Annual Financial Report

NMBZ HOLDINGS LIMITED

Holding company of

NMB BANK LIMITED (Registered Commercial Bank)

FOR THE YEAR ENDED 31 DECEMBER 2012

HIGHLIGHTS

Enquiries:

NMBZ HOLDINGS LIMITED

James A Mushore, Group Chief Executive Officer, NMBZ Holdings Limited [email protected]

Francis Zimuto, Deputy Group Chief Executive Officer, NMBZ Holdings Limited [email protected]

Benefit P Washaya, Managing Director, NMB Bank Limited [email protected]

Benson Ndachena, Chief Financial Officer, NMBZ Holdings Limited [email protected]

Website: http://www.nmbz.co.zw

Email: [email protected]

Tel: +263-4-759 651/9

NMBZ HOLDINGS LIMITED

CHAIRMAN'S STATEMENT

INTRODUCTION

Capital raising initiatives occupied a greater part of the year under review in a bid to meet the Reserve Bank of Zimbabwe prescribed minimum capital requirement of US$25 million by 31 December 2012 and increases of US$25 million per each half year to 30 June 2014. Subsequent to year end, three strategic foreign investors will invest equity capital amounting to US$14.8 million and this will bring NMB Bank Limited, (the Bank) into the top tier banks in terms of capitalisation.

GROUP RESULTS

Compliance with International Financial Reporting Standards

The consolidated financial statements of NMBZ Holding Limited and its subsidiaries (the Group) have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared in compliance with the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20).

Commentary on operating results

The profit before taxation was US$10 002 224 during the period under review and this gave rise to an attributable profit of US$7 570 502. Net interest income was US$17 493 781 for the period. Non-interest income amounted to US$15 609 630 and this was mainly as a result of net commissions and fee income (US$13 016 115).

Operating expenses amounted to US$21 452 714 and these were 26% up on prior year and were driven largely by administration, depreciation and staff related expenditure.

Impairment losses on loans and advances amounted to US$3 985 062 for the current period from a prior year of US$2 296 111. This is commensurate with the gross loans and advances which amounted to US$152 417 375 at 31 December 2012 compared to US$119 596 646 as at 31 December 2011.

On 31 January 2013, the Reserve Bank of Zimbabwe and participating members of the Bankers Association of Zimbabwe (BAZ) signed a Memorandum of Understanding (MoU) which seeks to establish an understanding on:

1. Bank charges on accounts whose monthly deposits are less than US$800.

2. Interest rates on lending to a maximum of the Bank's weighted average cost of funds plus a

margin of 12.5%.

These measures took effect from 1 February 2013 and going forward these would have a pronounced effect on the Bank's profitability.

Dividend

In view of the need to retain cash in the business and to strengthen the statutory capital requirements for the banking subsidiary, the Board has proposed not to declare a dividend.

Statement of financial position

The Group's total assets grew by 35% from US$167 287 333 as at 31 December 2011 to US$226 533 682 as at 31 December 2012. The assets comprised mainly loans, advances and other assets (US$146 599 994), investment securities held to maturity (US$5 501 963), cash and short term funds (US$58 171 045), investment properties (US$3 115 300), non-current assets held for sale (US$2 225 300) and property and equipment (US$8 187 459). Gross loans and advances increased by 27% from US$119 596 646 as at 31 December 2011 to US$152 417 375 as at 31 December 2012. The Bank's liquidity ratio closed the period at 42% and this was above the statutory requirement of 30% at 31 December 2012.

Capital

The banking subsidiary's capital adequacy ratio at 31 December 2012 calculated in accordance with the guidelines of the Reserve Bank of Zimbabwe (RBZ) was 15.50% (31 December 2011 - 14.37%). The minimum required by the RBZ is 12%.

The Group's equity increased by 32% from US$23 371 581 as at 31 December 2011 to US$ 30 942 083 as at 31 December 2012 as a result of growth in retained earnings.

CORPORATE SOCIAL INVESTMENTS

The Group is committed to playing an active role in the communities it serves. Our community investments are channelled into education, the disadvantaged, vulnerable groups, protection of the environment, wild life conservation, the arts and various sporting disciplines. During the year the Group invested US$100 000 in cash and practical resources for various deserving projects.

CORPORATE DEVELOPMENTS

In line with our corporate strategic thrust of enhancing service delivery and banking convenience to our valued high net worth individuals and businesses, we successfully launched the Visa International Debit Card, SMS Alerts, E-Statements, DSTV Payments Real-Time Integration and Real-Time Interface for ZIMRA obligation payments.

OUTLOOK AND STRATEGY

The Group secured lines of credit amounting to US$26 million in the year and these have allowed the Bank to underwrite more lending business for our clients.

DIRECTORATE

Mr Mainos Mudukuti resigned from the Board on 22 May 2012. I would like to thank Mr Mudukuti for his invaluable contributions to the Board over the years. There were no other changes to the composition of the Board during the year under review.

APPRECIATION

I would like to express my gratitude to our valued clients, existing and new shareholders and the Regulatory Authorities for their support during the period under review. I would also like to record my appreciation to my fellow Board members, management and staff for their unwavering commitment and sterling dedication which gave rise to the attainment of these results.

T N MUNDAWARARA

CHAIRMAN

27 March 2013

NMBZ HOLDINGS LIMITED

AUDITOR'S STATEMENT

The financial results should be read in conjunction with the complete set of financial statements for the year ended 31 December 2012, which have been audited by KPMG Chartered Accountants (Zimbabwe) and an unmodified opinion issued thereon. The auditor's report on the financial statements which forms the basis of these financial results is available for inspection at the Holding Company's registered office.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2012

NMBZ HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2012 

NMBZ HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2012

NMBZ HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2012

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2012

1. REPORTING ENTITY

The Holding Company is incorporated and domiciled in Zimbabwe and is an investment holding company. Its registered office is 64 Kwame Nkrumah Avenue, Harare. Its principal operating subsidiary is engaged in banking and other companies hold investments.

2. ACCOUNTING CONVENTION

Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board.

The consolidated financial statements have been prepared in compliance with the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20).

The consolidated financial statements were approved by the Board of Directors on 19 March 2013.

2.1 Basis of preparation

The consolidated financial statements have been prepared under the historical cost convention except for quoted and other investments, investment properties and financial instruments which are carried at fair value and land, buildings which are stated at revalued amount. These consolidated financial statements are reported in United States of America dollars and rounded to the nearest dollar.

2.2 Basis of consolidation

The Group financial results incorporate the financial results of the Company, its subsidiaries and associate company. Subsidiary undertakings are those companies in which the Group, directly or indirectly, has an interest of more than one half of the voting rights and is able to exercise control of the operations. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial results of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, income and expenses; profits and losses resulting from intra-group transactions that are recognised in assets and liabilities are eliminated in full.

2.3 Comparative financial information

The consolidated financial statements comprise a consolidated statement of financial position, a consolidated statement of comprehensive income, a consolidated statement of changes in equity and a consolidated statement of cash flows. The comparative consolidated statement of comprehensive income and the consolidated comparative statements of changes in equity and consolidated cash flows are for twelve months.

2.4 Use of estimates and judgements

The preparation of consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

In the process of applying the Group's accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the consolidated financial statements:

2.4.1 Deferred tax liability/(asset)

Provision for deferred taxation is made using the liability method in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences arising out of the initial recognition of assets or liabilities and temporary differences on initial recognition of business combinations that affect neither accounting nor taxable profit are not recognised. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

In determining the amounts used for taxation purposes the directors referred to applicable effective exchange rates at the date of acquisition of assets or incurring of liabilities. The Zimbabwe Revenue Authority (ZIMRA), announced methods to account for the deferred tax arising on assets purchased in ZWD. These methods require the preparer to first estimate the equivalent USD value of those assets at the time of purchase. Since the measurement of transactions in Zimbabwe dollars in the prior periods is affected by several economic variables such as mode of payment and hyperinflation this is an area where the directors have had to apply their judgement and acknowledge there could be significant variations in the results achieved depending on assumptions made.

2.4.2 Land and buildings

The properties were valued by professional valuers. The valuer applied the rental yield method and comparable market evidence to assess fair value of land and buildings. The determined fair value of land and buildings is most sensitive to the estimated yield as well as the long term vacancy rate. In addition, the property market is currently not stable due to liquidity constraints and hence comparable values are also not stable.

2.4.3 Investment properties and property and equipment

Investment properties were valued by professional valuers.

The professional valuers considered comparable market evidence of recent sale transactions and those transactions where firm offers had been made but awaiting acceptance. In addition, the property market is currently not stable due to liquidity constraints and hence comparable values are also not stable.

The directors exercised their judgment in determining the residual values of the other property and equipment which have been determined as nil.

2.4.4 RBZ Bond

The RBZ Bond was valued at cost as there is currently no market information to facilitate the application of fair value principles. There is currently no active market for these bonds.

2.4.5 Impairment losses on loans and advances

The Group reviews all loans and advances at each reporting date to assess whether an impairment loss should be recorded in profit or loss. In particular, judgement by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, the Group makes judgements about the borrower's financial situation and the net realisable value of collateral. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. The collective assessment takes account of data from the loan portfolio (such as credit quality, levels of arrears, credit utilisation, loan to collateral ratios etc.), concentrations of risks and economic data.

The impairment loss on loans and advances is disclosed in more detail under note 8 and note 14.3 below.

2.4.6 Going concern

The Directors have assessed the ability of the Group to continue operating as a going concern and believe that the preparation of these consolidated financial statements on a going concern basis is still appropriate.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2012

3. ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these abridged financial statements are set out in Note 2 and 3. These policies have been consistently applied unless otherwise stated.

3.1 Financial instruments

3.1.1 Classification

Financial assets and liabilities at fair value through profit and loss include financial assets and liabilities held for trading i.e. those that the Group principally holds for the purpose of short-term profit taking as well as those that were, upon initial recognition, designated by the entity as financial assets or liabilities at fair value through profit and loss.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those classified as held-for-trading and the Group upon initial recognition designates as at fair value through profit or loss and those the Group upon initial recognition designates as available-for-sale.

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold to maturity.

Financial assets available-for-sale are non-derivative financial assets that are designated as available-for- sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss.

3.1.2 Recognition

The Group recognises financial assets at fair value through profit and loss and available for sale assets on the date it commits to purchase the assets. From this date any gains and losses arising from changes in fair value of the assets are recognised in the income statement and other comprehensive income respectively.

Held-to-maturity investments and loans and receivables are recognised at cost which is the fair value of the consideration given on the day that they are transferred to the Group.

3.1.3 Measurement

Financial assets and liabilities are measured initially at fair value. Subsequent to initial recognition, financial assets and liabilities are measured at fair value through profit and loss and available-for-sale financial assets measured at fair value, except that any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is stated at cost, less impairment losses.

Held-to-maturity investments and loans and receivables are measured at amortised cost less impairment losses. Amortised cost is calculated using the effective interest rate method. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument.

3.1.4 Fair value measurement principles

The fair value of financial instruments is based on their quoted market price at the reporting date without any deduction for transaction costs. If a quoted market price is not available, the fair value of the instrument is estimated using pricing models or discounted cash flow techniques.

Where discounted cash flow techniques are used, estimated future cash flows are based on management's best estimates and the discount rate is a market related rate at the reporting date for an instrument with similar terms and conditions. Where pricing models are used, inputs are based on market related measures at the reporting date.

3.2 Investment properties

Investment properties are stated at fair value. Gains and losses arising from a change in fair value of investment properties are recognized in the income statement. The fair value is determined half yearly and at the end of each reporting period, by a registered profesional valuer.

3.3 Share - based payments

The Group issues share options to certain employees in terms of the Employee Share Option Scheme. Share options are measured at fair value at the date of grant. The fair value determined at the date of grant of the options is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. Fair value is measured using the Black-Scholes option pricing model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and other behavioural considerations.

3.4 Property and equipment

International Accounting Standard 16 (IAS 16) stipulates that the residual value and the useful life of an asset must be reviewed at least each financial year-end. If the residual value of an asset increases by an amount equal to or greater than the asset's carrying amount, then the depreciation of the asset ceases. Depreciation will resume only when the residual value decreases to an amount below the asset's carrying amount.

4. INTEREST INCOME

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2012

5. non-interest income

6. Operating EXPENDITURE

7. taxation

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2012

8. IMPAIRMENT LOSSES ON LOANS AND ADVANCES

Impairment losses are applied to write off advances in part or in whole when they are considered partly or wholly irrecoverable. The aggregate impairment losses which are made during the year are dealt with as per paragraph 8.3.

8.1 Specific provisions

Specific provisions are made where the repayment of identified advances is in doubt and reflect estimates of the loss. Advances are written off against specific provisions once the probability of recovering any significant amounts becomes remote.

8.2 Portfolio provisions

The portfolio provision relates to the inherent risk of losses which, although not separately identified, is known to be present in any loan portfolio.

8.3 Regulatory Guidelines and International Financial Reporting Standards Requirements

The Banking Regulations 2000 gives guidance on provisioning for doubtful debts and stipulates certain minimum percentages to be applied to the respective categories of the loan book.

International Accounting Standard 39, Financial Instruments Recognition and Measurement (IAS 39), prescribes the provisioning for impairment losses based on the actual loan losses incurred in the past applied to the sectoral analysis of book debts and the discounting of expected cash flows on specific problem accounts.

The two prescriptions are likely to give different results. The Group has taken the view that where the IAS 39 charge is less than the amount provided for in the Banking Regulations, the difference is recognized directly in equity as a transfer from retained earnings to a regulatory reserve and where it is more, the full amount will be charged to the profit or loss.

8.4 Non-performing loans

Interest on loans and advances is accrued to income until such time as reasonable doubt exists about its collectability, thereafter and until all or part of the loan is written off, interest continues to accrue on customers' accounts, but is not included in income. Such suspended interest is deducted from loans and advances in the statement of financial position. This policy meets the requirements of the Banking Regulations 2000 issued by the RBZ.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2012

9. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary equity holders of NMBZ Holdings Limited by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share is calculated by dividing the profit attributable to ordinary equity holders of NMBZ Holdings Limited adjusted for the after tax effect of: (a) any dividends or other items related to dilutive potential ordinary shares deducted in arriving at profit or loss attributable to ordinary equity holders of the parent entity; (b) any interest recognised in the period related to dilute potential ordinary shares; (c) any other changes in income or expense that would result from the conversion of the dilutive potential ordinary shares, by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

Headline earnings per share is calculated by dividing the profit attributable to ordinary equity holders of NMBZ Holdings Limited (excluding separately identifiable re-measurements, relating to any change in the carrying amount of an asset or liability, net of related tax (both current and deferred), other than re-measurements specifically included in headline earnings) by the weighted average number of ordinary shares outstanding during the year.

9.1 Earnings

9.2 Number of shares

9.3 Earnings per share (US cents)

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2012

10. SHARE CAPITAL

Of the 692 892 711 unissued ordinary shares, options which may be granted in terms of the NMBZ 2005 Employee Share Option Scheme (ESOS) amount to 85 360 962 and out of these 1 670 869 had not been issued. As at 31 December 2012, 9 072 000 share options out of the issued had not been exercised.

Share options which may be granted in terms of the 2012 ESOS amount to 280 710 729 and allocations in terms of the Scheme will only commence in 2013.

Subject to the provisions of section 183 of the Companies Act (Chapter 24:03), the unissued shares are under the control of the directors.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2012

11. DepositS and other accounts

The fair value of the above is the same as the carrying amount. The deposits are payable on demand, have variable interest rates and varying security.

11.2 Maturity analysis

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2012

12. FINANCIAL INSTRUMENTS

(1) Investment securities held to maturity were classified as such in accordance with IAS 39.

The RBZ Bonds are valued at cost as there is currently no market information to facilitate application of fair value principles.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2012

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2012

14. LOANS, ADVANCES AND OTHER ACCOUNTS

 14.1 Total loans, advances and other accounts

\* The statutory reserve balance with the Reserve Bank of Zimbabwe was non-interest bearing.

The balance was determined on the basis of deposits held and is not available to the Bank for daily use. The balances owed to banks were converted to tradable interest bearing instruments on 16 February 2012. The amount was reclassified to Investment securities held to maturity (note 12).

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2012

14.2 Sectoral analysis of utilizations

The material concentration of loans and advances are in the distribution sector at 31% (2011 - 28%).

14.3 Allowance for impairment losses on loans and advances

14.4 Non-performing loans and advances

The residue on these accounts represents recoverable portions covered by realisable security.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDTED FINANCIAL STATEMENTS

for the year ended 31 December 2012

15 Non-current asset held for sale

The Group is in possession of land with a fair value of US$2 225 300 at year end. During the last quarter of 2012 management decided to sell the property and have identified interested buyers. The disposal process is expected to be completed in May 2013. The disposal will improve the Group's cash flows. The fair value adjustment on recognition as a non-current asset held for sale is included under non-interest income (note 5).

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2012

16. PROPERTY AND EQUIPMENT

The land and buildings were valued by professional valuers as at 31 December 2012 for year end purposes and the open market value was US$2.8 million.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2012

17. CAPITAL COMMITMENTS

The capital expenditure will be funded from internal resources.

18. CONTINGENT LIABILITIES

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2012

19. INVESTMENT IN ASSOCIATE

The Group has a 24.79% interest in African Century Limited, which is involved in the provision of lease finance.

African Century Limited is a company that is not listed on any public exchange. The following table illustrates summarized audited financial information of the Group's investment in African Century Limited.

Share of the associate's statement of financial position:

 The disposal of the 24.79% shareholding in the Associate is still in progress, an agreement has been signed with the potential buyer and regulatory approvals are still pending.

20. EXCHANGE RATES

The following exchange rates have been used to translate the foreign currency balances to United States dollars at period end:-

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2012

21. EVENTS AFTER REPORTING DATE

21.1 Memorandum of understanding

On 31 January 2013, the Reserve Bank of Zimbabwe and participating members of the Bankers Association of Zimbabwe (BAZ) signed a Memorandum of Understanding (MoU) which seeks to establish an understanding on:

1. Bank charges on accounts whose monthly deposits are less than US$800.

2. Interest rates on lending to a maximum of the Bank's weighted average cost of funds plus a

margin of 12.5%.

These measures took effect from 1 February 2013 and going forward these would have a pronounced effect on the Bank's profitability.

21.2 Recapitalisation

The shareholders of NMBZ Holdings Limited approved at an Extraordinary General Meeting held on 19 February 2013 an investment of US$14.8 million equity capital by three (3) strategic foreign investors. In addition, one of the strategic foreign investors will provide a 7 year subordinated debt of US$1.4 million to the Bank. The US$14.8 million equity to be raised subsequent to year end will be invested as equity capital in the Bank by the holding company.

NMB BANK LIMITED

STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2012

NMB BANK LIMITED

STATEMENT OF FINANCIAL POSITION

As at 31 December 2012