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Demonstrate integrity in all our actions

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					      Demonstrate integrity
         in all our actions.




                                   63




  Corporate

                               Corporate governance
                               and risk management
 governance
    and risk
management
Contents
• Corporate governance statement   65
• Group board                      86
• Group remuneration report         94
• Group Executive Committee        108
• Risk management report           118
                                            Corporate governance statement
                                                                                                     [   Absa Group Limited
                                                                                                         Stakeholder report
                                                                                                         31 December 2006
                                                                                                                               ]   65




Introduction
Good corporate governance is an integral part of Absa’s operations. Accordingly, Absa Group Limited is fully committed
to the principles of the Code of Corporate Practices and Conduct set out in the King Report on Corporate Governance
(King II). The purpose of King II is to promote the highest level of corporate governance in South Africa. In supporting
the code, the directors recognise the need to conduct the enterprise with integrity and in accordance with generally
accepted corporate practices.




Key governance highlights and developments
The following were the key governance highlights and developments during the year under review:
• Ongoing compliance with King II.
• Successful implementation of section 404 of the Sarbanes-Oxley Act within the context of the materiality limits
  applicable to Barclays PLC.
• The identification and recruitment of a new Group chairperson to replace Dr Danie Cronjé, who will be retiring from
  the board in 2007.
• Further improvement in reporting processes to the main board, board committees and Absa’s Executive
  Committee.
• Implementation of a new employee share scheme and related share scheme matters. (Refer to the Group
  remuneration report for additional information.)
• Ongoing adoption of governance standards and practices applied by Barclays as well as other international best
  practices, where deemed appropriate, by the Absa board.
• In line with international best practice, the introduction of a requirement in terms of which all directors serving on the
  board for longer than nine years are subject to annual re-election by shareholders at the annual general meeting.
• The introduction of an annual director performance assessment for all directors (previously only applied in respect
 of those directors seeking re-election at the annual general meeting).
• An annual board effectiveness evaluation (previously done on a three-yearly cycle).
• The formation of a Board Finance Committee, with a mandate from the board to review and approve investments
 and divestments and related transactions, subject to specific limits.
• The formation of a Group Credit Committee, which replaced the Board Lending Committee.
• Ongoing progress with regard to meeting the requirements of the Financial Sector Charter.
66
     [   Absa Group Limited
         Absa Group Limited
         Stakeholder report
         Stakeholder report
         31 December 2006
         31 December 2006
                              ]     Corporate governance statement




         Challenges
         Some of the key governance challenges include:
         • The need to improve the board continuously and the availability of suitably skilled and experienced directors in this
           regard. This is especially pertinent for banks, which need to be at the forefront of risk management.
         • The challenge of responding and adhering to a continuing flow of new laws and regulations, while at the same time
           ensuring a profitable and sustainable business.
         • Ongoing preparation to ensure Basel II compliance by 2008.




         Awards and recognition
         For the past four years, Absa’s annual report has been placed among those of the top three in the annual Ernst &
         Young Excellence in Corporate Reporting survey of the top 100 listed company annual reports.




         Looking ahead
         For the year ahead, the Group has the following corporate governance objectives and focus areas:
         • Ongoing compliance with King II.
         • Induction and assimilation of a new Group chairperson, who will replace Dr Danie Cronjé.
         • Ongoing focus on the board’s succession plan, specifically given that certain board members will be reaching
           retirement age over the next few years.
         • Greater focus on director training and development, especially in Absa’s African subsidiaries and for new directors.
         • The enhancement of a governance framework for adoption by the Absa subsidiaries in Tanzania, Mozambique and
           Angola.
         • Governance matters relating to the proposed acquisition by Absa of the nine African banks currently owned by
           Barclays.
         • Ongoing adoption of governance standards and practices applied by Barclays as well as other international best
           practices, where deemed appropriate by the Absa board.
         • An investigation into electronic proxy voting and electronic communication with shareholders in general.
         • Ongoing work to meet the requirements of Basel II by 2008 and the implementation of a market disclosure policy.
                                             Corporate governance statement
                                                                                                       [   Absa Group Limited
                                                                                                           Stakeholder report
                                                                                                           31 December 2006
                                                                                                                                 ]   67




Compliance with King II
The directors are of the opinion that Absa complies with, and has applied, the requirements of King II with regard to
the year under review.


Application of the code and approach to corporate governance
All entities in the Group are required to subscribe to the spirit and principles of the code. In addition, the code is applied
to all operating entities of the nature and size identified in King II (such as banks, financial and insurance entities).

Whereas the Absa board takes overall responsibility for Group compliance with the code and is the focal point of the
Group’s corporate governance system, the directors of specific companies in the Group are responsible for ensuring
compliance in respect of the companies of which they are directors.

The Group facilitates a comprehensive process to review compliance with the code by all relevant entities annually.
This includes:
• a full and effective review by the Absa board of all aspects relating to ongoing corporate governance, the inclusion
  of statements in this regard in the annual report and consideration of the requirements of Regulation 38(5) of the
  Banks Act (in terms of which the board is required to report annually to the Registrar of Banks on the extent to which
  the process of corporate governance implemented by the Company successfully achieves the objectives determined
  by the board); and
• a review of current and emerging trends in corporate governance and the Group’s governance systems as well as
  benchmarking the Group’s governance systems against local and international best practice.

In its governance approach, the board believes that, while compliance with the formal standards of governance
practice is important, greater emphasis is placed on ensuring the effectiveness of governance practice, with substance
prevailing over form. The board also seeks to ensure that good governance is practised at all levels in the Group and
is an integral part of Absa’s operations.

Absa’s corporate governance standards, which support the Group’s overall strategy, are captured and measured in
terms of the Group’s overall balanced scorecard measurement.

Absa and Barclays have agreed on a governance framework for how the two entities will work together. The framework
takes account of matters such as the regulatory, legislative and industry constraints applicable to Absa and Barclays
respectively, the interests of Absa’s minority shareholders, the legal implications of the parent/subsidiary relationship
between Barclays and Absa, taking cognisance of the fact that Barclays has made a financial strategic investment in
Absa, the fiduciary responsibilities of the Absa and Barclays boards of directors and Absa’s normal corporate
governance procedures. The framework is intended to ensure that Barclays and Absa can work together to maximise
value for all shareholders while complying with all regulatory and legislative requirements. The framework is reviewed
by the board annually, taking account of recommendations made by the Directors’ Affairs Committee.

As regards Absa’s black economic empowerment (BEE) transaction (in terms of which approximately 10% of Absa’s
total issued share capital is held by Batho Bonke Capital (Proprietary) Limited), governance oversight is provided via
an ad hoc board committee, comprising independent directors: D C Cronjé (committee chairman), D C Brink, A S du
Plessis and P du P Kruger. The main objective of the committee is to ensure that the BEE transaction is implemented
in accordance with the transaction approved by Absa shareholders in June 2004. This committee met four times during
2006 and considered a wide range of matters relating to the overall governance arrangements of the BEE transaction.
The committee chairman reported to the board following each committee meeting, and minutes of the committee were
provided to the board. In considering share allocations to potential recipients, the committee applied specific principles
and criteria.
68
     [   Absa Group Limited
         Stakeholder report
         31 December 2006
                                  ]        Corporate governance statement



         Risk management
         Absa’s overall risk management philosophy, policy, methodologies and governance structure are set out in the risk
         management report on page 118 of this report.

         Boards of directors and board committees
         Board composition
         Absa has unitary board structures in all South African companies in the Group.
         The Absa board has an appropriate balance, with a majority of independent directors*. The chairman of the Absa board
         is an independent director.
         Details on the categorisation of the directors appear on pages 86 of this report. As at 31 December 2006, there were
         21 directors, of whom four were executive, five were non-executive and 12 were considered to be independent directors.
         In subsidiary companies in the Group, the roles of chairmen and managing directors do not vest in the same persons
         and the chairmen are non-executive directors of the entities of which they are chairmen.

         Board procedures and related matters
         The board meets regularly, retains full and effective control over all the companies in the Group and monitors executive
         management in implementing board plans and strategies. Additional board meetings, apart from those planned, are
         convened as circumstances dictate. The number of meetings held during the year under review (including meetings of
         board-appointed committees) and the attendance of each director are set out on pages 72 to 78 of this report. Where
         directors are unable to attend a meeting personally, teleconferencing facilities are made available to include them in
         the proceedings and allow them to participate in the decisions and conclusions reached.
         The board meets with management annually for a number of days prior to the formulation of the Group’s annual
         financial budget to debate and agree on the proposed Group strategy and to consider long-term issues facing Absa.
         The board has identified and monitors key risk areas, key performance areas and non-financial aspects relevant to
         Absa, where applicable supported by board-appointed committees. The directors are entitled to obtain independent
         professional advice at the Group’s expense, should they deem this necessary. The board has approved an appropriate
         policy in this regard.
         In addition, the board has unrestricted access to all company information, records, documents and property to enable
         it to discharge its responsibilities. The information needs of the board are reviewed annually. Efficient and timely
         procedures for informing and briefing board members prior to board meetings have been developed.
                                                                                           Directors are afforded the opportunity
                                                                                           to propose additional matters for
                                                                                           discussion at board meetings.
                                                                                           Management ensures that board
                                                                                           members are provided with all
                                                                                           relevant information and facts to
                                                                                           enable the board to reach objective
                                                                                           and well informed decisions. Board
                                                                                           meetings are scheduled well in
                                                                                           advance and include a board plan for
                                                                                           the year, setting out matters for
                                                                                           consideration at each meeting. Board
                                                                                           documentation is provided in a timely
                                                                                           manner to directors and the tabling of
                                                                                           documents at board meetings is done



         *A non-executive director who is independent, as defined by King II.
                                             Corporate governance statement
                                                                                                  [   Absa Group Limited
                                                                                                      Stakeholder report
                                                                                                      31 December 2006
                                                                                                                           ]   69




only on an exception basis. The board agenda and meeting structure has been adapted to focus on strategy and
performance monitoring, governance and related matters. This ensures that the board’s time and energy is appropriately
applied.
The board considers a number of key performance indicators, variance reports and industry trends quarterly. A range
of non-financial information is also provided to the board to enable it to consider qualitative performance factors that
involve broader stakeholder interests.
The board recognises the importance of promoting entrepreneurial flair while continuing to ensure conformance to
governance and other compliance restraints. The directors bring a wealth of skills, knowledge and experience from
their own fields of business to the board and ensure that debate on matters of strategy, performance, resources,
transformation, diversity, employment equity, standards of conduct and policy is robust, informed and constructive.
Non-executive directors have access to management and may meet separately with management without the
attendance of executive directors. In terms of Absa’s board charter, arrangements for such meetings are facilitated
through the office of the Group secretary. Prior to every scheduled board meeting, the non-executive directors meet
without the presence of management. Directors are kept appropriately informed of key developments affecting the
Group between board meetings.
The board has developed a charter, the salient aspects of which are set out below.

The Absa board charter

Purpose and objectives

The purpose of the charter is to regulate how business is to be conducted by the board in accordance with the
principles of good corporate governance. The charter sets out specific responsibilities to be discharged by board
members collectively and the individual roles expected of them. The objectives of the charter are to ensure that all
board members acting on behalf of the Company are aware of their duties and responsibilities as board members and
the various legislation and regulations affecting their conduct and to ensure that the principles of good corporate
governance are applied in all their dealings in respect of and on behalf of the Company.

Key features

• The roles of the chairman, deputy chairman, the Group chief executive and individual board members.
• Board composition (including qualifications and key competencies for board membership).
• Conduct regarding conflicts of interest.
• The reward system and process in determining board remuneration.
• Director orientation, induction and training.
• Succession planning and director selection and appointment.
• The role of the board (including the adoption of strategic plans and the monitoring of operational performance and
  management).
• Board procedures.
• Access to management by non-executive directors.
• Matters specifically reserved for the board, including the approval of:
  – the Company’s objectives, strategy, strategic financial plans, business plans and annual budgets and the
    monitoring of performance against these criteria;
  – annual financial statements, interim reports and related financial matters;
  – Absa’s code of ethics;
  – appointments to and removals from the board (including the chairman, the deputy chairman, the Group chief
    executive, and executive and non-executive directors);
70
     [   Absa Group Limited
         Stakeholder report
         31 December 2006
                              ]       Corporate governance statement



           – delegations of authority to the Group chief executive and executive directors;
           – board committee mandates, authorities and membership;
           – Absa’s risk appetite;
           – significant Company policies; and
           – Absa’s corporate governance philosophy and ongoing governance compliance.
         • Compliance with laws and regulations.
         • Risk management and internal controls.
         • Stakeholder communication.
         • Board/individual director performance evaluation.

         Board appointments and succession planning
         Non-executive directors on the Absa board are appointed for specific terms and reappointment is not automatic.

         The initial term of office of directors is three years, whereafter they are obliged to retire but can offer themselves for
         re-election. A third of the directors retire by rotation annually. If eligible, their names are submitted for re-election at the
         annual general meeting, accompanied by appropriate biographical details set out in the report to shareholders. Non-
         executive directors are required to retire at the annual general meeting following their 70th birthday.

         In line with international best practice, Absa has introduced a requirement in terms of which all directors on the board
         for longer than nine years are subject to annual re-election by shareholders at the annual general meeting.

         The board as a whole, within its powers, selects and appoints directors, including the Group chief executive and
         executive directors, on the recommendation of the Group Remuneration Committee (in respect of executive directors)
         and the Directors’ Affairs Committee (DAC) (in respect of non-executive directors).

         The DAC considers non-executive director succession planning and makes appropriate recommendations to the
         board. This encompasses an evaluation of the skills, knowledge and experience required to implement the Group’s
         business plans and strategy and address any gaps in this regard, as well as the board transformation process to meet
         the requirements of the Financial Sector Charter.

         All appointments are in terms of a formal and transparent procedure and are subject to confirmation by the shareholders
         at the annual general meeting. Prior to appointment, potential board appointees are subject to a “fit and proper” test,
         as required by the JSE Limited and as prescribed by the Banks Act.

         Training and orientation workshops covering topics such as the Group’s business, corporate governance, fiduciary
         duties and responsibilities, new laws and regulations and risk management are provided to both new and existing
         directors. Directors (particularly new directors) are encouraged to attend development programmes with regard to their
         duties, responsibilities, powers and potential liabilities. A formal orientation programme with members of management
         is provided to all newly appointed directors. The programme typically lasts two days.

         In addition, new directors are provided with a “governance file” setting out matters such as important legislation (such
         as provisions and regulations of the Banks Act), the Group’s board/committee governance structure, the board plan
         for the year, the board charter (which forms part of their letter of appointment), the terms of reference of all board-
         appointed committees and key company policies. The Group secretary meets with new directors to take them through
         the governance file, as well as to review recent board documentation.
                                            Corporate governance statement
                                                                                                   [   Absa Group Limited
                                                                                                       Stakeholder report
                                                                                                       31 December 2006
                                                                                                                             ]   71




Independence
The DAC assesses the independence of each Absa director against the criteria set out in King II. Based on this assessment,
the DAC is of the view that the following directors meet these criteria: D C Cronjé, D C Brink, D C Arnold, D E Baloyi,
B P Connellan, A S du Plessis, G Griffin, M W Hlahla, L N Jonker, P du P Kruger, F A Sonn and P E I Swartz.
With regard to Dr Cronjé, the DAC specifically considered the fact that he is chairman of Absa while at the same time
being a director of Barclays PLC and Barclays Bank PLC. The DAC noted that Dr Cronjé did not represent Barclays
PLC and Barclays Bank PLC on the Absa board nor vice versa. In addition, the committee felt that he was sufficiently
independently minded. Taking these factors into account, the committee was of the view that Dr Cronjé is an
independent director.

Board performance assessment
The DAC annually assesses the contribution of each director, using an individual director evaluation process that is
conducted by the Group chairman and deputy chairman. The Group chairman’s performance is dealt with by the DAC,
whereas that of the deputy chairman is dealt with by the Group chairman and one other member of the DAC.
The Absa board as a whole considers the outcomes of the above processes. This culminates in a determination by
the board as to whether the board will endorse a retiring director’s re-election. Where a director’s performance is not
considered satisfactory, the board will not endorse the re-election.
Individual director performance is assessed against the following criteria: time, availability and commitment to
performing the function of an Absa director, strategic thought and specific skills, knowledge and experience brought to
the board, the director’s views on key issues and challenges facing Absa, the director’s views on his/her own
performance as a board member, attendance over the past year and other areas or roles where the director’s specific
skills could be used.
Information on the directors standing for re-election at the annual general meeting is contained in the explanatory notes
to resolutions for the annual general meeting (refer to page 522).
Annually, a collective board effectiveness evaluation is conducted. This assessment is aimed at determining how the
board’s effectiveness can be improved. The DAC considers the outcomes of the evaluation and makes recommendations
where deemed appropriate. The Absa board considers the outcomes of the evaluation and the recommendations of
the DAC.

Board remuneration and share ownership
Details of Absa’s remuneration
policies and practices and the
remuneration paid to Absa Group
directors are set out in the remuneration
report on pages 94 to 107. Share-
holders are invited to consider and
approve the proposed remuneration
                                             All appointments are in terms of a formal
payable to directors at each annual
general meeting.
                                             and transparent procedure and are subject
Non-executive directors have agreed
to hold a minimum of 1 000 Absa
                                             to confirmation by the shareholders at the
ordinary shares throughout their
tenure. Details of the shares held by
                                             annual general meeting.
directors are set out on pages 355
and 357.
72
     [   Absa Group Limited
         Stakeholder report
         31 December 2006
                                  ]      Corporate governance statement



         Attendance at board meetings
         Board meeting attendance (2006)
         Director                              Appointment        Resignation    Feb   Mar   Apr     Jun    Jul     Oct   Nov*    Dec

         L N Angel                                                               A     ✔     ✔        ✔      ✔      ✔       ✔      A
         D C Arnold                                                              ✔     ✔     ✔        ✔      ✔      ✔       ✔      ✔
         D E Baloyi                                                              ✔     ✔     ✔        ✔      ✔      ✔       ✔      ✔
         S F Booysen                                                             ✔     ✔     ✔        ✔      ✔      ✔       ✔      ✔
         D C Brink (deputy chairman)                                             ✔     A     ✔        ✔      ✔      ✔       ✔      ✔
         D Bruynseels                                                            ✔     ✔     ✔        ✔      ✔      ✔       ✔      ✔
         B P Connellan                                                           ✔     ✔     ✔        ✔      ✔      ✔       A      ✔
         D C Cronjé (chairman)                                                   ✔     ✔     ✔        ✔      ✔      ✔       ✔      ✔
         Y Z Cuba                                   6 Dec ’06
         A S du Plessis                                                          ✔     ✔     ✔        ✔      ✔      ✔       ✔      ✔
         G Griffin                                                               ✔     ✔     ✔        ✔      ✔      ✔       ✔      ✔
         M W Hlahla                                                              ✔     ✔     ✔        ✔      ✔      A       ✔      ✔
         L N Jonker                                                              ✔     ✔     ✔        ✔      ✔      ✔       ✔      ✔
         N Kheraj                                                                ✔     ✔     ✔        ✔      ✔      ✔       ✔      ✔
         P du P Kruger                                                           ✔     ✔     ✔        ✔      ✔      ✔       ✔      ✔
         L W Maasdorp                                              30 Sept ’06   ✔     ✔     ✔        ✔      ✔
         D L Roberts                                                23 Oct ’06   ✔     ✔     ✔        ✔      ✔
         J H Schindehütte                                                        ✔     ✔     ✔        ✔      ✔      ✔       ✔      ✔
         F F Seegers                             23 Oct ’06                                                         ✔       ✔      ✔
         T M G Sexwale                                                           A     ✔     ✔        ✔      ✔      ✔       ✔      ✔
         F A Sonn                                                                ✔     ✔     ✔        ✔      ✔      ✔       ✔      ✔
         P E I Swartz                                                            ✔     ✔     ✔        ✔      ✔      ✔       ✔      A
         L L von Zeuner                                                          ✔     ✔     ✔        ✔      ✔      ✔       ✔      ✔

         Legend
         *Special meeting     ✔   Attendance    A     Apologies


         Board committees
         A number of board-appointed committees have been established to assist the board in discharging its responsibilities.
         The membership and principal functions of the standing committees appear in the pages that follow.
         The board recognises that it is ultimately accountable and responsible for the performance and affairs of the Group
         and that the use of delegated authorities to board committees and management in no way mitigates or dissipates the
         discharge by the board and its directors of their duties and responsibilities.
                                                                                                 Specific responsibilities have been
                                                                                                 delegated to these committees, which
                                                                                                 operate under written terms of
                                                                                                 reference confirmed by the board.
                                                                                                 There is transparency and full
                                                                                                 disclosure from board committees to
                                                                                                 the board. In this regard, the minutes
                                                                                                 of committees are submitted to the
                                                                                                 Absa board for noting. In addition,
                                                                                                 directors have full access to all board
                                                                                                 committee documentation. Board
                                                                                                 committees are free to take independent
                                                                                                 outside professional advice as and
                                                                                                 when necessary. The office of the
                                                                                                 Group secretary provides secretarial
                                                                                                 services for each of the committees.
                                              Corporate governance statement
                                                                                                        [   Absa Group Limited
                                                                                                            Stakeholder report
                                                                                                            31 December 2006
                                                                                                                                   ]   73




Notwithstanding the establishment of the various board committees and delegated authorities, the Absa board
reserves to itself a range of key decisions to ensure that it retains proper direction and control of the Group (supported
by any recommendation that may be made by the relevant board committee and/or management). A comprehensive
framework, setting out authorities and responsibilities with regard to matters affecting the businesses of the boards and
committees in the Group, assists in the control of the decision-making process and sees to it that there is a balance
of power and authority to ensure that no individual has unfettered powers of decision-making. All board-delegated
authorities are reviewed and updated annually by the board.
A process is in place to ensure that board committees are subject to annual evaluation by the board to ascertain their
performance and effectiveness.
Two of Absa’s independent directors have been appointed to the boards of various major subsidiaries. Although the Absa
board still retains overall responsibility for the affairs of the Group, subsidiary boards play an important role in the Group’s
overall governance approach. Absa directors have full access to subsidiary board documentation. These boards meet
five times a year, usually prior to the Absa board meetings. The level of detail dealt with at subsidiary boards is generally
greater than that dealt with by the Absa board (as well as being specific to the relevant subsidiary).
The Absa board also makes use of ad hoc board committees to deal with specific matters from time to time. Examples
of matters dealt with by such committees in the recent past include the Group’s broad-based BEE transaction and the
proposed acquisition of the Barclays African operations, where the board has considered and made decisions based
on the recommendations of the committees. These ad hoc committees operate under written terms of reference and,
in the above instances, their members are all independent directors and have provided independent oversight.
The board is of the opinion that the board committees set out on the following pages have effectively discharged their
responsibilities as contained in their respective terms of reference for the year under review.

Group Remuneration Committee
Members: D C Brink (chairman), D E Baloyi, B P Connellan, D C Cronjé and F F Seegers.
Composition and meeting procedures: The Group Remuneration Committee is chaired by an independent director
of Absa and comprises mainly independent directors of Absa. The Group chief executive, the executive director
responsible for human resources and the Group executive director responsible for finance attend the meetings by
invitation, but do not participate in discussions and decisions regarding their remuneration and benefits. Meetings are
held five times a year.
Role, purpose and principal functions: Consideration and recommendation to the board on matters such as succession
planning, general employee policies, remuneration and benefits, performance bonuses, executive remuneration, directors’
remuneration and fees, service contracts, the share purchase and option schemes and Group retirement funds.
The committee considers executive directors’ emoluments, share and option allocations and other benefits, taking
account of responsibility, individual performance and Absa’s retention strategies. To this end, the committee relies on
external market surveys and industry reward levels as benchmarks. Remuneration packages are structured in such a
way that short- and long-term incentives depend on the achievement of business objectives and the delivery of
shareholder value.
Non-executive directors receive fees for their contribution to the boards and committees on which they serve. The
Group chairman and management recommend proposed fees for consideration by the committee and recommendation
to the Absa board, after considering comparable fee structures and market practices. The remuneration of non-
executive directors is submitted to shareholders for sanction at the annual general meeting held prior to its
implementation and payment. Full details of remuneration matters (including a statement of the Group’s remuneration
philosophy) are contained in the remuneration report set out on pages 94 to 107 of this report.
The committee undertakes an annual performance assessment of the Group chief executive. The Group chairman’s
and Group chief executive’s remuneration are considered taking the assessment of the DAC and the Group
Remuneration Committee, respectively, into account.
74
     [   Absa Group Limited
         Stakeholder report
         31 December 2006
                                  ]      Corporate governance statement



         Group Remuneration Committee – meeting attendance
         Director                        Appointment        Resignation    Jan   Mar    May*      Jul     Sept     Oct*      Nov

         D E Baloyi                            17 Feb ’06                        ✔        ✔        ✔        ✔       ✔        ✔
         D C Brink (chairman)                                              ✔     ✔        ✔        ✔        ✔       ✔        ✔
         B P Connellan                                                     ✔     ✔        ✔        ✔        ✔       ✔        ✔
         D C Cronjé                                                        ✔     ✔        ✔        ✔        ✔       ✔        ✔
         D L Roberts                                          23 Oct ’06   ✔     ✔        ✔        ✔        ✔
         F F Seegers                           23 Oct ’06                                                           ✔        ✔

         Legend
         *Special meeting     ✔   Attendance


         Group Audit and Compliance Committee (GACC)

         Members: A S du Plessis (chairman), D C Arnold, Y Z Cuba, N Kheraj and P du P Kruger.

         Composition and meeting procedures: Other than Mr Kheraj and Ms Cuba, who are non-executive directors, the
         chairman and remaining members of the GACC are independent directors on the board of Absa.

         A third of the members of the GACC retire annually by rotation and are considered for re-election by the Absa board.
         Meetings are held at least five times a year and are attended by the external and internal auditors and the compliance
         officer and, on invitation, members of executive management, including those involved in risk management, control
         and finance, and the Group chairman (who is not a member of the committee). All of the members of the committee
         are financially literate.

         At every meeting, time is reserved for separate private discussions with committee members only, the committee
         together with management (excluding the external auditors) and the committee together with the external auditors
         (excluding management). Private discussions provide an opportunity for committee members, management and the
         external auditors to communicate privately and candidly.

         The internal and external auditors, as well as the compliance officer, have unrestricted access to the GACC, which
         ensures that their independence is in no way impaired.

         Role, purpose and principal functions: The GACC assists the board with regard to reporting financial information,
         selecting and properly applying accounting policies, monitoring the Group’s internal control systems and various
         compliance-related matters. Specific responsibilities include:
         • reviewing and/or approving internal audit and compliance policies, plans, reports and findings;
         • ensuring compliance with the applicable legislation and regulations;
         • making the necessary enquiries to ensure that all risks to which the Group is exposed are identified and managed
           in a well-defined control environment;
         • dealing with matters relating to financial and internal control, accounting policies, reporting and disclosure;
         • reviewing and recommending to the board interim and annual financial statements and profit and dividend
           announcements;
         • recommending to the board the appointment and dismissal of the external auditors and fees payable to the external
           auditors;
         • evaluating the performance of the external auditors;
         • approving the Group’s policy on non-audit services and ensuring compliance therewith;
         • reviewing and/or approving external audit plans, findings, reports and fees; and
         • collaborating with the Group Risk Committee and considering issues identified by that committee.
                                                    Corporate governance statement
                                                                                                 [    Absa Group Limited
                                                                                                      Stakeholder report
                                                                                                      31 December 2006
                                                                                                                            ]   75




The Group’s policy on non-audit services, which is annually reviewed by the GACC, sets out in detail which services
may or may not be provided by Absa’s external auditors. The policy is largely based on the requirements of the
Sarbanes-Oxley Act. The external auditors are prohibited from providing bookkeeping or other services related to the
Group’s accounting records or financial statements, financial information systems design and implementation,
appraisal or valuation services, fairness opinions or contributions-in-kind reports, actuarial services, internal audit
outsourcing, management functions or other secondments, human resource functions (including recruitment/selection),
broker or dealer, investment adviser or investment banking services, legal and expert services and services where
Absa is represented by the external auditors in legal proceedings involving tax matters.

Services that may be provided by the external auditors are statutory audit services, regulatory audit services, other
attest and assurance services, regulatory non-audit services and taxation services (except for services where Absa is
represented in legal proceedings). They may also provide accountancy advice, risk management and controls advice
and carry out transaction support and recoveries. Assignments for allowable services above a certain value must be
pre-approved by the GACC. Assignments within management’s mandate must be pre-approved by the Group finance
director. All non-audit service fees are reported to the GACC quarterly.

Absa has a formal external auditor evaluation process which occurs annually and includes various criteria and
standards such as audit planning, technical abilities, audit process/outputs and quality control, business insight,
independence and general factors (such as BEE credentials).

Absa has an audit partner rotation process in accordance with the relevant legal and regulatory requirements.

The committee stays abreast of current and emerging trends in accounting standards and held several workshops
during the period under review, specifically with regard to the Sarbanes-Oxley Act and the alignment of Absa’s audit
committee practices with those of Barclays.

Group Audit and Compliance Committee – meeting attendance
Director                             Appointment      Resignation    Jan   Apr   Apr*   Jul    Sept        Nov        Nov

D C Arnold                                                           ✔     ✔      ✔     ✔       ✔           ✔          ✔
Y Z Cuba                                6 Dec ’06
A S du Plessis (chairman)                                            ✔     ✔      ✔     ✔       ✔           ✔          ✔
N Kheraj                                                             ✔     ✔      ✔     ✔       ✔           ✔          ✔
P du P Kruger                                                        ✔     ✔      ✔     ✔       ✔           ✔          ✔
L W Maasdorp                                           30 Sept ’06   ✔     ✔      ✔     ✔       ✔

Legend
*Special meeting    ✔   Attendance


Group Risk Committee (GRC)

Members: P du P Kruger (chairman), D C Arnold, D C Cronjé, A S du Plessis, G Griffin, M W Hlahla, N Kheraj and
P E I Swartz.

Composition and meeting procedures: The GRC is chaired by an independent director and consists of a further six
independent directors and one non-executive director (N Kheraj). Members of executive management attend by
invitation. The committee meets at least four times a year.

Role, purpose and principal functions: To assist the board with regard to risk management and to ensure
compliance with the requirements of the Banks Act regarding risk and capital management.
76
     [   Absa Group Limited
         Stakeholder report
         31 December 2006
                                  ]        Corporate governance statement



         The GRC’s principal responsibilities are
         • to assist the board:
         – in its evaluation of the adequacy and efficiency of the risk policies, procedures, practices and controls applied in
            Absa in the day-to-day management of the business;
         – in the identification of the build-up and concentration of the key risks and in developing a risk mitigation strategy to
            ensure that Absa manages the risks in an optimal manner;
         – to set up an independent risk management function, coordinate the monitoring of risk management on a globalised
            basis, and facilitate and promote communication regarding risk policies, procedures, practices and controls or any
            other related matter; and
         – in establishing a process that relates capital to the level of risk undertaken and states capital adequacy goals with
            respect to risk, taking account of Absa’s strategic focus and business plan;
         • to liaise with the GACC regarding matters which are common areas of responsibility;
         • to annually recommend Absa Group’s risk appetite to the board for approval, and to monitor the actual risk taken on
           against the board-approved appetite on a quarterly basis;
         • to review the adequacy and efficiency of the risk-type control frameworks and policies determined in accordance
           with the board’s approved risk approach;
         • to review the Group’s various risk profiles and ensure they are understood and appropriately managed in the Group;
           and
         • in conjunction with the GACC, to ensure Absa makes appropriate disclosure of its risk management status and
           activities.

         Group Risk Committee – meeting attendance
         Director                                               Appointment                Mar       Jun        Sept       Nov

         D C Arnold                                                                        ✔          ✔          ✔          ✔
         D C Cronjé                                                                        ✔          ✔          ✔          ✔
         A S du Plessis                                                                    ✔          ✔          ✔          ✔
         G Griffin                                                                         ✔          ✔          ✔          ✔
         M W Hlahla                                                28 Jul ’06                                    A          ✔
         N Kheraj                                                                          ✔          A#         ✔          A#
         P du P Kruger (chairman)                                                          ✔          ✔          ✔          ✔
         P E I Swartz                                                                      ✔          ✔          A          ✔

         Legend
          ✔    Attendance     A   Apologies

         #The Barclays risk director attended these meetings.


         Directors’ Affairs Committee (DAC)
         Members: D C Cronjé (chairman), D C Brink, L N Jonker, F F Seegers, T M G Sexwale and F A Sonn.
         Composition and meeting procedures: The DAC is chaired by the Group chairman and the majority of its members
         are independent directors. Four meetings a year are scheduled.
         Role, purpose and principal functions: This committee assists the board with regard to corporate governance,
         board nominations and related matters. More specifically, this encompasses:
         • reviewing all aspects relating to ongoing corporate governance during the year, the inclusion of statements in this
           regard in the report to shareholders and consideration of the requirements of Regulation 38(5) of the Banks Act;
         • considering current and emerging trends in corporate governance and the Group’s governance systems as well as
           benchmarking the Group’s governance systems against local and international best practice;
                                                Corporate governance statement
                                                                                                   [   Absa Group Limited
                                                                                                       Stakeholder report
                                                                                                       31 December 2006
                                                                                                                             ]   77




• reviewing the size, diversity, demographics, skills and experience of the board, perceived gaps in the board’s
  composition, potential board appointees and non-executive director performance evaluations (including that of the
  Group chairman);
• conducting an effectiveness evaluation of the Absa board to review its performance in meeting its key responsibilities;
  and
• annually evaluating the individual performance of directors, as well as the performance of the board as a whole.

Directors’ Affairs Committee – meeting attendance
Director                                     Appointment     Resignation    Jan   Apr   Jul     Aug*        Oct*       Nov

D C Brink                                                                   ✔     ✔      ✔        ✔          ✔          ✔
D C Cronjé (chairman)                                                       ✔     ✔      ✔        ✔          ✔          ✔
L N Jonker                                                                  ✔     ✔      ✔        ✔          ✔          ✔
D L Roberts                                                    23 Oct ’06   ✔     ✔      ✔        ✔          ✔
F F Seegers                                     23 Oct ’06                                                              ✔
T M G Sexwale                                                               A     ✔      ✔        A          ✔          ✔
F A Sonn                                        17 Feb ’06                        ✔      ✔        A          ✔          ✔

Legend
*Special meeting   ✔    Attendance   A   Apologies


Group Credit Committee

Members, composition and meeting procedures: The committee consists of a panel of four independent directors
(D C Brink, B P Connellan, D C Cronjé and A S du Plessis), of which at least two are required as a quorum for facility
decisions. Certain members of executive management and risk management also attend meetings. The committee
meets daily as required.

Role, purpose and principal functions: The Group Credit Committee considers and approves credit exposures that
exceed the mandated approval limits of management in the credit risk function. The Group Credit Committee replaced
the former Board Lending Committee and divisional credit committees.

Credit Committee: Large Exposures

Members: D C Cronjé (chairman), S F Booysen, D C Brink, B P Connellan, A S du Plessis and J H Schindehütte.

Composition and meeting procedures: Four independent directors and the Group chief executive and Group
finance director. Specific members of management, such as the Group executive: Credit and the Group executive:
Enterprise-wide Risk Management, attend meetings ex officio. Quarterly meetings are scheduled for this committee.

Role, purpose and principal functions: This committee has been established pursuant to requirements set by the
South African Reserve Bank (Bank Supervision Department) with regard to large exposures (amounts exceeding 10%
of Absa Bank Limited’s capital and reserves). The committee approves or ratifies credit exposures that exceed the
mandated approval limits of the Group Credit Committee. The Absa board sets these limits annually.

Credit Committee: Large Exposures – meeting attendance
Director                                                                                Apr      Jul        Sept       Nov

S F Booysen                                                                              ✔        ✔          ✔          ✔
D C Brink                                                                                ✔        ✔          ✔          ✔
B P Connellan                                                                            ✔        ✔          ✔          A
D C Cronjé (chairman)                                                                    ✔        ✔          ✔          ✔
A S du Plessis                                                                           ✔        ✔          ✔          ✔
J H Schindehütte                                                                         ✔        ✔          ✔          ✔

Legend
 ✔   Attendance    A    Apologies
78
     [   Absa Group Limited
         Stakeholder report
         31 December 2006
                                    ]       Corporate governance statement



         Implementation Committee

         Members: G Griffin (chairman), B P Connellan, D C Cronjé and F F Seegers.

         Composition and meeting procedures: The Implementation Committee is chaired by an independent director and
         the majority of its members are independent directors. Six meetings were held during 2006.

         Role, purpose and principal functions: This committee provides governance oversight and assists the board with
         regard to integration and implementation risks and opportunities flowing from the acquisition by Barclays of a controlling
         stake in Absa (the transaction). More specifically this encompasses:
         • considering integration/implementation opportunities and risks flowing from and/or as a consequence of the
           transaction and making recommendations to the board and/or the relevant committees of the board, where
           appropriate, relating to actions deemed necessary to realise the planned benefits flowing from the transaction;
         • providing a forum for Absa management for more detailed reporting to the board on progress with regard to
           implementation/integration matters, and more specifically where management is required to seek provisional support
           for a planned action, subject to final board approval where necessary;
         • providing oversight of any implementation investments (including write-offs but excluding acquisitions and disposals)
           as approved by Absa management within their mandate and making recommendations to the board with regard to
           any implementation investments above management’s mandate; and
         • within its mandate, reviewing and approving any economic transfer arrangements (ETAs) between Absa and
           Barclays and recommending to the Absa board any ETAs exceeding its mandate.

         Implementation Committee – meeting attendance
         Director                                  Appointment    Resignation    Feb     Apr      Jul     Sept      Oct     Dec

         B P Connellan                               17 Feb ’06                           ✔        ✔        ✔       ✔        ✔
         D C Cronjé                                                              ✔        ✔        ✔        ✔       ✔        ✔
         G Griffin (chairman)                                                    ✔        ✔        ✔        A       ✔        ✔
         L W Maasdorp                                              30 Sept ’06   ✔        ✔        ✔        ✔
         D L Roberts                                                23 Oct ’06   ✔        ✔        ✔        ✔       ✔
         F F Seegers                                 23 Oct ’06                                                              ✔

         Legend
          ✔   Attendance        A   Apologies


         Board Finance Committee

         Members: D C Cronjé (chairman), D C Brink, A S du Plessis, P du P Kruger and F F Seegers.

         Composition and meeting procedures: The Board Finance Committee is chaired by an independent director and
         the majority of its members are independent directors. This committee was formed in early 2006 and has a mandate
         from the board to review and approve investments and divestments and certain defined large transactions, subject to
         specific limits. Meetings are held on an ad hoc basis as required. Six meetings were held during 2006.

         Role, purpose and principal functions: The committee is mandated by the board to enter into and settle the terms
         of all transactions with regard to the acquisition and disposal of investments as well as to approve capital raising and
         securitisation transactions, subject to limits set by the board. Previously, these transactions were dealt with by the
         board. The advantage of this is that the committee can more rapidly deal with matters within its mandate (such as
         investment or divestment opportunities), whereas previously these would typically have been dealt with at the next
         scheduled board meeting.
                                            Corporate governance statement
                                                                                                    [   Absa Group Limited
                                                                                                        Stakeholder report
                                                                                                        31 December 2006
                                                                                                                              ]   79




Executive directors and the Group Executive Committee (Group Exco)
There are four executive directors on the board of Absa and a number of executive directors on the boards of the Group’s
main subsidiaries. There are no service contracts exceeding six months relating to the position of any executive director.
Executive directors are required to retire from the board (as executive directors) on reaching the age of 60. There is full
disclosure in the remuneration report of various remuneration matters in respect of the executive directors of Absa.

The board appoints executive management, taking into account the recommendations of the Group chief executive
and the Group Remuneration Committee. In addition, the Group Remuneration Committee determines the remuneration
and benefits of executive directors.

Group Exco, established and chaired by the Group chief executive, comprises the executive directors and other
members of the executive management of Absa and of the Group’s major subsidiary, Absa Bank Limited. It meets, as
a general rule, once a week and deals with all material matters relating to the implementation of the agreed strategy,
the monitoring of performance and the consideration of company policies. The board has delegated specific authorities
to the Group chief executive. These delegated authorities, which are encompassed in a board-approved signing
authority resolution, are reviewed annually or as circumstances dictate.

As a general rule, members of Group Exco are not permitted to hold external directorships. In exceptional cases, the
Group Remuneration Committee allows such directorships only to the extent that these do not interfere with the
members’ immediate management responsibilities.


Share dealings
In terms of the Group’s closed period policy, directors, officers, participants in the share incentive scheme and
employees who may have access to price-sensitive information are precluded from dealing in Absa shares for
approximately two and a half months prior to the release of the Group’s interim and final results. In terms of the policy,
“shares” include options, financial instruments and securities, as defined in the Financial Markets Control Act and the
Stock Exchanges Control Act. Where appropriate, additional closed periods, as well as the persons to whom such
periods apply, may be invoked by the board. Details of directors’ dealings in Absa shares are disclosed to the board
and the JSE Limited through the Securities Exchange News Service (Sens). In addition, details of trades in Absa
shares by Group Exco members are disclosed to the Group Remuneration Committee.


Group secretary
All directors have access to the advice
and services of the Group secretary,
who provides guidance to the board
as a whole and to individual directors
with regard to how their responsibilities
should properly be discharged in the
best interests of the Company.

The secretary also oversees the
induction of new directors and assists
the Group chairman and the Group
chief executive in determining the
annual board plan and board agendas,
as well as formulating governance
and board-related issues.
80
     [   Absa Group Limited
         Stakeholder report
         31 December 2006
                              ]       Corporate governance statement



         Internal control
         The directors are responsible for ensuring that the Group maintains adequate records, which disclose, with reasonable
         accuracy, the financial performance and position of the Group. In the case of a banking group in particular, great
         reliance is placed on information contained in its financial statements, not least by the investing community, depositors,
         other banks and the regulatory authorities.

         To enable the directors to meet these responsibilities, the board sets standards and management implements systems
         of internal control, comprising policies, standards, procedures, systems and information, to assist in:
         • safeguarding assets and reducing the risk of loss, error, fraud and other irregularities;
         • ensuring the accuracy and completeness of accounting records; and
         • the timely preparation of reliable financial statements and information in compliance with relevant legislation and
           generally accepted accounting policies and practices.

         The Group’s internal audit function and the external auditors independently appraise the adequacy and effectiveness
         of the internal controls. The Group Audit and Compliance Committee, with extensive input by the internal and external
         auditors, plays a major role in assisting the directors in satisfying themselves regarding the adequacy and effectiveness
         of the accounting systems, records and internal controls. The directors’ report on this aspect is contained in the
         statement on the responsibility of directors for annual financial statements on page 353 of this report.

         The board of directors reports annually on the Group’s controls in terms of Regulation 39 (4) of the Banks Act. The
         view of the directors in this regard is contained in the statement on the responsibility of directors for the annual financial
         statements on page 351 of this report.

         The Group’s joint external auditors are Ernst & Young Registered Auditors Inc. and PricewaterhouseCoopers Inc. The
         report of the independent auditors for the year under review is contained on page 352 of this report.


         Regulatory compliance
         The board of directors is appointed by the shareholders of the Group to lead, control and monitor the business of the
         Group and to provide effective corporate governance. The board, through the Group chief executive, delegates the
         authority to the Group compliance officer to ensure that the compliance process operates effectively and that laws,
         regulations and supervisory requirements are adhered to. As part of the compliance process, Group Compliance
         independently monitors the adequacy and effectiveness of the internal controls implemented to ensure compliance
         with applicable laws, regulations and supervisory requirements.

         The reporting structures in the Group ensure that the Group compliance officer has unrestricted access to the Group
         Audit and Compliance Committee (GACC), the Group chief executive and the chairman of the board of directors (the
         board), while functionally reporting to the executive director responsible for risk. This ensures that Group Compliance
         remains independent and has the necessary support to perform its duties.


         Going concern
         The board has considered and recorded the facts and assumptions on which it relies to conclude that the business will
         continue as a going concern in the financial year ahead. The board considers this aspect at both the interim reporting
         stage and financial year-end. The directors are of the opinion that the business will be a going concern in the year
         ahead and their statement in this regard is also contained in the statement on the responsibility of directors for the
         consolidated financial statements on page 351 of this report.
                                             Corporate governance statement
                                                                                                       [   Absa Group Limited
                                                                                                           Stakeholder report
                                                                                                           31 December 2006
                                                                                                                                 ]   81




Integrated sustainability reporting
Overall reporting approach
Absa has adopted the Global Reporting Initiative (GRI) guidelines on economic, environmental and social performance
(collectively referred to as the triple bottom line) as a benchmark for the Company’s sustainability reporting. The GRI
guidelines represent the most advanced international standards for sustainability reporting and Absa seeks to align its
reporting to these standards. However, it is recognised that enhanced sustainability reporting is an ongoing journey
requiring an incremental approach. An analysis of Absa’s reporting, measured against the GRI guidelines, is contained
on page 330 of this report.

JSE Socially Responsible Investment (SRI) Index
Absa is included in the JSE SRI Index. This index applies to the top 150 companies listed on the JSE and measures
companies’ systems and processes with regard to corporate governance, environmental, economic and social issues.

Stakeholder communication and relationships
The Group has various policies governing communication, relationships and conduct with stakeholders. Absa’s
stakeholders include shareholders, employees, customers, the community, governments and regulators and various
resource/service providers. The board recognises the importance of ensuring an appropriate balance in meeting the
diverse needs and expectations of the Group’s stakeholders, building lasting relationships with them and reporting to
them in a transparently balanced and comprehensible manner that favours substance over form. Absa reports annually
on the nature and extent of its social, transformation, ethical, safety, health (including HIV/Aids) and environmental
policies and practices.

The Group recognises the need for full, equal and timely disclosure to all shareholders, as prescribed by the Listings
Requirements and guidelines of the JSE. Apart from annual and interim reports, it uses a broad range of communication
channels, including Sens, the print, radio and television media and the Absa website, www.absa.co.za, to achieve this.

In addition, Absa has an investor relations department responsible for ensuring appropriate communication with
shareholders and the investment community. Regular contact is maintained with domestic and international institutional
shareholders, fund and asset managers and analysts by means of a comprehensive investor relations programme.
This includes meetings with executive management, investor road shows, presentations to the investment community
as well as liaison with private shareholders. Copies of Sens announcements, investor briefings/presentations, interim
and annual reports and other relevant information are posted on the Group’s website at www.absa.co.za.

Merrill Lynch South Africa (Proprietary) Limited acts as Absa’s sponsor in compliance with the JSE Listings
Requirements.

The Group recognises the importance of its shareholders’ attendance at its annual general meetings. Such attendance
offers an opportunity for shareholders to raise issues and participate in discussions relating to items included in the notice
of meeting. Explanatory notes setting out the effects of all proposed resolutions accompany the notice of meeting.

The chairmen of board-appointed committees attend annual and other general meetings to respond to questions from
shareholders. Shareholders’ meetings are conducted on the basis of a poll. The results of shareholders’ meetings are
posted on Sens. Shareholders have access to the minutes of such meetings in accordance with the requirements of
the Companies Act.

An employee report detailing employment equity issues, training and development initiatives, occupational health and
safety matters and Absa’s strategy, plan and policy with regard to the potential impact of HIV/Aids on the Company’s
activities, appears in the sustainability section, starting on page 260 of this report.
82
     [   Absa Group Limited
         Stakeholder report
         31 December 2006
                              ]      Corporate governance statement



         A community report detailing Absa’s role in the community can be found on pages 276 to 293 of this report.

         Regarding black economic empowerment (BEE), Absa has developed a BEE policy that covers Absa’s overall BEE
         strategy as well as procurement practices and investment strategies. Details of Absa’s BEE transformation initiatives
         and its approach to the Financial Sector Charter are contained on pages 306 to 319 of this report.

         An environmental report is set out on pages 320 to 329 of this report. Absa is considered a low-impact company from
         an environmental perspective, so there is limited board involvement with regard to environmental matters. However,
         Absa is environmentally aware and the Group has an environmental officer with designated responsibilities for
         environmental matters. Furthermore, Absa’s credit policies contain specific provisions with regard to environmental
         matters and acceptable lending practices.


         Democracy support
         One of Absa’s aspirations is to contribute towards the preservation of a politically stable and economically prosperous
         society and the development of democracy. With this in mind, the Absa board has approved a democracy support
         policy. In terms of the policy, the criteria for recipients of these donations is that they must be registered with the
         Independent Electoral Commission (IEC) and, to be considered, they must have a minimum of three seats in the
         National Assembly. The amount of the donations takes into account the performance and results of each of the political
         parties in the most recent general election as determined by the IEC. During 2006, the board approved that an amount
         of R2,4 million be set aside for the above.


         Financial Sector Charter
         Absa is a signatory to the Financial Sector Charter. This charter is a voluntary private sector initiative to address BEE
         in the financial services industry and provides a basis for the sector’s engagement with other stakeholders, including
         the government. The charter represents a partnership programme as outlined in the government’s strategy for broad-
         based BEE and establishes targets and responsibilities in respect of human resource development, procurement
         policies, enterprise development, access to financial services, empowerment financing and ownership. The charter
         also outlines processes for implementation and mechanisms to monitor and report on progress. More detail on Absa’s
         progress against the charter is contained on pages 306 to 319 of this report.

                                                                                           Code of Banking Practice
                                                                                           Absa endorses the Code of Banking
                                                                                           Practice and applies the underlying
                                                                                           values embodied in the code. Absa is
                                                                                           committed to providing its customers
                                                                                           with professional and friendly service,
                                                                                           in a manner that is fast, easy,
                                                                                           accessible, transparent, approachable
                                                                                           and in line with what is fair and just.
                                                                                           For this reason, Absa regards the
                                                                                           code as a living document.

                                                                                           To ensure adherence to the code,
                                                                                           training is constantly provided to
                                                                                           employees, customers are made
                                           Corporate governance statement
                                                                                                    [   Absa Group Limited
                                                                                                        Stakeholder report
                                                                                                        31 December 2006
                                                                                                                             ]   83




aware of the Company’s commitment to the code and the code is made available through the branch network and on
the internet. In collaboration with the Banking Sector Education and Training Authority (known as Bankseta) and other
banks, training material for the industry has been designed and delivered to ensure consistency in training and
knowledge sharing in the industry and therefore ensure awareness and consumer protection. Furthermore, Absa’s
Group Compliance function monitors procedures and practices against the code.

The ultimate customer experience forms the basis of the code, which also links with the relevant Absa values: to
demonstrate integrity, to treat customers consistently fairly and, as a customer-driven organisation, to be transparent
in all dealings with customers.

Absa is a subscribing member of the Office of the Ombudsman for Banking Services. The mission of the ombudsman
is to provide banks and their customers with a quick and efficient dispute resolution service in a fair, impartial and
confidential way and to strive to improve general banking practice. Of all the customer complaints lodged through
Absa’s Actionline central help desk during the year under review, very few required the further intervention of the Office
of the Ombudsman for Banking Services. Absa Customer Care has an internal mediation panel (ombudsman
functionality) available to internal and external customers, providing additional dispute resolution options.

Absa has implemented a customer charter, which sets out Absa’s commitment to providing the highest standard of
customer service. Areas covered by the charter are service, affordability, choice, convenience and security.

National Credit Act (NCA)
A governance structure has been established which defines how and when the National Credit Regulator is engaged.
At industry level a number of bodies have been established to address NCA queries and issues. The Absa
representation at these bodies is carefully determined and approved through the project structure. To meet the
requirements of the NCA, the organisation established a Group-wide project which has addressed areas such as
technology and systems, pricing, processes, employee behaviour and training, communications, forms and customer
correspondence, and credit assessment and rehabilitation.

Within each of these areas, the existing protocols and standard operating procedures have been matched against the
provisions of the NCA, and, where necessary, the protocols and standard operating procedures already in place,
revised and enhanced to meet these new provisions.

To ensure continued awareness among employees, a communications and training awareness drive has been
undertaken.

The FAIS Ombud (Established in terms of the Financial Advisory and Intermediary Services (FAIS) Act, No 37 of 2002)
The Office of the FAIS Ombud is a statutory ombudsman established in terms of the FAIS Act. The objective of the FAIS
Ombud is to deal with complaints in a procedurally fair, informal, economical and expeditious manner and by reference to
what is equitable in all circumstances. The Office of the Ombud investigates and makes determinations with regard to
complaints received from qualifying complainants.

The FAIS Ombud attends to, inter alia, complaints relating to financial services (advice or intermediary service)
rendered by authorised financial services providers (AFSPs) or representatives of providers where the provider or
representative has allegedly contravened or failed to comply with the provisions of the FAIS Act and as a result the
complainant has suffered financial prejudice or damage. It also deals with allegations that the provider or representative
wilfully or negligently rendered a financial service to the complainant that caused prejudice or damage to the
complainant. Lastly, the FAIS Ombud attends to complaints that the provider or representative has treated a
complainant unfairly. The FAIS Ombud does not deal with matters relating to the investment performance of financial
84
     [   Absa Group Limited
         Stakeholder report
         31 December 2006
                              ]      Corporate governance statement



         products that fall within the ambit of the FAIS Act unless such performance has been guaranteed by a financial adviser
         or intermediary or there appears to be other evidence of impropriety. The FAIS Ombud has limited monetary jurisdiction
         and can only attend to complaints with a monetary value of up to R800 000. Alternatively, the complainant can
         abandon the excess amount.

         The FAIS Ombud, also referred to as the Ombudsman for Financial Services Providers, is the only statutory ombudsman.
         The FAIS Ombud has jurisdiction over complaints received in respect of agreements, services or products or financial
         institutions as defined. Ombudsmen such as the Ombudsman for Banking Services, the Credit Information Ombudsman
         as well as the ombudsmen for the long- and short-term insurance industries have been voluntarily created by their
         respective industries but have recently been acknowledged as recognised schemes in terms of the Financial Services
         Ombud Schemes Act, No 37 of 2004. In terms of this Act, the ombudsman of a recognised scheme has the jurisdiction
         to attend to complaints as provided for in the procedures under which the scheme operates.

         All AFSPs in the Absa Group have a comprehensive internal complaints resolution process that they follow when they
         receive a complaint from a customer. It is only in the event that the customer is not satisfied with the resolution of the
         complaint that the customer may approach the FAIS Ombud. All AFSPs must disclose to the customer the details of
         the FAIS Ombud, as required by the Act and its subordinate legislation, thereby promoting transparent and fair
         dealings with customers.


         Ombudsmen for the long- and short-term insurance industries
         Members of the long- and short-term insurance industries contribute subscriptions to the offices of the ombudsmen for
         long- and short-term insurance.

         The ombudsman for the long-term insurance industry mediates in disputes between the subscribing members of the
         industry and policyholders. In so doing, the ombudsman endeavours to ensure that principles of fairness, equity and
         independence prevail.

         The ombudsman for short-term insurance seeks to resolve disputes between industry members and consumers in an
         independent, impartial, cost-effective, efficient, informal and fair way.

         As a subscribing member, Absa co-operates fully with the offices of the ombudsmen with regard to the resolution of
         disputes and constantly seeks to maintain positive relationships with their offices.


                                                                                           Organisational integrity and
                                                                                           the code of ethics
                                                                                           Unethical behaviour in the broader
                                                                                           South African community is reported
                                                                                           regularly in the media. A company
                                                                                           such as Absa, which represents a
         Management demonstrates its commitment                                            sample of the broader community,
                                                                                           does not escape these trends. It is
         to the code of ethics by entrenching                                              therefore crucial for management to

         various principles.                                                               ensure that there is an appropriate
                                                                                           focus on preventing losses owing to
                                                                                           unethical behaviour. In Absa, through
                                                                                           various risk control procedures, the
                                                                                           effects of unethical behaviour are
                                                                                           limited. Absa has appointed the
                                            Corporate governance statement
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managing executive: Human Resources as the ethics officer, ex officio. Compliance with Absa’s code of ethics is
monitored by a specific official in Absa’s Group Compliance function.

Absa’s code of ethics is periodically refined, applying input from various interested parties and stakeholders in the
organisation.

Management demonstrates its commitment to the code of ethics by entrenching various principles. These include
rewards and incentives for ethical behaviour and disciplinary procedures as well as criminal and civil charges for
unethical or dishonest behaviour. In addition, employees found guilty of dishonesty during internal procedures are
reported to the Banking Council for listing in the industry’s register. Absa has an independently operated helpline to
facilitate the reporting of possible fraudulent, corrupt and unethical behaviour in the Group. The line is available
24 hours per day, seven days a week.

Furthermore, newly appointed employees and employees employed in sensitive positions are assessed for ethical
risks. Appropriate training in procedures and laws relating to the prevention of crime is provided and awareness of
ethical behaviour is stimulated by regular communication with employees in the Group.

All incidents involving potentially fraudulent activities are formally investigated and corrective actions taken. Procedures
are adapted when deemed prudent to prevent further incidence of unethical behaviour.

Absa’s code of ethics has been provided to all directors under cover of a letter from the Group chairman, in terms of
which directors undertake to adhere to the code.

The board is satisfied that there are processes in place to ensure that Absa’s code of ethics is being adhered to.

Absa has a Brand and Reputation Committee to protect and enhance the brand and reputation of Absa in line with the
Group’s belief that its reputation as a good corporate citizen is an important driver of economic value. The committee
plays an important role in fulfilling the board’s objective for Absa to be a leading company in the field of corporate
responsibility and with regard to ensuring that all stakeholders are treated fairly and appropriately. The committee
considers and provides advice to the Group chief executive and the board on matters that impact the Group’s
reputation and will advise on the appropriate actions that should be taken to maintain robust ethical business practice,
for example with regard to stakeholder relationship management.

In addition, Absa has a Recruitment and Promotions Committee. The purpose of the committee is to govern the
recruitment (external and internal) and promotion of individuals to the top leadership team at Absa and other high
priority roles as designated by the Group chief executive and managing executive: Human Resources. The committee
is chaired by the Group chief executive and comprises a further six members of Group Exco, including the director
responsible for human resources.
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         Introduction
         The Absa board has an appropriate balance with a majority of independent directors. The chairman of the Absa board
         is an independent director. As at 31 December 2006, there were 21 directors, of whom four were executive, five were
         non-executive and 12 were considered to be independent directors.


         Key developments
         A number of developments impacted the membership of the Absa board during the twelve months under review. These
         included:
         • the resignation of Mr Maasdorp on 30 September 2006;
         • the resignation of Mr Roberts on 23 October 2006 and the appointment of Mr Seegers at the same date; and
         • the appointment of Ms Cuba on 6 December 2006.


         Board membership
         The Absa Group board comprised the following directors as at 31 December 2006:

                Independent non-executive directors     D C Arnold, D E Baloyi, D C Brink (deputy chairman), D C Cronjé (chairman), B P Connellan,
                                                        A S du Plessis, G Griffin, M W Hlahla, L N Jonker, P du P Kruger, F A Sonn and P E I Swartz

                              Non-executive directors   L N Angel, Y Z Cuba, N Kheraj*, F F Seegers# and T M G Sexwale


                                  Executive directors   S F Booysen (Group chief executive), D Bruynseels*, J H Schindehütte and L L von Zeuner

         *British
         Dutch
         #




         Board committee membership
         Absa seeks to ensure that a majority of independent non-executive directors serve on the Group’s board committees.
         The board committees are set out below.

                                         Committee      Members

             Group Audit and Compliance Committee       A S du Plessis (chairman), D C Arnold, Y Z Cuba, N Kheraj and P du P Kruger

                              Group Risk Committee      P du P Kruger (chairman), D C Arnold, D C Cronjé, A S du Plessis, G Griffin, M W Hlahla,
                                                        N Kheraj and P E I Swartz

                    Group Remuneration Committee        D C Brink (chairman), D E Baloyi, B P Connellan, D C Cronjé and F F Seegers

                       Directors’ Affairs Committee     D C Cronjé (chairman), D C Brink, L N Jonker, F F Seegers, T M G Sexwale and F A Sonn

                           Group Credit Committee       D C Brink , B P Connellan, D C Cronjé and A S du Plessis

                 Credit Committee: Large Exposures      D C Cronjé (chairman), S F Booysen, D C Brink, B P Connellan, A S du Plessis and
                                                        J H Schindehütte

                         Implementation Committee       G Griffin (chairman), B P Connellan, D C Cronjé and F F Seegers

                          Board Finance Committee       D C Cronjé (chairman), D C Brink, A S du Plessis, P du P Kruger and F F Seegers
                                                                            Group board
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Biographical details and appointment dates of board members
The biographical details and appointment dates of the Group’s board members as at 31 December 2006 were
as follows:

                                              Age 60
                                   Qualifications DCom
                                             Title Chairman
                                  Year appointed 1987
                                   Independence Independent director
                          Absa board committee • Directors’ Affairs Committee (chairman)
                                    memberships • Group Remuneration Committee
                                                  • Group Risk Committee
                                                  • Group Credit Committee
                                                  • Credit Committee: Large Exposures (chairman)
                                                  • Implementation Committee
                                                  • Board Finance Committee
                            Other directorships/ Dr Cronjé is a director of Barclays PLC and Barclays Bank PLC. He is the chairman
                                     trusteeships of the Absa Foundation and a trustee of the Absa Group Retirement Fund. He is a
                                                  member of certain subsidiary boards in Absa.
                            Skills, expertise and Dr Cronjé joined Volkskas in 1975 and held various positions in Volkskas Merchant
                                       experience Bank and Volkskas Group. He was formerly deputy chief executive and subsequently
                                                  Group chief executive of Absa until 1997.

    D C (Danie) Cronjé


                                              Age 67
                                   Qualifications MSc Eng (Mining), Diploma in Business Administration, Graduate Diploma in
                                                   Company Direction
                                             Title Deputy chairman
                                  Year appointed 1992
                                   Independence Independent director
                          Absa board committee • Directors’ Affairs Committee
                                    memberships • Group Remuneration Committee (chairman)
                                                  • Group Credit Committee
                                                  • Credit Committee: Large Exposures
                                                  • Board Finance Committee
                            Other directorships/ Chairman of Unitrans Limited, and a director of Sappi Limited, BHP Billiton Limited
                                     trusteeships and BHP Billiton PLC. He is a trustee of the Absa Foundation and chairman of the
                                                  Absa Group Retirement Fund. He is co-chairman of the Business Trust, a director of
                                                  the National Business Initiative and vice-president of the South African Institute
                                                  of Directors.
                            Skills, expertise and Joined Murray & Roberts Limited in 1970 after eight years in the gold industry with
                                       experience Anglo American Corporation of South Africa Limited. Appointed chief executive
                                                  officer of Murray & Roberts Holdings Limited in 1986 and chairman in 1994. Mr Brink
                                                  was chief executive officer of Sankorp Limited from 1994 to 1997.

    D C (Dave) Brink


                                              Age 44
                                   Qualifications DCom (Acc), CA(SA)
                                             Title Group chief executive
                                  Year appointed 2004
                                   Independence Executive director
                          Absa board committee • Credit Committee: Large Exposures
                                  memberships
                                                 • Attends various other board committee meetings ex officio.
                            Other directorships/ Dr Booysen is a director of various companies in the Absa Group.
                                   trusteeships
                            Skills, expertise and After completing his articles with Ernst & Young (1980–1983), Dr Booysen became a
                                      experience lecturer in accounting at the University of South Africa (1983–1988). His first
                                                  appointment with the Group was as senior manager: Finance at TrustBank (1989–
                                                  1991). He then became an assistant general manager at TrustBank (1991–1992).
                                                  From 1992 to 1994, he was assistant general manager: Group Finance at Absa. He
                                                  then joined Absa Corporate Bank (now Absa Capital). He held the positions of
                                                  assistant general manager, general manager and deputy operating executive until he
                                                  was appointed as a Group executive director in 2001. He was appointed as Group
                                                  chief executive of Absa Group Limited in August 2004.

    S F (Steve) Booysen
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                                                          Age 52
                                               Qualifications BA (Hons), MSc (Sociology)
                                              Year appointed 2004
                                               Independence Non-executive director
                                      Absa board committee • None, but she is a trustee of the Absa Foundation.
                                                memberships
                                        Other directorships/ Ms Angel is chairperson of a women’s investment group, TsaRona Investments, and
                                                 trusteeships a director of Batho Bonke Capital. She is active in nature conservation and
                                                              is a director of the Open Africa Initiative and the Peace Parks Foundation. She is
                                                              also a trustee of the Kagiso Trust and a board member of Deloitte Chartered
                                                              Accountants (SA).
                                        Skills, expertise and From 1994 to 1995, Ms Angel was the public affairs manager at Rhone-Poulenc
                                                   experience Rorer SA (Proprietary) Limited. Thereafter she was appointed as general manager:
                                                              Corporate Affairs at Engen Petroleum Limited, a position she held until early 2000,
                                                              when she was appointed as executive director: Strategic Affairs at Engen.
                                                               From 2001 to 2003, Ms Angel was seconded to the Presidency as chief operations
                                                               officer: Strategic Planning and Communications.
                                                               From 2004 to 2005 she was the chief executive officer of Mvelaphanda Resources
                                                               Limited. She was then appointed as the managing director: External Relations at
                                                               Eskom. She resigned from this position in June 2006, so as to focus on her role as
                                                               chairperson of TsaRona Investments.

            L N (Nthobi) Angel

                                                          Age 66
                                               Qualifications CA(SA), FCMA, AMP
                                              Year appointed 2003
                                               Independence Independent director
                                      Absa board committee • Group Audit and Compliance Committee
                                                memberships
                                                              • Group Risk Committee
                                        Other directorships/ Mr Arnold is a director of the Wits Health Consortium (Proprietary) Limited and
                                                 trusteeships chairman of its audit committee. He is also chairman of the Barlows Pension Fund
                                                              and is a trustee of the Absa Group Retirement Fund.
                                        Skills, expertise and Mr Arnold was formerly the executive director: Finance and Administration of
                                                   experience Barloworld Limited. He joined the Barlows Group in 1967 and held a number of senior
                                                              financial positions in the Barlows Group, which culminated in his appointment to the
                                                              board in 1993. He retired from Barloworld at the end of March 2003.
                                                               Mr Arnold is a past president of the Eastern, Central and Southern African Federation
                                                               of Accountants (ECSAFA) and represented ECSAFA on the Council of the
                                                               International Federation of Accountants (IFAC). He is also a past president of the
                                                               South African Institute of Chartered Accountants (SAICA) and is an honorary life
                                                               member of SAICA. He has represented SAICA on the Financial and Management
                                                               Accounting Committee of IFAC.

              D C (Des) Arnold

                                                          Age 50
                                               Qualifications Ed.D (International Education and Development)
                                              Year appointed 2004
                                             Independence Independent director
                                      Absa board committee • Group Remuneration Committee
                                              memberships
                                        Other directorships/ Dr Baloyi is an executive director of the National Black Business Caucus with
                                               trusteeships expertise in the fields of business development and strategy. She is the chairperson
                                                             of the Advertising Standards Authority, the Diabo Share Trust for Telkom employees,
                                                             Medikredit and the National Skills Authority.
                                                               Dr Baloyi serves on a number of other boards, including the Business Unity South
                                                               Africa Council, SA Tourism (where she is deputy chairperson), the Southern African
                                                               Enterprise Development Fund, Metrofile Holdings Limited (formerly MGX Holdings
                                                               Limited) and Enterprise Risk Management Limited. Dr Baloyi is also the chairperson
                                                               of South African Women Investment Holdings, an organisation she founded, and
                                                               serves on the board of governors of the SA Council on HIV/Aids.
                                        Skills, expertise and Dr Baloyi spent 12 years in the US studying and working for, among others, the
                                                  experience African-American Institute and the United Nations Development Fund for Women.
                                                              She also taught at well-known academic institutions, including City University of New
                                                              York, Essex County College and Rutgers University. She has been involved in many
                                                              of the empowerment charter processes.

              D E (Danisa) Baloyi
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                                                                                                                                              ]   89




                                              Age 47
                                   Qualifications BA (Hons), MBA, Diploma in Financial Studies, Associate of the Chartered Institute
                                                  of Bankers
                                  Year appointed 2005
                                   Independence Executive director
                          Absa board committee • Attends various board committee meetings ex officio.
                                    memberships
                            Other directorships/ He is a director of Barclays Bank of Botswana Limited, Barclays Bank of Ghana
                                     trusteeships Limited, Barclays Bank of Kenya Limited, Barclays Bank of Zambia Limited, Barclays
                                                  Bank Egypt (SAE), Barclays Overseas Pension Fund Trustees Limited and the
                                                  Overseas Development Institute.
                            Skills, expertise and Joined Barclays in 1980. He has fulfilled a variety of UK-based branch, regional and
                                       experience head office roles, including a position as deputy head of the Barclays business sector
                                                  marketing department. He was the head of Network and Operations (1995–1996). He
                                                  was then appointed as finance director for the Barclays Africa, Caribbean, Middle
                                                  East and Latin American business (1997). He was appointed as managing
                                                  director for Barclays Africa in 1999. He now holds the role of chief executive officer
                                                  for Barclays Africa.
                                                    He led the transformation of the Barclays business in Africa. Following the acquisition
                                                    of Barclays majority holding in Absa, Mr Bruynseels was appointed Group executive
                                                    director and member of the Absa Executive Committee and board (2005).

D (Dominic) Bruynseels


                                            Age     66
                                 Qualifications     CA(SA)
                                Year appointed      1994
                                 Independence       Independent director
                          Absa board committee      • Group Remuneration Committee
                                  memberships       • Group Credit Committee
                                                    • Credit Committee: Large Exposures
                                                    • Implementation Committee
                            Other directorships/    Director of Illovo Sugar Limited, Tiger Brands Limited, Reunert Limited and Sasol
                                     trusteeships   Limited.
                            Skills, expertise and   After qualifying as a chartered accountant, he joined the Barlows Group in 1964. He
                                       experience   managed a number of subsidiaries and was appointed as a director of Barlow Rand
                                                    Limited in 1985. Mr Connellan was executive chairman of the building materials, steel
                                                    and paint division until 1990. Thereafter he was appointed as executive chairman of
                                                    Nampak Limited, a position he held until retirement in 2000.

  B P (Brian) Connellan


                                             Age    29
                                  Qualifications    BCom (Hons), CA(SA)
                                Year appointed      2006
                                 Independence       Non-executive director
                          Absa board committee      • Group Audit and Compliance Committee
                                  memberships
                            Other directorships/  Director of Mvelaphanda Group Limited, Mvelaphanda Holdings (Proprietary)
                                   trusteeships   Limited, Total Facilities Management Company (Proprietary) Limited and Life
                                                  Healthcare (Proprietary) Limited. She is a member of the Nelson Mandela Foundation
                                                  Investment and Endowment Committee.
                            Skills, expertise and In 1999, Ms Cuba commenced her career in marketing with Robertsons Foods.
                                      experience Thereafter, she moved to Fisher Hoffman, an auditing firm, where she completed her
                                                  articles in 2002. She then joined Mvelaphanda in January 2003 in its corporate
                                                  finance division. She currently holds the position of deputy chief executive officer of
                                                  Mvelaphanda Group and Mvelaphanda Holdings (Proprietary) Limited.

    Y Z (Yolanda) Cuba
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                                                            Age 62
                                                 Qualifications BCom, CA(SA), HDip Tax, AMP
                                                Year appointed 1992
                                                 Independence Independent director
                                         Absa board committee • Group Audit and Compliance Committee (chairman)
                                                 memberships • Group Risk Committee
                                                              • Group Credit Committee
                                                              • Credit Committee: Large Exposures
                                                              • Board Finance Committee
                                           Other directorships/ He is a director of Sanlam Limited, KWV Group Limited and various companies in the
                                                  trusteeships Sanlam Group.
                                           Skills, expertise and From 1986 to 2002, he was an executive director of Sankorp Limited and Sanlam
                                                     experience Limited.

              A S (Attie) du Plessis


                                                            Age 57
                                                 Qualifications BSc, FIA, FASSA
                                                Year appointed 2001
                                                 Independence Independent director
                                         Absa board committee • Group Risk Committee
                                                 memberships
                                                              • Implementation Committee (chairman)
                                                                  • Also serves on the board of Absa Financial Services and Absa Life Actuarial
                                                                    Committee
                                           Other directorships/ He is chairman of two privately held companies based in Cape Town and is a trustee
                                                  trusteeships of the University of Cape Town Foundation.
                                           Skills, expertise and An actuary, Mr Griffin has wide experience in the financial services industry, both
                                                     experience locally and internationally. He worked for Old Mutual from 1970 to 1999, at which time
                                                                 he was managing director responsible for Old Mutual’s worldwide asset management
                                                                 and unit trust businesses, as well as all activities outside South Africa.
                                                                  Since 1999, he has consulted to a number of South African and international
                                                                  businesses, including Orbis, Investec Asset Management and Old Mutual PLC and
                                                                  served as a non-executive director on a number of boards, including Sage, Swiss Re
                                                                  of South Africa and Citadel Holdings. Mr Griffin was Group chief executive officer of
                                                                  the Sage Group from April 2003 to May 2005.
                                                                  He is currently a member of the Council of the Actuarial Society of South Africa.

               G (Garth) Griffin


                                                            Age 43
                                                 Qualifications BA (Hons) (Economics), MA (Urban and Regional Planning)
                                                Year appointed 2005
                                                 Independence Independent director
                                         Absa board committee • Group Risk Committee
                                                 memberships
                                           Other directorships/ Non-executive director of Air Traffic and Navigation Services and the Industrial
                                                  trusteeships Development Corporation. She is the second vice-chairperson and special adviser to
                                                                the chairperson of the Airports Council International World Governing Body.
                                           Skills, expertise and Ms Hlahla completed her studies in the United States of America. During her studies,
                                                     experience she also worked at the Coalition for Women’s Economic Development in Los
                                                                 Angeles.
                                                                  In 1994, she reinvested her expertise in South Africa and joined the Development
                                                                  Bank of Southern Africa, where she successfully managed several large infrastructure
                                                                  projects. In 2000, Ms Hlahla joined Old Mutual Employee Benefits as regional
                                                                  manager: Northern Region, a position she held until her appointment as chief
                                                                  executive officer of the Airports Company South Africa (ACSA) in 2001.

              M W (Monhla) Hlahla
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                                           Age 66
                                Qualifications BSc (Agric)
                               Year appointed 1996
                                Independence Independent director
                        Absa board committee • Directors’ Affairs Committee
                                memberships
                          Other directorships/ He is chairman of Weltevrede Wine Estates (Proprietary) Limited and a director of
                                 trusteeships Naspers Limited, Toeloms Investments No 1 (Proprietary) Limited and Weltevrede
                                               Cellar (Proprietary) Limited. Mr Jonker was re-appointed to the Naspers Investments
                                               Limited board in September 2005.
                          Skills, expertise and Mr Jonker is the owner of Weltevrede Wine Estate. Joined the board of KWV Co-
                                    experience operative in 1981 and became chairman of KWV Group Limited and KWV
                                                Investments Limited in 1994. Mr Jonker led the successful transformation of
                                                KWV from a co-operative to a fully commercialised company. He resigned from the
                                                KWV board in December 2003. He was also adjudged farmer of the year in 1996 and
                                                served on various committees in the wine industry.

L N (Lourens) Jonker


                                           Age 42
                                Qualifications BA, MA (Economics)
                               Year appointed 2005
                                Independence Non-executive director
                        Absa board committee • Group Audit and Compliance Committee
                                memberships
                                             • Group Risk Committee
                          Other directorships/ He serves on the boards of Barclays PLC and Barclays Bank PLC.
                                 trusteeships
                          Skills, expertise and Mr Kheraj was appointed as Group finance director of Barclays and joined the board
                                    experience of that company on 1 January 2004. He has previously held the positions of chief
                                                executive of Barclays Private Clients, deputy chairman of Barclays Global Investors,
                                                global head of Investment Banking and global chief operating officer of Barclays
                                                Capital. Prior to joining Barclays, he was a managing director and held the position of
                                                chief financial officer for Europe at Salomon Brothers.

  N (Naguib) Kheraj


                                           Age 69
                                Qualifications BSc Eng (Mining), MBL
                               Year appointed 1996
                                Independence Independent director
                        Absa board committee • Group Audit and Compliance Committee
                                memberships
                                             • Group Risk Committee (chairman)
                                                 • Board Finance Committee
                          Other directorships/ Mr Kruger is a director of Abagold (Proprietary) Limited, Hardekoolkamp Properties
                                 trusteeships (Proprietary) Limited, Wilderness 927 Trust, KGMF Trust, and the Rand Afrikaans
                                               University Trust.
                          Skills, expertise and Joined Sasol in 1964 at the Sigma Colliery in Sasolburg. Appointed chief executive
                                    experience officer and managing director of the Sasol Group in 1987. He was appointed as
                                                chairman of Sasol in 1996 and was a director of numerous Sasol subsidiaries. He
                                                retired from the Sasol boards on 31 December 2005.

 P du P (Paul) Kruger
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                                                           Age 47
                                                 Qualifications BCom (Hons), CA(SA), HDip Tax
                                                Year appointed 2005
                                                 Independence Executive director
                                         Absa board committee • Credit Committee: Large Exposures
                                                 memberships
                                                              • Attends various other board committee meetings ex officio.
                                           Other directorships/ A director of various companies in the Absa Group.
                                                  trusteeships
                                           Skills, expertise and Served articles with Ernst & Young from 1981 to 1983. Served in various senior
                                                     experience managerial positions at Transnet until 1999. Joined Absa as Group executive: Group
                                                                 Finance during 1999. Appointed as a Group executive director in January 2005.

            J H (Jacques) Schindehütte


                                                           Age 47
                                                 Qualifications Master’s degrees in engineering and finance
                                                Year appointed 2006
                                                 Independence Non-executive director
                                         Absa board committee • Group Remuneration Committee
                                                 memberships
                                                              • Directors’ Affairs Committee
                                                                 • Implementation Committee
                                                                 • Board Finance Committee
                                           Other directorships/ Mr Seegers is an executive director on the boards of Barclays PLC and Barclays
                                                  trusteeships Bank PLC.
                                           Skills, expertise and Mr Seegers is responsible for all Barclays retail and commercial banking operations
                                                     experience globally. This includes UK Banking (Retail and Business), International Retail and
                                                                 Commercial Banking, and Barclaycard.
                                                                 Mr Seegers joined Barclays in July 2006, having previously held senior positions in
                                                                 Citigroup over the past 17 years. Most recently, he was the chief executive officer of
                                                                 the Global Consumer Group with a remit covering all retail operations in Europe,
                                                                 Middle East and Africa. He was also a member of the Citigroup Operating Committee
                                                                 and the Citigroup Management Committee.
                                                                 Between 2001 and 2004, Mr Seegers was the chief executive officer of Consumer
                                                                 Banking for Asia Pacific, covering 11 consumer markets. Under his leadership, this
                                                                 region was the fastest growing part of Citigroup. Prior to this, he developed internet
                                                                 banking for Citibank and held various posts including division executive for Japan,
                                                                 president of Citibank California, marketing director for Citibank Direct and marketing
                                                                 director of Citibank Belgium.
                                                                 Mr Seegers joined Citigroup in Germany as an associate in 1989.

                F F (Frits) Seegers


                                                           Age 53
                                                 Qualifications Certificate in Business Studies
                                                Year appointed 2001
                                                 Independence Non-executive director
                                         Absa board committee • Directors’ Affairs Committee
                                                 memberships
                                           Other directorships/ Executive chairman of Mvelaphanda Holdings (Proprietary) Limited and Mvelaphanda
                                                  trusteeships Group Limited. Chairman of Northam Platinum Limited, Trans Hex Group Limited,
                                                                Mvelaphanda Resources Limited and a director of Gold Fields Limited. Mr Sexwale
                                                                is a trustee of the Nelson Mandela Foundation and chancellor of the Vaal University
                                                                of Technology, as well as a trustee of the Desmond Tutu Peace Trust.
                                           Skills, expertise and A former member of the national executive committee of the African National
                                                     experience Congress and former premier of Gauteng.

             T M G (Tokyo) Sexwale
                                                                           Group board
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                                            Age 67
                                 Qualifications BA (Hons), PTD, FIAC
                                Year appointed 1999
                                 Independence Independent director
                         Absa board committee • Directors’ Affairs Committee
                                 memberships
                           Other directorships/ Chairman of African Star Ventures (Proprietary) Limited, Airports Company South
                                  trusteeships Africa Limited (ACSA), Kwezi V3 Engineers (Proprietary) Limited and Ekapa Mining
                                                (Proprietary) Limited. Director of Sappi Limited, Safmarine (Proprietary) Limited,
                                                Steinhoff International Holdings Limited, Macsteel Holdings Limited, Metropolitan
                                                Holdings Limited, RGA Reinsurance Company of South Africa Limited and RGA SA
                                                Holdings (Proprietary) Limited. Trustee of the Nelson Mandela Foundation and the
                                                Legal Resources Trust. Chancellor of the University of the Free State.
                           Skills, expertise and Rector of the Peninsula Technikon from 1978 to 1994. Served as South African
                                     experience ambassador to the United States of America from 1995 to 1998. Former president of
                                                 the Afrikaanse Handelsinstituut. President of the Union of Teachers Associations of
                                                 South Africa for 16 years.

   F A (Franklin) Sonn


                                            Age 65
                                 Qualifications Advanced Primary Teacher’s Diploma
                                Year appointed 1994
                                 Independence Independent director
                         Absa board committee • Group Risk Committee
                                 memberships
                           Other directorships/ He serves on the boards of Distell Limited and Sun International Limited. He is a
                                  trusteeships trustee of the Cape Peninsula University of Technology Foundation, Western Cape
                                                Cerebral Palsy Association and the Eoan Group Trust.
                           Skills, expertise and Was a school music teacher for 10 years. He became the first chancellor of the Cape
                                     experience Technikon (Cape Peninsula University of Technology). He has, over the past
                                                 35 years, held personal interests in various industries, including cinemas, hotels,
                                                 supermarkets, fast foods outlets, centrifugal pump manufacturing and property
                                                 development. A former chairman of the South African Tourism board. He also served
                                                 over many years as a director of Sanlam Limited, Ellerines Holdings Limited and New
                                                 Clicks Holdings Limited.

 P E I (Peter) Swartz


                                            Age 45
                                 Qualifications BEcon
                                Year appointed 2004
                                 Independence Executive director
                         Absa board committee • None, but attends various board committee meetings ex officio.
                                 memberships
                           Other directorships/ Mr von Zeuner serves on the boards of the Banking Association South Africa, Section
                                  trusteeships 21 Housing Company, MasterCard and the SA Payments Strategy Association.
                           Skills, expertise and His first position was that of a clerk in the Goodwood branch of Volkskas. He worked
                                     experience in the branch system until 1995, by which time he had been branch manager of four
                                                 branches, namely Wynberg (1989–1990), Cape Town (1990–1991), Old Paarl Road
                                                 (1991–1992) and Stellenbosch (1992–1995). His appointment as regional manager
                                                 for the Northern Cape in Kimberley (1995–1996) elevated him to Absa’s general
                                                 management. He then became provincial general manager of the Northern Province
                                                 (1996–1998) and the Free State (1998–1999). In 2000, he moved to Absa head
                                                 office, where he became the operating executive of Absa Commercial Bank. He was
                                                 appointed as an executive director on the Absa Group board in September 2004.

L L (Louis) von Zeuner
94
     [   Absa Group Limited
         Stakeholder report
         31 December 2006
                              ]     Group remuneration report




         Introduction
         The Group remuneration report deals with the governance of remuneration matters in Absa, the Group’s remuneration
         policy as well as executive and non-executive directors’ emoluments and service contracts.



         Key remuneration highlights and developments
         • The Group’s shareholders approved, at a special general meeting in May 2006, the adoption of four new incentive
           plans: the Absa Group Performance Share Plan (PSP), the Absa Group Phantom Performance Share Plan (Phantom
           PSP), the Absa Group Executive Share Award Scheme (ESAS) and the Absa Group Phantom Executive Share
           Award Scheme (Phantom ESAS). These plans were designed to align the interests of executive directors and senior
           executives with those of Absa’s shareholders. The incentive plans implemented for 2006 were the Phantom PSP and
           the Phantom ESAS. The Phantom ESAS has been used to enable executive directors and senior executives to
           convert their existing banked bonuses into this phantom deferred share arrangement on a one-off basis. No
           additional benefits were provided under this scheme for 2006.
         • Existing benefits were reviewed for all employees, and a new flat rate medical aid subsidy was introduced for
           all employees.
         • Mr D L Roberts resigned from the Group Remuneration Committee on 23 October 2006.
         • Mr F F Seegers was appointed to the Group Remuneration Committee on 23 October 2006.



         Challenges
         • The introduction of the Phantom PSP (following shareholders’ approval of the new incentive plans) involved a
           number of challenges, including determining the most appropriate way to adapt the best practice used by Barclays
           to the Absa Group and its employees, the communication of the new scheme to employees, the required valuation
           calculations with reference to the IFRS 2 requirements, and the appropriate Group hedging strategy to ensure that
           future requirements in relation to this scheme are identified and provided for.



         Looking ahead
         • Continued use of the Phantom PSP in 2007 to ensure an alignment of interest between participants and shareholders
           with regard to the financial performance of the Group.
         • Use of the Phantom ESAS in 2007 for all those employees, including Group executive directors, whose bonus
           awards exceed a predetermined threshold.
         • Refining the bonus pool funding methodology.
                                                     Group remuneration report
                                                                                                    [   Absa Group Limited
                                                                                                        Stakeholder report
                                                                                                        31 December 2006
                                                                                                                             ]   95




Governance
Governance of Group directors’ remuneration in Absa is performed by the Group Remuneration Committee, a
committee of the Absa board of directors.

Its members (D C Brink (chairman), D E Baloyi, B P Connellan, D C Cronjé and F F Seegers) are all non-executive
directors and the majority are independent directors.

The Group chief executive, the executive responsible for human resources and the Group finance director attend the
meetings by invitation. Meetings are held five times a year. In addition, special meetings are called to deal with urgent
matters. No executive director is present when his or her own remuneration or performance evaluation is discussed.

The Group Remuneration Committee’s responsibilities include:
• approving the Group’s remuneration philosophy, principles and policy;
• approving the remuneration of the Group chief executive and executive committee members. In addition, it provides
 oversight regarding the remuneration of the senior leadership group. Remuneration includes all elements of
 remuneration: guaranteed fixed remuneration, performance bonuses, incentive plans, and any other form of benefits
 or perquisites;
• reviewing all payments made in terms of the Group’s various incentive schemes;
• reviewing management’s recommendations of the fee structure for directors and the fees for members of board
 committees, for onward recommendation to shareholders;
• determining the Group chairman’s remuneration for approval by shareholders, at a meeting from which he recuses
 himself;
• succession planning for executive directors and top management, including the Group chief executive, executive
 directors and other strategic positions/roles, together with the Group Directors’ Affairs Committee (DAC); and
• evaluating the performance of the Group chief executive and reviewing the evaluation of the performance of
 executive directors.

The DAC assesses the contribution of all non-executive directors annually via an individual director evaluation process
as well as the effectiveness of the board as a whole. The chairman and deputy chairman conduct this process. The
DAC and thereafter the Absa board consider the outcomes of this process. The DAC appraises the chairman’s
performance at a meeting from which he recuses himself. The Group Remuneration Committee takes this evaluation
into account in determining the remuneration of the chairman. The Group Remuneration Committee’s effectiveness is
evaluated annually by the Absa Group board.


Advisers
In determining the appropriate remuneration for Group executive directors, Absa makes use of the services of an
independent remuneration consulting company, Global Remuneration Solutions (Proprietary) Limited. This company
advises the Group Remuneration Committee on the remuneration of executive directors and top management, after
using surveys of the banking industry as well as the broader industry to make remuneration comparisons. The Group
bears all the expenses relating to the appointment of external consultants.

Furthermore, in setting the performance measures for the Phantom PSP, Absa makes use of independent advisers,
Kepler & Associates, based in London. These advisers provide advice on appropriate financial performance targets
and the probabilities of achieving these targets to ensure that there is sufficient “stretch” in the targets set. Kepler &
Associates assists in setting the targets for the Phantom PSP annually.

Human Resources also provides advice to the Group Remuneration Committee. The Human Resources division is a
Group specialist function and assists the committee by providing supporting information and documentation relating to
matters that are presented to the Group Remuneration Committee. This includes comparative data and motivations
for salaries, bonuses and incentive plans. In addition, the Group executive: Human Resources is responsible for
providing professional support to line management relating to human resources policies and administration and for
monitoring compliance with prescribed policies and programmes across the Group.
96
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         31 December 2006
                              ]       Group remuneration report



         Remuneration philosophy and policy
         Absa aims to employ individuals of the highest calibre, who embrace the Group’s values. In addition to ensuring that
         all employees, including Group executive directors, create value for all Absa’s stakeholders, the Group provides a
         positive, supportive, healthy and diversity-friendly working environment, thereby enabling employees to achieve their
         full potential with the assurance of being recognised and rewarded for excellent performance.

         The purpose of remuneration is to attract, retain and motivate employees. Absa has an overarching remuneration
         philosophy to support this purpose, which, in turn, supports the Group’s strategy.

         Absa’s senior managerial and professional employees, including Group executive directors, are rewarded as individuals for the
         value they add through the payment of fixed remuneration, performance bonuses, and performance share (or phantom
         performance share) allocations. The key principles of Absa’s overall remuneration policy are as follows:
         • Reward programmes are designed and administered to align the interests of senior managerial and professional
           employees, including executive directors, with those of the Group’s stakeholders.
         • Reward programmes are clear and transparent to reward the achievement of the Group’s desired strategic
           positioning.
         • Rewards are linked to the performance of the business and the individual business units. Reward levels are targeted to
           be commercially competitive. Reward levels are based on the scope of responsibility and individual contribution made.
         • Appropriate industry and comparable organisations’ remuneration practices are reviewed at least annually.

         Absa’s remuneration structure has three components:
         • Fixed remuneration = annual salary and benefits.
         • Variable remuneration = short- to medium-term performance-related incentives.
         • Incentive plans = long-term performance-related incentive schemes.

         Fixed remuneration is reviewed annually to ensure that those who contribute to the success of the Group and who
         have the potential to sustain performance are remunerated competitively. The Group uses variable remuneration
         schemes to focus behaviour on important business objectives and to sustain performance. To achieve this goal, the
         existing variable remuneration incentives are reviewed annually and adjustments are made to improve their efficiency.
         Incentive plans are used to retain and incentivise key and talented employees.

         Remuneration of employees
         Guaranteed fixed remuneration
         The approach adopted for all employees, including Group executive directors, is a total cost-to-company approach.
         The sustainable contribution of each employee is used as the basis for remuneration reviews. Across the Group,
         remuneration reviews are undertaken at least annually. The cost-to-company approach also encapsulates benefits
         provided such as retirement schemes; death and disability cover; medical cover and other benefits, as dictated by
         competitive local market practices.

         In addition to the above, employees, including Group executive directors, receive two payments at the time of the
         release of the Group’s interim and annual results, based on the Group’s financial performance. This is known as
         “conditional fixed remuneration”. This element of pay was disclosed as part of the performance bonus in the past. This
         formed a relatively small component of each employee’s total cost-to-company pay annually (approximately 5%). The
         Group has removed the conditional fixed remuneration element of pay (the final such payment was made in February
         2007, relating to the Absa Group’s annual results for 2006). Going forward, the conditional fixed remuneration will be
         included into the total cost-to-company remuneration for all employees (including Group executive directors). This
         change is effective 1 January 2007 and has resulted in a permanent uplift of total cost-to-company remuneration for
         all employees, including executive directors, on the basis that the bi-annual payments will cease. The net effect on the
         Group and employees, including Group executive directors, will largely be neutral, as the uplift in the total cost-to-
         company remuneration will compensate for the removal of the bi-annual conditional fixed remuneration awards.
                                                                 Group remuneration report
                                                                                                                    [   Absa Group Limited
                                                                                                                        Stakeholder report
                                                                                                                        31 December 2006
                                                                                                                                                  ]   97




Performance bonuses (variable remuneration)
Performance bonuses are linked to business performance in terms of targeted performance goals and are based on
an economic value-added approach.

Over the past few years, significant value has been created for shareholders, with the Group’s return on average equity
(RoE) increasing from 21,4% in the 2003 financial year to 27,4% for the twelve months ended 31 December 2006.

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*The statistics for 2003 and 2004 have not been restated for International Financial Reporting Standards (IFRS).


Methodology used to calculate performance bonuses
The Group Remuneration Committee approves a challenging performance target. This target is converted to a
headline earnings target to facilitate communication and understanding.
For most areas of Absa**, performance bonuses are paid only when the Group’s financial performance exceeds a
hurdle, which is related to the cost of equity.
The headline earnings target, on which a bonus pool is made available, is set on a sliding scale and is dependent on
the Group’s performance in the period under review.
For most areas of Absa**, the final bonus pool is calculated by multiplying the bonus multiple (which is a function of
the level of achievement of the headline earnings target) by the sum of annual total cost-to-company remuneration,
appropriately differentiated for each job grade. Although, in prior years, the calculation was based on direct
remuneration, in the year under review, the Group moved to a calculation based on cost-to-company remuneration.
Furthermore, the bonus multiple pool for executive directors had been capped at a two multiple, with a possible
individual award of a performance bonus up to 2,5 times his/her remuneration. For the year under review, the Group
Remuneration Committee approved bonus awards utilising a pool of 2,3 times the cost-to-company remuneration of
the participating Group executive directors (in excess of the two multiple) given the superior financial performance of
the Group. The overall individual limit of 2,5 times cost-to-company remuneration was observed.
Performance bonuses are not guaranteed; they are discretionary and vary according to an individual’s
performance rating.
Although prior practice was that two-thirds of any performance bonus paid in excess of one bonus multiple was banked
(retained) and was paid during the next two financial years, subject to sustained performance by the Group, this
is no longer the practice, and it has been replaced by the Phantom ESAS described in the section titled long-term
incentive plans.




**Other than in specialised areas such as Absa Capital.
98
     [   Absa Group Limited
         Stakeholder report
         31 December 2006
                                  ]         Group remuneration report



         Group executive directors’ remuneration and performance bonus statistics
         The following table indicates the total guaranteed fixed remuneration paid to Group executive directors as well as their
         performance bonuses. It must be noted that the results for the twelve months ended 31 December 2006 are not
         comparable with those of the previous period, which have nine months as a base, owing to the change in the Group’s
         year-end. The remuneration tabled below relates only to the period an individual is/was a Group executive director.

         Group executive directors’ guaranteed fixed remuneration and performance bonuses
                                            Directors’ fees
                                                       Absa                                    Retire-          Total    Con-
                                                  Bank and                                      ment          guaran- ditional
                                                       other                       Travel        fund            teed    fixed    Perfor-
                                             Absa divisional                       allow-    contribu-       remune- remune-      mance
         Group executive                    Group    boards        Salaries*       ances        tions          ration  ration** bonuses***                  Total
         director                Note           R         R               R             R           R               R       R         R                        R
         Twelve months ended 31 December 2006

         S F Booysen                  1   119 467             — 4 608 081         25 233      368 519      5 121 300     378 911 12 000 000          17 500 211
         D Bruynseels            2&6      119 467      129 838             —            —            —       249 305            —              —        249 305
         J H Schindehütte             3   119 467             — 2 288 637         24 862      182 963      2 615 929     184 042      5 500 000       8 299 971
         L L von Zeuner               4   119 467             — 2 885 628         66 906      230 722      3 302 723     249 625      7 900 000      11 452 348
         Total                            477 868      129 838 9 782 346         117 001      782 204 11 289 257         812 578 25 400 000          37 501 835

         Nine months ended 31 December 2005
         S F Booysen                  1     80 000            — 3 184 195         24 641      251 501      3 540 337     231 683      7 486 000      11 258 020
         D Bruynseels            2&6        45 333        4 834            —            —            —         50 167           —              —          50 167
         F J du Toit                  5         —             —            —            —            —              —           —       144 208         144 208
         J H Schindehütte             3     80 000            — 1 671 472         53 375      132 222      1 937 069     129 897      2 975 000       5 041 966
         L L von Zeuner               4     92 250            — 1 975 845         33 285      155 778      2 257 158     169 858      5 208 000       7 635 016
         Total                            297 583         4 834 6 831 512        111 301      539 501      7 784 731     531 438 15 813 208          24 129 377

         Notes
         (1) Appointed to the Absa Group board on 1 August 2004.
         (2) Appointed to the Absa Group board on 27 July 2005.
         (3) Appointed to the Absa Group board on 1 January 2005.
         (4) Appointed to the Absa Group board on 1 September 2004.
         (5) Retired from the Absa Group board on 1 January 2005.
         (6) Currently remunerated by Barclays PLC, and any directors’ fees earned are paid to Barclays PLC.
         Additional note
         Group executive directors’ guaranteed remuneration, conditional fixed remuneration, and performance bonuses are paid by Absa Bank Limited, other
         than in the case of D Bruynseels.


          *The Group has, in the year under review, introduced a medical insurance subsidy for all employees. This subsidy falls outside of total cost-to-company
           remuneration for reasons relating to the need to track the subsidy separately from other cost-to-company remuneration items. The subsidy is R400
           per month across the board for all permanent employees, including executive directors, irrespective of grade or pay level.
         **As mentioned previously in this report, the payment of conditional fixed remuneration took place in respect of 2006 for the last time, as the conditional
           fixed remuneration scheme has been discontinued with effect from 1 January 2007. The performance bonus for the nine months ended 31 December
           2005 excluded conditional fixed remuneration. For 2006, the conditional fixed remuneration has been separated from the performance bonuses owing
           to the total cost-to-company remuneration adjustments (effective 1 April 2007) that will be effected to the revised cost-to-company remuneration
           figures (with regard to the inclusion of conditional fixed remuneration in total cost-to-company remuneration with effect from 1 April 2007).
         ***Performance bonuses for 2006.
                                                                                                                      Deferred as
                                                                                               Cash                    part of the
                                                                                       consideration                        ESAS                         Total
           Group executive director                                                                R                             R                          R

           S F Booysen                                                                       9 000 000                  3 000 000                  12 000 000
           J H Schindehütte                                                                  4 125 000                  1 375 000                   5 500 000
           L L von Zeuner                                                                    5 925 000                  1 975 000                   7 900 000
           Total                                                                            19 050 000                  6 350 000                  25 400 000

            The performance bonuses comprise a cash portion (as to 75% of the notional performance bonus), which will have accrued to the Group executive
            director concerned, and a non-cash portion (as to 25% of the notional performance bonus), which will be deferred into the mandatory ESAS.
                                                     Group remuneration report
                                                                                                     [   Absa Group Limited
                                                                                                         Stakeholder report
                                                                                                         31 December 2006
                                                                                                                               ]   99




Long-term incentive plans
The Group has, until May 2006, operated a share incentive scheme designed to link the interests of executive directors
and eligible employees with those of shareholders and the long-term desired strategic positioning of the Group.

All full-time senior managerial and professional employees above an agreed job grade were eligible to participate in
the share incentive scheme, principally based on the ability of the individual to influence the Group’s performance and
the retention of key talent. One-third of the options vested on the third anniversary of the date of grant, a further third
vested on the fourth anniversary of the date of grant and the final third on the fifth anniversary of the date of grant. All
options in terms of the scheme have a ten-year expiry period. There are specific provisions governing retirement,
death, retrenchment, ill health and contractual termination.

In addition to the requirement that recipients be in the employ of the Group on vesting dates, there were earnings-
based performance measures linked to the allocation of share options in 2005. Recipients are generally key employees
whose current and potential contributions to achieving or implementing Absa’s strategy were taken into account.

The share incentive scheme has been supplemented with revised incentive plans to bring the Absa incentive plans in
line with best practice. The new incentive plans were approved by shareholders at a special general meeting held on
10 May 2006.

Although the Group may still use the incentive scheme referred to above, the Group has, in the year under review,
introduced new incentive plans, namely the PSP, the Phantom PSP, the ESAS and the Phantom ESAS.

The PSP is aimed at rewarding future performance by incentivising senior Absa employees, including executive
directors, to achieve performance targets. The Absa Group Remuneration Committee annually makes an award of
PSP shares or Phantom PSP shares to senior managers, professionals and executives and sets performance
conditions applicable for a three-year period. The Group Remuneration Committee ensures that the performance
conditions are sufficiently demanding and support profitable growth, capital efficiency, risk management and the
creation of shareholder value. The Group Remuneration Committee engages with external advisers (Kepler &
Associates) to obtain advice on performance conditions. In addition, the vesting of awards is subject to:
• a basic financial hurdle, such that the cumulative profit after tax for the Group in the three-year performance period
  attached to each award must be greater than the Group’s cumulative profit after tax of the previous three-year
  period; and
• a second, three-year performance condition, typically an internal, non-market-based and/or an external market-
  based performance condition that applies to 100% of the PSP shares or Phantom PSP shares under each award. It
  being recorded that the minimum threshold for any vesting of 2006 awards will be based on growth in the Group’s
  earnings per share of CPIX plus 5%, measured at a cumulative compound annual growth rate.

At the end of the three-year period, the final award of shares may be between 0% and 300% of the award, depending
on the extent to which the performance conditions have been met.

Rand value awards took place, effective 22 May 2006, in terms of the rules of the Phantom PSP. Subsequent to the
awards taking place, the participants were informed of the actual number of phantom shares that they were awarded.
The awards were calculated at the volume-weighted price over the 20 days immediately preceding the award date.
The details of the awards for Group executive directors are listed on page 103 of this report. The use of a rand-value
award mechanism enables easy communication of the underlying value of the award. It also enables the Group
Remuneration Committee to obtain an overall view of an individual’s total compensation (total cost-to-company
remuneration, discretionary bonus and share or phantom share award).
100
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          31 December 2006
                                    ]        Group remuneration report



          The purpose of the ESAS is, inter alia, to increase employee and shareholder alignment through employee share
          ownership, as well as to retain key personnel. Employees, including executive directors, whose annual bonuses are
          in excess of a certain level, participate in the ESAS. In terms of the ESAS, 25% of an employee’s annual performance
          bonus is mandatorily converted into a number of nil-cost* options, shares or phantom shares. A further 75% of a
          participating employee’s bonus can be converted voluntarily by the employee. If the employee is still in the employ of
          the Group after a period of three years, he or she will receive certain bonus (matched) shares (or phantom shares)
          and certain dividend shares. A further portion of bonus (matched) shares and dividend shares will be awarded if the
          participant is still in the employ of the Group after a period of five years from the original date. The ESAS is therefore
          a deferred bonus plan that rewards participating employees with matched shares and encourages them to share in
          growth in Absa’s share price. Generally, no performance conditions will apply to the ESAS.
          The Group’s senior executives, including Group executive directors, who elected to convert their banked bonuses
          during the period under review will participate in the Phantom ESAS in substitution for the Banked Bonus scheme.
          The options granted in terms of the previous incentive scheme remain in place and may be exercised in terms of the
          rules under which the shares were granted.

          Group executive directors’ share options – composition of opening balances at 1 January 2006

                                                                                                      Share options granted
                                                                                                  Expiry date                Number                     Price
          Group executive director                              Note Date of grant                 of options                granted                        R
          S F Booysen                                               1      19 Jun    ’01          19 Jun     ’11              23   334                 37,43
                                                                            7 Jun    ’02           7 Jun     ’12              80   000                 33,67
                                                                            5 Jun    ’03           5 Jun     ’13             135   000                 35,01
                                                                            7 Jun    ’04           7 Jun     ’14             300   000                 48,73
                                                                           18 Aug    ’05          18 Aug     ’15             180   000                 91,70
                                                                                                                             718 334
          D Bruynseels                                              2                 —                      —                       —                      —
                                                                                                                                     —
          J H Schindehütte                                          3      19 Jun    ’01          19 Jun     ’11              23   334                 37,43
                                                                            7 Jun    ’02           7 Jun     ’12              46   667                 33,67
                                                                            5 Jun    ’03           5 Jun     ’13              30   000                 35,01
                                                                           31 May    ’04          31 May     ’14             186   856                 46,56
                                                                           18 Aug    ’05          18 Aug     ’15              30   000                 91,70
                                                                                                                             316 857
          L L von Zeuner                                            4       1 Apr    ’01           1 Apr     ’11              16   668                 32,61
                                                                           19 Jun    ’01          19 Jun     ’11              21   668                 37,43
                                                                            7 Jun    ’02           7 Jun     ’12              40   000                 33,67
                                                                            5 Jun    ’03           5 Jun     ’13              95   000                 35,01
                                                                            7 Jun    ’04           7 Jun     ’14              26   000                 48,73
                                                                           19 Aug    ’04          19 Aug     ’14             102   000                 51,61
                                                                           18 Aug    ’05          18 Aug     ’15              60   000                 91,70
                                                                                                                             361 336

          Notes
          (1) Appointed to the Absa Group board on 1 August 2004.
          (2) Appointed to the Absa Group board on 27 July 2005.
          (3) Appointed to the Absa Group board on 1 January 2005.
          (4) Appointed to the Absa Group board on 1 September 2004.




          *An option that can be exercised at a zero strike price at any point between the end of the vesting period (after three years) and the end of the further
           vesting period (after five years).
                                                               Group remuneration report
                                                                                                                          [   Absa Group Limited
                                                                                                                              Stakeholder report
                                                                                                                              31 December 2006
                                                                                                                                                       ]   101




Group executive directors’ share option movements – Share incentive scheme

                                              Share options granted*                            Share options exercised

                                                                                                                          Shares
                                                                                                                            pur-
                                                                                                                         chased/
                                                                                                                       Gains on
                                                                                             Purchase                      share
                                                                                                date**/         Option options Balance of
Group executive          Opening                  Date of      Price     Expiry               exercise           price exercised***   share
director            Note balance      Number        grant          R       date       Number      date               R         R    options

Twelve months ended 31 December 2006

                                                                                                            Shares purchased at
                                                                                                    25 Aug share option price of
S F Booysen            1   718 334          —          —          —          —          23 334          ’06              R37,43

                                                                                                            Shares purchased at
                                                                                                    25 Aug share option price of
                                                                                        40 000          ’06              R33,67

                                                                                                            Shares purchased at
                                                                                                    25 Aug share option price of
                                                                                        45 000          ’06              R35,01             610 000


D Bruynseels           2         —          —          —          —          —              —            —                          —              —

                                                                                                            Shares purchased at
                                                                                                    24 Aug share option price of
J H Schindehütte       3   316 857          —          —          —          —          23 334          ’06              R37,43

                                                                                                            Shares purchased at
                                                                                                    24 Aug share option price of
                                                                                        23 333          ’06              R33,67

                                                                                                            Shares purchased at
                                                                                                    24 Aug share option price of
                                                                                        10 000          ’06              R35,01             260 190

                                                                                                            Shares purchased at
                                                                                                            share option price of
L L von Zeuner         4   361 336          —          —          —          —         16 668     6 Apr ’06               R32,61            344 668

 *The share incentive scheme has not been used for new allocations to Group executive directors in respect of the year under review, given the
  introduction of the PSP.
**Options are exercisable at any date from the vesting date. Where the activity reported upon is a purchase of shares, the purchase date has been
  reflected, in which event a preceding exercise of the options would already have taken place.
***Note that a “gain” arises where the options have been exercised at a price higher than the grant date price during the year under review. Where
   no cash gain has been realised, in circumstances where a purchase of the shares has taken place, then the details of this purchase have been
   disclosed instead.
102
      [   Absa Group Limited
          Stakeholder report
          31 December 2006
                                   ]        Group remuneration report



                                                           Share options granted*                           Share options exercised
                                                                                                                                        Shares
                                                                                                                                    purchased/
                                                                                                                                      Gains on
                                                                                                              Purchase                   share
                                                                                                                date**/      Option     options  Balance of
          Group executive              Opening                Date of      Price     Expiry                    exercise       price exercised***     share
          director             Note    balance   Number        grant           R      date        Number          date            R           R     options
          Nine months ended 31 December 2005
          S F Booysen             1    735 750   180 000 18 Aug ’05        91,70 18 Aug ’15       104 450    27 Jul ’05       82,50 3 803 653
                                                                                                   69 633     2 Aug ’05       93,77 6 491 563
                                                                                                                          Shares purchased at
                                                                                                                          share option price of
                                                                                                   23 333 14 Dec ’05                   R37,43        718 334
          D Bruynseels            2         —          —           —          —         —               —            —           —          —              —
          J H Schindehütte        3    471 856    30 000 18 Aug ’05        91,70 18 Aug ’15        97 000    27 Jul ’05       82,50 3 877 928
                                                                                                                          Shares purchased at
                                                                                                                          share option price of
                                                                                                   40 000    27 Jul ’05                R23,73
                                                                                                                          Shares purchased at
                                                                                                                          share option price of
                                                                                                    6 000    27 Jul ’05                R26,53
                                                                                                                          Shares purchased at
                                                                                                                          share option price of
                                                                                                    9 333    27 Jul ’05                R37,43
                                                                                                                          Shares purchased at
                                                                                                                          share option price of
                                                                                                    9 333    27 Jul ’05                R33,67
                                                                                                                          Shares purchased at
                                                                                                                          share option price of
                                                                                                   23 333 13 Sept ’05                  R37,43        316 857
          L L von Zeuner          4    478 400    60 000 18 Aug ’05        91,70 18 Aug ’15       106 239    27 Jul ’05       82,50 3 502 587
                                                                                                                          Shares purchased at
                                                                                                                          share option price of
                                                                                                    8 000    27 Jul ’05                R27,49
                                                                                                                          Shares purchased at
                                                                                                                          share option price of
                                                                                                    4 160    27 Jul ’05                R30,47
                                                                                                                          Shares purchased at
                                                                                                                          share option price of
                                                                                                    4 000    27 Jul ’05                R17,85
                                                                                                                          Shares purchased at
                                                                                                                          share option price of
                                                                                                    8 000    27 Jul ’05                R27,68
                                                                                                                          Shares purchased at
                                                                                                                          share option price of
                                                                                                    8 000    27 Jul ’05                R26,53
                                                                                                                          Shares purchased at
                                                                                                                          share option price of
                                                                                                   13 333    27 Jul ’05                R32,61
                                                                                                                          Shares purchased at
                                                                                                                          share option price of
                                                                                                   17 332    27 Jul ’05                R37,43
                                                                                                                          Shares purchased at
                                                                                                                          share option price of
                                                                                                   8 000     27 Jul ’05                R33,67        361 336

          Notes
          (1) Appointed to the Absa Group board on 1 August 2004.
          (2) Appointed to the Absa Group board on 27 July 2005.
          (3) Appointed to the Absa Group board on 1 January 2005.
          (4) Appointed to the Absa Group board on 1 September 2004.

           *The share incentive scheme has not been used for new allocations to Group executive directors in respect of the year under review, given the
            introduction of the PSP.
          **Options are exercisable at any date from the vesting date. Where the activity reported upon is a purchase of shares, the purchase date has been
            reflected, in which event a preceding exercise of the options would already have taken place.
          ***Note that a “gain” arises where the options have been exercised at a price higher than the grant date price during the period under review. Where
             no cash gain has been realised, in circumstances where a purchase of the shares has taken place, then the details of this purchase have been
             disclosed instead.
                                                                           Group remuneration report
                                                                                                                            [   Absa Group Limited
                                                                                                                                Stakeholder report
                                                                                                                                31 December 2006
                                                                                                                                                           ]   103




Group executive directors’ share award movements – Phantom PSP*
                                                                                Phantom PSP shares granted
                                                                       Initial                                                 Closing
                                         Opening                  allocation                                                  balance
                                        balance at                   granted                                                      as at
Group executive                         1 January                     during         Date of         Price***             31 December
director                           Note      2006                       2006**         grant             R    Expiry date         2006

S F Booysen                               1                —           51 194     22 May ’06        117,20         22 May ’09                51 194
D Bruynseels                              2                —               —              —             —                  —                     —
J H Schindehütte                          3                —           23 464     22 May ’06        117,20         22 May ’09                23 464
L L von Zeuner                            4                —           33 617     22 May ’06        117,20         22 May ’09                33 617
Notes
(1) Appointed   to   the   Absa   Group   board   on   1 August 2004.
(2) Appointed   to   the   Absa   Group   board   on   27 July 2005.
(3) Appointed   to   the   Absa   Group   board   on   1 January 2005.
(4) Appointed   to   the   Absa   Group   board   on   1 September 2004.
  *The first allocations of the Phantom PSP took place in 2006. Therefore there is no comparable data for the previous reporting period. One Phantom
   PSP share has a value equivalent to one Absa ordinary share.
 **As mentioned on page 99 of this report, the scheme is subject to profit after tax and stretched earnings per share performance measures, which, if
   achieved, will have the effect of an increase on the initial allocation of Phantom PSP shares to a maximum of three times.
***The price is the volume-weighted average price for the 20 trading days immediately preceding the grant date (22 May 2006).

Conversion of banked bonuses to ESAS by executive directors
                                                                                                                                         Closing
                                                                                                                                       balance –
                                                           Number of                                                                  number of
                                                            phantom                                                                     phantom
                                                              shares                                                                      shares
                                                               under                Date          Price               Expiry               under
                                                               ESAS*            of grant              R**               date***            ESAS

S F Booysen                                                     32 934       14 Jun ’06         107,63          14 Jun ’09                 32 934
D Bruynseels                                                        —                —              —                   —                      —
J H Schindehütte                                                15 665       14 Jun ’06         107,63          14 Jun ’09                 15 665
L L von Zeuner                                                  23 653       14 Jun ’06         107,63          14 Jun ’09                 23 653

  *The banked bonus is not a new award, as this has been disclosed as part of the performance bonus awards for 2004 and 2005.
 **The price is the volume-weighted price over the 20 trading days up to and including 14 June 2006.
***Although the vesting date is the third anniversary of the award date, there is an opportunity for a participant to remain in the scheme for a further
   two-year period.

Additional note
Please note that the portion of the 2006 notional performance bonuses that will be deferred to ESAS (which takes place in 2007) are contained on
page 98 of this report.

Absa executive compensation plans
Two new executive compensation plans were introduced during the previous reporting period. These plans are
intended to:
• retain key members of the management team; and
• deliver, as a minimum, the Barclays business case**** for the acquisition of a controlling stake of the Absa Group.

The first plan – Barclays special incentive plan
The first plan, known as the Barclays special incentive plan, is delivered in Barclays PLC shares, but is dependent on
Absa’s performance relative to the achievement of the business case**** in terms of the acquisition of a controlling
stake in the Absa Group. The plan is aimed at selected key individuals, namely S F Booysen, D Bruynseels,
J H Schindehütte, L L von Zeuner, R R Emslie and N P Mageza. The costs associated with the plan are borne directly
by Barclays and therefore do not affect Absa’s financial performance. The Barclays and Absa remuneration committees
approve any awards under this plan and scrutinise the performance outcomes.
****
   Delivery of the business case means realisation of the synergy benefits as well as the delivery of Absa’s business-as-usual performance. Barclays
   Africa is excluded.
104
      [   Absa Group Limited
          Stakeholder report
          31 December 2006
                                   ]        Group remuneration report



          Group executive directors – Barclays PSP awards*
                                                             Barclays
                                                   Opening PLC shares                                                                     Closing
                                                  balance at  granted                                                                balance as at
                                                  1 January    during                                                        Vesting 31 December
                                                       2006      2006                     Performance period                    date         2006

          S F Booysen                                         —         100 224        1 Apr ’05 – 30 Jun ’08           30 Sept ’08              100 224
          D Bruynseels                                        —           27 839       1 Apr ’05 – 30 Jun ’08           30 Sept ’08                27 839
          J H Schindehütte                                    —           29 209       1 Apr ’05 – 30 Jun ’08           30 Sept ’08                29 209
          L L von Zeuner                                      —           49 090       1 Apr ’05 – 30 Jun ’08           30 Sept ’08                49 090

          *This is an award of Barclays shares. Absa does not bear the cost of these awards. The specific performance conditions are linked to the underlying
           Absa Group performance from the period 1 April 2005 to 30 June 2008. There is a multiplier dependent on Absa’s performance, the range of the
           multiplier being from zero to six times the initial allocation, with the maximum award being made in the event of performance being equal to 130% of
           the predetermined business case**. These conditions have been approved by the Barclays Group Remuneration Committee. The attainment of these
           measures will be determined in respect of the published results for June 2008.


          The second plan – Special discretionary bonus plan
          The second plan consists of a special discretionary performance bonus for selected key roles (approximately 30 in
          number). Key criteria include the delivery of the business case** in terms of the acquisition of a controlling stake in Absa
          and an individual’s performance. The participants include a number of individuals assigned to Absa from Barclays.
          Participants in the Barclays special incentive plan detailed previously will not participate in this plan. The bonus, which
          may be up to 200% of guaranteed fixed remuneration, will be delivered in cash by Absa after two years, subject
          to individual performance assessments, taking into account delivery of the business case**, including growth in profit
          before tax, the realisation of synergies, the management of restructuring costs and personal contribution. The Group
          Remuneration Committee will approve any awards under this plan, and will scrutinise the performance outcomes.

          Group executive directors’ service contracts
          The service contracts of executive directors do not have a fixed term, but provide for a notice period of six months.
          Group executive directors retire from their positions and from the board (as executive directors) at the age of 60.

          Severance arrangements
          Absa’s policy when terminating the services of an individual for operational reasons is to make use of the following
          formula to calculate the severance package: a minimum of two months of the total annual fixed remuneration package
          is payable for up to two completed years of service, plus two weeks of the annual remuneration package for each
          additional completed year of service.
          The maximum severance compensation payable is limited to an amount equal to six months of the annual remuneration
          package of the retrenchee. In cases where the benefits calculated under the rules of the Basic Conditions of
          Employment Act are more beneficial than the above formula, the provisions of the Act apply (one week’s pay for each
          completed year of service). An executive director would need to have been in Absa’s service for longer than 24 years
          for the rules of the Basic Conditions of Employment Act to be more beneficial.

          Absa aims to apply the above policy to all employees, including Group executive directors. However, depending on
          circumstances, it is sometimes necessary to negotiate with the Group executive director, or employee, whose contract
          is being terminated.


          Group non-executive directors’ remuneration
          Non-executive directors are remunerated for their membership of the boards of Absa Group Limited and Absa Bank
          Limited and board-appointed committees. The remuneration rates reflect the size and complexity of the Group.


          **Delivery of the business case means realisation of the synergy benefits as well as the delivery of Absa’s business-as-usual performance. Barclays
            Africa is excluded.
                                                                 Group remuneration report
                                                                                                                           [   Absa Group Limited
                                                                                                                               Stakeholder report
                                                                                                                               31 December 2006
                                                                                                                                                        ]   105




Market practices and external remuneration surveys are taken into account in determining non-executive directors’
remuneration. The elements of non-executive directors’ remuneration are:
• a base fee and a fee for special board meetings;
• a fee as a member of a board committee (including special board committees and special board committee
  meetings); and
• fees for ad hoc investigative and consultancy work.

Absa’s fee structure, as approved by shareholders, is indicated in the table below.

                                                                            Remuneration from                             Remuneration from
                                                                                    1 May 2006                               1 October 2005
                                                                               to 30 April 2007                             to 30 April 2006
Category                                            Note                                      R                                            R

Chairman                                          1 & 11                                 3 154 200                                      2 500 000
Board member                                   2, 3 & 11                                   123 200                                        112 000
Group Audit and Compliance
Committee (GACC) member                           4 & 11                                    104 400                                         87 000
Group Risk Committee (GRC)
member                                            5 & 11                                     68 000                                         63 000
Group Remuneration Committee
(Rem Com) member                                  6 & 11                                     54 600                                         52 000
Directors’ Affairs Committee
(DAC) member                                      7 & 11                                     41 000                                         39 000
Credit Committee: Large
Exposures member                                 8 & 11                                      41 000                                         39 000
Implementation Committee                         9, 10 &
member                                                11                              41 000                                       39 000
                                                               Pool of R350 000 per annum                   Pool of R300 000 per annum
                                                                      payable to committee                         payable to committee
                                                                   members pro rata to the                      members pro rata to the
Group Credit Committee member                          12     number of facilities reviewed.               number of facilities reviewed.
Special board meeting (per meeting)                                                  16 500                                       15 000
Special board committee meeting                                                      10 600                                        9 700
Ad hoc board fees:
• per ad hoc board committee                                                                10 600                                         9 700
  meeting attended
• consultancy work                                                            R2 750 per hour                               R2 500 per hour
Notes
(1) From 1 May 2006, the chairman’s remuneration was changed to an all-in basis. Previously, he received fees as Absa Group Limited and Absa Bank
    Limited board chairman equal to twice the fee payable to a board member, over and above this annual remuneration as chairman.
(2) The deputy chairman receives fees equal to 1,5 times the fee payable to a board member.
(3) Executive directors of Absa Group Limited receive fees, as members of the Absa Group Limited board, equal to the fees payable to a board member.
(4) The GACC chairman receives fees equal to twice the fee payable to a GACC member.
(5) The GRC chairman receives fees equal to twice the fee payable to a GRC member.
(6) The Rem Com chairman receives fees equal to twice the fee payable to a Rem Com member.
(7) As the Group chairman is chairman of the DAC, this is covered by his Group chairman’s fee.
(8) As the Group chairman is also the chairman of the Credit Committee: Large Exposures, this fee is covered by his Group chairman’s fee.
(9) The Implementation Committee chairman receives fees equal to twice the fee payable to an Implementation Committee member.
(10) The Implementation Committee is a committee that was established in 2005 to provide governance oversight on various implementation issues
     arising from the Barclays transaction.
(11) The fees payable to non-executive directors of Absa Group Limited in respect of subsidiary companies are not included as these fees are approved
     by the shareholders of the respective subsidiaries.
(12) This fee has been revised in the period under review. Although the pool has remained the same, the basis of splitting the pool has changed to a
     fee per facility rather than a pro rata split of the pool.

The remuneration of Group non-executive directors is submitted to shareholders for sanction at the annual general
meeting prior to implementation and payment.
106
      [   Absa Group Limited
          Stakeholder report
          31 December 2006
                                   ]        Group remuneration report



          The following table indicates Absa’s non-executive directors’ emoluments.
                                                                                                                                             Actual fees
                                                                                                                                             for the nine
                                                                                                                                                  months
                                                                                                                                                   ended
                                                                                                                                            31 December
                                                              Fees for the twelve months ended 31 December 2006*                                    2005*
                                                                          Absa Bank
                                                               Absa         and its
                                                              Group        subsidi-           Ad hoc        Commit-
                                                             Limited          aries             fees           tees              Total                Total
          Name                                      Note           R              R                R              R                 R                    R

          Present directors
          D C Cronjé (chairman)                         1     74   667     3 029    533        10   600             —      3 114    800           3 634   160
          D C Brink (deputy chairman)                        179   200       144    000        96   350      485   167       904    717             661   186
          L N Angel                                     2    119   467        96    000        15   750       39   504       270    721             209   500
          D C Arnold                                         119   467        96    000         9   700      209   883       435    050             269   700
          D E Baloyi                                    3    119   467        96    000              —        70   600       286    067             144   000
          B P Connellan                                      119   467        96    000        35   750      336   163       587    380             316   692
          Y Z Cuba                                      6           —                —               —              —                —                     —
          A S du Plessis                                     119   467         96   000        89   100      497   591        802   158            511    767
          G Griffin                                          119   467         96   000        25   008      199   467        439   942            263    235
          M W Hlahla                                    7    119   467         96   000              —        28   333        243   800                    —
          L N Jonker                                         119   467         96   000        15   750       72   033        303   250            216    500
          N Kheraj                                      5    119   467         96   000        19   400      190   233        425   100            161    033
          P du P Kruger                                      119   467         96   000        70   600      267   167        553   234            414    150
          D L Roberts                             5 & 12      98   933         79   500        21   200      164   633        364   266            140    366
          F F Seegers                                  9      20   533         16   500              —        38   367         75   400                    —
          T M G Sexwale                                      119   467         96   000              —        50   933        266   400            171    750
          F A Sonn                                           119   467         96   000        25   750       58   183        299   400            188    750
          P E I Swartz                                       119   467         96   000        35   750       76   833        328   050            233    500
          Past directors
          L Boyd                                       4           —               —               —              —                —               237    938
          L W Maasdorp                            2 & 13       88 667          71 250          25 450        165 183          350 550              282    650
          P T Motsepe                                  8           —               —               —              —                —                62    333
          T van Wyk                                   10           —               —               —              —                —               162    000
          J van Zyl                                   11           —               —               —              —                —                62    332
          Total                                             2 015 071      4 588 783         496 158       2 950 273 10 050 285                   8 343 542

          Notes
          (1) As a result of the additional time spent by the Group chairman, Dr D C Cronjé, on Absa matters during the period from August 2004 to May 2005,
              over and above his current contractual arrangement with Absa, shareholders ratified the payment of R1,5 million at the annual general meeting
              held on 19 August 2005. This fee is included in the total fees for the nine months ended 31 December 2005.
          (2) Appointed to the Absa Group board on 16 August 2004.
          (3) Appointed to the Absa Group board on 31 December 2004.
          (4) Resigned from the Absa Group board on 30 December 2005.
          (5) Appointed to the Absa Group board on 27 July 2005.
          (6) Appointed to the Absa Group board on 6 December 2006.
          (7) Appointed to the Absa Group board on 23 December 2005.
          (8) Appointed on the Absa Group board on 9 July 2004. He subsequently resigned from the Absa Group board on 27 July 2005.
          (9) Appointed to the Absa Group board on 23 October 2006.
          (10) Resigned from the Absa Group board on 27 July 2005.
          (11) Appointed to the Absa Group board on 19 April 2004. He subsequently resigned from the Absa Group board on 27 July 2005.
          (12) Resigned from the Absa Group board on 23 October 2006.
          (13) Resigned from the Absa Group board on 30 September 2006.
          *All emoluments to Group non-executive directors are paid by Absa Bank Limited, as disclosed in note 48.5 to the financial statements.
                                                            Group remuneration report
                                                                                                   [   Absa Group Limited
                                                                                                       Stakeholder report
                                                                                                       31 December 2006
                                                                                                                            ]   107




Absa shares held by Absa Group directors
Ordinary shares
Certain executive and non-executive directors have an interest in the Group through beneficial and non-beneficial
interests in Absa shares. This is disclosed in the directors’ report on page 355 of this report.

Absa Bank preference shares
Certain executive and non-executive directors have an interest in the Group through Absa Bank Limited preference
shares. This is disclosed in the directors’ report on page 357 of this report.

Preference shareholding in Absa
Shareholders approved the allocation of cumulative redeemable option-holding preference shares (preference shares)
to a number of previously disadvantaged individuals, qualifying employees, and black non-executive directors in terms
of the Group’s broad-based black economic empowerment transaction on 25 June 2004. These allocations were made
to Batho Bonke Capital (Proprietary) Limited (73 152 300 shares) and the Absa Group Limited Employee Share
Ownership Administrative (ESOP) Trust (6 085 200 shares).

Absa’s broad-based black economic empowerment and employee transactions entailed an 11% interest in Absa being
allocated in the form of redeemable cumulative option-holding preference shares. These redeemable preference
shares have the same rights as ordinary shares, including voting rights, save for the rights relating to dividends,
redemption, the options and liquidation. The option exercise period is from 2 July 2007 to 1 July 2009. A variable option
strike price is a core element of the transaction and is as follows:
• If the Absa share price ≤ R70,00, the strike price is R48,00; or
• If the Absa share price > R70,00, but ≤ R100,00, the strike price is R48,00 + 70 cents for each completed
  R1,00 increment in the share price over R70,00; or
• If the Absa share price > R100,00, the strike price is R69,00.

The Group’s broad-based black economic empowerment and employee transactions create value for all Absa stakeholders
by providing a platform for meaningful wealth creation for as many previously disadvantaged individuals as possible,
enhancing employee loyalty and commitment, expanding the Group’s customer base and improving customer loyalty.

The following Absa non-executive directors hold preference shares in Absa indirectly through their direct and indirect
holdings of ordinary shares in Batho Bonke:
                                                                                Absa preference shares
Group non-executive director                                            31 December 2006     31 December 2005
Present directors
L N Angel                                                                         1 280   165                 1 280 165
D E Baloyi                                                                          150   000                   100 000
Y Z Cuba                                                                             91   600                        —
M W Hlahla                                                                           50   000                        —
T M G Sexwale                                                                     4 183   090                 4 183 090
P E I Swartz                                                                        500   000                   500 000
F A Sonn                                                                            500   000                   500 000
Past directors
L W Maasdorp                                                                      2 560 328*                  2 560 328
Total                                                                             9 315 183                   9 123 583

Non-executive directors’ terms of employment
Non-executive directors do not have service contracts. Letters of appointment confirm the terms and conditions of
their service.


*Resigned from the Absa Group board on 30 September 2006.
108
      [   Absa Group Limited
          Stakeholder report
          31 December 2006
                               ]      Group Executive Committee




          Introduction
          The Group executive committee (Exco), comprises the executive directors and other members of the executive
          management of Absa and of the Group’s major subsidiary, Absa Bank. The committee meets, as a general rule, once
          a week and deals with all material matters relating to the implementation of the agreed strategy, the monitoring of
          performance and the consideration of company policies.




          Key developments
          A number of developments impacted the membership of Exco during the twelve months under review. These
          included:
          • The resignation of Israel Skosana on 20 February 2006;
          • The retirement of Charles Erasmus and Pieter van der Merwe on 30 December 2006; and
          • The resignation of Allan Fielder on 31 December 2006.




          Biographical details and appointment dates of the Absa Group Executive Committee members
          The biographical details and appointment dates of the executive committee members as at 31 December 2006 were
          as follows:


                                                             Age 44
                                                   Qualifications DCom (Acc), CA(SA)
                                                             Title Group chief executive
                                                 Tenure at Absa 17 years (appointed 1989)
                                            Year appointed as an
                                    Executive Committee member 2001
                                          Areas of responsibility Steve is the Absa Group chief executive.
                                            Skills, expertise and After completing his articles with Ernst & Young (1980–1983), he became a lecturer
                                                      experience in accounting at the University of South Africa (1983–1988). His first appointment with
                                                                  Absa was as senior manager: Finance at TrustBank (1989–1991). He then became
                                                                  an assistant general manager at TrustBank (1991–1992). From 1992 to 1994, he was
                                                                  assistant general manager: Group Finance at Absa. He then joined Absa Corporate
                                                                  Bank (later Absa Corporate and Merchant Bank and now Absa Capital). He held the
                                                                  positions of assistant general manager, general manager and deputy operating
                                                                  executive until he was appointed as a Group executive director in 2001. He was
                                                                  appointed as Group chief executive of Absa Group Limited in August 2004.

              S F (Steve) Booysen
                                                            Group Executive Committee
                                                                                                                         [   Absa Group Limited
                                                                                                                             Stakeholder report
                                                                                                                             31 December 2006
                                                                                                                                                        ]   109




                                                         Age 42
                                              Qualifications BAcc (Hons), CA(SA)
                                             Tenure at Absa Five years (appointed 2002)
                                     Year appointed as an
                             Executive Committee member 2005
                                    Areas of responsibility Responsible for Absa Private Bank*.
                                       Skills, expertise and Zarina commenced her career at Ernst & Young (then Ernst & Whinney) in 1986. In
                                                 experience 1989, Zarina was seconded to Ernst & Young London for three years. There, she
                                                             worked with a number of Ernst & Young’s key multinational customers.
                                                               She returned to South Africa in 1992 and was appointed as a senior manager in
                                                               Ernst & Young’s accounting and auditing technical department. In 1996 she was
                                                               appointed as a partner in Ernst & Young and in 1998 as the chief operating officer of
                                                               Ernst & Young Africa Group.
                                                               In 2002, Zarina joined Absa as managing executive: Retail Banking Services. In
                                                               February 2005, Zarina became managing executive: Absa Private Bank. She was
                                                               appointed to Absa’s executive committee in July 2005.
                                    Participation in external Over the years, Zarina has served on the boards of the South African Institute of
                                                      entities Chartered Accountants (SAICA) and the Unisa Foundation. She has also served as
                                                               vice-president and chair of the Association for the Advancement of Black Accountants
                                                               (ABASA) and as chair of the Public Accountants’ and Auditors’ board.


     Z B M (Zarina) Bassa


                                                        Age 47
                                             Qualifications BA (Hons), MBA, Diploma in Financial Studies, Associate of the Chartered Institute
                                                            of Bankers
                                         Tenure at Barclays 26 years
                                     Year appointed as an
                             Executive Committee member 2005
                                    Areas of responsibility Responsible for Absa’s African operations.
                                       Skills, expertise and Dominic joined Barclays Bank in 1980. In his early career with the bank, he fulfilled a
                                                 experience variety of UK-based branch, regional and head office roles.
                                                               In early 1997, he became the finance director: Barclays Africa, Caribbean, Middle
                                                               East and Latin America. In January 1999, he became managing director: Barclays
                                                               Africa and has led the transformation of the Barclays business on the continent.

  D (Dominic) Bruynseels


                                                        Age 46
                                             Qualifications Diploma in Financial Studies, Associate of the Chartered Institute of Bankers
                                         Tenure at Barclays 30 years
                                     Year appointed as an
                             Executive Committee member 2005
                                    Areas of responsibility Responsible for the implementation of integration initiatives between Barclays and
                                                            Absa, and Absa’s credit, risk management and compliance operations.
                                      Skills, expertise and Robert joined Barclays in 1976. After 10 years in the branch network in a range of
                                                experience roles, he joined the Barclays strategic planning team. In 1987, he returned to branch
                                                            banking as a corporate relationship manager. He then moved to Large Corporate
                                                            Banking, where he led the debt restructuring of several large property companies that
                                                            were experiencing difficulties following the UK property crisis of the early 1990s.
                                                               In 1994, Robert moved to Northampton to take up the role of finance and risk director:
                                                               Corporate Barclaycard. Returning to London in 1997, he joined Business Banking,
                                                               where he led the specialist sales teams before becoming marketing director in 2001.
                                                               While at Business Banking, Robert developed and led the implementation of value
                                                               aligned performance measurement (VAPM), a new approach to measuring and
                                                               rewarding performance.
                                                               In 2001, Robert was appointed to manage the Barclays £1 billion cost reduction
                                                               challenge. Having completed this successfully, he moved to Madrid in 2003, where
                                                               he led the programme to integrate the newly acquired Banco Zaragozano into
                                                               Barclays. In late 2004, he became risk director: International Retail and Commercial
                                                               Banking. In 2005, Robert was appointed as an executive director of Absa following
                                                               the Barclays acquisition of a majority stake in the Absa Group.

       R (Robert) East




*Subsequent to year-end, Zarina became responsible for Absa Islamic Banking.
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                                                                Age 48
                                                     Qualifications BCom (Hons), CA(SA)
                                                    Tenure at Absa 19 years (appointed 1987)
                                             Year appointed as an
                                     Executive Committee member 2004
                                            Areas of responsibility Responsible for Absa Corporate and Business Bank, Real Estate Asset Management
                                                                    and Absa Development Company Holdings (Proprietary) Limited.
                                              Skills, expertise and Robert commenced his career as a lecturer at the then Rand Afrikaans University
                                                        experience (now the University of Johannesburg), focusing on accountancy and taxation. He
                                                                    joined the Group in 1987 as the head of taxation for the Bankorp Group. Robert has
                                                                    held numerous positions in the Group’s finance department.
                                                                     From 1998 until 2000, Robert was a member of the Absa Corporate and Merchant
                                                                     Bank (now Absa Capital) Executive Committee and was responsible for volume
                                                                     transactional products and the back office environment.
                                                                     In 2000, he was appointed as managing executive: Business Banking Services and in
                                                                     2003 he became managing executive: Absa Corporate and Merchant Bank. In 2005,
                                                                     he took responsibility for the Group’s corporate and business banking operations.


               R R (Robert) Emslie


                                                               Age 44
                                                    Qualifications BSc (Hons), MBA
                                                Tenure at Barclays Seven years
                                             Year appointed as an
                                     Executive Committee member 2005
                                            Areas of responsibility Responsible for Group Human Resources, Communication and Public Relations, and
                                                                    Group Black Economic Empowerment, Government Relations and Corporate Social
                                                                    Investment. Allan resigned from the Absa Group at the end of 2006.
                                              Skills, expertise and Allan has more than 15 years’ experience in the field of human resources and held a
                                                        experience number of senior management roles at London Transport and Ernst & Young before
                                                                    joining the Barclays Group in January 2000.
                                                                     In the position of director: Human Resources Central Support Development, he was
                                                                     responsible for all aspects of human resource delivery to the central support teams.
                                                                     In addition, he had Group-wide accountability for the management of senior talent,
                                                                     employee relations, policy, equality and diversity.
                                                                     Alongside this role, Allan was seconded in November 2003 to cover the position of
                                                                     human resource director accountable for the Private Clients and International
                                                                     businesses. In this position, he was accountable for the provision of the full range of
                                                                     human resources services to approximately 19 000 employees, including those in
                                                                     Barclays Africa and the Middle East.
                                                                     Allan was appointed executive director: Group Human Resources at Absa following
                                                                     the Barclays acquisition of a majority stake in the Absa Group.


               A D (Allan) Fielder
                                                             Group Executive Committee
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                                                                                                                                                          ]   111




                                                        Age 48
                                             Qualifications Senior executive programme
                                            Tenure at Absa Three years (appointed 2003)
                                     Year appointed as an
                             Executive Committee member 2005
                                    Areas of responsibility Responsible for Retail Delivery, Group Customer Experience and AllPay Consolidated
                                                            Investment Holdings (Proprietary) Limited.
                                      Skills, expertise and Prior to joining the Absa Group, Venete worked for various financial services
                                                experience institutions.
                                                               Venete joined Absa in June 2003 as head: Agriculture. Her portfolio grew to include
                                                               franchising, consumables, black business, banking to women-owned business and
                                                               medium business. In January 2005, she was appointed as deputy managing
                                                               executive: Business Banking Services. Her portfolio was expanded to include the
                                                               public sector. Venete was appointed as an executive director in July 2005.
                                   Participation in external Venete is a director of the Office of the Ombudsman for Banking Services, the deputy
                                                     entities chair of the Agricultural Business Chamber, deputy vice-president of the Afrikaanse
                                                              Handelsinstituut (AHI), economic adviser to the premier of the North West, a trustee
                                                              of the Absa Foundation and the Community Impact Trust and a member of the
                                                              International Policy Commission.
                                                               She serves on a number of bodies appointed by the Minister of Finance:
                                                               • The standing committee for the Short-term Insurance Act;
                                                               • The standing committee for the revision of the Banks Act 1990;
                                                               • The policy board for financial services and regulation; and
                                                               • The task team – South Africa, regional financial centre of Africa.

     V J (Venete) Klein

                                                        Age 38
                                             Qualifications BCom (Hons), FFA
                                            Tenure at Absa 11 years (appointed 1995)
                                     Year appointed as an
                             Executive Committee member Willie was appointed as an Executive Committee member in January 2007.
                                    Areas of responsibility* Responsible for Absa’s bancassurance operations (Absa Life Limited, Absa
                                                             Investment Management Services (Proprietary) Limited, Absa Health Care
                                                             Consultants (Proprietary) Limited, Absa Insurance Company Limited, Absa Manx
                                                             Insurance Company Limited, Absa Syndicated Investments Holdings Limited, Global
                                                             Insurance Company Limited, Absa Insurance Risk Management Services Limited,
                                                             Absa Trust Limited, Absa Fund Managers Limited, Absa Mortgage Fund Managers
                                                             (Proprietary) Limited, Absa Stockbrokers (Proprietary) Limited, Absa Portfolio
                                                             Managers (Proprietary) Limited, Absa Consultants and Actuaries (Proprietary)
                                                             Limited, Absa Brokers (Proprietary) Limited and Absa Asset Management (Proprietary)
                                                             Limited).
                                      Skills, expertise and In May 1995, Willie was appointed as consulting actuary at Absa Consultants and
                                                experience Actuaries.
                                                               He was then appointed as general manager: Operations at Absa Life in 1997 and as
                                                               managing director: Absa Life in 2001. In December 2005, he was appointed
                                                               managing executive: Absa Financial Services, Corporate. In 2007, he became an
                                                               Absa executive director, responsible for the Group’s bancassurance operations.
                                   Participation in external Willie is a director of the Life Offices’ Association (LOA), a convener of the Credit Life
                                                     entities Committee of the LOA and the chairman of the Joint Credit Life Forum between the
                                                              South African Insurance Association (SAIA) and the LOA. He is also a member of the
                                                              Actuarial Training Programme steering committee at the Unit for Business Mathematics
                                                              and Informatics (University of North West).

      W T (Willie) Lategan




*As at January 2007.
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                                   ]        Group Executive Committee



                                                                    Age 52
                                                         Qualifications ACCA
                                                        Tenure at Absa Six years (appointed 2000)
                                                Year appointed as an
                                        Executive Committee member 2003
                                               Areas of responsibility Peter is the Group’s chief operating officer. He is responsible for overseeing the
                                                                       Group’s support functions: Group Change and Support Services; Group Information
                                                                       Technology; Group Communication and Public Relations*; Group Black Economic
                                                                       Empowerment, Government Relations and Corporate Social Investment*; Group
                                                                       Human Resources; Group Sourcing and Support Services*; Group Operations,
                                                                       Information Management and Group Payment Systems. Subsequent to the end of
                                                                       2006, he became responsible for Group Strategy and Planning.
                                                 Skills, expertise and Peter joined Absa in January 2000 to take over a number of executive functions at
                                                           experience the Group’s instalment finance arm and was appointed as a Group executive director
                                                                       in 2003. He started his career in the audit environment, working for Coopers &
                                                                       Lybrand Chartered Accountants (SA) as audit senior, supervisor and manager.
                                                                          He also worked in Transnet Limited’s Group Internal Audit Services. He moved into
                                                                          general management at Autonet, the road passenger and freight logistics division of
                                                                          Transnet Limited. He held the positions of executive manager: Tours Express,
                                                                          general manager: Passenger Businesses as well as chief executive officer: Autonet.
                                                                          In 1988, he moved to the financial services sector to join Nedcor Limited’s technology
                                                                          and operations process management division.
                                               Participation in external He is a fellow of the Association of Chartered Certified Accountants (ACCA) and is a
                                                                 entities member of the Johannesburg Rotary Club.

               N P (Peter) Mageza


                                                                    Age 38
                                                         Qualifications BSc
                                                        Tenure at Absa Five years (appointed 2001)
                                           Year appointed as an Year
                                                      appointed as an 2005
                                        Executive Committee member
                                               Areas of responsibility Responsible for Retail Banking Services, Flexi Banking Services and Small
                                                                        Business.
                                                 Skills, expertise and Alfie has a background in technology, business management and sales in the
                                                           experience manufacturing, consulting and high-tech industries. He joined Absa in 2001 with
                                                                        responsibility for the electronic delivery channels. He subsequently assumed
                                                                        responsibility for Absa Card in 2004, and in March 2005 was appointed to the Group
                                                                        Executive Committee.
                                             Participation in external He represents Absa’s interests on various industry bodies and in several joint
                                                               entities ventures.

               V (Alfie) Naidoo


                                                                    Age 47
                                                         Qualifications BCom (Hons), CA(SA), HDip Tax
                                                        Tenure at Absa Six years (appointed 1999)
                                                Year appointed as an
                                        Executive Committee member 2005
                                               Areas of responsibility Responsible for Group Finance, Absa Legal, Group Economic Research, Group
                                                                       Investor Relations, Group Secretariat, Corporate Development, Capital Management,
                                                                       Group Treasury, Sarbanes-Oxley, the productivity and efficiency programme and
                                                                       Group Strategy and Planning**.
                                                 Skills, expertise and Served articles with Arthur Young & Co (now Ernst & Young) from 1981 to 1983.
                                                           experience Served in various senior managerial positions in the South African Transport
                                                                       Services, Portnet and Transnet until 1999. Joined Absa as Group executive:
                                                                       Group Finance during 1999. Appointed as Group executive director: Finance in
                                                                       January 2005.

            J H (Jacques) Schindehütte




           *As at January 2007.
          **Subsequent to year-end, Group Strategy and Planning became the responsibility of the chief operating officer.
                                                     Group Executive Committee
                                                                                                                 [   Absa Group Limited
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                                                                                                                     31 December 2006
                                                                                                                                                ]   113




                                                 Age 43
                                      Qualifications BCompt (Hons), CA(SA)

                                     Tenure at Absa Two years (appointed 2005)

                              Year appointed as an
                      Executive Committee member 2005
                             Areas of responsibility Responsible for Group Strategy and Planning.

                                Skills, expertise and James is a qualified chartered accountant, with extensive experience in the financial
                                          experience services industry. He worked at Nedcor as a senior financial manager for five years,
                                                      before joining Merrill Lynch SA in 1995 as a top-rated banking and financial services
                                                      analyst. James also served as managing director of research at Merrill Lynch SA and
                                                      deputy head of emerging markets research.
                                                        In 2002, James co-founded J&J Financial Services, a subsidiary of the J&J Group
                                                       (an empowered investment company supported by Old Mutual), and became the
                                                       chief executive officer of First South Financial Services, a 100% subsidiary of J&J
                                                       Financial Services.

 J L (James) Slabbert


                                                Age 42
                                     Qualifications BSBA
                                 Tenure at Barclays Four years
                              Year appointed as an
                      Executive Committee member 2005
                             Areas of responsibility Responsible for Absa Capital.
                                                       John joined Barclays Capital in 2002 as chief operating officer of Global Emerging
                                                       Markets before moving into the position of chief operating officer of Rates (which
                                                       includes Fixed Income, FX, Equities, Commodities, Collateralised Finance, Emerging
                                                       Markets and Money Markets). Prior to this, he was with Credit Suisse First Boston as
                                                       director of e-commerce for Emerging Markets. He previously held a number of other
                                                       positions at Credit Suisse First Boston, including proprietary trader for the emerging
                                                       markets group and global head of the emerging markets repo desk.
                                                       John is a graduate of Georgetown University, where he received a Bachelor of
                                                       Science degree in Business Administration in 1990. He is also a veteran of the US
                                                       Marine Corps (1982–1986), having served in Beirut, where he was awarded the
                                                       Combat Action Ribbon.
                                                       John joined the Absa Group Executive Committee as executive director: Absa
                                                       Corporate and Merchant Bank (now Absa Capital) upon the completion of the
                                                       Barclays acquisition of a majority stake in the bank on 27 July 2005.

  J F (John) Vitalo


                                                 Age 45
                                      Qualifications BEcon
                                     Tenure at Absa 25 years (appointed 1981)
                              Year appointed as an
                      Executive Committee member 2001
                             Areas of responsibility Responsible for retail banking, including Absa Home Loans, Absa Card, and Absa
                                                     Vehicle and Asset Finance. He is also responsible for Group Marketing.
                               Skills, expertise and His first position was that of a clerk in the Goodwood branch of Volkskas. He worked
                                         experience in the branch system until 1995, by which time he had been branch manager of four
                                                     branches, namely Wynberg (1989–1990), Cape Town (1990–1991), Old Paarl Road
                                                     (1991–1992) and Stellenbosch (1992–1995).
                                                       His appointment as regional manager: Northern Cape in Kimberley (1995–1996)
                                                       elevated him to Absa’s general management. He then became provincial general
                                                       manager: Northern Province (1996–1998) and provincial general manager: Free
                                                       State (1998–1999). In 2000, he moved to Absa head office, where he became
                                                       operating executive: Absa Commercial Bank. He was appointed as an executive
                                                       director on the Absa Group board in September 2004.
                            Participation in external Other than serving as a director on many Absa divisional boards, Louis also
                                              entities represents Absa on the boards of the Banking Association South Africa, and the
                                                       Section 21 Housing Company.

L L (Louis) von Zeuner
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           Reporting structure as at January 2007                                                                                               GROUP CHIEF EXECUTIVE
                                                                                                                                                  Steve (S F) Booysen
                                                                                                                                                  DCom (Acc), CA(SA)
                                                                                                                                                    Appointed 1989




       CHIEF EXECUTIVE:                               GROUP EXECUTIVE                                      GROUP CHIEF                           GROUP EXECUTIVE
        ABSA CAPITAL                                      DIRECTOR                                      OPERATING OFFICER                            DIRECTOR
        John (J F) Vitalo                            Louis (L L) von Zeuner                              Peter (N P) Mageza                   Jacques (J H) Schindehütte
             BSBA                                            BEcon                                              ACCA                        BCom (Hons), CA(SA), HDip Tax
        Appointed 2005                                  Appointed 1981                                    Appointed 2000                           Appointed 1999

  CHIEF OPERATING OFFICER                             EXECUTIVE DIRECTOR                             GROUP ADMINISTRATION                   SARBANES-OXLEY
  Ian (I J) Axe                                        Zarina (Z B M) Bassa                          General manager                        Group executive
  BEng (Hons), MSc, MBA                                BAcc (Hons), CA(SA)                           Hendrik (H R B) Opperman               Friedel (F) Meisenholl
  Appointed 2006                                         Appointed 2002                              BCom (Hons), CA(SA)                    BAcc (Hons), CA(SA)
  TRADING (SECONDARY MARKETS)                                                                        Appointed 1996                         Appointed 1993
  Head: Trading                                      ABSA PRIVATE BANK                               GROUP INFORMATION TECHNOLOGY           GROUP FINANCE
  Michael (R A) Bagguley                             Senior executive: Strategic Wealth Management   Chief information officer               Group executive
  FIA, BSc (Hons)                                    Ian (I W) Henstock                              Frik (F P) van der Merwe               Eric (E) Wasserman
  Appointed 2006                                     BCompt (Hons), CA(SA), MBA, HDip Tax Law        Dip Business Management, Project       BCom (Hons), CA(SA)
  EQUITY INVESTMENTS                                 Appointed 2004                                  Management                             Appointed 2000
  Head: Equity Investments and Special Projects                                                      Appointed 1994                         ABSA LEGAL
  André (A B) la Grange                               EXECUTIVE DIRECTOR                             GROUP CHANGE AND SUPPORT               Group general counsel
  MCom                                                   Venete (V J) Klein                          SERVICES                               Chris (C J) van der Walt (acting)
  Appointed 2000                                    Senior executive programme                       Group executive                        BCom (Hons), MBL, FIFM
  INVESTMENT BANKING                                      Appointed 2003                             Leon (L) du Rand                       Appointed 1985
  Acting head: Investment Banking                                                                    BA (Hons), MCom                        GROUP SECRETARIAT
  André (A B) la Grange                              RETAIL DELIVERY                                 Appointed 1987                         Group secretary
  MCom                                               Managing executive                              INFORMATION MANAGEMENT                 William (W R) Somerville
  Appointed 2000                                     Arrie (A) Rautenbach                            Group executive                        ACIS, ACMA, Dip Corp Law
                                                     BBA, MBA, AMP (Insead)                          Premlin (P) Pillay (acting)            Appointed 1990
  CHIEF FINANCIAL OFFICER                            Appointed 1997
  Charles (C J) Russon                                                                               BSc (Hons), MBA                        CORPORATE DEVELOPMENT
  BCom, CA(SA)                                       GROUP CUSTOMER EXPERIENCE                       Appointed 2004                         General manager
  Appointed 2006                                     General manager                                 GROUP CHIEF OPERATING OFFICER:         Shaun (S) Strydom
                                                     Ina (I) Steyn (acting)                          SUPPORT                                CA(SA), HDip Strategic Management
  EMPOWERMENT                                        CAIB (SA), BCom
  Head: Empowerment                                                                                  Chief of staff                         Appointed 2006
                                                     Appointed 1984                                  Emile (E) Burger
  George (J G) Sebulela                                                                                                                     CAPITAL MANAGEMENT
  BA (Comm), AMP, LDP, PGrd Dip Marketing            ALLPAY CONSOLIDATED INVESTMENT                  BCom (Hons), ACMA, MBA                 General manager
  Appointed 2004                                     HOLDINGS (PROPRIETARY) LIMITED                  Appointed 1997                         Carel (C F) Grönum
                                                     Managing director                               GROUP COMMUNICATION AND PUBLIC         BCom (Hons)
  SALES (SECONDARY MARKETS)                          Dirk (D J) Kotzé (acting)
  Head: Sales                                                                                        RELATIONS                              Appointed 1993
                                                     BCom                                            Group executive
  Andrew (A C) Selby                                 Appointed 1994                                                                         GROUP TREASURY
  BCom, PGDA, CA(SA)                                                                                 Vacant                                 Group treasurer
  Appointed 2006                                                                                     GROUP HUMAN RESOURCES                  Petrus (P J) Balt
                                                      EXECUTIVE DIRECTOR                             Group HR director                      MCom, CA(SA), HDip Tax
  PRIMARY MARKETS                                        Alfie (V) Naidoo
  Head: Primary Markets                                                                              Lawrence (L B) Mlotshwa                Appointed 2000
                                                               BSc                                   BA, HEd, MBA
  Stephen (S J) van Coller                               Appointed 2001                                                                     PRODUCTIVITY AND EFFICIENCY
  CA(SA), ACMA, BCom (Hons)                                                                          Appointed 2003                         PROGRAMME
  Appointed 2006                                     RETAIL BANKING SERVICES                         GROUP BLACK ECONOMIC                   General manager
                                                     Managing executive                              EMPOWERMENT, GOVERNMENT                Dirk (D J) Reyneke
                                                     Pierre (J P) Loubser (acting)                   RELATIONS AND CORPORATE                BCom (Hons), CA(SA), Advanced Dip
                                                     BCom, MBA                                       SOCIAL INVESTMENT                      Banking
                                                     Appointed 1989                                  Group executive                        Appointed 2005
                                                                                                     Riah (M V) Phiyega
                                                     FLEXI BANKING SERVICES                          MA, PGrd Dip Business Administration        EXECUTIVE DIRECTOR
                                                     Managing executive                              Appointed 2005                               James (J L) Slabbert
                                                     Daphne (D R) Motsepe                                                                        BCompt (Hons), CA(SA)
                                                     BCompt, MBA                                     GROUP SOURCING
                                                                                                     Chief procurement officer                       Appointed 2005
                                                     Appointed 2005
                                                                                                     Ian (I M) Russell
                                                     SMALL BUSINESS                                  BSc (Econ), MBA, FCIPS                     GROUP STRATEGY AND PLANNING
                                                     Managing executive                              Appointed 2005
                                                     Sizwe (S A) Tati
                                                     BCom (Acc), Dip Bus Admin, Dip Project          GROUP LOGISTICAL SERVICES                  GROUP ECONOMIC RESEARCH
                                                     Management                                      Leon (L P) Kruger                          Group economist
                                                     Appointed 2004                                  Dip IOM, Dip Security Admin                Christo (C W) Luüs
                                                                                                     Appointed 1980                             BCom (Hons), MBL, FIFM
                                                  ABSA HOME LOANS                                                                               Appointed 1985
                                                                                                     GROUP PAYMENT SYSTEMS
                                                  Managing executive                                 General manager
                                                  Gavin (G R) Opperman                               Walter (W V) Volker                        GROUP INVESTOR RELATIONS
                                                  CAIB (SA), LLB (SA), Dip Marketing                 BSc, MBL                                   General manager
                                                  Appointed 1994                                     Appointed 1990                             Jacques (J C) Badenhorst
                                                  ABSA CARD                                                                                     CA(SA)
                                                  Managing executive                                                                            Appointed 2006
                                                  Chris (C) Sweeney
                                                  BSc (Hons)
                                                  Appointed 2005
                                                  GROUP MARKETING
                                                  Group executive
                                                  Happy (H) Ntshingila
                                                  BA (Comm), Dip Labour Law
                                                  Appointed 2006
                                                  ABSA VEHICLE AND ASSET FINANCE
                                                  Managing executive
                                                  Marcel (M N) de Klerk
                                                  BSc (Hons), BCom, MBL
                                                  Appointed 1995
                                                  PERSONAL BANK
                                                  Chief operating officer
                                                  Johan (F J) Geldenhuys
                                                  BCom (Hons)
                                                  Appointed 1985
                                                                   Group Executive Committee
                                                                                                                        [   Absa Group Limited
                                                                                                                            Stakeholder report
                                                                                                                            31 December 2006
                                                                                                                                                     ]     115




                     INTERNAL AUDIT
                     General manager
                     John (J P) MacElvogue (acting)
                     Post-graduate Diploma in Internal Audit
                     and Management, PIIA
                     Appointed 2006


  EXECUTIVE DIRECTOR:                             GROUP EXECUTIVE                    EXECUTIVE                                       EXECUTIVE
ABSA FINANCIAL SERVICES                               DIRECTOR                        DIRECTOR                                        DIRECTOR
    Willie (W T) Lategan                        Dominic (D) Bruynseels              Robert (R) East                               Robert (R R) Emslie
    BCom (Hons), FFA                          BA (Hons), MBA, DipFS, ACIB            ACIB, DipFS                                 BCom (Hons), CA(SA)
     Appointed 1995                                 Appointed 2005                  Appointed 2005                                  Appointed 1987

ABSA INVESTMENTS                              ABSA AFRICA                    IMPLEMENTATION                                  ABSA CORPORATE AND
Managing executive                            Managing director              (INTEGRATION)                                   BUSINESS BANK
Alan (A J) Miller                             Dana (D) Botha
BEconSc, BSc (Hons), FIA, CFA                 BCom, BCompt (Hons), MBL       GROUP CREDIT                                    ABSA REAL ESTATE ASSET
Appointed 2005                                Appointed 1989                 Group executive                                 MANAGEMENT AND ABSA
ABSA INSURANCE SERVICES                                                      Keiran (K P) Foad                               DEVELOPMENT COMPANY
Managing executive                                                           ACIB                                            HOLDINGS (PROPRIETARY) LIMITED
Coenraad (C F) de Jager                                                      Appointed 2006                                  Managing executive
BSc, FIA, CFP                                                                CHIEF OPERATING OFFICER: RISK                   Sipho (S) Mashinini
Appointed 1985                                                               Chief operating officer                          MBA, Dip Project, Financial and
                                                                             Eddie (E) Swanepoel                             Marketing Management, Cert Property
ABSA FIDUCIARY SERVICES                                                                                                      Development and Management
Managing executive                                                           BCom (Acc)
                                                                             Appointed 1989                                  Appointed 2004
Johann (M J) Grobler
BSc, MBL, CFP                                                                OPERATIONAL RISK
Appointed 1985                                                               General manager
ABSA BROKERS                                                                 Anne-Marie (A) Pothas
(PROPRIETARY) LIMITED                                                        PhD (Operational research)
Executive director                                                           Appointed 2001
Deon (D) Olckers                                                             GROUP COMPLIANCE
CA(SA), LLB                                                                  Group compliance officer
Appointed 2000                                                               Maadian (M) Botha
                                                                             BLC, LLB, LLM, MBA, Attorney of the High
                                                                             Court (SA)
                                                                             Appointed 2000
116
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            31 December 2006
                                        ]             Group Executive Committee



            Reporting structure as at May 2007                                                                                             GROUP CHIEF EXECUTIVE
                                                                                                                                             Steve (S F) Booysen
                                                                                                                                             DCom (Acc), CA(SA)
                                                                                                                                               Appointed 1989




            CHIEF EXECUTIVE:                              CHIEF EXECUTIVE:                                GROUP CHIEF                             GROUP FINANCIAL
             ABSA CAPITAL                                    RETAIL BANK                               OPERATING OFFICER                              DIRECTOR
             John (J F) Vitalo                           Louis (L L) von Zeuner                         Peter (N P) Mageza                     Jacques (J H) Schindehütte
                  BSBA                                           BEcon                                         ACCA                          BCom (Hons), CA(SA), HDip Tax
             Appointed 2005                                 Appointed 1981                               Appointed 2000                             Appointed 1999

      CHIEF OPERATING OFFICER                             EXECUTIVE DIRECTOR                        GROUP STRATEGY AND PLANNING              GROUP ECONOMIC RESEARCH
      Ian (I J) Axe                                        Zarina (Z B M) Bassa                     Head: Group Strategy and Planning        Group economist
      BEng (Hons), MSc, MBA                                BAcc (Hons), CA(SA)                      Vacant                                   Christo (C W) Luüs
      Appointed 2006                                         Appointed 2002                         GROUP OPERATIONS                         BCom (Hons), MBL, FIFM
      TRADING (SECONDARY MARKETS)                                                                   Group executive                          Appointed 1985
      Head: Trading                                      WEALTH SOLUTIONS                           Hendrik (H R B) Opperman                 GROUP INVESTOR RELATIONS
      Michael (R A) Bagguley                             Senior executive                           BCom (Hons), CA(SA)                      General manager
      FIA, BSc (Hons)                                    Ian (I W) Henstock                         Appointed 1996                           Jacques (J C) Badenhorst
      Appointed 2006                                     BCompt (Hons), CA(SA), MBA, HDip Tax Law   GROUP INFORMATION TECHNOLOGY             CA(SA)
      EQUITY INVESTMENTS                                 Appointed 2004                             Chief information officer                 Appointed 2006
      Head: Equity Investments and Special Projects      ABSA PRIVATE BANK                          Frik (F P) van der Merwe                 GROUP FINANCE
      André (A B) la Grange                              Senior executive                           Dip Business Management, Project         Group executive
      MCom                                               Hlengani (H) Mathebula                     Management                               Eric (E) Wasserman
      Appointed 2000                                     BA, BTh (Hons), MDP, SEP, Dip Marketing    Appointed 1994                           BCom (Hons), CA(SA)
      INVESTMENT BANKING                                 Appointed 2005                             GROUP CHANGE AND SUPPORT                 Appointed 2000
      Acting head: Investment Banking                    ABSA PRIVATE BANK                          SERVICES                                 ABSA LEGAL
      André (A B) la Grange                              Chief operating officer                     Group executive                          Group general counsel
      MCom                                               Johannes (J) Binnekade                     Leon (L) du Rand                         Johannes (J P) Gouws
      Appointed 2000                                     BCompt (Hons), CA(SA)                      BA (Hons), MCom                          BLC, LLB
      CHIEF FINANCIAL OFFICER                            Appointed 1989                             Appointed 1987                           Appointed 2007
      Charles (C J) Russon                               ABSA ISLAMIC BANKING                         INFORMATION MANAGEMENT                 GROUP SECRETARIAT
      BCom, CA(SA)                                       Managing director                            Group executive                        Group secretary
      Appointed 2006                                     Ahmed (A O) Moola                            Premlin (P) Pillay (acting)            William (W R) Somerville
      EMPOWERMENT                                        CA(SA)                                       BSc (Hons), MBA                        ACIS, ACMA, Dip Corp Law
      Head: Empowerment                                  Appointed 2006                               Appointed 2004                         Appointed 1990
      George (J G) Sebulela                                                                         GROUP CHIEF OPERATING OFFICER:           CORPORATE DEVELOPMENT
      BA (Comm), AMP, LDP, PGrd Dip Marketing             EXECUTIVE DIRECTOR                        SUPPORT                                  General manager
      Appointed 2004                                        Venete (V J) Klein*                     Chief of staff                           Shaun (S) Strydom
      SALES (SECONDARY MARKETS)                            Executive programme                      Emile (E) Burger                         CA(SA), HDip Strategic Management
      Head: Sales                                            Appointed 2003                         BCom (Hons), ACMA, MBA                   Appointed 2006
      Andrew (A C) Selby                                                                            Appointed 1997                           GROUP TREASURY
      BCom, PGDA, CA(SA)                                 CUSTOMER MARKETING AND                     GROUP COMMUNICATION AND PUBLIC           Group treasurer
      Appointed 2006                                     SOLUTIONING                                RELATIONS                                Carel (C F) Grönum
                                                         Managing executive                         Group executive                          BCom (Hons)
      PRIMARY MARKETS                                    Arrie (A) Rautenbach
      Head: Primary Markets                                                                         Makhosini (H) Nkosi                      Appointed 1993
                                                         BBA, MBA, AMP (Insead)                     NED
      Stephen (S J) van Coller                           Appointed 1997                                                                      PRODUCTIVITY AND EFFICIENCY
      CA(SA), ACMA, BCom (Hons)                                                                     Appointed 2007                           PROGRAMME
      Appointed 2006                                     SALES AND SERVICE                          GROUP HUMAN RESOURCES                    General manager
                                                         Managing executive                         Group HR director                        Dirk (D J) Reyneke
                                                         Pierre (J P) Loubser                       Lawrence (L B) Mlotshwa                  BCom (Hons), CA(SA), Advanced Dip
                                                         BCom, MBA                                  BA, HEd, MBA                             Banking
                                                         Appointed 1989                             Appointed 2003                           Appointed 2005
                                                         ALLPAY CONSOLIDATED INVESTMENT             GROUP BLACK ECONOMIC
                                                         HOLDINGS (PROPRIETARY) LIMITED             EMPOWERMENT, GOVERNMENT
                                                         Managing executive                         RELATIONS AND CORPORATE
                                                         Thandeka (T M) Mbabama                     SOCIAL INVESTMENT
                                                         DPhil                                      Group executive
                                                         Appointed 2007                             Riah (M V) Phiyega
                                                                                                    MA, PGrd Dip Business Administration
                                                          EXECUTIVE DIRECTOR                        Appointed 2005
                                                             Alfie (V) Naidoo*
                                                                   BSc                              GROUP SOURCING AND SUPPORT
                                                             Appointed 2001                         SERVICES
                                                                                                    Chief procurement officer
                                                                                                    Ian (I M) Russell
                                                         SMALL BUSINESS                             BSc (Econ), MBA, FCIPS
                                                         Managing executive                         Appointed 2005
                                                         Daphne (D R) Motsepe
      ABSA HOME LOANS                                    BCompt, MBA                                GROUP PAYMENT SYSTEMS
      Managing executive                                 Appointed 2005                             General manager
      Gavin (G R) Opperman                                                                          Walter (W V) Volker
      CAIB (SA), LLB (SA), Dip Marketing                 MICRO-LENDING                              BSc, MBL
      Appointed 1994                                     Head: Micro-Lending                        Appointed 1990
                                                         Lawrence (L K) Twigg
      ABSA CARD                                          BA
      Managing executive                                 Appointed 2006
      Chris (C) Sweeney
      BSc (Hons)                                         VENTURES AND ALLIANCES
      Appointed 2005                                     Managing executive
                                                         Simon (S W) Just
      GROUP MARKETING                                    BBA
      Group executive                                    Appointed 2003
      Happy (H) Ntshingila
      BA (Comm), Dip Labour Law                          DIGITAL CHANNELS
      Appointed 2006                                     Managing executive
                                                         Christo (C J) Vrey
      ABSA VEHICLE AND ASSET FINANCE                     HEd
      Managing executive                                 Appointed 1994
      Marcel (M N) de Klerk
      BSc (Hons), BCom, MBL                              ABSA CONTACT CENTRE
      Appointed 1995                                     Senior specialist
                                                         Andy (A J) Rigg
      PERSONAL BANK                                      Dip Management Studies, MBA, Harvard
      Chief operating officer                             Executive Programme
      Johan (F J) Geldenhuys                             Appointed 2007
      BCom (Hons)
      Appointed 1985




            *Structure operationalised in the second half of 2007.
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                                INTERNAL AUDIT
                                Chief internal auditor
                                Friedel (F) Meisenholl
                                BAcc (Hons), CA(SA)
                                Appointed 1993


   CHIEF EXECUTIVE:                               CHIEF EXECUTIVE:                   GROUP RISK                                 CHIEF EXECUTIVE:
ABSA FINANCIAL SERVICES                          ABSA AFRICA GROUP                    DIRECTOR                          ABSA CORPORATE AND BUSINESS BANK
   Willie (W T) Lategan                         Dominic (D) Bruynseels              Robert (R) East                             Robert (R R) Emslie
    BCom (Hons), FFA                          BA (Hons), MBA, DipFS, ACIB            ACIB, DipFS                               BCom (Hons), CA(SA)
     Appointed 1995                                 Appointed 2005                  Appointed 2005                                Appointed 1987

ABSA INVESTMENTS                             ABSA AFRICA                     IMPLEMENTATION                                  ABSA CORPORATE AND
Managing executive                           Managing director               (INTEGRATION)                                   BUSINESS BANK
Alan (A J) Miller                            Dana (D) Botha
BEconSc, BSc (Hons), FIA, CFA                BCom, BCompt (Hons), MBL        GROUP CREDIT                                      SEGMENTS AND MARKETING
Appointed 2005                               Appointed 1989                  Group executive                                   James (J L) Slabbert
ABSA INSURANCE SERVICES                                                      Keiran (K P) Foad                                 BCompt (Hons), CA(SA)
Managing executive                                                           ACIB                                              Appointed 2005
Coenraad (C F) de Jager                                                      Appointed 2006                                    CHIEF OPERATING OFFICER
BSc, FIA, CFP                                                                CHIEF OPERATING OFFICER: RISK                     Trix (G M B) Coetzer
Appointed 1985                                                               Chief operating officer                            CA(SA)
ABSA FIDUCIARY SERVICES                                                      Eddie (E) Swanepoel                               Appointed 2004
Managing executive                                                           BCom (Acc)                                        PRODUCTS AND SECTORS
Johann (M J) Grobler                                                         Appointed 1989                                    General manager
BSc, MBL, CFP                                                                OPERATIONAL RISK                                  Gavin (G) Clark
Appointed 1985                                                               General manager                                   IOB, AEP
ABSA BROKERS                                                                 Anne-Marie (A) Pothas                             Appointed 1988
(PROPRIETARY) LIMITED                                                        PhD (Operational research)                        COMMERCIAL PROPERTY
Executive director                                                           Appointed 2001                                    FINANCE
Deon (D) Olckers                                                             GROUP COMPLIANCE                                  General manager
CA(SA), LLB                                                                  Group compliance officer                           Rob (R D) Jeffery
Appointed 2000                                                               Maadian (M) Botha                                 MBA
                                                                             BLC, LLB, LLM, MBA, Attorney of the High          Appointed 2000
                                                                             Court (SA)
                                                                             Appointed 2000                                  ABSA REAL ESTATE ASSET
                                                                                                                             MANAGEMENT AND ABSA
                                                                                                                             DEVELOPMENT COMPANY
                                                                                                                             HOLDINGS (PROPRIETARY) LIMITED
                                                                                                                             Managing executive
                                                                                                                             Sipho (S) Mashinini
                                                                                                                             MBA, Dip Project, Financial and
                                                                                                                             Marketing Management, Cert Property
                                                                                                                             Development and Management
                                                                                                                             Appointed 2004
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          Introduction
          Risk management is a core capability of the Absa Group and is integral to the execution of its business activities. It is
          also integral to evaluating strategic alternatives and setting objectives that are aligned with the Group’s strategy.

          Risk management is fundamental to Absa’s business and plays a crucial role in enabling management to operate more
          effectively in an uncertain environment.

          Absa adopts the following approach to risk management:

          • All significant risks must be identified and managed. These risks are identified in the Principal Risks Policy, which
            is approved by the board. This policy is the successor to the Board Governance Standards, which were adopted
            in 2005.

          • A five-step risk management process (direct, assess, control, report, manage/challenge) is adopted throughout
            the Group.




           isk
          R management highlights and developments
          • Development and implementation of appropriate Basel ll-compliant risk management processes in preparation for
            implementation in 2008.

          • Training and creating awareness in the Group of various risk topics, such as Basel II, the National Credit Act and
            money laundering control.

          • Enhancement of the decentralised risk management structures (divisional risk governance and control
            committees).

          • Alignment with and integration of the Barclays risk management practices.

          • Development and roll-out of the Absa employee compliance conduct guide.

          • Entrenchment of requirements in respect of the Financial Intelligence Centre Act (FICA) and anti-money laundering
            and terrorist financing legislation.




          Looking ahead
          • Finalisation of the Basel ll implementation (including Banks Act amendments and new regulations), compliance and
            training for parallel implementation in late 2007.

          • Ensuring that risk-reward applications based on Basel ll requirements are further entrenched throughout the Group.

          • Ongoing alignment with the Barclays risk management frameworks and methodologies.

          • Continued expansion of capabilities relating to FICA and financial sanctions regulatory obligations.
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Risk management fundamentals
Risk management in Absa is guided by several concepts, the most important of which are:

• assigning appropriate responsibility and accountability for all risks and resulting returns;

• adopting a framework for integrated risk management that applies across all businesses and all risk types, which
  includes comprehensive risk identification, assessment, response, control and reporting;

• formal risk governance processes;

• an independent risk management function; and

• protecting the Group’s reputation.

A description of each element is set out on the pages that follow.

Responsibility and accountability
The responsibility for risk management resides at various levels, from members of the board to individuals throughout
the Group, and is governed by a board-approved principal risks type policy. Associated risk management control
frameworks and policies are established on a comprehensive, organisation-wide basis by senior management and
reviewed with and, where appropriate, approved by, the board of directors.

The control frameworks, policies, appetites and tolerances are clearly communicated throughout the Group and apply
to all business units in the various divisions, wholly owned subsidiaries, as well as non-wholly owned subsidiaries and
majority equity stakes over which the Group has management control.

Board and executive management responsibility

The Absa Group board is responsible for annually approving the Group’s risk appetite. This risk appetite is translated
into risk limits per business unit and per risk type. Adherence to these limits is monitored and reported monthly and
culminates in a risk-reward profile for the Group. Details on the risk appetite methodology are provided further on in
this report.

Risk appetite does not specifically address all types of operational risk, inadequate corporate governance processes,
reputation risk and long-term strategic risk. These risks are addressed in the Group’s risk management framework.

Business unit/subsidiary accountability

Business units/subsidiaries are accountable for managing the risks associated with their activities within established
and approved tolerance limits, as well as for the results, both positive and negative, of taking those risks. In discharging
this responsibility, business units are assisted by Absa’s independent risk management division (Absa Risk). Oversight
is provided by the divisional risk, governance and control committees (DRG&CCs).

Framework for integrated risk management
Absa’s risk management framework is effective, comprehensive, consistent and formally approved.

All risks are qualitatively evaluated on a recurrent basis and, wherever practical, the evaluation includes quantitative
analysis. Risk assessments consider the effects of both likely and unlikely events.

Integrated, structured risk assessments take place across all risk types and businesses in accordance with the
established risk management framework. A five-step process of directing, assessing, controlling, reporting and
managing/challenging is followed. Monitoring is done through ongoing processes built into the normal, recurring
operating activities of the Group, as well as internal and external audit recommendations. All risks are comprehensively
and regularly reported across the Group.
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          Risk governance
          Risk governance refers to the approach that balances the demands for entrepreneurship, control and transparency,
          while supporting the Group’s objectives with an efficient decision-making process. Formal risk governance processes
          are established in Absa. The management of risk in the Group is guided and monitored by a number of committees.

          Risk governance structure

          The main elements of the Group’s risk governance structure are shown below:




                                   Board                                            Absa Group board



          Board-appointed committees                           Group Risk        Group chief executive and         Group Audit and Compliance
                                                               Committee             Group Executive                   Committee (GACC)
                                                                 (GRC)           Committee (Group Exco)



                  Group Exco risk-type          Credit Risk        Market Risk
                          committees            Committee          Committee        Operational Risk
                                                  (CRC)              (GRC)          Committee (ORC)


            Group Exco subcommittee                                              Group Governance and Control Committee (GGCC)



                                             Absa Financial
           Divisional risk, governance       Services Risk
              and control committees                                                                   Absa Corporate       Personal and        Central Support
                                            Governance and     Absa Capital        Absa Africa          and Business       Private Banking        Functions
                            (DRG&CCs)      Control Committee     RG&CC              RG&CC               Bank RG&CC             RG&CC               RG&CC
                                               (RG&CC)




                 Other Group oversight                                                                       Brand and             Group
                                                                   Group Tax       Group Investment          Reputation          Valuation             Group Change
                           committees                              Committee          Committee              Committee           Committee              Committee




           isk
          R governance refers to the approach that
          balances the demands for entrepreneurship,
          control and transparency, while supporting
          the Group’s objectives with an efficient
          decision-making process.
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The most influential role-players in the risk management framework (as indicated in the governance structure) and
their responsibilities are:

Absa Group board and board committees
Information on Absa’s board and its various committees can be found in the corporate governance statement on
page 65 of this report.

Group chief executive
The Group chief executive is appointed by the Absa Group board to manage, with the assistance of Group Exco, the
Group’s business within an acceptable risk profile and to achieve sustainable profits. The main responsibilities of the
Group chief executive and Group Exco with regard to risk include:
• overseeing all risk processes at an executive level;
• monitoring the management of all risks within acceptable qualitative and quantitative risk profiles;
• ensuring that appropriate internal controls are in place by developing and providing a strong control environment;
• ensuring that risk management policies are approved and implemented from a Group and business unit
  perspective;
• ensuring that information and reporting systems pertaining to risk management and control are adequate, accurate
  and effective;
• ensuring that risk is taken into account in long-term plans and investments; and
• regularly reporting on risk to the board.

Group Governance and Control Committee (GGCC)
The GGCC is a Group Exco committee established during the year to assist Group Exco and the GACC through
oversight of the design and operation of the internal control framework in Absa. The committee meets quarterly and is
responsible for the design and operation of the Group control framework, communication of the framework and its
contents, independent assurance and escalation of issues. The GGCC reviews control issues escalated from the
divisional risk governance and control committees (DRG&CCs) incorporated in the control issues of Group significance
(CIGLS) report.

Divisional/subsidiary risk, governance and control committees (DRG&CCs)
DRG&CCs were established by the Group chief executive to assist Group Exco, the Group Audit and Compliance
Committee (GACC) and the Group Risk Committee (GRC) to discharge their responsibilities from a business unit
perspective. It is the responsibility of Absa Risk to assist business unit heads with the effective functioning of the
divisional/subsidiary risk governance structures in accordance with Absa’s risk management framework.

Management risk-type committees
The Credit Risk Committee (CRC), Market Risk Committee (MRC) and Operational Risk Committee (ORC) are
committees established by Group Exco to manage the credit, market and operational risk-reward profiles of the Absa
Group. The committees convene monthly with the overall objective of aligning developments in the three risk areas
with the requirements of Basel II and ensuring that the risk-reward profile supports the overall risk appetite of the Group
(including all business units and subsidiaries that are controlled by Absa) in an integrated way.

Other oversight committees
The Group has established a number of committees with oversight of specialised areas such as investments, taxation,
and valuations in the life insurance business. The committees convene either monthly or quarterly.

Specialist functions and shared services
Absa’s operating model is designed to obtain maximum operational efficiency from a number of shared services in the
Group. Specialist functions, aided by specialist committees, assist with risk management, including strategic investment
activities, in the Group. These are conducted according to clear governance guidelines.
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          The main functions with specialised knowledge are listed below:

          Function                                                   Risk management areas supported
          Absa Capital: Market Risk                                  Traded market risk in Absa Capital
          Absa Internal Audit                                        Internal audit assurance and advisory
          Group Strategy and Planning                                Strategic risk
          Absa Risk                                                  Credit risk, market risk, operational risk, strategic
                                                                     investment risk, economic capital and forensic services
          Group Operations                                           Maintenance of an effective control environment;
                                                                     operational risk pertaining to processes
          Group Communication and Public Relations                   Reputation risk
          Group Compliance                                           Regulatory compliance and anti-money laundering
                                                                     monitoring
          Group Economic Research                                    Financial risk
          Group Finance                                              Accounting, tax and compliance risk
          Group Information Technology and Information               Technology and information risk; operational risk
          Management                                                 pertaining to systems
          Group Investor Relations                                   Reputation and compliance risk
          Absa Legal                                                 Legal risk and compliance risk
          Group Marketing                                            Reputation risk
          Group Secretariat                                          Compliance and governance risk
          Group Sourcing and Support Services                        Operational risk pertaining to sourcing and
                                                                     logistical processes
          Group Treasury                                             Asset and liability market risk, liquidity risk and capital
                                                                     management
          Group Human Resources                                      Operational risk pertaining to people
          Real Estate Asset Management (REAM)                        Valuation and recovery of physical security, operational
                                                                     risk pertaining to external events
          Retail Delivery                                            Operational risk pertaining to processes
          Absa Life, Absa Insurance Company and Absa                 Underwriting and investment risk
          Manx Holdings


          Independent risk function
          Absa Risk is an independent specialist function accountable to the Group Risk Committee (GRC), and in certain areas
          to the Group Audit and Compliance Committee (GACC). The activities of this division are evaluated and governed by
          the Group chief executive through the effective functioning of the Credit Risk Committee (CRC), Market Risk Committee
          (MRC), Operational Risk Committee (ORC) and the divisional/subsidiary risk, governance and control committees
          (DRG&CCs).
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The risk division is responsible for ensuring that an integrated and effective risk management framework is maintained
throughout the Group. To discharge this role as efficiently and effectively as possible, Absa Risk relies on other role-
players in the risk governance structures such as those reflected in the preceding table.

Absa Risk comprises a number of specialist risk management areas, chiefly credit, market, operational, insurance and
investment risk, as well as compliance and forensic services functions.

External validations of Absa Risk and the Group’s risk management frameworks are performed by independent
external parties.

Protecting the Group’s reputation
A strong corporate reputation is an invaluable asset to a financial services institution. Absa recognises the benefit of
maintaining and improving its corporate reputation at all times.

By managing and controlling the risks incurred in the course of business, the Group protects its reputation. This entails
avoiding large concentrations of exposures of all kinds, as well as transactions that are sensitive for tax, legal,
regulatory, social, environmental or accounting reasons.

A cautious approach is adopted towards other risks that cannot be sensibly evaluated or priced. Absa aspires to the
highest standards in protecting the confidentiality and integrity of customer information, and aims to maintain the
highest ethical standards in all business dealings. Protecting the Group’s reputation must be an overriding concern of
each employee, particularly those involved in risk decisions.


Risk management and control

Internal control framework
Absa’s internal control framework is aligned with the internationally accepted standard “Internal Control – Integrated
Framework” published by the Committee of Sponsoring Organisations of the Treadway Commission (COSO). The
Group’s principal risk categories (set out below) are the subject of board-approved risk control requirements.
• Brand management
• Capital
• Corporate responsibility
• Financial crime
• Financial reporting
• Insurance underwriting and
  investment
• Legal
• Liquidity
• Major change
• Market
• Operations
• People
• Regulatory compliance
• Retail credit
• Strategic
• Taxation
• Technology
• Wholesale credit
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          Risk management responsibilities
          Absa applies a five-step approach to risk management, as follows:

          Direct

          • Understand the principal risks to achieving the Group’s strategy.

          • Establish the risk appetite.

          • Establish and communicate the risk management framework including responsibilities, authorities and key controls.

          Assess

          • Establish the process for identifying and analysing business-level risks.

          • Agree and implement measurement and reporting standards and methodologies.

          Control

          • Establish key control processes and practices, including limit structures, provisioning criteria and reporting
            requirements.

          • Monitor the operation of the controls and adherence to risk direction and limits.

          • Provide early warning of control or appetite breaches.

          • Ensure that risk management practices and conditions are appropriate for the business environment.

          Report

          • Interpret and report on risk exposures, concentrations and risk-taking outcomes.

          • Interpret and report on sensitivities and key risk indicators.

          • Communicate with external parties.

          Manage and challenge

          • Review and challenge all aspects of the Group’s risk profile.

          • Assess new risk-return opportunities.

          • Advise on optimising the Group’s risk profile.

          • Review and challenge risk management practices.

          Risk appetite
          Risk appetite is the Group’s chosen method of balancing return and risks, recognising a range of possible outcomes,
          as business plans are implemented. Absa’s framework, approved by the Group Risk Committee (GRC), uses a formal,
          quantitative method based on advanced risk analysis. The risk appetite is set annually by the Absa Group board.

          Risk appetite methodology

          In 2006, Absa aligned its measurement methodologies with those of Barclays and reported on risk appetite to the GRC,
          using both methodologies during the year.

          Absa previously used a one-year horizon for setting risk appetite that incorporated all business units and all risk types
          at a selected confidence limit. As part of the alignment with Barclays methodology, this approach was enhanced by
          the introduction of additional confidence limits and economic capital measurement. The measurement methodologies
          of all the risk types were individually assessed and aligned where necessary. The aligned measurement was then
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incorporated into the risk appetite setting and monitoring process to ensure a coherent and comprehensive assessment
of the Group’s use of risk appetite.

The objectives of the risk appetite framework are to:

• help protect the Group’s performance;

• enable unused risk capacity to be identified and thus profitable opportunities to be highlighted;

• improve management confidence and debate regarding the Group’s risk profile; and

• help executive management improve control and coordination of risk-taking across businesses.

The risk appetite framework considers credit, market, operational and insurance underwriting risk and is applied using
two perspectives: “earnings volatility” and “mandate and scale”.

Earnings volatility

This takes account of the potential volatility around Absa’s forecast financial performance each year, with appetite
being set in the context of strategic objectives, including dividend sustainability and preservation of Absa’s rating in
stress environments. The portfolio is analysed in this way at four representative levels:

• Expected performance (including the average credit losses, based on measurements over many years).

• A moderate stress level of loss that is likely to occur only infrequently and is meant to correspond to a macroeconomic
  cycle.

• A severe stress which is much less likely.

• An extreme but highly improbable level of stressed loss, which is used to determine the Group’s economic capital.

These ascending but increasingly less likely levels of loss are illustrated in the following chart:

                                                Risk appetite concepts (diagram not to scale)


                                                Expected
                                                  (Mean)
                       Probability of loss




                                                        Moderate stress


                                                            Severe stress



                                                                                     Extreme stress



                                               Risk                   Economic capital
                                             tendency
                                                        Potential size of loss in one year

Mandate and scale

This second perspective enables the setting of limits to control unacceptable levels of loss that may arise as a result
of portfolio concentration. Absa’s objective is to keep unexpected losses within the scope of its communicated strategy
and to a scale that is appropriate for the Group. This perspective uses simple, descriptive measures and limits for
relevant exposure types.
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          Overall, the risk appetite framework provides a basis for the allocation of risk capacity to each business. Since the level
          of loss at each level of probability is dependent on the portfolio of exposures in each business, the statistical measurement
          for each key risk category gives the Group clearer sight and better control of risk-taking throughout the enterprise.

          The risk appetite framework is designed to be:
          • simple and practical, to apply through the measurement and monitoring of exposures;
          • geared to risk-return, where capacity is directly related to opportunity;
          • based on a top-down capacity for earnings volatility;
          • based on the bottom-up identification of risk factors in each business;
          • relevant, recognising the impact and likelihood of losses; and
          • aggregated across businesses where appropriate.

          Stress testing

          The risk appetite numbers are validated by estimating the Group sensitivity to macroeconomic events using stress
          testing and scenario analysis. Changes in certain macroeconomic variables represent environmental stresses that
          may reveal systemic credit and market risk sensitivities in Absa’s retail and wholesale portfolios.

          More complex scenarios, such as recessions, can be represented by combinations of variables. These scenarios allow
          senior management to gain a better understanding of how the Group is likely to react to changing economic and
          geopolitical conditions. The stress test simulates the balance sheet and profit and loss effects of stresses across the
          Group, investigating the impact on profits and the ability to maintain appropriate capital ratios. Insights gained are fully
          integrated into the management process and the risk appetite framework. These analyses and insights, supported
          by the close involvement of management, also provide the basis for fulfilling the stress testing requirements of the
          Basel II Accord (Basel ll).

          Absa estimates the capital needed to survive an extreme but highly improbable level of stressed loss. The calculation
          is based on the historical volatility of losses. Capitalisation occurs to a level sufficient to provide a high level of confidence
          in the Group, with the level of confidence consistent with the Group’s A rating (international) and AA rating (domestic).

          Capital and performance measurement

          A common approach to assessing the creation of shareholder value is applied across the Group. This is measured by
          value added (the profit attributable to shareholders, less a notional charge, calculated at a risk-adjusted rate, for the
                                                                                                  equity invested in the business). The
                                                                                                  focus on value added allows the Group
                                                                                                  to compare the returns being made on
                                                                                                  capital employed in each business.

                                                                                                  The use of risk capital and regulatory
                                                                                                  capital with greater risk sensitivity is
          Absa manages both its economic capital                                                  closely monitored at business and

          supply and demand for economic capital to                                               Group levels.

                                                                                                  The Group’s risk capital model covers
          optimise capital efficiency.                                                            credit, market, operational, insurance
                                                                                                  and business risks.
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The application of economic capital

Absa manages both its economic capital supply and demand for economic capital to optimise capital efficiency.

The Group assesses the internal demand for capital using the proprietary economic capital methodology developed
and refined by Barclays over more than a decade. Economic capital is estimated primarily for credit, market and
operational risk as well as insurance risk, risk associated with fixed assets, and risk in private equity investments. The
Group computes and assigns economic capital by risk type to all operating units. This enables the Group to apply a
common, consistent and additive metric to ensure that returns throughout the Group are commensurate with the
associated risks. An asset attracts the same cost of capital wherever it is acquired across the Group, although
management may target differential hurdle rates, which are appropriate for the use of capital.

The embedding of economic capital in the management culture of the Group via risk-adjusted performance
management (for instance, economic profit), effective targeting of resources to value-creating areas, pricing tools,
compensation and remuneration schemes is integral to the risk appetite framework and will be a focus area in Absa
during 2007. The economic capital framework will be an important part of the Group’s implementation of Basel II.

Principal risk types
The main risk type categories are: capital management, credit risk, market risk, liquidity risk, operational risk and
insurance underwriting risk. The financial risks and the processes to manage them are described in detail in the
financial risk report, which appears on pages 478 to 498 of this report. A summary of the main aspects follows.

Absa managed its risks effectively throughout the financial year, resulting in all the risk profiles being within the
approved risk appetite and tolerance limits. All risk profiles were also regarded as acceptable to support the financial
objectives of the Group.

Capital management

Overview

Effective capital management ensures that Absa has sufficient capital resources to:
• meet regulatory capital requirements in South Africa and in other markets where regulated business activities are
  undertaken;
• support its organic growth and strategic actions; and
• support its external credit rating.

Absa has adopted a centralised capital management model to mitigate capital risk, which considers both regulatory
and economic capital. The ongoing capital management activities maximise shareholder value by optimising both the
level and mix of capital resources to:
• meet the individual capital ratios required by regulators as well as to provide a prudent buffer;
• maintain a strong credit rating;
• generate sufficient capital to support organic asset growth; and
• make decisions on the allocation of capital resources as part of the strategic and financial planning review, taking
  into consideration the return on economic and regulatory capital.
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                               ]      Risk management report



          Governance and risk framework

          Capital is managed as a board level priority in Absa. The board is responsible for assessing and approving capital
          management policy, capital target levels, capital strategy and risk-based capital allocation in the Group.

          Capital activities include managing the capital required for organic growth and strategic actions, as well as optimising
          the Group capital structure within approved target levels. The target levels are set to provide the Group with adequate
          buffers for unforeseen changes to balance sheet growth, economic market conditions as well as pending regulatory
          changes pertaining to the proposed new regulations under Basel II.

          A dedicated capital management team has been deployed to support the board in executing these responsibilities.
          This team operates synergistically with the Group economic capital team in Absa Risk, which is an essential element
          of the internal capital adequacy assessment process (ICAAP) and presents regular capital reports to the Market Risk
          Committee, Group Exco and the board. Risk oversight of the capital management function is provided by the Market
          Risk Committee. The Basel II ICAAP programme is being driven by the capital management team as a component of
          the wider Basel II implementation programme in Absa. The key building blocks of Absa’s ICAAP can be illustrated
          as follows:


                                                               Governance




                                                            p
                                                                                Risk identification and
                                      Strategy and risk                             measurement
                                       appetite setting                         (including economic)
                                                                            p
                               p




                                                                p
                                   Monitoring, management                        Financial and capital
                                     and communication                            adequacy planning




                                                    Data, IT and model infrastructure



          There is a capital management framework to provide effective capital planning, capital market executions, Basel II
          alignment as well as effective capital allocation in the Group based on Basel II requirements, economic capital
          utilisation and risk-adjusted performance measurement criteria.
                                                                        Risk management report
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                                                                                                                             Stakeholder report
                                                                                                                             31 December 2006
                                                                                                                                                               ]   129




The following diagram illustrates the process Absa follows to ensure end-to-end integration of the Group’s strategy,
risk management and financial processes into the capital management process. The purpose is to ensure that capital
consumption in the business divisions has an impact on performance measurement, which in turn translates into
management performance assessment and product pricing requirements and achievement of the overall strategy
within the risk appetite.

                                                              Capital management process



                                                                        Forecast



                                                                p


                                                                      p
                       Capital transactions                                                    Regulatory capital




                                                                                                                                          Capital management
                       • Retained profit.                                                      • Calculation of Basel II Pillar 1




                                                                             p
                       • Assess capital supply options                                          capital requirements.
                                                                                               • Review and challenge of Pillar 1
      Capital supply




                         given market demand.
                       • Equity and other capital issuance,                                      requirements.
                         including refinancing of existing                                     Economic capital
                                                                   Risk                        • Review and challenge business
                         capital transactions.                    appetite
                       • Share buy-backs/special                                    Group        unit demands for economic capital.
                         dividends.                                                strategy    • Calculation of Group economic
                       • Dividends from subsidiaries.                                            capital.
                       • Optimise capital mix from a cost                                         – Assess adequacy of Pillar 1
                         perspective.                                                               risks.
                                                                                                  – Capital buffer calculation.
                                                                    p


                                                               Stress and scenario testing




                                                                  Capital management

                                     • Assess impact of financial planning on capital supply.
                                     • Management of capital in/out of subsidiaries.
                                     • Establish limits for capital demand (such as risk-weighted assets).
                                     • Manage structure of capital base in line with capital ratio targets.
                                     • Set target ratios to meet internal buffer and external expectations
                                       (regulator/agencies).
                                     • Propose capital transaction plans, including insurance, securitisations and
                                       share buy-backs.



Capital deployment (allocation and utilisation)

Economic capital is allocated across all Absa’s businesses and risk activities. Economic capital allocations reflect
varying levels of risk. The economic capital framework covers not only Basel II Pillar 1 risks but also risks not
adequately covered under Pillar 1 and risks not covered under Pillar 1. Economic capital forms the basis of the Group’s
internal capital adequacy process, and has been covered in more detail in a previous section of this report.

Capital adequacy and value creation

Enhancement for effective gearing over the period

The Group’s capital management activities maximise shareholder value by optimising the level and mix of its capital
resources. These activities mitigate the risk of insufficient capital by:
• ensuring access to a broad range of investor markets;
• maintaining a strong credit rating by ensuring robust capital resources, together with a diverse portfolio of activities,
  consistent profit performance, prudent risk management and a focus on value creation; and
• managing the Group’s demand for capital.
130
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                                      ]    Risk management report



          The effective leveraging of capital enhances returns and creates shareholder value, and results from the growing and
          efficient leveraging of the customer base at optimum gearing, given the cost of equity. The Group’s ratios, composition
          and cost of capital are managed to ensure that entities are adequately capitalised, that dividend payout ratios are
          appropriate to sustain required levels of risk-weighted asset growth in terms of the Group’s strategy, and that the
          Group’s capital structure is optimal in view of approved target capital ratios.

          The management of the capital base includes the management of the following components of capital across the Group:
          • Ordinary shareholders’ equity.
          • Preference shares.
          • Accounting reserves impacting capital.
          • Subordinated debt instruments.
          • The development of hybrids (Basel II).

          During the period under review, Absa issued a tier II bond (AB06) to enhance its capital structure. The principal amount
          of the bond was R2 billion, with a final legal maturity date of 27 March 2020 and an optional call in 27 March 2015.
          The issue spread for the bond was 68,5 basis points above the R157 government bond. Absa Bank also issued
          R3 billion in non-cumulative, non-redeemable preference shares during the period under review. These preference
          shares were issued with a coupon rate of 63% of the prime overdraft lending rate and were listed on the JSE Limited
          on 25 April 2006.

          In February 2006, the Absa Group board authorised a R20 billion securitisation programme for Absa Bank. In
          September 2006, Absa Bank entered the first series of the programme by securitising R2 billion of its vehicle finance
          receivables portfolio.

          RWA growth relative to total assets

          During the twelve months ended 31 December 2006, Absa Bank Limited’s risk-weighted assets grew by less than total
          assets at 23,6% (compared with a 24,5% growth in total assets). This trend is expected to continue as the Group
          continues to focus on balance sheet optimisation and capital efficiency on the balance sheet.

          Target capital ratios and improvement in capital adequacy levels over the period

          In addition to the internal economic capital requirements, the Group manages its capital resources to meet regulatory
          capital requirements. The Group’s authority to operate a bank is dependent on maintaining adequate capital resources
          measured in terms of the Banks Act (1990) and holding sufficient capital resources to meet minimum regulatory capital
          requirements. The minimum requirements are expressed as the ratio of capital resources to risk-weighted assets
          (capital adequacy ratio). During 2007, the Group will start to manage its capital resources in anticipation of the
          introduction of the revised Basel II rules, which come into effect on 1 January 2008.

                                                             31 December 2006                     31 December 2005
                                                      Risk-weighted                         Risk-weighted
                                                             assets     Capital ratio              assets     Capital ratio
                                          Regulator             Rm                 %                  Rm                 %

          Absa Bank Limited                  SARB*          297 168               12,3            246 135                 10,7
          Absa Life Limited                   FSB**             n/a        5,54 x CAR***              n/a          4,60 x CAR***
          Absa Insurance
          Company Limited                     FSB**             n/a    110,0 solvency                  n/a     150,0 solvency
          Absa Group                         SARB*          314 479               13,1            279 935                11,3

          The operations of Absa Group Limited and its subsidiaries are well capitalised and capital adequacy levels are being
          managed to ensure that the capital structure is optimised.
           *South African Reserve Bank
          **Financial Services Board
          ***Capital adequacy ratio
                                                            Risk management report
                                                                                                         [   Absa Group Limited
                                                                                                             Stakeholder report
                                                                                                             31 December 2006
                                                                                                                                    ]   131




The Group continued to manage its capital resources efficiently in 2006. At December 2006, the Group’s capital
adequacy ratio was 13,1%, in excess of the minimum requirements of its regulators. The Group’s Tier l ratio was
10,1%, reflecting strong cash flow generation and the efficient use of capital markets.

For further information on the capital adequacy of Absa Group Limited and its banking subsidiaries, please refer to
page 47 of this report.


 ����������������������


                                                                                                                  �����
                                                   �����
                                                                                   11,3%
                          10,7%
                                                                                                             �����
                                            ����
                                                                            8,6%
                   7,7%
   ����������




                Absa Bank Limited       �����������������                Absa Group Limited             ������������������
                      2005                    ����                             2005                           ����

  Tier I            Total



Basel II capital impact

During 2005 and 2006, Absa presented the preliminary estimated capital impact of Basel II to the South African
Reserve Bank (SARB) as part of the quantitative impact studies (QIS4 and QIS5) performed. The expected impact
based on the latest assessment indicated that there will not be a significant capital impact for Absa. However, a
number of national discretionary items influencing the new regulations under Basel II are still pending and could have
an impact on these preliminary capital level assessments.

In addition, as part of Pillar 2 of Basel II, the Absa Group is required to demonstrate the sufficiency of the Group’s
ICAAP to assess the overall capital adequacy of the Group in relation to the underlying risk profile and the strategy to
maintain adequate capital levels. The existing economic capital methodology forms the basis of the Group’s ICAAP.

Absa’s internally calculated capital requirement will be reviewed by the SARB under its supervisory review process as
part of Pillar 2, and is expected to include a comparison with Absa’s peer group. The objective of this supervisory
review process will be to establish a common view between Absa and the SARB on the final regulatory capital
required, as will be the case for all banks in the industry.

Credit risk

The granting of credit is a key source of income to the Group and one of its most significant risks. The Group dedicates
considerable resources to controlling credit risk effectively and optimising losses. The importance of credit risk is illustrated
by noting that more than three-quarters of risk-based economic capital is allocated to businesses for credit risks.

Credit risk arises in many of Absa’s business activities through lending and trading transactions. These include loans,
advances and conditional contracts to lend money in future under specific terms, settlement receivables and
unconditional contracts to support customers’ obligations to third parties. The Group has processes to identify,
measure, monitor, control and report in respect of credit risk.
132
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                               ]      Risk management report



          Objectives of credit risk management

          Growth, consistent returns and capital are jeopardised if credit risk is not controlled. Absa’s credit risk management
          framework seeks to reduce volatility in its operating performance and lower the cost of equity by managing risks both
          within and across businesses.

          Absa optimises its credit and overall risk profile by diversifying risk and revenue sources, growing fee-based and
          recurring revenues and minimising its breakeven point by carefully managing fixed costs. Other credit risk management
          objectives include closely monitoring risk-taking and long-term exposure to illiquid assets. Absa continually looks for
          opportunities to strengthen its credit risk controls, with particular attention to avoiding undue concentrations.

          At all levels of the Group, sound corporate governance and oversight policies and employee integrity are recognised
          as critical to effectively managing risk and protecting the interests of shareholders.

          Credit risk responsibility and governance

          The Absa credit risk control framework sets out the minimum acceptable standards to be adhered to by those
          responsible for credit-related businesses in Absa. The framework is aligned to the principal risk policy (previously the
          board governance standard) on credit risk and supplemented by ancillary credit policies/subpolicies and procedures
          that are applicable to the specific business areas.

          The effectiveness of the credit risk control framework and its supporting processes is a board responsibility. The GRC
          is the board-appointed risk committee and is informed through the Absa Credit Risk Committee (CRC), a Group Exco-
          appointed risk subcommittee.

          The purpose of the CRC is to govern, direct and co-ordinate the Group’s credit risk profile and appetite in accordance
          with the board and GRC/GACC-approved framework to achieve an acceptable Group credit risk profile to facilitate
          compliance with Basel ll and other best practice credit risk frameworks.

          The GRC and subcommittees are responsible for the approval of the relevant credit policies and the ongoing review of
          the credit exposure of the Group. These include, but are not limited to, the monitoring and approval of the following:
          • Methodologies for credit risk measurement and credit risk economic capital attribution.
          • Model implementation criteria.
          • Credit risk appetite and the related mandate and scale limits.
          • Concentration risk.

                                                                                             • Credit risk exposures’ sensitivity to
                                                                                               extreme market conditions.
                                                                                             • Credit strategies impacting on
                                                                                               approved risk profiles.
                                                                                             • The impact of economic scenarios
                                                                                               on the credit risk profile.
                                                                                             • Credit risk forecasting and planning
                                                                                               and the related stress testing.
                                                                                             • Credit risk transfer strategies.
                                                                                             • Risk-reward.
                                                                                             • The adequacy of loss provisions
                                                                                               and impairments.
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                                                                                                       31 December 2006
                                                                                                                            ]   133




Credit risk measurement

Absa uses statistical modelling techniques throughout its business in its credit rating systems. These systems assist
the Group in frontline credit decisions on new commitments and in managing the portfolio of existing exposures. They
also enable the application of consistent risk measurement across all credit exposures, retail and wholesale. The key
building blocks in the measurement system, which are described in the financial risk report, are the probability of
customer default (expressed through an internal risk rating), exposure in the event of default, and severity of loss
given default. Using these, Absa builds the analyses that lead to the decision support systems as previously described
in the risk appetite context.

Group model risk policy

Absa has a large number of models in place across the Group, covering all risk types, including credit risk, market risk,
operational risk and finance. To minimise the risk of loss through model failure, Absa has adopted the Barclays Group
policy for the control of model risk. The policy minimises the potential for model failure by setting minimum standards
for the end-to-end model development and implementation process. The policy also sets the Group governance
processes for all models, which makes it possible to monitor model risk across the Group and ensures any potential
problems are identified and escalated at an early stage.

The key areas where minimum requirements are defined are:

Model materiality

Absa uses a large number of models across the Group. To help ensure sufficient management time is spent on the
more material models, there is a method of providing each model with a materiality rating. The materiality rating for an
individual model depends on the assets for which the model is used and the expected loss and economic capital
associated with the assets. Models that are more material are subject to higher levels of independent scrutiny and
challenge prior to implementation.

Model documentation

Documentation should be sufficiently detailed to allow an expert to recreate the model from the original data sources.
It must include a description of the data used for model development, the methodology used (and the rationale for
choosing such a methodology), a description of any assumptions used in the model, details of where the model works
well and areas that are known as model weaknesses.

Initial model validation

All models are subject to a validation and independent review process before they can be signed off for implementation.
The model validation exercise must demonstrate that the model is fit for a specific purpose and provides
accurate estimates. The independent review process will also ensure that all aspects of the model development
process have been performed in a suitable manner.

Model sign-off

There are clearly laid out rules for the sign-off process for models. The most material models in the Group receive their
final sign-off for implementation from the GRC, whereas the less material models can be signed off at the Credit Risk
Model Validation and Performance Monitoring Technical Committee (CMMC).

Model sign-off processes include ensuring that the model is technically fit for purpose, as well as satisfying business
and regulatory requirements.
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                                ]       Risk management report



          Basel models

          Absa has spent a considerable amount of time on upgrading a number of models across the Group to ensure that it
          can meet the requirements of Basel ll from the commencement of the parallel run exercise during the last quarter of
          2007. All aspects of such models are reviewed against regulatory requirements as part of the sign-off process to
          ensure that, once signed off, such models are also fit for regulatory purposes.

          Ongoing model validation and monitoring

          All models used in the Group are subject to an annual review to ensure that they are working well and that the
          assumptions used in model development are still appropriate. All credit risk models are also subject to more frequent
          performance monitoring, which ensures that deficiencies in models are identified early and remedial action can be
          taken before the deficiency becomes serious and affects the decision-making process.

          Credit concentration

          There is a concentration of credit risk when a number of counterparties are engaged in similar activities and have
          similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected
          by changes in economic or other conditions.

          The concentrations of credit exposure are not proportionally related to credit loss. Some segments of the Group’s
          portfolio have and are expected to have proportionally higher credit charges in relation to the exposure than others.
          Moreover, the volatility of credit loss is different in different parts of the portfolio.

          Country risk

          Country grades

          Country risk grades are assigned to all countries where the Group has, or is likely to have, exposure and are reviewed
          every quarter to ensure they remain appropriate. Country grades are derived from long-term sovereign foreign
          currency ratings and range from 1 (lowest probability of default) to 21 (highest probability of default). A ceiling is applied
          where a country is graded 12 or worse, so that the counterparty cannot be graded better than the country, unless some
          form of protection is available in the event of a cross-border event, such as a significant portion of a counterparty’s
          assets or income being held or generated in hard currency.

          Country risk appetite

          To manage exposure to country risk, the Group uses two country limits; the prudential guideline and the country
          guideline. The prudential guideline is identified through the strict mapping of a country grade to derive a model-driven
          acceptable level of loss given default. The country guideline for all graded countries is set by the Group Credit
          Committee (GCC) based on the prudential guideline and the internal appetite for country risk. The country guideline
          may therefore be above or below the prudential guideline.

          Measuring country risk

          Country risk is managed by applying country loss given default (CLGD). All cross-border or domestic foreign currency
          transactions incur CLGD from the country guideline as agreed at the GCC. The level of CLGD incurred by a
          counterparty transaction will largely depend on three main factors: the country severity, the product severity and
          counterparty grade.

          CLGD is incurred in the country of direct risk, defined as where the majority of operating assets are held. This may be
          different to the country of incorporation. However, where transactions are secured with collateral, the country risk can
          be transferred from the country of the borrower to the country of the collateral provider. This is only permitted where
          the collateral definitely covers the borrowing and is not expected to decrease over time.
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                                                                                                                                  ]   135




Country executives

There are country managers for all countries where the Group has exposure and they, under the direction of the GCC,
have responsibility for allocating country risk to individual transactions. The total allocation of country limits is monitored
daily by the Credit Risk team.

Other credit risks

In addition to drawn loans and advances, Absa is exposed to other credit risks. These exposures comprise loan
commitments, contingent liabilities, debt securities and other exposures arising in the course of trading activities. The
risks are managed in a similar way to those in loans and advances, and are subject to the same or similar approval
and governance processes.

The nature of the credit risks among these exposures differs considerably.
• Loan commitments may become loans and the risks are thus similar to those attached to loans.
• Contingent liabilities (such as guarantees, assets pledged as security, acceptances and endorsements) historically
  experience low loss rates.
• Losses arising from exposures held for trading (derivatives, debt securities) are accounted for as trading losses, rather
  than credit charges, even though the drop in value causing the loss may be attributable to credit deterioration.

The most notable risks are to guarantees and irrevocable loan commitments, to settlement risk and to debt securities.

Guarantees and irrevocable loan commitments

The Group is exposed to loss through the financial guarantees it issues to customers and commitments to provide loan
finance that cannot be withdrawn once entered into. The credit risks associated with such contracts are managed in a
similar way to loans and advances, and form part of the exposure at default measure.

Settlement risk

Absa is also exposed to settlement risk in its dealings with other financial institutions. For example, this risk arises in
foreign exchange transactions when Absa pays away its side of the transaction to another bank or other counterparty
before receiving payment from the other side. The risk is that the counterparty may not meet its obligation.

While these exposures are of short duration, they can be large. In recent years, settlement risk has been reduced by
several industry initiatives that have enabled simultaneous and final settlement of transactions (such as payment-
versus-payment through continuous linked settlement).

Absa has worked with its peers in the development of these arrangements. Increasingly, the majority of high-value
transactions are settled by such mechanisms. Where these mechanisms are not available, the risk is further reduced
by dealing predominantly with highly rated counterparties, holding collateral and limiting the size of the exposures
according to the rating of the counterparty, with smaller exposures to those of higher risk.

Debt securities

Assessing the creditworthiness of debt securities differs in two important respects from the assessment process for
loans. Firstly, a market price is generally available for a bond or other debt security, which gives a good indicator of
creditworthiness. However, the financial position of the issuer still needs to be assessed and monitored, just as it would
in the case of a borrower taking out a loan. Moreover, care needs to be taken when using market price as a proxy for
credit risk. To give a simple example, if a bond pays a coupon higher than equivalent market yields, it will tend to trade
at below par (say 98 rather than 100) so as to re-align the yield to market levels. In this case, the market is not
expecting a credit loss of 2% of the face value of the bond.
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          A second key difference is that many debt securities are rated by independent rating agencies, giving a further indicator
          of credit quality. However, even with continuous monitoring by the rating agencies, there is often a lag between a credit
          event and rerating. So, while useful, external ratings can only inform and are not a substitute for the credit assessment
          Absa undertakes for each exposure using its own grading system.

          Interest rate sensitivity of the retail portfolio

          Various economic factors will impact on the actual future credit losses that will be realised. The non-retail segment of
          Absa’s credit portfolio is influenced by several economic factors, whereas changes in interest rates are the main driver
          of credit quality for the retail segment.

          An analysis of the historical relationship between interest rates and impairments indicates that the lower the interest
          rates, the weaker the correlation, and vice versa. Consumers will be able to absorb some increase in the current low
          level of debt servicing cost relative to disposable income before cash flow strains are experienced. Extreme interest
          rate increase scenarios make the sensitivity more severe as additional factors determining credit risk (such as recovery
          rates and loan growth) are negatively affected.

          Sensitivity levels are considered acceptable and in line with risk appetite and tolerances.

          Basel II and credit risk

          The Basel Committee on Banking Supervision published the new Basel II framework in 2004 in an effort to update the
          original international bank capital accord (Basel I), in effect since 1988. The goal of the Basel II framework is to improve
          the consistency of capital requirements internationally, make regulatory capital more risk sensitive and promote
          enhanced risk management practices among large, internationally active banking organisations. Absa supports the
          overall objectives of the Basel II framework.

          Basel II will significantly impact banks’ credit risk management practices worldwide. Absa has made significant
          progress in the implementation of internal credit rating systems in accordance with the Basel II requirements for the
          internal ratings based (IRB) approach.

          During the past year, major Basel II implementation focus areas have been internal rating systems that segment
          borrowers based on homogenous risk characteristics, measure default risk, assign facility ratings and measure
          recovery risk.

          Market risk

          Definition of market risk

          Market risk is the risk that Absa’s earnings or capital, or its ability to meet business objectives, will be adversely
          affected by changes in the level or volatility of market rates or prices such as interest rates, foreign exchange rates,
          equity prices and commodity prices.

          Categorisation of market risk

          To facilitate the management, control, measurement and reporting of market risk, Absa has categorised market risk
          into three broad categories, as described below.

          • Trading market risk

            This risk arises in trading transactions where Absa takes principal positions based on expectations of customer
            demand or a change in market conditions.
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                                                                                                        31 December 2006
                                                                                                                              ]   137




• Asset and liability market risk

  This risk arises from banking activities, including those risks incurred on non-trading positions such as customer
  assets and liabilities and capital balances.

• Other market risks

  Absa also incurs market risks that do not fit into the above categories. The principal risks of this type are: investment
  risk, asset management structural market risk, and defined benefit pension fund risk.

Market risk management and control responsibilities

A comprehensive market risk framework is in place to ensure that market risk is managed effectively, and to assist the
board in its responsibility to oversee that market risks are understood and managed effectively. The GRC approves
the market risk appetite for all types of market risk. The MRC is responsible for the market risk control framework and
policies and sets a limit framework within the context of the approved market risk appetite.

The MRC is assisted by a central market risk team and by risk management departments in the businesses. The head
of each business, assisted by the business risk management team, is accountable for identifying, measuring and
managing all market risks associated with its activities.

In Absa Capital, a dedicated market risk team is responsible for implementing the market risk control framework. Day-
to-day responsibility for market risk lies with the senior management of Absa Capital, supported by the market risk
team that operates independently of the trading areas. Daily market risk reports are produced. More detailed trading
market risk presentations are discussed at the Trading Risk Committee. Outside Absa Capital, the treasuries manage
treasury market and structural interest rate risk. The chart on the following page gives an overview of the business
control structure.




                                              A comprehensive market risk framework is
                                              in place to ensure that market risk is
                                              managed effectively, and to assist
                                              the board in its responsibility to oversee
                                              that market risks are understood and
                                              managed effectively.
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                               ]       Risk management report



            Managing market risk – organisational overview

            Risk type                               . . . managed by                       and reviewed by
                                                                                           the central market risk team,
                                                                                           Market Risk Committee and . . .


            Trading market risk                                                            • Absa Capital market risk team
                                                     Absa Capital                          • Trading Risk Committee



                                                     Group Treasury
            Asset and liability market risk
            • Treasury management
              market risk                                                                  • Country asset and liability
            • Structural interest rate risk                                                  committees
                                                     Foreign business treasuries
                                                                                           • Absa market risk supervision visits


            Other market risks
            • Asset management                       • Absa Capital                        • Absa Financial Services Risk
              structural risk                        • Absa Corporate and                    Governance and Control
            • Investment risk                          Business Bank                         Committee
            • Defined benefit pension                • Absa Financial Services             • Group Investment Committee
              fund risk


          Basel ll and market risk

          Absa’s progress towards compliance with the Basel II Pillars 1, 2 and 3 market risk requirements is in line with the
          SARB and industry timelines.

          During the past year, good progress has been made in respect of the following remaining Basel II focus areas:
          implementing tighter model risk controls; implementing more sophisticated asset and liability management systems;
          implementing economic value sensitivity and value-at-risk measures for the banking book; and formalising the internal
          capital adequacy assessments on the banking book and financial services businesses. Trading and investment risk
          measurements are continually being enhanced.

          Liquidity risk

          Liquidity risk is the risk of the Group being unable to meet its payment obligations when they fall due and to replace
          funds when they are withdrawn, the consequence of which may be the failure to meet obligations to repay depositors
          and fulfil commitments to lend.

          Prudent management of liquidity contributes positively to earnings and is pivotal to the viability of the Group and the
          maintenance of overall banking stability. Absa believes that the management of liquidity should encompass an overall
          balance sheet approach, which consolidates all sources and uses of liquidity, while aiming to maintain a balance
          between liquidity, profitability and interest rate risk considerations.

          Absa Group Treasury’s Liquidity and Funding Management function is responsible for the management of liquidity risk
          on behalf of the Group in accordance with the liquidity risk control framework and policies and within the risk appetite
          as approved by the GRC. The MRC monitors funding and liquidity management monthly. A daily liquidity dashboard is
          used to monitor money market shortage participation, short- and long-term funding ratios, short-term maturity
          mismatch, concentration of deposits and off-balance sheet liquidity risk. Absa Group Treasury holds weekly meetings
          with key stakeholders from retail banking, Absa Corporate and Business Bank and Absa Capital aimed at the tactical
          management of liquidity.
                                                        Risk management report
                                                                                                    [   Absa Group Limited
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Operational risk

Definition of operational risk

Operational risk is the risk of direct or indirect losses resulting from inadequate and/or failed internal processes or
systems, human factors, or from external events. Operational risk is thus the risk of failure, or near failure, of critical
business processes and their underlying operational systems and data. Operational risk is typically not taken in return
for expected reward, but exists in the natural course of corporate activity. Major sources of operational risk include:
fraud; regulatory compliance; dependence on key suppliers; customer service quality; recruitment; training and
retention of talent; process reliability; and systems availability. For the purpose of the Basel II regulatory operational
risk capital charge, legal risk is included, but strategic and reputation risks are excluded.

Measuring and managing operational risk

Absa recognises the significance of operational risk and is committed to the enhanced operational risk measurement
and management requirements of the Basel II advanced measurement approach (AMA). Absa’s current operational
risk framework was implemented in 2003 to meet internal and regulatory requirements (including Basel II AMA
requirements). Since that time, implementation activity has taken place continuously across all strategic business units
and Group specialist functions. Absa has made a significant investment in the implementation of operational risk
practices and systems to support operational risk management.

The role of the centralised Operational Risk department in Absa Risk is to establish and implement the operational risk
control framework for modelling and managing Absa’s operational risk, while reinforcing an enabling operational risk
management culture throughout Absa. The aim is to integrate all operational risk activities in Absa, based on
international norms and best practices, and to compile a reliable operational risk profile contributing to the Group’s
risk-reward profile.

An integral element of the operational risk framework is the risk and control library, which includes the following level 1
risks and the minimum control requirements to manage these risks: financial crime; financial reporting and tax; legal;
operations; people; regulatory compliance; and technology. The key advance introduced by the current framework is the
financial quantification and modelling of operational risk. This capability has significantly improved Absa’s operational
risk measurement and management capabilities.

Within Absa’s operational risk framework, qualitative and quantitative methodologies and tools are applied Group-wide
to identify and assess operational risks and to provide management information for determining appropriate mitigating
measures. These include:
• categorising operational risk data using the risk and control library;
• a loss database of operational risk events;
• access to external databases and the use of external risk events to support risk identification and assessment;
• key risk scenarios, based on internal risk experience and external data;
• a database of key risk indicators (KRIs). (These metrics, reported on scorecards, are used to track levels and trends
  of identified operational risk drivers.); and
• a Group-wide detailed risk and control assessment (DRCA) process to facilitate the consistent qualitative assessing,
  treating, monitoring and communicating of operational risks and controls associated with the business processes
  and activities per business unit and support function.
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          The primary responsibility for managing operational risk rests with the business unit/support function. Operational risk
          management forms part of the day-to-day responsibilities of all business unit and support function management. All
          employees share responsibility for the effective management of operational risk. They must report any known
          breakdowns in control and any risk events that may result in financial loss and/or reputation damage. The business
          unit/support function head is responsible for ensuring that the operational risk framework has been embedded within
          the business unit/support function. Operational risk management is monitored at the Operational Risk Committee
          (ORC) and at the divisional risk, governance and control committees (DRG&CCs). Control effectiveness is monitored
          at the DRG&CCs and at the Absa Group Governance and Control Committee (GGCC). Absa’s Internal Audit function
          provides the board and senior management with an independent assurance process for operational risk control across
          the organisation.

          There are some areas of the operational risk control framework where additional refinement is taking place.
          Nevertheless, the operational risk framework is sufficiently embedded for Absa senior management to have confidence
          in the AMA capital model (and its inputs and outputs) as a basis for calculating Absa’s operational risk capital charge.
          Absa will align with Barclays while providing continuous enhancement to its AMA model up to and during the 2007
          regulatory parallel run period. Absa is confident that it will be in a position to adopt the AMA model to calculate the
          operational risk capital charge from 2008.

          Underwriting risk

          Definition and categorisation of underwriting risk

          Underwriting risk, originating from insurance activities, refers to unexpected losses owing to events that result in
          exceeding predetermined prudent forecast exposures.

          Underwriting risk consists of the following elements:
          • Life insurance underwriting risk is the risk associated with insuring the life and/or health of an individual or groups
            of individuals and can be seen as the risk that the actual results of an insurer are impacted and differ from expected
            results relating to assumptions with respect to mortality and morbidity.
          • Short-term insurance underwriting risk is the risk associated with the short-term underwriting of fixed and/or
            moveable assets, accidents, guarantees and liabilities and can be seen as the risk that the actual results of an
            insurer are impacted and differ from expected results relating to assumptions with respect to the frequency and
            severity of claims.

                                                                                            Underwriting risk is influenced by the
                                                                                            type and nature of insurance activities
                                                                                            undertaken and includes:
                                                                                            • the risk appetite of the firm;
                                                                                            • the nature of underwriting exposures
                                                                                              involved in the products and
                                                                                              services;
                                                                                            • portfolio characteristics; and
                                                                                            • the nature and extent of reinsurance
                                                                                              cover.
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Underwriting risk measurement and control

The principal measurement techniques used to measure and control underwriting risk are the following:

Life insurance underwriting risk

Life insurance underwriting risk is measured at the maximum exposure on a single life. The risk is monitored by
monitoring the actual claims experience and by using investment guarantees and exposure analyses done during the
annual actuarial valuation, as well as managing the underwriting costs per policy to ensure the right balance between
the actual risk exposure and the cost of underwriting.

Short-term insurance underwriting risk

Short-term insurance underwriting risk is measured by calculating the estimated maximum loss and maximum probable
loss per policy. Risk measurement also includes the measuring of geographical and other concentrations of risk and
an evaluation of individual risk, including specialised risks. The risk is monitored by monitoring the claims experience,
policy movements, concentration of exposures and changes in the environment.

Risk control
In addition to managing the principal risk areas described above, the Group relies on two specialist risk control
functions. Their activities are described below.

Group Compliance

Regulatory compliance

Absa is committed to and requires all its employees to display the highest standards of integrity, professionalism and
ethical behaviour, and to comply with all relevant laws, rules and standards when conducting the business of the
Group. Since behaviour that may be legally defensible can still damage the reputation of the Group, these requirements
go beyond minimum legal standards and embrace broader norms of integrity and fair dealing.

Compliance risk is the potential that the procedures implemented by the entity to ensure compliance with the relevant
statutory, regulatory and supervisory requirements may not be adhered to and/or may be inefficient and ineffective.

Absa’s board, through the Group chief executive and Group Exco, delegates to the Group compliance officer the
authority to ensure that the compliance process is running effectively and to monitor adherence to the statutory,
regulatory and supervisory requirements. The Group compliance officer and the Group chief executive are required to
submit a monthly checklist to the SARB detailing adherence to specific sections of the Banks Act and regulations.

Absa’s compliance function supports management in managing compliance risk in the organisation. It monitors
whether effective compliance policies and procedures are followed and whether corrective action is taken when
compliance breaches are identified. Absa’s compliance function is an independent function that identifies, assesses,
advises on, monitors and reports on the Group’s compliance risk.

Without impairing independence, compliance employees are located in various business units to oversee the
application of the policy. The function is further assisted by other legal functions in the Group.

Although independent, the compliance function is an integral part of the broader risk management framework,
established in the interest of joining forces and providing an integrated view on risk.
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          The compliance function follows an integrated risk management approach. The major methodologies currently used
          are control self-assessment (CSA) and the Compliance Institute of South Africa’s compliance methodology.

          Compliance risk management tools provided to management include compliance manuals, compliance risk profiles,
          compliance risk management plans, compliance opinions, and compliance control adequacy and effectiveness reports.
          These tools are increasingly technology-enabled.

          Absa views compliance with laws, regulations and supervisory requirements as very important. Compliance risk
          management is a formalised, distinct risk management discipline and a core risk management activity in the Group.
          Apart from reducing losses, mitigating risks and contributing to effective corporate governance, the efficient compliance
          process also unlocks strategic business value.

          Value is realised through new product and business approval processes, increased vigilance, freed-up capital from
          reduced risk premiums, and enhanced reputation and regulatory relationships. Absa further leverages its compliance
          capabilities to the benefit of the wider financial services community through proactive industry involvement.

          Money laundering and sanctions risk management

          Absa has aligned its anti-money laundering (AML) and sanctions policies and procedures with those of Barclays.

          The main business imperatives relating to the management of the anti-money laundering and sanctions risk relate to
          the training of employees and the implementation of a control environment to identify business relationships and
          transactions that may pose a risk to Absa.

          Absa employs the Searchspace automated detection tool as its primary method of detecting suspicious and unusual
          transactions or activity, as well as a manual process of reporting where employees have detected behaviour that
          requires a report.

          The controls embedded in the recently implemented customer acceptance screening application (CASA) ensure that
          prospective customers are screened in terms of the sanctions requirements and that local regulatory requirements are
          adhered to when establishing customer relationships. A screening process identifies payments that may be in breach
          of policy requirements and flags them to be analysed prior to payment.

          Absa has embarked on a project to ensure the application of a risk-based approach when managing money laundering
          and terrorist activity risk. The project takes into account international leading practice and the local regulatory and
          business environments when determining the controls to be applied.

          Compliance initiatives

          The following current and future activities, co-ordinated by the centralised compliance department, deserve special
          mention:

          • Absa-Barclays integration: In terms of the ongoing Absa-Barclays integration, 10 additional policies have been
            implemented in Absa. These policies deal with the management of regulatory relationships and conflicts of interest,
            the facilitation of protected disclosures and anti-money laundering measures, among other issues. The reinforcement
            of the implementation of these policies will be a focus area for 2007.

          • Absa employee compliance conduct guide: An Absa employee compliance conduct guide was developed in line
            with Barclays Group compliance guidelines. The objectives of this document are to:

            – define acceptable standards of conduct that form the foundation for compliance with Absa policies and procedures;
            – inform and inspire employees to work towards the desired behaviours;
            – support Absa’s objective to be a leader in corporate responsibility; and
            – contribute to the fulfilment of Absa’s governance obligations.
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  The guide covers all eleven principles for business as defined by the Financial Services Authority in the United
  Kingdom as mapped to local regulatory requirements and all related policies and principles in Absa, and was distributed
  electronically to all employees. Each employee must acknowledge annually, in writing or electronically, to their line
  manager (preferably at the time of their performance development review) that they have read and understand the
  requirements of this guide and the policies it contains and that they comply with the provisions of the guide.

• National Credit Act: The National Credit Act was promulgated on 15 March 2006 with commencement dates of
  1 June 2006, 1 September 2006 and 1 June 2007. The Act stipulates what construes “unlawful credit”, “reckless
  lending” and “over-indebtedness” and provides for penalties to be levied against the credit provider, which is now
  required to play the role of a mentor or guardian of the consumer.

  The purpose of the Act is:
  – to promote and advance the social and economic welfare of South Africans;
  – to promote a fair, transparent, competitive, sustainable, responsible, efficient, effective and accessible credit
      market and industry; and
  – to protect customers through specific measures.

  A Group-wide National Credit Act project was established under the auspices of the Group Change function in 2005,
  with the purpose of ensuring Absa’s compliance to the Act. Group Compliance forms an integral part of the project.
  In addition to providing advice, awareness and training, Group Compliance monitors the adequacy of the control
  measures implemented to ensure compliance.

  Other focus areas: Continued compliance methodology enhancement and structure optimisation will remain focus
  areas going forward. An example is the continuous improvement of proactive compliance risk detection.

Forensic Services

Forensic Services is dedicated to combating the onslaught of financial crime, and more specifically fraud, by embracing
the following principles:
• Maintaining high standards of integrity, professionalism and ethical behaviour.
• Preventing the Group’s employees, associates, agents or systems from being used for illegal purposes.
• Terminating business relationships with those involved in illegal activities.
• Taking relevant action against persons who fall foul of these principles.

The department has created two focus
areas to address the risk of fraud.
These are the Forensic Investigations
and Support Services functions.

Forensic Investigations

The     core   function     of   Forensic
                                              Absa is committed to and requires all
Investigations is the investigation of        its employees to display the highest standards
losses and incidents relating to illegal
activity. Its primary objectives are          of integrity, professionalism and ethical
aimed at enabling the bank to prevent
additional losses, recover stolen assets      behaviour.
and identify operational weaknesses
to prevent the reoccurrence of similar
events.
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          The bulk of the investigations regarding the retail banking environment are dealt with in a decentralised structure.
          Representative offices are situated in each province. Specialist investigators deal with investigations into specialised
          areas such as internet fraud, card fraud and investigations of a sensitive nature that pose a greater risk to the Group.

          Support Services

          The Support Services function enhances the effectiveness of Forensic Services by providing and maintaining an
          electronic case management system that permits central record keeping of all fraud-related losses and incidents. This
          ensures a comprehensive overview of the fraud risk faced by the Group and assists in accurate MIS reporting.

          Training and awareness, as a component of the support function, aims to educate the Group’s employees about the
          risk posed by fraud as well as how to detect and prevent it. Various initiatives are undertaken throughout the course
          of the year to create general awareness of fraud and related scams among the bank’s customers.

          Forensic Services operates a proactive fraud prevention component, which comprises various elements aimed at
          reducing the Group’s overall exposure to the risk associated with commercial crime. The key component of the proactive
          fraud prevention strategy is the early identification of irregular transactions and their subsequent investigation.

				
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