

Surplus (675) (532)

Excess not recognised2 698 532

Included in other liabilities in the balance sheet 23 –


Balance at beginning of the year (532) (388)

Income statement charge (124) (130)


Balance at end of the year (675) (532)


Adjustment for change in valuation basis – 13

Additions through business acquisition 25 –


Interest cost 43 30

Expected return on plan assets (79) (74)

Net actuarial gain recognised in the year (129) (115)

Included in staff costs (124) (130)

1This includes the Liberty Group defined benefit pension fund, ACA defined benefit fund, Rentmeester defined benefit fund and

Alnet defined benefit fund.

2No asset is recognised in respect of the surplus on the Liberty and ACA funds, as the apportionment of the surplus between

the company and members still needs to be approved by the Registrar of Pension Funds in terms of the Pension Fund Second

Amendment Act, 39 of 2001.



Liberty

Post�

Retirement Provider Other Pension retirement

fund fund funds fund medical aid

% % % % %


The principal actuarial assumptions used

for accounting purposes were:

Discount rate 8,5 8,5 8,5 7,0 7,0

Return on investments 10,0 9,0 7,0 7,0

Salary/benefit inflation 5,0 7,0 5,0

CPI inflation 4,0 5,0 5,0

Medical inflation 7,0 6,0

Remaining service life of employees (years) 15,0 19,0

Standard Bank Group Limited – company annual financial statements


Company

2005 2004

Note Rm Rm

Balance sheet at 31 December 2005

AssetsInvestment securities 8 8

Current and deferred taxation 34 131 285

Other assets 13 14

Interest in subsidiaries 35 20 326 16 713

Interest in associate 36 131 131

Total assets 20 609 17 151

Equity and liabilitiesEquity 19 695 17 117

Ordinary and preference share capital and premium 14 5 233 5 667

Reserves 14 462 11 450

Liabilities 914 34

Loans from other banks 37 900 –

Other liabilities 14 34


Income statement for the year ended 31 December 2005

Dividends from subsidiaries 7 251 6 524

Interest income 5 54

Total income 7 256 6 578

Operating expenses 11 51

Income before indirect taxation 7 245 6 527

Indirect taxation 38.1 13 11

Profit before direct taxation 7 232 6 516

Direct taxation 38.2 188 2

Profit for the year 7 044 6 514

S t a n d a rd Bank Group annual report 2005 P • 1 7 9

Company

2005 2004

Note Rm Rm

Cash flow statement for the year ended 31 December 2005

Net cash flows from operating activities 39.1 7 245 6 527

Interest income 5 54Other expenses (11) (51)Dividends received 7 251 6 524

Net cash flows (used in)/from operating funds 39.2 (19) 6

Taxation paid 39.3 (47) (91)

Net cash flows used in investing activities (3 613) (3 527)

Interest in subsidiaries 39.4 (3 613) (3 527)

Net cash flows used in financing activities (3 566) (2 915)

Proceeds from issue of share capital 245 3 252Increase in loans from other banks 900 –Share buy-backs (679) –Tutuwa payment – (4 017)Net dividends paid 39.5 (4 032) (2 150)

Net increase in cash and cash equivalents – –Cash and cash equivalents at beginning of the year – –

Cash and cash equivalents at end of the year – –

Statement of changes in shareholders’ funds for the year ended 31 December 2005

Share Revalua! Empower!capital and tion ment Retained

premium reserve reserve earnings TotalCompany Note Rm Rm Rm Rm Rm

Balance at 1 January 2004 2 415 3 100 – 8 003 13 518Impairment resulting from Tutuwa initiative 21 (4 017) (4 017)Issue of share capital and share premium 3 269 3 269Share issue cost (17) (17)Profit for the year 6 514 6 514Dividends paid 26 (2 150) (2 150)

Balance at 31 December 2004 5 667 3 100 (4 017) 12 367 17 117

Balance at 1 January 2005 5 667 3 100 (4 017) 12 367 17 117Issue of share capital and share premium 14.2 246 246Share issue cost 14.2 (1) (1)Share buy-backs 14.2 (677) (677)Cancellation cost 14.2 (2) (2)Profit for the year 7 044 7 044Dividends paid 26 (4 333) (4 333)Dividends received in terms of Tutuwa initiative 301 301

Balance at 31 December 2005 5 233 3 100 (4 017) 15 379 19 695

STD FIN Sec 2 Proof 10 4/11/06 11:02 AM Page 179

S t a n d a rd Bank Group Limited – company annual financial statements continued


2005 2004

Rm Rm

34 Current and deferred taxationCurrent taxation 112 112

Deferred taxation 19 173

131 285

34.1 Deferred tax analysisDeferred tax at the beginning of the year 173 114

(Reversing)/originating temporary difference for the year

Secondary tax on companies (154) 59

Deferred tax at end of the year1 19 173

1Deferred tax at the end of the year is attributable to secondary tax on companies.

35 Interest in subsidiariesShares at cost 21 107 17 257

Indebtedness to the company 408 531

21 515 17 788

Indebtedness by the company (1 189) (1 075)

20 326 16 713

Subsidiaries and investments and loans therein are listed in Annexure C on page 194.

36 Interest in associateCost at beginning and end of the year 131 131


The directors’ valuation of the investment in the associate is R131 million

(2004: R131 million).

The associate comprises an investment in South African Home Loans (Proprietary)

Limited, refer Annexure D on page 198.

37 Loans from other banksLoans from other banks 900 –

An amount of R500 million is repayable on 19 June 2006 and bears interest

of 7,4% per annum payable on 16 March 2006 and 19 June 2006.

The remaining amount is repayable on 19 June 2006 and bears interest of 7,6% per annum

payable on 16 March 2006 and 19 June 2006.

38 TaxationIndirect taxation (note 38.1) 13 11

Direct taxation (note 38.2) 188 2

Total taxation 201 13

38.1 Indirect taxationRegional services council levies 11 9

Value added tax 2 2

Indirect taxation 13 11



2005 2004

Rm Rm


38.2 Direct taxationCurrent yearSouth African normal tax 1 17Foreign and withholding taxes 43 44Secondary tax on companies 173 (59)

Prior yearsSouth African normal tax (29) –

Direct taxation 188 2

Rate reconciliation of direct taxation (%)The direct taxation charge for the year as a percentage of profit

before direct taxation: 3 –Foreign and witholding taxes (1) (1)Secondary tax on companies (2) 1Tax relating to prior years – –

Net tax charge – –

The charge for the year has been reduced as a consequence of:– Dividends received 29 30


In 2005, the South African government decreased the corporate tax rate from 30% to 29%.

39 Cash flow statement39.1 Reconciliation of income before indirect taxation to

cash flows from operating activitiesIncome before tax 7 245 6 527

Net cash flows from operating activities 7 245 6 527

39.2 Net cash flows (used in)/from operating fundsOther liabilities (20) 6Decrease in other assets 1 –

(19) 6

39.3 Taxation paidTaxation receivable and deferred taxation at beginning of the year 285 207Income statement charge (201) (13)Taxation receivable and deferred taxation at end of the year (131) (285)

(47) (91)

39.4 Interest in subsidiariesCost of acquisition of subsidiaries net of disposal (3 850) (3 685)Movement in net indebtedness 237 158

(3 613) (3 527)

39.5 Dividends paidAmounts unpaid at beginning of the year – –Dividends to ordinary shareholders (4 107) (2 150)Dividends to preference shareholders (226) –Dividends received in terms of Tutuwa initiative 301 –Amounts unpaid at end of the year – –

(4 032) (2 150)



ANNEXURE A Implementation of IFRS

Introduction

For the year ended 31 December 2004, the group (SBG)

prepared financial statements in accordance with SA GAAP. In line

with the listing requirements of the JSE Limited, the group has

adopted International Financial Reporting Standards (IFRS) with

effect from 1 January 2005. As the group publishes comparative

information for one year in its financial statements, the date of

transition to IFRS is effectively 1 January 2004, which represents

the start of the earliest period of co m p a rative info r m a t i o n

presented. The opening balance sheets at 1 January 2004 and

1 January 2005 have been restated accordingly.

Comparative information for 2004 is restated to take into account

the requirements of all the standards except for IAS 32 – Financial

Instruments: Disclosure and Presentation, IAS 39 – Financial

Instruments: Recognition and Measurement and IFRS 4 –

Insurance Contracts. These three standards are implemented with

effect from 1 January 2005 and the opening balance sheet at this

date is adjusted accordingly. Balance sheets prior to this date have

been prepared in accordance with SA GAAP.

South African accounting standards have seen a number of

significant changes over the past couple of years as they were

being aligned with IFRS. The most notable change was the

adoption of the South African version of IAS 39 (AC 133 –

Financial Instruments: Recognition and Measurement) in the

group’s 2003 results. The final move to full IFRS compliance is

therefore less significant than what is currently being experienced

in Europe and the United Kingdom.

The most significant IFRS change for the group originated from

the implementation of IFRS 4 – Insurance Contracts which results

in Standard Bank Group and Liberty Holdings’ shares held by

Liberty Life for the benefit of policyholders being deemed

t r e a s u ry shares for accounting purposes and eliminated on

consolidation. It is however important to note that although this

treasury share adjustment potentially results in greater volatility in

reported earnings, there is no impact on the underlying business

fundamentals, cash flows, risks, growth strategies or the group’s

capital management policies.

Apart from the reclassification of cash and cash equivalents held

by Liberty Life policyholders, there have been no material

adjustments to the cash flow statement in respect of cash utilised

by operating activities before tax, cash flows from investment

activities and cash flows from financing activities as a result of the

adoption of IFRS.

In light of the potential for increased earnings volatility, the group

will ensure that comparable underlying business performance and

trends are clearly identified on an ongoing basis. With the

exception of the above-mentioned change, the implementation

of IFRS has a relatively immaterial impact on the group’s financial

position and earnings.

Transitional arrangements

The key principle of IFRS 1 – First-time Adoption of International

Financial Reporting Standards is full retrospective application of

IFRS. However, in addition to exempting companies from the

requirement to restate comparatives under IAS 32, IAS 39 and

IFRS 4, this statement provides exemptions from retrospective

application in certain instances due to cost and pra c t i c a l

considerations. The group’s transitional elections in this regard are

set out below:


• Business combinations: The group elected not to

retrospectively apply the requirements of IFRS 3 for business

combinations that occurred prior to 1 January 2004. As a

result, the carrying amount of goodwill is the amortised

amount on 31 December 2003 and previously amortised

goodwill and goodwill eliminated against reserves were not

re-instated.

• Property and equipment: A first-time adopter may elect to use

the fair value of individual pro p e rty and equipment at

transition date as the deemed cost. The group did not make

use of this transitional exemption and elected to measure

individual items of property and equipment at depreciated

cost determined in accordance with IFRS.

• Employee benefits: The group elected not to apply the

exemption to account for all deferred actuarial gains or losses,

including a 10% tolerance limit for differences in actuarial

assumptions, in opening equity as at 1 January 2004. This

exemption was not elected as the group’s accounting for

employee benefits under previous SA GAAP was already

substantially in compliance with IAS 19 – Employee Benefits.

• Cumulative foreign currency translation adjustment: T h e

cumulative foreign currency translation reserve existing on

transition to IFRS has been retained and the option to reset

the reserve to zero was not elected as the group’s accounting

for translation adjustments under previous SA GAAP was

already substantially in compliance with IAS 21 – The Effects

of Changes in Foreign Exchange Rates.

• Share-based payments: The group elected not to apply the

provisions of IFRS 2 – Share-based Payments to equity-settled

awards granted on or before 7 November 2002, or to

awards granted after that date but which had vested prior to

1 January 2005.


• Comparative numbers restated for financial instruments and

insurance contracts: The group elected the exemption not to

restate its comparatives for IAS 32 – Financial Instruments:

Disclosure and Presentation, IAS 39 – Financial Instruments:

R e cognition and Measurement and IFRS 4 – Insura n c e

C o n t racts. The group has therefore applied SA GAAP

applicable as at 31 December 2004 to financial instruments

and insurance contracts in its 2004 numbers disclosed as

comparatives for the 2005 IFRS results. It is considered

impractical to retrospectively adjust for changes resulting from

revised impairment and insurance contract requirements.


• Designation of financial assets and financial liabilities in terms

of IAS 39: In terms of the transitional arrangements the group

elected the option to reclassify certain financial assets and

liabilities. These reclassifications were not material.

There are no changes to estimates made under previous SA GAAP

for transition to IFRS (for example expected default or actuarial

assumptions). Where estimates have previously been made

under SA GAAP, consistent estimates (after adjustments to reflect

any difference in accounting policies) have been made at the

same date.

Adjustments as a result of the adoption of IFRS

The impact of changing from SA GAAP to IFRS is summarised below.

The quantification of the IFRS adjustments is shown in the tables fo r

r e conciliation of assets, liabilities and equity, reconciliation of the

2004 closing balance sheet, reconciliation of changes in equity and

r e conciliation of the income statement.

Adjustments implemented with effect from 1 January 2004

Note 1: IAS 18 – Revenue recognition and deferred acquisition

costs (excluding insurance contracts accounted for in terms of

IFRS 4)

The previous South African version of IAS 39 (AC 133 – Financial

Instruments: Recognition and Measurement) required that fees

which form an integral part of the effective interest rate, including

t ransaction costs, be taken into account in calculating the original

effective yield. Initial fees that relate to the origination of loans are

t h e r e fore deferred and amortised as an adjustment to the effective

interest rate. The same accounting principle was carried fo rw a rd in

the revised IAS 18 with fees relating to the future provision of

s e rvices deferred and amortised over the anticipated period in which

the services will be provided. A small adjustment was required to

align the previous deferral methodologies with the revised IAS 18,

primarily for instalment finance on moveable assets.

Note 2: IAS 36/IFRS 3 – Goodwill

Previously, the group recognised acquired goodwill at cost and

amortised it on a straight-line basis over its expected useful life.

Goodwill was subject to regular review for indications of

impairment and any impairment charges were recognised in the

income statement. In terms of IFRS 3 – Business Combinations,

goodwill is not amortised but is subject to impairment reviews,

both annually and where there are indications that the carrying

value may not be recoverable. The 2004 goodwill amortisation

previously recognised in the income statement has been reversed,

resulting in a corresponding increase in equity. All goodwill has

accordingly been tested for impairment at 1 January 2004 and

31 December 2004. One instance of a goodwill impairment for

2004 arose following the application of the new accounting rules

and this relates to the group’s international operations.

Note 3: IFRS 2 – Share!based Payments

The group grants share options to employees under equity

compensation plans. Other than costs incurred in administering

the schemes, which were expensed as incurred, the schemes did

not result in any expense in the income statement, but rather a

dilution in earnings per share when the shares were issued. In

accordance with the requirements of IFRS 2, the group now

r e cognises an expense in the income statement, with a

corresponding credit to equity, representing the fair value of

employee share options granted, recognised on a straight-line

basis over the vesting period of the options.

The group also applied IFRS 2 to the Tutuwa initiative. The

s t a n d a rd is applicable to awards that have not vested by

31 December 2004 and, as a result, the ownership of shares

allocated to black managers that vest over a period ending on

31 December 2010 is accounted for in terms of this standard. The

shares owned by the community trust and strategic partners have

vested before 31 December 2004 and, as a result of the election

not to apply IFRS 2 retrospectively, no expense is therefore

required.

Note 4: IAS 16 – Revaluation of residual values in property and

equipment

In calculating its depreciation charge, an entity reduces the

depreciable amount of an asset by its residual value. Previously

under SA GAAP, the estimated residual value was fixed on

recognition of the asset and was not subject to reassessment.

IAS 16 revised requires that the residual value of the assets

should be reassessed at each balance sheet date. A n n u a l

increases in asset values result in annual upward adjustments of

residual values. The continuous reassessment of residual values

typically leads to a reduction in depreciation charges and

depreciation charges cease when the carrying value of an asset

equals the residual value.

Buildings’ carrying values that were previously fully depreciated

are now partially re-instated to reflect the applicable residual

value. Where buildings are not fully depreciated, there has

generally been a reduction in depreciation as residual values are

reassessed. The depreciation previously recognised in the income

statement has accordingly been reversed or reduced, resulting in

a corresponding increase in equity.

Note 5: IAS 16 – Reclassification of property revaluations

This adjustment is to account for property revaluation surpluses

directly in equity. This has no impact on total equity.

Note 6: IAS 27 – Consolidation of mutual funds

IFRS requires the consolidation of certain mutual funds where

Liberty Life and Corporate & Investment Banking International are

considered to have control of such funds through the size of their

investment, voting control and related management contracts.

The consolidation of these mutual funds has an immaterial

effect on net equity. Similarly where Liberty Life has a holding

of between 20% and 50% in a mutual fund this is now treated

as an associate. In terms of the allowance in IFRS for equity

investments in mutual funds the group has elected to fair value

these associates.

The consolidation of such funds is still subject to international

industry debate, and progress in this regard will be monitored.




Implementation of IFRS co n t i n u e d

Note 7: IAS 17 – Leases

IAS 17 requires operating lease costs and income to be accounted

for on a straight-line basis. Future lease increases in terms of the

lease contract are estimated and the average lease expense is

then recognised in equal amounts over the lease period. In

general, this leads to earlier recognition of lease income and lease

expense compared with the pattern of recognition in terms of

previous industry practice in South Africa where income and

expenses were recognised at a constant real rate of return on the

net cash investment in the lease. This would, in most cases, result

in higher lease costs for previously reported periods with a

reduction in the 2004 opening equity and an increase in the

2004 lease costs.

I AS 40 – Investment Pro p e rty states that the fair value of investment

p ro p e rty should exclude prepaid or accrued operating lease inco m e

if this would otherwise result in double counting. Liberty Life has

t h e r e fore offset the resulting adjustment against the fair value

adjustment on investment pro p e rties. This has no impact on net

i n come, as there is a corresponding increase in lease income. At

1 January 2004 an amount of R850 million has been accrued in

other assets with a decrease in investment pro p e rties of

R593 million and an increase in deferred tax of R257 million. T h e

movement for the year ended 31 December 2004 was an additional

reclassification from investment pro p e rties of R37 million.

Note 8: IAS 12/IAS 40 – Deferred tax applicable to fair value

adjustments on investment properties

IAS 12 – Income Taxes defines the difference between the

carrying amount of a revalued depreciable asset and its tax base

as a temporary difference and therefore gives rise to a deferred

tax liability or asset. The carrying amount of a portion of

investment property portfolios is considered to be recovered

through future net rental income with the remaining portion

recovered through disposals. In terms of IAS 12, deferred tax

has to be provided on fair value adjustments on the future net

rental portion at the use tax rate (income tax rate). Liberty Life

already provides for deferred tax on fair value adjustments in

investment properties at the applicable capital gains tax rate

(CGT rate).

The resulting additional deferred tax charge has been debited to

policyholders’ liabilities to the extent that the applicable

investment property return impacts the determination of the

policyholder liability.

It is believed that the fair (open market) value already discounts

the average tax consequences of market participants in respect of

rental income. IAS 12 is being revised by the IASB and we will

continue to engage with them to ensure this issue is addressed in

the revisions.

This has resulted in a restatement decreasing policyholders’

liabilities by R655 million with a corresponding increase in

the deferred tax liability at 1 January 2004. The net movement at

31 December 2004 is a decrease of R106 million to R549 million.

Under IFRS 3 – Business Combinations and IAS 12 – Income

Taxes, the relevant deferred taxation liability on the intangible

asset, present value of in-force (PVIF) should be separately

recognised. In Liberty Life, this has resulted in the carrying value

of PVIF relating to the Investec Employee Benefits book

increasing as at 1 January 2004, with the corresponding credit to

deferred taxation. This results in an additional amortisation charge

and a tax credit of the same amount and consequently, there is no

impact on earnings.

An adjustment of R53 million was processed increasing the PVIF

with a corresponding increase to deferred tax. The movement for

the year ended 31 December 2004 is a decrease of R6 million to

R47 million.

Adjustments implemented with effect from 1 January 2005

Note 9: IAS 39 – Credit impairments

Previously the group raised an impairment for credit losses on

performing loans as the shortfall between the carrying value of a

loan and the present value of expected future cash flows

discounted at the original effective interest rate of loans, taking

changes in expected cash flows and the average maturity of loans

i n to account. Under IFRS an impairment loss can only be

accounted for if there is objective evidence that a loss event has

occurred after the initial recognition of the financial asset but

before the balance sheet date. IFRS also allows for the creation of

a credit impairment for incurred but not reported losses in order

to provide for latent losses in a portfolio of loans that have not yet

been individually identified as impaired. This change results in a

net release of credit impairments and a consequent increase in

the opening 2005 equity.

For certain African entities, already reporting under IFRS, the

impairment for credit losses is lower than the level required by their

respective regulato ry authorities. As a result, a portion of their

impairment for credit losses is released to equity on a retro s p e c t i v e

basis. It has been agreed with these regulato ry authorities that any

s h o rtfall on impairment for credit losses will be set aside in a

s t a t u to ry credit risk reserve within total equity.

Note 10: IAS 32 – Elimination of treasury shares

Shares in group companies held for the benefit of policyholders in

the insurance operation were previously not classified as treasury

shares in terms of industry practice. Significantly all of the risks and

r e w a rds arising from these shares are for the benefit of the

policyholders. As a result of the issue of IFRS 4 – Insura n c e

C o n t racts, the SA GAAP statement dealing with the insura n c e

i n d u s t ry (AC 121: Disclosure in the financial statements of long-

term insurers) was revoked. Assets are now subject to IAS 39 –

Financial Instruments: Recognition and Measurement and IAS 32 –

Financial Instruments: Disclosure and Presentation. As a result,

shares held by policyholders in group companies are accounted fo r

as equity instruments. In terms of IAS 32 the cost price of any SBG

and Liberty Holdings’ shares held by policyholders within Libert y

Life is now eliminated against equity and any current period

changes in fair value are eliminated from the income statement. In

terms of actuarial principles, the insurance operation maintains a

matching position to ensure the risk profile of liabilities to

policyholders is matched by the underlying shares. The classification


of policyholders’ investments in group company shares as treasury

shares for accounting purposes does not consider the relationship

between the policyholders’ liabilities and shares held to meet these

liabilities and consequently the corresponding policyholder liability

is not similarly adjusted. This introduces a mismatch between assets

and liabilities which is charged against equity.

Application of IAS 32 to these shares reduces equity and

investments by R3 703 million in the opening 2005 balance

sheet. As the effective interest held by the group in Liberty Life

is approximately 30%, R951 million of the equity reduction is

allocated to ordinary shareholders, with the remaining 70%

allocated against minority interests.

The statement on earnings per share, IAS 33, requires that the

weighted number of shares should be calculated after deducting

the total number of deemed treasury shares. It does not

contemplate minority portions of treasury shares and

consequently 100% of the number of shares is eliminated.

The result of the above is that 30% of the value of these treasury

shares is eliminated against ordinary shareholders’ equity, 30% of

the fair value adjustments is eliminated against earnings

attributable to ordinary shareholders with the remaining 70%

eliminated against earnings attributable to minorities. In contrast,

100% of the weighted number of treasury shares is eliminated for

purposes of per share calculations.

Note 11: IAS 39 – Financial instrument reclassifications

The group has elected the exemption not to restate its

comparatives for IAS 32 – Financial Instruments: Disclosure and

Presentation and IAS 39 – Financial Instruments: Recognition and

Measurement. SBG has therefore applied SA GAAP applicable at

31 December 2004 to financial instruments in its 2004 numbers

disclosed as comparatives for the 2005 results.

For entities that were already complying with International

Accounting Standards, the transitional provisions in IFRS 1 do not

apply. Therefore, as a result of the IAS 39 transitional provisions,

certain African entities retrospectively reclassified financial assets

and liabilities from 1 January 2004.

As at 1 January 2005 Liberty Life has reclassified certain

shareholder-designated financial instruments from available-for-

sale to fair value through profit or loss. This resulted in a

reclassification from an available-for-sale reserve to retained

surplus at 1 January 2005. There is no impact on total equity. In

the future, all unrealised fair value adjustments on these assets

will be included directly in the income statement.

Note 12: IAS 39 – Fair value adjustments for day one profits

Unquoted financial instruments acquired were previously

recognised at cost and any profit or loss on remeasurement to fair

value based on valuation models was accounted for on the date of

such remeasurement (day two).

The IAS 39 revision to Financial Instruments: Recognition and

Measurement, issued in February 2005, provided further criteria

on the recognition of gains or losses on initial recognition of

financial instruments. Where pricing models use inputs that are

based on observable market indicators only, all profits or losses

are recognised on initial recognition. Any gain or loss on initial

recognition, based on unobservable market indicators, is deferred

and recognised over the life of the instrument on a straight-line

basis.

As a result of the IAS 39 revision a net decrease to trading assets

is reflected in the 2005 opening balance sheet with a

corresponding decrease in equity.

Note 13: IFRS 4 – Insurance classifications

L i b e rty Life has re-examined the classification of all their

contracts between investment and insurance under the IFRS 4

definition criteria. This resulted in a net reclassification from

investment policyholders’ liabilities to insurance policyholders’

liabilities at 1 January 2005.

For the majority of the reclassifications, where investment co n t ra c t s

are reclassified as insurance co n t racts, this reclassification has no

effect as co n t racts were previously valued on a fair value basis

consistent with IAS 39 and the FSV methodology. Where an

i n s u rance co n t ract is reclassified to an investment co n t ra c t ,

negative rand reserves that were previously allowed under FSV

techniques in terms of SA GAAP are now reversed, leading to a

decrease in equity.

Disclosure reclassifications

Note 14: Reclassification of insurance

Balance sheet

At 31 December 2004 Liberty Life has separated the fair value of

the reinsurance portion of insurance contracts from policyholders'

liabilities under insurance contracts and disclosed it as an asset.

Derivative financial liabilities were previously netted off against

derivative financial assets. These have been reclassified as

derivative financial instruments within liabilities.

Balance sheet items for the life insurance operations were

previously separately disclosed. These items have been

reclassified to the corresponding banking operations’ line items

where appropriate.

Income statement

Net income before goodwill relating to insurance operations has

been reclassified for the year ended 31 December 2004 to

appropriate new line items.

Note 15: IAS 1 – Reclassification of exceptional items

Within banking operations, exceptional items previously disclosed

separately have been re-allocated to appropriate line items in the

income statement for the year ended 31 December 2004.




IFRS reconciliation of assets, liabilities and equity

1 Jan 31 Dec 1 Jan2005 2004 2004

Note1 Rm Rm Rm

AssetsRestated/as previously reported 620 173 615 596 540 566 IFRS adjustments: (3 549) 4 577 2 945

IFRS 2 – Share-based payments 3 4 3IFRS 4 – Insurance contracts 13IAS 12/IAS 40 – Investment properties and PVIF 8 – 47 53IAS 16 – Revaluation of residual values in property and equipment 4 46 40 IAS 17 – Leases 7 266 261 IAS 18 – Revenue recognition 1 99 – –IAS 27 – Consolidation of mutual funds 6 3 647 2 586 IAS 32 – Elimination of treasury shares 10 (3 703)IAS 36 – Goodwill amortisation 2 112 IAS 36 – Goodwill impairment 2 (48)IAS 39 – Financial instrument reclassifications 11 (39) 10 (3)IAS 39 – Fair value adjustments 12 (21)IAS 39 – Credit impairments 9 115 (2) 5Reclassification of insurance 14 495

Restated under IFRS 616 624 620 173 543 511

LiabilitiesRestated/as previously reported 581 640 577 032 505 302 IFRS adjustments: 108 4 608 3 041

IFRS 2 – Share-based payments 3 136 117 IFRS 4 – Insurance contracts 13 12IAS 12/IAS 40 – Investment properties and PVIF 8 – 47 53IAS 16 – Revaluation of residual values in property and equipment 4IAS 17 – Leases 7 281 272 IAS 18 – Revenue recognition 1 58 3 11 IAS 27 – Consolidation of mutual funds 6 – 3 648 2 586 IAS 32 – Elimination of treasury shares 10IAS 36 – Goodwill amortisation 2IAS 36 – Goodwill impairment 2IAS 39 – Financial instrument reclassifications 11 – (2) –IAS 39 – Fair value adjustments 12 – – –IAS 39 – Credit impairments 9 38 – 2Reclassification of insurance 14 495


EquityRestated/as previously reported 38 533 38 564 35 264 IFRS adjustments (net of taxation): (3 657) (31) (96)

IFRS 2 – Share-based payments 3 (132) (114)IFRS 4 – Insurance contracts 13 (12)IAS 12/IAS 40 – Investment properties and PVIF 8 – – –IAS 16 – Revaluation of residual values in property and equipment 4 46 40 IAS 17 – Leases 7 (15) (11)IAS 18 – Revenue recognition 1 41 (3) (11)IAS 27 – Consolidation of mutual funds 6 – (1) –IAS 32 – Elimination of treasury shares 10 (3 703)IAS 36 – Goodwill amortisation 2 112 IAS 36 – Goodwill impairment 2 (48)IAS 39 – Financial instrument reclassifications 11 (39) 12 (3)IAS 39 – Fair value adjustments 12 (21) – –IAS 39 – Credit impairments 9 77 (2) 3Reclassification of insurance 14 –


1Refer to page 183 for details relating to notes.



IFRS reconciliation of balance sheet at 31 December 2004

2004 Reclassifi! Reclassifi!

as previously cation of cation of 2004

reported IFRS insurance accrued restated

SA GAAP adjustments)1 balances)2 interest IFRS

Rm Rm Rm Rm Rm

AssetsStandard Bank operations Cash and balances with banks 31 384 (58) 6 516 – 37 842

Short-term negotiable securities 21 040 – – 421 21 461

Derivative assets 124 235 1 – – 124 236

Trading assets 32 130 74 – 234 32 438

Investment securities held in banking operations 19 640 65 – 363 20 068

Investments held by insurance operations – – 98 609 – 98 609

Loans and advances 257 154 (3) – 1 722 258 873

Current and deferred taxation 1 084 9 1 – 1 094

Other assets 15 410 5 4 548 (2 740) 17 223

Interest in associates and joint ventures 286 10 2 954 – 3 250

Goodwill and other intangible assets 498 42 425 – 965

Property and equipment 2 968 46 1 100 – 4 114

Liberty LifeOther assets 4 616 891 (5 507) – –

Investments 104 442 2 941 (107 383) – –

Goodwill and other intangible assets 366 59 (425) – –

Equipment and furniture 343 – (343) – –

Total assets 615 596 4 082 495 – 620 173

Equity and liabilitiesEquity 38 564 (31) – – 38 533

Equity attributable to ordinary shareholders 29 087 (33) 10 – 29 064

Ordinary share capital and premium 2 676 – – – 2 676

Reserves 26 411 (33) 10 – 26 388

Preference share capital and premium 2 991 – – – 2 991

Minority interest 6 486 2 (10) – 6 478

Liabilities 577 032 4 113 495 – 581 640


Derivative liabilities 116 214 (2) 2 – 116 214

Trading liabilities 14 410 – – – 14 410

Deposit and current accounts 316 516 76 – 5 885 322 477

Current and deferred taxation 3 407 2 1 403 – 4 812

Other liabilities 15 879 158 6 089 (6 052) 16 074

Policyholders' liabilities – insurance contracts – – 65 972 – 65 972

Policyholders' liabilities – investment contracts – – 32 021 – 32 021

Subordinated bonds 9 493 – – 167 9 660

Liberty LifeOther liabilities and provisions 3 064 4 428 (7 492) – –

Convertible bonds – – – – –

Policyholders’ liabilities 98 049 (549) (97 500) – –

Total equity and liabilities 615 596 4 082 495 – 620 173

1Adjustments resulting from adoption of IFRS as discussed on page 183.

2Reclassification of balances by insurance operations and the line by line consolidation of Liberty Life into banking operations.





IFRS equity impact

Ordinary

share Hedge Statutory

capital Empower! Trans! of net credit

and ment lation investment risk

premium reserve reserve reserve reserve

Note1 Rm Rm Rm Rm Rm

Balance at 1 January 2004 as previously reported 2 407 – 413 68 –

Adjustment on adoption of IFRS 2

IFRS 2 – Share-based payments 3

IAS 16 – Revaluation of residual values in property and equipment 4

IAS 16 – Reclassification of property revaluations 5

IAS 17 – Leases 7

IAS 18 – Revenue recognition 1

IAS 39 – Financial instrument reclassifications 11

IAS 39 – Credit impairments 9 2

Taxation impact

Restated balance at 1 January 2004 2 407 – 413 68 2

Adjustments for the year ended 31 December 2004 36 1

Income statement adjustments (refer income statement

impact for detailed reconciliation)

Equity adjustments 36 1

IFRS 2 – Share-based payments 3

IAS 16 – Reclassification of property revaluations 5


IAS 39 – Credit impairments 9 1

Impact of IFRS restatements on translation reserve 36

Changes in shareholders' funds as previously reported per SA GAAP 269 (4 246) (1 396) 88

Balance at 1 January 2005 2 676 (4 246) (947) 156 3

Adjustment on adoption of IFRS

IFRS 4 – Insurance contracts 13

IAS 18 – Revenue recognition 1

IAS 32 – Elimination of treasury shares 10


IAS 39 – Fair value adjustments 12

IAS 39 – Credit impairments 9

Taxation impact

Restated balance at 1 January 2005 2 676 (4 246) (947) 156 3



Preference

Available! Re! Share! Ordinary share

Cash flow for!sale valuation based share! capital

hedging revaluation and other Treasury payment Retained holders’ and Minority Total

reserve reserve reserves shares reserve earnings funds premium interest equity


44 484 224 – – 25 195 28 835 8 6 421 35 264

93 23 (209) (91) (5) (96)

23 (140) (117) (117)

40 40 40

93 (93) – –

(7) (7) (5) (12)

(11) (11) (11)

(3) (3) (3)

3 5 5

2 2 2

44 484 317 – 23 24 986 28 744 8 6 416 35 168

(5) 70 (34) 68 (3) 65

(57) (57) 4 (53)

(5) 70 23 125 (7) 118

70 70 12 82

(5) (5) (8) (13)

24 24 1 25

(1) – –

36 (12) 24

(5) 15 (7) 5 534 252 2 983 65 3 300

39 499 305 – 93 30 486 29 064 2 991 6 478 38 533

(399) (354) (148) (901) (2 756) (3 657)

(4) (4) (9) (13)

11 11 30 41

(354) (597) (951) (2 752) (3 703)

(399) 381 (18) (25) (43)

(29) (29) (29)

109 109 109

(19) (19) (19)

39 100 305 (354) 93 30 338 28 163 2 991 3 722 34 876





IFRS income statement impact

2004 as previously reported

Line by line

consolidation

Standard Standard IFRS IAS 1 and reclassifi!

Bank Liberty Bank adjust! reclassi! cation of

operations Life Group ment fication insurance

Rm Rm Rm Rm Rm Rm

Note1 15 14

Income from banking operations 26 499 26 499 37

Net interest income 11 451 11 451 41

Interest income 35 206 35 206 41

Interest expense 23 755 23 755 –

Non-interest revenue 15 048 15 048 (4) 44

Income from life insurance operations 32 311

Net insurance premiums 12 406 12 406

Investment income and gains 18 830 17 619

Management and service fee income 1 075 1 075

Total income 26 499 26 499 32 348

Credit impairment charges 1 048 1 048 2

Benefits due to policyholders 24 809

Net insurance benefits and claims 19 115 19 030

Fair value adjustment to policyholders'

liabilities under investment contracts 4 666 4 645

Fair value adjustment on third party fund interests 1 028

Income after credit impairment charges

and policyholders' benefits 25 451 25 451 7 537

Operating expenses in banking operations 15 242 15 242 142

Staff costs 8 499 8 499 111

Other operating expenses 6 743 6 743 31 32

Operating expenses in life insurance operations 4 684

Acquisition costs – insurance and investment contracts 1 920 1 920

Other operating expenses 2 764 2 578

Liberty Life – net income before goodwill 2 695 2 695 (2 695) (2 695)

Net income before goodwill 10 209 2 695 12 904 16

Goodwill amortisation and exceptional items 86 – 86 (86) 12

Goodwill impairment – 12 12 36

Net income from banking and insurance 10 123 2 683 12 806 66

Income from associates and joint ventures 97 – 97 30 30

Net income before indirect taxation 10 220 2 683 12 903 96

Indirect taxation 389 – 389 262 262

Profit before direct taxation 9 831 2 683 12 514 (166)

Direct taxation 2 489 900 3 389 (113)

Profit for the year 7 342 1 783 9 125 (53) – –

Attributable to minorities 127 1 257 1 384 4 – –

Attributable to ordinary shareholders 7 215 526 7 741 (57) – –



Relevant accounting standards

IAS 27

Consoli!

dation IAS 39

IAS 12/ of mutual IAS 39 reclassi! 2004

IFRS 2 IAS 40 IAS 16 IAS 17 IAS 18 funds IAS 36 impairment fication restated


3 8 4 &5 7 1 6 2 9 11

26 536

11 492

41 35 247

23 755

(46) (2) 15 044

32 311

12 406

18 49 1 144 18 830

1 075

58 847

2 1 050

24 809

85 19 115

21 4 666

1 028 1 028

32 988

15 384

111 8 610

(6) 5 6 774

4 684

1 920

15 6 49 116 2 764

–

12 920

(98) –

36 48

12 872

127

12 999

651

12 348

(112) 4 (5) 3 276

(126) – 20 (5) – – 62 (2) (2) 9 072

(10) – 8 – (3) – 9 – – 1 388

(116) – 12 (5) 3 – 53 (2) (2) 7 684





IFRS balance sheet impact

1 Jan 2005 31 Dec 2004 31 Dec 2004 1 Jan 2004 1 Jan 2004

IFRS

restated IFRS SA GAAP IFRS SA GAAP

Rm Rm Rm Rm Rm

Assets Standard Bank operations

Cash and balances with banks 37 842 37 842 31 384 25 960 22 081

Short-term negotiable securities 21 461 21 461 21 040 22 396 22 018

Derivative assets 124 227 124 236 124 235 104 723 104 723

Trading assets 32 438 32 438 32 130 33 939 33 488

Investment securities held in banking operations 20 068 20 068 19 640 20 459 20 057

Investments held by insurance operations 94 873 98 609 89 918

Loans and advances 258 982 258 873 257 154 221 980 220 375

Current and deferred taxation 1 111 1 094 1 084 585 803

Other assets 17 293 17 223 15 410 17 834 16 737

Interest in associates and joint ventures 3 250 3 250 286 711 541

Goodwill and other intangible assets 965 965 498 838 508

Property and equipment 4 114 4 114 2 968 4 168 3 040

Liberty Life

Other assets 4 616 3 687

Investments 104 442 91 868

Goodwill and other intangible assets 366 277

Equipment and furniture 343 363

Total assets 616 624 620 173 615 596 543 511 540 566

Equity and liabilitiesEquity 34 876 38 533 38 564 35 168 35 264

Equity attributable to ordinary shareholders 28 163 29 064 29 087 28 744 28 835

Ordinary share capital and premium 2 676 2 676 2 676 2 407 2 407

Reserves 25 487 26 388 26 411 26 337 26 428

Preference share capital and premium 2 991 2 991 2 991 8 8

Minority interest 3 722 6 478 6 486 6 416 6 421

Liabilities 581 748 581 640 577 032 508 343 505 302


Derivative liabilities 116 214 116 214 116 214 98 634 98 634

Trading liabilities 14 410 14 410 14 410 18 162 18 162

Deposit and current accounts 322 477 322 477 316 516 278 991 272 677

Current and deferred taxation 4 849 4 812 3 407 3 972 2 827

Other liabilities 16 132 16 074 15 879 16 666 18 162

Policyholders’ liabilities - insurance contracts 70 555 65 972 55 769

Policyholders’ liabilities - investment contracts 27 451 32 021 27 416

Subordinated bonds 9 660 9 660 9 493 8 733 7 056

Liberty Life

Other liabilities and provisions 3 064 2 444

Convertible bonds 1 500

Policyholders’ liabilities 98 049 83 840

Total equity and liabilities 616 624 620 173 615 596 543 511 540 566


ANNEXURE B C u r rency balance sheet


2005

Rand UK£ US$ Euro Other Total

Rm Rm Rm Rm Rm Rm

On!balance sheet assets

Cash and balances with banks 25 638 2 828 36 778 2 006 3 602 70 852

Short-term negotiable securities 27 783 5 21 – 2 504 30 313

Derivative assets 71 053 331 28 519 285 – 100 188

Trading assets 12 496 244 13 836 5 354 6 516 38 446

Investments 150 343 7 108 – 2 946 153 404

Loans and advances 268 399 2 097 49 930 7 945 5 757 334 128

Current and deferred taxation 751 94 94 – 51 990

Other assets 9 319 119 2 370 371 824 13 003

Disposal groups held for sale – 1 802 539 39 – 2 380

Interest in associates and joint ventures 4 854 – – – 131 4 985

Goodwill and other intangible assets 2 213 156 30 – 54 2 453

Property and equipment 3 918 25 41 – 552 4 536

Total assets 576 767 7 708 132 266 16 000 22 937 755 678

On!balance sheet liabilities

Derivative liabilities 70 495 256 25 497 419 2 159 98 826

Trading liabilities 10 149 7 8 780 821 1 705 21 462

Deposit and current accounts 335 305 9 400 50 835 4 056 12 866 412 462

Current and deferred taxation 6 519 80 214 – 113 6 926

Other liabilities 18 235 310 1 204 266 1 277 21 292

Disposal groups held for sale – 899 343 25 – 1 267

Policyholders’ liabilities 140 835 – – – – 140 835

Subordinated bonds 9 958 – 2 478 – 208 12 644

Total liabilities 591 496 10 952 89 351 5 587 18 328 715 714

Net assets including minority interest (14 729) (3 244) 42 915 10 413 4 609 39 964

Net off!balance sheet currency position 28 453 8 109 (30 238) (5 646) (690) (12)

Net open foreign!currency position 13 724 4 865 12 677 4 767 3 919 39 952

2004

Rand UK£ US$ Euro Other Total

Rm Rm Rm Rm Rm Rm

Net open foreign!currency position 32 761 1 806 8 091 (2 908) (1 186) 38 564



ANNEXURE C S u b s i d i a r i e s

Standard Bank Group

Liberty Holdings(56,0%)1

The Standard Bank of South Africa

Diners Club (SA)

Blue Bond Investments

Standard Bank InsuranceBrokers

Melville DouglasInvestment Management

Standard Insurance

Standard Executors andTrustees

Stanvest

Lesotho Bank (1999)(70%)

Standard Bank Lesotho

Standard Bank Namibia

Standard Bank Swaziland(65%)

Stanbic Bank Botswana

Stanbic Bank Congo

Stanbic Bank Ghana(96,5%)

Stanbic Bank Kenya (96%)

Stanbic Bank Limited,Malawi (60%)

Stanbic Bank Nigeria

Stanbic Bank Tanzania

Stanbic Bank Uganda(90%)

Stanbic Bank Zambia

Stanbic Bank Zimbabwe

Standard Bank MauritiusOffshore Banking Unit

Standard Bank s.a.r.l.Mozambique (96%)

UKStandard Bank London

AsiaStandard Bank Asia

Standard Merchant Bank(Asia)

Standard London (Asia) SB

USAStandard Americas

Standard New York

Standard New YorkSecurities

BrazilBanco Standard deInvestimentos

Czech RepublicStandard Aval

ChinaStandard Resources

TurkeyStandard Yatirim

RussiaZAO Standard Bank

Liberty Active

Liberty Ermitage Jersey

Liberty Group Properties

Capital Alliance Holdings

Stanbic AfricaHoldings

S t a n d a rd Inte r n a t i o n a lH o l d i n g s

Isle of ManStanbic InternationalInsurance

Standard Finance (IOM)

SBIC Finance

SML

JerseyStandard Bank Jersey

Standard Bank FundAdministration Jersey

Standard Bank FinancialManagers Jersey

Standard Bank OffshoreTrust Company Jersey

Isle of ManStandard Bank Isle of Man

MauritiusStandard Bank TrustCompany (Mauritius)

British Virgin IslandsMelville DouglasInternational

Standard Bank GroupInternational

S t a n d a rd Bank OffshoreG ro u p

Liberty Group(52,2%)1

Stanlib CollectiveInvestments

Stanlib Multi-manager

Stanlib WealthManagement

Stanlib Asset Management

(37,4%) STANLIB(37,4%)

Effective 48,33%

This diagram depicts principal subsidiaries only.

The holding in subsidiaries is 100% unless otherwise indicated.1Representative of legal effective holding.



Nominal Effective Book value Netshare capital holding of shares indebtedness

Nature of issued 2005 2004 2005 2004 2005 2004operation Rm % % Rm Rm Rm Rm

Standard Bank Group will ensure that, except in the case of political risk, its banking subsidiaries, and its principal non-banking subsidiaries denoted by #, are able to meet their contractual liabilities.

Banking subsidiariesBanco Standard de Investimentos Investment bank ** 100 100S.A. (Brazil)1

Lesotho Bank (1999) Commercial bank 35 70 70Limited (Lesotho)1

Stanbic Bank Limited Commercial bank 13 60 60(Malawi)1

Stanbic Bank Botswana Commercial bank 31 100 100Limited (Botswana)1

Stanbic Bank Congo s.a.r.l Commercial bank ** 100 100(D R Congo)1

Stanbic Bank Ghana Commercial bank 78 97 97Limited (Ghana)1

Stanbic Bank Kenya Commercial bank 149 96 96Limited (Kenya)1

Stanbic Bank Nigeria Commercial bank 89 100 93Limited (Nigeria)1

Stanbic Bank Tanzania Commercial bank 13 100 100Limited (Tanzania)1

Stanbic Bank Uganda Commercial bank 21 90 90Limited (Uganda)1

Stanbic Bank Zambia Commercial bank 21 100 100Limited (Zambia)1

Stanbic Zimbabwe Commercial bank 55 100 100Limited (Zimbabwe)1

Standard Bank Asia Merchant bank 587 100 100Limited (UK)1

Standard Bank Isle of Man Merchant bank 25 100 100Limited (Isle of Man)1

Standard Bank Jersey Merchant bank 25 100 100Limited (Jersey)1

Standard Bank Lesotho Commercial bank 17 100 100 13 13 46Limited (Lesotho)

Standard Bank Plc Merchant bank 1 160 100 100 929 929(United Kingdom)2

Standard Bank Mauritius Commercial bank 226 100 100(Mauritius)1

Standard Bank Namibia Commercial bank 2 100 100 444 444Limited (Namibia)

Standard Bank s.a.r.l. Commercial bank ** 96 96Mozambique1

Standard Bank Swaziland Commercial bank 9 65 65 33 56 29 20Limited (Swaziland)

Standard Merchant Bank Merchant bank ** 100 100(Asia) Limited (Singapore)1

The Standard Bank of Commercial bank 60 100 100 10 614 8 014 (472) (202)South Africa Limited

ZAO Standard Bank (Russia)1 Investment bank ** 100 100



Subsidiaries co n t i n u e d



Non!banking subsidiariesAccelerator Fund 1 (Pty) Limited3 Securitisation vehicle

Allisier Investments (Pty) Limited1 Investment holding company ** 100 100

Andisa Securities (Pty) Limited1 Stockbrokers ** 100 100

Andisa Capital (Pty) Limited1, 5 Treasury ** 77

Blue Bond Investments Participation mortgage ** 100 100Limited1 bond finance

Blue Banner3 Mortgage financing

Blue Titanium Conduit3 Asset backed commercial **paper conduit

Blue Granite Investments No. 1 Securitisation vehicle(Pty) Limited3

Diners Club (S.A.) (Pty) Travel and ** 100 100Limited1 # entertainment card

Erf 224 Endenburg (Pty) Property owning ** 100 100Limited1 and investing company

Gleneagles Retail Centre Property owning ** 100 100(Pty) Limited1 and investing company

Grand Central Shopping Property owning ** 100 100Centre (Pty) Limited1 company

Liberty Group Limited1, 4 Insurance company 28 29 27

Liberty Holdings Limited4 Insurance holding 14 56 55 2 393 2 304company

Melville Douglas International Portfolio ** 100 100(British Virgin Islands)1 # management

Melville Douglas Investment Portfolio ** 100 100 53 53Management (Pty) Limited # management

SBIC Finance Limited Project finance ** 100 100(Isle of Man)1

Standard Bank Group Investment holding ** 100 100 5 220 4 038International Limited company(Isle of Man)

SBIC Investments S.A Investment holding 287 100 100(Luxembourg)1 # company

SML Limited (Isle of Man)1 Investment holding ** 100 100company

SMT Limited (Isle of Man)1 Investment holding ** 100 100company

Stanbic Africa Holdings Investment holding 158 100 100 500 500Limited (United Kingdom)2 company

Standard Bank Financial Fund administration ** 100 100Managers Jersey Limited1 #

Standard Bank Insurance Insurance ** 100 100Brokers Namibia (Pty) Limited1 company

Standard Insurance Limited # Short-term insurance 15 100 100 30 30

Stanbic International Insurance 1 100 100Insurance Limited company(Isle of Man)1

Standard Americas Inc Trading company ** 100 100(USA)1 #

Standard Aval s.r.o. Trade and ** 100 100(Czech Republic)1 other finance

Standard Bank Insurance Insurance broking ** 100 100Brokers (Pty) Limited1 #

Standard Bank London Investment holding 672 100 100Holdings Plc (United Kingdom)1 company

Standard Bank Manx Investment holding 1 100 100Holdings Limited company(Isle of Man)1





Standard Bank Offshore Investment 17 100 100 49 49Group Limited (Jersey) 2 holding company

Standard Bank Offshore Trust Trust company 2 100 100Company (Jersey) Limited (Jersey)1 #

Standard Bank Trust Trust company 1 100 100Company (Isle of Man)Limited (Isle of Man)1 #

Standard Bank Trust Trust company ** 100 100Company (Mauritius)Limited (Mauritius)1 #

Standard Commodities (Asia) Commodities ** 100 100Limited (Hong Kong)1 trading

Standard Executors and Trust company ** 100 100Trustees Limited1 #

Standard Finance Finance company ** 100 100(Isle of Man) Limited(Isle of Man)1 #

Standard International Investment 72 100 100 99 99Holdings S.A. (Luxembourg)2 # holding company

Standard London (Asia) Investment 78 100 100Limited (Hong Kong)1 company

Standard London (Asia) Introducing broker 1 100 100Sendirian Berhad (Malaysia)1

Standard New York Securities ** 100 100Securities, Inc (USA)1 # broker/dealer

Standard New York, Investment ** 100 100Inc (USA)1 # holding company

Standard Resources (China) Limited1 Trading company 1 100 100

Standard Yatirim Menkul Securities 41 100 100Kiymetler A.S. (Turkey)1 # broker/dealer

Stanlib Limited2 Wealth and ** 48 48 687 687 27 28asset management

Stanvest (Pty) Limited2 Investment 1 100 100holding company

Triskelion Trust Company Trust company 3 100 100Limited1

Miscellaneous Finance companies 100 100 43 41 (411) (390)

21 107 17 257 (781) (544)

The nominal share capital issued of foreign subsidiaries has been stated in the above table at their rand equivalents at the rates of exchange ruling on the dates of provision ofcapital. Detailed information is not given in respect of subsidiaries which are not material to the financial position of the group, including those acquired through realisation ofsecurities held by banking companies.1Held indirectly.2Effective holding comprises direct and indirect holdings.3Special purpose entity, no shareholding.4Listed on the JSE.5Accounted for as an associate in 2004.

** Issued share capital less than R1 million.



Edu!Loan Mathomo Group South African Home Loans

(Proprietary) Limited Limited (Proprietary) Limited

Ownership structure Associate Associate Associate

Nature of business Student loans Retailer Finance

Year end December September February

Date to which equity accounted 31 December 2005 31 December 2005 31 December 2005

2005 2004 2005 2004 2005 2004

Effective holding 45% 45% 26% 26% 43% 43%

Rm Rm Rm Rm Rm Rm

Carrying value 35 31 – 29 80 57

Goodwill 2 2 – – 47 47

Balance sheetNon-current assets 18 26 16 19 14 411 9 525

Current assets 187 164 106 98 339 492

Non-current liabilities (43) (54) (27) (23) (14 100) (8 876)

Current liabilities (93) (73) (917) (82) (636) (978)

Loans to entity – – – 128 2 493

Income statementAttributable income 6 5 (9) (1) 23 10

JR163 Investments Andisa Capital RCS Investment Holdings

(Proprietary) Limited (Proprietary) Limited1 (Proprietary) Limited

Ownership structure Associate Associate Associate

Nature of business Photographic equipment Securities trading Finance

Year end April December March

Date to which equity accounted 31 December 2005 1 October 2005 31 December 2005

2005 2004 2005 2004 2005 2004

Effective holding 38% 30% 49% 25%

Rm Rm Rm Rm Rm

Carrying value 19 66 (31) 388

Goodwill – – – –

Balance sheetNon-current assets 56 293 309 31

Current assets 67 138 120 1 213

Non-current liabilities (11) (23) (328) (784)

Current liabilities – (73) (166) (119)

Loans to entity – – 55 131

Income statementAttributable income (15) 8 6 (14) 30

1Acquired a further 28% during the year and is now accounted for as a subsidiary.

ANNEXURE D A s s o c i a tes and joint venture s



Defy The Standard Bank The Cullinan Hotel

(Proprietary) Limited African Bank partnership (Proprietary) Limited

Ownership structure Joint venture Joint venture Joint venture

Nature of business Manufacturing Banking Leisure

Year end March September March

Date to which equity accounted 31 December 2005 31 December 2005 31 December 2005

2005 2004 2005 2004 2005 2004

Effective holding 50% 60% 60% 50% 50%

Rm Rm Rm Rm Rm

Carrying value 47 136 69 209 200

Goodwill – – – – –

Balance sheetNon-current assets 413 – 568 82 94

Current assets 720 775 32 14 17

Non-current liabilities (675) – (445) (53) (60)

Current liabilities (361) (24) (18) (9) (17)

Loans to entity 172 237 209 33 33

Income statementAttributable income 46 119 68 15 30

Other Other joint Total associates and

associates ventures joint ventures

Ownership structure Associates Joint ventures

Nature of business Various Various

Year end Various Various

Date to which equity accounted 31 December 2005 31 December 2005

2005 2004 2005 2004 2005 2004

Effective holding Various Various Various Various

Rm Rm Rm Rm Rm Rm

Carrying value 126 68 8 7 1 048 496

Goodwill – – – – 49 49

Balance sheetNon-current assets 173 135 – 1 15 200 10 970

Current assets 4 445 453 36 41 7 902 1 555

Non-current liabilities (1 746) (117) – – (17 439) (9 926)

Current liabilities (748) (286) (26) (29) (2 933) (1 722)

Loans to entity 43 – – – 744 2 790

Income statementAttributable income 5 17 – 4 226 127




Equity!settled share!based payments

Standard Bank's share incentive schemes enable key management personnel and senior employees to benefit from the performance of

Standard Bank Group Limited and Liberty Life Limited shares.

Standard Bank Group has two equity-settled schemes, namely the Group Share Incentive Scheme and the Standard Bank Equity Growth

Scheme. The Group Share Incentive Scheme confers rights to employees to acquire ordinary shares at the value of the Standard Bank Group

(SBG) share at the date the option is granted; this scheme is being phased out. The Equity Growth Scheme was implemented in 2005 and

represents appreciation rights allocated to employees. From a group perspective, the eventual value of the rights are effectively settled

by the issue of shares equivalent in value to the value of the rights.

The two schemes have three different sub-types of vesting categories as illustrated by the table below:

Vesting category Year % vesting Expiry

Type A 3, 4, 5 50, 75, 100 10 years

Type B 5, 6, 7 50, 75, 100 10 years

Type C 2, 3, 4 50, 75, 100 10 years

Refer the Corporate Governance report, page 44 for a detailed schedule of movements in share options issued to executive directors

during the year. A reconciliation of the movement of all share options and appreciation rights is detailed below.

Option price range Number

(rands) of options

Group Share Incentive Scheme 2005 2005 2004

Reconciliation

Options outstanding at beginning of the year 57 879 500 61 051 100

Granted 59,90 ! 65,60 874 100 11 669 300

Exercised 12,50 ! 65,60 (10 438 961) (12 323 700)

Lapsed 12,50 ! 65,60 (1 760 200) (2 517 200)

Options outstanding at end of the year 46 554 439 57 879 500

Share options were exercised regularly throughout the year. The weighted average share price for the year was R66,98.

The following options granted to employees, including executive directors, had not been exercised at 31 December 2005:

Number of Option Weighted

ordinary price range average price

shares (rands) (rands) Option expiry period

541 800 17,10 – 31,90 18,00 Year to 31 December 2006

1 231 100 18,30 – 32,00 20,74 Year to 31 December 2007

2 778 100 13,50 – 32,69 18,94 Year to 31 December 2008

2 617 800 17,15 – 26,40 18,26 Year to 31 December 2009

3 656 300 25,00 – 29,50 25,36 Year to 31 December 2010

6 913 539 27,70 – 35,90 31,84 Year to 31 December 2011

6 133 200 27,25 – 35,70 28,03 Year to 31 December 2012

11 154 800 27,70 – 34,85 27,97 Year to 31 December 2013

10 659 900 39,70 – 62,00 40,99 Year to 31 December 2014

867 900 59,90 – 65,60 65,02 Year to 31 December 2015

46 554 439

The share options granted during the year were valued, at grant date, using a Black-Scholes option pricing model. Each grant was valued

separately. The weighted fair value of the options granted per vesting type and the weighted assumptions utilised is illustrated on the next

page.

ANNEXURE E E q u i t y ! l i n ked tra n s a c t i o n s



Type A Type B Type C

2005 2004 2005 2004 2005 2004

Number of options granted 430 800 10 272 500 443 300 746 800 – 650 000

Weighted average fair value

at grant date (rands) 20,43 12,15 21,93 13,33 – 7,70

The principal inputs are as follows:

Weighted average share price (rands) 64,43 40,90 65,60 42,02 40,66

Weighted average exercise price (rands) 64,43 40,90 65,60 42,02 40,66

Expected life (years) 6,1 6,1 7,0 7,0 4,0

Expected volatility (%) 30,0 31,9 30,0 31,7 32,0

Risk-free interest rate (%) 8,3 10,3 8,4 10,2 10,3

Dividend yield (%) 3,5 3,9 3,5 3,9 3,9

The options granted during the year which are expected to vest, have an estimated fair value of R14 million (2004: R112 million).

Average price Number

range (rands) of rights

Standard Bank Equity Growth Scheme 2005 2005

Reconciliation

Rights outstanding at beginning of the year – –

Granted 60,35 – 75,01 7 761 900

Exercised1 65,60 (4 200)

Lapsed 65,60 (276 600)

Rights outstanding at end of the year2 7 481 100

1During the year 106 SBG shares were issued to settle the appreciated rights value, at a weighted average share price of R67,30, in terms

of severance packages.

2At the end of the year the group would need to issue 1 020 399 SBG shares to settle the outstanding appreciated rights value.

The following rights granted to employees, including executive directors, had not been exercised at 31 December 2005:

Weighted

Number of Price range average price

rights (rands) (rands) Expiry period

7 481 100 60,35 – 75,01 65,47 Year to 31 December 2015

The share appreciation rights granted during the year were valued using a Black-Scholes option pricing model. Each grant was valued

separately. The weighted fair value of the options granted per vesting type and the weighted assumptions utilised is illustrated below:

Type A Type B

2005 2005

Number of appreciation rights granted 3 092 800 4 669 100

Weighted average fair value at grant date (rands) 20,88 21,88

The principal inputs are as follows:

Weighted average share price (rands) 65,50 65,43

Weighted average exercise price (rands) 65,50 65,43

Expected life (years) 6,1 7,0

Expected volatility (%) 30,0 30,0

Risk-free interest rate (%) 8,4 8,4

Dividend yield (%) 3,5 3,5

The appreciation rights granted during the year which are expected to vest have a fair value of R121 million.



Cash!settled share!based payments

Corporate & Investment Banking International has a long-term incentive scheme (SIH Shadow Scheme) whereby certain employees are

granted 'shadow' share options on the notional value of the shares in Standard International Holdings S.A. (SIH). The scheme, which was

set up in 1998, provides for eligible employees to be rewarded in cash by reference to the growth in value of notional shares in SIH.

The SIH Shadow Scheme up until March 2004 had SBG share options underpinning the liability. From a group perspective the underpinning

options do not affect the liability but are merely reserved for future allocation. From March 2005 SIH Shadow share options have been

issued without any SBG underpinning options. At year end 21 652 568 (2004: 21 890 653) SBG options were allocated as underpins.

Option price

range (US$ cents) Number

SIH Shadow Scheme 2005 2005 2004

Reconciliation

Options outstanding at beginning of the year 22 633 263 20 547 552

Granted 0 – 283 9 576 179 4 380 853

Exercised – (1 785 533)

Lapsed 159 – 283 (1 992 901) (509 609)

Options outstanding at end of the year 30 216 541 22 633 263

The following options granted to employees had not been exercised at 31 December 2005:

Option Weighted

Number of price range average price

ordinary shares (US$ cents) (US$ cents) Option expiry period

3 666 510 0 – 115 100 Year to 31 December 2008

2 303 311 221 221 Year to 31 December 2010

2 846 664 279 279 Year to 31 December 2011

3 948 132 238 238 Year to 31 December 2012

4 514 954 159 159 Year to 31 December 2013

3 898 064 283 283 Year to 31 December 2014

9 038 906 0 – 220 131 Year to 31 December 2015

30 216 541

The SIH Shadow share options are valued using actual profit and balance sheet projections. The cost of the scheme is calculated using these

option values with an allowance made for expected lapses and is spread over the vesting period of the options.

Equity participation plansTutuwa initiative

The group entered into a black economic empowerment transaction during 2004, which also resulted in the recognition of a share-based

payment expense. The instrument was valued using a number of valuation techniques including the Black-Scholes and discounted

cash flow methods. Due to the uniqueness of the instrument, the mid-point of the range of valuations was used arriving at a value

of R8,50 per Standard Bank Group instrument granted to black managers. This value is expensed over the vesting period ending

31 December 2010.

Total expense recognisedStandard Bank has recognised a total expense of R146 million (2004: R68 million) relating to equity-settled share-based payments,

comprising R80 million (2004: R52 million) for share options and appreciation rights, and R66 million (2004: R16 million) relating to the

Tutuwa transaction.

Liberty Life has similar share-based payment transactions and has recognised a total expense of R45 million (2004: R16 million) relating

to equity-settled share-based payments, comprising R20 million (2004: R12 million) for share options and appreciation rights, and

R25 million (2004: R4 million) relating to the Tutuwa expense.

SIH has recognised a total expense of USD4 million (2004: USD6 million) relating to the cash-settled share-based payments. The year end

provision in respect of liabilities under the SIH Shadow Scheme amounted to USD28 million (2004: USD23 million).

E q u i t y ! l i n ked transactions co n t i n u e d


Abridged financial state m e n t s of principal banking subsidiary


The Standard Bank ofSouth Africa Limited

31 December

2005 2004Rm Rm

Balance sheetAssetsCash and balances with banks 41 005 8 750Short-term negotiable securities 19 642 16 306Derivative assets 68 979 97 619Trading assets 11 295 6 545Investments 13 429 16 451Loans and advances 250 939 202 229Current and deferred taxation 355 332Other assets 4 376 4 890Interest in group companies, associates and joint ventures 22 870 29 450Intangible assets 196 205Property and equipment 2 421 2 099

Total assets 435 507 384 876

Equity and liabilitiesEquityEquity attributable to ordinary shareholders 20 376 18 163

Ordinary share capital 60 60Ordinary share premium 10 730 8 137Reserves 9 586 9 966

Liabilities 415 131 366 713

Derivative liabilities 65 084 92 349Trading liabilities 3 324 1 860Deposit and current accounts 314 703 249 237Current and deferred taxation 3 271 2 787Other liabilities 6 037 5 388Subordinated bonds 7 832 8 014Liabilities to group companies 14 880 7 078


Income statementNet interest income 10 605 9 605

Interest income 33 289 30 735Interest expense 22 684 21 130

Non-interest revenue 10 709 9 370

Total income 21 314 18 975Credit impairment charges 1 248 851

Income after credit impairment charges 20 066 18 124Operating expenses 12 061 10 718

Staff costs 6 933 5 893Other operating expenses 5 128 4 825

Income before indirect taxation 8 005 7 406Indirect taxation 458 316

Profit before direct taxation 7 547 7 090Direct taxation 1 491 1 708

Profit attributable to ordinary shareholders 6 056 5 382



S t a n d a rd Bank operations average balance sheet at 31 December 2005

2005

Non! Total

interest Interest average

earning)1 earning balance

Rm Rm Rm

Assets

Cash and balances with banks 10 585 41 716 52 301Short-term negotiable securities 39 29 368 29 407Trading assets 33 870 – 33 870

Investments 2 362 12 897 15 259Loans and advances 14 062 274 476 288 538

– Overnight lending – 23 058 23 058– Card debtors – 9 795 9 795

– Term lending 14 229 69 188 83 417– Instalment sales and finance leases – 39 217 39 217– Mortgage lending – 109 667 109 667

– Commercial property finance – 13 902 13 902– Foreign currency lending 22 7 566 7 588– Other loans and advances3 371 5 262 5 633

– Credit impairments for non-performing loans (560) (3 179) (3 739)

Other assets 20 802 – 20 802Interest in associates and joint ventures 268 – 268Goodwill and other intangible assets 258 – 258

Property and equipment 2 586 – 2 586

Total average assets and interest excluding trading derivative assets 84 832 358 457 443 289

Trading derivative assets 119 498 – 119 498

Total average assets and interest 204 330 358 457 562 787

Equity and liabilitiesEquity 13 732 18 487 32 219

Liabilities 56 613 356 678 413 291

Trading liabilities 21 056 – 21 056Deposit and current accounts 21 040 345 700 366 740

– Overnight deposits 542 135 729 136 271– Term deposits 19 786 184 189 203 975

– Foreign currency funding 47 13 098 13 145– Other funding and loans 665 12 684 13 349

Other liabilities 13 856 – 13 856Subordinated bonds 661 10 978 11 639

Total average equity, liabilities and interest excluding trading derivative liabilities 70 345 375 165 445 510

Trading derivative liabilities 117 277 – 117 277

Total average equity, liabilities and interest 187 622 375 165 562 787

Margin on total average assets excluding trading derivatives

Margin on total average loans and advances

Margin on average interest earning assets

1Non-interest earning assets and liabilities include all trading book assets and liabilities.

2Interest received and paid on trading derivative financial instruments has been netted with interest received on derivative instruments used for

hedging purposes allocated to the instrument being hedged.

3The average rate is distorted due to applying set-off to the average balance with no corresponding interest adjustment.


2004

Non- Total

Average interest Interest average Average

Interest2 rate earning)1 earning balance Interest)2 rate

Rm % Rm Rm Rm Rm %

2 152 4,11 7 686 26 874 34 560 1 250 3,62

2 018 6,86 362 24 339 24 701 1 664 6,74

– – 34 174 – 34 174 – –

1 205 7,90 1 835 13 462 15 297 1 269 8,30

26 291 9,11 21 926 213 093 235 019 22 805 9,70

2 817 12,22 – 21 212 21 212 2 809 13,24

1 267 12,94 – 6 627 6 627 861 12,99

4 794 5,75 19 597 53 932 73 529 4 999 6,80

4 384 11,18 – 33 326 33 326 3 979 11,94

10 152 9,26 – 79 781 79 781 7 839 9,83

1 476 10,62 – 10 516 10 516 1 190 11,32

320 4,22 28 7 577 7 605 272 3,58

1 081 19,19 2 767 3 509 6 276 856 13,64

(466) (3 387) (3 853)

126 0,61 27 835 – 27 835 – –

– – 286 – 286 – –

– – 181 – 181 – –

– – 2 661 – 2 661 – –

31 792 7,17 96 946 277 768 374 714 26 988 7,20

– – 91 399 – 91 399 – –

31 792 5,65 188 345 277 768 466 113 26 988 5,79

– – 13 446 16 273 29 719 – –

18 805 4,55 65 907 279 905 345 812 15 496 4,48

– – 13 841 – 13 841 – –

17 798 4,85 33 826 271 997 305 823 14 582 4,77

6 253 4,59 1 055 110 336 111 391 5 567 5,00

10 913 5,35 28 713 135 310 164 023 8 423 5,14

419 3,19 – 12 825 12 825 267 2,08

213 1,60 4 058 13 526 17 584 325 1,85

– – 17 255 – 17 255 – –

1 007 8,65 985 7 908 8 893 914 10,28

18 805 4,22 79 353 296 178 375 531 15 496 4,13

– – 90 582 – 90 582 – –

18 805 3,34 169 935 296 178 466 113 15 496 3,32

12 987 2,93 11 492 3,07

12 987 4,50 11 492 4,89

13 478 3,76 11 944 4,30




I n ternational re p re s e n t a t i o n

Standard Bank GroupLimitedReg No. 1969/017128/06

Registered Office9th FloorStandard Bank Centre5 Simmonds StreetJohannesburg 2001


Telephone: (2711) 636-9111Facsimile: (2711) 636-4207e-mail: [email protected]: http://www.standardbank.co.za

ArgentinaStandard Bank Argentina S.A.Torre Bouchard 577/599Buenos Aires C1106 ABGArgentina

F CanzaniDirector

Standard Bank Plc – representativeofficeTorre Bouchard 577/599Buenos Aires C1106 ABGArgentina

F CanzaniRepresentative

AustraliaStandard Bank Plc – representativeofficeLevel 42Gateway1 Macquarie PlaceSydney NSW 2000Australia

K RussellRepresentative

BotswanaStanbic Bank Botswana Limited1st Floor Stanbic HouseOff Machel DriveFairgroundGaboroneBotswana

DW KennedyManaging director

BrazilBanco Standard de InvestimentosS.A.Edificio Plaza IguatemiAv. Brigadeiro Faria Lima2277, 120 andar – J Paulistano01452-000 São PauloBrazil

F SolferiniDirector

Standard Bank Plc – representativeofficeEdificio Plaza IguatemiAv. Brigadeiro Faria Lima2277, 120 andar – J Paulistano01452-000 São PauloBrazil

F SolferiniRepresentative

ChinaStandard Resources (China)LimitedLevel 23, Citigroup Tower33 Hua Yin Shi Qiao RoadPudong New AreaShanghai 200120The People’s Republic of China

V YuContact

Standard Bank Plc – representativeoffice15th Floor, HSBC Tower101 Yin Cheng East RoadPudong New AreaShanghai 200120The People’s Republic of China

J YangRepresentative

Czech RepublicStandard Aval s.r.o.Americká 16120 00, Praha 2Czech Republic

P MosnaDirector

Democratic Republicof CongoStanbic Bank Congo s.a.r.lAvenue de la Mongala No 12BP 16297, Kinshasa 1Democratic Republic of Congo

L NalletManaging director

GhanaStanbic Bank Ghana LimitedValco Trust HouseCastle Road, RidgeAccraGhana

J MabonManaging director

Hong KongStandard Bank Asia Limited36th FloorTwo Pacific Place88 QueenswayHong Kong

MJ WildeChief executive

IranStandard Bank Plc – representativeofficeSayeh Tower8th floor, Unit 21409 Vali-e-Asr AveTehran 19677Iran

H AnoushahpourRepresentative

ItalyStandard Bank Plc – representativeofficeLargo Treves, 520121 MilanItaly

U ForasassiRepresentative

KenyaStanbic Bank Kenya LimitedKenyatta AvenueNairobiKenya

M du ToitManaging director

v


LesothoStandard Bank Lesotho Limited1st FloorBank BuildingKingswayTown CentreMaseruLesotho

CG AddisManaging director

Lesotho Bank (1999) LimitedCentral ServicesLesotho Bank Building, 1st floorKingswayMaseruLesotho

CG AddisManaging director

MadagascarUnion Commercial Bank S.A.Rue Solombavambahoaka Frantsay 77Antsahavola (101)AntananarivoMadagascar

H FleurotChief executive

MalawiStanbic Bank LimitedC n r. V i c toria Avenue and Glyn Jones Ro a d sB l a n t y r eM a l a w i

PS OderaManaging director

Malaysia Standard London (Asia) Sdn BhdLevel 32, Suite B, Menara MaxisKuala Lumpur City Centre50088 Kuala LumpurMalaysia

WL ChayDirector

MauritiusStandard Bank (Mauritius) LimitedSuite 5055th floor, Barkly WharfCaudan WaterfrontPort LouisMauritius

MJJR ReyManaging director

MexicoStandard Bank Plc – representativeofficeCampos Eliseos 345Edificio OmegaCol. Chapultepec Polanco11560 Mexico City, DFMexico

F Hernandez LozanoRepresentative

MoçambiqueStandard Bank s.a.r.l MozambiquePraça 25 de Junho No 1MaputoMoçambique

A CoutinhoManaging director

NamibiaStandard Bank Namibia Limited5th floor, Standard Bank CentreCnr Post Street Mall & Werner List StreetWindhoekNamibia

T MberiruaManaging director

NigeriaStanbic Bank Nigeria LimitedPlot 688 Amodu Tijani StreetVictoria IslandLagosNigeria

MA WeeksManaging director

PeruStandard Bank Plc – representativeofficeEdificio FundaciónOficina 702Av. José Pardo 513Lima 18Peru

L SaenzRepresentative

Russian FederationZAO Standard BankBusiness Centre ‘Mokhovaya’4/7, Vozdvizhenka St., Bldg. 2Moscow 125009Russian Federation

P HurleyChief executive

SingaporeStandard Merchant Bank (Asia)Limited80 Raffles PlaceNo. 55-02 UOB Plaza 1Singapore 048624

JH SawManaging director

The Standard Bank of South AfricaLimited – representative office80 Raffles PlaceNo. 55-02 UOB Plaza 1Singapore 048624

JH SawRepresentative

SwazilandStandard Bank Swaziland LimitedStandard HouseSwazi PlazaMbabaneSwaziland

T MawochaManaging director

TaiwanThe Standard Bank of South AfricaLimited – Taipei branch134th Floor, No 218Section 2Dunhua South RoadTaipei City 106TaiwanThe People’s Republic of China

M SwoGeneral manager

TanzaniaStanbic Bank Tanzania LimitedStanbic CentreCorner Kinondoni and Ali Hassan MwiniyiRoadsDar es SalaamTanzania

B AwaleManaging director




I n ternational re p resentation co n t i n u e d

TurkeyStandard Yatirim Menkul KiymetlerA.S.Baltalimani Cad. No:4Ressam Sevket Dag Yalisi34450 RumelihisariSariyerIstanbulTurkey

M Talayhan Director

Standard Bank Plc – representativeofficeBaltalimani Cad. No:4Ressam Sevket Dag Yalisi34450 RumelihisariSariyerIstanbulTurkey

M TalayhanRepresentative

UgandaStanbic Bank Uganda LimitedPlot 17 Hannington RoadKampalaUganda

K MbathiManaging director

United Arab EmiratesStandard Bank Plc – Dubai branchEmirates Towers16th FloorDubaiUnited Arab Emirates

S AustenChief executive

United KingdomStandard Bank Plc5th FloorCannon Bridge House25 Dowgate HillLondonEC4R 2SBEnglandUnited Kingdom

JH MareeChairman

RAG LeithChief executive

The Standard Bank of South AfricaLimited – representative office5th FloorCannon Bridge House25 Dowgate HillLondonEC4R 2SBEnglandUnited Kingdom

K ThompsonRepresentative

United States of AmericaStandard New York, Inc.Standard Americas, Inc.Standard New York Securities, Inc.19th Floor320 Park AvenueNew YorkN.Y. 10022USA

W S DorsonManaging director

Standard New York Securities, Inc.– Miami branchStandard Americas, Inc. – Miamibranch32nd Floor1001 Brickell Bay DriveMiamiFlorida 33131USA

P WallinHead of office

The Standard Bank of South AfricaLimited – representative office19th Floor320 Park AvenueNew YorkN.Y. 10022USA

A StruttRepresentative

ZambiaStanbic Bank Zambia Limited6th FloorWoodgate HouseCairo RoadLusakaZambia

L KalalaManaging director

ZimbabweStanbic Bank Zimbabwe LimitedStanbic Centre59 Samora Machel AvenueHarareZimbabwe

P NyandoroManaging director

Standard Bank OffshoreGroup LimitedIG GibsonChief executive

JerseyStandard Bank Jersey LimitedStandard Bank House47-49 La Motte StreetSt HelierJerseyJE4 8XRChannel Islands

IG GibsonChief executive

Isle of ManStandard Bank Isle of Man LimitedStandard Bank HouseOne Circular RoadDouglasIsle of ManIM1 1SB

K Foden Director

MauritiusStandard Bank Trust Company(Mauritius) LimitedLes Jamalacs BuildingVieux Conseil StreetPort LouisMauritius

R NathooDirector

,v

,v



Shareholders’ information



215 Proxy form

218 Directorate





223 Credit ratings

ibc Contact details

STD SHAREHOLDERS Proof 9 4/3/06 5:56 PM Page 209


Chairman’s letter to shareholders

Dear shareholder

The annual general meeting (AGM) of the Standard Bank Group

Limited will be held in the HP de Villiers Auditorium, Standard

Bank Centre, 6 Simmonds Street, Johannesburg on Wednesday,

24 May 2006 at 09h30. This letter explains the business to be

conducted at the meeting.

The annual report for the year ended 31 December 2005 will also

be available on the website at www.standardbank.co.za.

Explanatory note on resolutions

Resolution 1

Receive and adopt the annual financial statements for the

financial year ended 31 December 2005. This is ordinary business

and there are no special items to bring to the attention of the

shareholders.

Resolution 2

Approve the non-executive directors’ fees for 2006. In

resolutions 2.1 to 2.11, in line with the Code of Corporate

Practices and Conduct (King II), you are asked to approve the fees

for non-executive directors for 2006. The fees are considered by

the remuneration committee to be in line with market trends and

have been approved by the board.

Resolutions 3.1 to 3.6

Elect directors – reappoint those directors who retire by rotation

and those directors who were appointed for the first time during

2006 and offer themselves for re-election. Abridged curriculum

vitae are included in the notice.

Resolution 4.1

Standard Bank Equity Growth Scheme – control of shares. This

resolution provides the directors with the ability to allot and issue

shares for the practical functioning of the Standard Bank Equity

Growth Scheme.

Resolution 4.2

Group Share Incentive Scheme – control of shares. This resolution

provides the directors with the ability to allot and issue shares for

the practical functioning of the Group Share Incentive Scheme.

Resolution 4.3

Control of unissued ordinary shares – this resolution provides the

directors with the ability to allot and issue ordinary shares, other

than those required for the Standard Bank Equity Growth Scheme

and the Group Share Incentive Scheme, during the course of the

year, up to a maximum of 5% of the ordinary shares in issue at

31 December 2005.

Resolution 4.4

Control of unissued preference shares – this resolution provides

the directors with the ability to allot and issue non-redeemable,

non-cumulative, non-participating preference shares.

Resolution 4.5

General authority to make payments to shareholders – this

resolution permits the directors to make payments to

shareholders in terms of the Companies Act and paragraph

5.85(b) of the Listings Requirements of the JSE Limited, subject

to compliance with the Companies Act, the Listings Requirements

of the JSE Limited and provided such payment(s) in any one

financial year do not exceed 10% of the company’s issued share

capital. Any such payments would be made on a pro rata basis to

all shareholders. The articles of association permit such payment.

Special resolution

This is a renewal of the authority given by shareholders at the

previous AGM and will allow the repurchase of the company’s

securities by the company or any subsidiary during the course of

the year provided such purchases in any one financial year do not

exceed 10% of the company’s issued share capital.

Attendance at the annual general meeting

I encourage you to attend and vote your shares at the AGM. If you

hold certificated shares or if you have dematerialised your shares

and have elected “own-name” registration through a CSDP or

broker, and you are not able to attend, I would urge you to

complete the proxy form in accordance with the instructions and

return it to the address indicated.

If you have dematerialised your shares on STRATE, and you have

not elected “own-name” registration, you must submit your

voting instructions to your CSDP or broker. You will need to

contact them regarding their particular cut-off time for votes to

be lodged with us. If you wish to attend the meeting, you will have

to approach your CSDP or broker to provide you with the

necessary authority in terms of the agreement that you have

entered into with them.

I look forward to welcoming you at the AGM.

Derek Cooper

Chairman

8 March 2006



Notice to members

Notice is hereby given that the 37th annual general meeting of

Standard Bank Group Limited (“Standard Bank Group” or “the

Company”) will be held in the HP de Villiers Auditorium, Standard

Bank Centre, 6 Simmonds Street, Johannesburg on Wednesday,

24 May 2006 at 09h30, for the following business:

Ordinary resolutions

1 To receive and adopt the annual financial statements for the

year ended 31 December 2005, including the reports of the

directors and auditors.

2 To approve the proposed fees payable to the non-executive

directors for 20061:

2.1 Chairman of Standard Bank Group – R2 587 310 per

annum2.

2.2 Director of Standard Bank Group – R105 000 per annum.

2.3 International director of Standard Bank Group –

£25 200 per annum.

2.4 Group credit committee:

Member – R12 000 per meeting.

2.5 Africa credit committee:

Member – R12 000 per meeting.

2.6 Directors’ affairs committee:

Member – R23 100 per annum.

2.7 Group risk management committee:

Chairman – R136 800 per annum;


2.8 Group remuneration committee:



2.9 Transformation committee:



2.10 Group audit committee:



2.11 Ad hoc meeting attendance3 – R10 500 per meeting.

3 To elect directors in place of those retiring in accordance with

the provisions of the Company’s articles of association.

Messrs DDB Band, DA Hawton and AC Nissen, Sir Paul Judge and

Adv KD Moroka retire by rotation while SE Jonah KBE is required

to retire at the annual general meeting following his

appointment. All being eligible offer themselves for re-election.

Dr CB Strauss retires at the conclusion of this meeting.

All the abovementioned non-executive directors, with the

exception of DDB Band, are independent. Details of these

directors are as follows:

3.1 Doug Band

Age: 61

Appointed: 1997

Educational qualifications: BCom (Wits), CA (SA)

Directorships and memberships: Standard Bank Group,

The Standard Bank of South Africa, Electronic Media

Network (M-Net), Gymnogene Investments, Mobile

Telephone Networks Holdings, MTN Group, MTN

International, Stanlib, The Bidvest Group, Tiger Brands

Committee member: Africa credit, black ownership

initiative, directors’ affairs, group audit, group credit,

group remuneration

3.2 Buddy Hawton

Age: 68

Appointed: 1995

Educational qualifications: FCIS (Natal)

Directorships: Standard Bank Group, The Standard Bank

of South Africa, International Resorts, Liberty Group,

Liberty Holdings, Nampak, Royale Resorts Holdings

(chairman), Royale Holdings (Bermuda), Royale Resorts

International, Stanlib, Sun Hotels, Sun International

(chairman), Woolworths Holdings (chairman)

Committee member: Group remuneration (chairman),

group risk management

3.3 Sam Jonah KBE

Age: 56

Appointed: 2006

Educational qualifications: ACSM, MSc, DIC,

DSc (Exeter)


of South Africa, AngloGold Ashanti, Anglo Platinum

Corporation, Bayport Holdings, Equator Exploration,

Equinox Minerals, Mittal Steel, MotoGold Mines,

Titanium Resources Group, Transnet, Uramin

11 March 2006 to 28 February 2007.

2Standard Bank Group chairman’s fees include the board, subsidiary board and all committee memberships but do not include fees for Liberty

Holdings Limited, Liberty Group Limited or Standard Bank Plc. A company motor vehicle, against which fringe benefit tax is levied, is made

available for use by the chairman. The chairman is currently the chairman of the black ownership initiative, directors’ affairs and group credit

committees and is a member of the Africa credit, group remuneration, group risk management and group transformation committees.

3Fee per meeting for attendance by non-executive director or person acting in an alternate capacity (not a member of the committee). This

same fee is applicable to all committees where attendance is on an ad hoc or alternate capacity.



Notice to members continued

3.4 Sir Paul Judge

Age: 56

Appointed: 2003

Educational qualifications: MA (Cambridge), MBA

(Pennsylvania)


of South Africa, Schroder Income Growth Fund, Tempur-

Pedic International

3.5 Adv Kgomotso Moroka

Age: 51

Appointed: 2003

Educational qualifications: BProc (University of the

North), LLB (Wits)


of South Africa, Electronic Media Network (M-Net),

Gobodo Forensic & Investigative Accounting (chairman),

New Seasons Investments Holdings, South African

Breweries

3.6 Chris Nissen

Age: 47

Appointed: 2003

Educational qualifications: BA Hons, MA Humanities

(Cape Town), Diploma in Theology

Directorships: Standard Bank Group, The Standard Bank of

South Africa, Boschendal (chairman), Randgold &

Exploration Company, Sea Harvest Corporation (chairman),

Tiger Brands, Umoya Fishing, Woolworths Holdings

Committee member: Group transformation

4 To consider and if deemed fit to pass, with or without

modification, the following resolutions as ordinary resolutions:

4.1 “Resolved that all the ordinary shares required for the

purpose of carrying out the terms of the Standard Bank

Equity Growth Scheme (“the Equity Growth Scheme”),

other than those which have specifically been

appropriated for the Equity Growth Scheme in terms of

ordinary resolutions duly passed at previous annual

general meetings of the Company, be and are hereby

specifically placed under the control of the directors,

who be and are hereby authorised to allot and issue

those shares in terms of the Equity Growth Scheme.”

4.2 “Resolved that all the ordinary shares required for the

purpose of carrying out the terms of the Standard Bank

Group Share Incentive Scheme (“the Scheme”), other

than those which have specifically been appropriated for

the Scheme in terms of ordinary resolutions duly passed

at previous annual general meetings of the Company, be

and are hereby specifically placed under the control of

the directors, who be and are hereby authorised to allot

and issue those shares in terms of the Scheme.”

4.3 “Resolved as an ordinary resolution that the unissued

ordinary shares in the authorised share capital of the

Company (other than those specifically identified in

ordinary resolutions number 4.1 and 4.2), be and are

hereby placed under the control of the directors of the

Company who are authorised to allot and issue the

ordinary shares at their discretion until the next annual

general meeting of the Company, subject to the

provisions of the Companies Act, 61 of 1973, as

amended, the Banks Act, 94 of 1990, as amended and

the Listings Requirements of the JSE Limited and

subject to the aggregate number of ordinary shares able

to be allotted and issued in terms of this resolution

being limited to five percent of the number of ordinary

shares in issue at 31 December 2005.”

4.4 “Resolved as an ordinary resolution that the unissued

non-redeemable, non-cumulative, non-participating

preference shares (“the Preference Shares”) in the

authorised share capital of the Company, be and are

hereby placed under the control of the directors of the

Company who are authorised to allot and issue the

Preference Shares at their discretion until the next

annual general meeting of the Company, subject to the

provisions of the Companies Act, 61 of 1973, as

amended, the Banks Act, 94 of 1990, as amended and

the Listings Requirements of the JSE Limited.”

4.5 “Resolved that the directors of the Company be and are

hereby authorised and given a renewable general

authority to make payments to shareholders in terms of

section 5.85(b) of the Listings Requirements of the JSE

Limited (“the Listings Requirements”), subject to the

provisions of the Companies Act 61 of 1973, as

amended (“the Companies Act”), the Banks Act 94 of

1990, as amended, and the Listings Requirements,

including, amongst others, the following requirements:

(a) payments to shareholders in terms of this resolution

shall be made in terms of section 90 of the Companies

Act and be made pro rata to all shareholders;

(b) in any one financial year, payments to shareholders in

terms of this resolution shall not exceed a maximum

of 10% of the Company’s issued share capital,

including reserves but excluding minority interests,

and revaluations of assets and intangible assets that

are not supported by a valuation by an independent

professional expert acceptable to the JSE Limited

prepared within the last six months, measured as at

the beginning of such financial year; and

(c) this general authority to make payments to

shareholders shall be valid until the next annual

general meeting of the Company or for 15 months

from the date of this resolution, whichever period is

the shorter.”

The directors of the Company are of the opinion that,

taking into consideration the effect of the maximum

payment in terms of this authority:



– the Company and the group would be in a position

to repay its debts in the ordinary course of business

for a period of 12 months after the date of the

notice of this annual general meeting (“the Next

Year”);

– the assets of the Company and group, fairly valued

in accordance with Generally Accepted Accounting

Practice, would be in excess of the liabilities of the

Company and the group for the Next Year; and

– the share capital and reserves of the Company and

the group for the Next Year will be adequate.

The purpose of this general authority is to authorise the

Company’s directors to return excess cash resources to

shareholders on a pro rata basis.

Special resolution

5 To consider and if deemed fit, to pass, with or without

modification, the following resolution as a special resolution:

The directors of the Company intend, if the circumstances are

appropriate, to implement a repurchase of the Company’s

ordinary shares as permitted in terms of the Companies Act 61

of 1973, as amended (“the Companies Act”) and the Listings

Requirements of the JSE Limited (“the Listings

Requirements”) either by the Company or one of its

subsidiaries.

The reason for and effect of this special resolution is to

generally approve, in terms of section 85(2) of the Companies

Act and, in terms of section 89 of the Companies Act, the

acquisition by the Company and/or a subsidiary of the

Company, of ordinary shares issued by it subject to the Listings

Requirements.

The directors of the Company are of the opinion that, taking

into consideration the maximum number of ordinary shares

that could be repurchased:

– the Company and the group would be in a position to repay

its debts in the ordinary course of business for a period of

12 months after the date of the notice of this annual

general meeting (“the Next Year”);

– the assets of the Company and group, fairly valued in

accordance with Generally Accepted Accounting Practice,

would be in excess of the liabilities of the Company and

the group for the Next Year; and

– the share capital and reserves of the Company and the

group for the Next Year will be adequate.

“Resolved as a special resolution that the Company approves,

with effect from the date of this annual general meeting, as a

general approval in terms of section 85(2) of the Companies

Act 61 of 1973, as amended (“the Companies Act”), the

acquisition by the Company and, in terms of section 89 of the

Companies Act, the acquisition by any subsidiary of the

Company from time to time, of such number of ordinary shares

issued by the Company and at such price and on such other

terms and conditions as the directors may from time to time

determine, subject to the requirements of the Companies Act

and the Listings Requirements of the JSE Limited (“the

Listings Requirements”), which include, amongst others, the

following:

– the authority shall be valid only until the next annual

general meeting of the Company or 15 months from the

date on which this resolution is passed, whichever is the

earlier;

– any such acquisition will be implemented through the

order book operated by the trading system of the JSE

Limited and done without any prior understanding or

arrangement between the Company and the counterparty

(reported trades being prohibited);

– the acquisition must be authorised by the Company’s

articles of association;

– the authority is limited to the purchase of a maximum of

10% of the Company’s issued ordinary share capital in any

one financial year;

– acquisition must not be made at a price more than 10%

above the weighted average of the market value for the

ordinary shares of the Company for the five business days

immediately preceding the date of acquisition;

– at any point in time, the Company may only appoint one

agent to effect any repurchase(s) on the Company’s

behalf;

– the Company may only acquire its ordinary shares if, after

such acquisition, it still complies with the shareholder

spread requirements as set out in the Listings

Requirements;

– the acquisition may not take place during a prohibited

period (as defined in the Listings Requirements);

– in the case of an acquisition by a subsidiary of the

Company, the authority shall be valid only if:

– the subsidiary is authorised by its articles of association;

– the shareholders of the subsidiary have passed a special

resolution authorising the acquisition; and

– the number of shares to be acquired, is not more than

10% in the aggregate of the number of issued shares

of the Company.”


Notice to members continued

Notes in regard to other ListingsRequirements applying to ordinary resolutions4.1 to 4.5 and to the special resolution

1 Details of directors

Directors’ details as required by the Listings Requirements of

the JSE Limited (“the Listings Requirements”) are set out on

pages 28 and 29 of the annual report that accompanies this

notice of annual general meeting (“the Annual Report”).

2 Directors’ responsibility statement

The directors, whose names are given on pages 28 and 29 of

the Annual Report, collectively and individually accept full

responsibility for the accuracy of the information given in

these notes 1-7 and certify that to the best of their

knowledge and belief there are no facts that have been

omitted which would make any statement in these notes 1-7

false or misleading, and that all reasonable enquiries to

ascertain such facts have been made and that the notice

contains all information required by law and the Listings

Requirements.

3 Interests of directors

The interest of the directors in the share capital of the

Company are set out on pages 94 and 95 of the Annual

Report.

4 Major shareholders

Details of major shareholders of the Company are set out on

page 220 of the Annual Report.

5 Share capital of the Company

Details of the share capital of the Company are set out on

page 149 of the Annual Report.

6 Material change

There has been no material change in the financial or trading

position of the Company and its subsidiaries since the date of

publication of the Company’s annual results on 9 March 2006.

7 Litigation

The Company and its subsidiaries are not, and have not in the

12 months preceding the date of this notice of annual general

meeting been involved in any legal or arbitration proceedings

which may have or have had a material effect on the financial

position of the Company and its subsidiaries, nor is the

Company aware of any such proceedings that are pending or

threatened.

Standard Bank Group shareholders holding certificated shares and

shareholders of the Company who have dematerialised their

shares and have elected own name registration in the sub-register

maintained by the CSDP, may attend, speak and vote at the

annual general meeting or may appoint one or more proxies (who

need not be shareholders of the Company) to attend, speak and

vote at the annual general meeting on behalf of such shareholder.

A proxy form is attached to this notice of annual general meeting.

Duly completed proxy forms must be returned to the transfer

secretaries of Standard Bank Group or the registered office of the

Company to the addresses set out below, to be received by not

later than 09h30 on Tuesday, 23 May 2006.

Standard Bank Group shareholders who have dematerialised their

shares through a CSDP or broker and who have not elected own

name registration in the sub-register maintained by a CSDP and

who wish to attend the annual general meeting, should instruct

their CSDP or broker to issue them with the necessary authority

to attend, or if they do not wish to attend the annual general

meeting, they may provide their CSDP or broker with their voting

instructions in terms of the custody agreement entered into

between such shareholders and their CSDP or broker.

On behalf of the board

L Wulfsohn

Group secretary

8 March 2006

Registered office

9th floor

Standard Bank Centre

5 Simmonds Street

Johannesburg, 2001

(PO Box 7725, Johannesburg, 2000)

Fax No. +27 11 636 4207

Transfer secretaries in South Africa

Computershare Investor Services 2004 (Proprietary) Limited

Ground Floor

70 Marshall Street

Johannesburg, 2001

(PO Box 61051, Marshalltown, 2107)

Fax No. +27 11 688 5238

Transfer secretaries in Namibia

Transfer Secretaries (Proprietary) Limited

Shop 8, Kaiserkrone Centre

Post Street Mall

Windhoek

(PO Box 2401, Windhoek)

Fax No. +264 61 248 531



Proxy form

Standard Bank Group Limited

(Registration number 1969/017128/06)

(“the Company”)

JSE share code : SBK

NSX share code : SNB

ISIN : ZAE000057378

To be completed by certificated shareholders and dematerialised shareholders with “own name” registrations only.

A shareholder entitled to attend and vote at the annual general meeting is entitled to appoint one or more proxies to attend, speak and

vote in his/her stead. A proxy need not be a member of the Company.

I/We (Name in block letters)

of (Address in block letters)

being a shareholder(s) and the holder(s) of ordinary shares of 10 cents each and entitled to vote hereby appoint (see note 1)

1 or, failing him/her

2 or, failing him/her

the Chairman of the annual general meeting,

as my/our proxy to vote for me/us and on my/our behalf at the annual general meeting of shareholders to be held at 09h30 on

Wednesday, 24 May 2006, in the HP de Villiers Auditorium, Standard Bank Centre, 6 Simmonds Street, Johannesburg, and at any

adjournment thereof as follows:

Number of votes

For* Against* Abstain*

Ordinary resolution to:

1 Adopt annual financial statements

2 Remuneration:

Approve non-executive directors’ fees (2006):

2.1 Standard Bank Group chairman

2.2 Standard Bank Group director

2.3 Standard Bank Group international director

2.4 Group credit committee

2.5 Africa credit committee

2.6 Directors’ affairs committee

2.7 Group risk management committee

2.8 Group remuneration committee

2.9 Transformation committee

2.10 Group audit committee

2.11 Ad hoc meeting attendance

*Insert a cross or tick or number of votes. If no options are marked, the proxy can vote as he/she deems fit.



Proxy form continued

Number of votes

For* Against* Abstain*

3 To elect directors:

3.1 Doug Band

3.2 Buddy Hawton

3.3 Sam Jonah KBE

3.4 Sir Paul Judge

3.5 Adv Kgomotso Moroka

3.6 Chris Nissen

4 Ordinary resolution to:

4.1 place shares for the Standard Bank Equity Growth Scheme

under control of directors

4.2 place shares for the Group Share Incentive Scheme

under control of directors

4.3 place unissued ordinary shares under control of directors

subject to the 5% limitation referred to under the

proposed resolution

4.4 place unissued preference shares under control of directors

4.5 give directors general authority to make payments

to shareholders

5 Special resolution to:

give general authority until the next annual general

meeting for the Company or subsidiaries to repurchase

the Company’s shares

*Insert a cross or tick or number of votes. If no options are marked, the proxy can vote as he/she deems fit.

Signed at on 2006

Signature

Assisted by (where applicable) (State capacity and full name)

Please provide contact details: Tel: ( )

Fax: ( )

e-mail:

Please read the notes on the opposite page.



Notes to the proxy form

Notes

1. A shareholder may insert the name of a proxy or the names of two alternative proxies of his/her choice in the space provided. The

person whose name stands first on the proxy form and who is present at the annual general meeting will be entitled to act as proxy to

the exclusion of those whose names follow.

2. To be effective, completed proxy forms must be lodged by no later than 09h30 on Tuesday, 23 May 2006 with either transfer

secretaries or the registered office.

Transfer secretaries:

South Africa Namibia

Computershare Investor Services 2004 (Pty) Limited Transfer Secretaries (Pty) Limited

Ground Floor, 70 Marshall Street Shop 8, Kaiserkrone Centre

Johannesburg Post Street Mall, Windhoek

PO Box 61051, Marshalltown, 2107 PO Box 2401, Windhoek

Fax number +27 11 688 5238 Fax number +264 61 248 531

Registered office:

9th Floor, Standard Bank Centre

5 Simmonds Street, Johannesburg

PO Box 7725, Johannesburg, 2000

Fax number +27 11 636 4207

3. The completion and lodging of this form of proxy will not prevent the relevant ordinary shareholder from attending the annual general

meeting and speaking and voting in person at the annual general meeting instead of the proxy.

4. The chairman of the annual general meeting may accept or reject any proxy form which is completed and/or received other than in

compliance with these notes.

5. The signatories must initial any alteration to this proxy form, other than the deletion of alternatives.

6. Documentary evidence establishing the authority of a person signing the proxy form in a representative capacity must be attached to

this proxy form unless previously recorded by the Company.

7. Where there are joint holders of ordinary shares:

(a) any one holder may sign the proxy form; and

(b) the vote of the senior ordinary shareholder (for that purpose seniority will be determined by the order in which the names of the

ordinary shareholders who tender a vote (whether in person or by proxy) appear in the Company’s register) will be accepted as to

the exclusion of the vote(s) of the other joint shareholders.

8. All beneficial shareholders of ordinary shares who have dematerialised their shares through a CSDP or broker, other than those

shareholders who have elected to dematerialise their shares in “own-name” registrations, must provide their CSDP or broker with their

voting instructions. Voting instructions must reach the CSDP or broker in sufficient time to allow the CSDP or broker to advise the

Company or its transfer secretaries of this instruction by no later than 09h30 on Tuesday, 23 May 2006. We recommend that you

contact your CSDP or broker to ascertain their deadline for submission.

If you have dematerialised your shares and wish to attend the meeting in person, you may do so by requesting your CSDP or broker to

issue you with a letter of representation in terms of the custody agreement entered into with your CSDP or broker. Letters of

representation must be lodged with the Company’s transfer secretaries or at the registered office of the Company by no later than

09h30 on Tuesday, 23 May 2006. We recommend that you contact your CSDP or broker to ascertain their deadline for submission.

Shareholders who hold certificated shares and shareholders who have dematerialised their shares in “own-name” registrations, must

lodge their completed proxy forms with the Company’s transfer secretaries or at the registered office of the Company by not later than

09h30 on Tuesday, 23 May 2006.



Directorate

Standard Bank Group The Standard Bank ofLimited South Africa Limited

DE Cooper DE Cooper

Chairman Chairman

JH Maree1 JH Maree1

Chief executive Chief executive

DDB Band DDB Band

E Bradley E Bradley

TS Gcabashe TS Gcabashe

DA Hawton DA Hawton

SE Jonah KBE3 SE Jonah KBE3

Sir Paul Judge2 Sir Paul Judge2

SJ Macozoma SJ Macozoma

RP Menell RP Menell

Adv KD Moroka Adv KD Moroka

AC Nissen AC Nissen

MC Ramaphosa MC Ramaphosa

Dr MA Ramphele Dr MA Ramphele

MJD Ruck1 SP Ridley1

MJ Shaw MJ Shaw

Sir Robert Smith2 Sir Robert Smith2

Dr CB Strauss Dr CB Strauss

1Executive director

2British

3Ghanaian


Liberty Group Limited

DE Cooper

Chairman

MJD Ruck1

Chief executive

HI Appelbaum1

AWB Band

DA Hawton

SJ Macozoma

JH Maree

Prof L Patel

A Romanis2

MJ Shaw

Dr SP Sibisi

Liberty HoldingsLimited

DE Cooper

Chairman

DA Hawton

SJ Macozoma

JH Maree

A Romanis2

MJ Shaw

Standard Bank Plc

JH Maree

Chairman

BJ Kruger1

Deputy chairman

RAG Leith1, 2

Chief executive

ME Austen

MJ Botha1, 2

DPH Burgess2

DE Cooper

MJD Ruck

CJ Sheridan2

TR Smeeton2

HE Staunton

BA Ursell2

TG Wheeler1, 2


Shareholders’ diary

2005 financial year

Annual general meeting 24 May 2006

2006 financial year

Financial year-end 31 December

Reports

Interim report and declaration of interim dividend August 2006

Summarised annual financial statements and declaration of final dividend March 2007

Publication of annual report April 2007

Dividend payments

Ordinary shares

Interim September 2006

Final April 2007


Six months ending 30 June 2006 September 2006

Six months ending 31 December 2006 April 2007

Non�redeemable, non�cumulative, non�participating preference shares

Six months ending 30 June 2006 September 2006

Six months ending 31 December 2006 April 2007

Annual general meeting May 2007



Shareholder analysis


Ten major shareholders1

2005 2004

Number Number

of shares % of shares %

(million) holding (million) holding

Public Investment Corporation 175,2 13,0 156,7 11,6

Old Mutual Group 150,8 11,1 165,6 12,2

Tutuwa participants 102,3 7,6 102,3 7,6

Staff 42,0 3,1 42,0 3,1

Strategic partners 40,2 3,0 40,2 3,0

Communities and regional businesses 20,1 1,5 20,1 1,5

Liberty Group2 46,5 3,4 49,3 3,7

Investment Solutions 41,3 3,1 38,9 2,9

Sanlam Group 37,7 2,8 48,0 3,5

Metlife 14,4 1,1 14,8 1,1

Transnet Pension Fund 13,1 1,0 15,3 1,1

581,3 43,1 590,9 43,7

Spread of ordinary shareholders

Public3 913,1 67,5 915,5 67,7

Non-public 439,3 32,5 436,6 32,3

Directors of Standard Bank Group, its subsidiaries,

and embargoed employees4 2,1 0,2 1,9 0,1

Old Mutual Group 150,8 11,1 165,6 12,2

Public Investment Corporation 175,2 13,0 156,7 11,6

Standard Bank Group and Liberty Group retirement funds 8,5 0,6 9,5 0,7

Tutuwa participants5 102,3 7,6 102,3 7,6

Associates of directors 0,4 0,0 0,6 0,1

1 352,4 100,0 1 352,1 100,0

Spread of 6,5% first preference shareholders

Public3 7 953 000 99,4 7 953 000 99,4

Non-public 47 000 0,6 47 000 0,6

Directors of Standard Bank, its subsidiaries,

and embargoed employees 47 000 0,6 47 000 0,6

8 000 000 100,0 8 000 000 100,0

Spread of non�redeemable, non�cumulative, non�participating preference shareholders

Public3 29 890 952 99,6 29 904 842 99,7

Non-public 109 048 0,4 95 158 0,3

Directors of Standard Bank, its subsidiaries,

and embargoed employees 71 371 0,3 58 481 0,2

Associates of directors 37 677 0,1 36 677 0,1

30 000 000 100,0 30 000 000 100,0

International shareholders held 21,8% (2004: 20,9%) of the SBG shares.

1Beneficial holdings determined from the share register and investigations conducted on our behalf in terms of S140A of the Companies Act.2Policyholders’ funds.3As per S4.25 of the JSE Listings Requirements.4Excludes indirect holdings of strategic partners which are included in the Tutuwa participants.5Includes Tutuwa Strategic Holdings 1 and 2, Tutuwa Staff Holdings 1, 2 and 3, Tutuwa Community and General Staff Share Trust.



Share statistics

JSE Limited – ordinary share statistics

2005 2004

Share prices (cents)

– High for the year 7 875 6 750

– Low for the year 5 750 3 686

– 31 December 7 581 6 580

Shares traded

– Number of shares (000) 841 835 892 633

– Value of shares (Rm) 56 387 40 688

– Turnover in shares traded (%) 62,2 66,0

Number of shares in issue (million)

– End of period 1 352 1 352

– Weighted average 1 353 1 346


Instrument codes


JSE Limited Namibian Stock Exchange (NSX) Bond Exchange of South Africa

Ordinary shares Ordinary shares Subordinated debt

Share code: SBK Share code: SNB SBK 3: ZAG000018086

ISIN code: ZAE000057378 ISIN code: ZAE000057378 SBK 5: ZAG000023078

6,5% first cumulative preference shares SBK 6: ZAG000024043

Share code: SBKP SBK 7: ZAG000024894

ISIN code: ZAE000038881 Senior bonds

Non�redeemable, non�cumulative SBS1: ZAG000023235preference shares

SBS2: ZAG000024522

Share code: SBPP

ISIN code: ZAE000056339

Deposit notes

Share code: SBR001

ISIN code: ZAE000077780


Credit ratings


The latest credit ratings for entities within the Standard Bank Group are detailed below:

Short�term Long�term Outlook

The Standard Bank of South Africa Limited (SBSA)

Fitch Ratings (August 2005)

Foreign currency F2 BBB+ Stable

Local currency A- Positive

National F1+(zaf) AA+(zaf) Stable

Standard & Poor’s (November 2005) public information rating

Local currency BBBpi

Moody’s Investors Services (January 2005) public information rating

Bank deposit rating P-2 Baa1 Stable

Standard International Holdings Limited



Moody’s Investors Services (July 2005)

Issuer rating Baa2 Stable

Standard Bank Plc



Moody’s Investors Services (July 2005)

Issuer rating P-2 Baa1 Stable

Liberty Life

Fitch Ratings (July 2005)

National AA-(zaf) Stable

RSA Sovereign ratings: Foreign currency

Fitch Ratings BBB+

Standard & Poor’s BBB+

Moody’s Investors Services Baa1

RSA Sovereign ratings: Local currency

Fitch Ratings A-

Standard & Poor’s A+

Moody’s Investors Services A2


Notes




Contact details

Chief financial officer

Simon RidleyTel: +27 11 636 3756e-mail: [email protected]

Registered address

9th FloorStandard Bank Centre5 Simmonds StreetJohannesburg 2001


Group secretary

Loren WulfsohnTel: +27 11 636 5119e-mail: [email protected]

Contact details

Tel: +27 11 636 9111

Fax: +27 11 636 4207

e-mail: shareholder queries:[email protected]

e-mail: customer queries: [email protected]

Director, investor relations

Kim HowardTel: +27 11 636 7811e-mail: [email protected]

Printed by Ince (Pty) Ltd


Contents

01 Financial highlights

02 Chairman and chief executive’s review

06 Economic review

08 Group at a glance

10 Financial objectives

12 Our vision and values

14 Executive management

16 Sustainability reporting – highlights

18 Operational reviews

18 Personal & Business Banking

22 Corporate & Investment Banking

26 Investment Management & Life Insurance

28 Board of directors

30 Corporate governance

45 Risk management and control

67 Financial review

84 Seven-year review

90 Financial definitions

91 Annual financial statements





100 Balance sheet






178 Standard Bank Group Limited – company annual financial

statements






203 Additional information


subsidiary



209 Shareholders’ information



215 Proxy form

218 Directorate





223 Credit ratings

ibc Contact details

Our stakeholders are our business.

STD bank cover 15mm 4/3/06 5:49 PM Page 2

Annual report 2005

Stand

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www.standardbank.co.za

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