Annual Financial Report

NMBZ HOLDINGS LIMITED

Holding company of

NMB BANK LIMITED (Registered Commercial Bank)

FOR THE YEAR ENDED 31 DECEMBER 2015

HIGHLIGHTS

Enquiries:

NMBZ HOLDINGS LIMITED

Benefit P Washaya, Chief Executive Officer, NMBZ Holdings Limited [email protected]

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

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

Email: [email protected]

Telephone: +263-4-759 651/9

NMBZ HOLDINGS LIMITED

CHAIRMAN'S STATEMENT

INTRODUCTION

The Group has continued to make significant progress towards attaining its short and medium term goals and recorded an attributable profit of US$5 490 068 in 2015 which was a material improvement from an attributable profit of US$1 667 247 recorded in 2014. The significant improvement in the operating results was largely underpinned by the bank's decision to broaden its target market, stricter credit underwriting standards and concerted efforts to contain non-performing loans.

The deflationary pressures and the fall in aggregate demand, which accelerated in the last quarter of 2014, persisted into 2015. The economy has continued to be characterised by shortage of liquidity, retrenchments and company closures and these have further worsened default risk.

STRATEGIC FOCUS

In line with our mission to provide premium financial services to high networth individuals, businesses and uniquely branded technology enabled products to SMEs and the broader market segments, the Board has periodically reviewed this strategic focus in response to changes in the global, regional and local operating environments. The Board is confident that based on a number of probable scenarios considered, the Group is firmly on course to attaining its short and medium term strategic targets.

GROUP RESULTS

Financial performance

The profit before taxation was US$7 909 138 during the period under review and this gave rise to an attributable profit of US$5 490 068 which translates to earnings per share of 1.43 cents (2014 - 0.43 cents).

Operating expenses amounted to US$26 872 649 and these were down 4% from a prior year of US$27 984 051 as a net result of cost cutting and containment measures.

Impairment losses on loans and advances amounted to US$9 496 601 for the current period from a prior year of US$5 017 362 and the increase was mainly due to increased provisioning as the economic environment continues to deteriorate. The Board took a decision to write off loans and advances amounting to US$11 704 157 during the year under review after recovery efforts had not yielded the desired results.

Financial position

The Group's total assets grew by 17% from US$286 049 034 as at 31 December 2014 to US$333 831 107 as at 31 December 2015.

Gross loans and advances increased by 12% from US$217 463 319 as at 31 December 2014 to US$243 241 018 as at 31 December 2015 mainly due to an increase in loans advanced to the broader market segments. The Bank's non-performing loans ratio reduced to 13.19% at 31 December 2015 from 17.74% at 31 December 2014.

The deposits increased by 18% from US$235 362 677 as at 31 December 2014 to US$277 216 769 as at 31 December 2015 as a result of a 22% increase in current and deposit accounts.

The Bank's liquidity ratio closed the period at 30.37% and this was above the statutory requirement of 30%.

NMBZ HOLDINGS LIMITED

Capital

The banking subsidiary's capital adequacy ratio at 31 December 2015 calculated in accordance with the guidelines of the Reserve Bank of Zimbabwe (RBZ) was 19.26% (31 December 2014 - 19.32%). The minimum required by the RBZ is 12%. We consider the level of our capitalisation to be adequate to support our underwriting pipeline business.

The Group's shareholders' funds have increased by 12% from US$45 047 616 as at 31 December 2014 to US$50 543 864 as at 31 December 2015 as a result of the current year's attributable profit.

The Bank's regulatory capital as at 31 December 2015 was US$42.1 million and is in line with our target to meet the required minimum regulatory capital of US$100 million for a Tier 1 bank by 31 December 2020 subject to the projected improvement in the operating environment in the forecast period.

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.

CORPORATE SOCIAL INVESTMENTS

We are committed to playing an active role in the communities we serve. Our social investments during the year were channelled into the country's educational system, the disadvantaged, vulnerable groups, protection of the environment, wildlife conservation, the arts and various sporting disciplines. The activities and charities supported during the year included Ruvarashe Trust, Nhaka Yevana Trust, Birdlife Zimbabwe, Island Hospice, Manicaland Tennis tournament, Harare International Festival of the Arts (HIFA), the Nomads Golf tournament and other charity golf tournaments. In addition, we sponsored signage for 20 schools in Harare, Bulawayo and Concession as our way of supporting the country's educational system.

CORPORATE DEVELOPMENTS

Three new branches were opened in Kwekwe, Masvingo and Borrowdale (Harare). The Borrowdale Excellence Centre caters for the bank's high networth customers and this service is also available at all our branches in the major cities and towns.

DIRECTORATE

Mr. T. N. Mundawarara resigned as a director of NMBZ Holdings Limited and NMB Bank Limited with effect from 19 March 2015. Mr. A.M.T. Mutsonziwa and Mr. J. Chigwedere retired and did not seek re-election at the Annual General Meeting held on 21 May 2015. Mr. R. Keighley resigned as a director of the NMBZ Holdings Limited and NMB Bank Limited boards with effect from 3 July 2015. Mr. B. W. Madzivire resigned as a director of both NMBZ Holdings Limited and NMB Bank Limited boards with effect from 31 December 2015. I would like to thank them all for the immense and invaluable contributions they made to the boards over the years.

Ms. J. Maguranyanga, Mr. E. Sanderson, Mr. K. Qurashi and Mr. C. Chikaura were appointed to the boards of NMBZ Holdings Limited and NMB Bank Limited with effect from 10 July 2015, 13 August 2015, 19 August 2015 and 24 December 2015 respectively. I would like to welcome the new board members and wish them a successful tenure.

NMBZ HOLDINGS LIMITED

OUTLOOK AND STRATEGY

As initiated in September 2014, the Group continued to broaden the market catchment segment for the banking subsidiary by tapping into some segments of the mass market. The uptake of the mass market products has been phenomenal and the Group will continue to focus on growth opportunities available in this sector without compromising the service excellence which is synonymous with our flagship bank. Our key differentiators in the financial services sector will continue to be service excellence, technology leadership, agility and quick response times and all these will be buttressed by our experienced and diversified human capital.

POST YEAR END DEVELOPMENTS

Following the decision by Commerzbank to cease the USD clearing business for Zimbabwean banks by 31 March 2016, we changed our correspondent bank. Consequently, our customers can now receive USDs from offshore sources using our new accounts with Ecobank International, France or Bank of China, South Africa. We are committed to a smooth transition and sincerely apologise for any inconveniences caused to our valued customers. Given the swift action taken by management, the impact on the Bank's operations has been minimal.

APPRECIATION

I would like to express my sincere gratitude and appreciation to our valued clients who have continued to support us during this transition to become a mass market bank, our shareholders and the regulatory authorities for their valuable support during the period under review. My appreciation also goes to my fellow board members, management and staff for their continued dedication and commitment which has underpinned the achievement of these results in the face of an increasingly difficult operating environment.

B. A. CHIKWANHA

CHAIRMAN

15 March 2016

NMBZ HOLDINGS LIMITED

AUDITOR'S STATEMENT

These financial results should be read in conjunction with the complete set of financial statements for the year ended 31 December 2015, 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 2015

NMBZ HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31 December 2015

NMBZ HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2015

NMBZ HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2015

NMBZ HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2015

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2014

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 commercial and retail banking.

2. ACCOUNTING CONVENTION

Statement of compliance

The condensed financial statements are prepared and presented on the basis that they reflect the information necessary to be a fair summary of the annual financial statements from which they are derived. This includes financial results that agree with or can be recalculated from the related information in the audited consolidated financial statements and that contain the information necessary so as not to be misleading in the circumstances. The information contained in these financial results does not contain all the disclosures required by International Financial Reporting Standards, the Zimbabwe Companies Act (Chapter 24:03) and the Zimbabwe Banking Act (Chapter 24:20), which are disclosed in the full consolidated annual financial statements from which this set of condensed financial statements were derived. For a better understanding of the Group`s financial position, its financial performance and cash flows for the year, these condensed financial statements should be read in conjunction with the audited consolidated annual financial statements.

The condensed financial statements were approved by the Board of Directors on 15 March 2016.

2.1 Basis of preparation

The condensed 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 and buildings which are stated at revalued amount. These condensed 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. Subsidiaries are investees controlled by the Group. The Group controls an investee if it is exposed to, or has rights to, variable returns from its involvement with the investee. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until date when control ceases. 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. When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interest and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

An associate is an entity over which the Group has significant influence, as evidenced by the Group holding directly or indirectly 20% or more of the voting power of the investee, representation on the Board and direct involvement with the policy making processes of the investee. The investment in associate is accounted for using the equity method.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

2.3 Comparative financial information

The condensed financial statements comprise consolidated statements of financial position, comprehensive income, changes in equity, cash flows and selected notes are for twelve months. The comparative consolidated statements of comprehensive income, changes in equity, cash flows and selected notes are for twelve months.

2.4 Use of estimates and judgements

The preparation of 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 financial statements:

2.4.1 Deferred tax

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 valuers 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.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2014

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 Intangible assets

Intangible assets are initially recognised at cost. Subsequently the assets are measured at cost less accumulated amortisation and any impairment loss.

2.4.5 Investment securities

2.4.5.1 Investment securities - held to maturity

This relates to the RBZ Bond that was valued at amortised cost as there is currently no market information to facilitate the application of fair value principles (refer to note 14.1). There is currently no active market for these bonds.

2.4.5.2 Investment securities - loans and receivables

This relates to  various Treasury Bills that were valued at amortised cost as there is currently no market information to facilitate the application of fair value principles (refer to note 14.1).

2.4.6 Impairment losses on loan 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.), concentration of risks and economic data.

The impairment loss on loans and advances is disclosed in more detail under note 8 and note 17.3 below.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

2.4.7 Fair value adjustments of unquoted investments

Subject to contractual provisions, the fair value of unquoted investments is established with reference to the net asset value and the earnings capacity of the business. Valuations on the earnings basis is calculated as the sustainable earnings for the entity multiplied by discounted Price Earnings Ratio of a quoted Company with similar operations in a similar environment.

The valuation of investment in unlisted companies has been carried in the statement of financial position of the Bank based on the audited net asset values of the investee companies.

2.4.8 Non-current assets held for sale

Non-current assets or disposal groups are held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. These are measured at the lower of the carrying amount and fair value less costs to sell and they are not depreciated.

Non-current assets were valued by independent professional valuers, PMA Real Estate (Private) Limited. All non-current assets held for sale are measured at their fair values.

2.4.9 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.

3. ACCOUNTING POLICIES

The selected principal accounting policies applied in the preparation of these condensed financial statements are set out in Note 2 and below. 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.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

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 measured at fair value through profit and loss and available-for-sale financial assets are 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 at the end of each reporting period, by a registered professional valuer.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

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) Property, plant and equipment 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.

3.5 Intangible assets

Intangible assets are initially recognised at cost. Subsequently, the assets are measured at cost less accumulated armotisation and any accumulated impairment losses.

3.6 Taxation

Income tax

Income tax expenses comprise current, AIDS levy and deferred tax. It is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income.

Current

Current tax comprises expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. It is measured using rates enacted or substantively enacted at the reporting date in the country where the Bank operates and generates taxable income and any adjustment to tax payable in respect of previous years.

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred taxation

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

· temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

· temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future; and

· taxable temporary differences arising on the initial recognition of goodwill.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

3.6 Taxation (continued)

Deferred tax (continued)

Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Bank expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. For this purpose, the carrying amount of investment property measured at fair value is presumed to be recovered through sale, and the Bank has not rebutted this presumption.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

Additional taxes that arise from the distribution of dividends by the Bank are recognised at the same time as the liability to pay the related dividend is recognised. These amounts are generally recognised in profit or loss because they generally relate to income arising from transactions that were originally recognised in profit or loss.

3.7 Cash and cash equivalents

Cash and cash equivalents comprise cash and bank balances, and short term highly liquid investments with maturities of three months or less when purchased. Cash and cash equivalents are measured at amortised cost in the statement of financial position.

3.8 Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The specific recognition criteria described below must also be met before revenue is recognised.

3.9 Interest income

For all financial instruments measured amortised cost and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income includes income arising out of the banking activities of lending and investing.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

3.10 Interest expense

Interest expense arises from deposit taking. The expense is recognised in profit or loss as it accrues, taking into account the effective interest cost of the liability.

3.11 Shareholders' funds

Shareholders' funds refers to the investment made by the shareholders to the Group and it consists of share capital, share premium, share options reserve, retained earnings, redeemable ordinary shares and subordinated term loans.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

4. INTEREST INCOME

5. FEE AND COMMISSION INCOME, NON-INTEREST INCOME AND OTHER COMPREHENSIVE INCOME

5.1 FEE AND COMMISSION income

5.2 non-interest income

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

5. FEE and COMMISSION INCOME,

NON-INTEREST INCOME AND OTHER

COMPREHENSIVE INCOME (continued)

5.3 OTHER COMPREHENSIVE INCOME

6. Operating EXPENDITURE

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

7. taxation

8. IMPAIRMENT LOSSES ON LOANS AND ADVANCES

Impairment losses are applied to write off loans and 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 loans and advances is in doubt and reflect estimates of the loss. Loans and 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 2015

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.

9.1 Earnings

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

9.2 Number of shares

9.2.1 Basic earnings per share

9.2.2 Diluted earnings per share

9.3 Earnings per share (US cents)

10. SHARE CAPITAL

10.1 Authorised

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

10.2 Issued and fully paid

10.2.1 Ordinary shares

10.2.2 Redeemable ordinary shares

Of the unissued ordinary shares of 215 million shares (2014- 215 million), options which may be granted in terms of the NMBZ 2012 Employee Share Option Scheme (ESOS) amounted to 28 071 073 and as at 31 December 2015, 4 128 434 share options had been issued.

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

11 REDEEMABLE ORDINARY SHARES

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

11. REDEEMABLE ORDINARY SHARES (continued)

On 30 June 2013 the Company received US$14 831 145 capital from Nederlandse Financierings-Maatschappij Voor Ontiwikkelingslanden N.V. (FMO), Norwegian Investment Fund for Developing Countries (Norfund) and AfricInvest Financial Sector Holdings (AfricInvest) who were allocated 34 571 429 shares each (total of 103 714 287) for individually investing US$4 943 715. This amount, net of share issue expenses, was used to recapitalise the Bank in order to contribute towards the minimum capital requirements set by the Reserve Bank of Zimbabwe of US$100 million by 31 December 2020.

NMBZ Holdings Limited (NMBZ) entered into a share buy-back agreement with Norfund, FMO and AfricInvest, where these three strategic investors have a right on their own discretion at any time after the 5th anniversary (30 June 2018) but before the 9th anniversary (30 June 2022) of its first subscription date, to request NMBZ to buy back all or part of its NMBZ shares at a price to be determined using the agreed terms as entailed in the share buy-back agreement. It is a condition precedent that at any point when the share buy-back is being considered, the proceeds used to finance the buy-back should come from the distributable reserves which are over and above the minimum regulatory capital requirements. Further, no buy-back option can be exercised by any investor after the 9th anniversary (30 June 2022) of the effective date.

The share buy-back agreement creates a potential obligation for NMBZ Holdings Limited to purchase its own instruments. Thus shares issued gave rise to a potential financial liability and are classified as redeemable ordinary shares.

12. SUBORDINATED TERM LOAN

In 2013, the Bank received a subordinated term loan amounting to US$1.4 million from a Development Financial Institution which attracts an interest rate of LIBOR plus 10% and has a seven year maturity date (13 June 2020) from the first disbursement date.

The above liability would, in the event of the winding up of the issuer, be subordinated to the claims of depositors and all other creditors of the issuer. The Group has not had any defaults on the principal and interest with respect to this subordinated loan during the year ended 31 December 2015. However, there were breaches to the financial covenants regarding the open asset exposure ratio that stood at 41.5% instead of a maximum of 30% as well as the aggregate un-hedged open foreign currency positions ratio that stood at 12.6% instead of a cap of 10%. The Bank will apply for a waiver of the non-compliant ratios by 31 March 2016.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

13. DepositS and other liabilities

13.1 Deposits and other liabilities

*Deposits and other payables approximate the related carrying amount due to their short term nature.

**Included in deposits from banks and other financial institutions are loan balances of US$833 333 and US$7 368 421 due to Nederlandse Financierings-Maatschappij Voor Ontiwikkelingslanden N.V. (FMO) and Societe de Promotion de Participation Pour la Cooperation Economique SA (Proparco) respectively. The Group has not had any defaults on the principal and interest with respect to these loans during the year ended 31 December 2015. However, there were breaches to the Proparco financial covenants regarding the following ratios:

· Open credit exposure - 41.5% (instead of a maximum of 25%).

· Non-performing loans ratio -13.2% (instead of a maximum of 10%).

The Bank will apply for a waiver of the non-compliant ratios by 31 March 2016.

13.2 Maturity analysis

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

13.3 Sectoral analysis of deposits

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

14. FINANCIAL INSTRUMENTS

14.1 Investment securities held to maturity

The Group holds Treasury Bills and Government bonds amounting to US$14 547 992 with interest rates ranging from 2.5% to 5%. Liquidity induced trades have occurred in the secondary market and these trades do not represent free market activity. In light of the absence of an active market for the Treasury Bills, the instruments are recorded at amortised cost. Of the total Treasury Bills balance, a total of US$6 136 716 has been pledged as security on interbank borrowings.

14.2 Maturity analysis of investment securities held to maturity

14.3 Maturity analysis of investment securities - loans and receivables

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

14. FINANCIAL INSTRUMENTS (continued)

14.4 Fair values of financial instruments

The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Group determines fair values using other valuation techniques.

For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

Valuation models

The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements.

· Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments.

· Level 2: inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data.

· Level 3: inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

14. FINANCIAL INSTRUMENTS (continued)

14.4 Fair values of financial instruments

14.4.1 Financial instruments measured at fair value - fair value hierarchy

During the reporting period ended 31 December 2015, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. The trade investments were valued using the net asset value method.

During the reporting period ended 31 December 2014, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. The trade investments were valued using the net asset value method.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

14. FINANCIAL INSTRUMENTS (continued)

14.4 Fair values of financial instruments (continued)

14.4.1 Financial instruments measured at fair value - fair value hierarchy (continued)

Level 3 fair value measurements

Reconciliation

31 December 2015

31 December 2014

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

14. FINANCIAL INSTRUMENTS (continued)

14.4 Fair values of financial instruments (continued)

14.4.2 Financial instruments not measured at fair value

The below table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised.

 31 December 2015

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

14. FINANCIAL INSTRUMENTS (continued)

14.3 Fair values of financial instruments (continued)

14.4.2 Financial instruments not measured at fair value

31 December 2014

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

14. FINANCIAL INSTRUMENTS (continued)

14.3 Fair values of financial instruments (continued)

14.3.2 Financial instruments not measured at fair value

The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:

· The fair values of cash and cash equivalents, advances and other assets and deposits and other liabilities carrying amounts approximate their fair values largely due to the short - term maturities of these instruments.

· Fair value of financial assets and liabilities at fair value through profit or loss is derived from quoted market prices in active markets. If quoted market prices are not available the fair value is estimated using pricing models or discounted cash flow techniques.

15. CASH AND CASH EQUIVALENTS

Of the cash and cash equivalents balance an amount of US$1 214 932 was pledged to FMO and Proparco as collateral for offshore lines of credit.

16. INVESTMENT IN DEBENTURES

The Bank had convertible debentures with a carrying amount of US$4 787 074 with a maturity of 5 years from inception. The debentures were at an interest of 10% per annum. The Bank had an option to convert the debentures to equity or redeem the debentures at par on or before the maturity date of 9 March 2018. The debentures were redeemed at par on 17 March 2015.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

17. LOANS, ADVANCES AND OTHER ACCOUNTS

 17.1 Total loans, advances and other accounts

17.1.1 Advances

17.1.2 Maturity analysis

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

17.2 Sectoral analysis of utilizations

The material concentration of loans and advances is with individuals at 42% (2014 - 27%) and services at 17% (2014 - 19%).

17.3 Allowance for impairment losses on loans, advances and debentures

During the period under review, the Bank reviewed the basis and assumptions for recognizing portfolio provision in view of the current macro and micro economic conditions prevailing in Zimbabwe. The review resulted in an increase in the level of portfolio provisions recognised by the Bank in proportion to its loan book size.

NMBZ HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2015

17.4 Non-performing loans, advances and debentures

The residue on these accounts represents recoverable portions covered by realisable security, which includes guarantees, cessation of debtors, mortgages over residential properties, equities and promissory notes all fair valued at US$22 787 088 (2014 - US$23 465 162).

17.5 Loans to related parties (included under loans, advances and other assets)