Half Yearly Report

Holding company of

NMB BANK LIMITED (Registered Commercial Bank)

FOR THE SIX MONTHS ENDED 30 JUNE 2014

HIGHLIGHTS

Enquiries:

NMBZ HOLDINGS LIMITED Telephone: +263-4-759 651/9

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 Finance Officer, NMBZ Holdings Limited [email protected]

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

Email: [email protected]

CHAIRMAN'S STATEMENT

INTRODUCTION

The Group recorded an attributable profit of US$1 386 233 for the period under review which was a significant improvement on the attributable loss of US$3 321 823 for the year ended 31 December 2013. This was largely attributed to the efforts made in containing non-performing loans in an increasingly difficult operating environment. These results were achieved under a deteriorating economic and operating environment which was characterised by an illiquid market and a general tightening in the economy.

GROUP RESULTS

Compliance with International Financial Reporting Standards, Companies Act, Banking Act and ZSE Listing Rules and Disclosure Requirements.

The condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The condensed consolidated interim financial statements are in compliance with the provisions of the Companies Act (Chapter 24:03), the Banking Act (Chapter 24:20) and ZSE Listing Rules and Disclosure Requirements.

Assessment of the economic environment

The slowdown in economic growth, which was prevalent in the last quarter of 2013, persisted into the first half of 2014. This was largely driven by an illiquid market and very tight operating margins as a result of the deflationary pressures.

Commentary on operating results

The profit before taxation was US$1 867 035 during the period under review and this gave rise to an attributable profit of US$1 386 233. Total income for the period decreased by 7.23% from a prior period of US$25 118 143 to US$23 303 115 which is split into interest income of US$15 033 660 (2013 - US$16 099 196), fee and commission income of US$6 814 567 (2013 -US$7 590 765), net foreign exchange gains of US$945 309 (2013 - US$866 453) and non-interest income of US$509 579 (2013 - US$561 729).

Operating expenses increased by 2.5% to US$13 352 244, and these were driven largely by staff costs, depreciation of property and equipment and amortisation of intangible assets.

Impairment losses on loans, advances and debentures amounted to US$1 581 045 for the current period from a prior period amount of US$1 887 537 and the decrease was mainly due to increased security obtained on exposures.

Commentary on the statement of financial position

The Group's total assets grew by 1.74% from US$259 483 112 as at 31 December 2013 to US$264 002 814 as at 30 June 2014. The assets comprised mainly loans, advances and other accounts US$179 128 700 (2013 - US$181 316 271), non-current assets held for sale US$2 264 300 (2013 - US$2 303 300), investment securities held to maturity US$4 763 896 (2013 -US$4 685 471), investment in debentures US$4 117 756 (2013 - US$3 984 723), cash and short term funds US$56 122 895 (2013 -US$48 871 983), investment properties US$4 395 500 (2013 - US$4 385 300) and property and equipment US$7 044 532 (2013 - US$7 372 943).

Gross loans and advances decreased by 0.59% from US$194 777 798 as at 31 December 2013 to US$193 620 036 as at 30 June 2014 mainly due to conservative lending in line with the worsening default risk in the economy. Total deposits increased by 1.22% from US$211 215 066 as at 31 December 2013 to US$213 795 232 as at 30 June 2014.

The Bank's liquidity ratio closed the period at 35.56% (31 December 2013 -32.52%) and this was above the statutory requirement of 30%.

Capital

The banking subsidiary's capital adequacy ratio at 30 June 2014 calculated in accordance with the guidelines of the Reserve Bank of Zimbabwe (RBZ) was 17.44% (31 December 2013 - 17.28%). The minimum required by the RBZ is 12%.

The Group's shareholder funds increased by 3.21% from US$43 441 403 as at 31 December 2013 to US$44 834 220 as at 30 June 2014 as a result of an increase in retained earnings.

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

The Group actively participates in serving the communities it operates in. During the period under review, the Group's investment in the community was channeled into protection of the environment, the arts, sporting disciplines and education.

CORPORATE DEVELOPMENTS

In pursuit our mission of providing premium financial services to our customer, we launched a Customer Relationship Management System (CRM) which will be instrumental in identifying opportunities to serve our valued clients better. We also upgraded our Automated Teller Machines (ATMs) to accept Chip & Pin cards and this will drastically improve security on our cards and curb fraud risk on the use of cards.

OUTLOOK AND STRATEGY

The Group has continued to scout for more international lines of credit and explore growth opportunities in other market segments.

DIRECTORATE

Mr B Zwinkels, Ms M Svova, Mr B Chikwanha, Mr C Ndiaye and Mr D Malik were appointed to both the NMBZ and NMB Bank Boards with effect from 31 January 2014. I would like to extend a warm welcome to the new board members and wish them a successful tenure on the Board.

APPRECIATION

I would like to pay tribute to our valued clients, shareholders and regulatory authorities for their continued support in the period under review. I would also like to thank my fellow board members, management and staff for their profound commitment and dedication which has made the achievement of these results possible in the face of a deteriorating economic environment.

T N MUNDAWARARA

CHAIRMAN

20 August 2014

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2014

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 30 June 2014

\* The amount was restated following the reclassification of shares issued to three strategic foreign investors from ordinary share capital to redeemable ordinary shares (refer to note 11).

*\* The amount was restated following a reclassification of the subordinated term loan from deposits and other accounts to shareholders' funds (refer to note 12).

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 June 2014

\* The amounts were restated following the reclassification of shares issued to three strategic investors from ordinary share capital to redeemable ordinary share capital (refer to Note 10.2.2 and 11).

CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended 30 June 2014

\* The amount was restated following a reclassification of the subordinated term loan from deposits and other accounts to shareholders' funds (refer to note 12).

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 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 banking and other companies hold investments.

2. ACCOUNTING CONVENTION

Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position of the Group since the last annual consolidated financial statements as at and for the year ended 31 December 2013. These condensed consolidated interim financial statements do not include all the information required for the full annual financial statements prepared in accordance with International Financial Reporting Standards.

These condensed consolidated interim financial statements were approved by the Board of Directors on 20 August 2014.

2.1 Basis of preparation

The condensed consolidated interim 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 consolidated interim 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 the 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.

2.3 Comparative financial information

The interim 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 six months.

2.4 Use of estimates and judgements

The preparation of the interim financial statements 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.

The significant judgements made by management in applying the Group's accounting policies and key sources of estimation and uncertainity were the same as those applied to the consolidated financial statements as at and for the year ended 31 December 2013.

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 directors. 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 directors. The directors 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 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.

2.4.5 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.), 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.

2.4.7 Non-current assets held for sale

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

Non-current assets were valued by the directors who considered comparable market evidence of recent sale transactions and those transactions where firm offers had been made but waiting acceptance.

3. ACCOUNTING POLICIES

The selected principal accounting policies applied in the preparation of these condensed 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.

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.

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.

3.6 Shareholders' funds

Shareholders' funds refers to the total 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.

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 period attributable to ordinary equity holders of NMBZ Holdings Limited by the weighted average number of ordinary shares outstanding during the period.

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

9.2 Number of shares

9.3 Earnings per share (US cents)

10. SHARE CAPITAL

10.2 Issued and fully paid

10.2.1 Ordinary shares

10.2.2 Reedemable ordinary shares

Of the unissued ordinary shares of 215 million shares (2013 - 215 million), options which may be granted in terms of the 2012 ESOS amount to 28 071 073 and as at 30 June 2014, 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

The Company received on 30 June 2013 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 as the subscription price of US$0.143 plus the proportionate share of the distributable reserves above the minimum regulatory capital at the point of exercising the share buy back . 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. Thus shares issued gave rise to a financial liability and are classified as redeemable ordinary shares.

The investment by the three strategic investors was classified as ordinary shares as at 30 June 2013 but was subsequently reclassified to redeemable ordinary shares in the results for the year ended 31 December 2013.

The effect of this change on the 30 June 2013 results is summarised below:

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 from the first disbursement date.

The loan was initially classified as a deposit as at 30 June 2013 but was subsequently reclassified to shareholders' funds in the results for the year ended 31 December 2013.

The effect of this change on the 30 June 2013 results is summarised below:

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 six months period ended 30 June 2014.

13. DepositS and other accounts

13.1 Deposits and other accounts

13.2 Maturity analysis

13.3 Sectoral analysis of deposits

14. FINANCIAL INSTRUMENTS

14.1 Investment securities held to maturity

14.2 Maturity analysis of investment securities held to maturity

14.3 Fair values of financial instruments

14.3.1 Financial instruments measured at fair value - fair value hierarchy

During the reporting period ended 30 June 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.

During the reporting period ended 31 December 2013, 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 of Trade investments

14.3.2Financial instruments not measured at fair value

The table below 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.

30 June 2014

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

16. INVESTMENT IN DEBENTURES

The Bank has convertible debentures with a carrying amount of US$4 787 074 with a maturity of 5 years from inception. The debentures are at an interest rate 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 utilisations

The material concentration of loans and advances are in the distribution sector at 24% (2013-24%) and individuals at 24% (2013-24%).

17.3 Allowance for impairment losses on loans, advances and debentures