Annexure A – Group Risk detail

No. Material Risk Description Relevant Responsible Comments Risk Committee

Function Assessment
1 Credit Risk - Credit risk is defined as the current or Yes Credit Receipting levels are behind expectation in Q1 17 High Group Credit Exco
Legacy prospective risk to earnings and capital due to higher rates of paying customers defaulting.
arising from a customer’s failure to Various initiatives are being deployed to improve
meet the repayment terms of any collections in the short term. The most important of
contract with the Group. This risk these are more refined debit order tactics on
includes residual risk. customers who stop payments and generating
more inbound calls for the Customer Services
This also arises from an adverse Centre, through more intensive and smarter
change in the value of the legacy communications, which translate into collection
portfolio due to deterioration in the opportunities.
credit quality of the customers.

2 Business & Business and strategic risk is defined Yes Group Exec The South African business is positioned for High Group Exco
Strategic Risk as any risk to the Group arising from recovery. Regulatory certainty regarding
changes in its business, including the prescription requires testing. Home Finance
risk that the Group may not be able to channel recovery underway to reposition as 'first
carry out its business plan and execute choice' provider.
its desired strategy.
Strategy is being deliberated on the GVR
business.
3 Operational Risk Operational risk is the risk of loss Yes Operations Management actions have improved execution High Operations
arising from inadequate or failed capability and the general control environment.
processes, technology or human However, potential changes to the NAEDO
performance or from external events. It settlement system to AEDO which is due for
can cause financial loss, reputational implementation in February 2018 and the effect on
loss, loss of competitive position or the Group’s collection activity remains uncertain at
regulatory sanctions. Such risk can be this stage.
minimised by the implementation of
adequate infrastructure, controls,
systems and trained and competent
staff.

4 Regulatory Risk Regulatory risk is the risk of a change Yes Group Risk Regulations relating to recent legislative High Group EXCO
in regulations and law that might affect developments published and have taken effect.
an industry or a business. Such Outstanding matters regarding credit life premiums
changes in regulations can make are still to be decided upon. Industry interpretation
significant changes in the framework of of prescription may be tested in a court of law.
an industry, changes in cost-structure,
etc.

5 Credit Risk - GVR Credit risk is defined as the current or Yes Credit The operating environment in East Africa has High Group Credit Exco
prospective risk to earnings and capital deteriorated and is placing pressure on the
arising from a customer’s failure to performance of the business. Corrective actions
meet the terms of any contract with the have been implemented in the underwriting and
Group. This risk includes residual risk, collection of loans and are expected to start
and cross border (or transfer) risk. bearing fruit from the second half of the financial
year.
This also arises from an adverse
change in the value of the GVR
portfolio due to deterioration in the
credit quality of customers.
No. Material Risk Description Relevant Responsible Comments Risk Committee
6 Valuation Risk – Valuation risk is the financial risk that Yes Function
DMC Receipting levels within the acquired asset class Assessment
High DMC Exco
Acquired assets an asset is overvalued and is worth are tracking expected.
less than expected when it matures or
is sold. Factors contributing to valuation
risk can include incomplete data,
market instability, financial modeling
uncertainties and poor data analysis by
the people responsible for determining
the value of the asset.

7 Solvency Risk & This is the risk of variations in the Yes Treasury CAR has been maintained above the threshold Medium ALCO
Capital adequacy capital position of the Group due to level of 30%. However, the revised capital
changes in the relative value of the structure is highly leveraged with potential for loss
capital. absorption values reducing.
8 Market Risk Market risk is the potential impact on Yes Treasury Basis risk between funding that is linked to JIBAR Medium ALCO
earnings of unfavorable changes in and asset being priced to repo. A rapid rise in
foreign exchange rates, interest rates, rates will negatively impact performance.
prices, market volatilities and trading
liquidity. Unhedged Group loans to Kenya expose the
Group to foreign exchange losses arising from
movements in the ZAR:KES exchange rate as
these loans are no longer considered part of the
net investment in the business so foreign
exchange losses or gains are recorded directly in
profit or loss.
9 Tax Risk Risk of non-compliance with tax laws Yes Group Exco The use of the deferred tax asset in Real People Medium Tax Exco & Risk
within the various jurisdictions within (Pty) Ltd may come under question as a result of Exco
which the Group operates that may uncertainty relating to future profitability.
result in additional tax and/or the use of
deferred tax assets coming into The tax treatment of bad debts in Kenya is being
question as a result of business investigated internally before submission is made
performance. to the Kenya Revenue Authority.

VAT optimization project and related SARS audit

is ongoing.
10 Liquidity Risk Liquidity risk refers to the possibility of Yes Treasury Change in tactic to bespoke funding for individual Medium ALCO
the Group having insufficient cash or business units continues to gain traction.
having to pay a premium for funds to
meet its financial obligations fully and
punctually.

11 Counterparty Counterparty risk is the risk of a Yes Credit There has been concern surrounding the Medium Group Credit Exco
Risk counterparty failing to meet its financial recoverability of approximately R25m cash
commitments. deposited with Rafiki Bank, a subsidiary of Chase
Bank. Chase Bank has been placed under
recovery and resolution by the Kenya Central
Bank. Management has negotiated a payment
plan with Rafiki over the next six months which
has been honoured to date. Based on actions by
Rafiki, management expects full recovery,
however, there is still concern surrounding the
recoverability of the amount.
No. Material Risk Description Relevant Responsible Comments Risk Committee
12 Ratings risk The risk of loss arising from a Yes Function
Group Exec There is increased uncertainty in South Africa Assessment
Medium Group Exco
downgrade of external ratings. following recent political actions which may
contribute to a ratings downgrade for the country
which is likely to have a consequential impact on
the Group’s rate.
13 People Risk People risk is the risk of the loss of key Yes HR There has been a period of stability with respect to Moderate Group HR EXCO
staff members and the cost of replacing staff movements in South Africa.
them with equally competent staff. This
forms part of operational risk but is There is uncertainty in GVR. Voluntary
assessed separately due to its retrenchments have been offered to certain staff.
materiality to the Group.

14 Reputational Risk Reputation risk is the risk that the Yes Group Exec The sector remains under scrutiny. Moderate Group Exco
Group may be exposed to negative
publicity about its business practices or
internal controls, which could have an
impact on the liquidity or capital of the
Group, or cause a change in its credit
quality.

15 Compliance Risk Compliance risk is the risk of non- Yes Compliance The Group compliance function has been Moderate Group Finance &
compliance with applicable laws, decentralised which may increase risks due to Risk Exco
regulations and supervisory operational factors.
requirements.

16 Credit Risk – Credit risk is defined as the current or Yes Credit Improved product offering, scorecard and other Moderate Group Credit Exco
Home Finance prospective risk to earnings and capital risk management tactics which included a revised
arising from a customer's failure to basis of estimating impairment have contributed to
meet the terms of any contract with the stability with the continuing asset class.
Group. This risk includes residual risk.

This also arises from an adverse

change in the value of the Home
Finance portfolio due to deterioration in
the credit quality of customers.

17 Concentration Concentration risk is any single (direct Yes Credit The Group’s sales performance in the Home Moderate Group Credit Exco
Risk and/or indirect) exposure or group of Finance Merchant business is largely dependent
exposures with the potential to produce on a few merchants e.g. Build IT contributes
losses large enough to threaten the approximately 35 percent to monthly sales targets.
Group's health or its ability to maintain
its core business.

18 Business This is the risk that an event could lead Yes Group IT The Group has a strong and competent IT Moderate Group IT Exco
Continuity Risk to business disruptions that affect the function.
Group’s ability to operate.

19 Country Risk Country risk is the risk of loss arising Yes Credit The operating environment in East Africa has Low Group Credit Exco
when political or economic conditions deteriorated and is placing pressure on the
or events in a particular country reduce performance of the business. Prudential limits
the ability of counterparties in that have been placed on business activities in East
country to meet their financial Africa.
obligations to the Group.