Bank of Africa : Consolidated Financial Statements and Explanatory Notes 2023

Goodwill

TOTAL ASSETS UNDER IFRS

LIABILITIES UNDER IFRS

Amounts due to central banks, the Public treasury and postal cheque centre Financial liabilities measured using the fair value option through profit or loss

• Financial liabilities held for trading purposes
• Financial liabilities at fair value through profit or loss

Derivative hedging instruments Debt securities issued

Amounts due to credit and similar institutions Amounts due to customers

Revaluation adjustment on portfolios hedged against interest rate risk Current tax liabilities

Deferred tax liabilities

Accruals, deferred income and other liabilities Liabilities related to non-current assets held for sale Liabilities under insurance contracts

Provisions

Subsidies - public funds and special guarantee funds Subordinated debt

TOTAL LIABILITIES Shareholders' equity

Share capital and related reserves Consolidated reserves

• Attributable to shareholders of the parent company
• Non-controllinginterests

Gains and losses recognised directly in equity

• Attributable to shareholders of the parent company
• Non-controllinginterests

Net income for the period

• Attributable to shareholders of the parent company
• Non-controllinginterests

TOTAL CONSOLIDATED SHAREHOLDERS' EQUITY

TOTAL LIABILITIES UNDER IFRS

(In thousand MAD)

Net income

Gains or losses recognised directly in other comprehensive income that will be subsequently reclassified under profit or loss

Exchange differences

Financial assets at fair value through other comprehensive income (recyclable) Revaluation adjustments

Gains or losses recognised directly in other comprehensive income that will not be subsequently reclassified under profit or loss

Actuarial gains or losses on defined benefit plans

Items recognised at fair value through other comprehensive income (non-recyclable)

Share of gains or losses recognised directly through other comprehensive income of companies accounted for using the equity method

Total gains or losses recognised directly in other comprehensive income

Net income and gains or losses recognised directly through other comprehensive income Attributable to shareholders of the parent company

Non-controlling interests

(In thousand MAD)

1.5. STATEMENT OF CASH FLOWS AT 31 DECEMBER 2023

Pre-tax income

+/- Net depreciation, amortisation and impairment of intangible assets and property, plant and equipment

+/- Net impairment of goodwill and other non-current assets

+/- Net impairment of financial assets

+/- Net provisions

+/- Share of earnings of companies accounted for using the equity method

+/- Net gain/loss from investing activities

+/- Net gain/loss from financing activities

+/- Other movements

Total non-cash items included in pre-tax income and other adjustments

+/- Flows related to transactions with credit and similar institutions

+/- Flows related to transactions with customers

+/- Flows related to other transactions affecting financial assets or liabilities

+/- Flows related to other transactions affecting non-financial assets or liabilities

+/- Taxes paid

Net increase/decrease in assets and liabilities from operating activities

Net cash flow generated by operating activities

+/- Flows related to financial assets at fair value through other comprehensive income

+/- Flows related to investment property

+/- Flows related to plant, property and equipment and intangible assets

Net cash flow related to investing activities

+/- Cash flows from or to shareholders

+/- Other net cash flows from financing activities

Net cash flow related to financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase/decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and balances at central banks, the Public treasury and postal cheque centre (assets and liabilities)

Sight deposits (assets and liabilities) and loans/borrowings with credit institutions

Cash and cash equivalents at end of year

Cash and balances at central banks, the Public treasury and postal cheque centre (assets and liabilities)

Sight deposits (assets and liabilities) and loans/borrowings with credit institutions

Net change in cash and cash equivalents

1.6. SUMMARY OF ACCOUNTING POLICIES APPLIED BY THE GROUP

1.6.1. Applicable accounting standards

The Group's first consolidated financial statements to be prepared in accordance with international accounting standards (IFRS) were those for the period ended 30 June 2008 with an opening balance on 1st January 2007.

The Group's consolidated financial statements have been prepared in accordance with international accounting standards (International Financial Reporting Standards - IFRS), as approved by the IASB.

The Group has not opted for early adoption of the new standards, amendments and interpretations adopted by the IASB where retrospective application is permitted.

1.6.2. Consolidation principles a. Scope of consolidation

The scope of consolidation includes all Moroccan and foreign entities in which the Group directly or indirectly holds a stake.

The Group includes within its scope of consolidation all entities, whatever their activity, in which it directly or indirectly holds 20% or more of existing or potential voting rights. In addition, it consolidates entities if they meet the following criteria:

• The subsidiary's total assets exceed 0.5% of the parent company's;
• The subsidiary's net assets exceed 0.5% of the parent company's;
• The subsidiary's banking income exceeds 0.5% of the parent company's ;
• "Cumulative" thresholds which ensure that the combined total of entities excluded from the scope of consolidation does not exceed 5% of the consolidated total.

b. Consolidation methods

The method of consolidation adopted (fully consolidated or accounted for under the equity method) will depend on whether the Group has full control, joint control or exercises significant influence.

At 31 December 2023, no Group subsidiary was jointly controlled.

c. Consolidation rules

The consolidated financial statements are prepared using uniform accounting policies for reporting like transactions and other events in similar circumstances.

Elimination of intragroup balances and transactions

Intragroup balances arising from transactions between consolidated companies, and the transactions themselves, including income, expenses and dividends, are eliminated. Profits and losses arising from intragroup sales of assets are eliminated, except where there is an indication that the asset sold is impaired.

Translation of financial statements prepared in foreign currencies

The Group's consolidated financial statements are prepared in dirhams. The financial statements of companies whose functional currency is not the dirham are translated using the closing rate

method. Under this method, all assets and liabilities, both monetary and non-monetary, are translated using the spot exchange rate at the balance sheet date. Income and expenditures are translated at the average rate for the period.

d. Business combinations and measurement of goodwill

Cost of a business combination

The cost of a business combination is measured as the aggregate fair value of assets acquired, liabilities incurred or assumed and equity instruments issued by the acquirer in consideration for control of the acquired company. Costs attributable to the acquisition are recognised through income.

Allocating the cost of a business combination to the assets acquired and liabilities incurred or assumed

The Group allocates, at the date of acquisition, the cost of a business combination by recognising those identifiable assets, liabilities and contingent liabilities of the acquired company which meet the criteria for fair value recognition at that date.

Any difference between the cost of the business combination and the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities is recognised under goodwill.

Goodwill

At the date of acquisition, goodwill is recognised as an asset. It is initially measured at cost, that is, the difference between the cost of the business combination over the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities.

The Group has adopted from 2012 the "full goodwill" method for new acquisitions. This method consists of measuring goodwill based on the difference between the cost of the business combination and minority interests over the fair value of the identifiable assets, liabilities and contingent liabilities.

It is worth noting that the Group has not restated business combinations occurring before 1 January 2008, the date of first- time adoption of IFRS, in accordance with IFRS 3 and as permitted under IFRS 1.

Measurement of goodwill

Following initial recognition, goodwill is measured at cost less cumulative impairment.

In accordance with IAS 36, impairment tests must be conducted whenever there is any indication of impairment that a unit may be impaired and at least once a year to ensure that the goodwill recognised for each CGU does not need to be written down.

At 31 December 2023, the Group carried out impairment tests to ensure that cash-generating units' carrying amount did not exceed their recoverable amount.

The recoverable amount of a cash-generating unit is the higher of the net fair value of the unit and its value in use. Fair value is the price that is likely to be obtained from selling the CGU in normal market conditions.

Value in use is based on an estimate of the current value of future cash flows generated by the unit's activities as part of the Bank's market activities:

• If the subsidiary's recoverable amount is more than the carrying amount, then there is no reason to book an impairment charge;
• If the subsidiary's recoverable amount is less than the carrying amount, the difference is recognised as an impairment charge. It will be allocated to goodwill as a priority and subsequently to other assets on a pro-rata basis.

The Bank has employed a variety of methods for measuring CGU value in use depending on the subsidiary. These methods are based on assumptions and estimates:

• A revenue-based approach, commonly known as the "dividend discount model", is a standard method used by the banking industry. The use of this method depends on the subsidiary's business plan and will value the subsidiary based on the net present value of future dividend payments. These flows are discounted at the cost of equity.
• The "discounted cash flow method" is a standard method for measuring firms in the services sector. It is based on discounting available cash flows at the weighted average cost of capital.

Step acquisitions

In accordance with revised IFRS 3, the Group does not calculate additional goodwill on step acquisitions once control has been obtained.

In particular, in the event that the Group increases its percentage interest in an entity which is already fully consolidated, the difference at acquisition date between the cost of acquiring the additional share and share already acquired in the entity is recognised in the Group's consolidated reserves.

1.6.1.2. Financial assets and liabilities a. Loans and receivables

Loans and receivables include credit provided by the Group.

Loans and receivables are initially measured at fair value or equivalent, which, as a general rule, is the net amount disbursed at inception including directly attributable origination costs and certain types of fees or commission (syndication commission, commitment fees and handling charges) that are regarded as an adjustment to the effective interest rate on the loan.

Loans and receivables are subsequently measured at amortised cost. The income from the loan, representing interest plus transaction costs and fees and commission included in the initial value of the loan, is calculated using the effective interest method and taken to income over the life of the loan.

1. Securities Classification of securities

IFRS 9 replaces the classification and valuation models for financial assets provided for in IAS 39 by a model comprising only 3 accounting categories :

• Depreciated cost;
• Fair value through equity: changes in fair value of the financial instrument are impacted in «other items of the comprehensive income» («fair value by OCI»);
• Fair value through profit or loss: changes in the fair value of the instrument are impacted in net income.

The classification of a financial asset in each category is based on:

• business model defined by the company
• and the characteristics of its contractual cash flows (the «cash flow» criterion) solely payments of principal and interest», or «SPPI»).

The management methods relate to the way the company manages its financial assets in order to generate cash flows and create cash flow and value. The business model is specified for an asset portfolio and does not constitute an intention on a case-by- case basis for an individual financial asset.

IFRS 9 distinguishes three management models:

• The collection of contractual cash flows, the business model «Collection»;
• The collection of contractual flows and the sale of assets, the model of management « Collection and Sale »;
• Other management intentions, i.e. the «Other / Sale» management model.

The second criterion («SPPI» criterion) is analysed at the contract level. The test is satisfied when the funding is only eligible for reimbursement of the principal and when the payment of interest received reflects the value of the time of money, credit risk associated with the instrument, other costs and risks of a traditional loan agreement as well as a reasonable margin, whether the interest rate is fixed or variable.

The criteria for classifying and measuring financial assets depend on the nature of the financial asset, as qualified:

• debt instruments (i.e. loans and fixed or determinable income securities)

; or

- equity instruments (i.e. shares).

The classification of a debt instrument in one of the asset classes is a function of the management model applied to it by the company and the characteristics of the contractual cash flows of the instrument (SPPI criterion). Debt instruments that respond to the SPPI criterion and the «Collection» management model are classified as follows amortised cost. If the SPPI criterion is verified but the business model is the collection and sale, the debt instrument is classified at fair value by equity (with recycling). If the SPPI criterion is not verified and the business model is different, the debt instrument is classified as fair value value by result.

Under IFRS 9, equity instruments held by (stocks) are:

• always measured at fair value through profit or loss,
• except those not held for trading for which the standard allows the irrevocable election to be made at the time of recognition of each financial asset, to recognise it at fair value by counterpart of other comprehensive income (fair value through profit or loss OCI), with no possibility of recycling by result. Assets classified in this category will not be depreciated. In the event of a transfer, these changes are not recycled to the income statement, the gain or loss on disposal is recognised in shareholders' equity. Only dividends are recognised in result.

IFRS 9 provides for models for classifying and measuring financial liabilities according to 3 accounting categories: