Final Results

NMBZ HOLDINGS LIMITED

Holding company of

NMB BANK LIMITED (Registered Commercial Bank)

FOR THE YEAR ENDED 31 DECEMBER 2013

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

CHAIRMAN'S STATEMENT

INTRODUCTION

The Group's capital raising initiatives resulted in the Group receiving a total of US$14 831 145 capital from three strategic foreign partners in June 2013. The net amount was used to recapitalise the banking subsidiary in order to contribute to the minimum capital requirements set by the Reserve Bank of Zimbabwe (RBZ). The increased capital will allow the Bank to underwrite more business, a prerequisite for the financial services sector to continue its key role of helping develop the economy.

GROUP RESULTS

Compliance with International Financial Reporting Standards

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements are prepared in compliance with the provisions of the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20).

Assessment of the Economic Environment

The Zimbabwean economy in the last two quarters of 2013 and replicated in the first quarter of 2014 has been characterised by slow economic growth primarily as a result of reduced operating margins and tight liquidity. The slow-down in the economic growth has led to increased default risk and the average banking sector non-performing loans have consequently risen to 15.92% as at 31 December 2013 as per the recent Monetary Policy Statement. Credit risk has become the critical area that banks and corporates have to deal with.

Commentary on operating results

The loss before taxation was US$3 951 865 during the period under review and this gave rise to an attributable loss of US$3 321 823. Total income for the period increased by 11% from a prior year of US$45 055 751 to US$ 50 135 302 which is split into interest income of US$33 181 704, fee and commission income of US$14 673 834, net foreign exchange gains of US$1 502 044 and non-interest income of US$777 720.

Operating expenses amounted to US$25 232 756 and these were 18% up from prior year and comprise largely of administration expenses, depreciation and staff related expenditure.

Impairment losses on loans and advances amounted to US$16 645 810 for the current period from a prior year of

US$3 985 062. The Board of Directors took a decision to write off loans and advances amounting to

US$12 230 408 during the year under review after recovery efforts had not yielded the anticipated results.

In February 2013, the Reserve Bank of Zimbabwe and participating members of the Bankers Association of Zimbabwe (BAZ) signed a Memorandum of Understanding (MoU) which provided limits on bank charges and interest rates. The measures took effect from 1 February 2013 and the MoU was not renewed in December 2013. Whilst we recognise the need to keep fees and interest rates as low as possible, this MoU has had a pronounced effect on the Bank's profitability for the period under review, as the risk has not been reduced in line with the controlled returns.

Commentary on the Statement of financial position

The Group's total assets grew by 15% from US$226 533 682 as at 31 December 2012 to US$259 483 112 as at 31 December 2013. The assets comprised mainly of loans, advances and other accounts (US$181 316 271), investment securities held to maturity (US$4 685 471), investment in debentures (US$3 984 723), cash and short term funds (US$48 871 983), investment properties (US$4 385 300), non-current assets held for sale (US$2 303 300) and property and equipment (US$7 372 943). Gross loans and advances increased by 25% from US$152 417 375 as at 31 December 2012 to US$189 990 724 as at 31 December 2013. The Bank's liquidity ratio closed the period at 32.52% and this was above the statutory requirement of 30%.

Capital

The banking subsidiary's capital adequacy ratio at 31 December 2013 calculated in accordance with the guidelines of the RBZ was 17.28% (31 December 2012 - 15.50%). The minimum required by the RBZ is 12%.

The Group's shareholders' funds have increased by 40% from US$30 942 083 as at 31 December 2012 to

US$43 441 403 as at 31 December 2013 primarily as a result of the new capital injected into the Group.

Dividend

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

CORPORATE SOCIAL INVESTMENTS

The Group is committed to playing an active role in the communities it serves. Our community investments are channeled into education, the disadvantaged, vulnerable groups, protection of the environment, wild life conservation, the arts and various sporting disciplines.

CORPORATE DEVELOPMENTS

In line with our strategic thrust to offer service excellence to our valued high net worth individuals and businesses, we successfully launched the Mobile Banking, Internet Banking, Teller POS, Aptra Promote and EcoCash integration during the year under review.

OUTLOOK AND STRATEGY

The Group has since dollarisation secured lines of credit amounting to US$57 million and these have allowed the Bank to underwrite more lending business for the benefit of our clients. Subsequent to year end, the Bank secured a US$10 million line of credit from a European Development Financial Institution (Proparco) and the Bank will continue to scout for more international lines of credit. The Group continues to pursue market opportunities which take advantage of strong liquidity, without exacerbating credit risk.

DIRECTORATE

Ms L Majonga, Mr B Ndachena, Mr F Zimuto and Mr J de la Fargue resigned as directors of NMBZ Holdings Limited and NMB Bank Limited with effect from 20 November 2013. Mr L Chinyamutangira and Mr F S Mangozho resigned from the NMB Bank Limited Board with effect from 20 November 2013. Mr B Ndachena, Mr F Zimuto, Mr L Chinyamutangira and Mr F S Mangozho remain employees of the Group. I would like to thank them all for their invaluable contribution to the respective Boards over the years.

Subsequent to year end, Mr B Zwinkels, Ms M Svova, Mr B Chikwanha, Mr C Ndiaye and Mr D Malik were appointed to the Board with effect from 31 January 2014. I would like to welcome the new board members and wish them a fruitful tenure on the Board.

APPRECIATION

I would like to express my profound gratitude and appreciation to our valued clients, shareholders and the Regulatory Authorities for their unwavering support during the period under review. I would also like to thank my fellow Board members, management and staff for their steadfast commitment and dedication in the face of an increasingly difficult operating environment.

T N MUNDAWARARA

CHAIRMAN

19 March 2014

AUDITOR'S STATEMENT

These financial results should be read in conjunction with the complete set of financial statements for the year ended 31 December 2013, 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 2013

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2013

NMBZ HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2013

NMBZ HOLDINGS LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2013

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.

2. ACCOUNTING CONVENTION

Statement of compliance

 The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and have been prepared in compliance with the provisions of 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 2014.

2.1 Basis of measurement

 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 and 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 companies. 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 associates is accounted for using the equity method.

2.3 Comparative financial information

The consolidated financial statements comprise consolidated statements of financial position, comprehensive income, changes in equity and cash flows. The comparative consolidated statements of comprehensive income, changes in equity and 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

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.

2.4.3 Investment properties

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 17.3 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.  

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

3.1.1Classification

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 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.

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.

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.

4. INTEREST INCOME

5. FEE AND COMMISSION INCOME AND NON-INTEREST INCOME

5.1 FEE AND COMMISSION income

5.2 non-interest 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 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.

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 (Losses)/earnings

9.2 Number of shares

9.2.1 Basic earnings per share

9.2.2 Diluted earnings per share

9.3 (Loss)/earnings per share (US cents)

10. SHARE CAPITAL

At an Extraordinary General Meeting held on 19 February 2013, the Company approved a share consolidation exercise at a ratio of 10 : 1 and consolidated 3 500 000 000 (3.5 billion) shares with a nominal value of US$0.000028 per share to 350 000 000 (350 million) shares with a nominal value of US$0.00028 per share. The Company also approved an increase in the authorised share capital from 350 million shares with a nominal value of $0.00028 per share to 600 million shares with a nominal value of $0.00028 per share.

Of the unissued ordinary shares of 215 million shares (2012- 69 million), options which may be granted in terms of the NMBZ 2005 Employee Share Option Scheme (ESOS) amounted to nil (2012 - 8 536 096) and out of these nil (2012 - 1 670 869) had not been issued. As at 31 December 2013, 907 200 (2012 - 907 200) share options out of the issued had not been exercised.

Share options which may be granted in terms of the 2012 ESOS amount to 28 071 073 and as at 31 December 2013 no share options had been allocated from the Scheme.

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

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 but before the 9th anniversary 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 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 financial liability and are classified as redeemable ordinary shares.

12. SUBORDINATED TERM LOANS

During the year, the Bank received a subordinated term loan amounting to US$1.4 million from

Norfund which attracts an interest rate of LIBOR plus 10% and has a seven year maturity date 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 of the principal, interest and other breaches with respect to this subordinated loan during the year ended 31 December 2013.

13. DepositS and other accounts

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

13.2 Maturity analysis

14. FINANCIAL INSTRUMENTS

14.1 Investment securities held to maturity

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

15. CASH AND CASH EQUIVALENTS

15. INVESTMENT IN DEBENTURES

During the period under review, a loan with a carrying amount of US$4 787 074 was converted to convertible debentures of US$4 787 074 with a maturity of 5 years. The debentures are at an interest of 10% per annum. The Bank has an option to convert the debentures to equity or redeem the debentures at par on or before the maturity date of 9 March 2018.

17. LOANS, ADVANCES AND OTHER ACCOUNTS

 17.1 Total loans, advances and other accounts

17.2 Sectoral analysis of utilizations

The material concentration of loans and advances are in the distribution sector at 24% (2012- 31%) and individuals at 24% (2012 - 20%).

17.3 Allowance for impairment losses on loans, advances and debentures

17.4 Non-performing loans, advances and debentures

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

18. NON-CURRENT ASSETS HELD FOR SALE

The Group is in possession of land with a fair value of US$2 225 300 at year end. The Group entered into a sale agreement for a portion of the land in 2012, however the execution and finalisation of the sale under this contract has been pending throughout 2013, due to unexpected delays in obtaining certain regulatory approvals. The disposal process is now expected to be completed within the next twelve months after the reporting date. The disposal will improve the Group's cashflows. The fair value adjustment on recognition as non-current asset held for sale is included under non-interest income (note 5).

19 INTANGIBLE ASSETS

During the year, computer software amounting to US$740 615 was reclassified from computer

equipment to intangible assets in order to achieve fair presentation.

 20. PROPERTY AND EQUIPMENT