2007 Annual report - Nedbank Group Limited

2007CONTENTSPAGEVision, Mission and Values 4Financial Highlights 5 – 6Profile and Group Structure 7Economic Review 8 –10Chairman’s Statement 11 – 14Board of Directors 15 – 18Managing Director’s Review 19 – 22Nebank Swaziland Limited Strategy 23 – 26OPERATIONAL REVIEW - Client Interface 11 to 53- Retail 27 – 29- Corporate 30 – 31- Treasury 32 – 34OPERATIONAL Review - Support Services- Credit Risk Management 35 – 38- Human Resources 39 – 43- Technology and Support Services 44 – 45- Central Operations 46 – 47- Internal Audit 48 – 49- Enterprise, Governance and Compliance 50 – 60- Corporate Social Investment Programme 61 – 65- Chief Financial Officer’s Report 66 – 71ANNUAL FINANCIAL STATEMENTS- Notes to the financial Statements 72-125NOTICE TO ANNUAL GENERAL MEETING 2008 126

VISIONTo be the leading bank in Swaziland withwhich everyone aspires to associate.MISSIONTo be a highly focused and client-centred organisationOffering differentiated financial services andcustomised products to the marketUsing appropriate processes and channelsApplying best practice Corporate Governance PrinciplesCreating value through innovationand reinvestmentBuilding sustainable relationshipswith all stakeholdersOUR VALUESINTEGRITY – BucotfoHonest, trustworthy, truthful, consistent, open.To act accordingly to the highest ethical standards.We communicate openly, directly and ethically.ACCOUNTABILITY – Kumela lokwentileBe prepared to make commitments and bejudged against your commitments.Deliver on commitments. Be responsiblefor your actions.PUSHING BEYOND BOUNDARIES –Kusebenta ngalokwecilePlay to the maximum of our abilities, as individuals,as teams and as an organisation, across boundaries.We always strive to break new ground,fuelled by our passion and commitment.PEOPLE-CENTRED – Kubeka bantfu embiliWe invest in our people. We create empoweringenvironments through development, support,mentoring, coaching, recognition and reward.People are the source of our strength.RESPECT – KuhloniphanaTreat others as you would have them treat you.Use diversity as strength. Listen to others and treatpeople with integrity. Provide individuals with fertileground on which to grow. Treat everyone in theorganisation as important. Foster individual strengthto build the whole.

FINANCIAL HIGHLIGHTS - At a glance2007 2006E’000 E’000Key balance sheet itemsShareholders’ funds 146 538 119 682Amounts owed to depositors 1 004 859 820 793Cash and cash equivalents 110 929 59 624Government and public sector securities 89 432 69 328Loans and advances to customers 957 528 863 989Group companies 18 752 1 606Key income statement itemsTotal income 128 939 115 683Expenses 76 105 70 264Profit before tax 50 371 43 802Taxation 14 662 13 197Profit after tax 35 709 30 605Other income statement itemsEarnings per share (cents) 149,7 128,3Headline earnings per share (cents) 149,7 128,3Dividend per share (cents) 46,0 30,0Selected ratios % %Return on average shareholders' funds 24,4% 25,6%Return on average assets 3,0% 3,0%Expenses to total income 59,0% 60,7%Non-interest revenue to total income 42,1% 46,0%Effective tax rate 29,1% 30,1%Nedbank Swaziland Limited Annual Report 200705

FINANCIAL HIGHLIGHTS _ Key ratiosTotal IncomeEarnings per shareShareholders’fundsMarket share 2007:Assets17%83%77%23%LiabilitiesCost-to-incomeNet incomebefore taxation06 Nedbank Swaziland Limited Annual Report 2007

PROFILE AND GROUP STRUCTURENEDBANKPROFILEAn internationalbank that is partof the SouthAfrican-based NedbankOldMutual plcNedbankGroupLimitedGroup, Nedbank Swaziland createsvalue through constant innovation andreinvestment. Nedbank gained its presence inSwaziland following the then Nedcor’sacquisition of Standard Chartered’slocal majority shareholding inJanuary 1997. The newly acquiredbank was renamed Nedbank TreasurySwaziland bank, a subsidiaryof Nedbank Limited, within theholding company. Within Nedbank Limited,Nedbank Swaziland forms part of NedbankLimited’s Africa Division, which is a unit ofthe Nedbank Corporate cluster.NedbankLimitedRetailNEDBANK GROUP STRUCTURECorporateNedbankCorporateClientInterfaceComplianceCompanySecretary/LegalInternalAuditNedbankAfricaNedbank(Swaziland)LimitedFinanceSupportServicesRiskManagementHumanResourcesand StrategyThe Managing Director of Nedbank SwazilandLimited Ambrose Dlamini anchors theexecutive management. Notably, Nedbankis the only listed financial institution in thecountry. Nedbank continues to be a clientcenteredbank by offering different-iatedfinancial services and customised products tochosen segments using appropriate processesand channels. The bank offers a wide rangeof banking products through the retail, Smalland medium enterprises, corporate andtreasury functions.CentralOperationsTechnologicalSupportServicesOver the yearsthe productshave been deliveredthrough traditional banking channels (over thecounter) however, the bank has successfullymoved towards more efficient and cost-effectivechannels for its client base (e.g electronicbanking) .Its headquarters are in Mbabane, SwaziPlaza, with seven branches and an agency atMankayane.Nedbank Swaziland Limited Annual Report 200707

ECONOMIC REVIEWGlobal trendsThe global economic climate started to changein late 2007 after a positive start to the year.Although developing countries continued tobe assisted by a Chinese-inspired commoditiesboom, the world’s largest economy, the UnitedStates, started to show signs of vulnerability. Afull-blown banking crisis developed in the wakeof a flagging US housing market and the onsetof the sub-prime mortgage market crisis, forcingmajor central banks to pump massive amountsof liquidity into money markets in supportof the banking system. The size and spread ofthe difficulties reduced the availability of creditand damaged confidence, particularly amongconsumers who earlier had been the mainstayof the boom. Although initial expectations werethat the US would bear the brunt of the crisis,it soon became clear that other major economieswould also be affected.Markets generally gained significantly in 2007, butstarted to reflect the uncertainty as the year drewto a close. On equity markets emerging marketsshone again, with massive additional gains beingextended largely on the back of strongcommodityprices and the Asian boom. Theso-called decoupling theory helped sustainmuch of the optimism as funds were switchedinto markets that would supposedly not beaffected by a possible US downturn. However,the momentum started to fade over the lastquarter, although not to the same extent as indeveloped markets where sub-prime woes hitsentiment earlier.Commodity prices generally held their levels orimproved further. Energy markets were drivenby supply-side fears, with coal being helped bysoaring oil prices. Precious metals were boostedby financial market uncertainty and thereflationary policies being followed by centralbanks despite a generally inflationary environment.Food prices gained the most afterlagging other commodities considerablyin the early phases of the bull market.08 Nedbank Swaziland Limited Annual Report 2007

Adverse weather conditions affected severalgrain crops, but the new focus on biofuelsas a solution to energy needs provided thecatalyst for the strong price rises. In contrast,certain base metals either began to stabiliseor ease after several years of very strongperformance.Global prospects for 2008 are uncertain.The US economy will continue to be batteredby weak construction and housing activity,while lower house prices and reduced confidencelevels will moderate consumerspending. The authorities have respondedby cutting interest rates significantly andby introducing stimulatory fiscal measures.However, much will depend on how quicklyconditions in the financial sector start tonormalise and credit conditions to ease. Inthe UK there has also been monetary easingin response to recent weaker data. Europe hasbeen slow to respond to signs of slowdownand the conventional wisdom is that it willweaken as the US emerges from its downturnlate in 2008. Emerging markets are expectedto do better than developed countries, helpedby growing internal momentum and strongChinese demand for commodities. However,China itself is dependent on the US and Europefor its export demand and is likely to slow afterseveral years of massive expansion.South AfricaSouth Africa’s economic outlook has deterioratedin recent months largely as a result of thelocal electricity crisis and prospects of slowerinternational growth. The current easing inconsumer spending is expected to intensifyand broaden, as household finances shouldcome under increasing pressure from risingprices and high debt service costs. Fixedcapital formation and government consumptionexpenditure should remain relatively firm,provided that the current constraints imposedby the electricity crisis are alleviated, but it isunlikely completely to offset the impact ofweaker consumer spending, which accountsfor over 60% of the economy. As a result,growth is expected to slow significantlyto 3,2% in 2008, before recovering somewhatduring 2009.Local developmentsThe Swaziland economy is estimated to havegrown by around 1,2% in 2007 followinggrowth of 2% in 2006. A key reason for thedrop in growth was the poor performance ofthe agricultural sector, due to a drought in thesouthern part of the country. The decline inagricultural output had an adverse effect onthe manufacturing sector, which ispredominantly made up of agriprocessingbusinesses. Other areas of manufacturingproduction fared a little better. Growth in thetextile industry has struggled since 2004 whenNedbank Swaziland Limited Annual Report 200709

ECONOMIC REVIEW _ (continued)The economy isexpected to improveduring 2008, as better-thanexpectedsummer rainfallshould boost agriculturalproduction.the US opened up its textile market to China.Swaziland’s economy is significantly influencedby events in South Africa, its major tradingpartner, which absorbs around 70% of itsexports. Given the high proportion of importedgoods from South Africa in Swaziland’s inflationbasket, rising prices in South Africa quickly filterthrough into domestic prices. Interest rate policyis largely tied to events due to its membershipof the Common Monetary Area. Inflationarypressures in South Africa required the South AfricanReserve Bank (SARB) to hike rates by 400 basispoints over the past two years, and Swaziland’scentral bank continues to mirror the actionsof the SARB. The lilangeni has benefited frompersistent dollar weakness over the pastyear. More recently, however, heightened riskaversion and more modest growth prospects inSouth Africa have left the local currency weakeragainst most major currencies. The currentaccount is expected to move into deficit. Exportearnings are expected to decline due to greaterglobal competition, while high oil prices anddemand for capital equipment will boost imports.The economy is expected to improve during2008, as better-than-expected summer rainfallshould boost agricultural production.Unfortunately, a reduction in the price of sugar inEurope will reduce the value of Swaziland’s mostimportant export. Swaziland remains heavilydependent on revenue from the South AfricanCustoms Union (SACU). However, as a resultof the new Economic Partnership Agreement(EPA) with Europe, customs revenue isexpected to decline. However, the governmentis embracing the opportunity that the 2010FIFA World Cup offers and is committed itselfto expand the necessary infrastructure, whichshould provide a moderate economic stimulus.Tighter monetary conditions will continue tocool consumer spending, but with interestsrates probably having peaked and likelyto ease during the latter half of this year,domestic demand should pick up again in 2009.The economy remains vulnerable to adverseweather conditions and developments in SouthAfrica and the global economy. This emphasisesthe need to further to diversify the economy.10 Nedbank Swaziland Limited Annual Report 2007

CHAIRMAN’S STATEMENTComfort Ndumiso MambaChairmanNedbank Swaziland Limited Annual Report 200711

CHAIRMAN’S STATEMENT – (continued)The banking industryin Swaziland continued tooperate in a stable manner andmaintained strong liquidity. Therewere no new entrants in the industry,but the central bank continued toregulate the market and ensure alevel playing field for thefinancial services sector.IIt gives me great pleasure to report toNedbank Swaziland shareholders for thefirst time to set out the progress thathas been made by the bank in the past year.Succeeding a man like Zakes Nkosi is not aneasy task, but an honour, which I embrace. Hisleadership in the past two decades, firstly as amember of the board and in the last five yearsas chairman, has transformed the bank togreater heights. Today Nedbank is a leadingbank in the country due to inspiring andvisionary leadership.The past year has been an eventful one forboth the Swazi economy and for NedbankSwaziland. Inflation increased dramatically,with corresponding hikes in interest rates andconsumers feeling the impact. The competitivestrength of our business has improved despitetough trading conditions. Nedbank focusedon its strategy to ‘improve and grow’, andsignificant progress has been made in thisregard.The economyThe global economy is also going througha difficult phase. Although developingcountries continued to be assisted bya Chinese-inspired commodities boom,the world’s largest economy, the UnitedStates, started to show signs of vulnerability.The full-blown banking crisis, whichdeveloped in the wake of a flagging UShousing market and the onset of thesub-prime mortgage market crisis, forcingmajor central banks to pump massiveamounts of liquidity into money markets insupport of the banking system, has causedmajor uncertainties. The size and spread of thedifficulties reduced the availability of creditand damaged confidence, particularly amongconsumers who had earlier been the mainstayof the boom.Swaziland’s economy is significantly influencedby events in South Africa, its majortrading partner. Given the high proportionof imported goods from South Africa, risingprices quickly filter through into domesticprices. Inflationary pressures due to ourmembership of the Common Monetary Arealargely influence interest rate, inflationarypressures required the South African Reserve12 Nedbank Swaziland Limited Annual Report 2007

Bank (SARB) to hike rates by 400 basis pointsover the past two years;, and Swaziland’sCentral Bank continues to mirror the actions ofthe SARB. The lilangeni has benefited from persistentdollar weakness over the past year. Morerecently, however, heightened risk aversion andmore modest growth prospects in South Africahave left the local currency weaker against mostmajor currencies. Spiralling crude oil costs andincreases in food prices continue to exertupward pressures on inflation, placingimmense pressure on the economy. We expectthese pressures to continue well into 2008, with aconsequent reduction in consumer spending andan increase in credit defaults.The banking industryThe banking industry in Swaziland continuedto operate in a stable manner and maintainedstrong liquidity. There were no new entrants inthe industry, but the central bank continued toregulate the market and ensure a level playingfield for the financial services sector. Theregulation of non-financial services bill isunderway and the central bank has issued regulationsto assist with the regulation of collectiveinstitutions. Apart from ensuring that thecorrect regulatory regime is in place for theindustry, the central bank is also ensuring thatthe industry is aligned to international best practices.The implementation of Basel II is on theradar for implementation by the industry by 2010.The bank has already made strides towards thefull implementation of Basel II and in that regardhas adopted the standardised approach andalso commenced group reporting. The overallimpact of the Basel accord is to allow forcorrect capital allocation and capital riskmanagement by banks. Regulatory complianceis placing an increased burden on banks, butis nevertheless vigorously enforced. The bankcontinues to ensure compliance with the MoneyLaundering and Prevention Act and all otherlegislative requirements.The industry faces greater pressure fromconsumers, parliament and the Governor as aresult of high bank charges. Nedbank has accededto this call and has embarked on a major driveto reduce fees. In the past year fees have beenreduced by an average of 20%. Nedbank continuesto be one of the most affordable in the industryand we want to assure our clients that we arelistening and responding to their concerns.ResultsThe solid implementation of the banksstrategy have yielded positive results.Headline earnings increased by 17% to E35, 709mand earnings per share were recorded at 150cents. The bank’s ROE stood at 27,35% in the yearunder review, compared with 25,6% in the prioryear. The bank improved its cost-to-income ratiofrom 61% to 59% in the financial year. This hasbeen achieved as a result of process efficiencieswithin the business throughout theyear and notwithstanding price reductions.Nedbank Swaziland Limited Annual Report 200713

Board changesMr Zakes Nkosi, a veteran who has beeninstrumental in shaping the future of Nedbank,retired as Chairman of the board. Wehave benefited from his counsel and hisexpertise. We wish him well in his futureendeavours. We also welcome on boardMs Lungile Dlamini who was appointedas an independent non-executive directorin November 2007, and we look forward tobenefiting from her financial acumen and independentthinking. Following these changes wenow have nine board members, two of whichare female. We remain committed to achievingthe correct gender balance.OutlookAs we close 2007 and look at the year ahead,I believe the bank is now well-positioned toremain the leading bank in Swaziland.Our key focus will be improving client serviceand ensuring delivery to our clients.Strong competitive conditions will continueto challenge the business. Success requiresa focused approach, maximising operationalefficiency and client centricity. Our strategyfor 2008 embraces the implementation ofthese.AppreciationOn behalf of the board, I would like to extendmy profound thanks to my predecessor, MrZakes Nkosi, who has supported me during mypreparation and adoption of my duties as theChairman of the board of Nedbank Swaziland.My appreciation also goes to the ManagingDirector and his management team for theirdedication to this business.I would also like to thank the staff of Nedbankwho have worked diligently over the years andassisted in growing the Nedbank brand. Theseresults have been achieved in difficult conditionsand would not have been achieved withoutcommitted staff.My fellow directors, I am grateful for yourconstant support, the task would have beeninsurmountable had it not been for your wiseguidance.Lastly, I extend gratitude to our shareholders,stakeholders, associates and clients at large fortheir continued support and confidence in ourbusiness.Comfort Ndumiso MambaChairman14 Nedbank Swaziland Limited Annual Report 2007

BOARD OF DIRECTORS‘I’ve been impressed bythe people and culture ofthis organisation, and itsvalues and commitment todoing what is right’ChairmanComfort Ndumiso Mamba (46) – (non-executive director)Business address: Lomawa House, Lozitha.Qualifications:- BA (Law) (hons)- Barrister of Law- LLMNdumiso is currently the Managing Director of Tibiyo TakaNgwane. He has previouslypracticed as barrister in a set of chambers inter alia the Paper Buildings at Templein London, and he also worked as Crown Counsel at the Director of Public Prosecution’sChambers in Mbabane. Before his appointment as Managing Director for TibiyoTakaNgwane he was the general manager at the same institution.Nedbank Swaziland Limited Annual Report 200715

BOARD OF DIRECTORS – (continued)Ambrose Mandulo Dlamini (39) – Managing DirectorBusiness address: Nedbank Centre, Swazi Plaza, Mbabane.Qualifications:- BCom (Uniswa)- MBA (Hampton)- Chartered Marketer (IMM South Africa)- Global Executive Development Programme (GIBS)Ambrose is the Managing Director of Nedbank Swaziland Limited andprior to this appointment, he has held the position of Head, Retail Bankingand Marketing, for the same Bank. He previously worked for ABSA BankJohannesburg as SME Manager, Manager Strategy, and later as Franchise Financing Manager. Beforejoining Nedbank (Swaziland) Limited Ambrose worked for Standard Bank South Africa, Johannesburg,as management consultant.Christopher John Pearce (63) – independent non-executive directorBusiness address: Nedbank Limited, Rivonia Road, Sandton.Qualifications:- B.Com- CA (SA)- AMP (Harvard)At the time of his retirement in 2003 Chris was serving as aDivisional Director of Nedcor Limited.As a chartered accountant he served his articles with Alex Aiken &Carter now known as KPMG. He has held various managerial positionswithin UAL Merchant Bank and held the position of Managing Directorfrom 1995 to 1997. He joined the Nedcor Group in 1997 when he was appointedManaging Director of Nedcor Investment Bank Holdings.Board Committee: Chairman, Audit Committee, Member, Risk Compliance and Loan Review.Lungile Dlamini (38) – independent non-executive directorBusiness address: Swaziland Water Services Corporation,Ezulwini Valley.Qualifications: - BCom (Uniswa)- AAT Level 4- ACCA (UK)- Management Advancement Programme (Wits)Lungile is the Finance Director at Swaziland Water Services Corporation.She has previously worked for KPMG as Audit Supervisor and later Finance andAdministration Manager at the same institution and Swaziland Fruit Canners as Financial Manager.Board Committee: Chairman, Audit Committee, Member, Risk Compliance and Loan Review.16 Nedbank Swaziland Limited Annual Report 2007

Ernest Michael Davidson (52) – non-executive directorBusiness address: NedPark 1, Selby.Qualifications:- MDP (Stellenbosch)- MDP (Unisa)- AEP (Unisa)Ernest is General Manager: Group Technology and Support Services(ASP Central Management, and has previously worked in variousdivisions within Nedbank. He was Regional Operations Manager; EastGauteng Region; Assistant General Manager Operations; Retail Manager;Commercial Manager; Services Manager, West Gauteng; Senior Manager Asset-based Finance; SeniorManager, Home Loans; Assistant General Manager, Operations; and Regional Operations Manager,East Gauteng.Board Committee: Audit Committee.James Nxumalo (63) – independent non-executive directorBusiness address: 292 Madlenya Street, Mbabane.Qualifications:- BA Econ/Political Science, (Unisa)- MA (Economics), (Colorado)- MPA (Harvard)James has worked for the government of the Kingdom of Swazilandsince 1968 as an Economist and later as permanent secretary inthe Ministry of Economic Planning. From 1992 to 1997 he worked asGovernor for the Central Bank of Swaziland. After leaving the Central Bankhe worked as a Director, with the United Nations as Director, Development Management.Board Committee: Audit Committee and Directors Affairs & Remunerations Committee.Denys Denya (43) – executive directorBusiness address: Nedbank Limited, Rivonia Road, Sandton.Qualifications: - BCom- BACC (Zimbabwe)- CADenys is the Managing Director for Nedbank Africa Division.Prior to his appointment he worked as Managing Directorfor MBCA in Zimbabwe for various companies, includingFlexible Packing as Group Finance Manager, TA Holdings as GroupFinancial Executive/Company Secretary, First Merchant Bank of Zimbaweas Relationship Manager and Merchant Bank of Central Africa as Executive Director.Board Committee: Chairman, Audit Committee, Member, Risk Compliance and Loan Review.Nedbank Swaziland Limited Annual Report 200717

Siphiwe Ethel Matsebula (55) – non-executive director)Business address: 401 Jacaranda Avenue, Coates Valley.Qualifications:- Certificates in Theory of Management,Securities, Foreign Exchange.- Advances Level 1&2.Siphiwe is operating a business that offers SMEs business counsellingservices; training; and assistance with the preparation of businessplans, cashflow projections and bankable-business proposals. She alsoruns a business dealing with stationery, cleaning material and protectiveclothing. Prior to embarking on her businesses, she held a variety of positionsat Barclays Bank of Swaziland (later Standard Bank Swaziland Limited).Board Committee: Risk, Compliance & Loan Review; Directors Affairs & Remunerations CommitteeAshley Philip Jeremy Sutton-Pryce (54) – executive directorBusiness address: Nedbank Limited, 135 Rivonia Road, Sandton.Qualifications:- BA- Diploma I (Institute of Bankers).Ashley is Divisional Director, Nedbank Corporate (Human Resourcesand Communication). Prior to his appointment with Nedbankhe worked for Rhodesian Banking Corporation in various financialpositions. At Nedbank he has been serving in managerial humanresource positions since 1980.Board Committee: Directors Affairs & Remunerations.Bathobile Mvubu (35) – Company SecretaryBusiness address: Nedbank Centre, Mbabane, Swaziland.Qualifications: - BA (Uniswa)- LLB (Rhodes)- Attorney of the High Court of Swaziland.Bathobile is Company Secretary and Head of Compliance.She previously worked as a professional assistant for AttorneysMillin & Currie where she also served her articles.18 Nedbank Swaziland Limited Annual Report 2007

MANAGING DIRECTOR’S REPORTAmbrose Mandulo Dlamini– Managing DirectorOperating environmentBoth the international and the Swazilandfinancial services environment wereparticularly challenging in 2007. Inflationand interest rates continued to rise, whichresulted in slower advances growth in mostsectors of the economy. Interest rates inSwaziland are now 400 basis points higher thanin June 2006. Higher interest rates and householddebt levels indicate heightened credit risk inSwaziland, reflected in the higher levels of creditprovisioning in the bank’s results.The global economy, on the other hand,continued to expand rapidly, with growthexceeding 5%. The growth of the local economyaveraged 2% in 2007. In response to thepersistent threats to the inflation outlook, theregulator tightened monetary policy. The bankcontinued to experience fierce competitionin an industry that is considered to be alreadysaturated. Despite the worsening environment,Nedbank continued to follow a positive growthtrend within a competitive market. Significantimprove-ments were made in many areas of thebusiness, such as an increase in electronic deliverychannels.Strategic focusThe bank’s strategy is to deliver banking solutionsto the wholesale and retail segments of theeconomy and to fulfil the financial services needsof clients through teams who are qualified andexperienced. Nedbank competes across all clientsegments with differentiated products andtailored delivery channels. 2007 saw the introductionof low-cost banking products in line withNedbank Swaziland Limited Annual Report 200719

MANAGING DIRECTOR’S REPORT – (continued)capital, risk management, employee wellbeing,pricing, marketing and delivery ofbanking services to the market.the strategy of making banking affordableto all. The strategy involves the coordinationof business initiatives to improve financialperformance, retain clients, increase crosssellratios and acquire new accounts, basedon competitive products and prices, and astrong brand. The bank continues to investin the accessibility of its structures andfocusing on increasing its presence in thecountry. In 2007 several ATMs were installedin key strategic areas to increase clientconvenience.Nedbank continued to upgrade its internetand other electronic banking facilities to bethe best in the country. The bank also focusedon increasing efficiencies by managing costsbetter. Nedbank employs a set of principlesthat ensures efficiency in the deployment ofFinancial performanceThe bank’s headline earnings for thefinancial year grew by 17%. This wasbelow expectation and a reflectionof the challenging economic environmentexperienced during the year. Ayear-on-year increase of 20% wasrecorded on net interest to E67 103912. This increase was largely due to theendowment effect of higher interest rateson free funds and core deposits. However,this was offset by continued reliance onexpensive wholesale funding to supportgrowth in retail and business bankingloans. The bank’s total assets indicated ayear- on-year growth of 17% to E1 232 900 923against (2006: E1 054 002 361).Non-interest revenue grew by 3,6% toE61 834 829 a factor precipitated by lowerthanexpected transactional volumes and areduction of the fees in some of the revenuelines during the first quarter of the year.The bank’s ROE stood at 27,35% in theyear under review, compared with 25,6%in the previous year. The bank improved onits cost-to-income ratio from 61% to 59%,in the financial year, attributable to processefficiencies within the business throughoutthe year.20 Nedbank Swaziland Limited Annual Report 2007

A strong riskculture was maintainedby establishing risk as anenabler for quality growth. OurEnterprise-wide-risk ManagementFramework was extendedto all parts of thebusiness.See the full analysis of the bank’s results in theChief Financial Officer’s Report on pages 66to 71.Operational performanceThe bank works diligently at streamlining itsprocesses to deliver the best service to its clients.We are constantly improving our operations andprocesses so that they are speedy, cost-effectiveand service-oriented. In the year 2007 weincreased our ATM network to locations outsideour branches such as Malkerns and other parts ofManzini.The bank continues to make remarkable progresswith regulatory compliance. Governance andcompliance training was also a focus area during2007. Awareness of the code of ethics andother related policies was widely promotedto all staff. In line with Nedbank Group, theEconomic Capital Frameworks continued to berolled out. Information technology continued toprovide solutions to support the business units.The bank fostered the brand expression‘Make Things Happen’ as well as increased itsnationwide above-and-below-the-line marketingcampaigns.A strong risk culture was maintained byestablishing risk as an enabler for qualitygrowth. Our Enterprise Wide Risk Managementframework was extended to all parts of thebusiness, reinforcing the bank’s culture ofaccountability, responsibility, independence,reporting, communications and transparency.The bank’s money-laundering programmeshowed good progress in 2007. Nedbank iscommitted to the development and growthof staff. Staff surveys are conducted annuallyto measure employee perceptions of the bank’scurrent and desired culture and climate and howemployees feel about the business environment.ProspectsThe bank anticipates that given the continuingvolatility in global and local markets, combinedwith rising inflation rates, the ensuing year willcontinue to represent a challenging operatingenvironment. Consumer spending and creditextension are expected to slow further, and baddebts could also continue to increase. The bankis confident that, with our skilled and passionatepeople, and highly disciplined approach to riskNedbank Swaziland Limited Annual Report 200721

MANAGING DIRECTOR’S REPORT – (continued)management, the business is well-positionedto manage these risks and capitalise on theopportunities. The bank remains committedto meeting its set financial targets in 2008,even though the planned increase in ourdistribution network will make the efficiencyratio target more difficult.Over the next few years the bank will focuson increasing its footprint to ensure growthin the client base.ThanksDuring the year 2007 we bid farewell to MrZakes Nkosi, the Chairman of the board. Iwould like to extend my profound gratitudeto him for his encouragement and supportduring his tenure of office. He indeed inspiredus to perform to our pinnacle with his wiseguidance. Under his chairmanship the bankhas seen many milestones that haverendered the bank as an important playerin the finance and banking industry. Wewelcome Mr Ndumiso Mamba, the newChairman of Nedbank Swaziland. We lookforward to working with him.within Nedbank Group. We thank them fortheir contribution while they were membersof the Nedbank Swaziland team. I welcomeGoodman Chakanyuka, Chief Risk Officer, andPetrus Bouwer, Head of Sales, to the leadershipteam of the bank.A special thank you is extended to our clients,shareholders and key stakeholders for theirongoing support.I would like to thank the different teamsthroughout Nedbank Swaziland for workinghard to achieve these results. To the managementteam, I extend my appreciation for theongoing support in the past year. Thanks alsogo to the board who has remained a sourceof strength to management team – yourcontribution is highly appreciated.Neville Loader, the Head of Corporate andBusiness Banking, and Arthur Fritz, Chief RiskOfficer, both took leave to pursue venturesAmbrose DlaminiManaging Director22 Nedbank Swaziland Limited Annual Report 2007

NEDBANK SWAZILAND LIMITED STRATEGYThe vision of Nedbank Swaziland is ‘tobe the leading bank in Swaziland withwhich every-one aspires to associate’.During 2007 the mission of the bank wasreviewed and the management committeeagreed to a minor change:To be a highly focused and client-centredorganisation:Offering differentiated financial servicesand customised products to the market.Using appropriate processes and channelsApplying best practice CorporateGovernance Principles.Creating value through constant.innovation and reinvestment.Building sustainable relationships with allstakeholders.Underpinning the vision and strategy is thebank’s values that drive our decisions andbehaviors, namely integrity, respect, accountability,pushing beyond boundaries and beingpeoplecentred.During 2007 the strategy was reviewed asthe management committee, consideredvarious strategic issues. The 2006 objectiveswere reviewed in light of the changes andkey strategic choices.Nedbank (Swaziland) LimitedStrategic Framework (See page 24)The bank strategic focus areas for 2008 to 2010are as follows:Establish bank assurance dominance.Specific focus in SME, business banking,retail and mass market.Develop a high performance culture forfuture growth.Re-engineer business process and costefficiency.Optimally utilise existing delivery channelsand expand on them.Aggressive marketing and promotion of theNedbank brand.Develop customised solutions.Less conservative lending risk approach.Embark on Strategic Partnerships.Risk as an enabler.Focus on bank charges.IT as an enabler.The executive team identified high-levelaction plans that would filter into the businessplans to ensure execution and later align tothe balance score cards.Open Space Technology WorkshopIn June 2007 Nedbank Swaziland conducted itsfirst ever Open Space Technology workshop.The theme of the workshop was: “Becomingthe leading bank in Swaziland”. The workshopaimed at creating our future and providedemployees with an opportunity to addressthe question: What do we need to focus on tobecome the leading bank in Swaziland?Nedbank Swaziland Limited Annual Report 200723

NEDBANK SWAZILAND LIMITED STRATEGY – (continued)VisionMissionWhat is ourdifferentiator?BrandexpressionKey objectivesKeystrategicfocus areasValuesNedbank (Swaziland) Limited Strategic FrameworkTo be the leading bank in Swaziland with which everyone aspires to associateTo be a highly focused andclient-centred organisationOffering differentiated financialservices and customised Using appropriate processes and channelsproducts to the market.Applying best corporate governance principles Creating value through constant innovation and reinvestmentBuilding sustainable relationshipswith all stakeholdersRight people todeliver customisedsolutions based oncustomer needs‘Make Things Happen’Acquire & retain customersBe highly focused clientcentredorganisationEnforce HIV/AIDSstrategyStrategic partnerships Become employer of choice Improve operational efficiencyReposition the Nedbank brand Enterprise-wide risk as an enabler Live the Nedbank values Focus on bank chargesEstablishbankassuranceSpecificfocus inSME,businessbanking,Retail& massmarketDevelopa highperformanceculture forfuturegrowthOptimallyutiliseexistingdeliverychannels& expandEmbarkonstrategicpartnershipsDevelopcustomisedsolutions(clientneeds)Riskas anenablerLessconservativelendingapproachIT as anenablerAggressivemarketing &promotionof theNedbankbrandReengineerbusinessprocesses& costeffeciencyRespect Integrity Accountability Pushing beyondboundariesPeople-centred24 Nedbank Swaziland Limited Annual Report 2007

The workshop and the theme of ‘Becoming theleading bank in Swaziland’ reflect our commitmentto a fundamental principle: our journey is one to beguided by a team effort across the bank and not bythe executive only.What sets these workshops apart is the use ofOpen Space Technology. Participants thus enteredthe workshop without a prepared agenda or aview as to where the day would take them. ThisOpen Space approach encourages freedomof thought and enhances the opportunity forparticipants to use the workshop to contribute,question, debate and influence thinking.It is important to appreciate that Open SpaceTechnology is based on the following underlyingvalues:People are inherently creative.People are inherently responsible.People care about issues within the bank.Leadership is found throughout our people,not just at the ‘top’.Innovation should be encouraged.Democracy produces better results thanautocracy.Nobody has a monopoly on wisdom – it lieswithin each one of us.Self-organisation will yield better results thanorganisation imposed from outside.Teamwork results in better outcomes thanindividual work.Open Space Technology WorkshopThemesThe following themes were identified anddiscussed during the workshop:Developing a high performance culture forfuture growth.Growing market share.Growing mass market selling to noncustomers/growingSME market.Empowerment/ownership.Harmonising/identifying business needs,client needs and employee needs.Identifying and eliminating bureaucracy inthe system.Remuneration /rewards and staff financial.Discipline and its consequences.Expanding branch network/footprint.Source information on our competition.Staff welfare and support.Balance between client centricity andregulated environment.Charges.Building effective working relationships forthe future.Develop products and processes to give uscompetitive advantage.Cost containment.ATMs and IT problems.Importance of timely and effectivecommunication in business.The output from the workshop was incorporatedinto the strategy document during the strategyreview. The executive team has made realprogress in developing action plans to implementthe output of the workshop during the comingyear.Nedbank Swaziland Limited Annual Report 200725

26 Nedbank Swaziland Limited Annual Report 2007

OPERATIONAL REVIEW – RetailMusa Ndabandaba – Head of Marketingand RetailBA Soc. Sc. (Uniswa)MBA (Queens University)The Retail Division focuses mainly onlending, deposit-taking and transactionalbanking for the personal, small andmedium enterprises (SME), and institutionalbanking sector, offering comprehensive solutionbasedproducts and services best suited to ourclients’ needs.Key objectivesThe division’s key objectives, in line with thebank’s overall strategic direction, include:Broadening the bank’s footprint aroundthe country, thus improving client acquisitionand retention.Striving for a balanced offering in all theretail banking sectors in which weparticipate.Maintaining responsible and effective riskmanagement at all times.and advances and deposits is still biasedtowards personal banking, as shown below. Thefocus on the unbanked and students in tertiaryinstitutions helped to boost personal banking.The recent approval of an SME policy andalliances entered into with other stakeholdersand service providers will help boost bothacquisition and retention of SME clients.Loans and advances16%84%Targeted market sectorsWhile efforts were aimed at aggressivelygrowing the SME sector, such efforts are yetto bring the anticipated benefits. To-date thedivision’s performance, in terms of both loansPersonalSME and InstitutionalNedbank Swaziland Limited Annual Report 200727

RETAIL – (continued)Products performanceDuring the year under review the division’s(combined personal and SME banking)interest-bearing assets and liabilities on offerwere as follows: -Deposits21%79%PersonalSME and InstitutionalRetail loans and advances60%50%40%30%20%10%0%Loans14%Mortgagefinance31%Overdraft5%50%Vehicle finance28 Nedbank Swaziland Limited Annual Report 2007

Retail deposits25%20%15%10%5%0%24% 25%Current accountsCall accounts19%SavingsNotice deposits6%Fixed deposits7%19%TermdepositsATM footprintThe division succeeded in increasing thebank’s ATM footprint, which grew by 30%during the course of the year. For the first timeNedbank Swaziland saw the introduction ofoffsite ATMs, with utilisation statistics showingthat these were installed at the right locations.ChallengesThe high prevalence of unregulated microlendingand investment institutions continueto pose a serious challenge to the industry.The division is currently considering strategiesto counter these actions. The Know-yourclient(KYC) campaign, although posing itsown challenges, has been ongoing with a largeproportion of targeted clients verified.Prospects2008 promises to be an exciting year. As thebank embarks on a new sales (super-sales)structure and sales orientation programme,it is apparent that the market will witness amore prominent sales focus from Nedbank.This should see significant growth in bothinterest-bearing assets and liabilities. Thedivision will continue to broaden its footprintthrough the opening of more branchesin selected locations around the country.Consumer education in the SME sector, inparticular, will also feature prominently on thebank’s agenda for 2008.Nedbank Swaziland Limited Annual Report 200729

OPERATIONAL REVIEW – CorporateNeville Loader – Head of Corporate andBusiness BankingMDP (Stellenbosch university)ReviewThe Corporate and Business Banking Divisionfocuses mainly on providing lending, deposittakingand transactional banking services to thewholesale banking market. The division has astrong client base in both the private and publicsector markets.As a client-facing division, the Corporate andBusiness Banking Division receives support fromother areas of the bank to ensure that clientneeds are met and exceeded. The division offerscore banking products and services to clientssuch as term loans, asset-based finance,overdrafts, foreign exchange, global trade andmany more. Specialised expertise is sourcedfrom Nedbank South Africa to provide soundassistance in terms of structured and projectfinance deals, including property finance.StrategyThe bank’s strategy is to offer solutionsand banking services that will meet clients’aspirations. This is done through outstandingservice delivery. Key strategic initiatives for2007 include the following:Leveraging the relationship with theNedbank Group.Focusing on creating value to clients.Improving collaborative efforts andcross-sell within the bank.The divisionoffers core bankingproducts and services toclients such as term loans,asset-based finance, overdrafts,foreign exchange,global trade andmany more.30 Nedbank Swaziland Limited Annual Report 2007

Expanding the Nedbank brand and presencein the market.Creating new and innovative productoffering.Review of the yearAsset growth in the division increased withinexpectations – well due to an effective sales focusand the conversion of pipeline business. Bothnet interest income (NII) and non-interestrevenue (NIR) grew in the period under reviewdespite tough trading conditions in the market.The electronic banking offering continued to bestrong, especially our state-of-the-art internetbanking channel. Our impairment charge forloans and advances remained constant despitethe increase of 400 basis points in interestrates since June 2006. Expenses were wellmanaged.Prospects2008 will be a very challenging year and will callfor innovation and added determination to meetthe set objectives. The focus will be on growingthe business and public sector banking segments.The strategy is to increase primary bankingstatus and drive transactional revenue throughacquisition of new clients. The business isstructured to service clients better and moreeffectively in 2008.Nedbank Swaziland Limited Annual Report 200731

OPERATIONAL REVIEW – TreasuryRifka de Silva – Head of TreasuryBSc (Econometrics) (LSE, UK)Overview of the divisionTreasury continues to support thebusiness units in introducing newsolutions to their exisitng and potentialclient base. The emphasis, given the structureand size of the department, is on providingsolutions to clients’ foreign exchange exposuremore than investment exposure. Given theincreasing complexities of the markets andthe sophistication of the client base, Treasuryhas had a greater need to understand theclient’s business to ensure that differentapplicable options are presented to the clientbase to enable informed decisions.Treasury is also responsible for the bank’sliquidity management and plays an active rolein sourcing funds to ensure liquidity to fundthe bank’s asset growth.Activities and target marketsThe primary activity of Treasury is to driveforeign exchange revenue through increasingvolume by acquiring new clients and theutilisation of the existing client base. Anotherkey activity is to ensure liquidity managementis effective and profitable.Ensuring statutoryrequirements are met is another key function ofTreasury, which forms part of the Enterprise-Wide Risk Management framework. Treasury hasembarked on looking at other activities to boostincome.Given the lack of growth in the market foreignexchange volume, Treasury needed to reassessthe level of focus in the different target markets.The primary activityof Treasury is to driveforeign exchange revenuethrough increasing volumeby acquiring new clients andthe utilisation of theexisting client base.32 Nedbank Swaziland Limited Annual Report 2007

The focus has predominantely been on theCorporate sector but 2007 saw a shift in focusof the target market to institutional bodies,SMEs and government.Review of the yearThough our target was not met in 2007,it proved to be a better year than 2006.Treasury performance grew by 15,2% yearon-yearand volumes increased by 36% in2006. The biggest challenge in 2007 wasmargin compression and this was clearlydepicted by the disproportionate increase involume to profit year on year. One of thebiggest contributing factors to the margincompression was the reduced new businessin the Swazi market. Given that the targetsof all banks increase each year, and that theycould not be met by new business, there wasgreat pressure to attract new business fromone another. This envitably led to quotingfiner prices on all deals.Tresury turnoverTurnover2004 2005 2006 2007YearForeign exchange profitProfit2004 2005 2006 2007YearNedbank Swaziland Limited Annual Report 200733

OPERATIONAL REVIEW – Treasury (continued)Treasury successfully introduced newderivative products into the market. Thetrading volume from the derivative productsaccounted for 30% of the percentage increase(36%) in volumes year on year. Solutionswere also offered to a number of existingand potential clients on hedging interest rateexposures. This was in line with the strategyof a greater focus of looking at clients’interest rate exposures and providing suitablesolutions.The composition of the deposit book in 2007continued with its reliance on Treasury toacquire wholesale funding and also onNedbank Group for partial funding to fundasset growth. The increase in interest ratesby 2% for an asset-sensitive book did notprove to be as advantageous as expected. Thereason for this was margin compression. Theaccess by depositors to numerous non-bankinginstruments, including treasury bills throughtheCentral Bank, increased average depositrates paid and hence, the cost of funds forthe bank.ProspectsThe market prospects for 2008 with regard toforeign exchange do not look promising andthe growth requirements for Treasury for 2008include an increased client base with evenlarger volumes and better margins.Treasury will rely heavily on the businessunits to increase their client base. This willlead to a bigger base for Treasury to offerits different solutions both on the interestand foreign exchange exposures. The needfor further innovation and aggressive sellingwill still be the key strategic focus. This willinclude the introduction of new productsand an enhanced service delivery mechanismdesigned to assist clients in makingmore calculated and informed decisionsby covering their exposures as well as gaininga deeper understanding of acceptable riskappetite.Treasury will play, as in the last two years, akey role in the funding of the book throughwholesale funds. The division will continueto strategically maintain the delicate liquidityequilibrium amid the deficit of core depositsand acceleration in asset growth. This willplace heavy reliance on Treasury fundsperpetuating the careful management ofthe latter to ensure that interest rates andmargins are not compromised. Treasurywill drive liquidity and interest rate riskmanagement through the Assets and LiabilityCommitte (ALCO) process given the expectedgrowth in the asset book and a competitiveinvestment environment.34 Nedbank Swaziland Limited Annual Report 2007

OPERATIONAL REVIEW – Credit and Risk ManagementArthur Fritz – Chief Risk OfficerLicenciate Banking Diploma (IOB)MAP (Wits)Effective risk management is critical ina complex organisation like NedbankSwaziland Limited (‘Bank’). A strongand solid risk management culture existsthat ensures that sound business decisionsare made that properly balance the diverse risksinherent in any transaction and the rewards.A culture of risk awareness and compliance isembedded in Nedbank’s day-to-day activities.The main objectives of the Credit and RiskDepartment are:minimising risk andmaximising returns.The above is achieved through effective monitoringover three risks inherent in providing financialservices namely credit risk, market risk andoperational risk.Credit riskCredit risk is the risk of loss due to borroweror counterparty default. This can be consideredthe oldest and most significant form of riskfaced by a financial institution. Large scale borrowerdefault can force a bank into bankruptcy.Therefore,managingcredit has always beenone of the challenges in running a bank.The Credit and Risk Department manages credit riskbased on the risk profile of the borrower, repaymentsource and nature of underlying collateral givencurrent events and conditions. The departmentalso manages credit risk through:Applying best practices for managing creditrisk;Developing and implementing policies;Setting sound, well-defined credit processesand procedures;Setting portfolio risk triggers; andEnsuring ongoing adequate controls overcredit risk.Credit risk is managed at both transaction andportfolio levels. Risk management practicesare disciplined and designed both to preservethe independence and integrity of risk assessmentand to integrate effectively with businessmanagement.Nedbank Swaziland Limited Annual Report 200735

OPERATIONAL REVIEW – Credit Risk Management (continued)We routinely review the lending book todetermine if any credit exposure should beplaced on non performing status. An assetis placed on non-performing status when itis determined that principal and interest arenot expected to be fully in accordance withcontractual terms.The Credit and Risk Department reports to theRisk, Compliance and Loan Review Committeeon a quarterly basis, providing the board withthe assurance that the various risk categoriesare being effectively managed and controlled toensure soundness and profitability.closely with internal audit and business linemanagers to implement appropriate policies,processes, and assessments at the line ofbusiness level. Compliance and operationalrisk awareness is also driven across the bankthrough training and strategic communicationefforts.The Risk, Compliance and Loan Review Committeeis responsible for monitoring operationaland reputational risks. However, managementthroughout the organisation is responsiblefor introducing and maintaining effectiveoperational policies and procedures. They arethe frontline in managing operational risk.Operational riskThis risk arises from human error or fraud,inadequate or failed internal processes andsystems, non-adherence to procedures or otherexternal sources that result in losses. Successfuloperational risk management is particularlyimportant in diversified financial services likeours, because of the very nature, volume andcomplexity of our various businesses.In keeping with our governance structure,the lines of business are responsible for all therisks within the business, including operationalrisks. The Operational Risk Manager, reportingto the Chief Risk Officer, oversees the facilitationof the consistency of effective policies, bestindustry practices, control and monitoringtools for managing and assessing operationalrisk across the bank. The risk officer also workRisk information generated from these processesis used to assist business units to optimisecontrols and avoid or mitigate losses. It alsoprovides support for business decisions throughbalanced focus on risk and return in decisionmakingand through ongoing staff awareness.Market riskThese risks emanate from changes in marketvariables, such as interest rate changes, foreignexchange rate, commodity prices and causeuncertainties in a security’s price. This, in turn,causes variation in the economic value of thebank’s portfolios and can have serious negativeimplications, if not properly managed.Liquidity risk managementThis is the risk that the bank will only be ableto meet liquid commitments at increased36 Nedbank Swaziland Limited Annual Report 2007

costs or ultimately, be unable to meet its currentor deferred obligations as they fall due because ofan inability to liquidate assets or obtain adequatefunding. Sound liquidity management is criticalto protecting the bank’s depositor base, maintainingmarket confidence and ensuring future growth.The bank employs several elements regarded asfundamental in the management of liquidity toensure effective liquidity management. Theseinclude:Maintenance of a portfolio of liquid andmarketable assets over and aboveprudential guidelines.Maintenance of a structurally soundbalance sheet with limited mismatchesbetween anticipated inflows and outflowswithin different time brackets.Diversification of sources of income.Liquidity risk in the bank is managed through,which reviews liquidity on a monthly basis, inaddition to assessing weekly funding requirements.Prudent cashflow management monitorsany maturity mismatches and corrective actionis taken timeously. This risk is also managedby diversifying the depositor base, looking forstable deposits and keeping short-term assets.Diversification is maintained across counterparties,types of instruments and maturity ladders.• Interest rate riskThis is the likelihood of losses due to adversechanges in interest rates. Interest rate riskgenerally stems from assets and liabilitiesmaturing and/or repriced at different timesand rates.This risk is managed by ALCO through the analysisof rate sensitive assets and liabilities and the gapanalysis. The bank performs stress scenarios, tominimize risks and avoid sudden shocks.• Foreign Exchange RiskThis is the risk emanating from movement inrelative rates of exchange in currencies.Review of the yearNedbank Swaziland continues to build a strongrisk culture, while maintaining a sound riskmanagement structure. Significant outcomesinclude the following:There has been a change in senior managementin the department. Arthur Fritz leftNedbank Swaziland early October 2007 andhas been replaced by Goodman Chakanyukaeffective 1 November 2007.Staff development has been a focus area inthe department. The exchange/attachmentprogramme to Nedbank Business Banking(Nelspruit) has been a major success. Onecredit manager successfully completed theprogramme in 2007 and this upskillinginitiative will continue in 2008.During the year under review, the divisionwas able to effectively fulfil its role as abusiness enabler. Total loans and advancesgrew by 11%. Mortgage loans increased byan impressive 33%.Nedbank Swaziland Limited Annual Report 200737

OPERATIONAL REVIEW – Credit Risk Management (continued)A major review of the book was conductedin 2007 and a number of accounts weredowngraded in the process. The nonperformingbook increased by 41%. However,it’s important to note that mostof the loans are asset-based facilities whichare adequately secured.We believe that the level of both portfolioand specific impairments raised in respectof the period ended 31 December 2007are adequate and comply with Central Bankof Swaziland and IAS 39 regulations andthat the level of provisions is adequate toabsorb the estimated credit losses.Basel II has been substantially implementedby Nedbank Group ahead of the 1 January2008 effective date. We were able to meetour Basel II deliverables feeding to the groupbeing awarded regulatory signoff by theSouth African Reserve Bank for TheStandardised Approach (TSA). The Basel IIintroductory eLearning module wasalso rolled out in Swaziland and the resultswere positive in that only 5% had toredo the assessment after failing to obtainthe 80% pass mark. Only 7% of all staffhad not submitted by the cutoff date.In the last quarter of 2007 Swazilandwitnessed sophisticated syndicates thattargeted ATMs and armoured cash transfervehicles (cash in transit). Three banks losthuge sums of money as result of thesearmed robberies. We are happy to confirmthat Nedbank was the only bank to survivethese robberies. Security at branches as aresult of heightened crime was activelytightened and managed.ProspectsProspects for the year include:To align the main strategy to focus moreon SMEs. Already the department hasbeen restructured to accommodate thisinitiative with an SME-dedicated unit.To improve the quality of our lendingbook. Our non-performing book, as apercentage of total advances, stood at3,8% as at 31 December 2007 and wetarget a rate of 2,8% by December 2008.Up-skilling and training of staff willremain a priority.To support the bank’s aspiration to be‘world class at managing risk’ Nedbankintends to evolve operational riskmanagement from traditional TS” to amodern advanced management approach(AMA).The development of Key Risk Indicators,which is a Basel II AMA requirement, is amajor focus area within the Bank.38 Nedbank Swaziland Limited Annual Report 2007

OPERATIONAL REVIEW – Human ResourcesEdward Sithole – Head of Human ResourcesBA (Soc Science) (Uniswa)MBA. (UKZN)OverviewPeople perform roles with a purpose andToday’s businesses rely as much on the value-add.strength of their intellectual capital as People’s performance is rewarded andon that of their financial capital. This recognised.intellectual capital resides in people at all levelsof the organisation, but it takes strong leadership tofully develop and enable it.Nedbank Swaziland is a place where peoplecan thriveNedbank Swaziland is an organisation thattruly cares.During 2007 twostrategically aligned surveyswere conducted. This focusedapproach has resulted in a deeperunderstanding of our cultureand the climate within ourorganisation.Nedbank is a values-based organisation.Nedbank has a high performance culture.People’s individual needs are respected.It has a community of leaders with a clearvision.Human Resources business reviewIn 2007 there were a number of positiveachievements from a human resource perspectivenamely:The successful profiling and evaluation of allOur employee value propositionNedbank Swaziland employee value propositionis that ‘Great Things Begin with Great People’. Theaspects include:Our people are bright and amazing to workjobs.The alignment of the Management CommitteeSuccession Plan to the Old Mutual TalentReview and Succession Planning Model.The successful leadership development.with.Nedbank Swaziland Limited Annual Report 2007 39

OPERATIONAL REVIEW – Human Resources (continued)The reduction of the entropy level from21% to 17%.The successful Open Space Technologyworkshop. The output of which fed into thebank’s strategy review.The successful management of all HR risksidentified throughout the year.The successful implementation of thefollowing HIV initiatives– know your status campaign,– training of peer counsellors,– education/information forums, and– condom distribution.HR strategyOur HR vision for 2008 to 2010 is for NedbankSwaziland to become ‘a great place to work’.The HR strategy for 2008 to 2010 sets outfour key focus areas:To optimise our human capitalmanagement.To build an innovative and differentiatedculture as a competitive advantage.To build a high performance culture.To strengthen management and leadershipcapabilities.Training strategyThe training strategy is focused on technicaltraining namely products, processes/proceduresand systems. The focus will be on the followingfive areas:IT/Globus systems .Teller/client care.Product training.Policies and procedures .Performance management.People researchDuring 2007 two strategically aligned surveyswere conducted. This focused approach has,resulted in increased participation in thesurveys in the past two years, which has inturn resulted in a deeper understanding of ourculture and the climate within our organisation.All of this is key to achieving our overall vision,deep green aspirations of ‘a great place to work’and ‘creating a high-performance culture’.The Cultural Transformation SurveyThe number of participants increased from56 in 2006 to 119 in 2007. The survey measuresstaff’s perception of Nedbank Swaziland’scurrent and desired culture on seven levels oforganisational consciousness.Nedbank Swaziland is currently perceived asan organisation that strives to meet objectiveswith a focus on accountability beingperformance-driven and cost-consciousness.Nedbank Swaziland experienced a shift inentropy from 21% in 2006 to 17% in 2007.The organisation moved from a situation wherethere were significant problems requiringattention to one where there are some problemsrequiring attention.40 Nedbank Swaziland Limited Annual Report 2007

The Nedbank Staff SurveyResults for 2006 and 2007 revealed that theperceptions of our people about the organisationimproved slightly, especially in areas of ethics,direction, communication and organisationalculture and values.Directors’ Affairs, Remuneration andNomination CommitteeThe committee’s prime objective is to be theboard’s expert monitor and sounding board inrespect of the following key risks as listed anddefined in the Enterprise-wide Risk ManagementFramework :Strategic risk.Reputational risk (including corporategovernance),People risk.Social and environmental risk.The committee ensures that the directors andother senior staff members of Nedbank Swazilandare fairly rewarded for their individualcontributions to the overall performance of thebusiness and there is a fair differential betweenthe remuneration of board members and otherlevels of management and staff.The committee also fulfils the responsibilitiesof a Nomination committee, as required byKing II Report.The committee is satisfied its objectives for theyear were met in accordance with its charter.Composition of the committeeCurrent membership of the committee stands asfollows:C N Mamba – non-executive directorJ Nxumalo – independent non-executive directorS E Matsebula – non-executive directorD Denya – executive directorA J P Sutton-Pryce – executive directorRemuneration philosophy and policyRemuneration plays a critical role in attracting,motivating and retaining high performing andtalented individuals to achieve the bank’sobjectives.Keeping staffmotivated is importantif we are to be a highperformanceorganisation. Thebank believes that committedand motivated peopletranslate into committedclients.Nedbank Swaziland Limited Annual Report 200741

OPERATIONAL REVIEW – Human Resources (continued)The battle for talent involves much morethan highly effective, strategically designedcompensation and benefits programmes.Nedbank Swaziland has realised that it neededto take a total-rewards approach, emphasisingattraction, motivation and retention.RemunerationThe bank remunerates non-managerial staffon the basis of basic salary, plus add-on benefitsand remunerates managerial staff on the basisof total cost to company.Current market information available is mostlyon basic salary and in some cases the cost ofbenefits are included. Until such time thatthe local market changes to an approach ofrewarding on guaranteed remuneration, thebank shall reward non-managerial staff on thebasis of basic salary plus add-on benefits.RecognitionKeeping staff motivated is important toensure we are a high-performance organisation.The bank believes that committedand motivated people translate intocommitted clients. Quarterly, employeesnominate and recognise each other fortheir achievements. This process culminatesthe Group Top Achiever Awards. In 2007one employee of Nedbank Swaziland joinedthe Nedbank Group Top 100 performers for awonderful reward to Bali/Singapore.Performance bonusesShort-term incentives (STIs) are intended toincentivise particular behaviours and obtaindesired results. In Nedbank Swaziland theincentive scheme is structured to supportgroup thinking by breaking down the ‘silo’mentality and offering individual line-of-sightto employees by clearly defining targets asearly as is practically possible.In creating the bonus pool, a financial measureis used on Nedbank Group, Nedbank Africa andNedbank (Swaziland) Limited.The bank’s market position is median (variable)remuneration for median performance (whichis the achievement of financial targets asagreed by Nedbank Group), upper-quartileremuneration for superior performance relativeto business plans and objectives, lower-quartilerewards for below-average performance andzero rewards for poor performance (below theagreed threshold).Incentive payments are based on individualperformance, which is assessed rigorouslyagainst the criteria set out in annual performancecontracts. Performance measured againsttargets included in the scorecard, is used todistribute bonus pools and individual bonuses.Retirement fundThe Standard Chartered Bank of Swaziland42 Nedbank Swaziland Limited Annual Report 2007

Pension Fund was established on 1 April 1974.With effect from 1 January 1997 the name waschanged to the Nedbank (Swaziland) LimitedPension Fund. In 2007 there were 209 activemembers with pensionable salaries totallingE23 million per annum. There were 83 pensionersand 13 deferred pensioners with pensionstotalling E2 million per annum and E98 000 perannum respectively. The value of the fund’saccrued liabilities at 31 March 2007 was E48million compared with a market value of assetsof E49 million. The valuation, therefore, discloseda surplus of E1,1 million.Human resource developmentNedbank Swaziland prides itself on thedevelopment of its people. In 2007 5% of payrollwas spent on training and skills development.Training and skills developmentTotal payrollE30,6 millionTotal training spend E1,5 millionTraining as % of payroll 5%Performance managementIn Nedbank Swaziland management ofperformance involves a scorecard as thebasic point of measurement. Based on thebalanced- scorecard principles, performancemanagement then cascades through the entirebusiness having been implemented over the pastthree years the following has been achieved:Performance scorecards are in placethroughout the business.A consistent rating scale as been established.Managerial remuneration is linked toperformance.A performance audit is conducted to ensurethat all employees have had performanceagreements and reviews.HIV/AIDS interventionThe bank aspires to be a great place to work andto make this vision a reality, has recognised theseriousness of HIV/AIDS and the impact on theworkplace and lives of staff.The HIV/AIDS programme has been implementedin several phases that include the following:A Knowledge, Attitudes, Practices andBehaviours (KAPB) Survey was conducted inApril 2006.HIV/AIDS awareness and training aimedat the Management Committee (MANCO)and managers was conducted in 2007.In partnership with the Business CoalitionAgainst HIV/AIDS (BCHA), the bank conductsvoluntary counselling and testing (VCT)campaigns for staff on a quarterly basis duringthe course of the year.The bank will conduct an HIV PrevalenceSurvey in 2008 to assist with forecastingand planning for potential future risksassociated with HIV for the business.Nedbank Swaziland Limited Annual Report 200743

OPERATIONAL REVIEW –TECHNOLOGY ANDSUPPORT SERVICESThemba Manana - Head of Technologyand Support ServicesBCom (Uniswa), MBA (University of Hull, UK)OverviewEvery organisation’s success is highly-dependenton three variables; technology, processes andpeople. Companies require technology thatis stable, reliable and available to provide thebest service to clients. Companies also requirestreamlined processes and good people to drivetheir strategies.Technology and Support Services (TSS)strategyTwo of the bank’s key strategic choices are tooptimally utilise existing delivery channels andexpand on them. The other strategic choice is toreengineer business processes.In support of the above two strategic choices,TSS strategy for 2008 to 2010 is to:improve turnaround times;put more focus on electronic deliverychannels;eliminate risks from our systems andprocesses;improve on communication; anddevelop strong relationships with all ourstakeholders.Review of the yearOur key objectives for the previous year were:To improve the level of support to thebusiness and to external customers byimproving on service delivery;To eliminate risks from our operationalenvironment; andTo improve the level of information fordecision-making purposes.To achieve the above three objectives forthe year, some initiatives were started andcompleted and some are still in progress. Thefollowing are the initiatives:- Service delivery processesKey elements of any service delivery processinclude streamlined delivery processes, clearand measurable service level agreements and44 Nedbank Swaziland Limited Annual Report 2007

good management information systems. Theseensure that there is continuous improvementin the entire service delivery process. To ensurethat service delivery is improved a project to doprocess-mapping has been initiated and isprogressing well. Service level agreements havebeen negotiated with our external partners(suppliers) and with our internal clients.Lastly, a helpdesk system that can be usedby both internal and external clients wasimplemented. The helpdesk system is capable ofproducing an effective management informationsystem, which can track all requests and alsoescalate all reported issues.Also key to the improvement of servicedelivery was the introduction and expansion oftechnologies that were used by the bank’sclients to access their money. During the year wehad rolled out several point-of-sale systems andautomated teller machines.To eliminate risks from our operationalenvironmentIn 2007 alone we have had three system audits,all focusing on different aspects of our systemsenvironment. Two of the audits were done byGroup Internal Audit and the other one wasdone by our external auditors. This year’skey objective is to successfully eliminate theidentified issues in our environment to ensurethat our systems are still the best in the bankingindustry.Improvement of Information for decisionmakingpurposesSeveral initiatives have been started to ensurethat the data collected from our systems isprocessed to produce information to help thebusiness in making effective decisions. One suchinitiative is driven by Nedbank Africa IT division.ProspectsIn support of the bank’s strategy the divisionwill continue to explore technological initiativesto improve the lives of our clients. We willcontinuously be guided by the market and thebusiness to explore the use of technology as atool to attain competitive advantage in ourmarket. All business processes will bedocumented and opportunities to deliver qualityservice to our valued clients will be explored.We will also put a strong focus on technologyrisks to ensure that our clients’ investments arecontinuously protected and we will still maintainthe quality of our capable and flexible systems.Nedbank Swaziland Limited Annual Report 200745

OPERATIONAL REVIEW – Central OperationsLeonard Dlamini – Head of CentralOperationsDiploma in BankingMPD (Institute of Bankers, SA)1 Towards world-class operationsCentral Operations strategy in the past year andgoing forward is to focus on major innovationprojects intended to create process efficienciesand improve the operational environment toultimately provide business benefit.The challenge has been to identify andprioritise the right projects to ensure thatbusiness will achieve quick wins as well assustained productivity. Our major projectfocus is innovation in our cheque-processingoperation which would take us closer tobecoming a world-class operation. This entailsimage-based processing and a repository fortransactions. The business benefits of this projectare expected to materialise towards the end of theensuing year.2 National Payment Systems (NPS)reformsNPS is the system that defines how paymentsflow within Swaziland and incorporates methodsby which banks pay one another. The NPS is allabout efficiency and security of the pamentssystem. Quick transaction time through NPSmakes fraud more difficult, as it lowers the riskof banking failure that may be caused by interbanksettlement time lags.In line with the reforms, Nedbank, in conjunctionwith other banks in Swaziland, has introducedthe following:i) The clearing period of cheques to otherbanks has been reduced from four to threedays and same bank cheques are nowcleared overnight.ii) Banks are no longer able to processcheques drawn for values greater than onemillion Emalangeni through the traditionalclearing mechanisms. However, in exceptionalcases the manual collection processis in place as an alternative.46 Nedbank Swaziland Limited Annual Report 2007

Disadvantages of the manual processare that it causes delays in getting valueand may also be expensive to the client.iii) Electronic funds transfers (EFTs) was introducedsometime back. The move now is toplace a limit on debit transactions so thatinstead of clients pulling funds throughEFT debits, the funds must be pushedto them.iv) A Real-time gross settlement (RTGS)system has been introduced for inter-bankobligations to be settled same day. Forclients, this means that same-day value canbe obtained.To meet theincreasing challengesand sophisticated internationalbusiness transactions our GlobalBusiness Unit within CentralOperations has in the past yearengaged in strategies of equippingits staff to meet thesechallenges.Clients who use the traditional manualpayment systems may be substantiallyaffected by these reforms. Nedbank hasequipped its staff to provide solutions toclients to cope with these reforms. The bankshave jointly issued a communication throughthe media in an effort to educate the publicabout the business benefit that they canderive from the RTGS system.3 Global businessTo meet the ever-increasing challenges andsophisticated international business transactions,our Global Business Unit within CentralOperations has in the past year engaged instrategies of equipping its staff to meetthese challenges. Part of the strategy wasrealised through meeting and exceedingthe set targets for the Global BusinessUnit. The customisation and individualisationof foreign trade finance have resurrectedthe use of dormant products such as outwardletters of credits in the past year, whichwill improve the overall turnover of the unit.Nedbank Swaziland Limited Annual Report 200747

OPERATIONAL REVIEW – Internal AuditThemba Mahlalela – Head of InternalAuditBCom (Uniswa), CA (Swd)AssuranceDuring 2007 altogether 18 audits wereconducted and completed within ourspace. A total of 90% (84% in 2006)of the audit opinions were “some improvementneeded.” This refers to specific control weaknessesidentified in the entities. However, theoverall control environment was considered tobe satisfactory. The specific issues were mostlyoperational, ranging from people to process tosystem matters.The impactof financial losses has beenmitigated through enforcingthe zero tolerance culture.Roadshows were conductedthroughout the bank tosensitise staff to the threatof fraud.People sub-causal factors included theskills gap and negligence. Initiatives, bothformal and informal, are being implementedwithin units and bank-wide to addressthe gap in operational skills. The bank appliesa ‘zero tolerance’ culture to negligence, andappropriate corrective action is takenagainst transgressors.Processes, the adequacy and effectivenessof the control environment is affectedby the processes designed to mitigaterisks. A number of the bank’s processes werenoted to be outdated. A committee has beensetup to address the revision of thebank’s processes.Systems-resource and capacity issues withinthe IT environment continue to affect theresolution of functional work requests.Interventions are being put in place toensure the stability of the IT environmentand to mitigate possible operationalbreakdowns owing to system inadequacies.48 Nedbank Swaziland Limited Annual Report 2007

The attached graph depicts the trend from2005 to 2007 relating to the audit opinionsderived on the various auditable entities inthe bank.FraudThe threat from fraud syndicates remainsan ongoing risk and our staff are potentialtargets to collude with the fraudsters or todirectly perpetrate the fraud for them. Theimpact of financial losses has been mitigatedthrough enforcing the zero-tolerance culture.Roadshows were conducted throughout thebank to sensitise staff to the threat of fraud. Anindependently monitored Tip-offs Anonymousline has been set up, in collaboration with GroupRisk, to enable convenient and confidentialreporting of suspicious or fraudulent activityin the bank. We are equally grateful for theassistance and support received from the locallaw enforcement agencies in the fight againstcommercia l crime.Future outlookRecent corporate collapses and scandals havecaused greater focus on risk managementpractices and the effectiveness of internalcontrols in many organisations.Increasing technologicaladvancementand globalisation ofmany markets havecreated a need for revisedapproaches to assuranceand risk management.The increased focus onrisk management hasnecessitated that theInternal Audit functionalign itself to this evolvingbusiness practice. The following are keyfocus areas:Meet and exceed increased stakeholder andregulatory need for increased independentassurance.Evaluate of the adequacy and effectivenessof the bank’s risk management strategies.Maintain relationship with the AuditCommittee.Align with risk management functionswithin the bank.Attract and retain talented staff. As a smallunit and operating in a small market wehave a need for talented staff. The bankhas also embarked on strategic initiatives toensure that succession planning is in place.Nedbank Swaziland Limited Annual Report 200749

GOVERNANCE AND COMPLIANCEBathobile Mvubu – Chief Compliance Officerand Company SecretaryBA Law (Uniswa), LLB (Rhodes)The Nedbank Group has adopted anenterprise framework that covers bothcorporate governance and businessaspects of the organisation. Nedbank Swazilandespouses the philosophy of the group,which encompasses governance structures thatare linked with the performance of the organisation.This enables Nedbank to focus on thekey areas that drive the business.Conformance covers board issues such asboard structure and roles. Performancefocuses on strategy and value creation. Theseform part of the governance function, whichensures that strategies are aligned and soundmanagement is achieved.The compliance function ensures compliancewith legislation, regulation and rules as well aswith policies, processes and procedures.StrategyThe bank recognises that good governanceand compliance practices are crucial in growingand sustaining a successful business and iscommitted to ensuring that these practices areThe bankrecognises that goodgovernance and compliancepractices are crucial ingrowing and sustaininga successfulbusiness.in place throughout the organisation. Thegovernance and compliance functions are anessential part of the bank’s control structurein taking responsibility for the managementof regulatory and reputational risk. NedbankSwaziland continued to focus on bringing thebank’s operations in line with the enterprisegovernance and compliance framework. Thestrategy is to continually ensure that the bankcomplies with international best practice.Governance is incorporated into the strategy ofthe bank, thereby ensuring that there is focus onthe key areas that move the business forward.50 Nedbank Swaziland Limited Annual Report 2007

Stringent performance criteria are determinedand monitored by the board on an ongoingbasis. Some of these matters are reserved forthe board and some have been delegated to theboard committees. The board is accountable toachieve balanced economic, social andenvironmental performance;provide guidance; andinform business of new and existingregulatory requirements.the Bank’s shareholders for exercising leadership,enterprise, integrity and judgement in directingthe bank to achieve continued shareholder value.The Governance and Compliance Division ofthe bank is independent and has a reporting lineto the Risk, Compliance and Loan ReviewCommittee and the Directors’ Affairs Committee.Governance issues are reported to theComplianceWith the constantly evolving legal framework,Nedbank has established policies, processesand procedures that enable the bank to complywith legislative and regulatory requirementseffectively. The compliance function ensuresthis compliance. Compliance risk isDirectors’ Affairs Committeethe potential that the policies,and Compliance issues are The bank is processes and proceduresreported through to the Risk,committed to theimplemented by the bankCompliance and Loan Re-to ensure compliance withhighest standardsview Committee.statutory, regulatory andThe division operates of integrity, professionalismsupervisory requirementsindependently from theand ethicalare not adhered to and/audit and risk managementor are inefficient andbehaviour...functions, which are complementaryineffective.functions.The bank is committed to thehighest standards of integrity,The key objectives of the governanceprofessionalism and ethical behaviour and holdsand compliance functions are to;all employees accountable to these requirements.provide an independent assurancefunction;implement and monitor businessgovernance;internalise a culture of good governance,ethics and compliance throughout the bankbuild and enhance relationships with keystakeholders (regulators, risk managers andTo ensure that a culture of governance andcompliance is created in the bank, theGovernance and Compliance division is assistedby compliance champions, without impairingthe division’s independence. Every division in thebank has a compliance champion and the role andand internal auditors);Nedbank Swaziland Limited Annual Report 2007 51

GOVERNANCE & COMPLIANCE – (continued)responsibilities of the champion are included inthe balanced scorecard to ensure that they aremonitored. The champions play a critical role inthe creation of the compliance culture and alltraining involved.The bank manages compliance risk through thefollowing key activities:Conducting legislative analysis.Creating awareness of and training theimpact and responsibilities related tolegislative requirements.Monitoring and reporting on the level ofcompliance.Providing assurance that the risks relatingto regulatory requirements are identified,understood and effectively managed.Consulting with the divisions andproviding opinions.Liaising with the regulators.King Report on CorporateGovernance (King II or ‘the code’)The bank fully subscribes to and supports thecode and has developed a comprehensive implementationand monitoring plan to meet therequirements of the code where practicable.The bank is in compliance with the code. Theonly areas of non-compliance with the code,which the board is satisfied do not impair governanceintegrity, are as follows:The chairman, Mr CN Mamba, is a nonexecutivedirector, but not independent,as defined by the code, by virtue of thefact that he is nominated onto the board bythe Swaziland Government, who is thesecond largest shareholder.The previous chairman, Mr ZM Nkosi,who retired in August 2007, was also anon-executive director, but not independent,by virtue of also being appointedby the Swaziland government.The members of the Directors Affairs andRemuneration Committees are not all independent non-executive directors becauseof the size of the operation and therequirements of the business.Significant progress was also made during 2007on the following:The majority of directors are nonexecutiveand a sufficient number areindependent.The succession plan of the board wasimplemented with the retirement of thelong serving Chairman of the board. Theappointing authority, being the SwazilandGovernment appointed a Chairman fromthe existing members of board, beingMr CN Mamba who was an independentnon-executive.The succession plan for the ManagingDirector is work in progress.An independent non-executive wasappointed to replace Mr CN Mamba. Inkeeping with the board’s commitment toaddress gender issues at board level a femaledirector was appointed.52 Nedbank Swaziland Limited Annual Report 2007

Board committees were reconstituted tocater for board changes. The committeesand chairpersons for 2007 were as follows:Directors Affairs Committe and theRemuneration Committee (Including theNominations Commitee) – chaired byCN Mamba, a non-executive directorand Chairman of the Board.Risk, Compliance and Loan ReviewCommittee chaired by EM Davidson,a non-executive director.Audit Committee chaired by CJ Pearce,an independent non-executive.It should be noted that the committeechairmanship and membership are still notat a stage where all the members areindependent non-executive. However, theboard is comfortable with the mix in termsof the non-executive and executive directorsbecause it brings a variety of skills on board.The Board is satisfied that this does notimpair the governance system or perceptionsof it.The board and board committees conductedevaluations to determine their effectiveness.The board put in place an implementationplan to address key areas that were identifiedin the evaluation of the board and theChairman of the Board.The board continues to be involved with thestrategy of the bank and the monitoring ofthe implementation of the strategy.The boardtogether withrecommendations fromsenior management isresponsible for setting outthe strategic directionof the bank.Corporate governance structuresand strategyThe governance framework incorporates a fullrange of governance objectives and responsibilitiesrelating to the board, board committees,Executive Committee and management. The keystructures that oversee corporate governancewithin the bank are:Board of DirectorsDirectors’ Affairs Committee andRemuneration Committee (Includingthe Nominations Committee)Audit CommitteeRisk, Compliance and Loan ReviewCommitteeThese committees assisted the board in dischargingits duties and responsibilities in 2007.Nedbank Swaziland Limited Annual Report 200753

GOVERNANCE AND COMPLIANCE – (continued)The board has formalised its corporategovernance objectives and annually assessesand documents whether the process ofgovernance implemented by the banksuccessfully achieves these objectives. ARegulation 38(5) is then prepared by theboard to the group to give an indicationof the status of governance in the bank.On a quarterly basis the board, throughthe Directors Affairs Committee, evaluatesprogress on the objectives that are translatedinto the corporate strategy so that there areclear action plans to deal with them. At thebeginning of each year the board sets outobjectives for the year.The board, with input and recommendationsfrom senior management, is responsiblefor setting out the strategic direction of thebank. The bank follows a ‘top down’ and‘bottom up’ approach to strategy formulation,thereby involving all staff. The bank’sExecutive Committee then formulates the keystrategies, which are then translated to theindividual balanced scorecards and monitoredfor implementation. The board is accountableto the shareholders for exercising leadership,integrity and judgement in directing the bankto achieve ongoing prosperity.The board of directorsThe board has a unitary board structure comprisingnine directors. Six of these are nonexecutivedirectors, three of which are independentnon-executive directors, and threeare executive directors. The current boardstands as follows:Independent non-executive Non-executivedirectorsdirectorsLG DlaminiCN MambaJNxumaloEM DavidsonCJ PearceSE MatsebulaExecutive DirectorsAM DlaminiD DenyaAJP Sutton-PryceA total of 55% of the directors on the board areSwazi nationals. The bank is thereforein compliance with the Financial InstitutionsAct of 2005, which requires that50% of board-members should be Swazi.The new Director appointed to the board in2007 was Ms LG Dlamini, an independentnon-executive director who is also a FinancialDirector at Swaziland Water Services Cooperation.Mr ZM Nkosi resigned as Chairmanof the Board in August 2007, and handed overthe reins to Mr CN Mamba.The directors come from diverse backgroundsand bring to the board a wide range ofexpertise. The composition of the boardprovides for independent and objectivejudgement in the decision-making processand ensures that no one individual hasunfettered powers of decision and authority.54 Nedbank Swaziland Limited Annual Report 2007

Board appointments are conducted in aformal and transparent manner. The board isassisted by the Directors’ Affairs Committeein the appointment process. By virtueof the shareholder arrangement there aresome appointments that are recommendedby the Swaziland Government, but theystill go through the board’s formal appointmentprocess. Appointments are made takinginto account the needs of the company but,most importantly, ensuring that there is abalance of required skills and expertise as wellas industry knowledge to ensure that the bankachieves its strategic objectives.Non-executive directors are required toretire from the board at the age of 70, whileexecutive directors retire from the board atthe age of 60. However, the retirement age maybe extended for a limited period in certaininstances where this is required.The board has a formal written charter whichwas reviewed in 2007 in line with best practice.A full assessment of the effectiveness of theboard and an evaluation of the Chairman ofthe Board took place during 2007. Action planswere put in place to address key areas of concernso as to continually refine the governanceprocesses. The Managing Director’s performanceis also evaluated according to his balancedscorecard, which is approved annually by theDirectors’ Affairs Committee with the input ofthe Managing Director Nedbank Africa and theChairman of the Board.Chairman and Managing DirectorThe roles of the Chairman and the ManagingDirector are separate. The Chairman, CNMamba, presently heads up the board, whereasthe executive management is the responsibilityof AM Dlamini. This clearly accepted divisionof responsibility ensures a balance of powerand authority so that no one individual hasunrestricted decision-making power. The boardand the executive management work closelytogether in determining the strategic objectivesof the bank. The executive management worksvery closely with the Nedbank Africa office inensuring that there is alignment of the bankwith group standards. The board has adoptedthe Schedule of Delegated Authorities (SODA),which regulates the matrix relationship betweenNedbank Swaziland and the group.Company Secretary/DirectorDevelopmentAll directors have access to the adviceand services of the Company Secretary. TheCompany Secretary is responsible for ensuringthat board procedures as well as applicablerules and regulations are fully complied with.New directors are informed of their dutiesand responsibilities by way of an inductioncourse, which familiarises them with the operationsand strategies of the bank.Nedbank Swaziland Limited Annual Report 200755

GOVERNANCE AND COMPLIANCE – (continued)The board also has scheduled director trainingsessions to cover critical areas – including riskmanagement and compliance, so that, asneeds evolve, directors are fully aware of thechanges and trends in the financial servicesindustry to better equip them in dischargingtheir responsibilities. Briefings of the board onbanking, technical and regulatory changesas well as risk management and governancetake place on an ongoing basis. In 2007 theboard-members, and in particular the chairpersonsof the board committees, hadinteraction with their counterparts at grouplevel, where they also benefited from the briefingsthat were taking place at group level.The Chairman and the Managing Director alsohad an opportunity to interact with theChairmanof the group and the Nebank GroupBoard. This also gave board-members anopportunity to share their experiences andstrategies with the Nedbank Group directors.A director training plan is in place andwill be implemented on an ongoing basis.Board meetingsKing II recommends that boards should meetat least quarterly. In the past year the boardmet four times at prescheduled times.Record of attendance at board andboard committee meetings for NedbankSwaziland Ltd for 2007:During 2007, the board and board committeesmet 16 times in total. This does not includemeetings for purposes of board training.Name Board Audit Risk, Compliancean Loan ReviewDirectors’ Affairsand Remuneration(IncludingNominations)No of meetings 4 4 4 4ZM Nkosi* (retired 3 N/A N/A 330 August 2007)AM Dlamini 4 N/A N/A N/AD Denya2 2 2 2EM Davidson* 4 4 N/A N/ACN Mamba*4 2 2 1 (appointed inOctober 2007)56 Nedbank Swaziland Limited Annual Report 2007

Name Board Audit Risk, Compliancean Loan ReviewDirectors’ Affairsand Remuneration(IncludingNominations)No of meetings 4 4 4 4SE Matsebula*4 N/A 4 4J Nxumalo# 2 N/A N/A 3CJ Pearce# 4 4 4 N/AAPJ Sutton-Pryce 3 N/A N/A 3LG Dlamini #1 1 1 N/A(appointed 23November 2007)*non-executive#independent non-executiveBoard committeesThe board committee structure is designed toassist the board in the discharge of its dutiesand responsibilities. The structure remainedunchanged in 2007. The following committeesassisted the board:Audit CommitteeDirectors’ Affairs CommitteeRemuneration and NominationsCommitteeRisk, Compliance and Loan ReviewCommitteeEach of the board committees has formal writtenterms of reference that are reviewed on an annualbasis.Business governanceBusiness governance forms the link between thestrategic objectives set by the board and theactions taken by management committees.Risk management and internalcontrolThe board acknowledges its responsibility formanaging of risk, forming an opinion on itseffectiveness and maintaining a system ofinternal control that provides reasonableassurance of effective and efficient operations.The bank places strong emphasis on effectiveand up-to-date risk management to ensurestability and continuity in its business.Nedbank Swaziland Limited Annual Report 200757

GOVERNANCE AND COMPLIANCE – (continued)The effectiveness of the bank’s risk managementphilosophy of ‘enterprise-wide riskmanagement’ is confirmed by the goodresults, particularly in view of the currentenvironment characterised by rapid credit expansionand adverse economic climate.The Risk, Compliance and Loan ReviewCommittee was responsible for assisting theboard in reviewing the risk managementprocess and the significant risks that may facethe bank.The Risk Management Division is responsiblefor the ongoing maintenance of the ERMF.The Basle II requirements are being dealt withby way of a comprehensive Basle II ProjectProgramme, which will significantly enhancethe risk management process. The riskfunction also focuses on the managementand monitoring of key daily risks to the bank,which include credit, market, interest rate,and trading and operational risks. The ChiefRisk Officer is also in charge of credit in thebank in addition to the risk responsibilities.This structure has been approved by theboard and the Nedbank Group. To mitigateany conflict a dedicated risk officer has beenappointed. The sole responsibility of therisk officer, who reports to the Chief RiskOfficer, is risk management. The board issatisfied that the structure does not impairany independence of the risk function.The ERMF formed the backbone of the bank’srisk management process with the three linesof defence being:involvement by the board and theexecutive team, clear accountability andresponsibility of business managementsupported by appropriate internal control,risk management and governancestructures;independent risk monitoring; andindependent assurance provided byinternal and external audit.Internal controlAn essential part of the board’s responsibilityis reviewing the effectiveness of internalcontrols, making use of the monitoringprocesses within the company. This is carriedout through the Audit Committee and partlythrough the Risk, Compliance and Loan ReviewCommittee. The detailed design, implementationand operation of adequate internalcontrols are generally delegated to themanagement team. These controls providereasonable assurance that significant risksare appropriately managed. The head of eachbusiness unit formally acknowledges thecompliance thereof and has the associatedresponsibility for reviewing the effectivenessof such internal controls twice a year.Regulation 39(4) of the Banks Act requiresthat the board report annually to theRegistrar of Banks on the adequacy of internal58 Nedbank Swaziland Limited Annual Report 2007

controls, adherence to these controls, maintenanceof ethical standards, any material malfunctionsand continuation of the bank as a goingconcern.internal behaviour of staff. The code of ethics isunderpinned by the bank’s values and reinforcesour commitment to external stakeholders.Knowledge of the ethics is a key part of makinggovernance a reality for staff in the bank. AInternal Audit/External auditorsInternal Audit is a centralised independentassurance function whose purpose, authorityand responsibility are defined in the charter approvedby the board. The bank’sTip-offs Anonymous reporting line has beenintroduced and is managed by an independentaudit firm, Deloitte & Touché, to enhance ethicsmanagement and discipline in the organisation.The idea is to create an environment in whichindependent auditors areemployees have the responsibilityKPMG. KPMG’s report onpage 74 to 75 sets outthe responsibilitiesof external auditorswith regard to reviewingthe financialThe bankis committedto organisationalintegrity and high standardsof ethical behaviour in itsto report incidents of unethicalbehavior.Training and awareness on thecode is ongoing. Staff’s knowledgeis at a high level and isstatements of thethe dimension that achieved thedealings with all thebank and the bank’shighest percentage (74,4%) instakeholders.compliance with boththe 2006 Nedbank Staff Survey –statutory and accountingrequirements. The audit reviewan improvement on the previous year(71%).also considers the external auditors support ofthe Chairman’s and Managing Director’s statementof the bank being a going concern and theadequacy of the bank’s internal control environment.The external auditors provide non-auditservices through their consulting company.Corporate social responsibilityThe bank is committed to the community inwhich it operates. There have been a significantnumber of social investment programmes undertakenin the past year. The bank recognises theimportance of contributing to the communitiesCode of ethicsThe bank is committed to organisational integrityand high standards of ethical behaviour in itsin which it operates and that behaving in an environmentallyresponsible manner is crucial toensuring the sustainability of the bank.dealings with all stakeholders. The board hasapproved the revised code of ethics focusing onNedbank Swaziland Limited Annual Report 200759

GOVERNANCE AND COMPLIANCE – (continued)Activities in this regard have been detailedunder the Corporate Social Investment Reporton page 61, which also covers the upliftmentinitiatives that the bank staff members haveimplemented themselves. Nedbank Swazilandhas also contributed to the Nedbank GroupSustainability Report for 2007.stakeholders to ensure that all stakeholdershave an understanding of the performanceand plans of the bank. Shareholders are thereforeencouraged to attend the annual generalmeeting so that any concerns they have maybe addressed.Stakeholder engagementThe bank is also committed to transparentand ongoing communication with shareholdersand potential shareholders as well as otherThe bank’s internet site (www.nedbank.co.sz)has extensive information on the bank.60 Nedbank Swaziland Limited Annual Report 2007

CORPORATE SOCIAL INVESTMENT PROGRAMMENedbank is acutely aware of itsresponsibility to be of assistanceto the society in which it operates.The bank conducts its social responsibilityactivities according to the the corporate socialresponsibility (CSR) programmes as approvedby the Board of Directors and implementedby the Marketing Department. It follows theseCSR programmes and must be aligned withthe Bank’s overall strategy. The bank’s areas offocus include education, entrepreneurship,charity organisations, sports and the arts.Nedbank takes the role of being a corporatecitizen seriously and therefore allocates alarge amount of its budget to CSR in Swaziland.The organisations that we have supportedhave proved to be worthy as we are able to seetheir respective projects coming to fruition.Women upliftmentNedbank sponsored the Business Woman of theYear (BWOTYA) 2007. BWOTYA grows fromstrength to strength. In addition to the twocategories of last year (2006), the HonoraryAwards were added to the delight of allstakeholders. The Honorary Awards seek torecognise veterans who have contributed tothe development of Swaziland in differentsectors. The awards have received tremendoussupport from the public and private sectoralike. The public look out for the nominationperiod each year and eagerly make theirnomination. The Awards also have support fromthe highest echelons of the SwazilandGovernment. BWOTYA winners now engage incommunity projects as an extension of theawards. They are allocated funds to establishprojects of their own, which render greatlyneeded help to the communities. This is inline with the objectives of the awards, asNedbank did not intend for the awards to beonly a glamorous function lasting for just ashort while.Nedbank Swaziland Limited Annual Report 200761

CORPORATE SOCIAL INVESTMENT PROGRAMME – (continued)EducationNedbank further sponsored the University ofSwaziland (UNISWA) Foundation withE150 000,00. This sponsorship will gotowards the construction of a multifacetedindoor sports hall to beknown as the UNISWA SportsEmporium. It is to be built on theUniversity of Swaziland Kwalusenicampus, where august UNISWAfunctions will be held and will includea sports sports centre. The project willresult in a world class modern facility,which is part of the capital campaignfor the development of the physicalinfrastructure for the university. Theemporium will also boast an Olympicsizeswimming-pool, cafeteria and gym.Nedbank supports initiatives towards theadvancement of education because educationis the bedrock of bright future for the country.EntrepreneurshipNedbank sponsored the ‘Believe, Begin, andBecome’ Business Plan Competition organisedby TechnoServe. TechnoServe is an organisationthat helps entrepreneurial men and womenin the developing world to build businesses thatprovide jobs, income and economic opportunity.Since its founding in 1968 this US-based nonprofitorganisation has helped to create orimprove more than 2 000 businesses, benefitingmillions of people in more than 30 countries.Techno Serve has been recognised as one of theworld’s ‘Outstanding Social Entrepreneurs’by the Schwab Foundation for SocialEntrepreneurship. In 2007, Charity Navigatoronce again awarded its prestigious four-star ranking to TechnoServe. The sponsorshipwas presented at the launch of theBusiness Plan Competition launch, whichwas held at the Mountain Inn. This year Nedbankis sponsoring this competition for the thirdtime. This competition allows us to fulfilour aspirations of promoting entrepreneurshipin the country. TechnoServe is an organisationthat has the mandate of promoting anentrepreneurial culture in the country, especiallyamong the youth. In the face of increasingunemployment the country must cultivate a62 Nedbank Swaziland Limited Annual Report 2007

culture of self-employment Techno-Serve istherefore promulgating the fact that selfemploymentis an option.empowered to make the right choices withregards to HIV/ AIDS. Hospice at Home, anorganisation that cares for terminally illpatients, has been one of the Nedbank sponsor-Charity organisationsNedstaff Charity Club sponsored childrenthrough the SACRO Drop-in Centre. This moneycaters for their school fees and uniforms.The Nedstaff Charity Club was established in2006 and has been sponsoring the childrensince then. These children are subjectedto dire circumstances because eitherthey have lost their parentsship beneficiaries. Nedbank is one of the keysponsors of the Business Coalition against HIVand AIDS, an organisation that fights the spreadof the scourge in the workplace. We realisethat with HIV/AIDS all stakeholders need to beinvolved, as staff are either infected or affected.The country is badly hit by the scourge, andchildren carry the burden of takingcare of their siblings in direor they are unable to put Nedbank ispoverty conditions.themselves through school. one of the key sponsorsThis sponsorship is madeNedbank sponsored theof the Business Coalitionup of contributions fromRotary Club of Mbuluzistaff and the bank.against HIV and AIDS , an to host the Sibebe Chalorganisationthat fights the lenge, a sportingMuch appreciation goesspread of the scourge in challenge where particitothe staff memberspants run or walk upthe workplace.who subscribe to thisSibebe Rock, the secondcharity club.largest granite boulder inthe world, in aid ofNedbank sponsors severalconservation projects and the communityHIV/AIDS initiatives around the country. Wesponsor the Swaziland AIDS Support Organisationof that area. The Rotary Club of MbabaneMbuluzi contributes to community projects(SASO), which is an umbrella organisation for managed by the Sibebe Trust. The cluba number of HIV/AIDS support organisations assists with the walking trails by putting uparound the country.signage and updating maps and by makingIt is important for us as a bank to sponsor provision for water from the MbuluziSASO, as it helps us implement our HIV/AIDSpolicy in the bank. We also invite SASOto give talks so that staff members aregatehouse to eight households in the adjacentarea. This provision includes piping materialsand the necessary connectors. The Club alsoNedbank Swaziland Limited Annual Report 200763

CORPORATECORPORATESOCIALSOCIALINVESTMENTINVESTMENTPROGRAMMEPROGRAMME-- (continued)contd.advertises the functions held by the trustthrough its already existing agreements withthe various media houses. The club furtherprovides name-tags and T-shirts to all themembers of the trust. In return for theseservices, the trust then provides and coordinatesthe labour force for the water project.The Rotary Club of Mbabane Mbuluzi is anaffiliate club of Rotary International.in the near future. The bank wishes to anchorits position in golf also at grassroot level. Nedbankhosts monthly golf tournaments at theMbabane Golf Club and in 2007, launched thecoveted Nedbank Monthly Mug tournament,which takes place at the pristine Royal SwaziSun Golf Course. We are, however, not limitedto golf, as we also sponsor the SwazilandNational Swimming Association. In additionto a E20 000,00 sponsorship, we have donatedNedbank tracksuits and caps for the team.Nedbank supports the youth in their endeavoursand this is one project in which school-goingyouth are involved. Swimming is one way inwhich the youth can get together in a safeenvironment. We encourage such activitiesas a bank.SportsIn the sports category we have cosponsoredthe King’s Golf Cup, which is a major eventin Swaziland. This prestigious event has emergedas one of the country’s most popular andglamorous sporting events, especially in businesscircles. The King’s Golf Cup is expectedto significantly boost the country’s tourismThe artsThe bank has not, however, forgotten aboutthe arts, which needs immense support asit is still at a developmental stage in the country.Nedbank was pleased to sponsor the Saturdaymatinee, which is one of the eventsof the Golden Lion Film Festival held inOctober 2007. The festival promoted culturalexchange and put Swaziland on the map, asit has an international flair to it. The festivalis inspirational to future film-makers in thecountry, as they are able to observe whattheir counterparts from other countries aredoing. Nedbank also sponsored the Miss SwazilandBeauty Pageant. This project, is regrettably,64 Nedbank Swaziland Limited Annual Report 2007

still at a development stage As a bank we areeager to see this pageant at its best, as itmirrors the country to the whole world.Kip-Kip Academy has been a sponsorshipbeneficiary for two consecutive years. An exuberantsquad that carries out-stunningdance moves, Kip-Kip has been a resoundingsuccess. Nedbank supports Kip-Kip becauseit involves young children who are the futureof this country. During their spare time thechildren learn life skills that will help themin the future.The environmentThis year’s Nedbank Mountain Bike Classic (MTBClassic) was a great success as more than 250cyclists to part in the event. This is a race thattakes place in a game reserve in Swaziland. Thesport is growing, with more and more cyclistsparticipating each year. It has become verypopular and as cyclists from within thecountry and from outside eagerly look outfor it every year. The proceeds go towardsnature conservation projects. Big Game Parks,the organisation that hosts the MTB Classic,uses the funds collected from the event toassist neighbouring communities in projectssuch as painting schools and planting trees.Nedbank Swaziland Limited Annual Report 200765

Chief Financial Officer’s ReportFikile Nkosi – Chief Financial OfficerDip Acc & Bus Admin, BCom (Uniswa),BCompt (Hons) (Unisa), MAP (Wits)OverviewResultsThe bank’s headline earnings for the yearended 31 December 2007 increased by17% to E35, 7 million from E30, 6 millionin 2006. The bank’s steady performance duringthe financial year was the result of improvementsin all facets of the bank’s operationsfollowing the business process re-engineeringthat took place during the year. Dividends haveimproved by 15% to 46 cents, compared to40 cents per share last year.The bank’s asset growth came from themanufacturing sector (sugar industry), motorvehicle sales and residential property sales.Remarkably, the bank recorded solid balancesheet performance during the year as evidencedby an increase in the interest-bearing assetsof 11% to E958 million at December 2007from E865 million in December 2006. Thisperformance is gratifying since it was achievedin the context of a very challenging economicenvironment.Headline earnings per share (c)Headline earnings (E 000)66 Nedbank Swaziland Limited Annual Report 2007Growth in headline earnings (%)

But while asset growth was a strong pointin the bank’s performance during the year,foreign exchange profits also remained a majorcontributor to the bank’s total revenue.In line with its growth objective, the bank willcontinue to focus on increasing its market sharein key retail products, growing the small mediumenterprises (SME) market and penetratingthe mass market. The bank is also looking tocreate shareholder value by improving noninterestrevenue lines through introducingnew products and increasing distributionchannels.Accounting policiesThe financial results for the period ended 31December 2007 have been prepared in accordancewith the recognition and measurement criteria ofthe International Financial Reporting Standards(IFRS) and the interpretations thereof, adoptedby the International Accounting Standards Board.The financial results have been prepared in themanner required by the Swaziland CompaniesAct of 1912, as amended, and are consistent withthose of previous years. The bank is committedto ensuring that compliance with all relevantaccounting standards is maintained at all times.Full disclosure of the IFRS is articulated inthe financial statements on pages 83 to 99.Market shareThe bank’s market share stood at 17%, comparedwith 18% in the previous year, reflecting a slightdecline in the bank’s loans and advances book. Thisdecline is attributable to a number of operationalMarket share: 200717%83%factors, including a predominant focus on thecorporate sector. 2007 saw a shift by the bank tothe target market of SME and business bankingloans. The bank’s strategy is to focus on revisingits policies to include products such as businessbanking and SME loans with a view to meetingclient expectations while improving marketshare.Capital risk managementThe optimal level of capital for the bank wasdetermined by balancing various requirements,including those of the regulator, shareholders,deposit-holders and debtors. At 31 December2007 the directors were satisfied that the bankwas well-capitalised and met the regulatoryauthority’s requirements. At 17,86%, total capitalcomfortably exceeded the regulatory thresholdof 8% and represented an increase over 2006when total capital stood at 14,13%.With the assistance of Nedbank Group, thebank has made significant progress with itspreparations for Basel II. The bank is working toadopt the use of the standardised approach foroperational risk when the regulator signals thecoming into effect of the Basel II Capital Accord.Nedbank Swaziland Limited Annual Report 200767

Chief Financial Officer’s Report – (continued)The objective is to ensure that the bank has inplace adequate capital management processesto mitigate capital risk and meet internationalstandards.Financial reviewBalance sheet analysisThe bank’s balance sheet grew by 17%, bringingtotal assets to E1,2 billion, compared with E1, 05billion in 2006. Interest-bearing assets grewby 11% from the previous year and client depositsby 12,6% over the same period. Corporate termloans and mortgage bonds also performed well,notwithstanding the high interest rateenvironment that prevailed during the period.Overall, the growth reflected a strong balancesheet supported by a healthy book quality.Impairments increased, but at a relatively lowerrate than the growth rate of loans and advances.This is in keeping with the requirements ofIFRS 39 that requires impairments to bereported in present-value terms, meaning thatimpairments are calculated on an incurredlossbasis and not on the basis of the expectedfuture loss. The bad debt ratio to total bookstood at 3,4%, compared with 2,65% theprevious year. The structure of advances, whichwas skewed towards corporate term loans, andthe deterioration in ABF individual loans, whichattracted higher impairments, accounted for theincrease in the ratio. A stronger focus on creditrisk management will be employed by the bank inthe ensuing year to curb the rising bad debt ratio.Key financial performance indicators2007 2006actualactualIndicator % %Return on averageshareholders’ funds 27,3 28,5Return on average assets 3,15 3,19Expenses to total income 59,02 60,74Non-interest revenue tototal income 47,96 51,61Effective tax rate 29 30Period NII NII(E 000) Growth (%)07 67 103 912 19 9%06 55 976 446 32 4%05 42 271 599 17 2%04 36 060 049 -10 0%03 40 049 159 24 6%68 Nedbank Swaziland Limited Annual Report 2007

Income statement analysisNet interest income (NII)20% year-on-year growth in the interest marginresulted from an 11% growth in loans andadvances, and is a benefit of close monitoringof margins through the assets and liabilitymanagement (ALM) process. The growth innon-interest margin was, however, lower thanexpected in an environment of rising interestrates mainly due to expensive funding, whichresulted in margin compression in someproducts. The main contributor to the increasein the interest margin was the endowmenteffect of unplanned interest rate hikes, whichmore than compensated for the margincompression. The industry continued toexperiencea lower deposit-to-asset-ratio, whichultimately challenged the ALM process to focusand prevent margin slippages. This task wasadequately discharged by the Asset andLiability Management Committee (ALCO).Non-interest revenue (NIR)Non-interest revenue increased by 4% toE61 834 million (2006: E59 706 million), anannual growth that was below-target. Thelower-than-expected non-interest income wasthe result of below-target transactionalvolumes and foreign exchange profits. Inan effort to improve client relationships, thebank reduced charges and introduced morecost-effective self-service delivery channels,including aggressive marketing of electronicbanking products.Period NII NII(E 000) Growth (%)07 54 319 94,7%06 55 976 63,5%05 44 967 0%04 35 189 0%03 32 534 17,1%While this benefited clients, the overall revenuenormally collected on traditional bank serviceswas reduced. Foreign exchange trading profitscontributed significantly to the non-interestrevenue line.The bank is focusing on improvingoperational efficiencies and transactionalvolumes through increasing the footprint in allthe bank’s outlets.ExpensesDespite lower-than-expected net-interest revenue,the bank’s cost-to-income ratio hascontinued to show signs of recovery, mainly dueto cost containment initiatives - expenses remaina significant part of the bank’s income statementand as such close scrutiny of this line will alwaysbe an integral part of the business.Nedbank Swaziland Limited Annual Report 200769

Chief Financial Officer’s Report – (continued)Total expenses (E 000)Expenses-to-income ratio (%)Taxation charge (E 000)Effective taxation rate (%)Expenses increased by only 8% to E76 105million (2006: E70 263million) despite thestringent economic environment of generallyescalating operational costs in a high-interest rateenvironment. The bank continued to improveoperational efficiencies in a bid to attain serviceexcellence and improve profitability.TaxationEffective tax planning resulted in an effectivetaxation rate of 29% (2006: 30%); this wasachieved despite the scrapping of a number ofdeductible expenses by the Commissioner ofTaxes.An improved cost-to-income ratio of 59% wasachieved, down from 60,7% in the previous year- a direct contribution to the bottomline of thebank.70 Nedbank Swaziland Limited Annual Report 2007

Shareholders’ fundsShareholders’ funds grew by 22% to E146 021million (2006: E119 682 million). The increasewas impacted by the growth in headline earningsand the statutory reserve transfer of 10% to nondistributablereserves.DividendThe directors have approved a dividend of46 cents per share, which is a 15% increase overthe 40 cents declared in the previous year. Thisdeclaration brings a dividend cover ratio of 3,3times headline earnings per share. The directorsare committed to delivering on shareholders’expectations in line with the dividend policy ofachieving a cover of three times by the end of thethree-year strategic plan.Shareholders’ funds (E 000)Return on equity (%)ProspectsThe bank is expecting to sustain its growth ininterest-earning assets, with a specific focus onthe business banking and SME markets. The bankis restructuring its Sales Division to improve clientservice, while increasing operational efficienciesthrough automation.Increased revenue is expected as a result ofthe impact of higher interest rates on an assetsensitivebalance sheet. The bank is lookingforward to increasing non-interest revenuethrough sustainable growth in transactionalvolumes.Total assets (E 000)Return on average assets (%)Nedbank Swaziland Limited Annual Report 200771