ATMA.L Regulatory News (ATMA)

31 August 2021

Atlas Mara Limited

Atlas Mara audited results for the 14-month period ended 28 February 2021

Principal highlights:

§ On 29 June 2021, the Group announced that it had changed its accounting reference date and financial year end from 31 December to 28 February, effective for the 2020 financial year. As a result of this change, the results and prior year information presented herein on an IFRS basis are not comparable.

§ Adjusted net profit of $1.5 million (2019: $5.8 million) which excludes the impact of IFRS 5 remeasurement of subsidiaries held-for-sale and other transaction and restructuring related expenses.

§ Union Bank of Nigeria ("UBN") contributed associate income of $25.5 million for the 14-month period (2019: $31.2 million). The associate income reported reflects the impact of the currency devaluation in 2020, being translated at an average US dollar FX rate of NGN384.4 compared to NGN306.4 in 2019. This represents a 14-month pro-rated 30% decrease in US dollar terms (12.1% on a constant currency basis)

o Despite the impact of the COVID-19 pandemic and related macro-economic challenges as well as government policy responses, UBN's underlying performance for the 14-month period remained strong, with the NPL ratio decreasing to 4% compared to 5.8% in December 2019.

o Capital adequacy remains strong with total CAR above 17% at period-end.

o BVPS increased by NGN 0.41 to 9.05 as at December 2020.

§ On 14 July 2021 the Group announced that it had successfully executed a binding and comprehensive debt restructuring agreement (the "Support and Override Agreement" or "restructuring agreement") with the majority of the Company's and its subsidiary ABC Holdings Limited's ("ABCH's") creditors. This followed the initial announcement on 29 December 2020 that the Group had entered into a new secured facility agreement and a standstill agreement with certain creditors in respect of the Company's and ABCH's financing arrangements (the "Standstill"). Additional information related to the terms of this agreement are set out in the Company's previous announcement.

§ Successful execution of the restructuring agreement enables the Company to continue its focus on its previously announced strategic priorities. In the period from September 2020 to date, the company has announced divestments in Mozambique, Rwanda, Tanzania and Botswana. The Group continues its efforts to streamline the holding company and centralised cost structures. Additionally, the Company continues to evaluate all options that could include a take-private or delisting of the Company and will keep the market apprised as appropriate.

§ Reported net loss to equity holders of $58.7 million (2019: loss of $143.2 million) or $0.35 per share (2019: loss of $0.84 per share) This result includes a loss from continuing operations of $46.6 million (2019: loss of $8.5 million) and a loss from discontinued operations of $12.0 million (2019: loss of $134.7 million). The loss from continuing operations includes a loss on the monetary position in Zimbabwe of $16.9 million and reflects the impact of the currency devaluation of >100% in Zimbabwe and 20% in Nigeria.

§ The Group's operating businesses evolved in response to the challenges brought by the COVID-19 pandemic as well as the ever- increasing customer expectations, new technologies and a rapidly changing competitive environment. Key changes were implemented in health and safety of clients and employees, Information Technology systems and cyber security, capital and liquidity buffers, internal controls, and robust loan management systems.

§ All operating banks maintained adequate capital adequacy ratios, reflecting stable balance sheets. Continued focus on deposit growth, loan book quality, and growth business lines.

Commenting on these results, Chairman Michael Wilkerson said, "The past financial year was the most challenging in the Company's history. Nonetheless, I am pleased to report that the Group was successful in working with its creditors to complete its debt restructuring.  The Company also achieved several milestones in the strategic review aimed at maximizing creditor and shareholder value in the context of extraordinary market disruptions and highly regulated banking environments. Despite the challenging macroeconomic environment in Africa, most of our banks generated positive recurring operating profit during the period." 

Events subsequent to year end

§ Debt Restructuring

o On 14 July 2021 the Group announced the successful execution of the restructuring agreement. Creditors representing 88% of the aggregate amount of debt outstanding under the Company's direct and contingent financial liabilities agreed to enter the Restructuring Agreement.

o This agreement provides for a high level of support from the creditors to enable a long-term stable platform to allow the Company to complete its strategic review and divestiture program.

§ Update on strategic transactions

o On 25 August 2021, the Group announced that after successfully securing the necessary regulatory approvals and consents, and fulfilling all other agreed closing conditions, the transaction for the sale of 62.06% shareholding in Banque Populaire du Rwanda Plc ("BPR") had been completed.

o On 19 May 2021, the Group announced the completion of the sale of its subsidiary African Banking Corporation Mozambique ("BancABC Mozambique"). The transaction was initially announced on 29 September 2020.

o On 19 April 2021, the Group announced that it had entered into definitive agreements for the sale of ABCH's holdings in African Banking Corporation Botswana ("BancABC Botswana"). This transaction has received all requisite regulatory approvals and is expected to close by the end of 2021.

§ Classification of BancABC Botswana as a non-current asset held for sale

o Following the announcement of the planned divestiture of BancABC Botswana, effective 31 August 2021, the Group will be required to classify its investment in BancABC Botswana as a non-current asset held for sale. As required by IFRS 5, this will result in the investment being deconsolidated and remeasured to the lower of its carrying value or fair value less cost to sell. The transaction is expected to result in a loss primarily due to the carrying value of goodwill and intangible assets associated with BancABC Botswana of c$25 - 28 million.

o At completion, this transaction will result in release of translation losses to P&L of c. $13.2 million.

Summary of audited results

Table 1: Adjusted operating profit and reconciliation to IFRS profit for 14-months ended 28 February 2021

* Unaudited

Statement of financial position as at 28 February 2021

ATLAS MARA LIMITED

ANNUAL FINANCIAL REPORT FOR THE 14-MONTH PERIOD ENDED 28 FEBRUARY 2021

BUSINESS REVIEW

Additional operational highlights during the period:

§ BancABC Botswana

o Implemented a new Retail Digital Banking platform (SARUMoney) in 2020 before the introduction of mandatory COVID-19 related country-wide lockdowns.

o Digital subscriptions increased by 60% during the year and monthly engagement levels exceed 80% on the platform. The Bank also introduced cardless cash withdrawal on its digital platform. These innovations contributed to the Retail deposit book's increase by over 16% by end of February 2021 compared to December 2019.

o Aligned to the ambition to become a transactional bank for corporate clients, additional functionality was added to the Corporate Banking Online platform, which resulted in significant volume and subscription growth during the year.

o Global Markets profit after tax recorded over 40% year on year increase, supported by a 176% increase in trading income driven by increased client relationships.

o Extended repayment and interest moratoriums were offered to select impacted clients in both the retail and corporate business - mostly small exposures in the tourism sector. 

o Tools were provided to staff to enable them to work from home. Allowances were granted to employees to purchase office equipment and internet facilities to improve productivity. This ensured that employees were fully equipped to work during the pandemic.

§ BancABC Zimbabwe

o Digital income contributed 9% to core revenue, a substantial increase from 2019.

o A 348% increase in Visa card holders from 7.5 thousand as at February 2020 to 33.8 thousand as at February 2021. 11% increase between December 2020 (30.5k) and February 2021 (33.8 thousand).

o A 33% increase in mobile banking subscribers from 107 thousand in February 2020 to 164 thousand in February 2021.

o A 63% and 424% increase in mobile transaction volumes and values ($3.7 million vs. $2.3 million) respectively.

o The Bank NPL ratio improved to 1.35% as at February 2021 from 3.10% in February 2020.

o Entered into partnership to open total of 28 kiosks which are a low-cost substitute to branches.

o Launched the local remittance service in September 2020, $2 million sent through the service between September 2020 and February 2021.

o Launched the A360 mobile app in July, 33 thousand registrations by December 2020 and 45 thousand registrations by February 2021.

o Added QR code payment functionality on the A360 mobile app.

o Optimized KYC account opening through the website launched in October 2020.

o As part of the annual #777 CSR Campaign, the Bank donated over 200 litres of sanitiser and detergent, 500 face masks and other PPE to 7 different medical and vulnerable health organisations including an Old Peoples Home, Antenatal Clinic, Children's Hospital and Infectious Diseases Hospital.

§ UBN

o Non-interest income increased by 4% for the 12 months ended 31 December 2020 compared to December 2019, with this trend continuing into Q1 and H1 2021 with UBN reporting a 9.5% and 22.3% increase respectively compared to the comparable period.

o The NPL ratio decreased to 4% at 31 December 2020 compared to 5.8% reported in December 2019. As at 30 June 2021, the NPL ratio has stabilized at 4.3%.

o Active users on digital platforms grew 1.3x and new features were added such as end-to-end account opening and enhanced card services including home delivery of cards, boosting revenues from digital channels by 1.5x.

o UnionDirect network was increased to over 18,000 agents, representing a 6x increase. Transaction volume and value grew 10x and 12x respectively delivering 14x revenue growth.

o Relaunched UnionVibe, UnionLegend and UnionInfinity, a suite of products targeting the key youth and teen demographic; and disbursed over NGN9.4 billion loans with new credit propositions.

o Core systems were upgraded to strengthen the performance, reliability, security and processing capacity of various platforms.

o Measures to prioritize the health and safety of employees, customers and other stakeholders to help weather the challenges of the pandemic.

o One of the first in the Nigerian banking industry to adopt the remote working model, with over 70% of workforce operating remotely at the height of the lockdowns, made possible due to pre-pandemic strategic investments made in digital technologies.

o Investments as part of business continuity measures taken in the face of this crisis including additional tools, measures and investments to facilitate work from home and avoid reduced productivity.

EXECUTIVE CHAIRMAN'S LETTER

Executive chairman's statement

Dear fellow Atlas Mara shareholders,

We entered the 2020 financial year with both optimism and positive momentum for most of our underlying banks. The previously announced strategic transaction in 2019 was intended to strengthen our position in markets where we did not have top five stand-alone market positions, and, through meaningful share ownership in the combined group, provide a broader strategic partnership with one of the region's leading banking franchises. At the same time, a strategic fund-raising was underway to strengthen the Group's balance sheet and to allow the Group to focus on and invest in FinTech and digital banking in its top-performing markets. Both of these opportunities were severely impacted by the unexpected global developments of the first quarter of 2020.

The visible onset of the pandemic caused by SARS-CoV-2, government responses in attempt to contain it, and the resulting period of market panic had a substantial and immediate detrimental impact on our business and on our markets that was outsized relative to other regions, including other emerging markets, and even other industries in the region. For example, during the first quarter of 2020, African equity markets declined by nearly 40%, double the decline of the S&P 500 in the same quarter, and of the African equity markets in the worse quarter of the global financial crisis (4Q08). Foreign exchange markets were similarly impacted, with greater than 20% declines against the dollar in the quarter for local currencies in countries such as Zambia, Zimbabwe, and South Africa. The major currency depreciations across the African markets in which the Group operates resulted in a more than $145 million reduction in the US dollar value of the Company's assets and thus a reduction in the Company's debt capacity.  Debt funding and liquidity dried up almost overnight. In our largest market, Nigeria, the equity markets declined by over 25% and the Naira by over 7%, while the sovereign yield blew out by over 110 basis points, foreign currency was unavailable in any size. The equity market decline in Africa was 60% worse than in other emerging markets, reflecting a particular "risk-off" view of Africa investment.

While COVID-19 infections remained relatively low, strict lockdowns and travel restrictions led to a substantial decrease in business activity in the region. Many African central banks struggled to provide the liquidity support necessary for local banks impacted by the crisis, while at the same time political pressures led to the imposition of regulatory restrictions on interest rate increases, imposition of fees and other actions that would ordinarily be available to defend liquidity and capital, if not profitability.

As the year progressed, it became apparent that neither the strategic transaction nor the strategic fundraising and repositioning of the balance sheet would be able to go forward under the circumstances. The Board made the difficult decision to undertake a formal restructuring of the Group's holding company debt and hired legal and financial advisors to assist in the process. At the same time, the Board broadened its review of strategic options to ensure that all possible alternatives to preserve value would be considered.

I am pleased to report that the Group was successful in completing the debt restructuring. In July 2021, the Company announced an agreement with creditors representing 88% of the total outstanding debt of the Group's holding companies. This critical agreement includes forbearance of debt service and other conditions favourable to the Group. The agreement also enabled the Company to continue its strategic review and certain associated divestitures, which are discussed below. The high level of creditor support was an affirmation of the alignment of the Company with its creditors, regulators and other stakeholders. I want to thank our creditors for their constructive engagement in reaching the agreement.

The Company also achieved several milestones in the strategic review aimed at maximizing creditor and shareholder value in the context of highly regulated banking environments. In the past year, we have completed or announced several important divestitures in line with this goal, including the Company's banking subsidiaries in Mozambique, Tanzania, Rwanda, and Botswana. Additionally, the company is in ongoing discussions regarding the Group's Zambian subsidiary. These announced transactions demonstrated the value of the Company's assets and represented the culmination of tremendous effort on the part of our colleagues, for which the Board and I are grateful. Today, the Company has a clear trajectory for completing the strategic review and restructuring that we began more than a year ago.

Despite the challenging macroeconomic environment in Africa, I am also pleased to report resilient operating performance from our underlying banks during the financial year. Most banks generated positive recurring operating profit during the period. Our local management teams demonstrated dedicated - and in some cases heroic - performance during this extraordinary period, and I want to thank our teams for their commitment and hard work.

Digital banking continued its rapid expansion across the footprint, particularly given the disruptions to traditional in-person banking activities, and we expect increasing contribution to income from these channels. UBN achieved an increase in profit from continuing operations (in local currency terms), due in part to improved cost efficiency, and despite the significant hit to Nigeria's economy and very limited access to hard currency.

Across the Group, the banks' balance sheets contracted as expected, given pandemic and lockdown related disruptions, but all banks remained above their minimal required capital adequacy ratios. We believe a stronger macroeconomic turnaround will enable the banks, which have improved operational efficiency in this crisis, to achieve faster growth and improved profitability in the future.

For the moment, the macroeconomic environments in our countries of operation remain precarious. The 2021 recovery seen elsewhere around the world has been slow to come to sub-Saharan Africa. The region's GDP contracted by 2.6% in 2020 and is expected to reach only 3.2% positive growth in 2021 (a respectable figure for Western markets, but far below a normal environment for sub-Saharan Africa). The muted economic activity has had widespread effects, from decreased credit book quality, negative credit growth, and lower interest income due in part to regulatory policy decisions.

With already constrained fiscal environments and relatively limited assistance from central banks, African markets have been unable to mount economic responses as impactful as those in the US or the EU, and local currencies, debt and capital markets remain under considerable pressure.

The Company continues to work with the subsidiaries to maximize value both in operations and, where appropriate, in potential partnerships or divestments. We have received expressions of interest in our remaining banking assets, and the board continues to explore all options to maximize the value of its franchises.

In July 2021, Atlas Mara's ordinary shares were suspended from trading at the Company's request, while critical elements of the strategic review were completed, and while financial results were prepared for publication following the completion of the debt restructuring. Shareholders can expect the shares to resume trading following the publication of the annual results. The Board continues to evaluate all potential options that could include a take-private or delisting of the Company and will keep the market apprised as appropriate.

The past financial year was the most challenging in the Company's history. I am proud of our teams' persistence and unwavering commitment to their customers. We continue to believe in the long-term growth story for Africa and for the banking sector, especially as it relates to financial technology and digital banking. In the short-term we remain focused first and foremost on exploring every available option for value realization. Thank you for your continued support.

Michael Wilkerson

Chairman

FINANCE REVIEW

Chief Financial Officer's review of financial performance

Consistent with the Atlas Mara's continued efforts to monitor and mitigate the effects of the COVID-19 pandemic, the Company implemented measures to prioritise the health and safety of employees, customers, and other stakeholders and activated the business continuity processes. COVID-19 and the scale of its impact on the Group's countries of operations continues to evolve, we remain hopeful that with greater access to vaccinations, the coming months could be a bridge to "normalcy," and many aspects of social and economic life can resume. In 2020, the sub-Saharan Africa ('SSA') region contracted by 2.6% due to the adverse impact of the pandemic and the associated lockdown measures, which disrupted economic activity through multiple channels. Economic growth in the SSA region is expected to rebound by 3.2% in 2021, which is still below typical levels for the region.

Despite these challenges, during the 14-month period ended 28 February 2021, the banking subsidiaries in Botswana and Zambia respectively reported profit after tax of $8.3 million (12-month period ended 31 December 2019: Profit after tax of $11.3 million) and $5.2 million (12-month period ended 31 December 2019: reported loss of $9.8 million), despite the significant headwinds posed by the COVID-19 pandemic.

The banking subsidiary in Zimbabwe, BancABC Zimbabwe, reported a loss of $0.4 million for the 14-month period ended 28 February 2021 (12-month period ended 31 December 2019: Profit after tax of $7.8 million). Performance was impacted by an increase in loss on net monetary position as well as increased operating costs due to hyperinflationary pressures and currency depreciation. As part of balance sheet management, BancABC Zimbabwe invested in inflation and exchange rate hedging assets, which resulted in net asset value increasing to $60.7 million for February 2021 compared to $53.6 million for December 2019.

The Group's performance for the period was negatively impacted by the restrictions on business activity in each of our markets as a result of lockdowns, travel restrictions, and entire sectors of the economy being closed as "non-essential" during the height of the pandemic. Excluding IFRS 5 remeasurement loss of $1.4 million (12-month period ended 31 December 2019: $105.5 million), the Group recorded a loss of $57.3 million for the 14-month period ended 28 February 2021 (12-month period ended 31 December 2019: $37.7 million). In addition to the negative impact of the pandemic on the Group's operations, current period performance was also negatively impacted by additional losses arising from write-off of deferred tax assets of $10.9 million, additional fair value loss of $2.8 million arising on the revaluation of the Group's financial assets measured at FVTPL as well as $6.1 million net monetary loss based on hyperinflation accounting in Zimbabwe. Excluding the impact of these additional losses and that of IFRS 5 remeasurement loss, the reported loss for the14-month period ended 28 February 2021 remained flat at $37.6 million (12-month period to 31 December 2019: $37.7 million).

Adjusted profit for the 14-month period ended 28 February 2021 was $1.5 million (12-month period ended 31 December 2019: $5.8 million), while the adjusted cost to income ratio remained flat at 106.1% (12-month period to 31 December 2019: 106.6%). Nearly all other key financial performance metrics were negatively impacted with the adjusted ROE declining to 0.9% for the 14-month period ended 28 February 2021 from 1.2% for the 12-month period ended 31 December 2019.

The Group has been stress testing its portfolios in the current environment. As of 28 February 2021, there was a decline in the ECL estimate, thereby keeping the NPL ratio constant at 11.4%. We will continue to monitor the portfolios and act as the situation unfolds.

Change in financial year-end

The Group extended its reported date by two months from 31 December 2020 to 28 February 2021.

New financing

On 29 December 2020, the Company entered into a new secured facility agreement with a fund entity managed by UBS O'Connor LLC. The facility was for a new investment in the principal amount of US$25,824,075 with a duration of 18 months. The facility has been used to fund the near-term operating expenses and working capital requirements of the Group, and to finance the purchase of 26,435,188 ordinary shares of the Company held by the lender at a price of $0.40 per share, reflecting the closing market price on the day the funding was agreed between the parties. The repurchased shares are held in treasury.

Strategic transactions

On 30 September 2020, ABCH entered into a definitive agreement for the sale of the Group's shareholding in African Banking Corporation Mozambique Limited. The transaction was completed on 17 May 2021.

On 26 November 2020, ABCH entered into a definitive agreement for the sale of the Group's 97.3% shareholding in African Banking Corporation Tanzania Limited. The transaction, which has been approved by the Bank of Tanzania, is now subject to fulfilment of customary conditions precedent.

On 26 November 2020, ATMA entered into a definitive agreement for the sale of the Group's 62.06% shareholding in Banque Populaire du Rwanda Plc ("BPR"). The Transaction was completed on 25 August 2021.

On 19 April 2021, ABCH entered into a definitive agreement for the sale of its 78.15% shareholding in African Banking Corporation Botswana Limited. The transaction, which has already been approved by the Bank of Botswana, is now near completion. 

African Banking Corporation Zambia limited is, for accounting purposes, still classified as a disposal group held for sale in terms of International Financial Reporting Standard ("IFRS") 5: Non-current assets held for sale and discontinued operations. The discussions with a potential investor for the sale of the subsidiary are ongoing.

Restructuring agreement

On 14 July 2021, the Support and Override agreement was signed by majority of the company lenders representing 88% of the aggregate amount of debt outstanding under the company direct and contingent facilities. The lenders who are a party to the Support and Override Agreement have agreed to forbearances in respect of certain events of default under their relevant facilities, while the Support and Override Agreement is effective, including (i) non-payment of amounts due under the company's financing agreements, (ii) any deterioration in the financial or operational performance of the Group as a result of COVID-19, and (iii) any breach of any financial covenant under the company's financing agreements. The Support and Override Agreement governs and provides a stable framework for company ongoing liquidity needs as the Company continues to work on the milestones set out in the agreement. Details of the restructuring agreement and milestones are set out in the Company's previous announcement. These milestones include Strategic Transactions required for successful implementation of the Support and Override agreement.

Country performance summary

Nigeria

UBN has shown resilient performance which has resulted in profit after tax increasing by 3.1% in local currency for continued operations for 12-month period ended December 2020 in comparison to 12-month period ended December 2019. Including the results of the discontinued operations, profit after tax declined by 6.1% in local currency for 12-month period ended December 2020 in comparison to 12-month period ended December 2019.

Overall, UBN sustained its cost to income ratio to 75.4% for 12-month period ended December 2020 compared to 74.1% reported in December 2019. The NPL ratio has decreased to 4.0% for 12-month period ended December 2020 from 5.8% for 12-month period ended December 2019. The NPL coverage ratio remained strong at 127.5% for the period ended 31 December 2020 (31 December 2019: 138.1%).

Despite the impact of the contraction in earnings, UBN remains well capitalised with its CAR at 17.5% at December 2020, well above the regulatory minimum of 15%.

UBN continues to show resilience in 2021 and is well capitalized over its regulatory minimum, NPL ratio hovering at 4.3% and sustained profitability with cost to income ratio hovering at 76%.

Zimbabwe

Zimbabwe's recession persisted in 2020 amid continued structural economic weaknesses, adverse climate conditions and the outbreak of the COVID-19 pandemic. Inflation reached a peak of 838% year-on-year in July 2020, and then trended downward to 349% year-on-year in December 2020. The economy has benefited from the currency reforms, which led to the adoption of the auction exchange rate system in June 2020.

African Banking Corporation of Zimbabwe Limited reported a loss of $0.45 million for the 14-month period ended February 2021 compared to reported profit of $7.8 million for the 12-month period ended December 2019. The numbers have been impacted by an increase in loss on net monetary position of $5.8 million compared to corresponding period due to hyperinflation. As part of balance sheet management, the Bank invested in inflation and exchange rate hedging assets, which resulted in net asset value being sustained year-on-year.

Botswana

Botswana's economy is estimated to have contracted by a record of 10% during the year as the country suffered from the collapse of international trade, which adversely affected diamond exports and tourism. In response to the pandemic, the Bank of Botswana ("BoB") cut its policy rate by 100 bps in April 2020 to provide sufficient liquidity in the economy.

The banking subsidiary in Botswana reported profit after tax of $8.3 million for the 14 months ended February 2021 compared to profit of $11.3 million for the 12-month period ended December 2019 despite the significant headwinds posed by the COVID-19 outbreak. Profitability was supported by cost reduction and containment measures implemented.

Discontinued operations

Zambia delivered a solid performance for the year after posting a profit after tax of $5.2 million for the14-month period ended February 2021 compared to a loss of $9.8 million in 2019 largely due to increase in interest income, improved FX trading income and reduction in impairment charge. Interest income was propelled by earnings on short term structured finance deals and improved yields on government securities.

Rwanda reported a profit of $4.8 million for the 14-month period ended February 2021 compared to the profit of $2.6 million for the 12-month period in 2019. This performance has been supported by cost reduction and containment initiatives.

In Tanzania, performance was adversely impacted by the reduction in transactional activity caused by the COVID-19 pandemic and liquidity challenges, partially offset by recoveries of loans written off in previous years.

Performance summary

The Group recorded an adjusted net profit of $1.5 million for the 14-month period ended 28 February 2021 (12-month period 31 December 2019: adjusted profit of $5.8 million).

Statement of comprehensive income review

Total income

Total income at $186.2 for the 14-month period ended 28 February 2021 has shown a decline due to decrease in net interest income.

Table 1: Total income for the year ended 28 February 2021

Net interest income

Net interest income declined by $4 million resulting from an increase in interest expense. This was mainly as a result of an increase in borrowed funds and the impact of liquidity pressures experienced in some of our markets, resulting in more expensive deposits. This is reflected in the increase in the cost of funds to 6.6% for the 14-month period ended 28 February 2021 from 5.9% as reported for the 12-month period ended 31 December 2019.

Non-interest income

Non-interest income increased by $0.4 million resulting from improved earnings from digital channels and offset by a reduction in loan-related fees and foreign currency trading income. Lower loan growth and decline in business activities resulting from the impact of the COVID-19 pandemic negatively impacted the Group's ability to improve non-interest income during the period.

Total expenses

Total expenses declined to $213.1 million ($209.5 million excluding one-offs) for the 14-month period ended 28 February 2021 from $219.5 million reported for the 12-month period ended 31 December 2019, largely due to strategic cost management initiatives across the Group. Cost to income ratio decreased to 114.4% from 115.7% reported in December 2019; however, on an adjusted operating profit basis, cost to income ratio decreased to 106.1% in the 14-month period ended 28 February 2021 from 106.6% for the 12-month period ended 31 December 2019).

Staff costs decreased by 2.4% from $93.0 million reported for the 12-month period ended 31 December 2019 to $90.8 million reported for the current period ended 28 February 2021, while the contribution to total expenses decreased from 42.6% to 42.4%.

The Group continued to focus on reducing holding companies' expenses and for the 14-month period ended 28 February 2021, normalised expenses (net of restructuring costs) holding companies declined by $6.56 million for the 14-month period ended February 2021 compared to the 12-month period ended 31 December 2019. This has been achieved due to reduction in head count across the Holdcos, cost rationalization and process reengineering.

Impairment charges on financial assets

The loan book reduced by 9.9% during the 14-month reporting period ended February 2021, largely due to the conservative credit appetite, as lending was halted in the high-risk sectors and a cautious approach was taken for all new lending. COVID-19 related restrictions including lockdowns and travel restrictions also negatively impacted on Customer drawdown. Notwithstanding the 9.8% reduction in the loan book, the NPL ratio remained constant at 11.4%, however reduced in actual stock by $14.6 million or 10.2% to end the period at $142.6 million. This was due to proactive remedial management strategies and hard collection efforts in some high value cases.

While most of the retail loan portfolio consists of lending to the government sector, constrained incomes have resulted in subdued increase of credit in some markets. Corporate and SME borrowers in sectors such as transport, tourism, hospitality, private education and manufacturing have experienced increasing levels of default which are the main drivers of increases in NPL and impairments. Whilst these loans are collateralized by immovable property, adjustments have been made to the expected recovery rates and time to liquidate these assets, as prices remain under pressure and asset disposals take longer to effect.

Several enhancements were made to the ECL model during the year. Some of these enhancements included development of separate PD term structures for stage 1 and stage 2 loans; improving the ECL code to compute a weighted ECL based on base, best and worse-case scenarios to account for non-linearities in the scenarios and to incorporate forward looking information; development of a macro- economic linkage model to estimate changes in macro-economic factors on PD; introduction of a Floor LGD as a minimum ECL appropriate for each of the country portfolios and segmenting the retail secured and unsecured loan portfolios to accommodate for the different PD behaviour of these portfolios.

Share of profit of associates

This represents the Group's 47.68% share of UBN's profit for the 14-month period ended 28 February 2021. The impact of the amortisation of acquisition-related intangible assets is also included.

The Group booked $25.5 million of profit from UBN for the 14-month period ended Feb 2021 compared to $31.2 million for 12-month period ended Dec 2019. The reduction in profit has been due to the change in exchange rate index from Central Bank Rate to Nafex and devaluation of the currency. (Exchange rate on February 2021: 410 Naira, Exchange rate on December 2019: 306 Naira)

Statement of financial position review

Loans and advances comprise 22.3% of total assets; Cash, short-term funds and marketable securities represent 10.7%; investment in associate (UBN) balance accounts for 18.1%; goodwill and other intangible assets make up 2.4%; other assets (made up of derivatives, property and equipment, investment property, prepayments and other receivables etc.) make up 4.3% of total assets, while assets included in disposal groups account for the balance of 42.2%.

Total assets contracted by 0.7% reflecting the impact of currency movements in the Group's core markets (Botswana and Nigeria) and the slow-down in business operations resulting from the disruptions caused by COVID-19.

Deposits comprise 29.5% of the total liability base and represent 25.8% of the aggregate of liabilities and equity. The loan to deposit ratio for the period was 86.3% (December 2019: 89.0%).

Loans and deposits

Table 2: Loans and deposits composition by country at 28 February 2021

Loans and deposits

As presented in Table 2 above, loans and advances to customers declined by 9.9% (7.2% on a ccy basis) while deposits also declined by 7.1% (3.9% on a ccy basis).

Decline in loans and deposits was attributable to the impact of currency devaluation in Botswana and Zimbabwe and the slowdown in business activities due to the COVID-19 pandemic. The economic environment was challenging in the period as a result of the business disruptions caused by the pandemic. Market liquidity constraints in our countries of operations hindered the writing of new loans (as there was a market-wide decline in the demand for credit) and resulted in the loss of some significant deposits.

Term deposits remained the highest contributor to deposits, making up 58.2% of total deposits as at the end of February 2021 (31 December 2019: 72.0%). There was an increase in overnight deposits/interbank borrowings reflecting the tight liquidity situation experienced in Botswana and Zimbabwe.

Credit quality

NPLs as a percentage of the loan book remained constant at 11.4% (31 December 2019: 11.4%). This is due to the impact of the COVID-19 pandemic on business activities which in turn increased the credit risk on the Group's loan portfolio.

Capital position

As at 28 February 2021, all of Atlas Mara's operating banks and affiliates complied with local minimum capital requirements relevant in respective countries, as summarised below.

Table 3: Capital adequacy ratios

Investment in associate: UBN

Our total shareholding in Union Bank of Nigeria was 47.68% as at 28 February 2021 compared to 49.97% as at 31 December 2019. The investment is equity-accounted for in the statement of financial position as an investment in associate, with a closing balance of $469.9 million (December 2019: $580.6 million). Reduction in carrying value is mainly attributable to the dividend income earned from UBN in the year of $8.5 million and the impact of currency translation losses of $114.2 million.

Goodwill and other intangible assets

The statement of financial position incorporates goodwill and intangible assets of $63.9 million at 28 February 2021 (31 December 2019: $73.0 million). The decline in this balance is attributable to the amortisation for the period as well as currency translation losses on the balances reported by Group's foreign operations (UBN and Botswana).

Statement of Equity

The net equity balance of $330.5 million at 28 February 2021 was down from $547.2 million at 31 December 2019. $145.9 million of the reduction was due to FX translation losses taken by the Group during the14-month period ended February 2021. As of 28 February 2021, the tangible book value of the Group was $2.01 per share (31 December 2019: $2.87 per share) and book value per share of the Group $1.99 (31 December 2019: $2.97).

Segment information

The segmental results and statement of financial position information represents management's view of its underlying operations.

Nigeria: Through our 47.68% stake in UBN and Board representation, Atlas Mara has a footprint in Nigeria, Africa's largest economy. Our share of profit from our stake in UBN is based on UBN's reviewed management accounts for the 14-month period ended 28 February 2021.

Botswana: Represents the Group's 78.15% investment in BancABC Botswana and its subsidiaries. BancABC Botswana has been listed on the Botswana Stock Exchange since 2018. The Group is currently in the process of completing the sale of its stake to Access Bank Plc. This transaction is expected to be completed before the end of the year.

Zimbabwe: Represents the Group's 100% owned investment in BancABC Zimbabwe and its subsidiaries.

Discontinued operations

Our operations in Mozambique, Tanzania, Zambia and Rwanda remain classified as discontinued operations as the Group. On 17 May 2021, the transaction was completed for the sale of African Banking Corporation Mozambique Limited. On 25 August 2021, the transaction was completed for the sale of ATMA shareholding in Banque Populaire du Rwanda Plc ("BPR").

Corporate

Included in this segment are Atlas Mara Limited, the BVI incorporated holding company, Atlas Mara Management Services, the Dubai subsidiary, and all other intermediate Group holding entities, also referred to as the Shared Services and Centre.

Segment report for the year ended 28 February 2021

Segment report for the year ended 31 December 2019

Omar Khan

Chief Financial Officer

CORPORATE GOVERNANCE REPORT

Introduction

The governance structures and practices detailed in this Report underpin the Company's purpose and strategic objectives. We believe that building a sound corporate governance framework is the bedrock of the Company. Indeed, although the Company is not required to comply with the UK Corporate Governance Code issued by the Financial Reporting Council in 2018 (the 'Code') because of its standard listing, the Company nevertheless has taken the decision to continue to voluntarily apply the provisions of the Code to the greatest extent possible in order to drive sound decision-making and facilitate effective and prudent management of the Company.

Throughout this report, we highlight our progress to date in complying with the recently revised provisions of the Code that came into force on 1 January 2019. A copy of the revised Code can be found on the FRC's website at https://www.frc.org.uk/directors/corporate-governance-and-stewardship/uk-corporate-governance-code.

In addition, the Company also applies the corporate governance regime applicable to the Company pursuant to the laws of the British Virgin Islands ('BVI'). The corporate governance standards outlined in the BVI Business Companies Act 2004 have been incorporated into the Company's memorandum and articles and association. The Board has also voluntarily adopted a share dealing code which incorporates the provisions relating to transactions in securities by directors and persons discharging managerial responsibilities ('PDMRs') contained in the Market Abuse Regulations (EU 596/2014). The Board is responsible for taking all proper and reasonable steps to ensure compliance with these rules by the Directors and PDMRs.

How We Comply with the Principles of the Code

Although Atlas Mara is a standard listed company on the London Stock Exchange, we continue to work towards achieving conformity with the provisions of the Code where feasible, taking into account the Company's size, operations, markets and strategic objectives. Below we highlight the measures we've taken to comply with the principles set out in the Code and also provide explanations for instances where our practices depart from the provisions set out in the Code.

The first table below sets out how we applied the principles of the Code for the financial year ended 28 February 2021, and the second table below identifies and explains areas where we continue to work towards achieving full conformity with the standards of the Code.

Areas of the Code that the Company Continues to Work On

The table below sets out areas where the Company continues with efforts to achieve conformity with the Code and explanations for any areas of deviation.

Leadership

Overview of governance structures

The Board of Directors oversees the business of Atlas Mara on behalf of the Company's shareholders. The Board is accountable for the long-term success of the Company and delivery of sustainable value to shareholders. The Board sets the right tone and provides leadership of the Company within a framework of prudent and effective controls to appropriately assess and manage risks. The Board has delegated certain responsibilities to Board Committees to assist it with discharging its duties. Additionally, the implementation of matters approved by the Board and oversight of the day-to-day operations of the Company is delegated to the Atlas Mara Executive Committee ('EXCO'), which consists of senior management from the Company's key business lines and functional areas. Following recent changes made at the senior management level, in 2020 Atlas Mara's Executive Committee consisted of Michael Wilkerson, as Chairman of the Executive Committee, Muhammad Omar Khan (Group CFO); Beatrice Hamza Bassey (Group General Counsel); Kenroy Dowers (Group MD Strategy and Corporate Development); Sanjeev Anand (Group MD Retail and Commercial Banking) and Jonathan Muthige (head of Human Capital).

Role of the Board

Specifically, the Board:

§ sets and reviews the strategy and risk appetite for the Company;

§ oversees corporate governance activities of the Company, as well as compliance with the Code and any other corporate governance code the Board considers appropriate from time to time, as well as disclosures on corporate governance in the Annual Report and Accounts;

§ defines the Company's purpose and shared values, and promotes and monitors its culture;

§ approves capital and operating plans presented by management for the achievement of the strategic objectives it has set;

§ selects and evaluates the CEO and selected senior management hires;

§ sets the remuneration policy of the Company and approves the remuneration of the Executive Management team, as well as the remuneration of the Board;

§ is responsible for the Company's preparedness to respond in the event of a crisis;

§ oversees and approves major investments; and

§ reviews annually the Board's terms of reference and its own effectiveness.

The Board is also responsible for ensuring compliance with the general secretarial functions required under the BVI Companies Act and for compliance with the Company's continuing obligations as a company listed on the Official List and trading on the main market of the London Stock Exchange. The Company's company secretarial functions are performed and managed by the General Counsel, who has been approved as Company Secretary pursuant to BVI legal requirements.

Matters reserved for the Board

The Board maintains and periodically reviews a formal schedule of matters that are reserved to, and can only be approved by, the Board. The full schedule is available on the Atlas Mara website at http://atlasmara.com/about-us/corporate-governance/governance-framework/.

This schedule covers areas including:

§ the overall direction and approval of the Group's strategy;

§ changes relating to the Group's capital or corporate structures;

§ major investments, acquisitions and divestments;

§ risk appetite and oversight of risk and internal control;

§ approval of contracts, loans, repayments, borrowings, acquisitions and disposals greater than the thresholds established in the Company's related Schedule of Authorisations; and

§ authorising conflicts of interest where permitted by the Company's Articles of Association.

The matters that have not been expressly reserved to the Board are delegated by the Board to its Committees, as set out in their terms of reference, or to the Executive Committee of the Company. The Executive Committee executes the Company's strategy and is responsible to the Board for the management, development and performance of Atlas Mara and those matters for which the Board has delegated authority.

Composition of the Board

As at 28 February 2021, the Board was comprised of five members: the Chairman and four Non-Executive Directors. Effective 7 October 2020, Amadou Raimi, Chair of the Audit Committee, retired from the Board of Directors of the Company. Following this change, the Board is currently comprised of 5 members: Michael Wilkerson, as Chairman of the Board, and Bob Diamond, Rachel Robbins, , Simon Lee, and Jawaid Mirza as Non-Executive Directors. Further details on the Board of Directors and its composition are set out under section Board and Committee meetings and the Directors' Report.

Meetings of the Board

The Board holds regularly scheduled meetings every month with in-person meetings scheduled each quarter, however, following the impact of the Covid 19 Pandemic related travel restrictions, all meetings were conducted via telephone conference In 2020, special meetings were held in between scheduled meetings as often as necessary in order to enable the Board to fulfil its role or to consider and approve corporate activity of the Company. The Directors allocated sufficient time to the Company to perform their responsibilities effectively which includes time to prepare for Board meetings and review information packs circulated to the Board ahead of each meeting. During the reporting period, the Board and its Committees held 28 meetings in the aggregate. Board and Board Committee meetings are conducted in accordance with the articles of association of the Company.

The Board information packs include detailed reports with updates on the following key areas: financial performance; risk management; Internal Audit; legal, compliance and regulatory matters; banking and operations; Fintech and digital; global markets and treasury; and corporate development and strategic initiatives. The reports shared with the Board are agreed and prepared by in consultation with the Chairman of the Board and Chairs of the respective Committees. The Board also receives quarterly reports from external auditors. The management also makes available ad hoc information at the Board's request and endeavours to do so in a timely manner to ensure the Board has sufficient time to review materials.

In the few instances where Directors are unable to attend meetings due to conflicts in their schedule, they receive papers in the normal manner and have the opportunity to relay their comments in advance of the meeting, as well as follow up with the Chairman if necessary. The same process applies in respect of the various Board Committees.

The tables under section Board and Committee meetings set out the attendance by Directors at Board and Committee meetings during the reporting period.

Committees of the Board

The Board has delegated authority to its Committees to undertake various tasks on its behalf and to ensure compliance with regulatory requirements. This enables the Board to operate efficiently. The Board Committee terms of reference were drafted with the aim of promoting best practice in corporate governance. A summary of the terms of reference for each Committee is set out below. The full terms of reference are available on our website http://atlasmara.com/about-us/corporate-governance/board-committees/.

Board and Committee meetings

The attendance of Directors at Board and Committee meetings during 2020 is set out below.

In attendance Absent

Note:

1. Board meetings in 2020 covers period from 1 Jan 2020 to 28 February 2021.

2. Amadou Raimi stepped down from the Board effective 7 October 2020

In attendance Absent

Note:

1. Audit, Risk and Compliance meetings in 2020 covers period from 1 Jan 2020 to 28 February 2021.

2. Amadou Raimi stepped down from the Board effective 7 October 2020

3. Jawaid Mirza assumed the role of chairman of the Committee effective 7October 2020.

In attendance Absent

Note:

1. Remuneration Committee meetings in 2020 covers period from 1 Jan 2020 to 28 February 2021.

In attendance Absent

Note:

1. Nomination Committee meetings in 2020 covers period from 1 Jan 2020 to 28 February 2021.

What the Board focused its time on in 2020

Strategy and Corporate Development

§ Undertook an assessment of the key priorities and actions for 2020.

§ Considered and approved strategic transactions, including potential M&A transactions involving certain banking assets of the Company.

§ Continued to monitor progress with implementing strategic priorities throughout the year.

§ Ensured strategic objectives were designed to preserve value for shareholders.

§ Considered and approved leadership and organisational changes aimed at repositioning the Company.

§ Reviewed the capital and funding structure of the Group's businesses and assessed strategic proposals for enhancing growth and financial performance.

§ Oversaw the repositioning of the business and discussions aimed at restructuring of the Company's balance sheet.

Financial and operational performance of Retail & Commercial Banking Division

§ Provided leadership and oversight to weather the effects of the challenges presented by the COVID-19 pandemic including frequent stress testing and meetings to provide direction on ever changing environment.

§ Assessed management proposals for addressing key macroeconomic challenges impacting financial performance and addressing the health and economic effects of the pandemic.

§ Received and reviewed regular updates on the operating environment and key drivers of the Company's performance.

§ Assessed and monitored the financial performance of the Company and its operating subsidiaries against the targets set for 2020.

§ Assessed and approved financial statements to be released to the market.

§ Oversaw efforts to further streamline the holding company and remove centralised cost structures

§ Monitored implementation of IFRS 9 requirements.

§ Assessed the liquidity and solvency of the Company.

§ Considered and approved capital injections into subsidiaries to capitalise subsidiaries to meet regulatory capital requirements where needed.

§ Considered and approved cost control and growth initiatives to drive financial performance of the Company.

Risk and Governance

§ Provided oversight and advice on the Company's risk strategy and effectiveness of the overall risk management framework.

§ Reviewed and received reports on risk management and key risk exposures.

§ Considered and discussed proposals to enhance internal controls and risk management systems.

§ Reviewed and monitored effectiveness of the Company's compliance policies and procedures.

§ Provided oversight over the implementation of the Company's compliance program.

§ Monitored adherence to the Board Committee terms of reference.

§ Discussed key regulatory engagement and interactions.

Shareholders and Investors

§ Engaged with shareholders through proactive and Intensive Investor relations programme of conference calls and regular updates.

§ Engaged with shareholders in connection with fundraising initiatives, including prospective divestments targeted at ensuring focus on the core business of the Company.

§ Discussed shareholders' views and concerns on a regular basis.

§ Discussed share price performance and investor feedback.

People, Culture and Values

§ Focused on leadership and culture during challenges wrought by the pandemic.

§ Monitored ongoing implementation of the Company's People Agenda, aimed at embedding the Company's purpose, culture and values across the group, and engaging and re-energising staff around a common vision and unified people proposition.

§ Considered and reviewed compensation structures of senior management to ensure alignment with values and interests of the Company.

§ Monitored implementation of cost-rationalisation projects to ensure operational stability and effective engagement with staff impacted by organisational changes.

§ Provided oversight over the Company's human resource policies and received regular updates on staff recruitment and performance.

§ Monitored ongoing efforts to standardise human capital policies and procedures across the group.

§ Reviewed incentive structures to ensure alignment with the Company's purpose, vision and culture.

Effectiveness

Independence

Following the previously reported changes to the Board's composition during 2019, the Board currently consists of the Chairman and four Non-Executive Directors, three of whom are considered to be independent. The two Independent Non-Executive Directors on the Board are: Rachel F. Robbins and Jawaid Mirza.

Robert E. Diamond, Jr., Non-Executive Director on the Board, is a co-founder of the Company and an affiliate of AFS Partners LLC, one of the Founding Entities of the Company that holds Founder Preferred Shares issued by the Company at the time of its incorporation. Bob Diamond is not considered independent by virtue of his role in founding the Company

Out of the 5 current Board members, two were appointed to the Board pursuant to the terms of the strategic financing transaction executed between the Company and Fairfax Africa in August 2017: Michael Wilkerson and Simon Lee. Under this strategic partnership, Fairfax Africa was granted certain rights to appoint Directors to the Company's Board, which were incorporated into the Articles of the Company and approved by the shareholders of the Company at an extraordinary general meeting held on 14 July 2017. These 2 Directors are not considered independent by virtue of their appointment to the Board by Fairfax Africa, which holds a substantial minority interest in the Company.

Following recent changes to the composition of the Board, half of the Board members, excluding the Chairman, are considered independent as defined by the 2018 Code. In light of ongoing strategic initiatives, the composition of the Board will remain as is, until such time the Board determines appropriate to initiate a search for additional independent Board members.

Director election

The Code recommends that all Directors be subject to annual re-election by the shareholders. At the Company's last AGM, all Directors were submitted for re-election by the shareholders and were re-appointed accordingly.

Diversity

Atlas Mara remains committed to promoting diversity across the Group, however the Board acknowledges the need to improve gender balance across the Board and senior management team. The Company's policy on diversity is embedded in the Group's Human Capital Policy, which outlines key principles and guidelines for enhancing diversity and inclusivity at all levels within the organisation. Achieving balanced representation is important for encouraging meaningful dialogue and empowering staff, Management and Directors to work towards the Company's common strategic objectives. Further details on our values and culture, and commitment to diversity in the workplace, can be found under section Corporate Governance.

Accountability

Risk management

The Board recognises its responsibility with respect to risk management with a particular focus on determining the nature and extent of the Company's risk appetite for achieving its strategic objectives.

The Audit, Risk and Compliance Committee takes responsibility for overseeing the effectiveness of sound risk management and setting the framework. The Board is very clear that risks and uncertainties are a necessary facet of the businesses in which we operate. Within this context, the Board trusts and empowers the Company's management and employees to manage risks, providing a framework designed to provide reasonable assurance that our resources are safeguarded and that the risks and uncertainties facing the business are being properly assessed, managed and mitigated.

Internal controls

The Board gives primacy to its responsibility for establishing and maintaining the Group's system of internal controls. The Board receives regular reports from management identifying, evaluating and managing the risks within the business. The system of internal controls is designed to manage, as opposed to eliminate, the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material losses or misstatements. The Audit, Risk and Compliance Committee reviews the system of internal controls by way of reports from the Chief Risk Officer, the General Counsel, the Head of Internal Audit, as well as the Company's external auditors.

During 2020, the Company's management continued efforts to strengthen internal controls and ensure a sound internal controls environment is established and adhered to by all the Company's subsidiaries. The Audit, Risk and Compliance Committee provided close monitoring and review of progress being undertaken by Management to improve internal controls. Management will continue to strive to ensure key issues are brought to the attention of the Committee and the Board.

The Board and the Audit, Risk and Compliance Committee has carried out a review of the effectiveness of the system of internal controls during the period ended 28 February 2021 and for the period up to the date of approval of the consolidated financial statements contained in the Annual Report. The review covered all material controls, including financial, operational and compliance controls, and risk management systems. The Board confirms that the actions it considers necessary have been, or are being, taken to remedy any significant weaknesses identified from its review of the system of internal control. This has involved considering the matters reported to it and developing plans and programmes that it considers are reasonable in the circumstances. The Board also confirms that it has not been advised of material weaknesses in the part of the internal control system that relates to financial reporting.

Relations with shareholders

The Board emphasises the importance of communicating with its shareholders to ensure that its strategy, business model and performance are clearly understood and that it remains accountable to shareholders.

Responsibility for maintaining regular communications with shareholders rests with the CFO and other members of the Executive team, as appropriate. Additionally, Atlas Mara has made available the Chairman of the Board and the Senior Non-Executive Director to investors reflecting our desire to promote shareholder access to the Company. The Company sets itself the target of providing information that is timely, clear and concise. We have a programme of communication with shareholders based on our financial reporting calendar, including the Interim and Annual Report, AGM and the Investor Relations section of the corporate website at http://atlasmara.com/investor-relations/.

Investor activity during the last financial year included:

§ earnings calls for investors, analysts and stakeholders in conjunction with key financial announcements;

§ attendance at various investment bank-sponsored institutional investor conferences;

§ investor briefings and meetings held virtually; and

§ ad hoc meetings with the Chairman of the Board and other Non-Executive Directors on request, where calendar and regulatory requirements allow.

To further support engagement with our shareholders, the senior management team arranged meetings for investors in our countries of operations including meetings with the Company's local management teams.

RISK REPORT

The Group operates in an environment where taking considered business risks within the jurisdictions in which we operate is key to delivering on our strategy and to delivering value to shareholders.

In executing our business strategy, it is important to navigate uncertainties deftly, to optimise growth opportunities and to ensure that attendant risks fall within the Group's risk appetite framework of whichever risk type, with appropriate risk mitigants in place.

Group risk management objectives

The Board recognises that it is ultimately responsible and accountable to shareholders for:

· the process of risk management and the systems of internal control;

· identifying, evaluating and managing the significant risks faced by the Group;

· ensuring that effective internal control systems are in place to mitigate significant risks faced;

· ensuring that a documented and tested process is in place to allow the Group to continue its critical business in the event of a severe incident impacting its activities; and

· reviewing the efficacy of the internal control system.

The Group risk management function, as mandated by the Board of Directors is to:

· coordinate risk management activities across the organisation, by ultimately becoming the custodian of Atlas Mara's risk management culture;

· analyse, monitor and manage all aspects of exposures across risk classes;

· ensure risk parameters and limits are set, approved and implemented and ensure that they are consistently adhered to; and

· facilitate various risk management committees as part of the Group's risk management process.

Group risk management objectives

The Group's approach to risk management involves a number of fundamental elements. The procedures and methodology are enshrined in the evolving Atlas Mara Enterprise-wide Risk Management ('ERM') Framework.

The Group's risk appetite sets out the level of risk that the Group is willing to take in pursuit of its business objectives. This risk appetite is calibrated against the Group's broad financial targets including profitability and impairment targets, dividend coverage and capital levels. The Group's risk methodologies include systems that enable the Group to measure, aggregate and report risk for internal and regulatory purposes in line with best practice.

ERM in business includes the methods and processes used by organisations to manage risks and identify opportunities related to the achievement of their objectives. ERM provides a framework for risk management, which typically involves identifying particular events or circumstances relevant to the organisation's objectives (risks and opportunities), assessing them in terms of likelihood and magnitude of impact, determining a response strategy, and monitoring progress.

The Group's risk management framework defines the risk management Principles and Standards followed by the Group. These Principles and Standards ensure that risks are consistently managed throughout the Group through a set of internal controls. The Principles and Standards also ensure that risk awareness filters down through every level of the Group, and that every employee understands their responsibility in managing risk. At each operating subsidiary entity, the following sub-committees, comprising executives and senior management, are responsible for dealing with the risks facing the Group in a structured manner:

· Executive Credit Committee ('EXCO Credit') - responsible for credit risk;

· Assets and Liability Committee ('ALCO') - responsible for interest rate, market, liquidity, counterparty, currency and capital adequacy risk; and

· Operational Risk Committee ('ORCO') - responsible for technology, compliance, legal, human resources, reputational, operational and regulatory risk.

Atlas Mara has adopted the three lines of defence model to address how specific duties related to risk and control can be assigned and coordinated within the various business units. The model's underlying premise is that, under the oversight and direction of senior management and the Board of Directors, three separate groups (or lines of defence) within Atlas Mara are necessary for effective management of risk and control.

The three lines of defence are:

· Business operations;

· Risk and control functions; and

· Internal audit.

Each of the three lines plays a distinct role within Atlas Mara's wider governance framework. When each performs its assigned role effectively, the prospects of Atlas Mara being successful in achieving its overall objectives are highly enhanced.

Role of Atlas Mara Group Risk Management

Atlas Mara Group Risk Management is responsible for maintaining a culture of risk awareness throughout the Group. While each business unit is primarily responsible for managing its own risks, Group Risk Management independently monitors, manages and reports on all risks facing the Group, as mandated by the Board of Directors. It coordinates risk management activities across the Group to ensure that risk parameters are properly set and adhered to across all risk categories and in all Group companies. It also ensures that all risk exposures can be measured and monitored across the Group. Managing risk effectively is one of the key drivers of the Group's continuous investment in technology. Group Risk Management continually seeks new ways to enhance its risk management techniques.

It also updates the Group risk management framework on a regular basis to reflect new policies adopted by the Board of Directors. Group Risk Management overseeing the banking operations regularly reports to the Atlas Mara Executive Committee and the Atlas Mara Board Audit, Risk and Compliance Committee, to provide the Board with assurance that risks are being appropriately identified, managed and controlled. Group Risk Management is headed by an executive manager who reports to the Group CEO of banking subsidiaries who in turn reports to the Executive Chairman.

The Board has approved the Group risk management framework which applies to all Group companies and deals with enterprise-wide risk and governance protocol. Risk management in the Group is underpinned by governance structures as well as risk ownership, identification and evaluation. Ownership and management of risks begins in the business units of each subsidiary, who identify and evaluate risks particular to their function. Group Risk Management reviews actions taken by business units to mitigate identified risks.

Each subsidiary or business unit produces risk reports which along with the detailed risk information provided by Group Risk Management, is discussed by the Board. The risk reports present a balanced assessment of significant risks and the effectiveness of risk management procedures, and management actions in mitigating those risks.

Credit risk

Credit risk is the risk of loss to the Group from the failure of clients, customers or counterparties, to fully honour their obligations to the Group, including the whole and timely payment of principal, interest, collateral and other receivable. Credit risk management is the most significant risk to which the Group is exposed to.

Significant changes in the economy, or in the health of a particular industry segment that represents a concentration in the Group's portfolio, could result in losses that are different from those provided for at the reporting date. Country (or Sovereign) risk is part of overall credit risk and is managed as part of the credit risk management function as it has a major impact on individual counterparties' ability to perform. Management therefore carefully manages its exposure to credit risk.

Credit exposures arise principally in loans and advances, debt securities and other similar instruments. There is also credit risk in off-balance sheet financial arrangements such as loan commitments and guarantees. The Group Risk team reviews subsidiary risk exposures regularly and reports to the Atlas Mara Board of Directors.

Credit risk management and strategy

Credit risk is managed across the Group in terms of its Board approved risk management framework, encompassing credit principles and standards, mandate limits and governance structures.

The governance structures mandated with accountability for loan approvals, monitoring and risk management include the following:

· In Country Management Committee Credit Committee (Manco Credit Committee) (including BancABC entities and BPR).

· In Country Board Credit Committee including (BancABC entities and BPR).

· ABCH Group Credit Committee.

· ABCH Board Credit Committee.

· ABCH Board Loans Review Committee.

Atlas Mara Group credit risk management objectives are to:

· enable sustainable asset growth in line with the Group Risk appetite;

· optimise credit governance and operational structures;

· create a robust control environment;

· invest in skills, training and appropriate experience;

· simplify risk management processes;

· implement and refine appropriate models for credit granting;

· improve early warning, problem recognition and remedial management capability; and

· improve credit policies and governance framework.

The Board has defined and documented a credit policy for the Group which forms the basis of credit decisions. This policy includes a framework of limits and delegation of credit approval authority which are strictly adhered to. No one individual has the power to authorise credit exposures. Each subsidiary has a credit committee which operates within the defined limits set by the Board. These committees are responsible for the management of credit risk within their country including credit decisions, processes, legal and documentation risk and compliance with impairment policies. The Group Risk Department regularly reviews each subsidiary's adherence to required standards.

The Group Executive Committee ('EXCO') reports to the Board and is responsible for approval of credit decisions that are above country limits, recommendations on exposure limits and impairment policies. There is also a Board Credit Committee that approves any loans above the EXCO limit.

Credit life cycle

The credit life cycle consists of target market identification and quantification, principles of credit evaluation and decisioning, post-sanctioning fulfilment, credit administration, portfolio monitoring, early warning triggers, problem recognition and remedial management. The business, risk and senior management are integrated into the end-to-end credit life cycle. Atlas Mara Group uses a Risk Grading tool for corporate exposures to determine a minimum credit rating for acceptance for credit granting purposes.

The rating is the result of qualitative and quantitative criteria, based on statement of financial position and profit or loss inputs including critical ratios, industry benchmarking, management experience and capability. Risk ratings awarded to obligors are reviewed annually with the latest financial information and account conduct for corporate exposures.

Measuring credit risk

The Group's approach to measuring credit risk aims to align with the requirements set out under IFRS 9, in all substantial aspects, aligned with the standard approach and methodology employed by international financial institutions.

In line with IFRS 9, the Group has adopted the Expected Credit Loss approach effective 1 January 2018. Credit risk is broken down into the common risk components of Probability of Default ('PD'), Exposure at Default ('EAD') and Loss Given Default ('LGD'), modelled at a client, facility and portfolio level. These risk components are used in the calculation of the Expected Credit Loss ('ECL'). The models used by the Group are compliant with Basel II and regulatory requirements. These risk measures would be used as inputs to calculate the collective impairment amounts.

To determine the expected credit loss ('ECL'), these components are multiplied together (PD for the reference period (up to 12 months or lifetime) x LGD at the beginning of the period x EAD at the beginning of the period) and discounted to the balance sheet date using the effective interest rate as the discount rate.

Expected credit loss and capital requirements

The three components, PD, EAD and LGD, are building blocks used in a variety of measures of risk across the entire portfolio. ECL is the measurement of loss, which enables the application of consistent credit risk measurement across all retail and corporate credit exposures. LGD, EAD and PD estimates are also used in a range of business applications, including pricing, customer and portfolio strategy and performance measurement. ECL estimates can be compared directly to portfolio impairment figures within the regulatory capital calculation to ensure that the organisation's estimates of ECL from doing business are sufficiently covered by the level of general impairments raised. Any situations in which general impairments are insufficient to cover total ECL in totality have a direct bearing on the Group's capital requirement to ensure that these potential losses are absorbed.

Forbearance and restructuring

Forbearance refers to obligations for which the contractual terms of the facilities availed are modified or formalised into a new transaction. Atlas Mara Group Credit Principles and Standards documents the criteria to be applied in assessing clients that will qualify for restructure. Great emphasis is placed on sustainability of cash flows to repay the restructured instalments.

Restructuring activities include extended payment arrangements or the modification and deferral of payments. If the terms of a loan are modified or an existing loan is replaced with a new loan, then a qualitative as well as quantitative assessment is made to determine whether the original loan should be derecognised. The quantitative test determines whether the net present value of the cash flows under the new terms discounted at the original effective interest rate is at least 10% different from the carrying amount of the original debt. The qualitative test assesses whether there has been a significant change in the terms and conditions of the new loan compared to the original loan.

If it is determined that the expected restructuring will not result in derecognition of the existing loan, then the gain or loss due to modification is computed as the difference between the gross carrying amount of the original loan at the time of the restructure, and the discounted cash flows of the modified loan contract using the original effective interest rate as the discount factor.

If the expected restructuring will result in derecognition of the existing loan, then the expected fair value of the new loan is treated as the final cash flow from the existing loan at the time of its derecognition. This amount is included in calculating the cash shortfalls from the existing loan that are discounted from the expected date of derecognition to the reporting date using the original effective interest rate of the existing loan. These policies are kept under continuous review.

With the onset of the COVID-19 pandemic, assistance was offered to customers by way of granting payment holidays of 2 - 6 months, reducing the instalment amounts and extending loan tenures. Policy guidelines document the criteria to be applied to determine the loans that qualify for a restructure. For the COVID-19 related restructures, the Group determined that the restructuring did not result in the derecognition of the original loan. The gain or loss on modification of the loan was computed as the difference between the gross carrying amount of the original loan at the time of the restructure, and the discounted cash flows of the modified loan using the original effective interest rate as the discount rate.

Risk limit control and mitigation policies

The Group manages, limits and controls concentrations of credit risk in respect of individual counterparties and groups, and to industries and countries. The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary. Limits on the level of credit risk by product, industry sector and by country are approved by the Board of Directors (intermediate holding company) and relevant sub-committees and reviewed regularly. Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Some other specific control and mitigation measures are outlined below.

a. Collateral

The Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advanced, which is common practice.

The Group implements guidelines on the acceptability of specific classes of collateral for credit risk mitigation. The principal collateral types for loans and advances are:

· cash collateral;

· charges over assets financed;

· mortgages over residential and commercial properties;

· charges over business assets such as premises, inventory and accounts receivable; and

· charges over financial instruments such as debt securities and equities.

Loans and advances to corporates are generally secured. In addition, in order to minimise credit loss, the Group will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances. Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument. Debt securities, treasury and other eligible bills are generally unsecured, with the exception of asset-backed securities and similar instruments, which are secured by portfolios of financial instruments.

b. Credit-related commitments

The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit - which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions - are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

c. Derivatives

The Group maintains strict control limits on net open derivative positions (that is, the difference between purchase and sale contracts) by both amount and term. The amount subject to credit risk is limited to expected future net cash inflows of instruments, which in relation to derivatives are only a fraction of the contract, or notional values used to express the volume of instruments outstanding. This credit risk exposure is managed as part of the overall lending limits with customers, together with potential exposures from market movements. Collateral or other security is not always obtained for credit risk exposures on these instruments, except where the Group requires margin deposits from counterparties.

Impairment policies

The Group has adopted standard impairment policies which at a minimum comply with the prudential guidelines of the respective countries' Central Banks. Impairments are determined monthly at subsidiary level and are subject to regular review by EXCO Credit.

The impairments shown in the statement of financial position are measured in line with the expected credit loss model prescribed by IFRS 9. IFRS 9 outlines a 'three-stage' model for impairment based on changes in credit quality since initial recognition. Refer to the table below for further details:

Maximum exposure and effects of collateral and other credit enhancements (audited)

The following table shows the maximum exposure to credit risk by class of financial asset (excluding equity instruments which are not subject to credit risk). For on-balance sheet financial assets, the maximum exposure to credit risk equals their carrying amount and is net of the allowance for ECL. For financial guarantees, the maximum exposure is the maximum amount that the Group would have to pay if the guarantees were called upon. For loan commitments and other credit-related commitments, the maximum exposure is the full amount of the committed facilities.

It also shows the total fair value of collateral, any surplus collateral (the extent to which the fair value of collateral held is greater than the exposure to which it relates), and the net exposure to credit risk.

Notes

4. Vehicles, machinery, other fixed assets, inventory and trade receivables.

5. These collateral items are not readily convertible into cash as these items are sold in the market and are dependent on a buyer and seller.

6. Represents bank balances and placements held with other banks and excludes cash in hand. Included in $183.9 million cash and short-term funds balance in the statement of financial position.

7. Excludes prepayments and other non-financial assets. Balance disclosed is included in the $54.6 million other assets balance in the statement of financial position.

Notes

8. Vehicles, machinery, other fixed assets, inventory and trade receivables.

9. These collateral items are not readily convertible into cash as these items are sold in the market and are dependent on a buyer and seller.

10. Represents bank balances and placements held with other banks and excludes cash in hand. Included in $183.9 million cash and short-term funds balance in the statement of financial position.

11. Excludes prepayments and other non-financial assets. Balance disclosed is included in the $54.6 million other assets balance in the statement of financial position.

Credit quality analysis (audited)

The Group manages the credit quality of financial assets using internal credit ratings. Financial assets are segmented into five rating classes. The Group's rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The Group regularly validates the performance of the rating and their predictive power with regard to default events.

Distribution of financial assets by credit quality

The table below shows the distribution of the Group's financial assets by credit quality:

Distribution of loans and advances, financial guarantees and loan commitments by credit quality and stage allocation

The tables below set out the credit quality of loans and advances, financial guarantees and loan commitments, based on the Group's internal credit rating system and by ECL stage allocation. The amounts presented are gross of impairment allowances. For loans commitments and financial guarantees, the amounts in the table represent the amounts committed or guaranteed, respectively.

i) Loans and advances

ii) Financial guarantees, loan commitments and other off-balance sheet items

iii) Credit quality analysis for stage 3 loans and advances

Collateral taken for this category includes cash, mortgages over residential properties, charges over business assets such as premises, inventory and accounts receivable, and charges over financial instruments such as debt securities and equities.

Modified financial assets (audited)

The contractual terms of a loan may be modified for a number of reasons, including changing market conditions, customer retention and other factors not related to a current or potential credit deterioration of the customer. With the onset of the COVID-19 pandemic, assistance was offered to customers by way of granting payment holidays of 2 - 6 months, reducing the instalment amount and extending loan tenures.

The Group considered whether the restructure will result in derecognition of the original loan by applying quantitative as well as qualitative test. The quantitative test determined whether the net present value of the cash flows under the new terms discounted at the original effective interest rate is at least 10% different from the carrying amount of the original debt while the qualitative test assessed whether there has been a significant change in the terms and conditions of the new loan compared to the original loan.

For the COVID-19 related restructures, the Group determined that the restructuring did not result in the derecognition of the original loan. The gain or loss on modification of the loan was computed as the difference between the gross carrying amount of the original loan at the time of the restructure, and the discounted cash flows of the modified loan using the original effective interest rate as the discount rate. Most of the loans that were restructured under the Group's COVID-19 restructure policy were not in arrears at the time of restructure. The Group continues to monitor these loans to assess whether there is a subsequent significant increase in credit risk.

The following table provides information on financial assets that were modified during the reporting period as part of the Group's restructuring activities and the resulting modification loss:

a. Geographical sectors

The following table breaks down the Group's main credit exposure at their carrying amounts, as categorised by geographical region. For this table, the Group has allocated exposures to regions based on the country of domicile of its counterparties:

Notes

1. Represents cash balances and placements held with other banks and excludes cash in hand. Included in $183.9 million cash balance per statement of financial position.

2. Excludes equity instruments. Balance disclosed is included in the $106.6 million investment securities balance per statement of financial position.

3. Excludes prepayments and other non-financial assets. Balance disclosed is included in the $54.6 million other assets balance in the statement of financial position.

Notes

1. Represents cash balances and placements held with other banks and excludes cash in hand. Included in $130.5 million cash balance per statement of financial position.

2. Excludes equity instruments. Balance disclosed is included in the $107.8 million investment securities balance per statement of financial position.

3. Excludes prepayments and other non-financial assets. Balance disclosed is included in the $29.1 million other assets balance in the statement of financial position.

b. Industry sectors

The following table breaks down the Group's main credit exposure at their carrying amounts, as categorised by industry sectors of the counterparties:

Notes

1. Represents cash balances and placements held with other banks and excludes cash in hand. Included in $183.9 million cash balance per statement of financial position.

2. Excludes equity instruments. Balance disclosed is included in the $106.6 million investment securities balance per statement of financial position.

3. Excludes prepayments and other non-financial assets. Balance disclosed is included in the $54.6 million other assets balance in the statement of financial position.