Half Yearly Report

NMBZ HOLDINGS LIMITED 

Holding company of

NMB BANK LIMITED (Registered Commercial Bank)

FOR THE SIX MONTHS ENDED 30 JUNE 2013

HIGHLIGHTS

Enquiries:

NMBZ HOLDINGS LIMITED Tel: +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 Financial Officer, NMBZ Holdings Limited [email protected]

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

Email: [email protected]

INTRODUCTION

These results were achieved under a relatively subdued economic and operating environment which was characterised by an illiquid market and a general tightening in the economy in light of the national elections set for 31 July 2013. The banking sector performance was adversely affected by the Memorandum of Understanding (MOU) on interest rates and bank charges.

GROUP RESULTS

Compliance with International Financial Reporting Standards

The condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The condensed financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting.

Commentary on operating results

The profit before taxation was US$3 812 214 during the period under review and this gave rise to an attributable profit of US$2 672 911. Net interest income was US$9 488 623 for the period. Non-interest income amounted to US$8 152 494 and this was mainly as a result of commissions and fee income which amounted to US$7 590 765.

Operating expenses amounted to US$13 025 587 and these were driven largely by administration and staff related expenditure.

Impairment losses on loans and advances amounted to US$1 887 537 for the current period from a prior year amount of US$688 020 and the increase was mainly due to the liquidity and market challenges being faced by businesses.

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.

Statement of financial position

The Group's total assets grew by 17% from US$226 533 682 as at 31 December 2012 to US$264 784 407 as at 30 June 2013. The assets comprised mainly loans, advances and other accounts (US$177 740 224), non-current assets held for sale (US$2 216 500), investment securities held to maturity (US$5 578 070), investments in debentures (US$3 984 723), cash and short term funds (US$61 029 068), investment properties (US$3 020 300) and property and equipment (US$8 483 963).

Gross loans and advances increased by 20% from US$152 417 375 as at 31 December 2012 to US$183 454 912 as at 30 June 2013.

Total deposits increased by 10% from US$191 422 066 as at 31 December 2012 to US$210 673 789 as at 30 June 2013 in the midst of a declining market deposit base.

The Bank's liquidity ratio closed the period at 40.76% and this was above the statutory requirement of 30%.

The banking subsidiary's capital adequacy ratio at 30 June 2013 calculated in accordance with the guidelines of the Reserve Bank of Zimbabwe (RBZ) was 18.39% (31 December 2012 - 15.50%). The minimum required by the RBZ is 12%.

The Group's equity increased by 55% from US$30 942 083 as at 31 December 2012 to US$47 950 247 as at 30 June 2013 as a result of an increase in retained earnings and US$14.8 million capital injected through a private placement by three strategic foreign investors.

OUTLOOK AND STRATEGY

We eagerly wait to see whether the economic environment will now become more certain and predictable post the recent harmonised elections, whatever the case, the Group will continue to scout for more international lines of credit. The Group will also explore growth opportunities in other market segments.

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 subdued economic environment.

T N MUNDAWARARA

CHAIRMAN

21 August 2013

INDEPENDENT REVIEW BY THE AUDITORS

These interim condensed consolidated financial statements for the six months ended 30 June 2013 have been reviewed by the company's auditor, KPMG Chartered Accountants (Zimbabwe). In their review report dated 21 August 2013, which is available for inspection at the company's registered office, KPMG Chartered Accountants (Zimbabwe) state that their review was conducted in accordance with the International Standard on Review Engagements 2410, Review of interim information performed by the independent auditor of the entity, and have expressed an unmodified conclusion on the interim condensed consolidated financial statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2013

*-the amounts were restated after the consolidation of shares referred to in note 10.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 30 June 2013

 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 June 2013

CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended 30 June 2013

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

2. ACCOUNTING CONVENTION

Statement of compliance

This condensed consolidated interim financial report has 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 2012. This condensed interim financial report does not include all the information required for the full annual financial statements prepared in accordance with International Financial Reporting Standards.

This condensed interim financial report was approved by the Board of Directors on 21 August 2013.

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 their revalued amounts. These condensed financial statements are reported in United States of America dollars and rounded to the nearest dollar.

2.2 Comparative financial information

The condensed consolidated interim financial statements comprise a consolidated statement of financial position, a consolidated statement of comprehensive income, a consolidated statement of changes in equity and a consolidated statement of cash flows. The comparative statement of comprehensive income and the comparative statements of changes in equity and cash flows are for six months.

2.3 Use of estimates and judgements

The preparation of the condensed 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.

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 condensed consolidated interim financial statements:

2.3.1 Deferred tax asset

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 periods prior to indicating 2008 was 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.

2.3.2 Land and buildings

Land and buildings are stated at their revalued amounts based on valuations performed annually by independent valuers, less subsequent accumulated depreciation and impairment losses.

2.3.3 Investment properties

The fair value of the investment properties at 30 June 2013 has been arrived at on the basis of directors' valuation on an open market value method. The valuation was arrived at by reference to market evidence of transaction prices for similar properties. No liabilities are guaranteed by the investment properties.

2.3.4 Investment securities held to maturity

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.

2.3.5 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 15.3.

2.3.6 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 condensed financial statements on a going concern basis is still appropriate.  

3. ACCOUNTING POLICIES

The 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 are 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 behavioral 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.

4. INTEREST INCOME

5. non-interest income

6. Operating EXPENDITURE

7. taxation

8. IMPAIRMENT LOSSES ON LOANS AND ADVANCES

Impairment losses are applied to write off advances in part or in whole when they are considered partly or wholly irrecoverable. The aggregate impairment losses which are raised during the period are dealt with as per paragraph 8.3.

8.1 Specific provisions

Specific provisions are made where the repayment of identified advances is in doubt and reflect estimates of the loss. 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 Earnings

9.2 Number of shares

9.3 Earnings per share (US cents)

* Restated after the consolidation of shares referred to in note 10 below.

10. SHARE CAPITAL

10.2 Issued and fully paid

The Company received a total of US$14 831 145 equity capital from three strategic foreign partners namely Norfund, FMO and AfricInvest who were allocated 34 571 429 shares each 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$50 million by 30 June 2013.

NMBZ Holdings Limited entered into a share buy-back agreement with Nederlandse Financierings-Maatschappij Voor Ontiwikkelingslanden N.V. (FMO), Norwegian Investment Fund for Developing Countries (Norfund) and AfricInvest Financial Sector Holdings (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.

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. DepositS and other accounts

11.1 Deposits and other accounts

11.2 Maturity analysis

11.3 Sectoral analysis of deposits

12. Investment securities held to maturity

12.1 Maturity analysis of investment securities held to maturity

13. Cash and cash equivalents

14. 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 period of 5 years. 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, 9 March 2018.

15. LOANS, ADVANCES AND OTHER ACCOUNTS

15.1 Total loans, advances and other accounts

15.2 Sectoral analysis of utilisations

The material concentration of loans and advances are in the distribution sector at 30% (2012:31%).

15.3 Allowance for impairment losses on loans, advances and debentures

15.4 Non-performing loans and advances

16. PROPERTY AND EQUIPMENT

17. CAPITAL COMMITMENTS

The capital expenditure will be funded from internal resources.

18. CONTINGENT LIABILITIES

19. INVESTMENT IN ASSOCIATE

The Group had a 24.79% interest in African Century Limited, which is involved in the provision of lease finance. The investment was disposed off on the 29th of May 2013 for a consideration of US$1 850 000.

African Century Limited is a company that is not listed on any public exchange. The following table illustrates summarized unaudited and audited financial information of the Group's investment in African Century Limited.

Share of the associate's statement of financial position:

20. EXCHANGE RATES

The following exchange rates have been used to translate the foreign currency balances to United States of America dollars (US$) at period end:-

NMB BANK LIMITED

STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2013

NMB BANK LIMITED

STATEMENT OF FINANCIAL POSITION

as at 30 June 2013