Half Yearly Report

Holding company of

NMB BANK LIMITED (Registered Commercial Bank)

FOR THE SIX MONTHS ENDED 30 JUNE 2015

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

CHAIRMAN'S STATEMENT

INTRODUCTION

These results were achieved under a difficult operating and economic environment which is characterised by an illiquid market and deflationary pressures. The Group recorded an attributable profit of US$3 166 684 for the period under review which was a significant improvement on the attributable profit of US$1 667 247 for the year ended 31 December 2014. This was largely attributed to the efforts made by the Bank in broadening its market segment, cost management and credit control.

GROUP RESULTS

Compliance with International Financial Reporting Standards, Companies Act and Banking Act.

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) and the Banking Act (Chapter 24:20).

Assessment of the economic environment

The slowdown in economic growth, which was prevalent in the last quarter of 2014, persisted into the first half of 2015. The economy has continued to be characterised by liquidity challenges, deflationary pressures, company closures, employee retrenchments and all these factors are contributing to the high default risk in the banking sector.

Commentary on operating results

The profit before taxation was US$4 206 275 during the period under review and this gave rise to an attributable profit of US$3 166 684. Total income for the period increased by 24% from a prior period of US$23 303 115 to US$28 802 534 which is split into interest income of US$17 583 627 (2014 - US$15 033 660), fee and commission income of US$10 561 243 (2014 - US$6 814 567), net foreign exchange gains of US$609 218 (2014 - US$945 309) and non-interest income of US$48 446 (2014 - US$509 579).

Operating expenses increased by 5% to US$14 070 828 and these were driven largely by administration costs and amortisation of intangible assets.

Impairment losses on loans and advances amounted to US$2 644 309 for the current period from a prior period amount of US$1 581 045 and the increase was mainly due to the deteriorating economic environment.

Commentary on the statement of financial position

The Group's total assets grew by 20% from US$286 049 034 as at 31 December 2014 to US$344 184 620 as at 30 June 2015. The assets comprised mainly loans, advances and other assets US$228 091 331 (2014 - US$203 363 052), non-current assets held for sale US$2 267 300 (2014 - US$2 267 300, investment securities US$10 135 401 (2014 - US$3 874 525), cash and cash equivalents US$79 899 234 (2014 - US$54 750 561), investment properties US$12 630 662 (2014 - US$4 453 300) and property and equipment US$5 877 886 (2014 - US$6 345 267).

While total assets grew by 20%, gross loans and advances recorded a lower increase of 9% from US$217 463 319 as at 31 December 2014 to US$236 180 331 as at 30 June 2015 mainly due to stricter credit management in the face of the worsening default risk in the economy. Total deposits increased by 22% from US$235 362 677 as at 31 December 2014 to US$287 047 011 as at 30 June 2015.

The Bank's liquidity ratio closed the period at 34.56% (31 December 2014 - 32.38%) and this was above the statutory requirement of 30%.

Capital

The banking subsidiary's capital adequacy ratio at 30 June 2015 calculated in accordance with the guidelines of the Reserve Bank of Zimbabwe (RBZ) was 18.32% (31 December 2014 - 19.32%). The minimum required by the RBZ is 12%.

The Group's shareholder funds increased by 7% from US$45 047 616 as at 31 December 2014 to US$48 216 645 as at 30 June 2015 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 towards the arts, educational and sporting activities and the disadvantaged.

CORPORATE DEVELOPMENTS

Our footprint in the Midlands Province was further boosted by the opening of the Kwekwe branch in April 2015. This was followed by the opening in May 2015 of the paperless Digital Banking Centre in Harare which was designed to meet the expectations of the technology users. The Centre is equipped with diverse gadgets which are intended to help customers transact across all digital platforms.

OUTLOOK AND STRATEGY

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

A new branch will be opened in Masvingo in the third quarter of 2015, an Excellence Centre will be opened at Sam Levy's Village and a branch in Chinhoyi will be opened in the fourth quarter of 2015.

DIRECTORATE

Mr T.N. Mundawarara resigned as a director and Chairman of NMBZ Holdings Limited and NMB Bank Limited with effect from 18 March 2015. Mr A.M.T. Mutsonziwa and Mr J. Chigwedere resigned from both the boards of NMBZ Holdings Limited and NMB Bank Limited with effect from the 21st of May 2015. Mr Roger Keighley resigned from both boards of NMBZ Holdings Limited and NMB Bank Limited post the period end, on 3 July 2015. I would like to thank the four gentlemen for their invaluable contributions to both NMBZ Holdings Limited and NMB Bank Limited during their tenure.

Subsequent to the period end, Ms Jean Maguranyanga and Mr Erik Sandersen were appointed to the boards of NMBZ Holdings Limited and NMB Bank Limited with effect from 10 July 2015 and 13 August 2015 respectively. I would like to wish them a fruitful tenure on the Boards.

I was appointed the Chairman of the Boards of NMBZ Holdings Limited and NMB Bank Limited with effect from 19 March 2015 and I look forward to serving our clients, shareholders and regulatory authorities during my tenure.

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.

B. A. CHIKWANHA

CHAIRMAN

19 August 2015

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2015

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2015

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 June 2015

CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended 30 June 2015

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

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

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard (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 2014. 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 19 August 2015.

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.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

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 2014.

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.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

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.

2.4.4 Property and equipment

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

2.4.5 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.

2.4.6 Intangible assets

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

2.4.7 Fair value adjustments of unquoted investments

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

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

2.4.8 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.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

2.4.9 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.

2.4.10 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.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

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.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

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 recognised 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 refer 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.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

3.7 Taxation

Income tax

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

Current

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

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

Deferred taxation

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

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

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

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

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

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

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

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

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

3.8 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.

3.9 Revenue recognition

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

3.10 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.

3.11 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.

4. INTEREST INCOME

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

5. FEE AND COMMISSION INCOME AND non-interest income

5.1 Fee and commission income

5.2 Non - interest income

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

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.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

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.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

9.1 Earnings

9.2 Number of shares

9.3 Earnings per share (US cents)

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

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 215 million shares (2014 - 215 million), options which may be granted in terms of the 2012 ESOS amount to 28 071 073 and as at 30 June 2015, 4 128 434 share options had been issued.

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

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

11. REDEEMABLE ORDINARY SHARES

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

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

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

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

12. SUBORDINATED TERM LOAN

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

The above liability would, in the event of the winding up of the issuer, be subordinated to the claims of depositors and all other creditors of the issuer. The Group has not had any defaults of the principal and interest and other breaches with respect to this subordinated loan during the six months period ended 30 June 2015. However, there were breaches to the financial covenants regarding the aggregate large exposures ratio that stood at 56.4% instead of a cap of 25% as well as the open asset exposure ratio that stood at 41.4% instead of a maximum of 30%.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

13. DepositS and other accounts

13.1 Deposits and other accounts

` 

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

**Included in deposits from banks and other financial institutions are loan balances of US$2 521 213 and US$8 425 323 due to Nederlandse Financierings-Maatschappij Voor Ontiwikkelingslanden N.V. (FMO) and Societe de Promotion de Participation Pour la Cooperation Economique SA (Proparco) respectively. The Group has not had any defaults on the principal and interest with respect to these loans during the period ended 30 June 2015. However, there were breaches to the Proparco financial covenants regarding the following ratios:

· Cost to income ratio - 67.2% (instead of a maximum of 65%).

· Open credit exposure - 50.7% (instead of a maximum of 25%).

· Non-performing loans ratio - 14.9% (instead of a maximum of 10%).

13.2 Maturity analysis

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

13.3 Sectoral analysis of deposits

14. FINANCIAL INSTRUMENTS

14.1 Investment securities

The Group holds Treasury Bills and Government Bonds totalling US$10 135 401 with interest rates ranging from 2.5% - 5%. Liquidity induced trades have occurred in the secondary market and there is currently no industry consensus as to whether or not these trades represent free market activity. Consequently, in the absence of current consensus on the matter, the instruments are recorded at face value and interest accrued to date.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

14.2 Maturity analysis of investment securities held to maturity

14.3 Maturity analysis of investment securities available for sale

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

14.4 Fair values of financial instruments

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

14.4.1 Financial instruments measured at fair value - fair value hierarchy

During the reporting period ended 30 June 2015, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. The trade investments were valued using the net asset value method.

During the reporting period ended 31 December 2014, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.

Level 3 fair value measurements

Reconciliation of trade investments

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

14.4.2 Financial 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.

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.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

14. FINANCIAL INSTRUMENTS (continued)

14.4 Fair values of financial instruments (continued)

14.4.2 Financial instruments not measured at fair value (continued)

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.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

15. CASH AND CASH EQUIVALENTS

16. Investment in debentures

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

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

17. LOANS, ADVANCES AND OTHER ACCOUNTS

17. 1 Total loans, advances and other accounts

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

17.2 Sectoral analysis of utilizations

The material concentration of loans and advances are to individuals at 36% (2014 - 27%) and the distribution sector at 21% (2014 - 26%).

17.3 Allowance for impairment losses on loans, advances and debentures

17.4 Non-performing loans and advances

The residue of these accounts represents recoverable portions covered by realisable security, which includes guarantees, cession of debtors, mortgage bonds over properties, equities and promissory notes all fair valued at US$24 525 547 (2014 - US$23 465 162).

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

for the six months ended 30 June 2015

17.5 Loans to related parties