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Bank Statements
JAMII BORA BANK LIMITED
31 DECEMBER 2014
JAMII BORA BANK LIMITED
CONTENTS PAGES
Financial statements:
1
JAMII BORA BANK LIMITED
CORPORATE INFORMATION
* Swedish
2
JAMII BORA BANK LIMITED
3
JAMII BORA BANK LIMITED
PRINCIPAL ACTIVITIES
The principal activities of the bank, which is licensed under the Banking Act, are the provision of banking and
related services.
19,686 93,887
===== =====
DIVIDEND
The directors do not recommend the payment of a dividend in respect of the year ended 31 December 2014
(2013 Sh nil).
DIRECTORS
AUDITORS
The auditors, Deloitte & Touche, having expressed their willingness, continue in office in accordance with
Section 159 (2) of the Companies Act and subject to approval by the Central Bank of Kenya under section 24(1)
of the Banking Act.
Secretary
2015
Nairobi
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JAMII BORA BANK LIMITED
1. BOARD OF DIRECTORS
The names of the Directors who held office in the year and to the date of this report are set out on page 2.
The Board is responsible for formulating banks policies and strategies and ensuring that business objectives,
aimed at promoting and protecting shareholder value, are achieved. The Board also retains the overall
responsibility for effective control of the bank and implements corporate governance policies of the bank.
The Board comprises eight non-executive directors and two executive directors. The directors have diverse
skills and are drawn from various sectors of the economy. The Board is committed to the highest standards of
corporate governance and best practice in management of the banks affairs.
A timetable of calendar dates for Board meetings to be held in the following year is fixed in advance by the Board.
The notice of Board meetings is given in advance in accordance with the Banks Articles of Association and is
distributed together with the agenda and board papers to all the Directors beforehand. The Board meets regularly
and at least four times annually. During the year, the Board convened and held 6 ordinary meetings.
The bank's Company Secretary sits in the Board meetings and is responsible for monitoring and coordinating the
completion and dispatch of Board and committee agenda, papers and other briefing materials. The secretary is
always available to the Board of Directors.
a) Board evaluation
In order to assess and improve the capacity, functionality and effectiveness of the Board and its
committees, an annual self-evaluation review is undertaken. The self-evaluation reviews the capacity,
functionality and effectiveness of the Board and individual directors during the financial year. The
review is also in accordance with the requirements of the Central Bank of Kenya Prudential Guidelines on
Corporate Governance.
The evaluation measures the performance of the Board against its key duties and responsibilities, that of its
committees and individual members of the Board. The annual board evaluation was carried out in February
2014 and a similar one is scheduled for 2015.
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JAMII BORA BANK LIMITED
These committees assist the Board in ensuring that proper policies, strategies, internal controls, and organizational
structure are in place to achieve the banks objectives and obligations to its stakeholders. All the committees have
detailed terms of reference and hold meetings as necessary. The Board may delegate some of its powers to any
committee and may appoint any other committee, including ad hoc task forces, as and when it is deemed necessary.
The authority for the day to day running of the bank is delegated to the Chief Executive Officer.
Credit Committee
This committee reviews all lendings to ensure that they are undertaken per the banks policy framework, are within
legal framework, Central Bank Prudential Guidelines and meet risk guidelines. Delegated lendings to management
are monitored via reviewing of lending reports to ensure that the bank's policies are adhered to.
Audit Committee
The committee reviews internal controls as well as overall responsibility over operations, legal and regulatory
compliance as well as information systems.
This committee manages the Human Resource function of the bank by ensuring that the bank hires and retains the
best human resources, rewards them appropriately and ensures that performance appraisal systems are working
well.
The committee spearheads the development of business and innovations at the bank and regularly reviews fresh
ideas that will help the bank achieve its vision To develop the most innovative financial service.
CSR Committee:
Jamii Bora is dedicated to helping the poorest people in some of the worst slums in Africa to find a sustainable way
out. This committee ensures that the bank stays true to its origins and its mission to enhance the lives of people
across Africa.
Investment Committee:
This committee manages the investment function of the bank to maximize portfolio yield over the long term in a
manner that is consistent with liquidity needs as per bank set limits and CBK regulatory guidelines, loans
requirements, asset/liability management strategies and safety of the principal. The ultimate goal is the attainment
of the highest rate of return consistent with the goals of the bank and in line with the best Asset/Liability processes.
Management, in consultation with the Board Committees, is responsible for the bank's day-to-day overall risk
management to minimize potential adverse effects on its financial performance while the Board is responsible for
the bank's system of internal control and for reviewing its effectiveness. The bank has an ongoing process of
identifying, evaluating and managing significant risks inherent in its business, by the Risk Management
department. The bank has in place a chain of controls and a Balanced Scorecard Tool which include, but are not
limited to, an annual strategic planning and budgeting process, a regular review of strategic initiatives, a well
defined organizational structure which is kept under regular review by the Board, clearly laid down authority levels,
and a review of quarterly financial and operating information by Management and the Board.
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JAMII BORA BANK LIMITED
The bank conducts its business in compliance with high ethical standards of business practice. In this respect,
transactions with its decants, intermediaries, retrocessionaires, employees and other stakeholders are conducted at
arm's length, with integrity and transparency.
As part of its policy, the bank recognizes the need for diversity, equal opportunities, gender sensitivity and
provision of a safe and conducive work environment for its entire staff. The bank assists its staff to undertake
continuous professional and development training programmes to fulfill their potential. This process is
appropriately managed to align staff development with the bank's strategic and business goals and objectives, and is
reinforced with appropriate remuneration and incentive systems.
6. SHAREHOLDERS
The composition of shareholders and their individual holdings at the year end 2013 and 2014 was in full
compliance with the provisions of the Banking Act and Central Bank of Kenya Prudential Guidelines.
The Board meets at least once per quarter. Committee meetings are held on monthly basis. Additional meetings
are also held as demanded by special circumstances. During 2014, the Board held 6 meetings. Attendance of Board
meetings by directors was as follows:
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JAMII BORA BANK LIMITED
The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with
International Financial Reporting Standards and the requirements of the Kenyan Companies Act, and for such internal
controls as directors determine are necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
The directors accept responsibility for the annual financial statements, which have been prepared using appropriate
accounting policies supported by reasonable and prudent judgements and estimates, in conformity with International
Financial Reporting Standards and in the manner required by the Kenyan Companies Act. The directors are of the
opinion that the financial statements give a true and fair view of the state of the financial affairs of the bank and of the
banks operating results. The directors further accept responsibility for the maintenance of accounting records which
may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control.
Nothing has come to the attention of the directors to indicate that the bank will not remain a going concern for at least
the next twelve months from the date of this statement.
Director Director
2015
8
INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF
JAMII BORA BANK LIMITED
Report on the Financial Statements
We have audited the accompanying financial statements of Jamii Bora Bank Limited, set out on pages 11 to 65 which
comprise the statement of financial position as at 31 December 2014, and the statement of profit or loss and other
comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a
summary of significant accounting policies and other explanatory notes.
The directors are responsible for the preparation of financial statements that give a true and fair view in accordance with
International Financial Reporting Standards and in the manner required by the Kenyan Companies Act, and for such
internal controls as directors determine are necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in
accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on our judgement, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we considered
the internal controls relevant to the banks preparation of financial statements that give a true and fair view in order to
design audit procedures that were appropriate in the circumstances, but not for the purpose of expressing an opinion on
the banks internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the financial statements give a true and fair view of the state of financial affairs of the bank as at
31 December 2014 and of its profit and cash flows for the year then ended in accordance with International Financial
Reporting Standards and the requirements of the Kenyan Companies Act and the Banking Act.
9
INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF
JAMII BORA BANK LIMITED
Report on Other Legal Requirements
As required by the Kenyan Companies Act we report to you, based on our audit, that:
i) we have obtained all the information and explanations, which to the best of our knowledge and belief, were
necessary for the purposes of our audit;
ii) in our opinion, proper books of account have been kept by the bank, so far as appears from our examination of
those books; and
iii) the banks statement of financial position (balance sheet) and statement profit or loss and other comprehensive
income (profit and loss account) are in agreement with the books of account.
The engagement partner responsible for the audit resulting in this independent auditors report is CPA Anne Muraya
P/No. 1697.
Nairobi, Kenya
2015
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JAMII BORA BANK LIMITED
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JAMII BORA BANK LIMITED
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2014
2014 2013
Note Sh000 Sh000
ASSETS
Cash and balances with Central Bank of Kenya 13 574,619 238,955
Government securities 14 878,966 328,725
Deposits and balances due from banking institutions 15 2,801,467 1,096,412
Loans and advances to customers (net) 16 6,189,800 3,809,603
Other assets 18 622,821 273,010
Tax recoverable 12(c) 424 424
Property and equipment 19 565,417 418,877
Intangible assets - computer software 20 209,870 40,606
Equity investments 22 518,570 -
Deferred tax asset 21 - 47,773
Intangible assets-customer relationships 23 755,938 755,938
_________ _________
TOTAL ASSETS 13,117,892 7,010,323
======== ========
LIABILITIES
Customer deposits 24 8,484,930 3,420,588
Deposits and balances due to banking institutions 25 269,589 110,894
Commercial bond 26 630,608 1,047,587
Medium term loan 27 404,746 120,000
Other liabilities 28 163,934 56,039
Due to related parties 31 (c) 13,422 4,576
Deferred tax 21 45,190 -
________ ________
TOTAL LIABILITIES 10,012,419 4,759,684
________ ________
CAPITAL RESOURCES
Share capital 29 1,190,893 1,701,380
Share premium 29 1,822,837 516,563
Revenue deficit (61,255) (66,207)
Statutory reserve 51,286 35,590
Investment revaluation reserve 1,140 -
Property revaluation surplus 100,572 63,313
_________ ________
SHAREHOLDERS FUNDS 3,105,473 2,250,639
_________ ________
TOTAL LIABILITIES AND SHAREHOLDERS FUNDS 13,117,892 7,010,323
======== ========
The financial statements on pages 11 to 65 were approved and authorised for issue by the board of directors on
2015 and were signed on its behalf by:
__________________________________ Director
__________________________________ Director
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JAMII BORA BANK LIMITED
The revenue deficit relates to the cumulative losses from operations and is distributable.
The statutory reserve represents an appropriation from retained earnings to comply with Central Bank of Kenyas
prudential guidelines on impairment of loans and advances. It represents the excess of loan provision as computed in
accordance with the Central Bank of Kenya prudential guidelines over impairment of loans and advances computed per
IAS 39. The statutory reserve is not distributable.
The investment revaluation reserve represents the unrealized increase or decrease in the fair value of available for sale
investments excluding impairment losses. The reserve is not distributable to the shareholders.
The property revaluation surplus represents the surplus arising from revaluation of properties and is not distributable.
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JAMII BORA BANK LIMITED
2014 2013
Note Sh000 Sh000
CASH FLOWS FROM OPERATING ACTIVITIES
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JAMII BORA BANK LIMITED
Jamii Bora Bank Limited (the bank) which is licensed under the Banking Act, provides banking and related
services. The bank is incorporated in Kenya under the Companies Act as a private limited liability company
and is domiciled in Kenya.
2 ACCOUNTING POLICIES
Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS).
For the Kenyan companies Act reporting purposes, in these financial statements the balance sheet is
represented by/is equivalent to the statement of financial position and the profit and loss account is presented in
the statement of profit or loss and other comprehensive income.
Application of new and revised International Financial Reporting Standards (IFRSs) and interpretations
(IFRIC)
(i) Relevant new standards and amendments to published standards effective for the year ended 31 December
2014
The following new and revised IFRSs were effective in the current year and had no material impact on the
amounts reported in these financial statements.
Amendments to IFRS 10, The amendments to IFRS 10 define an investment entity and require a reporting
IFRS 12 and IAS 27 entity that meets the definition of an investment entity not to consolidate its
Investment Entities subsidiaries but instead to measure its subsidiaries at fair value through profit or
loss in its consolidated and separate financial statements.
obtain funds from one or more investors for the purpose of providing them
with investment management services;
commit to its investor(s) that its business purpose is to invest funds solely
for returns from capital appreciation, investment income, or both; and
measure and evaluate performance of substantially all of its investments on
a fair value basis.
Application of these standards has not had any impact on the disclosures or the
amounts recognised in these financial statements as the bank is not an investment
entity (assessed based on the criteria set out in IFRS 10 as at 1 January 2014).
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JAMII BORA BANK LIMITED
Application of new and revised International Financial Reporting Standards (IFRSs) and
interpretations (IFRIC) (Continued)
(ii) New standards and amendments to published standards effective for the year ended 31 December 2014
(Continued)
Amendments to IAS The amendments to IAS 32 clarify the requirements relating to the offset of
32 Offsetting Financial financial assets and financial liabilities. Specifically, the amendments clarify the
Assets and Financial meaning of currently has a legally enforceable right of set-off and
Liabilities simultaneous realisation and settlement.The amendments have been applied
retrospectively.
As the bank does not have any financial assets and financial liabilities that
qualify for offset, the application of the amendments has had no impact on the
disclosures or on the amounts recognised in the banks financial statements.
Amendments to IAS The amendments to IAS 36 remove the requirement to disclose the recoverable
36 Recoverable amount of a cash-generating unit (CGU) to which goodwill or other intangible
Amount Disclosures assets with indefinite useful lives had been allocated when there has been no
for Non-Financial impairment or reversal of impairment of the related CGU. Furthermore, the
Assets amendments introduce additional disclosure requirements applicable to when the
recoverable amount of an asset or a CGU is measured at fair value less costs of
disposal. These new disclosures include the fair value hierarchy, key assumptions
and valuation techniques used which are in line with the disclosure required by
IFRS 13 Fair Value Measurements. As the bank does not have any cash-
generating units (CGU) to which goodwill or other intangible assets with
indefinite useful lives had been allocated, the application of the amendments has
had no impact on the disclosures or on the amounts recognised in the banks
financial statements.
Amendments to IAS The amendments to IAS 39 provide relief from the requirement to discontinue
39 Novation of hedge accounting when a derivative designated as a hedging instrument is
Derivatives and novated under certain circumstances. The amendments also clarify that any
Continuation of Hedge change to the fair value of the derivative designated as a hedging instrument
Accounting arising from the novation should be included in the assessment and measurement
of hedge effectiveness.
As the bank does not have any derivatives that are subject to novation, the
application of these amendments has had no impact on the disclosures or on the
amounts recognised in the banks financial statements.
IFRIC 21 Levies IFRIC 21 addresses the issue as to when to recognise a liability to pay a levy
imposed by a government. The Interpretation defines a levy, and specifies that the
obligating event that gives rise to the liability is the activity that triggers the
payment of the levy, as identified by legislation. The Interpretation provides
guidance on how different levy arrangements should be accounted for, in
particular, it clarifies that neither economic compulsion nor the going concern
basis of financial statements preparation implies that an entity has a present
obligation to pay a levy that will be triggered by operating in a future period.
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JAMII BORA BANK LIMITED
Application of new and revised International Financial Reporting Standards (IFRSs) and
interpretations (IFRIC) (Continued)
(ii) New and amended standards and interpretations in issue but not yet effective in the year ended
31 December 2014 (Continued)
(iii) Impact of relevant new and amended standards and interpretations on the financial statements for the
year ended 31 December 2014 and future annual periods
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JAMII BORA BANK LIMITED
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JAMII BORA BANK LIMITED
Application of new and revised International Financial Reporting Standards (IFRSs) and
interpretations (IFRIC) (Continued)
(iii) Impact of relevant new and amended standards and interpretations on the financial statements for the
year ended 31 December 2014 and future annual periods (Continued)
The amendments to IFRS 11 apply prospectively for annual periods beginning on or after 1 January
2016.
The directors of the bank do not anticipate that the application of these amendments to IFRS 11 will have
a material impact on the banks financial statements.
For contributions that are independent of the number of years of service, the entity may either recognise
the contributions as a reduction in the service cost in the period in which the related service is rendered,
or to attribute them to the employees periods of service using the projected unit credit method; whereas
for contributions that are dependent on the number of years of service, the entity is required to attribute
them to the employees periods of service.
The directors of the bank do not anticipate that the application of these amendments to IAS 19 will have a
significant impact on the banks financial statements.
The amendments to IFRS 3 clarify that contingent consideration that is classified as an asset or a
liability should be measured at fair value at each reporting date, irrespective of whether the contingent
consideration is a financial instrument within the scope of IFRS 9 or IAS 39 or a non-financial asset
or liability. Changes in fair value (other than measurement period adjustments) should be recognised
in profit and loss. The amendments to IFRS 3 are effective for business combinations for which the
acquisition date is on or after 1 July 2014.
The amendments to IFRS 8 (i) require an entity to disclose the judgements made by management in
applying the aggregation criteria to operating segments, including a description of the operating
segments aggregated and the economic indicators assessed in determining whether the operating
segments have similar economic characteristics; and (ii) clarify that a reconciliation of the total of
the reportable segments assets to the entitys assets should only be provided if the segment assets are
regularly provided to the chief operating decision-maker.
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JAMII BORA BANK LIMITED
Application of new and revised International Financial Reporting Standards (IFRSs) and interpretations
(IFRIC) (Continued)
(iii) Impact of relevant new and amended standards and interpretations on the financial statements for the
year ended 31 December 2014 and future annual periods (Continued)
The amendments to the basis for conclusions of IFRS 13 clarify that the issue of IFRS 13 and
consequential amendments to IAS 39 and IFRS 9 did not remove the ability to measure short- term
receivables and payables with no stated interest rate at their invoice amounts without discounting, if
the effect of discounting is immaterial. As the amendments do not contain any effective date, they are
considered to be immediately effective.
The amendments to IAS 16 and IAS 38 remove perceived inconsistencies in the accounting for
accumulated depreciation/amortisation when an item of property, plant and equipment or an
intangible asset is revalued. The amended standards clarify that the gross carrying amount is adjusted
in a manner consistent with the revaluation of the carrying amount of the asset and that accumulated
depreciation/amortisation is the difference between the gross carrying amount and the carrying
amount after taking into account accumulated impairment losses.
The amendments to IAS 24 clarify that a management entity providing key management personnel
services to a reporting entity is a related party of the reporting entity. Consequently, the reporting
entity should disclose as related party transactions the amounts incurred for the service paid or
payable to the management entity for the provision of key management personnel services. However,
disclosure of the components of such compensation is not required.
The directors do not anticipate that the application of these amendments will have a significant impact
on the banks financial statements.
Annual Improvements to IFRSs 2011-2013 Cycle
The Annual Improvements to IFRSs 2011-2013 Cycle include a number of amendments to various IFRSs,
which are summarised below:
The amendments to IFRS 3 clarify that the standard does not apply to the accounting for the formation of
all types of joint arrangement in the financial statements of the joint arrangement itself.
The amendments to IFRS 13 clarify that the scope of the portfolio exception for measuring the fair value
of a group of financial assets and financial liabilities on a net basis includes all contracts that are within the
scope of, and accounted for in accordance with, IAS 39 or IFRS 9, even if those contracts do not meet the
definitions of financial assets or financial liabilities within IAS 32.
The amendments to IAS 40 clarify that IAS 40 and IFRS 3 are not mutually exclusive and application of
both standards may be required.
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JAMII BORA BANK LIMITED
(iii) Impact of relevant new and amended standards and interpretations on the financial statements for the
year ended 31 December 2014 and future annual periods (Continued)
Annual Improvements to IFRSs 2011-2013 Cycle (Continued)
Consequently, an entity acquiring investment property must determine whether:
(a) the property meets the definition of investment property in terms of IAS 40; and
(b) the transaction meets the definition of a business combination under IFRS 3
The directors do not anticipate that the application of these amendments will have a significant impact on
the banks financial statements.
The bank did not early adopt any new or amended standards in 2014.
Basis of preparation
The bank prepares its financial statements under the historical cost convention as modified to include the
revaluation of certain properties and investments.
Consolidation
As at 31 December 2014, the bank registered a subsidiary company, Jamii Bora Insurance Agency Limited to
operate the business of insurance agency. The company will start operations in the year 2015 upon receipt of
operating licenses from Insurance Regulatory Authority.
This arises from the margins which are achieved through market-making and customer business and from
changes in market value caused by movements in exchange rates.It comprises gains less losses related to
trading assets and liabilities, and includes all realised and unrealised foreign exchange differences.
Intangible assets
Intangible assets comprise the cost of purchased computer software programs and other costs to bring the asset
to the usable state. Expenditure is capitalised and amortised using the straight line method over estimated
useful lives, of five years.
Statutory reserve
IAS 39 requires the bank to recognise an impairment loss when there is objective evidence that loans and
advances are impaired. However, Central Bank of Kenya prudential guidelines require the bank to set aside
amounts for impairment losses on loans and advances in addition to those losses that have been recognised
under IAS 39. Any such amounts set aside represent appropriations of retained earnings and not expenses in
determining profit or loss. These amounts are dealt with in the statutory reserve.
This represents the unrealized increase or decrease in the fair value of available for sale investments excluding
impairment losses. The reserve is not distributable to the shareholders.
This arises from the revaluation of land and buildings and is not distributable. When revalued land and
buildings are sold, the proportion of the propertys revaluation reserve that relates to that asset is transferred
directly to retained earnings. Items of other comprehensive income included in the properties revaluation
reserve will not be reclassified subsequently to profit or loss.
All property and equipment are initially recorded at cost. Land and buildings are subsequently shown at market
value, based on periodic valuations by external independent valuers, less subsequent depreciation and any
accumulated impairment losses. Equipment are stated at historical cost less depreciation and any accumulated
impairment losses.
Increases in the carrying amount of land and buildings arising from revaluations are credited to other
comprehensive income and accumulated in a revaluation reserve under a separate heading in the statement of
changes in equity. Decreases that offset previous increases of the same asset are charged against other
comprehensive income; all other decreases are charged to the profit or loss.
Each year, the difference between depreciation based on the revalued carrying amount of an asset (the
depreciation charged to profit or loss) and depreciation based on the assets original cost is transferred from the
revaluation surplus to revenue reserves.
Any accumulated depreciation at the date of the revaluation is eliminated against the gross carrying amount of
the asset.
Depreciation is calculated on a straight line basis at annual rates estimated to write off the cost or value of
property and equipment over their expected useful lives. The rates generally in use are:
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JAMII BORA BANK LIMITED
Work in progress
Work in progress relates to software development costs for the proposed core banking system and patch up
models. Costs include direct labour and other direct expenses incurred in respect to the project. Depreciation of
the assets commences when the assets are ready for their intended use.
Business combinations
Acquisitions of businesses are accounted for using the purchase method. The cost of the business combination
is measured as the aggregate of the fair values at the date of exchange of assets, liabilities incurred or assumed
and equity instruments issued by the company in exchange for control of the acquiree. Acquisition-related
costs are generally recognised in profit or loss as incurred.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the
cost of the business combination over the companys interest in the fair value of the identifiable assets,
liabilities and contingent liabilities recognised. If, after reassessment, the companys interest in the net fair
value of the acquirees identifiable assets, liabilities and contingent liabilities exceeds the cost of the business
combination, the excess is recognised immediately in profit or loss as a bargain purchase gain.
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the
business less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to each of the company's cash-generating units
(or groups of cash-generating units) that is expected to benefit from the synergies of the combination. On
disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the
determination of the profit or loss on disposal.
Intangible assets acquired in a business combination and recognized separately from goodwill are initially
recognized at their fair value at the acquisition date (which is regarded as their cost).
Subsequent to initial recognition Intangible assets acquired in a business combination are reported at cost less
accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are
acquired separately.
An intangible asset is derecognised at disposal, or when no further economic benefits are expected from use or
disposal. Gains or losses arising from derecognition of intangible assets, measured as the difference between
the net disposal proceeds and the carrying amount of assets, are recognized in profit or loss when the asset is
derecognised.
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JAMII BORA BANK LIMITED
Financial instruments
i) Recognition
A financial asset or liability is recognised when the bank becomes party to the contractual provisions of
the instrument.
ii) Classification and Measurement
Financial assets
The bank classifies its financial assets into the following categories: Financial assets at fair value through
profit or loss; loans, advances and receivables; held- to- maturity investments; and available-for-sale
assets. Management determines the appropriate classification of its investments at initial recognition.
Financial assets are initially recognised at fair value plus transaction costs for all financial assets not
carried at fair value through profit or loss. Financial assets are derecognised when the rights to receive
cash flows from the financial assets have expired or where the bank has transferred substantially all risks
and rewards of ownership.
Financial assets at fair value through profit or loss
This category has two sub-categories: Financial assets held for trading and those designated at fair value
through profit or loss at inception. A financial asset is classified in this category if acquired principally for
the purpose of selling in the short term or if so designated by management. Derivatives are also
categorised as held for trading. Financial assets at fair value through profit or loss are subsequently carried
at fair value. Gains and losses arising from changes in the fair value of financial assets at fair value
through profit or loss are included in the profit or loss in the period in which they arise.
Loans, advances and receivables
Loans, advances and receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. They arise when the bank provides money, goods or services
directly to a debtor with no intention of trading the receivable. Loans and advances are recognized when
cash is advanced to borrowers. Loans, advances and receivables and held-to-maturity investments are
carried at amortised cost using the effective interest method.
Held to maturity
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and
fixed maturities that management has the positive intention and ability to hold to maturity. Where a sale
occurs, other than an insignificant amount of held-to-maturity assets, the entire category would be tainted
and classified as available for sale. Held-to-maturity investments are carried at amortised cost using the
effective interest method.
Available-for-sale financial assets
Financial assets that are not (a) financial assets at fair value through profit or loss, (b) loans, advances and
receivables, or (c) financial assets held to maturity.
Available-for-sale financial assets are subsequently carried at fair value. Gains and losses arising from
changes in the fair value of available-for-sale financial assets are recognised in other comprehensive
income and accumulated in the investment revaluation reserve, with the exception of impairment losses,
interest calculated using the effective interest method, and foreign exchange gains and losses on monetary
assets, which are recognized in profit or loss. Where the investment is disposed off or is determined to be
impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is
reclassified to profit or loss.
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JAMII BORA BANK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
1 ACCOUNTING POLICIES (Continued)
ii) Classification and Measurement (Continued)
Financial assets (Continued)
Where fair value cannot be reliably measured, the unquoted investment is carried at cost. Dividends on
available-for-sale equity instruments are recognised in the profit or loss when the banks right to receive
payment is established.
Fair values of quoted investments in active markets are based on quoted bid prices. Equity securities for
which fair values cannot be measured reliably are measured at cost less impairment.
Impairment and uncollectability of financial assets
At the end of each reporting period, all financial assets are subject to review for impairment. If it is
probable that the bank up will not be able to collect all amounts due (principal and interest) according to
the contractual terms of loans, receivables, or held-to-maturity investments carried at amortised cost, an
impairment or bad debt loss has occurred. The carrying amount of the asset is reduced to its estimated
recoverable amount through use of an allowance account. The amount of the loss incurred is included in
profit or loss for the period.
If a loss on a financial asset carried at fair value (recoverable amount is below original acquisition cost)
has been recognised directly in other comprehensive income and there is objective evidence that the asset
is impaired, the cumulative net loss that had been recognised directly in other comprehensive income is
removed from equity and recognised in profit or loss for the period even though the financial asset has not
been derecognised.
The bank considers evidence of impairment at both a specific asset and collective level. All individually
significant financial assets are assessed for specific impairment. All significant assets found not to be
specifically impaired are then collectively assessed for any impairment that has been incurred but not yet
identified. Assets that are not individually significant are then collectively assessed for impairment
together with financial assets with similar risk characteristics.
Objective evidence that financial assets are impaired can include observable data that comes to the
attention of the bank about the following loss events:
Significant financial difficulty of the borrower
default or delinquency by a borrower,
restructuring of a loan or advance by the bank on terms that the bank would not otherwise consider,
indications that a borrower or issuer will enter bankruptcy,
the disappearance of an active market for a security, or
other observable data relating to a group of assets such as adverse changes in the payment status of
borrowers or issuers in the group, or economic conditions that correlate with defaults in the group.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of
similar credit risk characteristics that is, on the basis of the banks grading process that considers asset
type, industry, geographical location, collateral types, past due status and other relevant factors. Those
characteristics are relevant to the estimation of future cash flows for groups of such assets by being
indicative of the debtors ability to pay all amounts due according to the contractual terms of the assets
being evaluated.
a) Assets carried at amortised cost
Impairment losses on assets carried at amortised cost are measured as the difference between the
carrying amount of the financial assets and the present value of estimated cash flows discounted at the
assets original effective interest rate. Losses are recognised in profit or loss and reflected in an
allowance account against loans and advances. Interest on the impaired asset continues to be
recognised through the unwinding of the discount.
When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is
reversed through profit or loss.
25
JAMII BORA BANK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (continued)
2 ACCOUNTING POLICIES (Continued)
However, any subsequent recovery in the fair value of an impaired available-for-sale equity
security is recognised directly in equity. Changes in impairment provisions attributable to time
value are reflected as a component of interest income.
Financial assets are derecognized when the rights to receive cashflows from the financial assets
have expired or where the company has transferred substantially all risks and rewards of ownership.
Financial liabilities
Debt and equity instruments are classified, as either financial liabilities or as equity in accordance with
the substance of the contractual agreement.
After initial recognition, the bank measures all financial liabilities including customer deposits and
borrowings other than liabilities held for trading at amortised cost. Liabilities held for trading (financial
liabilities acquired principally for the purpose of generating a profit from short-term fluctuations in
price or dealer's margin) are subsequently measured at their fair values.
Interest-bearing borrowings are initially measured at fair value, and are subsequently measured at
amortised cost, using the effective interest rate method. Any difference between the proceeds (net of
transaction costs) and the settlement or redemption of borrowings is recognised over the term of the
borrowings.
Financial liabilities are derecognised and the consideration paid and payable is recognized in profit or
loss.
Provisions
Provisions are recognised when the bank has a present legal or constructive obligation as a result of
past events, it is probable that an outflow of resources embodying economic benefits will be required
to settle the obligation and a reliable estimate of the amount of the obligation can be made.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
(i) Current taxation
The corporate tax currently payable is based on taxable profit for the year. Taxable profit differs from
profit as reported in the statement of comprehensive income because of items of income or expense
that are taxable or deductible in other years and items that are never taxable or deductible. The
companys liability for current tax is calculated using tax rates that have been enacted or substantively
enacted by the end of the reporting period.
26
JAMII BORA BANK OF KENYA LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2 ACCOUNTING POLICIES (Continued)
Taxation (Continued)
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred
tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally
recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be
available against which those deductible temporary differences can be utilised. Such deferred tax assets and
liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition
(other than in a business combination) of other assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in
associates, except where the company is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising
from deductible temporary differences associated with such investments and interests are only recognised to
the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of
the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the
extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the
asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in
which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and
assets reflects the tax consequences that would follow from the manner in which the company expects, at the
end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised
in other comprehensive income or directly in equity, in which case, the current and deferred tax are also
recognised in other comprehensive income or directly in equity respectively.
Foreign currencies
Monetary assets and liabilities in foreign currencies are translated into Kenya Shillings at the rates of exchange
ruling at the reporting date. Transactions in foreign currencies during the year are translated at the rates ruling
at the dates of the transactions. Exchange gains and losses are dealt with in the profit or loss.
The bank operates a defined contribution scheme for its employees. The assets of this scheme are held in a
separate trustee administered fund. The scheme is funded by contributions from both the employees and
the bank. Benefits are paid to retiring staff in accordance with the scheme rules. The banks contribution is
charged to profit or loss.
27
JAMII BORA BANK LIMITED
The bank also contributes to the statutory National Social Security Fund (NSSF). This is a defined
contribution scheme registered under the National Social Security Act. The banks obligations under
the scheme are limited to specific contributions legislated from time to time and are currently limited
to a maximum of Sh 200 per employee per month. The banks obligations to staff retirement benefit
schemes are charged to the profit or loss in the year to which they relate.
iii) Other employee entitlements
Employee entitlements to annual leave are recognised when they accrue to employees. A provision is
made for the estimated liability for annual leave accrued at the end of the reporting period.
Some senior management staff are entitled to gratuity payments. A provision is made for the
estimated liability for every month worked and at the expiry of employment contract, the payment is
made net of applicable taxes.
Leases
Leases of property and equipment where the bank assumes substantially all the benefits and risks of
ownership are classified as finance leases. Finance leases are capitalised at the estimated present value of the
underlying lease payments. Each lease payment is allocated between the liability and finance charges so as to
achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of
finance charge are included in other long-term payables.
The interest element of the finance charge is charged to the profit or loss over the lease period. The property
and equipment acquired under finance leasing contracts are depreciated over the useful life of the asset.
Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are
classified as operating leases. Payments made under operating leases are charged to the profit or loss for the
year on a straight-line basis over the lease.
When an operating lease is terminated before the lease period has expired, any payment required to be made
to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.
Contingent liabilities
Letters of credit, performance bonds and guarantees are accounted for as off balance sheet transactions and
disclosed as contingent liabilities. Estimates of the outcome and of the financial effect of contingent
liabilities is made by management based on the information available up to the date the financial statements
are approved for issue by directors. Any expected loss is charged to the profit or loss for the year.
Comparatives
Where necessary, comparative figures have been adjusted to conform to changes in presentation in the
current year.
In the process of applying the banks accounting policies, management has made estimates and assumptions
that affect the reported amounts of assets and liabilities within the next financial year. Estimates and
judgements are continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances. These are dealt with
below:
28
JAMII BORA BANK LIMITED
At the inception of each lease of land, the company considers the substance rather than the form of the
lease contract. Examples of situations that individually or in combination would normally lead to a lease
being classified as a finance lease are:
The lease transfers ownership of the asset to the lessee by the end of the lease term;
The lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than
the fair value at the date the option becomes exercisable for it to be reasonably certain, at the
inception of the lease, that the option will be exercised;
The lease term is for the major part of the economic life of the asset even if title is not transferred;
At the inception of the lease the present value of the minimum lease payments amounts to at least
substantially all of the fair value of the leased asset; and
The leased assets are of such a specialised nature that only the lessee can use them without major
modifications.
The company also considers indicators of situations that individually or in combination could also lead to
a lease being classified as a finance lease. Examples of such indicators include:
If the lessee can cancel the lease, the lessor's losses associated with the cancellation are borne by the
lessee;
gains or losses from the fluctuation in the fair value of the residual accrue to the lessee (for example,
in the form of a rent rebate equalling most of the sales proceeds at the end of the lease); and
the lessee has the ability to continue the lease for a secondary period at a rent that is substantially
lower than market rent.
The bank reviews its loan portfolios to assess impairment regularly. In determining whether an
impairment loss should be recorded in the profit or loss, the bank makes judgements as to whether there
is any observable data indicating that there is a measurable decrease in the estimated future cash flows
from a portfolio of loans, before a decrease can be identified with an individual loan in that portfolio.
This evidence may include observable data indicating that there has been an adverse change in the
payment status of borrowers in a bank, or national or local economic conditions that correlate with
defaults on assets in the bank. Management uses estimates based on historical loss experience for assets
with credit risk characteristics and objective evidence of impairment similar to those in the portfolio
when scheduling its future cash flows. The methodology and assumptions used for estimating both the
amount and timing of future cash flows are reviewed regularly to reduce any differences between loss
estimates and actual loss experience.
The bank follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or
determinable payments and fixed maturity as held-to-maturity. This classification requires significant
judgement. In making this judgement, the loans and advances evaluates its intention and ability to hold
such investments to maturity. If the loans and advances fails to keep these investments to maturity other
than for the specific circumstances for example, selling an insignificant amount close to maturity it
will be required to reclassify the entire class as available-for-sale. The investments would therefore be
measured at fair value not amortised cost.
29
JAMII BORA BANK LIMITED
Critical estimates are made by the directors in determining depreciation rates for property and equipment.
Some of the banks assets and liabilities are measured at fair value for financial reporting purposes. In
estimating the fair values of an asset or liability, the bank uses market observable data to the extent that it
is available. Where level 1 inputs are not available, the bank engages third party qualified valuers to
perform the valuation.
The bank has exposure to the following risks from its use of financial instruments:
credit risk
liquidity risk
market risk
The Board of Directors has overall responsibility for the establishment and oversight of the banks risk
management framework. The Board has established the Assets and Liabilities (ALCO) and a Credit
Committee which are responsible for developing and monitoring the banks risk management policies in their
specified areas.
The banks risk management policies are established to identify and analyse the risks faced by the bank, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies
and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The
bank, through its training and management standards and procedures, aims to develop a disciplined and
constructive control environment, in which all employees understand their roles and obligations.
The Board of Directors is responsible for monitoring compliance with the banks risk management policies
and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks
faced by the bank.
Credit risk is the risk of financial loss to the bank if a customer or counterparty to a financial instrument
fails to meet its contractual obligations, and arises principally from the banks loans and advances to
customers and other banks and investment securities. For risk management reporting purposes, the bank
considers and consolidates all elements of credit risk exposure.
30
JAMII BORA BANK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued)
4 FINANCIAL RISK MANAGEMENT
The Board of Directors has delegated responsibility for the management of credit risk to the Board Credit
Committee. The banks Credit Department, reports to the Management Credit Committee, which in turn
reports the Board Credit Committee with the latter being responsible for oversight of the banks credit
risk, including:
Formulating credit policies in consultation with business units, covering collateral requirements, credit
assessment, risk grading and reporting, documentary and legal procedures, and compliance with
regulatory and statutory requirements.
Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation
limits are allocated to the Credit Manager and the Managing Director. Larger facilities require approval
by the Board Credit Committee or the Main Board as appropriate.
Reviewing and assessing credit risk. Credit Committee assesses all credit exposures in excess of
designated limits, prior to facilities being committed to customers by the business unit concerned.
Renewals and reviews of facilities are subject to the same review process.
Limiting concentrations of exposure to counterparties, geographies and industries (for loans and
advances), and by issuer, credit rating band, market liquidity and country (for investment securities).
Developing and maintaining the banks risk grading in order to categorise exposures according to the
degree of risk of financial loss faced and to focus management on the attendant risks. The risk grading
system is used in determining where impairment provisions may be required against specific credit
exposures. The current risk grading framework consists of five grades reflecting varying degrees of
risk of default and the availability of collateral or other credit risk mitigation. The responsibility for
setting risk grades lies with the final approving executive / committee as appropriate. Risk grades are
subject to regular reviews by the Board Credit Committee.
Reviewing compliance of business units with agreed exposure limits, including those for selected
industries, country risk and product types. Regular reports are provided to the Board Credit
Committee on the credit quality of local portfolios and appropriate corrective action is taken.
Providing advice, guidance and specialist skills to business units to promote best practice throughout
the bank in the management of credit risk.
Concentrations of assets, liabilities and off balance sheet items
Details of significant concentrations of the banks assets, liabilities and off balance sheet items by
industry groups are as detailed below:
(i) Advances to customers - gross
2014 2013
Sh 000 % Sh 000 %
Agriculture 18,533 0.3 4,656 -
Manufacturing - - - -
Building and construction 297,345 4.6 230,064 6
Wholesale and retail 2,614,875 40.6 1,754,516 45
Real estate 2,059,592 32.0 670,108 17
Social community and personal services 1,215,845 18.9 1,152,635 29
Transport and communication 226,934 3.5 121,297 3
________ _____ ________ ______
6,433,124 100 3,933,276 100
======= ==== ======= =====
31
JAMII BORA BANK LIMITED
2014 2013
Sh 000 % Sh 000 %
On-balance sheet
Government and other securities
-held to maturity 545,096 5 328,725 6
-Available for sale 343,438 3 - -
Placements with other banks 2,801,467 27 1,096,412 20
Loans and advances to customers 6,433,124 63 3,933,276 72
________ ____ ________ ______
10,123,125 98 5,358,413 98
________ ____ ________ ______
Off-balance sheet items:
Guarantees and indemnities 154,873 2 84,473 2
________ _____ ________ ______
32
JAMII BORA BANK LIMITED
The above table represents a worse case scenario of credit risk exposure to the bank at 31 December,
2014 and 31 December 2013, without taking account of any collateral held or other credit
enhancements attached. For on-balance sheet assets, the exposures set out above are based on carrying
amounts as reported in the balance sheet.
As shown above, 62% of the total maximum exposure is derived from loans and advances to customers
(2013: 63%) and 9% represents investments in debt securities (2013: 15%).
Loans and advances to customers are secured by collateral in the form of mortgage interests over
property, other registered securities over assets, and guarantees.
The bank does not perceive any significant credit risk on the following financial assets:
Investments in Government securities are deemed adequately secured by the Government of Kenya
with no inherent default risk whereas from history, the bank has not incurred any loss from off balance
sheet items hence the low credit risk in the two categories of financial assets.
The credit risk on the deposits and balances due from banking institutions is considered to be low
because the counterparties are banks with high credit ratings.
The board assesses the credit quality of each related party, taking into account its financial position,
past experience and other factors before getting into any credit transactions with them. The credit risk
on related parties is minimal as their ultimate holding company is also one of main shareholders of the
bank who have huge financial capacities as demonstrated by the regular capital injection over the years.
33
JAMII BORA BANK LIMITED
FINANCIAL STATEMENTS (CONTINUED)
4 FINANCIAL RISK MANAGEMENT (Continued)
(a) Credit risk (Continued)
Loans and advances that are neither past due nor impaired
The bank classifies loans and advances under this category for those exposures that are upto date
and in line with contractual agreements. Such loans would have demonstrated financial conditions,
risk factors and capacity to repay that are acceptable. These exposures will normally be maintained
largely within approved product programs and with no signs of impairment or distress. These
exposures are categorised as normal accounts in line with Central Bank of Kenya (CBK) prudential
guidelines and a provision at 1 % is made and appropriated from revenue reserves to statutory
reserves.
Loans and advances that are past due but not impaired
These are loans and advances where contractual interest or principal payments are past due by less
than 90 days but the bank believes that impairment is not appropriate on the basis of the level of
security/collateral available and/or the stage of collection of amounts owed to the bank. These
exposures are categorised as watch accounts in line with Central Bank of Kenya (CBK) prudential
guidelines and a collective impairment allowance of 3% made to cover losses which have been
incurred but have not yet been identified.
Analysis of loans and advances past due but not impaired by number of days outstanding:
30 60 60 90 Total
Sh000 Sh000 Sh000
Impaired loans and advances are those for which the bank determines that it will be unable to
collect all principal and interest due according to the contractual terms of the loan agreements.
These loans are graded 3 to 5 in the banks internal credit risk grading system as required by the
regulator.
According to Central Bank of Kenya prudential guidelines, loans and advances overdue by above
90 days are considered non-performing.
34
JAMII BORA BANK LIMITED
Of the total gross amount of impaired loans, the following amounts have been individually assessed:
Of the total gross amount of impaired loans, the following amounts have been individually assessed:
Loans Overdrafts
2014 2013 2014 2013
Sh000 Sh000 Sh000 Sh000
Individually assessed impaired loans and
Advances - retail 286,456 157,154 - -
-corporate 231,963 109,081 12,720 7,700
_______ _______ _______ ______
The bank establishes an allowance for impairment losses that represents its estimate of incurred losses
in its loan portfolio. The main components of this allowance are a specific loss component that relates
to individually significant exposures, and a collective loan loss allowance established for banks of
homogeneous assets in respect of losses that have been incurred but have not been identified on loans
subject to individual assessment for impairment.
Write-off policy
The bank writes off a loan/security balance (and any related allowances for impairment losses) when
credit determines that the loans/securities are uncollectible. This determination is reached after
considering information such as the occurrence of significant changes in the borrower/issuers
financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from
collateral will not be sufficient to pay back the entire exposure. For smaller balance standardised loans,
charge off decisions generally are based on a product specific past due status.
Set out below is an analysis of the gross and net (of allowances for impairment) amounts of
individually impaired assets by risk grade.
35
JAMII BORA BANK LIMITED
639,893 87,811
======= ========
36
JAMII BORA BANK LIMITED
2014 2013
Sh000 Sh000
Analysis of nature of collateral held:
Impaired
Property 88,275 -
Motor vehicle 11,100 -
Other 77,075 3,867
_______ ________
176,450 3,867
======= ========
b) Liquidity risk
Liquidity risk is the risk that the bank is unable to meet its payment obligations associated with its
financial liabilities as they fall due and to replace funds when they are withdrawn.
The bank is exposed to daily calls on its available cash resources from overnight deposits, current
accounts, maturing deposits and calls on cash settled contingencies. The bank does not maintain cash
resources to meet all of these needs as experience shows that a minimum level of reinvestment of
maturing funds can be predicted with a high level of certainty. The Central Bank of Kenya requires
that the Bank maintain a cash reserve ratio. In addition, the Board sets limits on the minimum
proportion of maturing funds available to meet such calls and on the minimum level of inter-bank and
other borrowing facilities that should be in place to cover withdrawals at unexpected levels of demand.
The bank monitors liquidity ratios on a daily basis.
Details of the reported bank ratio of net liquid assets to deposits and customers at the reporting date
and during the reporting period were as follows:
2014 2013
At 31 December 38% 42%
Average for the period 39% 50%
Maximum for the period 48% 60%
Minimum for the period 30% 32%
Statutory minimum requirement 20% 20%
===== =====
37
JAMII BORA BANK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued)
4 FINANCIAL RISK MANAGEMENT (Continued)
b) Liquidity risk (continued)
The tables below represent cash flows payable by the bank under non-derivative financial liabilities by remaining contractual maturities as at
31 December 2014 and 31 December 2013. The amounts disclosed in the table are the contractual undiscounted cash flows. All figures are in thousands
of Kenya Shillings.
Upto 1 1-3 3-6 6-12 1-3 3-5 Over
Month Months Months Months Years Years 5 years Total
At 31 December 2014
Customer deposits 4,105,612 2,251,280 1,588,325 940,346 88,056 20,406 - 8,994,025
Deposits and balances due to banking
institutions 283,068 - - - - - - 283,068
Commercial bond - 34,679 - - - 679,800 - 714,479
Medium term loan - 60,600 - 60,600 313,221 - - 434,421
Due to related parties 13,422 - - - - - - 13,422
________ _______ _______ _______ _______ ______ _______ ________
Financial assets
Cash and bank balances with Central Bank of
Kenya 262,303 143,832 101,476 60,078 5,626 1,304 - 574,619
Government securities 343,409 - - - 234,064 106,191 195,302 878,966
Deposits and balances due from banking
institutions 2,676,467 - - 125,000 - - - 2,801,467
Loans and advances to customers 1,646,561 470,104 147,984 315,352 1,170,508 1,057,093 1,382,197 6,189,800
________ _______ _______ _______ _______ _______ _______ ________
Net liquidity gap * 526,638 (1,732,623) (1,338,865) (500,516) 1,008,921 464,382 1,577,499 5,437
======= ======== ======== ======= ======= ====== ======= =======
* The mismatch in the categories under up to 1 month,1-3 and 3-6 months is due to the assumption that all the deposits falling due within these periods will
be withdrawn which is highly unlikely.
38
JAMII BORA BANK LIMITED
Financial assets
Cash and bank balances with Central Bank of
Kenya 165,937 52,215 708 11,537 8,558 - - 238,955
Government securities - - - - - 185,792 142,933 328,725
Deposits and balances due from banking
institutions 981,412 - 115,000 - - - - 1,096,412
Loans and advances to customers 416,679 59,974 161,495 142,106 945,413 826,220 1,257,716 3,809,603
________ _______ _______ _______ _______ _______ _______ ________
Total financial assets 1,564,028 112,189 277,203 153,643 953,971 1,012,012 1,400,649 5,473,695
(Expected maturity dates)
________ ________ _______ _______ _______ _______ ________ ________
39
JAMII BORA BANK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued)
4 FINANCIAL RISK MANAGEMENT (Continued)
c) Market risk
Market risk is the risk that changes in market prices, which include currency exchange rates and interest rates,
will affect the fair value or future cash flows of a financial instrument. Market risk arises from open positions
in interest rates and foreign currencies, both of which are exposed to general and specific market movements
and changes in the level of volatility. The objective of market risk management is to manage and control
market risk exposures within acceptable limits, while optimizing the return on risk. Overall responsibility for
managing market risk rests with the Board of Directors. The Managing Director is responsible for the
development of detailed risk management policies (subject to review and approval by the Board of Directors)
and for the day to day implementation of those policies.
(i) Currency risk
The bank operates wholly within Kenya and its assets and liabilities are reported in the local currency.
The banks currency risk is managed within the Central Bank of Kenya exposure guidelines of 20% of
core capital.
The exchange rates used for translating the major foreign currency balances as at year end were as
follows:
2014 2013
Sh Sh
US Dollar 90.65 86.45
GB Pound 141.04 142.44
Euro 110.16 119.25
The table below summarises the Banks exposure to foreign currency exchange rate risk at 31 December
2014 and 31December 2013. Included in the table are the Banks financial instruments, categorized by
currency.
At 31 December 2014 KShs USD GBP Euro Others Total
Sh000 Sh000 Sh000 Sh000 Sh000 Sh000
FINANCIAL ASSETS
Cash and balances with
Central Bank of Kenya 549,449 19,471 2,664 2,978 57 574,619
Government securities 878,966 - - - - 878,966
Deposits and balances due
from banking institutions 1,740,482 990,100 33,391 37,494 - 2,801,467
Loans and advances to
customers 6,066,583 123,217 - - - 6,189,800
________ ______ _____ _____ ________ ________
40
JAMII BORA BANK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued)
4 FINANCIAL RISK MANAGEMENT (Continued)
c) Market risk (continued)
(i) Currency risk (continued)
At 31 December 2013
41
JAMII BORA BANK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued)
4 FINANCIAL RISK MANAGEMENT (Continued)
The table below summarises the banks exposure to interest rate risks. Included in the table are the
companys assets and liabilities at carrying amounts, categorized by the earlier of contractual repricing or
maturity dates. The bank does not bear an interest rate risk on off balance sheet items. All figures are in
thousands of Kenya Shillings.
At 31 December 2014
Non-
interest
Upto 1 1-3 3-12 1-5 bearing
Month Months Months Years Years Total
FINANCIAL ASSETS
Cash and balances with
Central Bank of Kenya - - - - 574,619 574,619
Government securities 345,568 - - 533,398 - 878,966
Deposits and balances due
from banking institutions 2,676,467 - 125,000 - - 2,801,467
Loans and advances to
customers 308,448 169,249 301,334 5,410,769 - 6,189,800
________ _______ _______ ________ _______ ________
FINANCIAL LIABILITIES
42
JAMII BORA BANK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued)
4 FINANCIAL RISK MANAGEMENT (Continued)
c) Market risk (continued)
(ii) Interest rate risk (Continued)
At 31 December 2013
Non-
interest
Upto 1 1-3 3-12 1-5 bearing
Month Months Months Years Years Total
FINANCIAL ASSETS
Cash and balances with
Central Bank of Kenya - - - - 238,955 238,955
Government securities - - - 328,725 - 328,725
Deposits and balances due
from banking institutions 965,786 - 111,934 - 18,692 1,096,412
Loans and advances to
customers 271,295 169,249 302,334 3,066,725 - 3,809,603
________ _______ _______ ________ _______ ________
FINANCIAL LIABILITIES
The impact that an immediate hypothetical increase or decrease in interest rates of 10% applied at the
beginning of the year would have on the profit for the year assuming a growing balance sheet and
current interest rate risk profile would be as follows:
2014 2013
Sh000 Sh000
The model does not take into account any corrective action in response to interest rate movements,
particularly in adverse situations.
43
JAMII BORA BANK LIMITED
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level
includes listed equity securities and debt instruments on exchanges.
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset
or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
Level 3 inputs for the asset or liability that are not based on observable market data
(unobservable inputs). This level includes equity investments and debt instruments with significant
unobservable components. This hierarchy requires the use of observable market data when
available. The group considers relevant and observable market prices in its valuations where
possible.
The following table shows an analysis of financial and non- financial instruments recorded at fair value
by level of the fair value hierarchy:
At 31 December 2014
Level 1 Level 2 Level 3 Total
Sh000 Sh000 Sh000 Sh000
Financial Assets
Government securities - Available for
sale investments 343,438 - - 343,438
Equity investments 518,570 - - 518,570
Non- financial Assets
Land and buildings - 263,367 - 263,367
_______ ________ ________ ________
At 31 December 2013
Non-financial Assets
Land and buildings - 209,570 - 209,570
====== ====== ======= ======
Disclosures of fair values of financial instruments not measured at fair value have not been made
because the financial carrying amounts are a reasonable approximation of their fair values.
44
JAMII BORA BANK LIMITED
The companys objectives when managing capital, which is a broader concept than the equity on the balance
sheets, are:
To comply with the capital requirements set by the Central Bank of Kenya;
To safeguard the companys ability to continue as a going concern, so that it can aim to provide returns for
shareholders and benefits for other stakeholders;
To maintain a strong capital base to support the development of its business.
Capital adequacy and use of regulatory capital are monitored regularly by management, employing techniques
based on the guidelines developed by the Basel Committee, as implemented by the Central Bank of Kenya for
supervisory purposes. The required information is filed with the Central Bank of Kenya on a monthly basis.
The bank had met the minimum core capital requirement as at year end.
The risk weighted assets are measured by means of a hierarchy of four risk weights classified according to the
nature of and reflecting an estimate of the credit risk associated with each asset and counterparty. A similar
treatment is adopted for off-balance sheet exposure, with some adjustments to reflect the more contingent
nature of the potential losses
There have been no material changes in the banks management of capital during the period.
The bank had met the minimum core capital requirement of Sh 1 billion as at 31 December 2014.
45
JAMII BORA BANK LIMITED
2,196,537 1,395,798
________ ________
Tier 2 capital
Statutory reserve 35,590 35,590
Revaluation surplus (25%) 25,143 15,828
________ ________
6 INTEREST INCOME
1,033,824 536,330
======= =======
7 INTEREST EXPENSE
457,626 148,075
===== ======
46
JAMII BORA BANK LIMITED
203,935 152,496
====== ======
8 (b) FOREIGN EXCHANGE GAINS
Gains on foreign currency dealings arose from trading in foreign currency transactions and also on the
translation of foreign currency assets and liabilities
2014 2013
Sh000 Sh000
9 OTHER OPERATING INCOME
Bad debts recovered 58,836 31,108
Fair value gain on equity investments 51,623 -
Other income * 21,680 41,721
______ _______
132,139 72,829
====== ======
* Included in 2013 is an amount of Sh 22 million relating to disposal of houses that had been allocated to
the Bank to settle related party balances.
2014 2013
Sh000 Sh000
10 OPERATING EXPENSES
47
JAMII BORA BANK LIMITED
291,045 215,395
====== ======
12 TAXATION
(a) Tax (credit)/charge
Current taxation - -
Deferred taxation charge/(credit) - note 20 76,582 (3,813)
_______ _____
76,582 (3,813)
====== =====
(b) Reconciliation of tax charge /(credit) to the
expected tax based on accounting profit/(loss)
Accounting profit before taxation 96,268 90,074
======= =======
Tax at the applicable rate of 30% 28,880 27,022
Tax effect of expenses not deductible
for tax purposes 1,786 1,629
Tax effect of incomes not subject to tax (6,120) (6,120)
Deferred tax losses now utilised (note 20) - (26,344)
Net effect of deferred tax on expired tax losses 52,036 -
_______ ______
76,582 (3,813)
====== ======
As at 31 December 2014, the bank had accumulated tax losses amounting to Sh 24,323,206
(2013 Sh 1,109,324,880) available to be offset against future taxable profit. Under Kenyan legislation,
w.e.f 1 January 2010, tax losses can only be carried forward to a maximum of four years.
2014 2013
Sh000 Sh 000
(c) Tax recoverable
At start and end of year (424) (424)
====== =====
48
JAMII BORA BANK LIMITED
2014 2013
Sh000 Sh000
The cash ratio requirement balance is non-interest earning and is based on the value of customer deposits as
adjusted by the Central Bank of Kenya requirements. These funds are not available to finance the day-to-
day operations of the bank and are non-interest bearing. As at 31 December 2014 the cash ratio requirement
in Kenya was 5.25% (2013 5.25%) of eligible deposits.
Held to maturity (at amortised cost maturing after 5 years) 535,558 328,725
Available for sale 343,438 -
_______ _______
878,966 328,725
====== =======
(b) Movement in treasury bonds available for sale is as follows:
At start of year - -
Additions 342,298 -
Fair value gains 1,140 -
_______ ______
343,438 -
====== =====
Treasury bonds are debt securities issued by the Government of Kenya and are classified as held to
maturity and available for sale investments. The weighted average effective interest rate on treasury bonds
at 31 December 2014 was 11.80 % (2013 11.95%).
15 DEPOSITS AND BALANCES DUE FROM BANKING INSTITUTIONS
2014 2013
Sh 000 Sh000
2,801,467 1,096,412
======== =======
49
JAMII BORA BANK LIMITED
Deposits due from banking institutions include an amount of Sh 60,000,000 held under lien in favour of
Chase Bank Limited as cover guarantee for Women Enterprise Fund loan, and an amount of Sh 53,000,000
(2013 Sh 53,000,000) for guarantee issued by Consolidated Bank Limited over a pending legal suit (see
note 30(b)).
The above deposits mature within 3 months after year end. The effective interest rate on deposits due from
banking institutions at 31 December 2014 was 10% (2013: 10%) and nil for balances due to banking
institutions.
2014 2013
Sh 000 Sh 000
16 LOANS AND ADVANCES TO CUSTOMERS
6,433,124 3,933,276
The aggregate amount of gross non-performing loans and advances as at 31 December 2014 was
Sh 531,139,000 (2013- Sh 250,021,000).
2014 2013
Sh 000 Sh 000
6,433,124 3,933,276
======== =======
50
JAMII BORA BANK LIMITED
2014 2013
Sh 000 Sh 000
Gross loans and advances to customers by type
Overdrafts 520,469 184,427
Bills discounted - 584
Insurance premium finance 6,636 11,222
Term loans 5,906,019 3,737,043
________ ________
6,433,124 3,933,276
======== =======
The effective interest rate on loans and advances at 31 December 2014 was 19% (2013 - 20%).
The related party transactions and balances are covered under note 28 and concentrations of gross advances to
customers are covered under note 3(a).
2014 2013
Sh 000 Sh 000
17 NET IMPAIRMENT LOSSES ON LOANS AND
ADVANCES
18 OTHER ASSETS
622,821 273,010
======= =======
51
JAMII BORA BANK LIMITED
52
0
r
-
-
-
-
-
-
-
_
0
_
0
_
0
_
4
6
_
6
_
6
_
6
_
8
8
s
-
JAMII BORA BANK LIMITED
Sh000
-
-
-
-
-
progress
______
14,790
______
14,790
______
14,790
______
(6,580)
12,788
8,582
______
8,582
______
8,582
______
8,582
______
(5,367)
(1,898)
5,528
10,319
*Work in
NOTES TO THE FINANCIAL STATEMENTS (Continued)
19 PROPERTY AND EQUIPMENT (Continued)
Furniture,
Buildings on fittings and * Work in
Sh000
-
Total
-
165,770
275,954
264,438
75,960
(5,367)
54,602
694,965
430,527
694,965
128,188
(142)
_______
_______
_______
_______
512,317
_______
512,317
_______
145,000
367,317
_______
512,317
_______
Land leasehold land Office partitions equipment Motor vehicles progress Total
Sh000 Sh000 Sh000 Sh000 Sh000 Sh000 Sh000
DEPRECIATION
At 1 January 2013 277 13,517 22,216 47,637 1,157 - 84,804
Charge for the year 282 677 9,083 11,299 1,782 - 23,122
Written back on revaluation (293) (14,194) - - - - (14,487)
_______ _______ _______ _______ ______ ______ _______
At 31 December 2013 266 - 31,299 58,936 2,939 - 93,440
_______ _______ _______ _______ ______ ______ _______
At 1 January 2014 266 - 31,299 58,936 2,939 - 93,440
Charge for the year 1,000 1,071 9,161 22,067 3,113 36,412
Written off on disposal - - - (38) - - (38)
Written back on revaluation (266) - - - - - (266)
_______ _______ _______ _______ ______ ______ _______
At 31 December 2014 1,000 1,071 40,460 80,965 6,052 - 129,548
_______ _______ _______ _______ ______ ______ _______
NET BOOK VALUE
At 31 December 2014 194,438 68,929 110,896 168,086 8,278 14,790 565,417
====== ====== ====== ====== ===== ===== =====
At 31 December 2013 139,570 70,000 99,704 93,364 7,657 8,582 418,877
====== ====== ====== ====== ===== ===== =====
NET BOOK VALUE (cost basis)
At 31 December 2014 66,227 53,465 110,896 168,086 8,278 14,790 421,742
====== ====== ====== ====== ===== ===== ======
At 31 December 2013 65,658 53,465 99,704 93,364 7,657 8,582 328,430
====== ====== ====== ====== ===== ===== ======
*The work in progress relates to ongoing office partitioning work at the various branches. As at 31 December 2014, furniture, fittings and equipment still in use
with a cost of Sh 28,127,294 (2013 Sh 53,316,510) were fully depreciated. The normal annual depreciation charge on these assets would have been Sh
2,812,729 (2013 Sh 5,331,651).
The land relates to finance lease on plot no LR 209/2540 on which the companys offices at Jamii Bora House located in Koinange Street Nairobi are located.
Additions to land in the year 2013 relate to purchase of land (plot no LR 3734/1200) located in Lavington, Nairobi for future head office premise. This premise
was revalued as at 31 December 2014 by Orion Valuers Limited, independent valuers on the basis of open market value for existing use resulting in a total
revaluation surplus of Shs 54,602,000.
53
JAMII BORA BANK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued)
19 PROPERTY AND EQUIPMENT (Continued)
The land and building was also revalued as at 31 December 2013 by Tysons Limited, independent valuers on
the basis of open market value for existing use resulting in a total revaluation surplus of Shs 90,447,000.
Tysons Limited and Orion Valuers Limited are members of the Institute of Surveyors of Kenya and have
appropriate qualifications and relevant and recent experience in fair value measurement of properties in the
various locations in Kenya. Valuations were made on the basis of open market value for existing use and by
reference to market evidence of recent transactions for similar properties.
Land and building with a total carrying value of Shs 263,367,000 (2013:Shs 209,570,000) are categorised
under level 2 fair value hierachy as their value is based on inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either directly as prices or indirectly as derived from
prices.
There were no transfers between the various levels during the year.
20 INTANGIBLE ASSETS
Sh 000 Sh 000 Sh 000
Intangible assets * Work in progress Total
COST
At 1 January 2013 34,096 - 34,096
Additions 18,688 7,435 26,123
Reclassification from property and
equipment (work in progress) 5,367 - 5,367
______ ______ _______
At 31 December 2013 58,151 7,435 65,586
______ ______ _______
At 1 January 2014 58,151 7,435 65,586
Additions 36,060 144,232 180,292
Transfer from work in progress 4,756 (4,756) -
______ ______ _______
98,967 146,911 245,878
______ ______ _______
AMORTISATION
At 1 January 2013 18,692 - 18,692
Charge for the year 6,288 - 6,288
______ ______ _______
At 31 December 2013 24,980 - 24,980
______ ______ _______
At 1 January 2014 24,980 - 24,980
Charge for the year 11,028 - 11,028
______ ______ _______
At 31 December 2014 36,008 - 36,008
______ ______ _______
NET BOOK VALUE
At 31 December 2014 62,959 146,911 209,870
===== ===== ======
At 31 December 2013 33,171 7,435 40,606
===== ===== ======
*The work in progress relates to software development costs for the proposed core banking system that has
been partially implemented and patch up modules.
Intangible assets amounting to Sh 10,472,867 (2013 Sh 10,885,084) were fully amortised. The normal
amortisation charge would have been Sh 3,490,956 (2013 - Sh 2,177,017).
54
JAMII BORA BANK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2014 2013
Sh000 Sh000
21 DEFERRED TAX ASSET
The deferred tax asset is attributable to the following items:
Accelerated capital allowances 49,433 9,878
General provisions (11,008) (4,908)
Other provisions (2,319) (122)
Tax losses (7,297) (332,797)
Deferred tax asset on tax losses not recognised - 253,042
Revaluation surplus 16,381 27,134
_______ _______
45,190 (47,773)
====== ======
Movement in deferred tax asset is as follows:
At 1 January (47,773) (71,094)
Charge/(credit) to profit or loss (note 11(a)) 76,582 (3,813)
Charged to other comprehensive income 16,381 27,134
________ _______
At 31 December 518,570 -
======= =======
755,938 755,938
====== ======
This relates to the value of microfinance customers acquired on business combination when the operations
of the bank were merged with those of Jamii Bora Kenya Limited with effect from 28 February 2012.
This was done through a share price agreement which resulted in the transfer of all Jamii Bora Kenya
Limited business, assets and liabilities to the bank. The consideration transferred was new shares offered
to the shareholders of Jamii Bora Kenya Limited.
55
JAMII BORA BANK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued)
2014 2013
Sh 000 Sh 000
24 CUSTOMER DEPOSITS
Current and demand accounts 2,100,907 984,010
Savings accounts 452,216 404,134
Fixed deposit accounts 5,931,807 2,032,444
________ ________
8,484,930 3,420,588
======= =======
Maturity analysis of customer deposits
Repayable:
On demand 6,361,081 3,167,122
Within 90 days 2,123,849 253,466
________ ________
8,484,930 3,420,588
======= =======
The effective interest rate on interest bearing customer deposits at 31 December 2014 was 6.8 % (2013 -
6.0%). The related party transactions and balances are covered under note 31 and concentrations of
customer deposits is covered under note 3 (a).
2014 2013
Sh 000 Sh 000
25 DEPOSITS AND BALANCES DUE TO BANKING
INSTITUTIONS
The above balances are denominated in USD and mature within 3 months after year-end. The effective
interest rate on balances due to banking institutions at 31 December 2014 was 3.5% (2013: 3.6%).
2014 2013
26 COMMERCIAL BOND Sh 000 Sh 000
1 January 1,047,587 -
Issued in the year - 1,000,000
Conversion to Share capital (note 29) (400,000) -
Interest repayment (47,587) -
Accrued interest 30,608 47,587
_______ _______
56
JAMII BORA BANK LIMITED
In August 2014, the bank issued a 5 year tenor bond with a coupon rate of 13.3% to finance the micro and
SME business segments. The bond is redeemable upon giving 90 days notice and is 50% guaranteed by
Africa Guarantee Fund. In September 2014, Kshs 400 million worth of bond was converted into share
capital. See note 29
2014 2013
Sh 000 Sh 000
404,746 120,000
====== ======
* The Women Enterprise Fund loan is denominated in Kenya Shillings. Its effective interest rate is 1% per
annum (2013- 1%).The loan is payable after 3 years and is guaranteed by 50% Credit Bank Ltd guarantee
and 50% cash cover.
** The Shelter Afrique loan is denominated in Kenya Shillings. Its effective interest rate is 13% per
annum. The loan is payable after 7 years and is guaranteed by 120% assignment of related mortgage book.
*** The ResponsAbility loan is denominated in United States American Dollars (USD). Its effective
interest rate is 5.5% per annum. The loan is payable after 3 years.
2014 2013
Sh 000 Sh000
28 OTHER LIABILITIES
163,934 56,039
====== ======
57
JAMII BORA BANK LIMITED
2014 2013
Sh 000 Sh000
Authorised:
5,600,000 Ordinary shares of Sh 250 each 1,400,000 1,400,000
======= ========
1,190,893 1,701,380
======= ========
As at 31 December 2014, 4,584,298 issued and fully paid for Class O ordinary of par value Sh 250 shares were
converted to class A shares of par value Sh 66. Share premium amounting to Sh 843,510,832 was recorded and
additional 3,602,004 new class A ordinary shares were issued.
Movement in issued ordinary shares is as follows:
No. of shares Share capital Share premium
Sh000 Sh000
58
JAMII BORA BANK LIMITED
Adjustment:
Depreciation of property and equipment 36,412 23,122
Amortisation of intangible assets 11,028 6,288
Gain on disposal of property and equipment (26) -
Interest on commercial bond (16,979) 47,587
Interest on borrowings 3,448 -
Fair value gain on equity investments (51,623) -
_______ _______
78,528 167,071
Working capital changes;
Increase in loans and advances to customers (2,380,197) (2,500,688)
Increase in other receivables (366,585) (53,097)
Increase in customer deposits 5,064,342 2,207,464
Increase/(decrease) in other liabilities 107,895 2,946
Movement in related party balances 8,846 30,188
Increase in cash ratio requirement (106,201) (79,117)
Movement in Government securities (549,527) 3,476
________ _________
2,849,896 1,081,054
======= =======
59
JAMII BORA BANK LIMITED
For the purposes of the cash flow statement, cash equivalents include short term liquid investments
which are readily convertible into known amounts of cash and which were within three months of
maturity when acquired, less advances from banks repayable within three months of the reporting date.
Cash and cash equivalents excludes the cash ratio requirement balance held with the Central Bank of
Kenya since these amounts were not readily available to finance the banks daily operations.
Parties are considered to be related if one party has the ability to control the other party or exercise
significant influence over the other party in making financial or operational decisions.
All transactions with related parties are at arms length and in the normal course of business and on terms
and conditions similar to those applicable to other customers. Details of related party balances and
transactions are as follows.
2014 2013
Sh 000 Sh 000
(a) Loans and advances
374,914
At 1 January 151,000 86,217
Additions 64,324 287,318
Interest charged (151,297) 33,832
Repayments 374,914 (129,413)
_______ ______
60
JAMII BORA BANK LIMITED
2014 2013
Sh 000 Sh 000
At 1 January - 25,612
Repayments - (25,612)
______ _______
At 31 December - -
====== =======
Companies
associated to
Directors directors Total
(d) Deposits Sh000 Sh000 Sh000
At 1 January 2013 21,342 24,827 46,169
Deposits 556,058 263,039 819,097
Interest paid 2,311 1,926 4,237
Withdrawals (550,203) (205,060) (755,263)
_______ ________ ________
There were no contingent liabilities as at 31 December 2014 for current directors (2013- Nil).
61
JAMII BORA BANK LIMITED
2014 2013
Sh 000 Sh 000
Salaries and other benefits 326,228 215,395
====== ======
Directors remuneration
25,500 25,260
====== ======
(g) Transactions with related parties
32 FAIR VALUE
The directors consider that there is no material difference between the fair value and carrying value of the
companys financial assets and liabilities where fair value details have not been presented.
2014 2013
Sh 000 Sh 000
(a) Contingent liabilities:
Letters of credit 154,873 84,473
===== =====
Letters of credit and indemnities are commitments by the bank to make payments to third parties, on
production of documents, on behalf of customers and are reimbursed by customers.
2014 2013
Sh 000 Sh 000
62
JAMII BORA BANK LIMITED
A lawsuit has been filed against the bank by a third party who is claiming damages amounting to
Sh 85,571,225 relating to agreed commission payable for services allegedly rendered to the bank. The
bank appealed against the initial court ruling to pay the damages and placed a deposit of Sh 65,763,000
(2013 Sh 60,202,308) in an account jointly owned by the plaintiffs lawyers and the banks lawyers.
The bank also obtained a guarantee of Sh 43,000,000 with consolidated bank which is backed by a fixed
deposit of a similar amount. Having regard to the legal advice received, the directors are of the opinion
that this claim will not give rise to liabilities which will have a material effect on the financial
statements, and hence no provision has been made for the potential losses in these financial statements.
Other litigation against the bank relates to civil suits lodged against the bank by customers in the normal
course of business. The likely outcome of these suits cannot be determined as at the date of signing
these financial statements. The directors, however, do not anticipate that any liability will accrue from
the pending suits.
As at 31 December 2014 and 31 December 2013, except as disclosed under note 14 and 31(b) above, there
were no other assets pledged by the bank to secure liabilities and there were no secured bank liabilities.
35 CAPITAL COMMITMENTS
At the end of the reporting period, the bank had outstanding commitments under operating leases which fall
due as follows:
2014 2013
Sh 000 Sh 000
273,852 188,215
======= =======
Operating lease payments represent rentals payable by the bank for some of its premises. Leases are
negotiated for an average term of 5 years.
37 COUNTRY OF INCORPORATION
The company is incorporated in Kenya under the Companies Act and is domiciled in Kenya.
38 CURRENCY
63
JAMII BORA BANK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued)
39 NON FINANCIAL DISCLOSURES
Operational risk
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and
systems or from external events. This definition includes legal risk, but excludes strategic and reputational risk.
It seeks to identify why a loss happened and at the broadest level includes the breakdown by four causes:
people, processes, systems and external factors.
The Bank has developed, implemented and maintains an enterprise wide Operational Risk Management
Framework that is fully integrated into the banks overall risk management processes. This Framework for
operational risk management is regularly reviewed by senior management and the Board to ensure all risks are
covered.
The operational framework consists of the following key components that are targeted to help manage the
operational risk of the Bank and hence manage incidental risks therein:
(i) Board and senior management oversight
The senior management is responsible for consistently implementing and maintaining policies,
processes and systems for managing operational risk in all our material products, services and activities,
consistent with the banks risk appetite and tolerance.
The board provides oversight on senior managements activities through the board audit and risk
committee which receives quarterly reports of the status of the operational risk facing the bank. These
reports are made by an independent risk function with a direct reporting to the board.
(ii) Policies & procedures
The bank has documented operational risk policies and procedures which are aligned to the overall
business strategy that clearly define the way all aspects of operational risk are managed. The support the
continuous improvement of the risk management environment in the bank. These policies are
communicated to staff and signed off at least once in a year.
They define the Banks overall risk appetite, and are developed based on the requirements of regulatory
authorities and input from the Board of Directors and senior Management. The policies also provide
guidance to the business units by setting boundaries on the types and levels of risks the Bank is prepared
to assume.
Guidelines
These are directives provided to implement policies and limits as set out above. They describe the
facility types, aggregate facility exposures and conditions under which the Bank is prepared to do
business. Risk taking outside these guidelines has to be approved by senior Management of the Bank, or
by the Board of Directors, depending on set approval limits
These are activities associated with identifying, evaluating, documenting, reporting and controlling risk.
They define the breadth and quality of information required to make decisions and the expectation in
terms of quality of analysis and presentation. At the operating level these are the activities that must be
achieved before risk decisions are taken.
The bank places a lot of emphasis in continuous identification and assessment of the various operational
risks facing. This helps us to better understand our risk profile and effectively target risk management
resources and strategies. In order to do so the bank, through the risk management department has
developed various mmeasurement and reporting tools across products, activities and business units.
Such tools include internal data loss collection and analysis, Risk self-assessments, business process
mapping and scenario analysis.
64
JAMII BORA BANK LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Continued)
39 NON FINANCIAL DISCLOSURES (Continued)
After measurement , the department monitors the various aspects of operational risk through event logs
and escalates any red flags to senior management and if necessary the board for appropriate action.
The bank has rolled out a raft of internal controls and programmes which provide reasonable assurance
that we have efficient and effective operations, we safeguard our assets, and we produce reliable
financial reports; and comply with applicable laws and regulations.
The bank also conducts stress testing for a variety of short-term and protracted institution-specific and
operational risks stress scenarios to identify sources of potential operational risks and to ensure that we
are prepared to continue in business after minor and major operational risk events.
The Internal audit department and the external auditors independently monitor the effectiveness of the
risk management programs and internal controls through periodic testing of the design and operations of
processes related to identification, measurement or assessment, monitoring, controlling and reporting of
risks. Additionally, the Banks internal audit programs are derived from a risk based assessment so as
to focus its audit assessment attention to risk areas of the business units deemed high on probability or
impact.
65