NMBZ Holdings
Annual Report 2010

Plain-text annual report

NMBZ HOLDINGS LIMITED CONTENTS Group Profile ........................................................................................ inside cover Financial Highlights ............................................................................................... 1 Chairman’s Statement ...................................................................................... 2 - 3 Report of The Directors ................................................................................... 4 - 10 Statement of Directors’ Responsibility .......................................................... 11 - 13 Report of the Independent Auditors ................................................................ 14 -15 Consolidated Statements of Comprehensive Income .......................................... 16 Consolidated Statements of Financial Position ............................................. 17 - 18 Consolidated Statements of Changes in Equity ............................................ 19 - 20 Consolidated Statements of Cash Flows ............................................................ 21 Accounting Policies ..................................................................................... 22 - 33 Notes to the Financial Statements ................................................................ 34 - 80 Historical Five Year Financial Summary ..................................................... 81 - 83 Notice to Members ............................................................................................. 84 Shareholders’ Analysis ................................................................................ 85 - 86 Shareholders’ Information .................................................................................... 87 Secretary and Registered Office ......................................................................... 88 HIGHLIGHTS Attributable profit Basic earnings per share (US cents) Total deposits Total equity Enquiries: NMBZ HOLDINGS LIMITED 2010 US$ 692 234 0.03 79 849 387 18 833 125 2009 US$ 2 278 287 0.14 28 720 120 8 568 005 Tel: +263-4-759 651/9 James A Mushore, Group Chief Executive Officer, NMBZ Holdings Limited Benefit Peter Washaya, Managing Director, NMB Bank Limited jamesm@nmbz.co.zw benefitw@nmbz.co.zw Benson Ndachena, Chief Financial Officer Website: Email: bensonn@nmbz.co.zw http://www.nmbz.co.zw enquiries@nmbz.co.zw NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 1 NMBZ HOLDINGS LIMITED CHAIRMAN’S STATEMENT for the year ended 31 December 2010 INTRODUCTION The year witnessed a relatively stable economic environment which is attributable to the adoption of the multi – currency regime by the two year old inclusive government. The relative political stability and the re-engagement of the international community resulted in some growth in business activity in the period under review with some lines of credit trickling into the country. GROUP RESULTS Compliance with International Financial Reporting Standards The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared in compliance with the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20). Commentary on results The profit before taxation was US$942 556 during the period under review. An attributable profit of US$692 234 was recorded for the period. Net interest income was US$6 871 468 for the period. Non-interest income amounted to US$9 374 796 and this was mainly as a result of commissions and fee income (US$9 691 069) which was partly offset by an unfavourable fair value adjustment on investment properties (US$784 600). Operating expenses amounted to US$15 365 768 and were driven largely by administration, staff related expenditure and an impairment loss on land and buildings. Staff related expenditure includes an amount of US$3.1 million for the retrenchment exercise which was concluded in August 2010. The retrenchment of staff was necessary in order to streamline the Bank’s operations in line with business volumes in the dollarised environment. Impairment losses on loans and advances amounted to US$971 803 for the current period. This is commensurate with the loans and advances which amounted to US$57 913 589 at 31 December 2010. The second half of the year recorded an after tax profit of US$2.6 million which offset the loss recorded in the first half of the year. The result for the first half was affected adversely by the provision for retrenchment costs (US$2.6 million), the fair value adjustment on investment properties (US$584 600) and the impairment loss on land and buildings (US$585 000). Dividend In view of the need to retain cash in the business and to buttress the statutory capital requirements for the Bank, the Board has proposed not to declare a dividend. STATEMENT OF FINANCIAL POSITION The Group’s total assets grew by 159% from US$39 707 931 as at 31 December 2009 to US$102 839 504 as at 31 December 2010 and comprised mainly loans, advances and other accounts (US$60 315 397), financial assets at fair value through profit and loss (US$17 299 592), cash and short term funds (US$18 346 939), investment properties (US$2 615 000) and property and equipment (US$3 697 893). Gross loans and advances increased by 363% from US$12 509 344 as at 31 December 2009 to US$57 913 589 at 31December 2010 as a result of the improved underwriting capacity from new capital raised during the period, an increase in onshore deposits and lines of credit of US$12 million availed to the Bank. 2 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED Capital The banking subsidiary’s capital adequacy ratio at 31 December 2010 calculated in accordance with the guidelines of the Reserve Bank of Zimbabwe (RBZ) was 17.49% (31 December 2009 – 26.03%). The minimum required by the RBZ is 10%. The Group’s equity increased by 120% from US$8 568 005 as at 31 December 2009 to US$18 833 125 as at 31 December 2010 as a result of new capital raised and retained earnings. The rights issue exercise which was undertaken during the year in order to meet the banking subsidiary’s statutory minimum paid up capital of US$12.5 million raised gross proceeds of US$10.28 million. The amount raised has been used to recapitalise the Banking subsidiary and the Holding company. In late 2010, the Holding company acquired an associate interest in a leasing business. OUTLOOK AND STRATEGY The Group will continue to underwrite more business and explore value adding opportunities in the market. The quest for lines of credit would be an imperative in the outlook period in order to meet the growing funding requirements of our clients. DIRECTORATE Mr James Andrew Mushore was appointed the Group Chief Executive Officer on 23 April 2010. Messrs Jonathan Chenevix – Trench and James de la Fargue were appointed to the Board on 16 June 2010. I welcome Messrs Mushore, Chenevix – Trench and de la Fargue to the board and wish them a successful tenure in office. Dr G M Mandishona and Mr C Chipato resigned from the board effective 17 August 2010. Mr B P Washaya resigned from the Holding Company Board with effect from 16 June 2010. I would like to thank them all for their invaluable contribution to the Board over the years. In particular, I would like to pay special tribute to Dr. Gibson Mandishona, my predecessor as Chairman, who led the Bank through its most difficult and challenging days in a most exemplary manner. We shall miss his wise counsel in the board room. I was appointed Chairman of the Board on 17 August 2010. APPRECIATION I would like to express my utmost appreciation to our clients, shareholders and Regulatory Authorities for their continued support. I would also like to thank my fellow Board members, management and staff for their steadfast commitment and dedication. T N MUNDAWARARA CHAIRMAN 15 March 2011 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 3 NMBZ HOLDINGS LIMITED REPORT OF THE DIRECTORS for the year ended 31 December 2010 We have pleasure in presenting to shareholders our report and the audited financial statements of the Group for the year ended 31 December 2010. 1. SHARE CAPITAL The authorised and issued share capital of the Company are as follows:- 1.1 Authorised: 3 500 000 000 ordinary shares of US$0.000028 each. 1.2 Issued and fully paid: 2 807 107 289 ordinary shares of US$0.000028 each. A total of 3 087 000 share options were exercised by directors and managerial staff during the year. 2. GROUP ACTIVITIES AND RESULTS After providing for depreciation and taxation, the Group posted an attributable profit of US$692 234 for the year ended 31 December 2010 (2009 – US$2 278 287). 3. CAPITAL ADEQUACY As at 31 December 2010, the Bank’s capital adequacy ratio computed under Bank for International Settlements (BIS) rules was 17.49% (2009 – 26.03%). 4. DIRECTORATE 4.1 Board of Directors T N Mundawarara A M T Mutsonziwa J A Mushore* B Ndachena* J T Makoni J de la Fargue J Chenevix-Trench B W Madzivire M Mudukuti L Majonga (Ms) J Chigwedere *Executive (Chairman and Independent Non-executive Director) (Independent Non-executive Director) (Group Chief Executive Officer) (Chief Financial Officer) (Non-Executive Director) (Non-Executive Director) (Non-Executive Director) (Independent Non-Executive Director) (Independent Non-Executive Director) (Independent Non-Executive Director) (Independent Non-Executive Director) In accordance with the Articles of Association, Mr. M. Mudukuti, Mr. B. W. Madzivire and Ms. L. Majonga will retire by rotation at the forthcoming Annual General Meeting (AGM). All retiring directors being eligible offer themselves for re-election. 4 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED REPORT OF THE DIRECTORS (Cont’d) for the year ended 31 December 2010 4.2 Directors’ Interests As at 31 December 2010 the Directors held the following direct and indirect beneficial interests in the shares of the Company:- T N Mundawarara A M T Mutsonziwa B Ndachena J A Mushore** J T Makoni** B W Madzivire M Mudukuti L Majonga (Ms) J. Chigwedere J de la Fargue J Chenevix-Trench*** B P Washaya* F S Mangozho* L Chinyamutangira* 31 December 2010 Shares 31 December 2009 Shares 39 901 55 691 797 842 1 646 969 6 447 904 - - - - - 2 806 866 4 020 692 - 1 303 321 17 119 186 5 824 32 760 5 048 174 - 6 447 904 - - - - - - 6 506 819 - - 18 041 481 *B. P. Washaya, F.S. Mangozho and L. Chinyamutangira are NMB Bank Limited Executive Directors. **Dr. J. Makoni and Mr. J. Mushore hold non-beneficial interests in Cornerstone Trust and Alsace Trust respectively. ***J Chenevix-Trench holds interests in African Century Financial Services LLP. 4.3 Total share options granted to executive directors of the Holding Company and NMB Bank Limited Share Share Options 31 December 2010 Options 31 December 2009 F S Mangozho - - 3 000 000 3 000 000 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 5 NMBZ HOLDINGS LIMITED REPORT OF THE DIRECTORS (Cont’d) for the year ended 31 December 2010 4.4 Directors’ attendance at meetings 4.4.1 Board of Directors Name Dr G M Mandishona* A M T Mutsonziwa B P Washaya** B Ndachena J A Mushore C Chipato* B W Madzivire M Mudukuti L Majonga (Ms) Dr J T Makoni T N Mundawarara J Chigwedere J de la Fargue*** J Chenevix-Trench*** L Chinyamutangira**** F S Mangozho**** Meetings Attended 3 4 2 4 4 3 4 4 4 4 4 4 2 2 nil nil 3 4 2 4 4 2 4 4 3 3 4 4 2 2 nil nil *Dr. G. M. Mandishona and Mr. C. Chipato resigned from the NMBZ Holdings Limited and NMB Bank Limited boards with effect from 17 August 2010. **B. P. Washaya resigned from the NMBZ Holdings Limited board with effect from 16 June 2010. ***Mr. J. de la Fargue and Mr. J. Chenevix –Trench joined the NMBZ Holdings Limited and the NMB Bank Limited boards on 16 June 2010. ****L Chinyamutangira and F S Mangozho are directors of NMB Bank Limited only. 4.4.2 Audit Committee Name Mr B W Madzivire Mr A M T Mutsonziwa Ms L Majonga Mr J de la Fargue* Meetings Attended 5 5 5 1 5 3 3 1 *Mr. J. de la Fargue joined the Audit Committee with effect from 15 September 2010. 6 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED REPORT OF THE DIRECTORS (Cont’d) for the year ended 31 December 2010 4.4.3 Risk Management Committee Name Mr T N Mundawarara Mr J Chigwedere Ms L Majonga Mr B P Washaya Mr J de la Fargue* Mr J Mushore* Mr F Mangozho Meetings Attended 4 4 4 4 1 1 4 4 4 1 4 nil nil 4 *Mr. J. de la Fargue and Mr. J. Mushore joined the Risk Management Committee with effect from 15 September 2010. 4.4.4 Asset and Liability Management Committee (ALCO), Finance & Strategy Committee Name Mr C Chipato* Mr T N Mundawarara Mr B P Washaya Mr B Ndachena Mr J Mushore** Mr J Chenevix-Trench (alternate J de la Fargue)** Mr J Chigwedere** Mr F S Mangozho Mr L Chinyamutangira Meetings Attended 3 4 4 4 1 1 1 4 4 3 4 4 3 1 1 1 4 4 *Mr. C. Chipato resigned from the Committee with effect from 17 August 2010. ** Mr. J. Mushore, Mr. J. Chenevix-Trench and Mr. J. Chigwedere became members of the Committee with effect from 15 September 2010. 4.4.5 Loans Review Committee Name Mr A M T Mutsonziwa Mr M Mudukuti Mr C Chipato* Mr J de la Fargue** Meetings Attended 4 4 3 1 3 4 3 1 *Mr. C. Chipato resigned from the Committee with effect from 17 August 2010. ** Mr. J. de la Fargue became a member of the Committee with effect from 15 September 2010. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 7 NMBZ HOLDINGS LIMITED REPORT OF THE DIRECTORS (Cont’d) for the year ended 31 December 2010 4.4.6 Human Resources & Remuneration Committee Name Mr M Mudukuti Dr G M Mandishona* Mr B Madzivire Mr T N Mundawarara** Mr J Chenevix-Trench** Dr J T Makoni** Mr J Mushore*** Mr A M T Mutsonziwa** Meetings Attended 4 3 4 1 1 1 3 1 4 2 4 1 1 nil 3 nil *Dr. G. M. Mandishona resigned from the Committee with effect from 17 August 2010. ** Messrs. T. N. Mundawarara, J. Chenevix-Trench, J. T. Makoni and A. M. T. Mutsonziwa became members of the Committee with effect from 15 September 2010. ***Mr J Mushore became a member of the committee with effect from 25 March 2010. 5. CORPORATE GOVERNANCE NMBZ Holdings Limited adheres to international best practice with regards to corporate governance. In particular, the Group emulates corporate governance principles prescribed in the Combined Code of the United Kingdom, the King III report of South Africa and the Reserve Bank of Zimbabwe (RBZ) Corporate Governance Guideline. The Board has set up the Audit Committee, Human Resources and Remuneration Committee, Asset and Liability Management Committee (ALCO), Finance and Strategy Committee, Credit Committee, Loans Review Committee and the Risk Management Committee to assist in the discharge of its duties and responsibilities. 5.1 The Board of Directors The NMBZ Holdings Limited board comprises of eleven directors while the NMB Bank board comprises of fourteen directors. The boards of the holding company and the bank are almost identical as they share eleven directors. The Group obtained regulatory approval to have similar boards for the Group and the banking subsidiary as the bank was the Group’s only operating subsidiary. The NMBZ Holdings board comprises of two executive and nine non-executive directors while the NMB Bank board comprises of four executive and ten non- executive directors. The Chairpersons of the board and all the board committees are independent non-executive directors. The boards and the board committees meet at least four times a year. 5.2 Audit Committee The committee oversees the Group’s financial reporting process, monitoring the integrity and appropriateness of the Group’s financial statements; evaluating the adequacy of the Group’s financial, operational and compliance, internal controls and risk management processes and the selection, compensation, independence and performance of the Group’s external and internal auditors. The Committee meets at least four times a year. The Committee meets regularly with the Company’s internal and external auditors. Both the internal and external auditors have unrestricted access to the audit committee to ensure their independence and objectivity. Membership: Mr B W Madzivire (Chairman - Independent Non-Executive Director) Ms L Majonga Mr A M T Mutsonziwa Mr J de la Fargue (Independent Non-Executive Director) (Independent Non-Executive Director) (Non-Executive Director) 8 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED REPORT OF THE DIRECTORS (Cont’d) for the year ended 31 December 2010 5.3 Human Resources & Remuneration Committee The committee is responsible for setting the Group’s remuneration philosophy and reviews the overall remuneration structures of the Group, including all material remuneration proposals and packages for Executive Directors and senior personnel. Membership: Mr M Mudukuti (Chairman - Independent Non-Executive Director) Mr T N Mundawarara Mr B W Madzivire Mr J A Mushore Mr J Chenevix-Trench Dr J Makoni Mr A M T Mutsonziwa (Independent Non-Executive Director) (Independent Non-Executive Director) (Group Chief Executive Officer) (Non-Executive Director) (Non-Executive Director) (Independent Non – Executive Director) 5.4 Loans Review Committee The Loans Review Committee assesses compliance of the loan book with the lending policy and the Banking Regulations. The committee conducts loan reviews independent of any person or committee responsible for sanctioning credit. Membership: Mr A M T Mutsonziwa Mr M Mudukuti Mr J de la Fargue (Chairman – Independent Non-Executive Director) (Independent Non-executive Director) (Non- Executive Director) 5.5 Credit Committee The credit committee’s main responsibilities are to consider loan applications beyond the discretionary limits of the management Credit Committee and to direct the formulation of, review and monitor the credit principles and policies of the Group. Membership: Mr T N Mundawarara Mr J A Mushore (Chairman - Independent Non-Executive Director) (Group Chief Executive Officer) B P Washaya B Ndachena (Managing Director) (Chief Financial Officer) 5.6 Asset and Liability Management Committee (ALCO), Finance and Strategy Committee The Asset and Liability Management Committee (ALCO), Finance & Strategy Committee is responsible for deriving the most appropriate strategy for the Group in terms of the mix of assets and liabilities given its expectations of the future and the potential consequences of interest-rate movements, liquidity constraints, foreign exchange exposure and capital adequacy. The committee also ensures that such strategy is in line with the Group’s risk appetite. In addition, the committee monitors the business and financial strategies of the Company. Membership: Mr T N Mundawarara M r J Chigwedere Mr J A Mushore Mr B P Washaya Mr B Ndachena Mr F S Mangozho Mr L Chinyamutangira Mr J Chenevix-Trench (Chairman - Independent Non-Executive Director) (Independent Non-Executive Director) (Group Chief Executive Officer) (Managing Director) (Chief Financial Officer) (Executive Director-Treasury) (Executive Director-Banking) (Non-Executive Director) NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 9 NMBZ HOLDINGS LIMITED REPORT OF THE DIRECTORS (Cont’d) for the year ended 31 December 2010 5.7 Risk Management Committee The Risk Management Committee oversees the quality, integrity and reliability of the Group’s risk management systems and reviews all Group-wide risks. Membership: Mr J Chigwedere (Chairman – Independent Non-Executive Director) Mr J de la Fargue Ms L Majonga Mr J A Mushore Mr B P Washaya Mr F S Mangozho Mr T N Mundawarara (Non-Executve Director) (Independent Non-executive Director) (Group Chief Executive Officer) (Managing Director) (Executive Director - Treasury) (Independent Non – executive Director) 5.8 Professional Advice The non-executive directors have access to independent professional advice at the Group’s expense. 6. AUDITORS At the forthcoming Annual General Meeting shareholders will be asked to authorise the directors to fix the auditor’s remuneration for the year ended 31 December 2010 and to appoint auditors of the Company for the ensuing year. By order of the Board V Mutandwa Company Secretary Harare 15 March 2011 10 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED STATEMENT OF DIRECTORS’ RESPONSIBILITY for the year ended 31 December 2010 1. RESPONSIBILITY The Directors of the Company are mandated by the Companies Act to maintain adequate accounting records and to prepare financial statements that present a true and fair view of the state of affairs of the Company at the end of each financial year. The information contained in these financial statements has been prepared on a going concern basis and is in accordance with the provisions of the Companies Act [Chapter 24:03], the Banking Act [Chapter 24:20] and International Financial Reporting Standards (IFRSs). 2. CORPORATE GOVERNANCE In its operations, the Group is guided by principles of corporate governance derived from the King III Report, the United Kingdom Combined Code and the Reserve Bank of Zimbabwe Corporate Governance Guideline. The directors of the Group are cognisant of their responsibility to exercise the duty of care and act in good faith in order to safeguard all stakeholders’ interests. 3. BOARD OF DIRECTORS Board appointments are made in a manner that ensures an adequate mix of skills and expertise on the board. The majority of the Group’s non-executive directors are independent and thus provide the necessary checks and balances on the board and ensure that the interests of all stakeholders are taken into account in the decision making process. The Chairman of the board is an independent non-executive director. The board is assisted by various committees in executing its responsibilities. The board meets at least quarterly to assess risk, review financial performance, and provide guidance to management on operational and policy issues. The board conducts an annual evaluation to assess its effectiveness and develop remedial action plans to address weaknesses noted from the evaluation. The evaluation involves an assessment of collective board performance, the chairperson’s performance and individual directors’ performance. 4. INTERNAL FINANCIAL CONTROLS The board is responsible for ensuring that effective internal control systems are implemented within the Group. The Group maintains internal controls and systems designed to provide reasonable assurance of the integrity and reliability of its records, safeguard the assets of the Group and prevent and detect fraud and errors. The Audit Committee in conjunction with the external auditors of the Group reviews and assesses the internal control systems of the Group in key risk areas. 5. GOING CONCERN The Directors have assessed the ability of the Company to continue operating as a going concern and believe that the preparation of these financial statements on a going concern basis is still appropriate. However, the Directors believe that under the current economic environment a continuous assessment of the ability of the Company to continue to operate as a going concern will need to be performed to determine the continued appropriateness of the going concern assumption that has been applied in the preparation of these financial statements. 6. INTERNAL AUDIT The internal audit function has formally defined objectives, authority, and responsibilities enshrined in the Audit Charter, which principles are consistent with those of the Institute of Internal Auditors. The function is guided by the Internal Audit Manual in conducting its activities. The internal audit function is independent of business lines and has unrestricted access to the Audit Committee. The internal audit functions include evaluating the effectiveness of the risk management systems, reviewing the systems of internal controls including internal financial controls and the conduct of the Group’s operations. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 11 NMBZ HOLDINGS LIMITED STATEMENT OF DIRECTORS’ RESPONSIBILITY (Cont’d) for the year ended 31 December 2010 7. REMUNERATION The Remuneration Committee determines the remuneration policy for the Group. The remuneration policy is designed to reward perfor- mance and retain highly skilled individuals. Accordingly, a discretionary performance related bonus is offered in addition to a basic salary package. 8. EMPLOYEE PARTICIPATION AND DEVELOPMENT The Group encourages active participation by its employees in its ownership. In line with this commitment, managerial employees participate in the Company’s share option scheme. The Group is also committed to enhancing the skills of staff and sponsors attendance at courses at reputable local and international institutions. 9. SOCIAL RESPONSIBILITY The group recognises its responsibility in the society within which it operates. Pursuant to this, the Group sponsors the arts and sports and also donates to deserving charities from time to time. Activities and charities supported during the year ended 31 December 2010 included the Kidzcan Foundation, a cancer organisation for children, Verandah Art Gallery, Mayor’s Christmas Cheer Fund dinner and the Good Shepherd Charity Ball. 10. REGULATION The banking subsidiary of the Group is subject to regulation and supervision by the Reserve Bank of Zimbabwe, which conducts the functions of the Registrar of Banking Institutions and is also the supervisor of banking institutions. Where appropriate, the Group participates in industry-consultative meetings and discussion groups aimed at enhancing the business environment. 11. ETHICS As a Group, we aim to ensure that we adhere to the highest standards of responsible business practice. In this regard, the Group’s values include integrity and excellence. All of the Group’s employees are thus expected to adhere to the highest standards of personal integrity and professional conduct. The Group monitors its staff conduct through the code of conduct and ensured through its anti money-laundering policies that it did not conduct business with entities whose activities are harmful to the environment. 12. FINANCIAL STATEMENTS The Company’s directors are responsible for the preparation and fair presentation of the financial statements, comprising the statement of financial position, the statement of comprehensive income, statement of changes in equity and the statement of cash flow as at 31 December 2010, together with the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards and legislative and regulatory requirements. The directors’ responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fair presen- tation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. 12 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED STATEMENT OF DIRECTORS’ RESPONSIBILITY (Cont’d) for the year ended 31 December 2010 The directors have satisfied themselves that the Company is in a sound financial position and that it has adequate resources to continue operating in the foreseeable future. Accordingly, they are satisfied that it is appropriate to prepare the financial statements of the Company on a going concern basis. Approval of the financial statements The financial statements of the Company and Group appearing on pages 16 to 80 were approved by the board of directors on 15 March 2011 and are signed on their behalf by: ……………………..........…..........………... ……………………..........…..........………... T. N. Mundawarara Chairman J. A. Mushore Group Chief Executive Officer Date: 15 March 2011 Date: 15 March 2011 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 13 NMBZ HOLDINGS LIMITED REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF NMBZ HOLDINGS LIMITED Report on the financial statements We have audited the accompanying consolidated financial statements of NMBZ Holdings Limited and its subsidiaries as set out on page 16 to 80 which comprise the Company and Group statements of financial position as at 31 December 2010, and the group statement of comprehensive income, the Company and Group statements of changes in equity and Group statement of cash flow for the year then ended, and a summary of significant accounting policies and other explanatory information, and the directors’ report, as set out on pages 16 to 80 and 4 to 10 respectively. Directors’ responsibility for the financial statements The Company’s directors are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) and in the manner required by the Companies Act (Chapter 24:03), the Banking Act (Chapter 24:20)and the statutory instruments SI 33/99 and SI 62/96, and for such internal control as the directors determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of NMBZ Holdings Limited and its subsidiaries as at 31 December 2010, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. 14 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED Report on other legal and regulatory requirements In our opinion, the consolidated financial statements have, in all material respects, been properly prepared in compliance with the disclosure requirements of and in the manner required by the Companies Act (Chapter 24:03), the Banking Act (Chapter 24:20) and the statutory instruments SI 33/99 and SI 62/96. ERNST & YOUNG CHARTERED ACCOUNTANTS (ZIMBABWE) 16 May 2011 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 15 NMBZ HOLDINGS LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2010 Interest income Interest expense Net interest income Net foreign exchange gains Share of loss of associate Non-interest income Net operating income Operating expenditure Impairment losses on loans and advances Profit before taxation Taxation Financial institutions levy Profit for the year Note 4 5 19 6 7 8 8 2010 US$ 10 014 636 (3 143 168) 6 871 468 1 055 307 (21 444) 9 374 796 17 280 127 (15 365 768) (971 803) 942 556 (250 322) - 2009 US$ Restated* 1 526 722 (723 626) 803 096 379 236 - 7 236 949 8 419 281 (7 385 212) (92 887) 941 182 1 381 766 (44 661) 692 234 2 278 287 Other comprehensive income - - Total comprehensive income for the year 692 234 2 278 287 Attributable to: Owners of the parent Non – controlling interests Earnings per share (US cents) - Basic - Diluted basic 692 234 - 692 234 0.03 0.03 2 278 287 - 2 278 287 0.14 0.14 9 9 *Certain amounts shown here do not correspond to the 2009 financial statements and reflect adjustments made as detailed in note 35. 16 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2010 EQUITY Share capital Capital reserves Retained earnings Total equity LIABILITIES Deposits and other accounts Financial liabilities at fair value through profit and loss Current tax liabilities Deferred tax liabilities ASSETS Cash and cash equivalents Financial assets at fair value through profit and loss Loans, advances and other accounts Investments:- Trade investment Associate Group companies Quoted and other investments Investment properties Property and equipment Note 10 11 12 13 14 8.4 15 16 14 17 18 19 20 21 22 23 GROUP 2009 US$ Restated* - 6 564 622 2010 US$ 78 598 16 666 633 2 087 894 2 003 383 8 568 005 18 833 125 Opening 2009 US$ - 6 297 943 - 6 297 943 65 979 335 23 649 725 3 979 536 17 177 109 641 969 207 966 102 839 504 6 444 932 299 162 746 107 39 707 931 - - 2 544 896 12 822 375 18 346 939 12 203 181 1 289 441 17 299 592 60 315 397 201 666 228 556 - 134 461 2 615 000 3 697 893 102 839 504 7 135 023 13 004 099 - 372 285 108 003 32 000 - - 455 638 3 219 600 3 582 387 39 707 931 - - 306 904 6 140 000 4 681 745 12 822 375 *Certain amounts shown here do not correspond to the 2009 financial statements and reflect adjustments made as detailed in note 35. …………………………………….. ) T N MUNDAWARARA ) Directors …………………………………….. ) J A MUSHORE 15 March 2011 ………………………….… V MUTANDWA Company Secretary 15 March 2011 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 17 NMBZ HOLDINGS LIMITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2010 EQUITY Share capital Capital reserves Retained earnings/ (accumulated losses) Note 10 11 12 2010 US$ 78 598 15 783 219 95 244 COMPANY 2009 US$ - 6 297 943 (18 796) Opening 2009 US$ - 6 297 943 - Total equity LIABILITIES Deposits and other accounts Financial liabilities at fair value through profit and loss Current tax liabilities Deferred tax liabilities ASSETS Cash and cash equivalents Financial assets at fair value through profit and loss Loans, advances and other accounts Investments:- Trade investment Associate Group companies Quoted and other investments Investment properties Property and equipment Deferred tax assets 15 957 061 6 279 147 6 297 943 129 - 400 7 533 - - - - - - - 807 15 965 123 6 279 147 6 298 750 - - 1 842 363 122 794 250 000 13 722 112 27 854 - - - - - 79 034 31 495 - 6 154 577 12 290 - - 1 751 - - 96 034 32 000 - 6 154 577 16 139 - - - 15 965 123 6 279 147 6 298 750 15 17 18 19 20 21 15 …………………………………….. ) T N MUNDAWARARA ) Directors …………………………………….. ) J A MUSHORE 15 March 2011 ………………………….… V MUTANDWA Company Secretary 15 March 2011 18 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2010 GROUP Share Capital US$ Deemed balances at 1 January 2009* Total comprehensive income for the year – as restated Impairment allowance for loans and advances** Own equity instruments (note10.3) Shares issued – share options exercised Balances at 31 December 2009 restated Total comprehensive income for the year Impairment allowance for loans and advances Disposal proceeds of own equity instruments (note10.3) Surplus on treasury shares (note 10.3) Redenomination of share capital (note 11) Shares issued – share options exercised Shares issued – rights issue - - - - - - - - - - Capital Reserve Share Treasury Share Option Regulatory distributable Retained Non- Premium Shares Reserve Reserve US$ US$ US$ US$ - - - - - - - (8 225) 96 034 - - - - - 274 904 - 34 822 - (34 822) - Reserve Earnings US$ US$ Total US$ 6 201 909 - 6 297 943 - 2 278 287 2 278 287 - - - (274 904) - - - (8 225) - 34 822 - - - - (8 225) - - 9 012 (787) 46 147 87 6 155 762 15 454 32 364 9 531 510 78 598 15 737 548 - - - - 61 212 - 274 904 - 6 201 909 2 003 383 692 234 - 8 568 005 692 234 - 608 510 - - - (6 201 909) - (608 510) - - 787 - - 9 012 - - - - - - - - 883 414 - - 9 563 874 - 2 087 894 18 833 125 - - - (15 541) - 45 671 * Deemed balances were derived using the principles outlined in note 2.1.1 **These were previously accounted for in the statement of comprehensive income but have now been recognized as a transfer from retained earnings to a regulatory reserve (note 35). NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 19 NMBZ HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2010 COMPANY Capital Reserve Share Capital US$ Share Premium US$ Share Option Reserve US$ Non- distributable Reserve US$ Retained (Loss)/ Earnings US$ Total US$ - - - - - 46 147 87 32 364 78 598 - 96 034 6 201 909 - 6 297 943 - - 34 822 (34 822) - - (18 796) - (18 796) - 34 822 - 6 155 762 15 454 9 531 510 15 737 548 61 212 - - (15 541) - 45 671 6 201 909 - (6 201 909) - - - (18 796) 6 279 147 114 040 - - - 114 040 - - 9 563 874 95 244 15 957 061 Deemed balances at 1 January 2009* Total comprehensive income for the year Shares issued – share options exercised Balances at 31 December 2009 Total comprehensive income for the year Redenomination of share capital (note 11) Shares issued – share options exercised Share issued – rights issue *Deemed balances were derived using the principles outlined in note 2.1.1 20 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2010 CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation Non-cash items -Impairment losses on loans and advances -Investment properties fair value adjustment -Profit on disposal of property and equipment -Quoted and other investments fair value adjustment -Loss on disposal of investment property -Profit on disposal of quoted and other investments -Impairment loss on land and buildings -Loss on derecognition of investments -Depreciation -Fair value adjustment on financial instruments -Share of associate’s loss Operating cash flows before changes in operating assets and liabilities Changes in operating assets and liabilities Financial liabilities at fair value through profit and loss Deposits and other accounts Loans, advances and other accounts Financial assets at fair value through profit and loss Taxation Corporate tax paid (note 8.4) Capital gains tax paid 2010 US$ 942 556 971 803 784 600 (64 527) (94 139) - (13 232) 298 811 - 297 532 - 21 444 2009 US$ 941 182 92 887 (579 600) (2 066) (172 978) 460 000 (45 256) 1 050 000 10 404 209 680 (32 371) - 3 144 848 1 931 882 10 732 177 42 329 610 (48 283 101) (10 164 569) (2 241 035) 6 444 932 19 709 178 (12 729 499) (7 135 023) 8 221 470 (445 657) - (10 520) (152 000) Net cash (outflow)/inflow from operating activities (2 686 692) 8 058 950 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds on disposal of investment property Purchase of property and equipment Improvements to investment property Purchase of quoted investments Purchase of unquoted investments Proceeds from disposal of quoted and other investments Net cash (outflow)/inflow from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from rights issue Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at the end of the year (note 16) Operational cash flows from interest and dividends Interest paid Interest received 84 860 (732 183) (180 000) - (250 000) 343 899 (733 424) 9 563 874 6 143 758 12 203 181 18 346 939 3 040 000 (160 322) - (60 134) (74 542) 109 788 2 854 790 - 10 913 740 1 289 441 12 203 181 (3 143 168) 10 014 636 (723 626) 1 526 722 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 21 NMBZ HOLDINGS LIMITED SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2010 ACCOUNTING CONVENTION As the banking subsidiary, NMB Bank Limited, constitutes the major part of the Group, the financial statements have been presented in a form applicable to a Commercial Bank registered in terms of the Banking Act (Chapter 24:20). The financial statements are based on accounting records maintained under the historical cost convention except for securities held for trading, land, buildings and investment properties which are stated at fair value. The Group’s financial statements are presented at least annually. The following paragraphs describe the main accounting policies applied consistently by the Group. Basis of preparation The Group is resuming presentation of IFRS financial statements after early adoption of Revised IFRS1 First-time adoption of International Financial Reporting Standards issued on 20 December 2010. The Group failed to present IFRS financial statements for the financial year ended 31 December 2009 due to the effects of severe hyperinflation as defined in Revised IFRS1. The first amendment replaces reference to a fixed date of ‘1 January 2004 ‘with ‘the date of transition to IFRS’, which eliminates the requirement to reconstruct transactions that occurred before the date of transition to IFRS. These amendments provide guidance for entities emerging from severe hyperinflation to resume presenting IFRS financial statements. An entity can elect to measure assets and liabilities at fair value and to use the fair value as the deemed costs in its opening IFRS statement of financial position. The Group elected to use the severe hyper inflation exemption. The effect of the application of this amendment is to render the opening statement of financial position, prepared on 1 January 2009 (date of transition to IFRS) IFRS compliant. The opening statement of financial position was reported in the prior year as not being compliant with International Accounting Standard (IAS) 21, The Effects of Changes in Foreign Exchange Rates and IAS 29, Financial Reporting in Hyperinflationary Economies. The Group’s previous functional currency, the Zimbabwe dollar (ZW$),was subjected to severe hyperinflation before the date of transition to IFRS because it had both of the following characteristics: (a) (b) a reliable general price index was not available to all entities with transactions and balances in the ZW$ and exchange ability between the ZW$ and a relatively stable foreign currency did not exist. The Group changed its functional and presentation currency from the ZW$ to the United States dollar (US$) with effect from 1 January 2009. Deemed cost exemption The Group elected to measure certain items of property and equipment, loans and other receivables, inventories and deposits and other payables at fair value and to use the fair value as the deemed cost of those assets and liabilities in the opening IFRS statement of financial position. Comparative financial information The financial statements comprise three statements of financial position, two statements of comprehensive income, changes in equity and cash flows as a result of the retrospective application of the Amendments to IFRS 1. The comparative statements of comprehensive income, changes in equity and cash flows are for twelve months. Reconciliation of previously prepared to IFRS compliant financial statements. In preparing its opening IFRS statement of financial position, the Group had not adjusted amounts previously determined in accordance with the Guidance on Change in Functional Currency 2009. As amounts have not changed, reconciliations have not been presented. 22 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2010 BUSINESS COMBINATIONS Business combinations are accounted for in accordance with the Acquisition Method. This involves recognising identifiable assets (including previously unrecognised intangible assets) and liabilities (including contingent liabilities and excluding future restructuring) of the acquired business at fair value. Basis of consolidation The consolidated financial statements comprise the financial statements of the company and its subsidiaries. All companies in the Group have a December year end. Inter-group transactions, balances, income and expenses are eliminated on consolidation. Subsidiaries Subsidiaries are those enterprises controlled by the company. Control exists when the company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements, using the Acquisition Method, from the date that control effectively commences until the date that control effectively ceases. Losses within a subsidiary are attributed to the non – controlling interest even if that results in a deficit balance. In the Holding Company’s separate financial statements investments in subsidiaries are accounted for at cost. Associates The Group’s investment in its associate is accounted for using the equity method. An associate is an entity in which the Group has significant influence. Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus post acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The income statement reflects the share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. The share of profit of an associate is shown on the face of the income statement. This is the profit attributable to equity holders of the associate and therefore is profit after tax and non-controlling interests in the subsidiaries of the associate. The financial statements of the associate are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on the Group’s investment in its associate. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the ‘share of profit of an associate’ in the income statement. Upon loss of significant influence over the associate, the Group measures and recognises any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retaining investment and proceeds from disposal is recognised in profit or loss. Trade investments Trade investments comprise interests in unquoted equities and are accounted for at fair value. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 23 NMBZ HOLDINGS LIMITED SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2010 Goodwill Goodwill acquired in a business combination is recognised as an asset and is measured initially at its cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired entity. Subsequently, the goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicated that it might be impaired. Impairment losses on goodwill are not reversed. If the cost of acquisition is less than the fair values of the identifiable net assets acquired, the discount on acquisition is recognised directly in profit or loss in the year of acquisition. FOREIGN CURRENCY TRANSACTIONS The consolidated financial statements are presented in United States Dollars (US$), which is also the parent Company’s functional currency. Transactions in foreign currencies are translated at the foreign exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies, are translated at the closing rate at the reporting date. Non-monetary assets and liabilities measured at historical cost denominated in foreign currencies are translated at the exchange rates ruling at the transaction date. Foreign exchange differences arising on translation are recognised in profit or loss. Non – monetary items measured at fair value in foreign currency are translated using the exchange rates at the date when the fair value was determined. TAXATION Current taxation Income tax on the statement of comprehensive income for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised in equity or other comprehensive income, in which case the related tax is also recognised in equity or other comprehensive income. Current tax is expected tax payable on the taxable income for the year, using rates enacted or substantially enacted at the reporting date and any adjustment to tax payable in respect of previous years. Deferred taxation 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. Deferred tax liabilities are recognised for all taxable temporary differences, except: • Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. • Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except: • Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. • 24 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2010 TAXATION (Cont’d) Deferred taxation (Cont’d) 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. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax is recognised in profit or loss except to the extent that it relates to items recognised in equity or other comprehensive income, in which case the related tax is also recognised in equity or other comprehensive income. Financial institutions levy Financial institutions levy is accrued at the prescribed rate, which is currently 5% on profit before taxation from the banking subsidiary. DIVIDEND DISTRIBUTION Dividend distribution to the Company’s shareholders is recognised as a liability in the period in which the dividends are approved by the Company’s shareholders. IMPAIRMENT LOSSES ON LOANS AND ADVANCES Impairment A provision for loan impairment is established if there is objective evidence as a result of one or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) that the Group will not be able to collect all amounts due according to the original contractual terms of loans. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, including amounts recoverable from guarantees and collateral, discounted at the original effective interest rate of loans. The loan loss provision also covers losses where there is objective evidence that incurred losses are present in components of the loan portfolio at the reporting date. These have been estimated based upon historical patterns of losses in each component, the credit ratings allocated to the borrowers and reflecting the current economic climate in which the borrowers operate. When a loan is uncollectible, it is written off against the related provision for impairment; subsequent recoveries are credited to the profit or loss. If there is objective evidence that an impairment loss has been incurred, the carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited in profit or loss. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 25 NMBZ HOLDINGS LIMITED SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2010 Regulatory Guidelines And International Financial Reporting Standards Requirements In Respect Of The Group’s Banking Activities The Banking Regulations 2000 issued by the RBZ give guidance on provisioning for doubtful debts and stipulate certain minimum percentages to be applied to the respective categories of the loan book. International Accounting Standard 39 (IAS 39), Financial Instruments: Recognition and Measurement (IAS39) 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 Board has taken the view that where the IAS 39 charge is less than the amount provided for in the Banking Regulations, the difference is recognised 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 profit or loss. Non-Performing Loans Interest on loans and advances is accrued to income until such time as reasonable doubt exists about its recoverability, thereafter and until all or part of the loan is written off, interest continues to accrue on customer’s 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. Renegotiated Loans and Advances Where possible, the Group seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been re-negotiated, any impairment is measured using the original effective interest rate (EIR) as calculated before the modification of terms and the loan is no longer considered past due. Management continuously renews re-negotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loans original EIR. FINANCIAL INSTRUMENTS The classification of financial instruments at initial recognition depends on the purpose and the management’s intention for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss. All financial assets and liabilities are initially recognised on the trade date, i.e., the date that the bank becomes a party to the contractual provisions of the instrument. This includes “regular way trades”: purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. Classification Financial assets and financial 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, are 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. Management only designate an instrument at fair value through profit and loss upon initial recognition when the following criteria are met, and designation is determined on an instrument by instrument basis: 26 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2010 Classification (Cont’d) • the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognising gains or losses on them on a different basis; or • • the assets and liabilities are part of a group of financial assets, financial liabilities or both which are managed and their performance evaluated on a fair value basis, in accordance with the documented risk management or investment strategy; or the financial instrument contains one or more embedded derivatives which significantly modify the cash flows that otherwise would be required by the contract. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. 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. Equity investments classified as available –for- sale are those which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. The Group has not designated any loans or receivables as available – for –sale. Deposits and other payables are non-trading financial liabilities payable on demand at variable interest rates. Own equity instruments Reacquired own instruments are measured at cost and are presented in the statement of financial position as a deduction from equity. No gain or loss is recognised in the profit or loss on the sale, issuance or cancellation of these instruments. Consideration received is presented in the financial statements as a change in equity. Measurement Subsequent to initial recognition, financial assets and financial liabilities 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. Deposits and other payables are measured at amortised cost applying the effective interest. Effective interest rate method The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. Amortised cost measurement principles Amortised cost is computed using the effective interest method. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 27 NMBZ HOLDINGS LIMITED SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2010 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. Gains and losses on subsequent measurement Gains and losses arising from a change in the fair value of available for sale assets are recognised directly in other comprehensive income and accumulated in equity. When the financial assets are sold, collected or otherwise disposed of the cumulative gain or loss recognised in equity in recycled through other comprehensive income into profit or loss. Gains and losses arising from a change in the fair value of financial assets and liabilities through profit and loss are recognised in profit or loss. Derecognition Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: • The rights to receive cash flows from the asset have expired; or • The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either: - - the Group has transferred substantially all the risks and rewards of the asset, or the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss. Impairment of financial assets The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one 28 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2010 Impairment of financial assets (Cont’d) or more events that has occurred after the initial recognition of the asset (an incurred “loss event”) and that the loss event has an impact on the estimated future cash flows from the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest and principal payments, the probability that they will enter bankruptcy or other financial re-organisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred , the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (ie the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of the loss shall be recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss shall be reversed either directly or by adjusting an allowance account. The reversal shall not result in a carrying amount of the financial asset that exceeds what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount of the reversal shall be recognised in profit or loss. Financial assets carried at cost If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses shall not be reversed. SHARE - BASED PAYMENTS The Group issues share options to certain employees in terms of the Employee Share Option Scheme which is an equity settled share-based payment scheme. Share options are measured at fair value of the equity instruments at the grant date. The fair value determined at the grant date 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 is adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and other behavioural considerations. PROPERTY AND EQUIPMENT Equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Such cost includes the cost of replacing part of the equipment when that cost is incurred, if the recognition criteria are met. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the equipment as a replacement if the recognition criteria are satisfied. The previous remaining carrying amount is derecognized. All other repair and maintenance costs are recognized in the profit or loss as incurred. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 29 NMBZ HOLDINGS LIMITED SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2010 PROPERTY AND EQUIPMENT (Cont’d) Land and buildings are measured at revalued amount less accumulated depreciation on buildings and impairment losses recognized after the date of the revaluation. Revaluation of property is done half yearly and at the end of each reporting period, by a registered professional valuer. Any revaluation surplus is recognized in other comprehensive income and accumulated in the assets revaluation reserve included in the equity section of the statement of financial position, except to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss, in which case the increase is recognized in profit or loss. A revaluation deficit is recognized in profit or loss, except to the extent that it offsets an existing surplus on the same asset recognized in the asset revaluation reserve, the decrease in other comprehensive income reduces the amount accumulated in equity as the asset revaluation reserve, the decrease in other comprehensive income reduces the amount accumulated in equity as the asset revaluation reserve. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognized. Residual values and the useful life of assets are reviewed at least at each financial year end. Where the residual value of an asset increases to an amount that is equal to or exceeds its 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. Owned Assets The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of attributable overheads which are directly attributable to the assets. Depreciation Depreciable amount is the cost of an asset or other amount substituted for cost less its residual value. Depreciation is provided to write off the depreciable amount of property and equipment over their estimated useful lives to their estimated residual values at the following rates per annum, on a straight-line basis. Computers Motor Vehicles Furniture and Equipment Buildings 20% 25% 20% 2 % Land and capital work-in-progress are not depreciated. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. The Group capitalises borrowing costs for all eligible assets. 30 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2010 Leasing The determination of whether an arrangement is a lease, or it contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Group Company as a lessee Leases which do not transfer to the Group substantially all the risks and benefits incidental to ownership of the leased items are operating leases. Operating lease payments are recognised as an expense in profit or loss on a straight line basis over the lease term. Contingent rentals payable are recognised as an expense in the period in which they are incurred. Group Company as lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned. Impairment of non – financial assets The carrying amounts of the Group’s non- financial assets other than consumables and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The recoverable amount of assets is the greater of their fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. Impairment losses of continuing operations are recognised in profit or loss in those expense categories consistent with the functions of the impaired asset, except for property previously revalued where the revaluation was taken to other comprehensive income. In this case, the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist, or may have decreased. If such an indication exists the bank estimates the assets or CGU’s recoverable. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the assets recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss. Impairment losses relating to goodwill cannot be reversed in future periods. INVESTMENT PROPERTIES Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met, and excludes the costs of day to day servicing of an investment property. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 31 NMBZ HOLDINGS LIMITED SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2010 INVESTMENT PROPERTIES (Cont’d) reporting date. Gains or losses arising from changes in the fair values of investment properties are included in profit or loss in the year in which they arise. Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in profit or loss in the year of retirement or disposal. Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property and equipment up to the date of change in use. FINANCIAL GUARANTEES In the ordinary course of business, the Group companies give financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements at fair value, being the premium received. Subsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher of the amount initially recognised less, where appropriate, cumulative amortisation recognised in profit or loss, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. Any increase in the liability relating to financial guarantees is recognised in the profit or loss. The premium received is recognised in profit or loss on a straight line basis over the life of the guarantee, or in full, depending on the conditions attached to the guarantee. INTEREST INCOME Interest income includes income arising out of the banking activities of lending and investing. Interest income is recognised in profit or loss as it accrues taking into account the effective yield on the asset and where appropriate, premiums/discounts on debt securities are amortised using the effective interest rate method. 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. NON-INTEREST INCOME Other income comprises of income such as revenue derived from service fees, commission, facility arrangement fees, bad debts recoveries and profit/losses on disposals of property and equipment. Commission income is brought to account on an accrual basis and bad debts recoveries on a receipt basis. Service fee income is recognised on settlement date, or where determinable, by stage of completion. Arrangement fee income is deferred and recognised over the tenure of the facility. 32 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2010 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. EMPLOYEE BENEFITS Retirement benefits are provided for the Group’s employees through a defined contribution plan and the National Social Security Authority Scheme. Defined Contribution Plan Obligations for contribution to the defined contribution pension plan are recognised as an expense in profit or loss as they are incurred. National Social Security Authority Scheme The cost of retirement benefits applicable to the National Social Security Authority, which commenced operations on 1 October 1994 is determined by the systematic recognition of legislated contributions. INVENTORY Inventory is accounted for at weighted average cost. PROVISIONS Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in profit or loss net of any reimbursements. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 33 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2010 1. REPORTING ENTITY NMBZ Holdings Limited is an investment holding company domiciled in Zimbabwe, whose registered office is 64 Kwame Nkrumah Avenue, Harare. The consolidated financial statements of the Group as at and for the year ended 31 December 2010 comprise the company and its subsidiaries. The Group primarily is involved in corporate and retail banking and investments. 2. ACCOUNTING MATTERS 2.1 MATTERS OF EMPHASIS 2.1.1 Functional and reporting currency The Company changed its functional and reporting currency from the Zimbabwe dollar to the United States dollar with effect from 1 Janu- ary 2009. These financial statements are reported in United States of America dollars and rounded to the nearest dollar. Following the guidance issued jointly by the PAAB, ZAPB and ZSE the balances as at 1 January 2009 were taken on in United States of America dollars as follows: • • • • • • • • Land, buildings and investment properties valuations were based on the foreign currency valuation done by the directors for the 2008 year end. Motor vehicles, office equipment, furniture and fittings valuation was done by the directors based on market values obtained from the market taking into account the relative ages of the assets. Loans and advances were re-established by reference to the foreign currency amount where the repayment was due and payable in foreign currency. Quoted investments were based on the equity prices ruling on 1 January 2009, and in the case of shares traded on the Zimbabwe Stock Exchange (ZSE), the 30 day average prices from 19 February 2009 (the first date of active trading in foreign currency on the Zimbabwe Stock Exchange (ZSE)) were used. Liabilities were re-established on the basis of the obligations which were due and payable in foreign currency, or by reference to payments which were made after 1 January 2009 for an accrual at 31 December 2008. Other assets and liabilities were taken on by reference to the foreign currency amounts at 1 January 2009, or at the first available foreign currency pricing subsequent to the change in functional currency The share option reserve was established using the Black-Scholes valuation model based on retrospective application of the model with reference to parameters established subsequent to 19 February 2009, the first date of active trading in foreign currency on the Zimbabwe Stock Exchange (ZSE). The net effect of the re-establishment of the Group’s assets and liabilities at 1 January 2009 resulted in a functional currency reserve, the amount of which was credited to a non-distributable reserve. The re-established amounts for the Group’s assets and liabilities at 1 January 2009 were taken as the deemed costs/values at the date of change of the functional currency. In the year under review the non-distributable reserve was utilised in the redenomination of share capital after the requisite shareholder approvals on 17 June 2010 and the subsequent regulatory approvals. 34 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 2.2 USE OF ESTIMATES, JUDGMENTS AND ASSUMPTIONS The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In the process of applying the Group’s accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the consolidated financial statements: 2.2.1 Deferred tax liability 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 Authority (ZIMRA), announced provisional 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. 2.2.2 Land and buildings The properties were valued by professional valuers. The valuer applied the rental yield method 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. 2.2.3 Investment property and equipment Investment property was 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 judgement in determining the residual values of the other property and equipment which have been determined as nil. 2.2.4 RBZ Forex Bond The RBZ Forex 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. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 35 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 2.2.5 Impairment losses on loans and advances The Bank reviews its individually significant 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 Significant Accounting Policies – Impairment losses on loans and advances. 2.2.6 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 financial statements on a going concern basis is still appropriate. However, the Directors believe that under the current economic environment a continuous assessment of the ability of the Group to continue to operate as a going concern will need to be performed to determine the continued appropriateness of the going concern assumption that has been applied in the preparation of these financial statements. 2.2.7 RBZ Statutory reserves The statutory reserves are stated at cost as IFRS principles of amortised cost could not be applied due to the significant uncertainty as to the expected receipt date. 2.3 STATEMENT OF COMPLIANCE The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS), and the International Financial Reporting Interpretations, (IFRIC) interpretations as issued by the International Accounting Standards Board (IASB). The financial statements are based on statutory records that are maintained under the historical cost convention as modified by the revaluation of property, plant and equipment and investment property. The consolidated financial statements have been prepared in compliance with the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20). The Group presents its statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non-current) is presented in note 23. Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expense will not be offset in the consolidated profit or loss unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies of the Group. 36 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 2.4 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES The accounting policies adopted are consistent with those of the previous financial year except as follows: The Group has adopted the following new and amended IFRS and IFRIC interpretations as of 1 January 2010: • IFRS 2 Share-based Payment: Group cash – settled share-based Payments Arrangements effective 1 January 2010. When the adoption of the standard or interpretation is deemed to have an impact on the financial statements or performance of the Group, its impact is described below: IFRS 2 Share-based Payment (Revised) The IASB issued an amendment to IFRS 2 that clarified the scope and the accounting for group cash-settled share-based payment transactions. The Group adopted this amendment as of 1 January 2009. It did not have an impact on the financial position or performance of the Group. Other amendments resulting from Improvements to IFRSs to the following standards did not have any impact of the accounting policies, financial position or performance of the Group: • • IFRIC 17 Distribution of Non-cash Assets to Owners IFRIC 18 Transfer of assets from customers 2.5 STANDARDS ISSUED BUT NOT YET EFFECTIVE Standards issued but not yet effective up to the date of issuance of the Group’s consolidated financial statements are listed below. This listing is of standards and interpretations issued, which the bank reasonably expects to be applicable at a future date. The bank intends to adopt those standards when they become effective. IAS 24 Related Party Disclosures (Amendment) The amended standard is effective for annual periods beginning on or after 2011. It clarified the definition of a related party to simplify the identification of such relationships an d to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government – related entities. The bank does not expect any impact on its financial position or performance. Early adoption is permitted for either the partial exemption for government – related entities or for the entire standard. IAS 32 Financial Instruments: Presentation – Classification of Rights Issues The amendment to IAS 32 is effective for annual periods beginning on or after 1 February 2010 and amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entity’s non – derivative equity instruments, or to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency. This amendment will have no impact on the bank after initial application. IFRS 9 Financial Instruments: Classification and Measurement IFRS 9 as issued reflects the first phase of the IASBs work on the replacement of IAS 39 and applies to classification and measure- ment of financial assets and liabilities as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2013. In subsequent phases, the Board will address impairment and hedge accounting. The completion of this project is expected in mid 2011. The adoption of the first phase of IFRS 9 will primarily have an effect on the classification and measurement of the bank’s financial assets. The Group is currently assessing the impact of adopting IFRS 9, however, the impact of adoption depends on the assets held by the Group at the date of adoption, it is practical to quantify the effect. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 37 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 IFRIC 14 Prepayments of a minimum funding requirement (Amendment) The amendment to IFRIC 14 is effective for annual periods beginning on or after 1 January 2011 with retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayments of a minimum funding requirement as an asset. The amendment is expected to have no impact on the financial statements of the bank. IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments IFRIC 19 is effective for annual periods beginning on or after 1 July 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at the fair value. In case this cannot be reliably measured, they are measured at the fair value of the liability extinguished. Any gain or loss is recognised imme- diately in profit or loss. The adoption of this interpretation will have no effect on the financial statements of the Group. Improvements to IFRS (issued in May 2010) The IASB issued Improvements to IFRSs, an omnibus of amendments to its IFRS standards. The amendments have not been adopted as they become effective for annual periods on or after either 1 July 2010 or 1 January 2011. The amendments are listed below. • • • • • IFRS 3 Business Combinations. IFRS 7 Financial Instruments: Disclosures IAS 1 Presentation of Financial Statements IAS 27 Consolidated and Separate Financial Statements IFRIC 13 Customer Loyalty Programmes The Group, however, expects no impact from the adoption of the amendments on its financial position or performance. 3. SEGMENT INFORMATION For management purposes, the Group is organised into four operating segments based on products and services as follows: Retail banking - Corporate banking - Treasury Individual customers deposits and consumer loans, overdrafts, credit card facilities and funds transfer facilities. Loans and other credit facilities and deposit and current accounts for corporate and institutional customers. - Money market investment, securities trading, accepting and discounting of instruments and International banking - foreign currency trading. Handles the Group’s foreign currency denominated banking business and manages relationships with correspondent banks Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which in certain respects is measured differently from operating profit or loss in the consolidated financial statements. Income taxes are managed on a Group basis and are not allocated to operating segments. Interest income is reported net as management primarily relies on net interest revenue as a performance measure, not the gross income and expense. Transfer prices between operating segments are on arm’s length basis in a manner similar to transactions with third parties. No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the bank’s total revenue in 2010 or 2009. 38 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 3. SEGMENT INFORMATION (Cont’d) The following table presents income and profit and certain asset and liability information regarding the Group’s operating segments and service units: for the year ended 31 December 2010 Retail Banking US$ Corporate Banking International Treasury Banking Unallocated US$ US$ US$ US$ Total US$ Income Third party Inter - segment 6 344 836 - 12 508 781 - 1 371 284 - 695 863 - (497 470) - 20 423 294 - Total operating income 6 344 836 12 508 781 1 371 284 695 863 (497 470) 20 423 294 Impairment losses on loans and advances (87 941) (883 862) - - - (971 803) Net operating income 6 256 895 11 624 919 1 371 284 695 863 (497 470) 19 451 491 Results Interest and similar income Interest and similar expense 2 110 273 (669 134) 7 489 810 (2 339 207) 426 006 (135 080) Net interest income 1 441 139 5 150 603 290 926 - - - (11 453) 253 10 014 636 (3 143 168) (11 200) 6 871 468 Fee and commission income Fee and commission expense 4 234 563 4 929 796 - - Net fees and commission income 4 234 563 4 929 796 - - - 695 863 (169 153) 9 691 069 - - - 695 863 (169 153) 9 691 069 Depreciation of property and equipment Segment profit/ (loss) Income tax expense 139 376 496 672 - 18 583 5 854 649 5 807 1 075 705 16 261 (150 877) 117 505 (6 333 593) 297 532 942 556 - - - - (250 322) Profit/(loss) for the year 496 672 5 854 649 1 075 705 (150 877) (6 333 593) 692 234 Assets and Liabilities Capital expenditure Total assets Total liabilities and equity 368 979 49 197 15 374 43 048 255 585 732 183 12 396 655 14 158 924 56 968 230 35 278 465 27 600 964 32 344 518 - - 5 873 655 21 057 597 102 839 504 102 839 504 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 39 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 3. SEGMENT INFORMATION (Cont’d) The following table presents income and profit and certain asset and liability information regarding the Group’s operating segments and service units: for the year ended 31 December 2009 Income Third party Inter - segment Retail Banking US$ Corporate Banking International Treasury Banking Unallocated US$ US$ US$ US$ Total US$ 588 726 - 3 951 232 - 1 071 179 - 1 345 897 - 2 185 873 - 9 142 907 - Total operating income 588 726 3 951 232 1 071 179 1 345 897 2 185 873 9 142 907 Impairment losses on loans and advances (9 289) (83 598) - - - (92 887) Net operating income 579 437 3 867 634 1 071 179 1 345 897 2 185 873 9 050 020 Results Interest and similar income Interest and similar expense Net interest income - - - 1 414 934 (723 800) 102 804 - 691 134 102 804 - - - 8 984 174 1 526 722 (723 626) 9 158 803 096 Fee and commission income Fee and commission expense 588 726 1 741 445 - - Net fees and commission income 588 726 1 741 445 - - - 1 345 897 1 212 009 4 888 077 - - - 1 345 897 1 212 009 4 888 077 Depreciation of property and equipment Segment profit/ (loss) Income tax expense 82 742 (1 862 889) 19 529 2 354 787 - - 2 570 989 360 - 12 334 984 340 92 505 (1 524 416) 209 680 941 182 - - 1 337 105 (Loss)/profit for the year (1 862 889) 2 354 787 989 360 984 340 (1 524 416) 2 278 287 Assets and Liabilities Capital expenditure Total assets Total liabilities and equity - - - 5 625 382 4 161 792 19 848 533 17 956 535 6 267 521 6 601 793 - - - 160 322 160 322 7 966 495 10 987 811 39 707 931 39 707 931 3.1 GEOGRAPHICAL INFORMATION The Group operates in one geographical market, Zimbabwe. 40 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 4. INTEREST INCOME Loans and advances to banks Loans and advances to customers Investment securities Other operating income 5. INTEREST AND SIMILAR EXPENSE Due to banks Due to customers Other borrowed funds Interest expense on financial liabilities designated at fair value through profit or loss 6. NON-INTEREST INCOME Quoted and other investments fair value adjustments Commission and fee income Loss on disposal of investment property Profit on disposal of property and equipment Fair value adjustment on investment properties Fair value adjustment on financial instruments Profit on disposal of quoted and other investments Debt recovery write back as RBZ Forex Bond Other operating income* *Mainly comprises insurance recoveries proceeds. 2010 US$ 297 752 6 721 892 2 990 349 4 643 10 014 636 2010 US$ 843 705 501 763 561 1 346 029 1 797 139 3 143 168 2010 US$ 94 139 9 691 069 - 64 527 (784 600) 54 404 13 232 - 242 025 9 374 796 2009 US$ 16 158 929 319 581 181 64 1 526 722 2009 US$ 6 179 355 4 199 183 560 540 066 723 626 2009 US$ 172 978 4 888 077 (460 000) 2 066 579 600 32 371 45 256 1 789 836 186 765 7 236 949 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 41 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 7. OPERATING EXPENDITURE 2010 US$ 2009 US$ The operating profit is after charging the following:- Administration costs Loss on derecognition of investment Audit fees Impairment loss on land and buildings Depreciation Directors’ remuneration - Fees for services as directors - Other emoluments Staff costs – salaries, allowances and related costs – retrenchment 8. TAXATION 8.1 Income tax expense Current tax Aids levy Deferred tax Tax adjustment due to changes in tax law Tax adjustment due to changes in tax rates Financial institutions levy Tax expense 8.2 Reconciliation of income tax charge Based on results for the period at a rate of 25% (2009: 30%) Arising due to: Income not subject to tax Non-deductible expenses Tax adjustments Effect of opening deemed values (note 2.1.1) Aids levy Tax adjustment due to change in tax rates Taxation Financial institutions levy Tax expense 42 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 5 924 296 - 153 864 298 811 297 532 587 612 45 625 541 987 5 014 041 3 089 612 15 365 768 2010 US$ 765 499 22 965 (514 224) (23 918) - 250 322 - 250 322 2010 US$ 235 639 (158) 1 924 (10 048) - 227 357 22 965 - 250 322 - 250 322 3 410 039 10 404 117 875 1 050 000 209 680 209 252 18 537 190 715 2 377 962 - 7 385 212 2009 US$ 257 302 7 719 (467 811) - (1 178 976) (1 381 766) 44 661 (1 337 105) 2009 US$ 282 355 (263) 1 519 - (494 120) (210 509) 7 719 (1 178 976) (1 381 766) 44 661 (1 337 105) NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 8. TAXATION (Cont’d) 8.3 Total taxation charge/ (credit) analysed by company 2010 US$ 2009 US$ Opening 2009 US$ Stewart Holdings (Private) Limited (4 079) NMB Bank Limited NMBZ Holdings Limited 8.4 Current tax liabilities (income tax, aids levy and financial institutions levy) At 1 January Charge for the year Payments during the year 9. EARNINGS PER SHARE 788 464 (445 657) 641 969 250 239 4 162 250 322 299 162 15 970 (1 350 517) (2 558) (1 337 105) - 309 682 (10 520) 299 162 - - - - - - - - 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. Headline earnings per share is calculated by dividing the profit attributable to ordinary equity holders of NMBZ Holdings Limited (excluding separately identifiable re-measurements, relating to any change in the carrying amount of an asset or liability, net of related tax (both current and deferred), other than re-measurements specifically included in headline earnings) by the weighted average number of ordinary shares outstanding during the year. 9.1 Earnings Basic and Diluted Headline (note 9.4) 2010 $US 692 234 692 234 2009 $US 2 278 287 2 286 012 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 43 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 9.2 Number of shares Weighted average shares in issue Diluted weighted average number of shares Weighted average shares in issue Effects of dilution: Share options granted but not exercised Share options approved but not yet granted 2010 2009 2 228 151 974 2 238 894 843 1 641 270 307* 1 655 100 176* 2 228 151 974 1 641 270 307 9 072 000 1 670 869 12 159 000 1 670 869 Diluted weighted average number of shares 2 238 894 843 1 655 100 176 * excludes own equity instruments amounting to 1 028 172 shares. 9.3 Earnings per share (US cents) Basic Headline Diluted basic Diluted headline 9.4 Headline earnings 2010 0.03 0.03 0.03 0.03 2010 US$ 2009 0.14 0.14 0.14 0.14 2009 US$ Profit attributable to shareholders Add/(deduct) non-recurring items: - Loss on derecognition of investment - Tax effect 692 234 2 278 287 - - 10 404 (2 679) Headline earnings 692 234 2 286 012 10. SHARE CAPITAL 10.1 Authorised GROUP AND COMPANY 2010 Shares million 2010 Shares million 2010 US$ Opening Cost 2009 US$ Cost 2009 US$ Ordinary shares of US$0.000028 each 3 500 2 250 98 000 - - 44 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 10.2 Issued and fully paid At 1 January Redenomination of share capital Shares issued – rights issue Shares issued – share options 2010 Shares million 1 648 - 1 156 3 2009 Shares million 1 641 - - 7 2010 US$ - 46 147 32 364 87 At 31 December 2 807 1 648 78 598 GROUP AND COMPANY Opening Cost 2009 US$ Cost 2009 US$ - - - - - - - - - - Of the unissued ordinary shares of 692 892 711 (2009 – 601 824 771), options which may be granted in terms of the NMBZ 2005 Employee Share Option Scheme (ESOS) amounted to 85 360 962 (2009 – 85 360 962) and out of these 1 670 869 (2009 – 1 670 869) had not been issued. As at 31 December 2010, 9 072 000 (2009 – 12 159 000) share options out of the issued had not been exercised. Subject to the provisions of section 183 of the Companies Act (Chapter 24:03), the unissued shares are under the control of the directors. The share capital was redenominated after the requisite shareholder approvals on 17 June 2010 and the subsequent regulatory approvals. 10.3 Own equity instruments The own equity instruments amounting to 1 028 172 shares at a cost of US$8 225 which were held by the Company’s subsidiary (Stewart Holdings (Private) Limited) in 2009 were disposed off in the year under review for a consideration of US$9 012. 11. CAPITAL RESERVES GROUP 2009 US$ 34 822 (8 225) 61 212 274 904 Opening 2009 US$ 2010 US$ - - 15 737 387 - 96 034 - 45 832 - COMPANY 2009 US$ 34 822 - 61 212 - Opening 2009 US$ - - 96 034 - 2010 US$ 15 737 548 - 45 671 883 414 Share premium Treasury shares Share option reserve Regulatory reserve Non – distributable reserve - 6 201 909 6 201 909 - 6 201 909 6 201 909 Total capital reserves 16 666 633 6 564 622 6 297 943 15 783 219 6 297 943 6 297 943 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 45 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 Nature and purpose of reserves Capital reserves Share premium This reserve represents the increase in share capital attributable to: • • • the shares issued to shareholders in terms of a right issue exercise concluded in August 2010 upon exercise of share options by officers and key management personnel of the group, the excess reserves above the stated nominal price per share in terms of the redenomination of share capital during the year. Share option reserve The share option reserve is used to recognise the value of equity – settled share based payment transactions providedto employees, in- cluding key management personnel, as part of their remuneration. Refer to note 31.3 for further details of these plans. Treasury shares This reserve represents the reduction in equity arising from the shareholding in the Group company held by a subsidiary. Refer to note 10.3 for further details of these own equity instruments. Regulatory reserve This reserve represents the excess of the Banking Regulations allowance for impairment losses on loans and advances amount compared to the IAS 39 allowance for impairment losses on loan and advances. Non – distributable reserve The non-distributable reserve resulted from the net effect of the re-establishment of the Group’s assets and liabilities at 1 January 2009. Refer to note 2.1.1 for further details of this reserve. This reserve was applied during the year to the redenomination of share capital and share premium reserve after the requisite shareholder approvals on 17 June 2010 and the subsequent regulatory approvals. 12. RETAINED EARNINGS / (ACCUMULATED LOSSES) Analyses of retained profit/ (accumulated loss) by company GROUP 2009 US$ (18 796) 1 968 837 53 342 2 003 383 2010 US$ 79 322 1 976 437 32 135 2 087 894 Opening 2009 US$ - - - - COMPANY 2009 US$ (18 796) - - (18 796) 2010 US$ 95 244 - - 95 244 Opening 2009 US$ - - - - NMBZ Holdings Limited NMB Bank Limited Stewart Holdings (Private) Limited Total 46 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 13. DEPOSITS AND OTHER ACCOUNTS 13.1 Deposits and other accounts by type Deposits from other banks and other financial institutions Other money market deposits Current and deposit accounts** Total deposits Trade and other payables** 2010 US$ 26 598 041 17 177 109 36 074 237 79 849 387 3 307 057 83 156 444 2009 US$ 3 009 704 6 444 932 Opening 2009 US$ - - 19 265 484 2 950 017 28 720 120 1 374 537 30 094 657 2 950 017 1 029 519 3 979 536 - 3 979 536 Less: Financial liabilities disclosed* in note 14.1 (17 177 109) 65 979 335 (6 444 932) 23 649 725 *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. **Deposits and other payables approximate the related carrying amount due to their short term nature. 13.2 Maturity analysis Less than one month 1 to three months 3 to 6 months 6 months to 1 year 1 to 5 years Over 5 years 2010 US$ 54 179 210 15 575 677 10 090 000 4 500 - - 2009 US$ 25 992 595 2 727 525 - - - - Opening 2009 US$ 2 950 017 - - - - - 79 849 387 28 720 120 2 950 017 13.3 Sectoral analysis of deposits Banks and other financial institutions Transport and telecommunications companies Mining companies Industrial companies Municipalities and parastatals Individuals Agriculture Other deposits 2010 US$ 26 983 081 5 875 820 1 200 512 24 377 638 692 909 10 653 099 4 427 417 5 638 911 2009 US$ 3 009 704 4 561 928 2 044 130 6 790 495 3 154 762 4 379 292 2 268 211 2 511 598 % 34 7 1 31 1 13 6 7 Opening 2009 US$ - - - 2 722 960 - 227 057 - - % 10 16 7 24 11 15 8 9 % - - - 92 - 8 - - 79 849 387 100 28 720 120 100 2 950 017 100 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 47 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 14. FINANCIAL INSTRUMENTS 14.1 Financial liabilities of fair value through profit and loss* Cost 2010 US$ Fair Value 2010 US$ Fair Value 2009 US$ Opening Fair value 2009 US$ Opening Cost 2009 US$ Cost 2009 US$ Fixed term deposits Negotiable Certificates of Deposits 3 469 068 13 708 041 3 469 068 13 708 041 88 481 6 356 451 88 481 6 356 451 Total financial liabilities at fair value through profit and loss 17 177 109 17 177 109 6 444 932 6 444 932 - - - - - - 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. 14.2 Financial assets at fair value through profit and loss Cost 2010 US$ Fair Value* 2010 US$ Fair Value 2009 US$ Opening Opening Fair value Cost 2009 2009 US$ US$ Cost 2009 US$ Government and public sector securities 1 994 585 1 994 585 1 789 836 1 789 836 Treasury bills RBZ Forex Bond (1) Mortgage bonds - 1 994 585 - - 1 994 585 - 1 789 36 - 1 789 836 - - - Bills-own acceptance (2) Promissory Notes (2) 14 769 753 498 798 14 805 628 499 379 5 345 187 - 5 234 839 - - - - - - - - - - - - - Total financial assets at fair value through profit and loss 17 263 136 17 299 592 7 135 023 7 024 675 - - (1) Financial asset at fair value through profit and loss was classified as held for trading in accordance with IAS 39. (2) Financial asset at fair value through profit and loss was designated as such upon initial recognition. The RBZ Forex Bond is valued at cost as there is no market information to facilitate application of fair value principles. *All changes in the period to the fair value of the financial assets are attributable to changes in related credit risk. 48 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 14. FINANCIAL INSTRUMENTS (Cont’d) MATURITY ANALYSIS OF FINANCIAL INSTRUMENTS 14.3 Financial liabilities at fair value through profit and loss Less than 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 5 years Over 5 years 2010 US$ 8 747 376 8 335 233 90 000 4 500 - - 2009 US$ 3 717 408 2 727 524 - - - - 17 177 109 6 444 932 14.4 Financial assets at fair value through profit and loss US$ Less than 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 5 years Over 5 years 2010 US$ 7 707 188 6 884 042 2 708 362 - - - 2009 US$ 4 659 689 590 860 1 884 474 - - - 17 299 592 7 135 023 Opening 2009 US$ - - - - - - - Opening 2009 - - - - - - - NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 49 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 14.5 Other financial assets and financial liabilities summary (Cont’d) Fair value Set out below is a comparison by class of the carrying amounts and fair value of the Group’s financial instruments that are carried in the financial statements. Carrying amount 2010 US$ Fair Value 2010 US$ Fair Value 2009 US$ Carrying amount 2009 US$ Opening Fair value 2009 US$ Opening Carrying amount 2009 US$ 18 346 939 18 346 939 12 203 181 12 203 181 1 289 441 1 289 441 17 263 136 59 474 284 17 299 592 59 492 813 7 135 023 12 500 534 7 024 675 12 581 234 201 666 134 461 201 666 134 461 108 333 455 638 108 003 455 638 - 19 781 32 000 306 904 - 19 781 32 000 306 904 Cash and cash equivalent Financial assets at fair value through profit and loss Advances and other accounts Trade investments Quoted and other investments Total 95 420 486 95 475 471 32 402 709 32 372 731 1 648 126 1 648 126 Financial liabilities Deposits and other accounts Financial liabilities at fair value 65 979 335 65 979 335 23 649 725 23 652 448 2 950 017 2 950 017 through profit and loss 17 177 109 17 177 109 6 444 932 6 444 932 - - 83 156 444 83 156 444 30 094 657 30 097 380 2 950 017 2 950 017 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: • • • • Cash and cash equivalents, advances and other accounts, deposits and other accounts and provision for taxation approximate their carrying amounts largely due to the short – term maturities of these instruments. Fair value of quoted and other investments is derived from quoted market prices in active markets if available. Fair value of trade investments is derived from the Group’s proportionate share of the net asset value of associate investments. Fair value of financial assets and liabilities at fair value through profit and 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. Fair value hierarchy As at 31 December 2010, the Group held the following financial instruments measured at fair value: The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities. Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. Techniques which use inputs which have a significant effect on the recorded fair value that are not based on desirable market Level 3: data. 50 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 14.5 Other financial assets and financial liabilities summary (Cont’d) Assets measured at fair value Financial assets at fair value through profit and loss Trade investments Quoted and other investments Liabilities measured at fair value Financial liabilities of fair value through profit and loss 31 Dec 2010 US$ 17 299 592 201 666 134 461 31 Dec 2010 US$ 17 177 109 Level 1 Level 2 Level 3 US$ - US$ 17 299 592 - 134 461 201 666 - US$ - - - Level 1 Level 2 Level 3 US$ - US$ 17 177 109 US$ - During the reporting period ending 31 December 2010, 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. Assets measured at fair value Financial assets at fair value through profit and loss Trade investments Quoted and other investments Liabilities measured at fair value Financial liabilities of fair value through profit and loss 31 Dec 2009 US$ 7 135 023 108 003 455 638 31 Dec 2009 US$ 6 444 932 Level 1 US$ Level 2 US$ Level 3 US$ - 7 135 023 - 455 638 108 003 - - - - Level 1 Level 2 Level 3 US$ - US$ 6 444 932 US$ - During the reporting period ending 31 December 2009, 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. 14.6 Fair value adjustment to profit and loss Fair value gain 2010 US$ 54 404 2009 US$ 32 371 The fair value adjustment through profit and loss on financial instruments is calculated in accordance with the principles disclosed in Significant Accounting Policies – Financial Instruments. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 51 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 15. DEFERRED TAX GROUP COMPANY Allowance for impairment losses on loans and advances Quoted and other investments Investments:-trade investments Investment properties Property and equipment Marking to market adjustments IAS 39 Unrealised foreign exchange gains Suspended interest Deferred income Assessed loss 2010 US$ (272 429) 16 806 - 134 743 268 036 17 408 271 742 2009 US$ - 29 313 - 256 609 363 183 8 007 97 653 (161 703) - (58 601) (4 717) Opening 2009 US$ (52) 56 681 - 1 585 000 1 042 189 - - - - (8 036) (3 941) (138 922) Closing deferred tax liability/(asset) Deferred tax liability at the beginning of the year 207 966 (746 107) 746 107 (2 544 896) 2 544 896 - Deferred tax on disposal of investment in subsidiary - 152 002 Current year credit (note 8.1) (538 142) (1 646 787) - - 2010 US$ - 1 393 6 140 - - - - - - - 7 533 1 751 - 2009 US$ - 615 1 575 - - - - - - (3 941) (1 751) (807) - 9 284 (2 558) Opening 2009 US$ - 807 - - - - - - - - 807 - - - 16. CASH AND CASH EQUIVALENTS 16.1 Balances with Reserve Bank of Zimbabwe 2010 US$ 2009 US$ Opening 2009 US$ Statutory reserve - 2 746 957 - 16.2 Balances with other banks and cash Current, nostro accounts and cash 18 346 939 18 346 939 9 456 224 12 203 181 1 289 441 1 289 441 The statutory reserve balance with the Reserve Bank of Zimbabwe is non-interest bearing. The balance is determined on the basis of deposits held and is not available to the Bank for daily use. The current year amount is shown under “other accounts” in Note 17. 52 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 17. LOANS, ADVANCES AND OTHER ACCOUNTS 17.1 Total loans, advances and other accounts 17.1.1 Advances GROUP COMPANY 2010 2009 US$ 16 553 444 US$ 8 596 463 39 674 193 3 806 776 4 087 760 600 860 Opening 2009 US$ - 2009 US$ - 19 781 - 352 504 1 842 363 Opening 2009 US$ - 96 034 2009 US$ - - 79 034 60 315 397 13 004 099 372 285 1 842 363 79 034 96 034 Fixed term loans Local loans and overdrafts Other accounts 17.1.2 Maturity analysis Less than one month 45 997 447 11 560 300 32 999 1 to three months 3 to 6 months 6 months to 1 year 1 to 5 years Over 5 years 3 554 191 2 511 409 5 106 790 743 752 - 298 366 147 925 120 665 382 088 - - - - - - Total advances 57 913 589 12 509 344 32 999 Provision for impairment losses on loans and advances (1 057 977) (106 105) (13 218) Provision for suspended interest (627 975) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Other accounts 56 227 637 4 087 760 12 403 239 600 860 19 781 - 352 504 1 842 363 - 79 034 - 96 034 60 315 397 13 004 099 372 285 1 842 363 79 034 96 034 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 53 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 17.2 Sectoral analysis of utilisations Industrials Agriculture and horticulture Conglomerates Services Mining Food & beverages Other 2010 US$ 34 198 907 5 079 399 3 151 309 8 876 982 1 120 858 - 5 486 134 57 913 589 2009 US$ 8 068 093 691 914 273 288 2 072 971 1 272 873 - 130 205 12 509 344 % 59 9 6 15 2 - 9 100 Opening 2009 US$ - - - - - - - - % 64 6 2 17 10 - 1 100 The material concentration of loans and advances are in the industrial sector at 59% (2009 – 64%). 17.3 Allowance for impairment losses on loans and advances (including acceptances) Specific US$ 106 105 971 803 (19 931) 1 057 977 2010 Portfolio US$ Total US$ Specific US$ 2009 Portfolio US$ - - - - 106 105 971 803 (19 931) 1 057 977 13 218 92 887 - 106 105 - - - - At 1 January Charge against profits Bad debts written off At 31 December 17.4 Non-performing loans and advances Total non-performing loans and advances Provision for impairment loss on loans and advances Interest in suspense 2010 US$ 1 685 952 (1 057 977) (627 975) - 2009 US$ 106 105 (106 105) - - Opening 2009 US$ 13 218 (13 218) - - The residue on these accounts, where applicable, represents recoverable portions covered by realisable security. % - - - - - - - - Total US$ 13 218 92 887 - 106 105 17.5 Other assets Service deposits Statutory reserve Accrued income Prepayments and stocks Other receivables 2010 US$ 117 772 2009 US$ 112 167 3 265 176 - 589 026 115 786 4 087 760 - 97 295 317 565 73 833 600 860 Opening 2009 US$ 101 992 - - 209 602 40 910 352 504 54 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 17.6 Loans to officers 2010 US$ 2009 US$ 2009 US$ Included in advances and other accounts (note 17.1) are loans to officers:- At 1 January Net additions during the year Fair value adjustment 335 953 511 891 (61 623) - 335 953 - Balance at 31 December 786 221 335 953 Of which housing loans comprised:- - - - - - - - Loans to officers are granted at a preferential rate of 6% per annum as part of their overall remuneration agreements. 17.7 The terms and conditions applicable to advances are as follows: Tenure Interest Rate Overdraft Payable on demand on unauthorised facility Minimum lending rate plus a margin Loans Loan payable over a maximum Minimum lending rate plus a margin. period of 24 months Loans to employees and directors are at discounted interest rates. Bankers Acceptances Loan payable over a minimum Average rate of 30% per annum. period of 30 days 18. TRADE INVESTMENT Unlisted Takura Ventures (Private) Limited Other GROUP COMPANY 2010 US$ 2009 US$ 32 788 31 495 168 878 76 508 201 666 108 003 Opening 2009 US$ 32 000 - 32 000 2010 US$ 32 788 90 006 122 794 2009 US$ 31 495 - 31 495 Opening 2009 US$ 32 000 - 32 000 Directors’ valuation 201 666 108 003 32 000 122 794 31 495 32 000 The Takura Ventures (Private) Limited investment represents 3.1% shareholding in the company, whose principal activity is venture capital finance. Other investment represents equity investment in SWIFT and Medical Investments (Private) Limited t/a Avenues Clinic. The trade investment was valued by directors at fair value at 31 December 2010. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 55 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 19. INVESTMENT IN ASSOCIATE The Group has a 25% 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 summarised unaudited financial information of the Group’s investment in African Century Limited. Share of the associate’s statement of financial position: Current assets Non-current assets Current liabilities Non – current liabilities Equity Share of the associate’s revenue and (loss) Revenue Loss Carrying amount of the investment GROUP 2009 US$ COMPANY Opening 2009 US$ 2010 US$ 2009 US$ Opening 2009 US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 250 000 - - - - - - - - - 2010 US$ 222 185 26 058 (19 687) - 228 556 676 (21 444) 228 556 20. INVESTMENTS IN GROUP COMPANIES 20.1 Subsidiaries COMPANY 2010 US$ 2009 US$ Opening 2009 US$ Investments in subsidiaries 13 722 112 6 154 577 6 154 577 56 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 20. INVESTMENTS IN GROUP COMPANIES (Cont’d) 20.2 Shareholding The subsidiaries and associates, all of which are registered in Zimbabwe, and the extent of the Group’s beneficial interest therein and their principal business activities are listed below:- NMB Bank Limited Brixtun (Private) Limited 2010 100% (Banking) 100% (Dormant) 2009 100% (Banking) 100% (Dormant) NMB Fund Management (Private) Limited Stewart Holdings (Private) Limited 100% (Dormant) 100% (Equity holdings) 100% (Dormant) 100% (Equity Holdings) Invariant (Private) Limited Darksan (Private) Limited African Century Limited 100% (Dormant) 100% (Dormant) 25% (Leasing) 100% (Dormant) 100% (Dormant) nil The consolidated financial statements include the financial statements and results of the subsidiaries and associates listed above. The Group acquired a 25% shareholding in African Century Limited on 30 November 2010. 21. QUOTED AND OTHER INVESTMENTS Quoted investments GROUP 2009 US$ 455 638 455 638 Opening 2009 US$ 306 904 306 904 COMPANY 2010 US$ 27 854 27 854 2009 US$ 12 290 12 290 Opening 2009 US$ 16 139 16 139 2010 US$ 134 461 134 461 The quoted investments comprise shares stated for year end purposes at the last trading date of 31 December 2010. 22. INVESTMENT PROPERTIES At 1 January Improvements Sale of investment property Fair value adjustments At 31 December 2010 US$ 3 219 600 180 000 - (784 600) 2 615 000 2009 US$ 6 140 000 - (3 500 000) 579 600 3 219 600 Opening 2009 US$ - - - 6 140 000 6 140 000 Rental income amounting to US$3 855 was received and no operating expenses were incurred on the investment properties in the current year. The investment properties comprise 2 sets of properties namely Borrowdale Road and other investment properties. The Borrowdale Road which is also known Stand Number 19207 Harare Township of Stand 19206 measures 4.4506 hectares in extent. The property was valued for year end purposes by professional valuers and the open market value was US$2 050 000. The other properties comprise residential stands and houses which were valued by professional valuers for year end purposes at US$565 000. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 57 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 23. PROPERTY AND EQUIPMENT Cost Deemed at 1 January 2009 Additions Impairment loss Disposals At 31 December 2009 Additions Impairment loss Disposals Motor Furniture & Computers US$ Vehicles US$ Equipment US$ Freehold Land & Building US$ Total US$ 447 772 116 830 911 127 3 760 000 5 235 729 55 553 - - 503 325 214 274 - - 31 685 - - 148 515 108 804 - (37 200) 71 375 - - 982 502 407 003 - - 1 709 (1 050 000) 160 322 (1 050 000) - - 2 711 709 2 102 (298 811) - 4 346 051 732 183 (298 811) (37 200) At 31 December 2010 717 599 220 119 1 389 505 2 415 000 4 742 223 Accumulated depreciation Deemed at 1 January 2009 Charge for the year Disposals At 31 December 2009 Charge for the year Disposals 114 262 89 930 - 204 192 113 114 25 910 23 995 - 49 905 43 985 - (16 866) 413 812 95 744 - 509 556 140 375 - - 11 - 11 58 - 553 984 209 680 - 763 664 297 532 (16 866) At 31 December 2010 317 306 77 024 649 931 69 1 044 330 Net book amount At 1 January 2009 Net book amount At 31 December 2009 Net book amount At 31 December 2010 333 510 90 920 497 315 3 760 000 4 681 745 299 133 98 610 472 946 2 711 698 3 582 387 400 293 143 095 739 574 2 414 931 3 697 893 The land and buildings were valued by professional valuers as at 31December 2010 for year end purposes and the open market value was US$2.41 million. The deemed balances at 1January 2009 were derived using the principles outlined in note 2.1.1. 58 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 24. INTEREST RATE REPRICING AND GAP ANALYSIS The table below analyses the Group’s interest rate risk exposure on assets and liabilities. The financial assets and liabilities are categorised by the earlier of contractual repricing or maturity dates. 24.1 Total position At 31 December 2010 Assets Cash and cash equivalents Financial assets at fair value through profit and loss Loans, advances and other accounts Investment in associate Quoted and other investments Investment properties Property and equipment Liabilities and equity Financial liabilities at fair value through profit and loss Deposits and other accounts Current tax liabilities Deferred tax liabilities Equity Up to 1 1 month 3 months 1 year to Non-interest month to 3 months US$ US$ to 1 year US$ 5 years US$ bearing US$ Total US$ 18 346 939 - - 7 707 188 6 884 042 44 658 392 - 3 450 723 - 2 708 362 7 396 422 - - - - - - - - - 722 100 - - - - - 4 087 760 228 556 336 127 2 615 000 18 346 939 17 299 592 60 315 397 228 556 336 127 2 615 000 - 70 712 519 - 10 334 765 - 10 104 784 - 722 100 3 697 893 10 965 336 3 697 893 102 839 504 8 747 376 45 431 834 8 335 233 7 240 444 94 500 10 000 000 - - - - - - - 54 179 210 - 15 575 677 - 10 094 500 - - - - - - - 3 307 057 641 969 207 966 17 177 109 65 979 335 641 969 207 966 18 833 125 22 990 117 18 833 125 102 839 504 Interest rate repricing gap 16 533 309 (5 240 912) 10 284 722 100 (12 024 781) Cumulative gap 16 533 309 11 292 397 11 302 681 12 024 781 - - - NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 59 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 24. INTEREST RATE REPRICING AND GAP ANALYSIS (Cont’d) The table below analyses the Group’s interest rate risk exposure on assets and liabilities. The financial assets and liabilities are categorised by the earlier of contractual repricing or maturity dates. 24.1 Total position (continued) At 31 December 2009 Assets Cash and cash equivalents Financial assets at fair value through profit and loss Loans, advances and other accounts Quoted and other investments Investment properties Property and equipment Liabilities and equity Financial liabilities at fair value through profit and loss Deposits and other accounts Current tax liabilities Deferred tax liabilities Equity Up to 1 1 month 3 months 1 year to Non-interest month US$ to 3 months US$ to 1 year US$ 5 years US$ bearing US$ Total US$ 12 203 181 - - 4 659 689 11 835 204 - 590 860 298 365 - 1 884 474 268 591 - - - - - - - - - 382 088 - - - - - 219 851 563 641 3 219 600 3 582 387 12 203 181 7 135 023 13 004 099 563 641 3 219 600 3 582 387 28 698 074 889 225 2 153 065 382 088 7 585 479 39 707 931 3 717 408 2 727 524 22 275 188 - - - - - - - 25 992 596 2 727 524 - - - - - - - - - - - - - 6 444 932 1 374 537 299 162 746 107 8 568 005 23 649 725 299 162 746 107 8 568 005 10 987 811 39 707 931 Interest rate repricing gap Cumulative gap 2 705 478 2 705 478 (1 838 299) 867 179 2 153 065 3 020 244 382 088 3 402 332 (3 402 332) - - - 60 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 25. INTEREST RATE REPRICING AND GAP ANALYSIS (Cont’d) The table below analyses the Group’s interest rate risk exposure on assets and liabilities denominated in United States Dollars only. The financial assets and liabilities are categorised by the earlier of contractual repricing or maturity dates. 25.1. United States dollar At 31 December 2010 Assets Cash and cash equivalents Financial assets at fair value through profit and loss Loans, advances and other accounts Investment in associate Quoted and other investments Investment properties Property and equipment Liabilities and equity Financial liabilities at fair value through profit and loss Deposits and other accounts Current tax liabilities Deferred tax liabilities Equity Up to 1 1 month 3 months 1 year to Non-interest month US$ to 3 months US$ to 1 year US$ 5 years US$ bearing US$ Total US$ 14 435 521 - - 7 707 188 6 884 042 44 274 497 - 3 450 723 - 2 708 362 7 396 422 - - - - - - - - - 722 100 - - - - 66 417 206 - 10 334 765 - 10 104 784 - 722 100 - - 4 087 760 228 556 257 255 2 615 000 3 697 893 10 886 464 14 435 521 17 299 592 59 931 502 228 556 257 255 2 615 000 3 697 893 98 465 319 8 747 376 43 121 883 8 171 759 7 240 444 94 500 10 000 000 - - - - - - - 51 869 259 - 15 412 203 - 10 094 500 - - - - - - - 3 307 057 641 969 207 966 17 013 635 63 669 384 641 969 207 966 18 833 125 22 990 117 18 833 125 100 366 079 Interest rate repricing gap 14 547 947 (5 077 438) 10 284 722 100 (12 103 653) (1 900 760) Cumulative gap 14 547 947 9 470 509 9 480 793 10 202 893 (1 900 760) - NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 61 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 25. INTEREST RATE REPRICING AND GAP ANALYSIS (Cont’d) The table below analyses the Group’s interest rate risk exposure on assets and liabilities denominated in United StatesDollars only. The financial assets and liabilities are categorised by the earlier of contractual repricing or maturity dates. 25.1 United States dollar (Cont’d) At 31 December 2009 Assets Cash and cash equivalents Financial assets at fair value through profit and loss Loans, advances and other accounts Quoted and other investments Investment properties Property and equipment Liabilities and equity Financial liabilities at fair value through profit and loss Deposits and other accounts Current tax liabilities Deferred tax liabilities Equity Up to 1 1 month 3 months 1 year to Non-interest month US$ to 3 months US$ to 1 year US$ 5 years US$ bearing US$ Total US$ 8 353 567 - - 4 659 689 11 667 252 - 590 860 298 365 - 1 884 474 268 591 - - - - - - - - - 382 088 - - - - - 219 851 487 133 3 219 600 3 582 387 8 353 567 7 135 023 12 836 147 487 133 3 219 600 3 582 387 24 680 508 889 225 2 153 065 382 088 7 508 971 35 613 857 3 275 040 2 727 524 19 074 551 - - - - - - - 22 349 591 2 727 524 - - - - - - - - - - - - - 6 002 564 1 374 537 299 162 746 107 8 568 005 20 449 088 299 162 746 107 8 568 005 10 987 811 36 064 926 Interest rate repricing gap Cumulative gap 2 330 917 2 330 917 (1 838 299) 492 618 2 153 065 2 645 683 382 088 3 027 771 (3 478 840) (451 069) (451 069) - 62 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 26. INTEREST RATE REPRICING AND GAP ANALYSIS (Cont’d) The table below analyses the Group’s interest rate risk exposure on assets and liabilities denominated in currencies other than United States Dollars. The amounts are shown at the equivalent values in United States Dollars, the presentation currency. The financial assets and liabilities are categorised by the earlier of contractual repricing or maturity dates. 26.1. Other Foreign currencies At 31 December 2010 Up to 1 1 month month to 3 months US$ US$ 3 months to 1 year US$ 1 year to 5 years US$ Non-interest bearing US$ Total US$ Assets Cash and cash equivalents Financial assets at fair value through profit and loss Quoted and other investments Loans, advances and other accounts Investment properties Property and equipment Liabilities and equity Financial liabilities at fair value through profit and loss Deferred tax liabilities Deposits and other accounts Current tax liabilities Equity 3 911 418 - - 383 895 - - 4 295 313 - - - - - - - - - 163 474 - 2 309 951 - - 2 309 951 - - - 163 474 Interest rate repricing gap 1 985 362 (163 474) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3 911 418 - 78 872 - - - 78 872 383 895 - - 78 872 - 4 374 185 - - - - - - 163 474 - 2 309 951 - - 2 473 425 78 872 1 900 760 Cumulative gap 1 985 362 1 821 888 1 821 888 1 821 888 1 900 760 - NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 63 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 26. INTEREST RATE REPRICING AND GAP ANALYSIS (Cont’d) The table below analyses the Group’s interest rate risk exposure on assets and liabilities denominated in currencies other than United States Dollars. The amounts are shown at the equivalent values in United States Dollars, the presentation currency. The financial assets and liabilities are categorised by the earlier of contractual repricing or maturity dates. 26.1 Other Foreign currencies (continued) At 31 December 2009 Assets Cash and cash equivalents Financial assets at fair value through profit and loss Quoted and other investments Loans, advances and other accounts Investment properties Property and equipment Liabilities and equity Financial liabilities at fair value through profit and loss Deferred tax liabilities Deposits and other accounts Current tax liabilities Equity Interest rate repricing gap Cumulative gap Up to 1 1 month month to 3 months US$ US$ 3 months to 1 year US$ 1 year to 5 years US$ Non-interest bearing US$ Total US$ 3 849 614 - - 167 952 - - 4 017 566 442 368 - 3 200 637 - - 3 643 005 374 561 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 374 561 374 561 374 561 374 561 - 3 849 614 - 76 508 - - - 76 508 167 952 - - 76 508 - 4 094 074 - - - - - - 442 368 - 3 200 637 - - 3 643 005 76 508 451 069 451 069 451 069 64 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 27. FOREIGN EXCHANGE POSITIONS The table below indicates the currencies to which the Group had significant exposure at 31 December on all its assets and liabilities. The analysis reflects the mismatch by currency. The amounts are shown at the equivalent values in United States Dollars, the presentation currency. 27.1 At 31 December 2010 Assets Cash and cash equivalents Financial assets at fair value US$ US$ RAND US$ GBP US$ EUR US$ BWP US$ TOTAL US$ 14 435 521 2 573 026 125 456 1 136 318 76 618 18 346 939 through profit and loss Loans, advances and other accounts 17 299 592 59 931 502 - 381 402 Investment in associate Quoted and other investments Investment properties Property and equipment Liabilities and equity Financial liabilities at fair value through profit and loss Deferred tax liabilities Deposits and other accounts Current tax liabilities Equity 228 556 257 255 2 615 000 3 697 893 - - - - - 697 - - - - - 525 - 78 872 - - - 1 271 17 299 592 60 315 397 - - - - 228 556 336 127 2 615 000 3 697 893 98 465 319 2 954 428 126 153 1 215 715 77 889 102 839 504 17 013 635 207 966 63 669 384 641 969 18 833 125 163 474 - 1 281 077 - - - - 41 453 - - - - 924 087 - - - 17 177 109 - 63 334 - - 207 966 65 979 335 641 969 18 833 125 100 366 079 1 444 551 41 453 924 087 63 334 102 839 504 Net foreign exchange position (1 900 760) 1 509 877 84 700 291 628 14 555 - NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 65 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 27. FOREIGN EXCHANGE POSITIONS (Cont’d) The table below indicates the currencies to which the Group had significant exposure at 31 December on all its assets and liabilities. The analysis reflects the mismatch by currency. The amounts are shown at the equivalent values in United States Dollars, the presentation currency. 27.1 At 31 December 2009 (Cont’d) Assets Cash and cash equivalents Financial assets at fair value through profit and loss Loans,advances and other accounts Quoted and other investments Investment properties Property and equipment Liabilities and equity Financial liabilities at fair value through profit and loss Deferred tax liabilities Deposits and other accounts Current tax liabilities Equity US$ US$ RAND US$ GBP US$ EUR US$ BWP US$ TOTAL US$ 8 353 567 1 296 591 95 540 2 389 271 68 212 12 203 181 7 135 023 12 836 147 487 133 3 219 600 3 582 387 35 613 857 6 002 564 746 107 20 449 088 299 162 8 568 005 36 064 926 - 167 716 - - - 128 - - - 88 76 508 - - 20 - - - 1 464 307 - 95 668 - 2 465 867 - 68 232 - - 1 145 520 - - 1 145 520 - - 46 693 - - 46 693 442 368 - 1 958 063 - - 2 400 431 - - 50 361 - - 50 361 7 135 023 13 004 099 563 641 3 219 600 3 582 387 39 707 931 6 444 932 746 107 23 649 725 299 162 8 568 005 39 707 931 Net foreign exchange position (451 069) 318 787 48 975 65 436 17 871 - 28. CONTINGENT LIABILITIES Guarantees Commitments to lend At 31 December 2010 US$ 5 002 123 13 417 179 18 419 302 2009 US$ 3 150 324 6 638 259 Opening 2009 US$ - - 9 788 583 - The Group enters into various irrevocable commitments and contingent liabilities in its normal course of business in order to meet financial needs of customers. These obligations are not recognised on the statement of financial position, but contain credit risk and are therefore part of the overall risk of the Group. Guarantees commit the Group to make payments on behalf of clients in the event of a specified act. Guarantees carry the same credit risk as loans. Commitments to lend represent contractual commitments to advance loans and revolving credits. Commitments have fixed expiry dates and may expire without being drawn upon, hence total contract amounts do not necessarily represent future cash requirements. 66 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 29. CAPITAL COMMITMENTS Capital expenditure contracted for Capital expenditure authorised but not yet contracted for At 31 December 2010 US$ - 2 411 250 2 411 250 Opening 2009 US$ - - - 2009 US$ - 998 400 998 400 Capital commitments, when they arise, will be financed from the Group’s own resources. 30. OPERATING LEASE COMMITMENTS 2010 US$ 2009 US$ Lease commitments 2 658 249 2 292 335 Up to 1 year 1 – 5 years 531 650 2 126 599 458 467 1 833 868 Lease commitments relate to future rental commitments up to the expiry of the lease agreements. 31. RELATED PARTIES As required by IAS 24, Related Parties Disclosures, the Board’s view is that non-executive and executive directors constitute the key management of the Group. Accordingly, key management remuneration is disclosed below. 31.1 Compensation of key management personnel of the Group Short – term employee benefits Contribution to pension funds 2010 US$ 569 169 18 443 587 612 2009 US$ 209 252 - 209 252 31.2 Key management interest in an employee share options At 31 December 2010, key management held no options to purchase ordinary shares of the Company. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 67 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 31.3 Balances of loans to directors, officers and others Loans to directors and officers or their companies are included in advances and other accounts (note 17.1). 2010 US$ - 140 683 786 221 115 772 - - 1 042 676 - 1 042 676 2009 US$ 600 64 025 335 953 - - - 400 578 - 400 578 Opening 2009 US$ - - - - - - - - - Interest to related parties US$ Amounts owed by related parties Amounts owed to related parties US$ US$ - - - 1 042 676 400 578 - - - - Non - executive directors Executive directors Officers (Note 17.6) Directors’ companies Officers’ companies Intra group loans Provision for impairment losses on loans 31.4 Other related party disclosures Entities with significant influence over the Group Interest from related parties US$ - - - 2010 2009 Opening 2009 31.5 BORROWING POWERS Holding Company In terms of the existing Articles of Association, Article 102, the directors may from time to time, at their discretion, borrow or secure the payment of any sum or sums of money for the purposes of the company without any limitation. Banking subsidiary In terms of the existing Articles of Association, Article 55, the directors may from time to time, at their discretion, borrow or secure the payment of any sum or sums of money for the purposes of the company without any limitation. 68 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 32. EMPLOYEE BENEFITS 32.1 Pension Fund All eligible employees contribute to the NMB Bank Pension Fund, which is a defined contribution plan. The assets of the Pension Fund are held separately from those of the Group in funds under the control of Trustees. The pension fund assets include 661 416 shares in NMBZ Holdings Limited as at 31 December 2010. 32.2 Expense recognised in profit or loss Defined Contribution Plan - NSSA Defined Contribution Plan – NMB Bank Pension Fund 2010 US$ 2009 US$ 101 441 54 241 155 682 62 878 - 62 878 The expense is recognised in profit or loss as part of staff costs under operating expenses (note 7). 32.3 Employee Share Option Scheme In terms of the Employee Share Option Scheme, up to a maximum of 10% of the issued share capital may be granted by the directors to senior employees by way of options. Each set of options is exercisable at any time within a period of five years from the date the options are granted and the issue price is based on the higher of nominal value of the shares and the middle market price derived from the Zimbabwe Stock Exchange prices for the trading day immediately preceding the date of offer. The options vest immediately from date of issue and the fair value of the options is estimated at the grant date using the Black – Scholes option pricing model, taking into account the terms and conditions upon which the instruments were granted. Movements in the year The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in share options during the year. GROUP and COMPANY 2010 WAEP$ No. 000’s 2009 WAEP$ No. 000’s Opening 2009 WAEP$ No. US$ Outstanding as at 1 January 12 159 0.005 19 076 0.005 19 076 Lapsed Issued - - Exercised Outstanding as at 31 December (3 087)* 9 072 - - 0.005 0.005 - - (6 917)* 12 159 - - 0.005 0.005 - - - 19 076 - - - - - *The weighted average share price at the date of exercise for the options exercised was US$0.01 (2009: US$0.0082). NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 69 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 32. EMPLOYEE BENEFITS (Cont’d) Terms of options outstanding at 31 December 2010 GROUP & COMPANY Expiry date Exercise price US$ 5 September 2012 7 January 2013 12 March 2013 nil nil nil 2010 Shares 000’s 9 072 - - 9 072 32.4 National Social Security Authority Scheme All employees of the Group are members of the National Social Security Authority Scheme, a defined contribution plan to which both the employer and the employees contribute. Contributions by the employer are charged to the profit and loss account and during the period amounted to US$101 441 (2009 – US$62 878). 32.5 Number of employees The total number of employees of the Group at 31 December 2010 was 258 (2009 – 409). 33. EXCHANGE RATES The following exchange rates have been used to translate the foreign currency balances to United States dollars at year end: British Sterling South African Rand European Euro Botswana Pula 31 December 2010 Mid - rate 31 December 2009 Mid - rate US$ 1.5442 6.6249 1.3305 6.4570 US$ 1.6076 7.3975 1.4371 6.6578 GBP ZAR EUR BWP 70 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 34. RISK MANAGEMENT In the ordinary course of business the Group manages risks of all forms especially operational, market, liquidity and credit risks. These risks are identified and monitored through various channels and mechanisms. The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has established the Asset and Liability Management Committee (ALCO) and operational risk committees, which are responsible for developing and monitoring Group risk management policies in their specified areas. The Group has a Risk Management department, which reports to the Chief Executive Officer and is responsible for the management of the overall risk profile. The Group risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group Risk Committee which is responsible for monitoring compliance with the Group risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Group, is assisted in these functions by Internal Audit and Risk Management. Internal Audit undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee and the Risk Committee. The Group main objective is to contain the risk inherent within the financial services sector and to ensure that the Group various risk profiles are understood and appropriately managed to the benefit of customers, shareholders and other stakeholders. 34.1 Credit risk Credit risk is the risk that a financial contract will not be honoured according to the original set of terms. The risk arises when borrowers or counterparties to a financial instrument fail to meet their contractual obligations. The Board has put in place sanctioning committees which operate according to the amount requested by an applicant. The Credit Risk Management department reviews all applications. This initial review allows only those applications that do not unduly expose the Group to credit risk to be considered by the sanctioning committees. 34.1.1 Management of credit risk The Board has delegated responsibility for the management of credit risk to its Loans Review Committee. The Credit Risk Management department which also reports to the Loan review committee is responsible for oversight of the Group credit risk, including: • • • • • • • Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements. Establishing the authorization structure for the approval and renewal of credit facilities. Facilities require authorization by Head of Credit Risk, executive directors, Loans Review Committee or the Board of Directors depending on amount as per set limits. The Credit Risk department assesses all credit exposures in excess of designated limits, prior to facilities being committed to clients by the business unit concerned. Renewals and reviews of facilities are subject to the same review process. Limiting concentrations of exposure to counter parties and industry for loans and advances. Maintaining and monitoring the risk gradings as per the RBZ requirement in order to categorise exposures according to the degree of risk of financial loss faced and to focus management on the attendant risks. The current risk grading framework consists of five grades reflecting varying degrees of risk of default and the availability of collateral or other credit risk mitigation. Reviewing compliance of business units with agreed exposure limits, including those for selected industries. Providing advice, guidance and specialist skills to business units to promote best practice throughout the Group in the management of credit risk. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 71 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 34. RISK MANAGEMENT (Cont’d) The table below shows the maximum exposure to credit for the components of the statement of financial position. The maximum exposure is shown as gross. 34.1.2 Maximum exposure to credit risk without taking account of any collateral Cash and cash equivalents (excluding cash on hand) Financial assets at fair value through profit and loss Loans, advances and other accounts Total Guarantees Commitments to lend Total Total credit risk exposure Note 14 17 28 28 2010 US$ 13 042 536 17 299 592 56 227 637 86 569 765 5 002 123 13 417 179 18 419 302 104 989 067 2009 US$ 9 052 698 7 135 023 12 403 239 28 590 960 3 150 324 6 638 259 9 788 583 38 379 543 Opening 2009 US$ 190 966 - 19 781 210 747 - - - 210 747 Where financial instruments are recorded at fair value the amounts shown above represent the current risk exposure but not the maximum risk exposure that could arise in the future as a result of changes in values. The effect of collateral and other risk mitigation techniques is shown below. An industry sector analysis of the Group’s financial assets, before and after taking into account collateral held or other credit enhancements is as follows: 34.1.3 Risk concentrations of maximum exposure to credit risk 31 December 2010 Gross Maximum Exposure US$ 31 December 2010 Net Maximum Exposure US$ 31 December 2009 Gross Maximum Exposure US$ 31 December 2009 Net Maximum Exposure US$ 34 198 907 5 079 399 3 151 309 8 876 982 1 120 858 - 5 486 134 57 913 589 - - - - - - - - 8 068 093 691 914 273 288 2 072 971 1 272 873 - 130 205 12 509 344 - - 273 288 - - - - 273 288 Industrials Agriculture and horticulture Conglomerates Services Mining Food and beverages Other 34.1.4 Collateral and other credit enhancements The amount and type of collateral required depends on an assessment of credit risk of the counterparty. There are guidelines regarding the acceptability of types of collateral. The main types of collateral obtained are guarantees, cession of debtors, mortgages over residential properties, equities, subordination of shareholder loans and promissory notes. The fair value of all collateral held by the Group at the reporting date is US$38 647 557 (2009: US$22 567 686). The benefits on guarantees are not included in the above table. 72 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 34.1.5 Credit quality per sector At 31 December 2010 Industrials Agriculture and horticulture Conglomerates Services Mining Food and beverages Other Total At 31 December 2009 Industrials Agriculture and horticulture Conglomerates Services Mining Food and beverages Other Total Grade A Pass US$ Grade B Grade C Special Substandard Mention US$ US$ Grade D Doubtful Grade E Loss US$ US$ Total US$ 12 458 731 2 278 313 3 151 309 1 442 980 20 541 584 2 801 086 - 2 928 403 - 1 102 811 - - 931 200 - - 903 470 - - 267 392 - - 3 444 849 18 047 - - - 34 198 907 5 079 399 - 157 280 - - 3 151 309 8 876 982 1 120 858 - 60 000 19 391 333 5 209 112 32 582 996 87 189 1 921 859 122 729 3 853 017 7 104 164 384 5 486 134 57 913 589 Grade A Pass US$ 5 962 916 178 728 273 288 1 069 565 1 997 111 510 766 - 986 933 1 167 506 105 367 - - - 8 652 003 63 053 3 663 230 Grade B Grade C Special Substandard Mention US$ US$ Grade D Doubtful Grade E Loss Total US$ US$ US$ 108 066 2 420 - 16 473 - - - - - - - - - - - - - - 8 068 093 691 914 273 288 2 072 971 1 272 873 - 49 644 176 603 1 582 1 582 15 926 15 926 130 205 12 509 344 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 73 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 34. RISK MANAGEMENT (Cont’d) 34.2 Market risk This arises from adverse movements in the market place, which occur in the money market (interest rate risk), foreign exchange and equity markets in which the Group operates. The Group is currently developing VaR (Value at Risk) model which will be used to manage and monitor the market risk for the trading portfolio. The Group has in place an Asset and Liability Management Committee (ALCO), which comprises the departmental heads of Risk, Treasury, Corporate and Retail banking and Finance, in addition to executive directors. The committee monitors these risks and recom- mends the appropriate levels to which the Group should be exposed at any time. The approval of all dealing limits ultimately rests with this committee. The market risk for the non - trading portfolio is managed by monitoring the sensitivity of Group’s financial assets and liabilities to vari- ous interest rate scenarios. The bank monitors its net interest margin as a primary measure of interest rate conditions. On foreign exchange risk, the bank monitors currency mismatches and make adjustments depending on exchange rate movement forecasts. The mismatches are also contained within 10% of the bank’s capital position. The following table demonstrates the sensitivity to a reasonable change in interest rates, with all other variables held constant, of the Bank’s statement of comprehensive income. The sensitivity of the statement of comprehensive income is the effect of the assumed changes in interest rates on the profit or loss for the year, based on the variable and fixed interest rate financial assets and liabilities held at 31 December. At 31 December 2010 Sensitivity of net interest income Currency USD USD USD USD USD USD Increase in interest rates % +5 +3 +1 -1 -3 -5 0 to 1 months US$ 1 025 954 615 573 205 191 (205 191) (615 573) (1 025 954) 1 to 3 months US$ (265 046) (159 028) (53 009) 53 009 159 028 265 046 3months to 1 year US$ (4 758) (2 855) (952) 952 2 855 4 758 1 year to 5 years US$ 37 188 22 313 7 438 (7 438) (22 313) (37 188) Total US$ 793 338 476 003 158 668 (158 668) (476 003) (793 338) 74 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 34. RISK MANAGEMENT (Cont’d) At 31 December 2009 Currency USD USD USD USD USD USD Sensitivity of net interest income Increase in interest rates % +5 +3 +1 -1 -3 -5 0 to 1 months US$ 104 203 62 522 20 841 (20 841) (62 522) (104 203) 1 to 3 months US$ (77 140) (46 284) (15 428) 15 428 46 284 77 140 3months to 1 year US$ 1 year to 5 years US$ 53 006 31 831 10 610 (10 610) (31 831) (53 006) 33 433 20 060 6 687 (6 687) (20 060) (33 433) Total US$ 113 502 68 129 22 710 (22 710) (68 129) (113 502) For interest rate repricing and gap analysis refer note 24.1. 34.3 Foreign currency exchange rate risk The table below calculates the effect of a reasonable possible movement of the significant currency rate against the United States Dollar, with all other variables held constant. A negative amount in the table reflects a potential net reduction in the statement of comprehensive income or equity while a positive amount reflects a net potential increase. At 31 December 2010 % Change in currency rate Effect on profit before tax US$ Currency ZAR ZAR ZAR ZAR ZAR ZAR +5 +3 +1 -1 -3 -5 At 31 December 2009 91 094 54 657 18 219 (18 219) (54 657) (91 094) % Change in currency rate Effect on profit before tax US$ Effect on equity US$ 67 638 40 583 13 528 (13 528) (40 583) (67 638) Effect on equity US$ Currency ZAR ZAR ZAR ZAR ZAR ZAR +5 +3 +1 -1 -3 -5 27 840 40 290 24 174 16 704 8 058 (8 058) (24 174) (40 290) 5 568 (5 568) (16 704) (27 840) NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 75 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 34. RISK MANAGEMENT (Cont’d) 34.4 Liquidity risk Liquidity risk is the risk that operations cannot be funded and financial commitments cannot be met timeously. The risk arises when there is a maturity mismatch between assets and liabilities. The Group identifies this risk through maturity profiling of assets and liabilities and assessment of excepted cashflows and the availability of collateral which could be used additional funding if required. The Group maintains a portfolio of marketable assets that can be easily liquidated in the event of an unforeseen interruption of cash flow. The Group maintains a statutory deposit with the Central Bank which was accumulated since dollarisation at stipulated rates. During 2010, the Reserve Bank of Zimbabwe discontinued the payment of statutory reserves and the amounts accumulated to date had not been refunded by 31 December 2010. The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All liquidity policies and procedures are subject to review and approval by ALCO. The contractual maturities of undiscounted cash flows of financial assets and liabilities are disclosed in note 24.1. The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. The Group monitors its liquidity ratio in compliance with Banking Regulations to ensure that it is not less than 20% of the liabilities to the public Liquid assets consist of cash and cash equivalents, short term bank deposits and liquid investment securities available for immediate sale. Maturity profile for contingent liabilities The table below shows the contractual expiry by maturity of the Group’s contingent liabilities and commitments to lend: At 31 December 2010 Guarantees Commitments to lend At 31 December 2009 Guarantees Commitments to lend On Demand US$ 321 236 3 957 730 4 278 966 On Demand US$ 165 000 465 336 630 336 0 to 1 months US$ 592 918 1 641 889 2 234 807 1 to 3 months US$ 943 907 7 817 560 3 months to 1 year US$ 3 144 062 - 8 761 467 3 144 062 1 year to to 5 years US$ Total US$ - - - 5 002 123 13 417 179 18 419 302 0 to 1 months US$ 16 500 36 810 53 310 1 to 3 months US$ 24 000 825 344 849 344 3 months to 1 year US$ 2 944 824 5 276 042 8 220 866 1 year to to 5 years US$ - 34 727 34 727 Total US$ 3 150 324 6 638 259 9 788 583 The Group expects that not all of the contingent liabilities or commitments will be drawn before expiry of the commitments. 76 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 34. RISK MANAGEMENT (Cont’d) 34.5 Operational risk This risk is inherent in all business activities and is the potential for loss arising from ineffective internal controls, poor operational procedures to support these controls, errors and deliberate acts of fraud. The mitigation of the risk and the cost incurred to reduce the risk is critical.. The bank utilises monthly Key Risk Indicators to monitor operational risk in all units. Further to this, the bank has an elaborate Incident Reporting Policy in which all incidents with a material impact on the well being of the bank are reported to Risk Management department. The Board has a Risk Committee whose function is to ensure that this risk is minimised. The Risk Committee through the Internal Audit and Risk Management functions assesses the adequacy of the internal controls and makes the necessary recommendations to the Board. 34.6 Legal and Compliance risk Legal risk is risk from uncertainty due to legal actions or uncertainty in the applicability or interpretation of contracts, laws or regulations. Legal risk may entail such issues as contract formation, capacity and contract frustration. To manage this risk the Group employs a legal practitioner who is responsible for the drafting, monitoring and executing all contracts. Permanent relationships are also maintained with firms of legal practitioners and access to legal advice is readily available to all departments. The compliance function is also responsible for identifying and monitoring legal risks and ensuring that the Group remains in compliance with all regulatory requirements. 34.7 Reputational risk Reputational risk is the risk of loss of business as a result of negative publicity or negative perceptions by the market with regards to the way the Group conducts its business. To manage this risk, the Group strictly monitors customers’ complaints, continuously train staff at all levels, conducts market surveys and periodic reviews of business practices through its Internal Audit department. 34.8 Strategic risk This refers to current and prospective impact on the Group’s earnings and capital arising from adverse business decisions or implementing strategies that are not consistent with the internal and external environment. To manage this risk, the Group is guided by a strategic plan that is set out by the board of directors. The attainment of strategic objectives by the various departments is monitored periodically at management level. There is an ALCO, Finance and Strategy Committee at board level responsible for monitoring overall progress to- wards attaining strategic objectives for the Group. The directors are satisfied with the risk management processes in the Group as these have contributed to the minimisation of losses arising from risky exposures. 34.9 Regulatory Compliance The Corrective Order issued on 15 May 2007 was lifted on 8 September 2010. The Group remains committed to complying with and adhering to all regulatory requirements. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 77 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 34. RISK MANAGEMENT (Cont’d) 34.10 Capital Management 34.10.1 Holding Company The capital allocation to the subsidiary units is in accordance with the regulatory requirements of the business undertaken by the subsidiary. 34.10.2 Banking Subsidiary The primary objective of the Group’s capital management is to ensure that the Group complies with the RBZ requirements. In implementing the current capital requirements, the RBZ requires the Banking subsidiary to maintain a prescribed ratio of total capital to total risk weighted assets. Regulatory capital consists of Tier 1 capital, which comprises share capital, share premium, retained earnings (including current year profit), statutory reserve and other equity reserves. The other component of regulatory capital is Tier 2 capital, which includes subordinated term debt, revaluation reserves and portfolio provisions. Tier 3 capital relates to an allocation of capital to market and operational risk. Various limits are applied to elements of the capital base. The core capital (Tier 1) shall compromise not less than 50% of the capital base and portfolio provisions are limited to 1.25% of total risk weighted assets. During the year, the Bank complied in full with the regulatory capital requirements of a minimum capital level of US$12.5 million. 78 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 34. RISK MANAGEMENT (Cont’d) 34.10.2 Banking Subsidiary (Cont’d) The Bank’s regulatory capital position at 31 December 2010 was as follows: Share capital Share premium Non-distributable reserve Retained earnings Total equity 2010 US$ 16 501 13 690 931 - 1 976 437 15 683 869 2009 US$ - - 6 139 898 1 968 837 8 108 735 Less: capital allocated for market and operational risk Credit to insiders (1 580 551) (1 096 405) (115 772) - Tier 1 capital Tier 2 capital (subject to limit as per Banking Regulation) 13 987 546 883 414 7 012 330 274 904 Revaluation reserves Subordinated debt - - - - Regulatory reserve (limited to 1.25 of risk weighted assets) 883 414 274 904 Total Tier 1 & 2 capital Tier 3 capital (sum of market and operational risk capital) 14 870 960 1 580 551 7 287 234 1 096 405 Total capital base Total risk weighted assets Tier 1 ratio Tier 2 ratio Tier 3 ratio Total capital adequacy ratio RBZ minimum required 16 451 511 94 154 367 8 383 639 32 206 600 14.86% 0.94% 1.69% 17.49% 10.00% 21.77% 0.85% 3.41% 26.03% 10.00% Opening 2009 US$ - - - - - - - - - - - - - - - - - - - - 10.00% NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 79 NMBZ HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2010 35. PRIOR PERIOD RESTATEMENT The restatement arose as a result of the treatment of the excess allowance for impairment on loans and advances resulting from the difference between the IAS 39 and the Regulatory allowance for impairment on loans and advances. In 2009, these were accounted for under other comprehensive income and in 2010, these were recognised directly in equity as a transfer from retained earnings to a regulatory reserve. The effect of this change on the 2009 results is summarized below (There is no effect in 2010). Consolidated Statement of Comprehensive Income Increase in other comprehensive income Decrease in tax credit relating to other comprehensive income Increase in total comprehensive income for the year Consolidated Statement Of Financial Position Decrease in allowance for impairment of loans and advances Increase in deferred tax liabilities Increase in total equity 2009 US$ 274 904 (70 788) 204 116 2009 US$ 274 904 (70 788) 204 116 80 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED HISTORICAL FIVE YEAR FINANCIAL SUMMARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 2010 US$ Interest from lending activities Interest from investing activities 7 024 287 2 990 349 2009 US$ Restated 652 267 874 455 Interest expense Net interest income Net foreign exchange gains Share of loss associate Non-interest income Net operating income Operating expenditure Impairment losses on loans and advances 10 014 636 (3 143 168) 1 526 722 (723 626) 6 871 468 1 055 307 (21 444) 9 374 796 803 096 379 236 - 7 236 949 17 280 127 (15 365 768) 8 419 281 (7 385 212) (971 803) (92 887) Profit before taxation 942 556 941 182 Financial institutions levy - (44 661) Taxation (250 322) 1 381 766 Profit after taxation 692 234 2 278 287 Other comprehensive income/(loss) for the year, net of tax - - Total comprehensive income for the year 692 234 2 278 287 2008 US$ 2007 US$ 2006 US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 81 NMBZ HOLDINGS LIMITED HISTORICAL FIVE YEAR FINANCIAL SUMMARY (Cont’d) CONSOLIDATED STATEMENTS OF FINANCIAL POSITION EQUITY Share capital Reserves Equity LIABILITIES Deposits and other accounts Financial liabilities at fair value through profit and loss Current tax liabilities Deferred tax liabilities 2010 US$ 2009 US$ Restated 78 598 - 18 754 527 8 568 005 18 833 125 8 568 005 65 979 335 23 649 725 17 177 109 641 969 207 966 6 444 932 299 162 746 107 Capital employed 102 839 504 39 707 931 ASSETS Cash and cash equivalents Financial assets at fair value through 18 346 939 12 203 181 profit and loss Quoted and other investments 17 299 592 134 461 Loans, advances and other accounts 60 315 397 201 666 Trade investments Investment in associate Investment properties Property and equipment 228 556 2 615 000 3 697 893 7 135 023 455 638 13 004 099 108 003 - 3 219 600 3 582 387 Employment of capital 102 839 504 39 707 931 2008 US$ 2007 US$ 2006 US$ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 82 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED HISTORICAL FIVE YEAR FINANCIAL SUMMARY (Cont’d) CLOSING NUMBER OF SHARES 2 807 107 289 1 647 147 057* 1 641 225 424* 1 608 159 059 1 569 339 001 2010 2009 2008 2007 2006 Share Performance Net asset value per share (US cents) Basic earnings per share (US cents) Dividend per share (US cents) Dividend cover (times) Price/earnings ratio 0.67 0.02 - - 55 0.52 0.14 - - 5.71 Closing price per share (US cents) Market capitalisation (US$) 1.1 30 878 180 0.80 13 185 402 Financial Performance Return on shareholders’ funds (%)¹ Return on assets (%) Cost/net income ratio (%)² Non-interest income/total income (%) Effective tax rate (%) 3.7 0.70 95 46 26.6 26 6 89 79 (142) 1. 2. The return on shareholders’ funds is based on shareholders’ funds at the end of the year. Includes charge for impairment of losses on loans and advances. * excludes own equity instruments amounting to 1 028 172 shares. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 83 NMBZ HOLDINGS LIMITED NOTICE TO MEMBERS Notice is hereby given that the 16th Annual General Meeting of Members of NMBZ Holdings Limited will be held at the Registered Office of the Company at 4th Floor Unity Court, Cnr 1st Street/Kwame Nkrumah Avenue, Harare on Tuesday, 14 June 2011 at 10:00 hours for the following purposes: ORDINARY BUSINESS 1. 2. To receive and adopt the Financial Statements for the year ended 31 December 2010 , together with the reports of the Directors and Auditors thereon. To appoint Directors. In accordance with the Articles of Association, Mr M Mudukuti, Mr B W Madzivire and Ms L Majonga retire by rotation. Being eligible, the retiring directors offer themselves for re-election. 3. To appoint Auditors for 2011 and to approve Messrs Ernst & Young’s remuneration for the year ended 31 December 2010. Note: A member of the company entitled to attend and vote at this meeting is entitled to appoint a proxy to attend, speak and on a poll, vote in his stead. A proxy need not be a member of the company. Proxy forms should be forwarded to reach the office of the transfer secretaries at least 48 hours before the commencement of the meeting. By Order of the Board V Mutandwa Company Secretary 15 March 2011 84 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED SHAREHOLDERS’ ANALYSIS Size of Shareholding 1 5 001 10 001 50 001 100 001 500 001 - - - - - - - 1 000 001 10 000 001 - Total Size of Shareholding 1 5 001 10 001 50 001 100 001 500 001 1 000 001 - - - - - - - 10 000 001 - Total 5 000 10 000 50 000 100 000 500 000 1 000 000 10 000 000 And over 5 000 10 000 50 000 100 000 500 000 1 000 000 10 000 000 And over Industry Banks and nominees Employees Deceased estates External companies Insurance companies Investment, trusts and property companies Non-resident individuals Other corporate holdings Pension funds Resident individual/trusts 2010 Number of Shareholders 2 485 671 792 124 191 40 35 24 2010 Issued Shares 4 165 305 4 949 637 16 915 928 8 932 710 41 453 298 28 090 750 107 274 399 2 595 325 262 % 56.97 15.38 18.16 2.84 4.38 0.92 0.8 0.55 % 0.15 0.18 0.6 0.32 1.48 1 3.82 92.45 4 362 100 2 807 107 289 100 2009 Number of Shareholders 2 529 671 725 154 194 32 40 20 2009 Issued Shares 4 367 033 4 887 841 15 760 736 11 116 881 43 038 449 22 671 868 134 160 960 % 0.26 0.30 0.96 0.67 2.61 1.38 8.14 1 412 171 461 85.68 % 57.94 15.37 16.61 3.53 4.44 0.73 0.92 0.46 4 365 100.00 1 648 175 229 100.00 2010 Shareholders 16 378 5 5 15 127 29 397 20 3 370 4 362 2010 Shares 382 837 41 569 622 11 173 353 1 070 977 401 591 197 852 765 447 275 4 539 116 199 636 360 50 051 105 72 132 368 % 0.37 8.67 0.11 0.11 0.34 2.91 0.66 9.10 0.46 77.27 % 0.01 1.48 0.4 38.15 21.06 27.27 0.16 7.11 1.78 2.58 100 2 807 107 289 100 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 85 NMBZ HOLDINGS LIMITED SHAREHOLDERS’ ANALYSIS (Cont’d) Industry Banks and nominees Employees Deceased estates External companies Insurance companies Investment, trusts and property companies Non-resident individuals Other corporate holdings Pension funds Resident individual/trusts TOP TEN SHAREHOLDERS 1 2 3 4 5 6 7 8 9 African Century Financial Services Investment LLP Old Mutual Life Assurance Co Zim Ltd Lalibela Limited Alsace Trust Cornerstone Trust Wamambo Investments Trust Drakmore Investments (Pvt) Ltd Martcap Investments (Pvt) Ltd Elsha Investments (Pvt) Ltd 10 Local Authorities Pension Fund 1 2 3 4 5 6 7 8 9 10 Old Mutual Life Assurance Company of Zimbabwe Cornerstone Trust Alsace Trust Wamambo Investments Trust M Lynton Edwards Stockbrokers (Pvt) Ltd Drakmore Investment (Pvt) Ltd Elsha Investments (Pvt) Ltd Martcap Investments (Pvt) Ltd Rayvonne Trust Palisades Limited 2009 Shareholders 65 376 5 3 13 145 20 364 20 3 354 4 365 2009 Shares 35 697 821 26 058 279 11 173 353 63 993 151 347 537 252 645 937 703 4 277 622 376 461 568 48 828 990 % 1.49 8.61 0.11 0.07 0.30 3.32 0.46 8.34 0.46 76.84 88 209 490 % 2.17 1.58 0.68 3.88 21.09 39.19 0.26 22.84 2.96 5.35 100.00 1 648 175 229 100.00 2010 Shares 791 915 548 589 521 823 215 266 942 168 853 795 168 755 799 142 260 092 109 627 112 77 282 178 53 435 939 43 686 048 2010 Shares 346 774 054 168 755 799 168 755 795 142 260 092 119 217 935 109 627 112 53 435 939 51 090 385 46 137 727 42 164 274 % of Total 28.21 21.00 7.67 6.01 6.01 5.06 3.90 2.75 1.90 1.55 % of Total 21.04 10.24 10.24 8.63 7.23 6.65 3.24 3.10 2.80 2.56 86 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED SHAREHOLDERS’ INFORMATION MEMBERS’ DIARY Financial year end 31 December 2010 Reports:- - Announcement of annual results 31 March 2011 - Annual financial statements posted May 2011 - Annual General Meeting 14 June 2011 - Announcement of the 2011 half-year results August 2011 Dividend payments: - Interim - Final n/a n/a NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 87 NMBZ HOLDINGS LIMITED SECRETARY AND REGISTERED OFFICE Secretary V Mutandwa Registered Offices 1st Floor Unity Court Cnr 1st Street/Kwame Nkrumah Avenue Harare Zimbabwe Telephone: +263 4 759651 Facsimile: +263 4 759648 Website: http://www.nmbz.co.zw Email: enquiries@nmbz.co.zw Auditors Ernst & Young Chartered Accountants (Zimbabwe) Angwa City J Nyerere Way/Kwame Nkrumah Avenue Harare Zimbabwe Transfer Secretaries In Zimbabwe First Transfer Secretaries 1 Armagh Avenue (Off Enterprise Road) Eastlea P O Box 11 Harare Zimbabwe Legal Practitioners to the Company Gill, Godlonton & Gerrans 7th Floor Beverly Court 100 Nelson Mandela Avenue Harare Zimbabwe NMB Centre George Silundika Avenue/ Leopold Takawira Street Bulawayo Zimbabwe +263 9 70169 +263 9 68535 In UK Computershare Services PLC 36 St Andrew Square Edinburgh EH2 2YB UK In UK Dechert 2 Serjeants’ Inn London EC4Y 1LT UK 88 NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 NMBZ HOLDINGS LIMITED ANNUAL GENERAL MEETING FORM OF PROXY I/We, …………………………………………………….................………………..………………………………...….…. of ……………………………………..……………................………………………………………………….…………….. being a member of the above company and entitled to vote, hereby appoint …………………………………………………………................…………………………………..………………………… of …………………………………………….…………...............………………………………………………...………….. or failing him ………………………………………………………...............…………………………………..……………. of ……………………………………………………………………...............……………………………………………….. or failing him, the Chairman of the meeting as my/our proxy to vote for me/us on my/our behalf at the ANNUAL GENERAL MEETING of the Company to be held on 14 June 2011 at 10.00 hours and at any adjournment thereof. Signed this …………..……………….....………….. day of ………………………………..........…………………….2011 Signature of member …………………………………………………………...............…………………………………….. Note (i) In terms of Section 129 of the Companies Act (Chapter 24:03) a member of the company is entitled to appoint one or more proxies to act in the alternative to attend, vote and speak in his stead. A proxy need not be a member of the Company. (ii) Sections 75 and 76 of the Company’s Articles of Association provide that instruments of proxy must be signed and returned to reach the Registered Office of the Company not less than forty-eight hours before the time for holding the meeting. NMBZ HOLDINGS LIMITED ANNUAL REPORT 2010 89 

Continue reading text version or see original annual report in PDF format above