Half Yearly Report

NMBZ HOLDINGS LIMITED 

Holding company of

NMB BANK LIMITED (Registered Commercial Bank)

FOR THE SIX MONTHS ENDED 30 JUNE 2012

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]

CHAIRMAN'S STATEMENT

INTRODUCTION

These results were achieved under a relatively stable economic environment which was characterised by market liquidity constraints and a general tightening in the economy.

GROUP RESULTS

Compliance with International Financial Reporting Standards

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

Commentary on operating results

The profit before taxation was US$3 419 788 during the period under review and this gave rise to an attributable profit of US$2 564 350. Net interest income was US$7 019 246 for the period. Non-interest income amounted to US$6 460 875 and this was mainly as a result of commissions and fee income (US$6 556 955).

Operating expenses amounted to US$10 481 773 and these were driven largely by administration and staff related expenditure.

Impairment losses on loans and advances amounted to US$688 020 for the current period from a prior year amount of US$1 346 063.

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 8% from US$167 287 333 as at 31 December 2011 to US$180 533 243 as at 30 June 2012. The assets comprised mainly loans, advances and other accounts (US$105 665 263), financial assets at fair value through profit and loss (US$22 349 820), investment securities held to maturity (US$5 425 534), cash and short term funds (US$35 244 836), investment properties (US$2 632 500) and property and equipment (US$7 457 412). Gross loans and advances increased by 7% from US$119 596 646 as at 31 December 2011 to US$127 870 654 as at 30 June 2012.

Total deposits increased by 8% from US$139 226 144 as at 31 December 2011 to US$149 889 217 as at 30 June 2012.

The Bank's liquidity ratio closed the period at 33% and this was above the statutory requirement of 30% at 30 June 2012.

Subsequent to the reporting date, the Bank and the Holding Company have received firm offers, which have been accepted by the companies, for the purchase of half of an investment property owned by the Bank for a consideration of US$2 150 000 and for the purchase of the Holding company's shareholding in an associate for a consideration of US$1 589 209. The financial effects of these transactions, on a proforma basis, are fully disclosed in Note 20 of the abridged financial statements.

Capital

The banking subsidiary's capital adequacy ratio at 30 June 2012 calculated in accordance with the guidelines of the Reserve Bank of Zimbabwe (RBZ) was 13.03% (31 December 2011 - 14.37%). The minimum required by the RBZ is 10%. Subsequent to the half year end, the Reserve Bank of Zimbabwe Governor announced in his Mid-Term Monetary Policy Review Statement on 31 July 2012 an increase in minimum capital requirements. The minimum capital for a commercial bank has been increased from US$12.5 million to US$25 million by 31 December 2012, US$50 million by 30 June 2013, US$75 million by 31 December 2013 and US$100 million by 30 June 2014. The minimum capital adequacy was increased from 10% to 12% effective 1 August 2012.

The Board has a medium term business strategic plan which demonstrates compliance with the new minimum capital requirements and this will be submitted to the Regulatory Authorities by the due date of 30 September 2012.

The Group's equity increased by 11% from US$23 371 581 as at 31 December 2011 to US$25 935 931 as at 30 June 2012 as a result of an increase in retained earnings.

OUTLOOK AND STRATEGY

The Group will continue to look for more lines of credit from those institutions which are currently in a position to do business with the country. The Group continues to explore growth opportunities in the market.

DIRECTORATE

Mr M Mudukuti resigned from the Board with effect from 22 May 2012. I would like to thank Mr Mudukuti for his invaluable contributions to the Board over his tenure.

APPRECIATION

I would like to thank our valued clients, shareholders and Regulatory Authorities for their continued support in the period under review. I would also like to express my profound gratitude to my fellow Board members, management and staff for their continued commitment and dedication which has led to the achievement of these results.

T N MUNDAWARARA

CHAIRMAN

21 August 2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2012

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 30 June 2012

 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months ended 30 June 2012

CONSOLIDATED STATEMENT OF CASH FLOWS

for the six months ended 30 June 2012

NOTES TO THE ABRIDGED FINANCIAL STATEMENTS

for the six months ended 30 June 2012

1. REPORTING ENTITY

NMBZ Holdings Limited 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 NMB Bank Limited which is engaged in banking and other companies hold investments. 

2. ACCOUNTING CONVENTION

Statement of compliance

The abridged consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board.

The abridged consolidated financial statements have been prepared in compliance with the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20).

The abridged consolidated financial statements were approved by the Board of Directors on 21 August 2012.

2.1 Basis of preparation

The abridged consolidated financial statements have been prepared under the historical cost convention except for quoted and other investments, investment properties and financial instruments which are carried at fair value, loans and advances which are stated at amortised cost and land and buildings which are stated at revalued amount. These abridged financial statements are reported in United States of America dollars and rounded to the nearest dollar.

2.2 Comparative financial information

The abridged consolidated 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 abridged 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 abridged consolidated financial statements:

2.3.1 Deferred tax asset

In determining the amounts used for taxation purposes for assets purchased (in ZWD) prior to 1 January 2009 the directors referred to applicable effective exchange rates at the date of acquisition of assets or incurring of liabilities. The Zimbabwe Revenue Authorty (ZIMRA), announced methods to be used 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.

2.3.2 Land and buildings

The properties were valued by professional valuers. The valuer applied the rental yield method and comparable market evidence to assess fair value of land and buildings. The determined fair value of land and buildings is most sensitive to the estimated yield as well as the long term vacancy rate. In addition, the property market is currently not stable due to liquidity constraints and hence comparable values are also not stable.

2.3.3 Investment properties and property and equipment

Investment properties were valued by professional valuers.

The professional valuers considered comparable market evidence of recent sale transactions and those transactions where firm offers had been made but awaiting acceptance. In addition, the property market is currently not stable due to liquidity constraints and hence comparable values are also not stable.

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

2.3.4 RBZ Bond

The RBZ Bond was reclassified from financial assets at fair value through profit and loss to investment securities held to maturity as there is currently no market information to facilitate application of fair value principles. There is currently no active market for these bonds.

2.3.5 Impairment losses on loans and advances

The Bank 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 Bank 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 14.3.

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 abridged financial statements on a going concern basis is still appropriate.

2.3.7 RBZ Statutory reserves

 The statutory reserves that were owed to banks by the Reserve Bank of Zimbabwe were converted to tradable interest bearing instruments effective 1 January 2012 (refer to note 14.1.1).

3. ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these abridged financial statements are set out in Note 2 and 3. These policies have been consistently applied unless otherwise stated.

3.1 Financial instruments

3.1.1 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. There is no reclassification into or out of this category as per IAS 39.

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 half yearly and at the end of each reporting period, by a registered professional valuer.

3.3 Share - based payments

The Group issues share options to certain employees in terms of the Employee Share Option Scheme. Share options are measured at fair value at the date of grant. The fair value determined at the date of grant of the options is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. Fair value is measured using the Black-Scholes option pricing model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and other 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 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 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)

10. SHARE CAPITAL

Of the 692 892 711 unissued ordinary shares, options which may be granted in terms of the NMBZ 2005 Employee Share Option Scheme (ESOS) amounted to 85 360 962 and out of these 1 670 869 had not been issued by 19 June 2012 when a new 2012 ESOS was approved at the Annual General Meeting on 19 June 2012. The new Scheme effectively replaces the 2005 ESOS. As at 30 June 2012, 9 072 000 share options out of the issued had not been exercised.

Share options which may be granted in terms of the 2012 ESOS amount to 280 710 729 and allocations in terms of the Scheme will only commence in 2013.

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

\* The above are all financial liabilities at fair value through profit and loss designated as such upon initial recognition. The fair value of the above is the same as the cost. The deposits are payable on demand, have variable interest rates and varying security.

11.2 Maturity analysis

12. FINANCIAL INSTRUMENTS

All changes in the period to the fair value of the financial liabilities are attributable to changes in the related credit risk.

*All financial liabilities at fair value through profit and loss were designated as such upon initial recognition.

All changes in the period to the fair value of the financial assets are attributable to changes in related credit risk.

(1) Financial assets at fair value through profit and loss were classified as held for trading in accordance with IAS 39.

(2) Financial assets at fair value through profit and loss were designated as such upon initial recognition

12.3 Financial liabilities at fair value through

profit and loss

12.4 Financial liabilities at fair value through

profit and loss

 The RBZ Forex Bonds were reclassified from financial assets at fair value through profit and loss to investment securities designated as held to maturity as there is no active market for the bonds and there is lack of market information to facilitate application of fair value principles.

12.5 Maturity analysis of investment securities held to maturity

13. CASH AND CASH EQUIVALENTS

14. LOANS, ADVANCES AND OTHER ACCOUNTS

14.1 Total loans, advances and other accounts

\* The amounts that were previously owed to banks by the Reserve Bank of Zimbabwe were converted into tradable interest bearing instruments effective 1 January 2012.The instruments carry liquid asset status and they have the following terms;

The current year amount is included in note 12.2.

14.1.2 Maturity analysis

14.2 Sectoral analysis of utilisations

The material concentration of loans and advances are in the distribution sector at 29% (2011:28%).

14.3 Allowance for impairment losses on loans and advances

14.4 Non-performing loans and advances

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

15. PROPERTY AND EQUIPMENT

The land and buildings were valued by professional valuers as at 30 June 2012 for half year end purposes and the open market value was US$2 800 000.

16. CAPITAL COMMITMENTS

The capital expenditure will be funded from internal resources.

17. CONTINGENT LIABILITIES

18. INVESTMENT IN ASSOCIATE

The Group has a 24.79% interest in African Century Limited, which is involved in the provision of lease finance.

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:

19. EXCHANGE RATES

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

20. EVENTS AFTER REPORTING DATE

20.1 MID-TERM MONETARY POLICY REVIEW STATEMENT

Subsequent to the half year end, the Reserve Bank of Zimbabwe Governor announced in his Mid-Term Monetary Policy Review Statement on 31 July 2012 an increase in minimum capital requirements. The minimum capital for a commercial bank has been increased from US$12.5 million to US$25 million by 31 December 2012, US$50 million by 30 June 2013, US$75 million by 31 December 2013 and US$100 million by 30 June 2014. The minimum capital adequacy ratio was increased from 10% to 12% effective 1 August 2012.

The board has a medium term business strategic plan which demonstrates compliance with the new minimum capital requirements and this will be submitted to the Regulatory Authorities by the due date of 30 September 2012.

20.2 OFFERS FOR PURCHASE OF INVESTMENT PROPERTY AND SHAREHOLDING IN ASSOCIATE

Subsequent to the reporting date, the Bank and the Holding company have received firm offers, which have been accepted by the companies, for the purchase of half of an investment property owned by the Bank for a consideration of US$2 150 000 and for the purchase of the Holding company's shareholding in an associate for a consideration of US$1 589 209. Consequently, these assets which were recorded under investment properties and investment in associate, have been re-classified to available for sale assets in the proforma statements below. The remainder of the investment property has been fair valued by the directors at US$2 150 000 on the basis of the offer received for the other half. The proforma statements below show the financial effects of these subsequent events on the results for the half year to 30 June 2012.

PROFORMA CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2012