Annual Financial Report

Holding company of

NMB BANK LIMITED (Registered Commercial Bank)

FOR THE YEAR ENDED 31 DECEMBER 2017

FINANCIAL SUMMARY

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 country witnessed a leadership transition in November 2017 which ushered in a new political dispensation. This was followed by various re-engagement efforts with the international community and there has been a notable increase in interest from foreign investors raising prospects of an economic turnaround. This said, the 2017 operating environment was characterised by nostro funding challenges, cash shortages, job losses, inflationary pressures and company closures.. Despite the environment, the group recorded a positive set of results, largely driven by the banking subsidiary's decision to broaden its target market, migration to digital channels, stricter credit underwriting standards and concerted efforts to contain non-performing loans and operating expenditure.

The key financial highlights of the Group as at 31 December 2017, achieved under an exceedingly challenging operating environment are as depicted below:

Total assets stood at US$422 564 352 (US$320 984 926 - 2016);

Shareholders' funds and shareholders' liabilities stood at US$65 651 843 (US$55 600 406 - 2016);

Total comprehensive income for the year was US$10 029 136 (US$5 055 196 - 2016);

Basic earnings per share was 2.58 cents per share (1.32 cents - 2016).

GROUP RESULTS

Financial Performance

The profit before taxation was US$13 017 690 (2016 - US$6 208 904) during the period under review and this gave rise to total comprehensive income of US$10 029 136 (2016 - US$5 055 196). The Group achieved a basic earnings per share of 2.58 cents (2016 - 1.32 cents).

Operating expenses amounted to US$27 578 347 and these were up 5% from a prior year amount of US$26 176 706 as a net result of some staff and non-recurring expenditures incurred in the period.

Impairment losses on loans and advances amounted to US$3 853 149 for the current period from a prior year amount of US$8 059 726 and the decrease was mainly due to stricter credit underwriting standards and loan monitoring. The bank embarked on an aggressive loan collection process and strengthening of our credit systems over the last 3 years and this saw the progressive reduction of our NPL ratio to the current single digit figure. Loans and advances amounting to US$6 712 298 were written off during the year under review in line with regulatory provisions and recovery efforts will continue off balance sheet.

Financial position

The Group's total assets increased by 32% from US$320 984 926 as at 31 December 2016 to US$422 564 352 as at 31 December 2017 mainly due to a 273% increase in investment securities, an increase of 29% in cash and cash equivalents and a 34% increase in investment properties.

Gross loans and advances increased by 3% from US$205 858 392 as at 31 December 2016 to US$211 005 418 as at 31 December 2017 mainly due to the underwriting of new quality loans and advances under the Bank's tight credit sanctioning regime. The Bank's non-performing loans ratio reduced to 7.98% as at 31 December 2017 from 10.69% as at 31 December 2016.

Investment securities (Treasury Bills and Bonds) increased by 273% from US$24 744 752 as at 31 December 2016 to US$92 245 425 as at 31 December 2017 mainly due to some purchases from both the primary and secondary bond markets.

The deposits increased by 34% from US$260 550 383 as at 31 December 2016 to US$348 955 386 as at 31 December 2017 as a result of a significant improvement in market liquidity and deposit mobilization strategies. The Bank's liquidity ratio closed the period at 46.08% (2016 - 40.06%) and this was above the statutory requirement of 30%.

Capital

The banking subsidiary's capital adequacy ratio at 31 December 2017 calculated in accordance with the guidelines of the Reserve Bank of Zimbabwe (RBZ) was 24.26% (31 December 2016 - 23.32%). The minimum required by the RBZ is 12%. Our capitalisation level is adequate to support the underwriting of new business.

The Group's shareholders' funds and shareholders' liabilities have increased by 18% from US$55 600 406 as at 31 December 2016 to US$65 651 843 as at 31 December 2017 as a result of the current year's attributable profit.

The Bank's regulatory capital as at 31 December 2017 was US$61 135 389 and is above the minimum required regulatory capital of US$25 million.

DIVIDEND

In light of the improved financial performance recorded in the year under review, the need to utilise retained earnings in the holding company and limit the utilization of retained earnings in the banking subsidiary, the Board has proposed a scrip dividend alternative to the cash dividend of 0.36 cents per share. The scrip dividend option was arrived at taking into account shareholders' expectations and value preservation and the need to ensure sustainable organic growth in view of the banking subsidiary's regulatory capitalization requirements.

DIRECTORATE

There were no changes to the directorate during the period under review. The directors of both NMBZ Holdings Limited and NMB Bank Limited boards remain as follows: Mr Benedict A. Chikwanha (Board Chairman), Mr Benefit P. Washaya (Chief Executive Officer), Mr Benson Ndachena (Chief Finance Officer), Mr Charles Chikaura (Independent Non-Executive Director), Mr Erik Sandersen (Non-Executive Director), Mr James de la Fargue (Non-Executive Director), Ms Jean Maguranyanga (Independent Non-Executive Director), Mr Juluius Tichelaar (Non-Executive Director) and Ms Sabinah Chitehwe (Independent Non-Executive Director).

CORPORATE SOCIAL INVESTMENTS

The Group made social investments into the country's educational system, the enhancement of youth enterprenurial skills through partnerships with other stakeholders, the disadvantaged, vulnerable groups, supporting environmental protection and conservation initiatives, the arts and various sporting disciplines during the twelve months under review. The activities and charities supported during the year included the Zimbabwe National Paralympic Games, Tokwe Mukosi flood victims, Enactus BOOST Fellowship programme for universities, several schools, HIFA, Birdlife Zimbabwe, St Monica Parish (Chitungwiza), as well as the Salvation Army Annual Fundraising Pro-AM golf day and many other charitable events.

CORPORATE DEVELOPMENTS

In the year under review, the bank's focus was on the promotion of e-channels in order to increase the customer touch points. The bank upgraded its core banking system and other electronic channels aimed at improving the processing capacity of our systems in an effort to enhance the customer experience and transactional convenience. The bank also launched a cheaper mobile point of sale device mPos in line with our drive to promote electronic payments and these are being rolled out to SMEs and the informal sector. We are in the process of putting finishing touches to a service centre in Bindura and the facility will be opened in the first quarter of 2018.

In terms of shareholder developments, FMO (of The Netherlands) and Norfund (of Norway) who jointly owned 17.98% of NMBZ Holdings Limited (NMBZ) joined forces with Rabo Development B.V (the holding company for Rabobank, the second largest bank in the Netherlands) and pooled their investments in financial services in African countries to form an investment company called Arise. The company was formed in 2016 and asset transfers were largely concluded during the year under review. NMBZ, which now counts Arise as a shareholder stands to benefit from capacity development support, access to a network of other African banks that are part of the partnership as well as equity participation.

OUTLOOK AND STRATEGY

The efforts to broaden the target market have continued to be accelerated with a nationwide blitz to acquire low cost accounts in an effort to promote the national financial inclusion agenda. The Bank also launched the Life and retirement products which are underwritten by Old Mutual. We will continue to promote our mortgages and leasing products as we assist our customers to own homes and for companies to retool. The bank will continue to leverage on its strong shareholder base to access the best technology platforms to accelerate our digital strategy and drive responsible inclusive growth and financial inclusion in Zimbabwe.

We will continue to drive the roll out of our low cost POS machines to both the formal and informal sectors. Recent political changes and a 'Zimbabwe is open for business' approach to the international community promises a more optimistic picture for the financial services sector and the country as a whole and NMBZ looks forward to playing its role in this economic renaissance.

APPRECIATION

My utmost appreciation goes to our clients, shareholders and regulatory authorities for their unwavering support in the period under review. I would also like to thank my fellow Board members, management and staff for their profound commitment, dedication and passion which have underpinned the achievement of the Group's notable results.

MR. B. A. CHIKWANHA

CHAIRMAN

14 March 2018

AUDITOR'S STATEMENT

These financial results should be read in conjunction with the complete set of financial statements for the year ended 31 December 2017, which have been audited by Ernst & Young Chartered Accountants (Zimbabwe) and an unmodified opinion issued thereon. The auditor's report, which includes key audit matters on the financial results, is available for inspection at the Holding Company's registered office. The key audit matters were valuation of properties, existence and impairment of loans and advances.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2017

 CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31 December 2017

 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 for the year ended 31 December 2017

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2017

 CASH FLOWS FROM FINANCING ACTIVITIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2017

1. REPORTING ENTITY

The Holding Company is incorporated and domiciled in Zimbabwe and is an investment holding company. Its registered office address 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 consolidated 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 consolidated financial results does not contain all the disclosures required by International Financial Reporting Standards, the Companies Act (Chapter 24:03) of Zimbabwe and the Banking Act (Chapter 24:20) of Zimbabwe, 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 consolidated financial statements were approved by the Board of Directors on 14 March 2018.

2.1 Basis of preparation

The condensed consolidated financial statements have been prepared under the historical cost convention except for quoted and other investments, investment properties and non-current assets held for sale which are carried at fair value and land and buildings which are stated at revalued carrying amount. These condensed 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 and its subsidiaries. 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.

2.3 Comparative financial information

The comparative information covers a period of twelve months.

2.4 Use of estimates and judgements

In preparation of the Group financial statements, Directors have made judgments, 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 estimates are recognised prospectively.

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending 31 December 2017 is included in the following notes:

2.4.1 Deferred tax

Deferred taxation 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. 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.

2.4.2 Land and buildings

The properties were valued by an independent professional valuer. The determined fair value of land and buildings is most sensitive to significant unobservable inputs. In addition, the property market is currently not stable due to liquidity constraints and hence comparable values are also not readily available.

2.4.3 Investment properties

Investment property were valued by an independent professional valuer. In addition, the property market is currently not stable due to liquidity constraints and hence comparable values are also not readily available.

2.4.4 Investment securities

The Group has treasury bills and government bonds for which there is currently no market information to facilitate the application of fair value principles in determining fair value disclosures. Directors have made a significant judgment in determining that the carrying amount approximates fair value. (refer to note 14.1).

2.4.5 Impairment losses on loan and advances

The Group reviews its individually significant 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 impairment loss on loans and advances is disclosed in more detail under note 8 and note 16.3.

2.4.6 Non-current assets held for sale

Non-current assets were valued by an independent professional valuer. All non-current assets held for sale are measured at their fair values. The determined fair value of non-current assets held for sale is most sensitive to significant unobservable inputs. In addition, the property market is currently not stable due to liquidity constraints and hence comparable values are also not stable.

2.4.7 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 condensed 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 consolidated financial statements are set out 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.

 3.1.1 Classification (continued)

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 initially measured at fair value and subsequently 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 measured at fair value. Gains and losses arising from a change in fair value of investment properties are recognised in the statement of comprehensive income. The fair value is determined at the end of each reporting period, by a registered professional 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

The residual value and the useful life of property and equipment are 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 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.

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 Group 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 Group 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 Group 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 Group 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.

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 and shareholders' liabilities

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

4. INTEREST INCOME

5. NON INTEREST INCOME

5.1 FEE AND COMMISSION income

5.2 OTHER income

6. Operating EXPENDITURE

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 impairment allowance

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 impairment allowance

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 recognised 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 Suspended interest

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, statutory instrument, 2005 of 2000 issued by the RBZ.

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 dilutive 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

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

 10.2 Issued and fully paid

10.2.1 Ordinary shares

10.2.2 Redeemable ordinary shares

Of the unissued ordinary shares of 214 million shares (2016 - 215 million), options which may be granted in terms of the 2012 Employee Share Option Scheme (ESOS) amount to 23 942 639 (2016 - 28 071 073) and as at 31 December 2017; 547 191 share options had been allocated from the Scheme.

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

11. REDEEMABLE ORDINARY SHARES

On 30 June 2013 the Group 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 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. The shares issued gave rise to a potential financial liability and are classified as redeemable ordinary shares.

12. SUBORDINATED TERM LOAN

In 2013, the Group 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 2017. Furthermore, the Group had no breaches to the financial covenants with respect to the subordinated loan as at 31 December 2017.

13. DepositS and other LIABILITIES

13.1 Deposits and other liabilities

\* The carrying amounts of current and deposit accounts and trade and other payables approximate the

related fair values due to their short term nature.

** Included in deposits from banks and other financial institutions are loan balances of US$5 000 000,

US$3 333 333, US$1 651 225 and US$3 157 843 due to Norsad, Nederlandse Financierings-

Maatschappij Voor Ontiwikkelingslanden (FMO), Swedfund and Societie de Promotion de Paticipation

Pour la Cooperation Economique SA (Proparco) respectively. FMO and Swedfund facilities will mature

on 16 October 2020, whilst the Proparco and Norsad facilities mature on 15 April 2019 and 14

April 2018 respectively. The Group has not had any defaults on the principal and interest with

respect to these loans during the period ended 31 December 2017. Furthermore, the Group had no

breaches to the financial covenants with respect to these loans as at 31 December 2017.

13.2 Maturity analysis

13.3 Sectoral analysis of deposits

14. FINANCIAL INSTRUMENTS

14.1 Investment securities

The Group holds treasury bills and government bonds amounting to US$92 245 425 with interest rates ranging from 2% to 10%. Liquidity induced trades have occurred in the secondary market and there is industry consensus that these trades do not represent free market activity. In light of the absence of an observable active market for the treasury bills, the instruments are recorded at amortised cost. Of the total treasury bills balance, a total of US$35 886 406 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

 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.

14.4.1 Financial instruments measured at fair value - fair value hierarchy

During the reporting periods ended 31 December 2017 and 31 December 2016, 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.

Level 3 fair value measurements

Reconciliation

31 December 2017

31 December 2016

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 2017

 31 December 2016

The carrying amount of financial assets and liabilities not measured at fair approximate fair value.

15. CASH AND CASH EQUIVALENTS

*Nostro accounts are foreign domiciled bank accounts operated by the Bank for the facilitation of

offshore transactions on behalf of clients.

Balances with the Central Bank, other banks and cash are used to facilitate customer transactions which include payments and cash withdrawals. During the year the Central Bank through Exchange Control Operational Guide 8 (ECOGAD8) introduced prioritisation criteria which have to be followed when making foreign payments on behalf of customers. After prioritisation, foreign payments are then made subject to availability of bank balances with foreign correspondent banks, resulting in possible delay of payment of telegraphic transfers. However, no delay is expected in the settlement of local transactions through the Real Time Gross Settlement (RTGS) system.

Of the cash and cash equivalents balance an amount of US$526 316 was pledged to Proparco as collateral for offshore lines of credit.

16. LOANS, ADVANCES AND OTHER ASSETS

 16.1 Total loans, advances and other assets

 16.1.1 Loans, advances and other assets

 16.1.2 Maturity analysis

16.2 Sectoral analysis of utilizations

The material concentration of loans and advances is with individuals at 39% (2016 - 44%) and services sector at 20% (2016 - 19%).

16.3 Allowance for impairment losses on loans and advances

16.4 Non-performing loans and advances

The net non-performing loans and advances on these accounts represents recoverable portions covered by realisable security, which includes guarantees, cessation of debtors, mortgages over properties, equities and promissory notes all fair valued at US$15 483 847 (2016 - US$17 573 875).

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

17. NON-CURRENT ASSETS HELD FOR SALE

During the year under review, the Group concluded the sale of a portion of land which was previously classified as held for sale at a price of US$2 150 000.

18. INTANGIBLE ASSETS

\* The work in progress relates to a computer software whose development commenced in 2015 and is now expected to be fully deployed for its intended use in 2018. The Directors preformed an impairment assessment on the intangible asset and were satisfied that the asset had no signs of impairment as at 31 December 2017.

 19. PROPERTY AND EQUIPMENT