STANDARD CHARTERED BANK BOTSWANA : AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31ST DECEMBER 2021

Economic Environment

Global Economy

Two years on, the world is still battling with the effects of the Covid-19 pandemic. The global economy started the year on a slow foot due to the emergence of the Omicron variant in later months of 2021. However, the vaccines have allowed the economies to reopen, but constantly evolving virus strains resulted in an intermitted recovery, and sectors like hospitality and tourism remain under severe pressure. Vaccine access in Developed Markets (DM) has been much better than in Emerging Markets (EM); it is therefore not surprising that Developed Markets has led the recovery so far.

The improvement in vaccine access in Emerging Markets in recent months should help to narrow the growth gap in 2022. Global supply-chain disruptions and elevated inflation are curtailing the recovery momentum, following a strong bounce earlier in 2021 driven by initial vaccine rollouts and government stimulus. The global growth is expected to moderate to 4.4% in 2022 from 5.8% in 2021.

The strong economic recovery across much of developed markets, combined with supply bottlenecks, has resulted in elevated inflation. While the initial inflation pick-up was driven by the economic recovery (and last year's low base), ongoing supply constraints have caused inflationary pressure to persist. Major central banks delivered extraordinary monetary accommodation to counter the impact of the Covid-19 crisis. With the global recovery having taken hold, this level of accommodation is no longer warranted.

Regional Economy

Modest economic recovery in Sub-Saharan Africa (SSA) is expected to continue, even given early indications of the rapid transmissibility of the Omicron variant. The growth is estimated at an average rate of 3.1% in 2022. In the near term, tourism-dependent economies are likely to face greater downside risks - especially in Southern Africa. Although the pace of vaccine rollout in SSA has been slower than in other regions, 2022 growth should be supported by economic reopening in key trade partners and still-rising global demand. We expect the region's economic recovery to gain momentum as a faster pace of vaccine rollout reduces the risk of new containment measures.

In South Africa, we expect a significant deceleration in 2022 growth, to 1.8%, from 4.9% in 2021. External demand drove mining outperformance in 2021, with growth from a weak base; the base for 2022 will be less favourable. Rising unemployment and inequality in the wake of the pandemic may also be a source of risk; Electricity shortages will continue to weigh on the outlook in 2022. Although headline CPI inflation is expected to revert to the 4.5% midpoint of the target band in H2-2022, the SARB currently sees monetary policy as "accommodative" and will look to normalise policy as the negative output gap closes, restoring real rates to their estimated neutral level.

Another major economy in Africa, Nigeria, is expected to grow 3.1% in 2022 which reflects the likely protracted recovery from the Covid-19 crisis rather than a sustained acceleration in economic momentum.

Local Economy

Following an 8.7% negative growth in 2020, the domestic economy made a remarkable recovery in the first 3 quarters of 2021 despite the surge in Covid-19 cases. The improved Covid-19 situation at the back of the good vaccination rollout programme is expected to support a gradual tourism recovery. Further, the implementation of infrastructure projects under the government's Economic Recovery and Transformation Plan (ERPT) should buoy growth. Mining is expected to still be the key growth driver in 2022, with diamonds demand likely to remain strong on robust luxury spending globally. As such, GDP is expected to grow by 10.1% in 2022 before easing to 4.8% in 2023. Inflationary pressures have surged significantly; headline inflation reached 10.6% year on year in January 2022 after averaging 6.7% in 2021.

The main drivers of the spike in inflation are the new revenue measures implemented in April 2021, significant rise in some administrative and fuel prices. Fiscal policy will likely focus on addressing vulnerabilities exacerbated by the pandemic. Botswana is targeting a fast pace of fiscal consolidation, with a return to fiscal surpluses from 2024 (year ending March 2024) as it looks to rebuild fiscal buffers and stabilise debt.

Business Performance

The bank's results reflect a slight improvement in business momentum, responding positively to the gradual economic recovery following the peak of Covid-19 pandemic in 2020 and early 2021. The ongoing Covid-19 pandemic remains a significant threat with a direct impact on productivity and business momentum. Despite this challenging backdrop, the bank delivered a resilient performance, with profit before tax up by 42%. Income was marginally down by 2%, weighed down by a drop in interest income. The low interest rate environment coupled with market liquidity constraints contributed significantly to low margins with a resultant 4% drop in interest income. However, the bank returned to top line growth in the second half of the year.

Business strategies to grow sustainable non-funded income are beginning to show results, with net fees and commissions registering a 2% growth surpassing pre-Covid-19 performance. The growth was broad-based, delivered through diversified products from both segments. As part of increasing value proposition, CPBB introduced additional wealth management products during the year to help our clients invest and protect their wealth.

Operating expenses were held flat year on year as result of consistent cost discipline. Credit impairments remained low reflective of improving macro-economic variables and asset quality.

Overall profit after tax increased by 21% resulting in improved shareholder returns; Return on equity increased by 100bps to 6%. Tax charge for the year declined substantially due to a once off deferred tax charge of P37m reported in 2020.

Consumer, Private and Business Banking (CPBB) serves individuals and small-medium businesses by providing banking solutions which are primarily delivered through our digital channels. While circumstances have spurred changing consumer behaviours, our investments in technology and strengthening our digital infrastructure have paid off in delivering our products and services; 98% of client acquisitions and 80% servicing is done digitally, and over 70% of our clients are active on the digital channels.

During the year we introduced a full range of investment and new wealth management products to grow, invest, and protect the wealth of our valued clients. By enhancing our client value proposition, we have grown income as well as attracted new clients by offering outstanding personalised wealth advice and exceptional service. We will continue to invest in this area.

Strategic Priorities

• • Deliver distinctive segment value propositions to maximise client relationships.

• • Continued discipline in cost management and efficiencies, along with strong risk management culture.

• • Our clients are accelerating their pivot to digital with increasing willingness and desire for digital-first banking, we will continue to invest on digital solutions.

• • Continued investment in staff aligned to the new ways of working as standard approach, for faster, better, more agile execution.

Progress

• • Rolled out Cardless Cash functionality across our ATM network, which has been well received in the market

• • As part of our Sustainability agenda, we opened the "First Sustainable" Digital only smart branch which operates 24/7 and we call "Express Banking Centre."

• • Made significant strides on service, and outperformed in our client satisfaction metrics

• • Exponential growth in digital onboarding and servicing of our clients.

Performance highlights

Stage 1 and 2 gross loans were down 5% driven by a decline in short term and transactional corporate assets. Stage 3 impaired exposures remained relatively flat at P214m. Stage 3 comprises mainly of small to medium entities and individual loan impairments are held against exposures at risk. ECL on good book was marginally up by 3%, despite the persistent challenging operating environment. This demonstrates the resilience of the loan book.

Balance Sheet and Liquidity

Assets

• Loans and advances to banks 4,057,690 2,501,471

• Loans and advances to customers 7,715,967 8,115,680

• Other Assets 3,763,312 3,447,553

Total assets Liabilities

Deposits from other banks Deposits from customers Other Liabilities

Total liabilities Equity

Advances-to-deposits Ratio (%) Liquid Assets Ratio (%)

2020 P'000

15,536,969 14,064,704

436,471

• 12,618,006 11,849,610

718,636

14,488,488 13,004,717

1,048,481 1,059,987

68 17.2

Total Balance sheet grew by 10% predominantly driven by loans and advances to banks and Investment securities. Loans and advances to customers have been on a growth trajectory during the year, despite a drop of 5% at year-end driven by pay offs on corporate loan facilities. CPBB client assets up 4% in conditions that remained challenging. Advances to deposit ratio reduced to 61% driven by a 6% increase on Customer deposits. The increase in other liabilities reflects one of the actions taken during the year to manage the volatility in liquidity. The bank issued liquidity bonds amounting to P323m in June 2021. The balance sheet remains stable, with statutory liquidity ratio at 16.5% well above the minimum regulatory requirement of 10%.

Risk Weighted Assets (RWA)

Corporate, Commercial and Institutional Banking (CCIB)

CCIB continues on the path to sustainability. The segment recorded a profit for the second year following a period of transformation demonstrating that our foundations are solid, and our strategy has been able to withstand a very challenging economic period. The pandemic significantly hampered the recovery of this segment. Despite this, our long-term strategy of streamlining our focus on key market segments is yielding positive results in terms of quality of the balance sheet and income mix.

The subdued income was due to low momentum in the early part of the year as our clients emerged from Covid-19 challenges. This however did not deter our re-alignment to focus on key focus segments: Financial Institutions; Public Sector and Multinational Corporates, while upscaling the Business Banking segment to concentrate on building the local corporates as we target the ecosystem of our corporate clients. A pipeline of transactions and mandates is expected to be converted early in the current year to reverse the income momentum as the segment strategy sharpens.

Deposits from clients have shown resilience amid the re-alignment strategy, and posted 9% growth. Indicating that the fundamental base of the segment and strategy is strong. The balance sheet drop in advances to clients is a function of the segment's balance sheet composition, which is predominantly short term and transactional hence achieving efficiency in capital allocation.

Our investments in digital platforms to deliver our digital strategy have started to yield results with costs starting to decline (down 4% to P188million). The digital strategy aims to avail a full end to end digital experience to our clients. Credit impairments remain well controlled with a release of P28million from a loss of P19million in the prior year as the Segment continues in its quest of delivering sustainable bottom line profitability.

Net Interest Income and Margins

Net Interest Income

Average Interest Earning Assets Average Interest bearing Liabilities Gross Yield (%)

Rate paid (%)

Net Yield Net margin

31 Dec 20

P'000

464,263 13,624,225 10,472,800

5.2% 5.5%

2.7% 2.7%

2.5% 2.8%

3.1% 3.4%

Net Interest Income ('NII') decreased by 4% as a result of margin compression which was partly offset by growth in average asset volumes. Interest expense was elevated by market liquidity constraints resulting in 5bps increase in rate paid and 29bps reduction in net margins. Progress made on optimal funding mix strategies, complemented by a strong asset growth momentum expected to gradually offset the impact of high cost of funds going into next year.

Total Risk Weighted Assets (RWAs) grew by 4% in line with credit growth during the year. RWA optimisation actions are in place, supported by robust credit risk procedures and origination discipline to grow a quality loan book that leads to improved future returns.

Capital Base and Ratios

The bank's Capital adequacy ratio decreased by 110bps to 16.5% and remains above the current regulatory minimum requirement of 12.5%. The decline in CAR ratio is attributed to a drop in Tier 2 capital on Senior debt amortisation in line with regulatory requirement and increase in risk weighted asset which more than offset the impact of improved profitability.

Outlook

Celebrating 125years in Botswana this year, we look back with pride at our achievements from introducing the first ATM in Botswana to being the first Bank to offer over 70 services on a digital platform, including account opening. This is true testament of our resilience and our relevance to Botswana.

The Bank has navigated its way through the height of the covid-19 pandemic and shall continue to be agile and ready to adapt to a constantly changing landscape. We are confident that we will deliver on our 2022 strategy, building on 2021 business momentum which is steadily returning to pre-covid levels in line with the recovery of the economy.

As our clients accelerate their pivot to digital, we will continue to digitize our products and services with the intent to deliver world class solutions. In line with this digital agenda, we started the year on a good note as we officially launched the Straight2Bank NextGen (S2B NG) into the market which is an upgrade to the award winning S2B online banking platform and provides clients with superior and flexible online banking.

We are confident that we will deliver a sustainable performance in 2022 and increase shareholder value.

Dividend Declaration

A final dividend of 20.21 thebe per ordinary share has been proposed. Subject to final regulatory approvals, this dividend will be payable on or about 23rd May 2022 to those shareholders registered at close of business on 11th May 2022 with an ex-dividend date of 9th May 2022.

Independent Auditors Report

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021

Stated Revaluation Statutory RetainedGroup

Balances 1 January 2020 Total comprehensive income Profit for the year

Other movements

Other comprehensive income Fair value adjustment:

Items measured at fair value through other comprehensive income Transactions with owners of the bank Dividends to equity holders - paid Distributions to holders of subordinated capital securities Balance at 31 December 2020

Capital

179,273

- - - 179,273

P'000

- -

reserve

25,696

- - - 25,696

P'000

- -

credit reserve P'000

19,152

19,152

- --

• - (54,419)

• - (30,035)

earnings

447 196

482,171

49,723

P'000

(244)

-

Capital contribution

428,213

428,213

P'000

- -

- - -

Treasury reserve

(31,566)

(31,566)

P'000

- -

- - -

Consumer, Private & Business Banking

Corporate, Commercial &Total

Institutional

Banking

P'000

P'000

P'000

2021

Statement of Profit or Loss

Net interest revenue calculated using the effective interest method Net fee and commission income

Net trading income

Deposits from non bank customers Other liabilities for reportable segments Total liabilities for reportable segments 2020

Credit loss expense on financial Net operating income Operating expenses

Segment profit / (loss) before taxation Income tax expense

Profit for the year

Statement of financial Position

Investment securities

Loans and advances to customers Other assets for reportable segments Total assets for reportable segments

Statement of Profit or Loss

Net interest revenue calculated using the effective interest method Net fee and commission income

Net trading income

Credit loss expense on financial Liability written off

348,652

115,611 464,263

149,320

51,308 200,628

30,796

57,580 88,376

Segment profit / (loss) before taxation Income tax expense

Net operating income Operating expenses

Profit for the year

Statement of financial Position

Investment securities

Loans and advances to customers Other assets for reportable segments Total assets for reportable segments

- 507,395 (462,628 )

44,767 -

(21,373 )

(19,932 ) 48,049 252,616 (195,263 )

57,353 -

(41,305) 48,049 760,011 (657,891 ) 102,120 (52,397 ) 49,723

- 7,071,323 160,116 7,231,439

2,113,719 2,113,719

1,044,357 8,115,680

3,675,189 3,835,305

6,833,265 14,064,704

Deposits from non bank customers Other liabilities for reportable segments Total liabilities for reportable segments

4,149,434

7,700,176 11,849,610

(56,433 )

1,211,540 1,155,107

4,093,001

8,911,716 13,004,717

CONSOLIDATED STATEMENT OF CASH FLOWS

* The financial statements of SCB Insurance Agency and Botswana Education Trust have been consolidated using uniform accounting policies for like transactions and other events in similar circumstances.

** Cash and cash equivalent are cash balances and balances held with Central Bank and other financial institutions with maturity of 0 -3months.