Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698751542748.pdf (Namibia)
28.6 Equity price risk The Bank is exposed to equity price risks arising from its equity investments.

Equity investments are held for strategic rather than trading purposes.

The Bank does not actively trade these investments.

The sensitivity analyses below have been determined based on the exposure to equity price risk at the end of the reporting year.
If the equity prices had been 5% higher or lower: • Profit for the year ended 31 March 2020 would have been unaffected as the equity investments are classified as Equity investment FVOCI, and no investments were disposed of or impaired.

• Other comprehensive income for the year ended 31 March 2020 would increase/decrease by N$13,639,467 (2019: N$14,085,117).
28.7 Capital management The Bank’s objective in managing its capital is to safeguard the Bank’s ability to continue as a going concern, through ensuring a sufficient cushion against unexpected losses, and to provide for an acceptable growth rate in the Bank’s development finance activities.

The Bank monitors and manages its capital adequacy within the applicable policy guidelines, a resource mobilisation strategy and in line with the capital adequacy framework approved by the Board.
Overall capital adequacy within the Bank is measured both quantitatively and qualitatively.

The quantitative analysis focuses on risk-based and leverage ratios whilst the qualitative assessment considers the quality of earnings, the quality of assets, the Bank’s business strategy and the effectiveness of risk management.
The Bank has adopted a self-imposed capital adequacy framework that differentiates between the risks assumed on different asset classes and provides for market and operational risk, whilst at the same time adhering voluntarily to the overarching regulatory capital requirement applicable to local financial institutions.

At reporting date, the Bank’s capital adequacy ratio stood at 73% (2019: 78%), while the target per the financial model was 61%.
Capital comprises of share capital, share premium, retained earnings and reserves.

The capital ratio is calculated as Shareholders’ capital divided by risk-weighted assets, where risk-weighted assets comprise of balance sheet assets (as shown on the Statement of Financial position) after applying the relevant risk weights for each asset category.
N$ Share capital Share premium Retained earnings plus reserves 2020 2019 165,000,000 165,000,000 1,842,071,178 1,842,071,178 1,320,020,317 1,123,011,364 3,327,091,495 3,130,082,542 29.
Fair value of financial instruments The Bank measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: • • • Level 1: Financial instruments valued with reference to quoted market price (unadjusted) in an active market for identical assets and liabilities.

An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an on-going basis.
This category includes capital market assets, listed equity investments and debt securities.
Level 2: Financial instruments valued using inputs other than quoted prices as in level 1 but that are observable for the asset or liability, either directly or indirectly, such as: quoted prices for similar assets or liabilities in inactive markets; quoted price for identical or similar assets or liabilities in inactive markets; valuation models using observable inputs; and valuation models using inputs derived from or corroborated by observable market data.
This category includes deposits, derivatives, unlisted equity investments and debt securities.

Level 3: Financial instruments valued using net present value or discounted cash flow models.

Valuation techniques using significant unobservable inputs.

This category includes all instruments where the valuation technique include inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation.
Valuation techniques include net present value and discounted cash flow models, comparison with similar instruments for which observable market data exists, pricing models and other valuation models.
107 Notes to the Financial Statements for the year ended 31 March 2020 29 Fair value of financial instruments (continued) The objective of using valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date.
The Bank uses recognised valuation models to determine the fair value of the interest rate and currency swap, that use only observable market data and require little of management judgment and estimation.

Observable prices or model inputs are usually available in the market for simple over-the- counter (OTC) derivatives such as interest rate swaps.
Observable market prices and model inputs reduce the need for management judgment and estimation and reduces the uncertainty associated with determining fair values.

Observable market prices and model inputs are prone to changes based on specific events and general conditions in the financial markets.

Valuation models that employ significant unobservable inputs require a higher degree of management judgment and estimation in the determination of fair value.
Management judgment and estimation are usually required for the selection of the appropriate valuation model to be used, determination of expected future cash flows on the financial instrument being valued, determination of expected volatilities and correlations and selection of appropriate discount rates.
The underlying definition of fair value being that an entity is a going concern without any intention or necessity to liquidate, curtail materially the scale of its operations or to undertake a transaction on adverse terms.

Fair value is not therefore, the amount that an entity would receive or pay in a forced transaction, involuntary liquidation, or distress sale.

However, fair value reflects the credit quality of the instrument.
The following table analyses financial instruments measured at fair value at the reporting date, by the level in the fair value hierarchy into which the fair value measurement is categorized.
The amounts are based on the values recognised in the Statement of Financial Position N$ 2020 Equity investments at FVOCI Equity investments Financial assets N$ 2019 Equity investments at FVOCI Equity investments Financial assets Note Level 1 Level 2 Level 3 Total 17 - - - - 272,789,349 272,789,349 272,789,349 272,789,349 Note Level 1 Level 2 Level 3 Total 17 - - 239,262,645 42,439,702 281,702,347 239,262,645 42,439,702 281,702,347 The Ohorongo valuation model is sensitive to changes in sales volume.
If the year 1 sales volumes are reduced to -2% of 2019 actuals, the valuation reduces to N$184 million, or -15%.

Sales volume is the key driver of value in OC, and it can be expected to have a significant impact.

A 5% sales reduction in year 1 reduces the valuation by 4%.

A worst case and best case scenario on the Ohorongo valuation was done by mainly changing the assumptions for the different scenarios of sales volumes from year 2 to 5.
The worst case assumes that plant utilisation will only grow to 50% within the next five years and the best case at 66% (valuation assumes year 5 utilisation at 61%).

Marginal changes in the selling price is expected (assumed).

The results of the worst case scenario was a valuation of N$184m, with the best scenario resulting in a valuation of between N$240 million using the median similar to the 2020 valuation.
The Norsad valuation key sensitivity is to foreign currency fluctuation with the sensitivity disclosed in note 28.5.

Financial liabilities designated as at fair value through profit or loss Derivatives held for risk management 19.2 Foreign exchange Interest rate Financial liabilities - - - - - - - - - - - - There was no transfer between levels for the 2020 financial year.
In the reporting period ending 31 March 2019, there was a transfer out of Level 3 fair value measurements to Level 2 due to a change in the valuation methods (see Note 30).
Reconciliation of financial instruments N$ 2020 Balance at 1 April 2019 Total (loss) / gain recognised in other comprehensive income Fair value at 31 March 2020 N$ 2019 Balance at 1 April 2018 Total gain recognised in profit or loss Equity investments 281,702,347 (8,912,998) 272,789,349 Equity investments Derivative Total - - 281,702,347 (8,912,998) - 272,789,349 Derivative Total 265,206,586 (35,675,460) 229,531,126 - 32,920,590 32,920,590 Total gain recognised in other comprehensive income 16,495,761 2,754,870 19,250,631 Fair value at 31 March 2019 281,702,347 - 281,702,347 108 Notes to the Financial Statements for the year ended 31 March 2020 29.
Fair value of financial instruments (continued) Equity investments The fair value of equity investments is determined by using dividend discount methodologies and discounted cash flow (DCF).

However, alternative valuation methods are adopted in instances where reasonable reliance cannot be placed on the use of the income approach valuation method due to limiting factors.
The following principle methods have been used to determine the fair value of the unlisted equity investments at reporting date: Ohorongo Cement (Pty) Ltd Applicable to 2020 The fair value was determined by using the discounted cash flow method, and using the market value to calibrate the model.

A minority discount of 18% being applied to determine the fair value of the Bank’s investment in Ohorongo.

The key assumptions on which the valuation is based are as follows: 1.
Production and sales are based on Namibia GDP forecast, and an expected improvement in export volumes.

2.

COVID-19 considerations are reflected in the use of the GDP forecast data that lowered the Namibian outlook.

3.

A forecast period of 5 years was used for discounting the projected free cash flow, the Gordon Growth model was used to estimate terminal value.

4.

The mid-point weighted average cost of capital applied is 15.14%.

5.

A terminal growth rate percentage of 3.29% was applied.

6.
6.

The SENS announcement by West China Cement Limited with regards to the Purchase Sale Agreement in March 2020 for the acquisition of 100% shares in Schwenk Namibia is valid.

Schwenk Namibia’s main asset is Ohorongo Shares.

The SENS announcement indicated that Schwenk’s 100% shareholding in Energy For Future (mainly engaged in the business of sourcing for alternative energy sources and businesses related to that) represents less than 5% of the transaction value.
Applicable to 2019 The fair value was determined by using the market value approach with a minority discount of 18% being applied to determine the fair value of the Bank’s investment in Ohorongo.

The key assumptions on which the valuation is based are as follows: 1.

2.

3.

The SENS announcement by International Cement Group with regards to the Purchase Sale Agreement in March 2020 for the acquisition of 100% shares in Schwenk Namibia is valid.

Schwenk Namibia’s main asset is Ohorongo Shares.


The SENS announcement indicated that Schwenk’s 100% shareholding in Energy For Future (mainly engaged in the business of sourcing for alternative energy sources and businesses related to that) represents less than 5% of the transaction value.

The transaction is binding, orderly and there is no indication that the sale is forced.

The latest dividends declared by Ohorongo Cement does not form part of the Purchase Sales Agreement.
Norsad Finance Ltd The equity investment shareholding was fair valued using the dividend discount model approach.

The key assumptions on which the valuation is based are as follows: 1.

A dividend of 50% of the annual profit was assumed to determine cash flows; 2.

Discount rate at the Namibian Bond GC37 (2019: GC40) yield rate, with a premium of 300bps for the ordinary shares; 3.

2/3 preference dividends for the preference shares; and 4.
A forecast period of five years was used and a multiple of 9.1 (2019: 7) times was used to estimate terminal value.

5.

COVID-19 considerations are reflected by the discounting of the forecast performance with the change in the Botswana GDP forecast data.

The methods described above may produce a fair value measurement that may not be indicative of ultimate realisable value.

However, management believes there is no other means of determining fair value for this investment.
The estimated values may differ significantly from the values that would have been used had a readily available market for such investments existed, or had such investments been liquidated, and these differences could be material to the financial statements.

Derivative held for risk management The Bank used external valuators to value the derivative instrument based on the hypothetical derivative method.

The hedged risk is modelled as a derivative called a ‘hypothetical derivative’.
The hypothetical derivative creates a hypothetical fixed leg on the hedged item.

The hypothetical derivative approach calculates as market related fixed leg derived from the swap curve at the inception of the hedge.

This is the interest rate which ensures that the hypothetical fixed leg is equal and opposite to the floating rate leg (constructed using market related forward rates) and results in the hypothetical derivative having a zero value at inception.
The hedging instrument is fair valued at inception and the prospective testing consists of comparing the cumulative change in fair value of the hedging instrument with the change in the cumulative fair value of the hypothetical derivative on a scenario basis in order to illustrate any future ineffectiveness from stress scenarios.

The hypothetical derivative was modelled as an interest rate swap for the designated period.
The hypothetical derivative represents the allocated notional value of the on-balance sheet term debt.

The hedged on-balance sheet debt has a term of at least that of the interest rate swap, with a profile as indicated in the notional amounts of the hypothetical derivative.

The allocated portion of the debt matches the interest rate swap’s term to maturity.
109 Notes to the Financial Statements for the year ended 31 March 2020 30 Cash flow statement notes N$ Note 2020 2019 30.1 Cash generated by operations Profit for the year Adjusted for: Unwinding of discounted present value on off-market loans Fair value adjustments of off-market loans Depreciation and amortisation Net impairment on loans and advances Net gain on cross currency swap Foreign exchange gain on loan Fair value gain on cross currency swap Gain on disposal of property and equipment Government grants received Interest on right of use assets Lease payments on right of use assets Accrued interest Other income reversal IIS reversal and Interest on net non-performing loans per IFRS9 Increase in trade receivables Increase in trade payables 30.2 Cash receipts from customers Interest received Bad debts recovered Fee and dividend income 30.3 Cash paid to suppliers and employees Interest paid Operating expenditure 30.4 Increase in loans and advances Increase in staff home ownership scheme loans Increase in loans and advances 229,101,888 211,683,101 (5,247,123) 4,835,839 8,071,514 132,019,076 - - - (117,690) (4,858,427) 7,430,353 5,727,231 181,973,477 (32,920,590) 1,396,132 (6,169,410) (2,813) - (60,000,000) 341,948 (2,982,256) (7,327,397) 2,116,328 25,637,309 386,449,436 1,290,464 4,593,026 392,332,926 966,570,666 12,670,023 67,439,621 1,046,680,310 - - 16,352,132 - (7,307,824) 313,303,362 (3,646,585) 7,848,924 317,505,701 832,869,383 8,079,481 42,008,752 882,957,616 (524,009,230) (130,338,154) (654,347,384 ) (443,696,734) (121,755,181) (565,451,915) (14,629,606) (21,057,870) (116,132,763) (1,286,043,838) (130,762,369) (1,307,101,708) 110 WE PROVIDE FINANCE FOR CLIMATE MITIGATION The Development Bank of Namibia views climate change as a pressing issue.
Although it poses challenges, it also offers opportunities for mitigation initiatives and enterprise finance.

Among others, the Bank can provide finance for: Water Groundwater and seawater purification Renewable energy Solar Wind Transport & logistics Freight consolidation Mass public transportation If you have a project or business plan that mitigates climate change, we want to hear from you.

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