NMBZ Holdings Limited 1 Contents Overview Financial Highlights Group Profile Chairman’s Statement Financial Statements Report of the Directors Statement of Directors’ Responsibility Report of the Independent Auditors Consolidated Statements of Comprehensive Income Consolidated Statements of Financial Position Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Accounting Policies Notes to the Financial Statements Historical Five Year Financial Summary Shareholders Information Notice to Members Explanations regarding the Notice of the Annual General Meeting Shareholders’ Analysis Shareholders’ Information Secretary and Registered Office Secretary and Registered Office 2 3 4-5 6-9 10-11 13 14 15 16-17 18 19-33 34-86 87-89 90 91 92-93 94 95 www.nmbz.co.zw NMBZ Holdings Limited 2 HIGHLIGHTS Attributable profit (US$) Basic earnings per share (US cents) Total deposits (US$) Shareholders' funds (US$) Enquiries: NMBZ HOLDINGS LIMITED 2011 2010 4 538 456 0.16 139 226 144 23 371 581 692 234 0.03 79 849 387 18 833 125 Tel: +263-4-759 651/9 James A Mushore, Group Chief Executive Officer, NMBZ Holdings Limited jamesm@nmbz.co.zw Francis Zimuto, Deputy Group Chief Executive Officer, NMBZ Holdings Limited francisz@nmbz.co.zw Benefit Peter Washaya, Managing Director, NMB Bank Limited benefitw@nmbz.co.zw Benson Ndachena, Chief Financial Officer, NMBZ Holdings Limited bensonn@nmbz.co.zw Website: Email: http://www.nmbz.co.zw enquiries@nmbz.co.zw We save trees and reduce our carbon footprint by offering online banking NMBZ Holdings Limited NMBZ Holdings Limited GROUP PROFILE 3 3 Profile Harare Branches Country Branches ATM Sites The NMBZ Holdings Head Office – Unity Bulawayo Corporate and The Bank's ATM Group comprises the Court, Corner Kwame Retail Banking – NMB network, which accepts company and operating Nkrumah Avenue/First Centre, Corner George VISA cards, has been subsidiaries, NMB Bank Street, Harare Silundika Street/Leopold expanded to cover the Limited (the Bank), and Stewart Holdings Limited (equity holdings). Angwa City - Corner Kwame Nkrumah Avenue/ Angwa Street, Harare Takawira Avenue, following locations: Bulawayo Mutare – Embassy • Angwa City – Harare The Bank was established Borrowdale – Shops 37 Building, Corner • Borrowdale – Harare in 1993 as a bank & 38, Sam Levy's Village, Aerodrome Road/Second • Msasa – Harare incorporated under the Harare Street, Mutare • Card Centre – Harare • Joina City – Harare Gweru – 36 Robert • Avondale - Harare Mugabe Road, Gweru • Eastgate – Harare • Southerton – Harare • NMB Centre – Bulawayo • Mutare • Gweru Companies Act (Chapter 24:03) and is registered as a commercial bank in terms of the Banking Act (Chapter 24:20). It operates through a branch network in Harare, Bulawayo, Mutare and Gweru. The Bank's branch network is constantly growing to service customers and meet demand in suitable and convenient locations. Set out aside are the Bank's locations: Eastgate – Shop 24, Eastgate Mall, Corner Sam Nujoma Street/ Robert Mugabe Road, Harare Msasa – 77 Amby Drive, Harare Southerton – 7 - 9 Plymouth Road, Harare Avondale – 20 King George Road, Avondale, Harare www.nmbz.co.zw NMBZ Holdings Limited 4 CHAIRMAN’S STATEMENT for the year ended 31 December 2011 INTRODUCTION The country continued to experience a relatively stable economic environment during the period under review. A combination of the relative political stability and continued international re-engagement resulted in considerable growth in business activity in the country. The financial sector experienced intermittent liquidity constraints in the period under review and this constrained availability of credit to industry and commerce. GROUP RESULTS Dividend Compliance with International Financial to strengthen the statutory capital requirements for Reporting Standards the banking subsidiary, the Board has proposed not to In view of the need to retain cash in the business and The consolidated financial statements of the Group declare a dividend. have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial Statement of financial position statements have been prepared in compliance with the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20). Commentary on operating results The profit before taxation was US$6 193 653 during the period under review and this gave rise to an attributable profit of US$4 538 456 compared to $US692 234 from the prior year. Net interest income was US$11 901 512 for the period. Non-interest income amounted to US$12 164 691 and this was mainly as a result of commissions and fee income (US$11 958 029). Operating expenses amounted to US$16 979 741 and these were 11% up from prior year figure of US$15 365 768 and were driven or by administration and staff related expenditure. Impairment losses on loans and advances amounted to US$2 296 111 for the current period from a prior year of US$971 803. This is commensurate with the loans and advances which amounted to US$97 138 048 at 31 December 2011 compared to US$57 913 589 as at 31 December 2010. The Group’s total assets grew by 63% from US$102 839 504 as at 31 December 2010 to US$167 287 333 as at 31 December 2011. The assets comprised mainly loans, advances and other accounts (US$99 802 065), financial assets at fair value through profit and loss (US$24 585 255), cash and short term funds (US$32 265 953), investment properties (US$2 510 000) and property and equipment (US$6 801 982). Gross loans and advances increased by 68% from US$57 913 589 as at 31 December 2010 to US$97 138 048 as at 31 December 2011. The Bank’s liquidity ratio closed the period at 35.25% and this was above the statutory requirement of 25% at 31 December 2011. Capital The banking subsidiary’s capital adequacy ratio at 31 December 2011 calculated in accordance with the guidelines of the Reserve Bank of Zimbabwe (RBZ) was 14.37% (31 December 2010 – 17.49%). The minimum required by the RBZ is 10%. The Group’s equity increased by 24% from US$18 833 125 as at 31 December 2010 to US$ 23 371 581 as at 31 December 2011 as a result of growth in retained earnings. NMBZ Holdings Limited CHAIRMAN’S STATEMENT CONT’D for the year ended 31 December 2011 5 CORPORATE SOCIAL INVESTMENTS OUTLOOK AND STRATEGY The Group is committed to improving the well-being The Group has continued with its quest to access of the communities where we work and live through more lines of credit in order to underwrite more lending our charitable giving. In 2011, the Group contributed business for our clients. The Group has also continued towards the support of charities, community fundraisers to explore growth opportunities in the market. and non-profit organizations that have a positive influence on society. During the year we supported DIRECTORATE a diverse range of causes and we dedicated a large portion of our community contributions towards areas of During the year Mr Francis Zimuto was appointed the education, health and social services, the environment Deputy Group Chief Executive Officer. There were no and the arts. other changes to the composition of the Board. CORPORATE DEVELOPMENTS APPRECIATION In line with our strategic thrust to offer service excellence, I would like to express my appreciation to our valued the Bank successfully upgraded its core banking system clients, shareholders and Regulatory Authorities for to the latest version of T24. In addition to enhancing the their continued support in the period under review. I efficiency of transaction processing, the new platform would also like to thank my fellow Board members, provides a solid base for a seamless integration to other management and staff for their continued commitment modern service delivery channels that bring convenience and dedication which has underpinned the achievement to our high net worth individual and business customers. of these results. Going forward, the Bank is looking at enhancing existing electronic delivery channels through upgrades as well as acquiring new channels in an endeavour to bring more convenience to our valued clients. A new branch was opened at the upmarket PaSangano T N MUNDAWARARA in the Avondale (Harare) area during the last quarter CHAIRMAN of 2011. The opening of the branch is in line with the Bank’s strategic intent to be present in key markets and it brings convenience to existing and potential clients in 20 March 2012 the Avondale and surrounding areas. www.nmbz.co.zw NMBZ Holdings Limited 6 REPORT OF THE DIRECTORS for the year ended 31 December 2011 We have pleasure in presenting to shareholders our report and the audited financial statements of the Group for the year ended 31 December 2011. 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. No share options were exercised either by directors or managerial staff during the year. 2. GROUP ACTIVITIES AND RESULTS After providing for depreciation and taxation, the Group posted an attributable profit of US$4 538 456 for the year ended 31 December 2011 (2010 – US$692 234). 3. CAPITAL ADEQUACY As at 31 December 2011, the Bank’s capital adequacy ratio computed under Bank for International Settlements (BIS) rules was 14.37% (2010 – 17.49%). 4 DIRECTORATE 4.1 Board of Directors T N Mundawarara A M T Mutsonziwa J A Mushore* F Zimuto* 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) (Deputy 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) NMBZ Holdings Limited 8 REPORT OF THE DIRECTORS CONT’D for the year ended 31 December 2011 5. CORPORATE GOVERNANCE NMBZ Holdings Limited adheres to international best practice with regards to corporate governance. In particular, the group emulates corporate governance principles set out 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, 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 twelve 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 three 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 and operational processes, 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 Ms. L. Majonga Mr. A. M. T. Mutsonziwa Mr. J. de la Fargue Chairperson- Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Non-Executive Director 5.3 Human Resources, Remuneration and Nominations 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 Mr. T. N. Mundawarara Mr. B. W. Madzivire Mr. J. A. Mushore Mr. F. Zimuto Mr. J. Chenevix –Trench Dr. J. Makoni Chairman - Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Group Chief Executive Officer Deputy Group Chief Executive Officer Non-Executive Director 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. B. Ndachena Chairman Independent Non-Executive Director Independent Non-Executive Director Chief Finance Officer NMBZ Holdings Limited REPORT OF THE DIRECTORS CONT’D for the year ended 31 December 2011 9 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 Mr. F. Zimuto Mr. B. P. Washaya Mr. L. Chinyamutangira Mr. J. de la Fargue Chairman - Independent Non-Executive Director Group Chief Executive Officer Deputy Group Chief Executive Officer Managing Director Executive Director –Banking Non-Executive Director 5.6 Asset and Liability Management Committee (ALCO), Finance and Strategy Committee The 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 Mr. J. Chigwedere Mr. J. Mushore Mr. F. Zimuto Mr. B. P. Washaya Mr. B. Ndachena Mr. F. S. Mangozho Mr. L. Chinyamutangira Dr. J. Makoni Mr. J. Chenevix-Trench (alternate J. de la Fargue) Chairman -Independent Non-Executive Director Independent Non-Executive Director Group Chief Executive Officer Deputy Group Chief Executive Officer Managing Director Chief Finance Officer Executive Director –Treasury Executive Director – Banking Non - Executive Director Non – Executive Director 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 Mr. J. de la Fargue Ms. L. Majonga Mr. J. Mushore Mr. B. P. Washaya Mr. F. Mangozho Chairman - Independent Non-Executive Director Non-Executive Director Independent Non-Executive Director Chief Executive Officer Managing Director Executive Director - Treasury 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 approve the auditor’s remuneration for the year ended 31 December 2011 and to appoint auditors of the Company for the ensuing year. By order of the Board V Mutandwa Company Secretary Harare 20 March 2012 www.nmbz.co.zw NMBZ Holdings Limited 10 STATEMENT OF DIRECTORS’ RESPONSIBILITY for the year ended 31 December 2011 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. 6. INTERNAL AUDIT 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. 7. REMUNERATION The Remuneration Committee determines the remuneration policy for the Group. The remuneration policy is designed to reward performance and retain highly skilled individuals. Accordingly, a discretionary performance related bonus is offered in addition to a basic salary package. NMBZ Holdings Limited STATEMENT OF DIRECTORS’ RESPONSIBILITY for the year ended 31 December 2011 11 8. EMPLOYEE PARTICIPATION AND DEVELOPMENT The group encourages active participation by its employees in its ownership. In line with this commitment, managerial employees have in the past participated in the Company’s share option scheme. The group is working on a new share option scheme for staff members. The group is also committed to enhancing the skills of staff and sponsors attendance of 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. 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 ensures 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 consolidated statement of financial position, the consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flow as at 31 December 2011, 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, legislative and regulatory requirements. The directors’ responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation 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. 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 consolidated 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 14 to 86 were approved by the board of directors on 20 March 2012 and are signed on their behalf by: …………………………………. T. N. Mundawarara Chairman ……………………….. J.A. Mushore Group Chief Executive Officer Date: 20 March 2012 Date: 20 March 2012 www.nmbz.co.zw NMBZ Holdings Limited 12 REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF NMBZ HOLDINGS LIMITED Report on the financial statements We have audited the accompanying financial statements of NMBZ Holdings Limited as set out on page 14 to 86 which comprise the Group and Company statements of financial position as at 31 December 2011, and the Group and Company statement of comprehensive income, the Group and Company statements of changes in equity and the Group and Company statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Directors’ responsibility for the financial statements The Company’s directors are responsible for the preparation and fair presentation of these 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 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 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 financial statements present fairly, in all material respects, the financial position of NMBZ Holdings Limited and its subsidiaries as at 31 December 2011, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Report on other legal and regulatory requirements In our opinion, the 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) REGISTERED PUBLIC AUDITORS 30 April 2012 NMBZ Holdings Limited 14 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2011 GROUP COMPANY Note 2011 US$ 2010 US$ 2011 US$ 2010 US$ Interest income Interest expense 4 20 158 766 10 014 636 5 (8 257 254) (3 143 168) -------------- --------------- Net interest income Net foreign exchange gains Share of profit/(loss) of associate Non-interest income 19 6 11 901 512 1 289 729 6 871 468 1 055 307 113 573 (21 444) 12 164 691 --------------- 9 374 796 -------------- 25 469 505 17 280 127 7 (16 979 741) (15 365 768) (2 296 111) (971 803) -------------- --------------- 6 193 653 942 556 168 416 - --------- 168 416 - - 77 162 ---------- 245 578 - - --------- 245 578 - - ----------- - - - 123 864 ----------- 123 864 (140) - ---------- 123 724 Net operating income Operating expenditure Impairment losses on loans and advances Profit before taxation Taxation Profit for the year Other comprehensive income for the year, net of tax Total comprehensive income for the year Attributable to: Owners of the parent Non – controlling interests 8 (1 655 197) (250 322) (47 306) (9 684) ----------- --------------- -------------- ---------- 4 538 456 --------------- 692 234 -------------- 198 272 ---------- 114 040 ----------- - --------------- - -------------- - --------- - ---------- 4 538 456 ========== 692 234 ========== 198 272 ====== 114 040 ====== 4 538 456 692 234 - --------------- 4 538 456 ========== - -------------- 692 234 ========== 198 272 - ---------- 198 272 ======= 114 040 - ----------- 114 040 ======= Earnings per share (US cents) -Basic -Diluted basic 9 9 0.16 0.15 0.03 0.03 NMBZ Holdings Limited CONSOLIDATED STATEMENTS OF FINANCIAL POSITION as at 31 December 2011 15 GROUP COMPANY Note 2011 US$ 2010 US$ 2011 US$ 2010 US$ 78 598 10 11 16 806 650 12 6 486 333 --------------- 23 371 581 78 598 16 666 633 2 087 894 --------------- 18 833 125 78 598 15 783 219 293 516 ------------- 16 155 333 78 598 15 783 219 95 244 -------------- 15 957 061 EQUITY Share capital Capital reserves Retained earnings Total equity LIABILITIES Deposits and other liabilities Financial liabilities at fair value through profit and loss Current tax liabilities Deferred tax liabilities Total liabilities 13 102 608 918 65 979 335 129 129 14 8.3 15 40 148 860 1 157 974 - --------------- 143 915 752 --------------- 17 177 109 641 969 207 966 ------------- 84 006 379 -------------- - 44 798 7 042 ------------ 51 969 ------------ - 400 7 533 ------------ 8 062 ------------ Total equity and liabilities ASSETS Cash and cash equivalents Financial assets at fair value through profit and loss Loans, advances and other assets Investments:- Trade investment Associate Group companies Quoted and other investments Investment properties Property and equipment Deferred tax assets Total assets 167 287 333 ========== 102 839 504 ========== 16 207 302 ======== 15 965 123 ======== 16 14 17 18 19 20 21 22 23 15 32 265 953 18 346 939 95 631 - 24 585 255 99 802 065 17 299 592 60 315 397 - 1 749 172 - 1 842 363 190 980 591 667 - 201 666 228 556 - 109 702 499 538 13 722 112 122 794 250 000 13 722 112 118 048 2 510 000 6 801 982 421 383 --------------- 167 287 333 ========== 134 461 2 615 000 3 697 893 - --------------- 102 839 504 ========== 31 147 - - - -------------- 16 207 302 ========= 27 854 - - - ------------- 15 965 123 ========= …………………………………….. T N MUNDAWARARA …………………………………….. J A MUSHORE } Directors ………………………….… V MUTANDWA Company Secretary 20 March 2012 20 March 2012 www.nmbz.co.zw NMBZ Holdings Limited 16 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2011 GROUP Capital Reserve Share Non- Share Share Treasury Option Regulatory distributable Retained Capital Premium Shares Reserve Reserve Reserve Earnings US$ US$ US$ US$ US$ US$ US$ Total US$ 34 822 (8 225) 61 212 274 904 6 201 909 2 003 383 8 568 005 Balances at 1 January 2010 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) - - - - - - - - - - 9 012 - (787) Redenomination of share capital 46 147 6 155 762 - Shares issued – share options - - - 692 234 692 234 - 608 510 - (608 510) - - - - - - - - - (6 201 909) - 9 012 787 - - - - - - 9 563 874 exercised 87 15 454 - (15 541) Shares issued – rights issue 32 364 9 531 510 - - - - - - Balances at 31 December 2010 78 598 15 737 548 - 45 671 883 414 - 2 087 894 18 833 125 -------- ------------ --------- ---------- ------------ ------------- ----------- ------------- Total comprehensive income for the year Impairment allowance for loans and advances Shares issued – share options exercised - - - - - - - - - - - - 4 538 456 4 538 456 - 140 017 - (140 017) - - - - - - -------- ------------ --------- ---------- ----------- ------------- ----------- ------------- Balances at 31 December 2011 78 598 15 737 548 - 45 671 1 023 431 - 6 486 333 23 371 581 ===== ======== ====== ====== ======= ======== ======= ======== CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY for the year ended 31 December 2011 17 NMBZ Holdings Limited COMPANY Capital Reserve Share Non- Retained Share Share Option distributable (Loss)/ Capital Premium Reserve Reserve Earnings US$ US$ US$ US$ US$ Total US$ Balances at 1 January 2010 Total comprehensive income for the year - - 34 822 61 212 6 201 909 (18 796) 6 279 147 - - - 114 040 114 040 Redenomination of share capital 46 147 6 155 762 - (6 201 909) Shares issued – share options exercised 87 15 454 (15 541) - Share issued – rights issue 32 364 9 531 510 - - - - - - - 9 563 874 --------- ------------- ---------- ------------- ---------- ------------- Balances at 31 December 2010 78 598 15 737 548 45 671 - 95 244 15 957 061 Total comprehensive income for the year Shares issued – share options exercised - - - - - 198 272 198 272 - - - - - --------- ------------- ---------- ------------- ---------- ------------- Balances at 31 December 2011 78 598 15 737 548 45 671 - 293 516 16 155 333 ====== ========= ======= ========= ======= ========= www.nmbz.co.zw NMBZ Holdings Limited 18 CONSOLIDATED STATEMENTS OF CASH FLOWS for the year ended 31 December 2011 GROUP COMPANY CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation Non-cash items -Impairment losses on loans and advances -Investment properties fair value adjustment -Loss/(profit) on disposal of property and equipment -Quoted and other investments fair value adjustment -Profit on disposal of quoted and other Investments -Impairment (gain)/loss on land and buildings -Depreciation -Share of associate’s (profit)/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 liabilities Loan advances and other assets Finacial assets at fair value through profit and loss Net cash inflow/(outflow) generated from operations Taxation Corporate tax paid (note 8.3) Capital gains tax paid Net cash inflow/(outflow) from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds on disposal of investment property Purchase of property and equipment Improvements to investment property Purchase of unquoted investments Increase in investment in subsidiary Proceeds from disposal of quoted and other investments Increase in investment in associate 2011 US$ 2010 US$ 2011 US$ 2010 US$ 6 193 653 942 556 245 578 123 724 2 296 111 40 000 18 046 (5 689) (27 173) (250 000) 756 191 (113 573) ------------- 971 803 784 600 (64 527) (94 139) (13 232) 298 811 297 532 21 444 ------------ - - - (22 989) (27 173) - - - ---------- - - - (106 864) - - - - ------------ 8 907 566 3 144 848 195 416 16 860 22 971 751 36 629 583 (41 782 779) (7 285 663) ------------- 19 440 458 ------------- (1 765 544) (2 998) ------------- 17 671 916 ------------- 4 688 (3 568 013) - - - 59 961 (249 538) ------------- 10 732 177 42 329 610 (48 283 101) (10 164 569) ------------- (2 241 035) ------------- (445 657) - ------------- (2 686 692) ------------- 84 860 (732 183) (180 000) (250 000) - 343 899 - ------------- - - 93 190 - ---------- 288 606 ---------- (400) (2 998) ---------- 285 208 ---------- - - - - - 59 961 (249 538) ---------- 129 - (1 763 328) - ------------ (1 746 339) ------------ - - ------------ (1 746 339) ------------ - - - (250 000) (7 567 535) - - ------------ Net cash outflow from investing activities (3 752 902) ------------- (733 424) ------------- (189 577) ---------- (7 817 535) ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from rights issue Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year - ------------- 13 919 014 18 346 939 ------------- 9 563 874 ------------- 6 143 758 12 203 181 ------------- - ---------- 95 631 - ---------- 9 563 874 ------------ - - ------------ Cash and cash equivalents at the end of the year (note 16) 32 265 953 ========= 18 346 939 ========= 95 631 ======= - ======== NMBZ Holdings Limited SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2011 19 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 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 consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The consolidated financial statements have been prepared on a historical cost basis except for securities held for trading and investment properties which are stated at fair value, loans and advances which are stated at amortised cost and land, buildings which are stated at revalued amounts. The consolidated financial statements are reported in United States of America dollars and rounded to the nearest dollar. Comparative financial information The financial statements comprise a statement of financial position, a statement of comprehensive income, a statement of changes in equity and a statement of cash flows. The comparative statement of comprehensive income and the comparative statements of changes in equity and cash flows are for twelve months. 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. All intra –group balances, transactions, unrealised gains and losses resulting from intra – group transactions and dividends are eliminated in full. Losses within a subsidiary are attributed to the non – controlling interest even if that results in a deficit balance. A change in the ownership interest of a subsidiary, without loss of control is accounted for as an equity transaction. If the group loses control over a subsidiary it: • • • Derecognises the assets (including goodwill) and liabilities of the subsidiary Derecognises the carrying amount of any non-controlling interest Derecognises the fair value of the consideration received www.nmbz.co.zw NMBZ Holdings Limited 20 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2011 ACCOUNTING CONVENTION (Cont’d) Subsidiaries(Cont’d) • • • • Derecognises the cumulative transaction differences recorded in equity Derecognises the fair value of any investment retained Derecognises any surplus or deficit in profit or loss Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings as appropriate. 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. Quoted and trade investments Quoted investments comprise interests in equities listed on a public exchange and are accounted for at fair value. The fair value is determined using quoted market prices in active markets. Trade investments comprise interests in unquoted equities and are accounted for at fair value. The fair value is determined using valuation techniques or pricing models. 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 indicate 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. NMBZ Holdings Limited SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2011 21 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. Current 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 in the country where the Group operates and generates taxable income and any adjustment to tax payable in respect of previous years. Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. Deferred taxation 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. www.nmbz.co.zw NMBZ Holdings Limited 22 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2011 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. 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 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2011 23 IMPAIRMENT LOSSES ON LOANS AND ADVANCES (Cont’d) Regulatory Guidelines And International Financial Reporting Standards Requirements In Respect Of The Group’s Banking Activities The Banking Regulations 2000 issued by the Reserve Bank of Zimbabwe (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 Financial instruments – initial recognition and subsequent measurement (i) Date of recognition 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. (ii) Initial measurement of financial instruments The classification of financial instruments at initial recognition depends on their purpose and characteristics and the management’s intention in acquiring them. 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. www.nmbz.co.zw NMBZ Holdings Limited 24 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2011 FINANCIAL INSTRUMENTS (Cont’d) (iii) Financial assets or financial liabilities held for trading Financial assets or financial liabilities held for trading are recorded in the statement of financial position at fair value. Changes in fair value are recognised in ‘Non-interest income’. Interest and dividend income or expense is recorded in ‘Interest income or expense ’ and “Non-interest income” respectively according to the terms of the contract, or when the right to the payment has been established. Included in this classification are debt securities, equities and short positions and customer loans that have been acquired principally for the purpose of selling or repurchasing in the near term. (iv) Financial assets and financial liabilities designated at fair value through profit or loss Financial assets and financial liabilities classified in this category are those that have been designated by management upon initial recognition. Management may only designate an instrument at fair value through profit or loss upon initial recognition when the following criteria are met, and designation is determined on an instrument- by-instrument basis: • 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. • 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 a documented risk management or investment strategy. • The financial instrument contains one or more embedded derivatives, which significantly modify the cash flows that would otherwise be required by the contract. Financial assets and financial liabilities at fair value through profit or loss are recorded in the statement of financial position at fair value. Changes in fair value are recorded in ‘Net gain or loss on financial assets and liabilities designated at fair value through profit or loss’. Interest earned or incurred is accrued in ‘Interest income’ or ‘Interest expense’, respectively, using the effective interest rate (EIR), while dividend income is recorded in ‘Non-interest income’ when the right to the payment has been established. (v) ‘Day 1’ profit or loss When the transaction price differs from the fair value of other observable current market transactions in the same instrument, or based on a valuation technique whose variables include only data from observable markets, the Group immediately recognises the difference between the transaction price and fair value (a ‘Day 1’ profit or loss) in ‘Net trading income’. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognised in the income statement when the inputs become observable, or when the instrument is derecognised. vi) Due from banks and loans and advances to customers ‘Due from banks’ and ‘Loans and advances to customers’ include non–derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than: • Those that the Group intends to sell immediately or in the near term and those that the bank, upon initial recognition, designates as at fair value through profit or loss • Those that the Group, upon initial recognition, designates as available for sale NMBZ Holdings Limited SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2011 25 vi) Due from banks and loans and advances to customers (Cont’d) • Those for which the Group may not recover substantially all of its initial investment, other than because of credit deterioration After initial measurement, amounts ‘Due from banks’ and ‘Loans and advances to customers’ are subsequently measured at amortised cost using the EIR, less allowance for impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortisation is included in ‘Interest income’ in the income statement. The losses arising from impairment are recognised in the income statement in ‘Impairment losses on loans and advances’. The Group may enter into certain lending commitments where the loan, on drawdown, is expected to be classified as held for trading because the intent is to sell the loans in the short term. These commitments to lend are recorded as derivatives and measured at fair value through profit or loss. Where the loan, on drawdown, is expected to be retained by the Group, and not sold in the short term, the commitment is recorded only when it is an onerous contract that is likely to give rise to a loss (for example, due to a counterparty credit event). (vii) Deposits and other liabilities Deposits and other liabilities are non-trading financial liabilities payable on demand and at variable interest rates. Subsequent to initial measurement deposits and other liabilities are measured at amortised cost applying the effective interest rate method. (viii) Reclassification of financial assets Effective from 1 July 2008, the Group was permitted to reclassify, in certain circumstances, non–derivative financial assets out of the ‘held for trading’ category and into the ‘available for sale’, ‘loans and receivables’, or ’held to maturity’ categories. From this date, it was also permitted to reclassify, in certain circumstances, financial instruments out of the ‘available for sale’ category and into the ’loans and receivables’ category. Reclassifications are recorded at fair value at the date of reclassification, which becomes the new amortised cost. For a financial asset reclassified out of the ’available for sale’ category, any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is recycled to the income statement. The Group may reclassify a non–derivative trading asset out of the ‘held for trading’ category and into the ‘loans and receivables’ category if it meets the definition of loans and receivables and the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial asset is reclassified, and if the Group subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognised as an adjustment to the EIR from the date of the change in estimate. Reclassification is at the election of management, and is determined on an instrument by instrument basis. The Group does not reclassify any financial instrument into the fair value through profit or loss category after initial recognition. There were no reclassification of financial assets in the period. www.nmbz.co.zw NMBZ Holdings Limited 26 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2011 FINANCIAL INSTRUMENTS (Cont’d) Derecognition of financial assets and financial liabilities (i) 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 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 of the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the bank also recognises 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. (ii) 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. The difference between the carrying value of the original financial liability and the consideration paid is recognised in profit or loss. Determination of fair value The fair value for financial instruments traded in active markets at the reporting date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison with similar instruments for which market observable prices exist, options pricing models, credit models and other relevant valuation models. Certain financial instruments are recorded at fair value using valuation techniques in which current market transactions or observable market data are not available. Their fair value is determined using a valuation model that has been tested against prices or inputs to actual market transactions and using the bank’s best estimate of the most appropriate model assumptions. Models are adjusted to reflect the spread for bid and ask prices to reflect NMBZ Holdings Limited SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2011 27 FINANCIAL INSTRUMENTS (Cont’d) costs to close out positions, credit and debit valuation adjustments, liquidity spread and limitations in the models. Also, profit or loss calculated when such financial instruments are first recorded (‘Day 1’ profit or loss) is deferred and recognised only when the inputs become observable or on derecognition of the instrument. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 14. 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 or more events that have occurred after the initial recognition of the asset (an ‘incurred loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include: indications that the borrower or a group of borrowers is experiencing significant financial difficulty; the probability that they will enter bankruptcy or other financial reorganisation; default or delinquency in interest or principal payments; and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. (i) Financial assets carried at amortised cost For financial assets carried at amortised cost (such as amounts due from banks, loans and advances to customers as well as held to maturity investments), the Group first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss 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 expected credit losses that have not yet 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 the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of ‘Interest income’. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. 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 to the ’Impairment losses on loans and advances expense. www.nmbz.co.zw NMBZ Holdings Limited 28 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2011 FINANCIAL INSTRUMENTS (Cont’d) The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR. If the Group has reclassified trading assets to loans and advances, the discount rate for measuring any impairment loss is the new EIR determined at the reclassification date. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Group’s internal credit grading system, that considers credit risk characteristics such as asset type, industry, geographical location, collateral type, past–due status and other relevant factors. Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year (such as changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. See Note 17.3 for details of impairment losses on financial assets carried at amortised cost. (ii) 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. (iii) Collateral valuation The Group seeks to use collateral, where possible, to mitigate its risks on financial assets. The collateral comes in various forms such as cash, securities, letters of credit/guarantees, real estate, receivables, inventories, other non-financial assets and credit enhancements such as netting agreements. The fair value of collateral is generally assessed, at a minimum, at inception and based on the Group’s quarterly reporting schedule, however, some collateral, for example, cash or securities relating to margining requirements, is valued daily. To the extent possible, the Group uses active market data for valuing financial assets, held as collateral. Other financial assets which do not have a readily determinable market value are valued using models. Non-financial collateral, such as real estate, is valued based on data provided by third parties such as mortgage brokers, housing price indices, audited financial statements, and other independent sources. (See note 34.1.4 for further analysis of collateral). (iv) Collateral repossessed The Group’s policy is to determine whether a repossessed asset is best used for its internal operations or should be sold. Assets determined to be useful for the internal operations are transferred to their relevant asset category at the lower of their repossessed value or the carrying value of the original secured asset. Assets that are determined better to be sold, are immediately transferred to assets held for sale at their fair value at the repossession date in line with the Group’s policy. NMBZ Holdings Limited SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2011 29 FINANCIAL INSTRUMENTS (Cont’d) Offsetting financial instruments Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, therefore, the related assets and liabilities are presented gross in the statement of financial position. 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 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. 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 annual transfer from the asset revaluation reserve to retained earnings is made for the difference between depreciation based on the revalued carrying amount of the assets and depreciation based on the assets original cost. Additionally accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. 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. www.nmbz.co.zw NMBZ Holdings Limited 30 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2011 PROPERTY AND EQUIPMENT (Cont’d) 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. 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. NMBZ Holdings Limited SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2011 31 PROPERTY AND EQUIPMENT (Cont’d) 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 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. Revaluation is done half yearly and at the end of each reporting period by a registered professional valuer. 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. www.nmbz.co.zw NMBZ Holdings Limited 32 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2011 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. REVENUE RECOGNITION Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The specific recognition criteria described below must also be met before revenue is recognised. INTEREST INCOME For all financial instruments measured amortised cost and financial instruments designated at fair value through profit and loss, interest income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income includes income arising out of the banking activities of lending and investing. 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. 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. NMBZ Holdings Limited SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2011 33 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. www.nmbz.co.zw NMBZ Holdings Limited 34 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2011 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 2011 comprise the company and its subsidiaries. The Group primarily is involved in corporate and retail banking and investments. 2. ACCOUNTING MATTERS 2.1 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 January 2009. These financial statements are reported in United States of America dollars and rounded to the nearest dollar. 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 asset In determining the amounts used for taxation purposes for assets purchased (in ZWD) prior to 1 January 2009 the directors referred to applicable effective exchange rates at the date of acquisition of assets or incurring of liabilities. The Zimbabwe Revenue Authority (ZIMRA), announced methods to be used to account for the deferred tax arising on assets purchased in ZWD. These methods require the preparer to first estimate the equivalent USD value of those assets at the time of purchase. Since the measurement of transactions in Zimbabwe dollars in the prior periods is affected by several economic variables such as mode of payment and hyperinflation this is an area where the directors have had to apply their judgement and acknowledge there could be significant variations in the results achieved depending on assumptions made. 2.2.2 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. NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 35 ACCOUNTING MATTERS (Cont’d) 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. 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. 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 as at 31 December 2011. Subsequent to year end, the Reserve Bank of Zimbabwe announced that these balances would be converted to tradeable interest bearing instruments (refer to note 35). 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. www.nmbz.co.zw NMBZ Holdings Limited 36 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 2.3 STATEMENT OF COMPLIANCE (Cont’d) The consolidated financial statements have been prepared in compliance with the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20) and Statutory Instruments SI 33/99 and SI 62/96. 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 24. 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. 2.4 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRS and IFRIC interpretations effective as of 1 January 2011: IAS 24 Related Party Disclosures (amendment) effective 1 January 2011 • IAS 32 Financial Instruments: Presentation (amendment) effective 1 February 2010 • IFRIC 14 Prepayments of a Minimum Funding Requirement (amendment) effective 1 January 2011 • • Improvements to IFRSs (May 2010) The adoption of the standards or interpretations is described below. IAS 24 Related Party Transactions (Amendment) The IASB issued an amendment to IAS 24 that clarifies the definitions of a related party. The new definitions emphasise a symmetrical view of related party relationships and clarifies the circumstances in which persons and key management personnel affect related party relationships of an entity. In addition, the amendment introduces an exemption from the general related party disclosure requirements for transactions with government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. The adoption of the amendment did not have any impact on the financial position or performance of the Group. IAS 32 Financial Instruments: Presentation (Amendment) The IASB issued an amendment that alters the definition of a financial liability in IAS 32 to enable entities to classify rights issues and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity’s non-derivative equity instruments, to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency. The amendment has had no effect on the financial position or performance of the Group because the Group does not have these type of instruments. IFRIC 14 Prepayments of a Minimum Funding Requirement (Amendment) The amendment removes an unintended consequence when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover such requirements. The amendment permits a prepayment of future service cost by the entity to be recognised as a pension asset. The Group is not subject to minimum funding requirements in Zimbabwe, therefore the amendment of the interpretation has no effect on the financial position nor performance of the Group. Improvements to IFRSs In May 2010, the IASB issued its third omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies, but no impact on the financial position or performance of the Group. NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 37 Improvements to IFRSs (Cont’d) • IFRS 3 Business Combinations: The measurement options available for non-controlling interest (NCI) were amended. Only components of NCI that constitute a present ownership interest that entitles their holder to a proportionate share of the entity’s net assets in the event of liquidation should be measured at either fair value or at the present ownership instruments’ proportionate share of the acquiree’s identifiable net assets. All other components are to be measured at their acquisition date fair value. • • • • • • The amendments to IFRS 3 are effective for annual periods beginning on or after 1 July 2011. The Group, however, adopted these as of 1 January 2011 and changed its accounting policy accordingly as the amendment was issued to eliminate unintended consequences that may arise from the adoption of IFRS 3. IFRS 7 Financial Instruments — Disclosures: The amendment was intended to simplify the disclosures provided by reducing the volume of disclosures around collateral held and improving disclosures by requiring qualitative information to put the quantitative information in context. The Group reflects the revised disclosure requirements in Note 14. IAS 1 Presentation of Financial Statements: The amendment clarifies that an entity may present an analysis of each component of other comprehensive income maybe either in the statement of changes in equity or in the notes to the financial statements. The Group does not currently have any other comprehensive income. Other amendments resulting from Improvements to IFRSs to the following standards did not have any impact on the accounting policies, financial position or performance of the Group: IFRS 3 Business Combinations (Contingent consideration arising from business combination prior to adoption of IFRS 3 (as revised in 2008)) IFRS 3 Business Combinations (Un-replaced and voluntarily replaced share-based payment awards) IAS 27 Consolidated and Separate Financial Statements IAS 34 Interim Financial Statements The following interpretation and amendments to interpretations did not have any impact on the accounting policies, financial position or performance of the Group: • • IFRIC 13 Customer Loyalty Programmes (determining the fair value of award credits) IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments 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 1 Financial Statement Presentation – Presentation of Items of Other Comprehensive Income42 The amendments to IAS 1 change the grouping of items presented in OCI. Items that could be reclassified (or ‘recycled’) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and has therefore no impact on the Group’s financial position or performance. The amendment becomes effective for annual periods beginning on or after 1 July 2012. IAS 12 Income Taxes – Recovery of Underlying Assets The amendment clarified the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in IAS 16 always be measured on a sale basis of the asset. The amendment becomes effective for annual periods beginning on or after 1 January 2012. www.nmbz.co.zw NMBZ Holdings Limited 38 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 2.5 STANDARDS ISSUED BUT NOT YET EFFECTIVE (Cont’d) IAS 19 Employee Benefits (Amendment) The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The group had made a voluntary change in accounting policy to recognise actuarial gains and losses in OCI in the current period (see note 2.4). The Group is currently assessing the full impact of the remaining amendments. The amendment becomes effective for annual periods beginning on or after 1 January 2013. IAS 27 Separate Financial Statements (as revised in 2011) As a consequence of the new IFRS 10 and IFRS 12, what remains of IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The Group does not present separate financial statements. The amendment becomes effective for annual periods beginning on or after 1 January 2013. IAS 28 Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the new IFRS 11 and IFRS 12. IAS 28 has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The amendment becomes effective for annual periods beginning on or after 1 January 2013. IAS 32 Financial Instruments: Presentation (Amendment) – Offsetting Financial Assets and Financial Liabilities The IASB issued an amendment to clarify the meaning of “currently has a legally enforceable right to set off the recognised amount”. This means that the right of set-off: (i) Must not be contingent on a future event; and, (ii) Must be legally enforceable in all of the following circumstances - - - the normal course of business the event of default and the event of insolvency or bankruptcy of the entity and all of the counterparties The amendment is effective for annual periods beginning on or after 1 January 2014 and the Group is still in the process of determining how it will impact the disclosures upon adoption. IFRS 7 Financial Instruments: Disclosures — Enhanced Derecognition Disclosure Requirements The amendment requires additional disclosure about financial assets that have been transferred but not derecognised to enable the user of the Group’s financial statements to understand the relationship with those assets that have not been derecognised and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognised assets to enable the user to evaluate the nature of, and risks associated with the entity’s continuing involvement in those derecognised assets. The amendment becomes effective for annual periods beginning on or after 1 July 2011. The amendment affects disclosure only and has no impact on the Group’s financial position or performance. 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 measurement of financial assets and financial liabilities as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2015. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The completion of this project is expected over the course of 2011 or the first half of 2012. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Group’s financial assets, but will potentially have no impact on classification and measurements of financial liabilities. The Group will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture. NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 39 2.5 STANDARDS ISSUED BUT NOT YET EFFECTIVE (Cont’d) IFRS 10 Consolidated Financial Statements IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC-12 Consolidation — Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in IAS 27. This standard becomes effective for annual periods beginning on or after 1 January 2013. IFRS 11 Joint Arrangements IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities — Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. The application of this new standard will not impact the financial position of the Group. This standard becomes effective for annual periods beginning on or after 1 January 2013. IFRS 12 Disclosure of Involvement with Other Entities IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. This standard becomes effective for annual periods beginning on or after 1 January 2013. IFRS 13 Fair Value Measurement IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Group is currently assessing the impact that this standard will have on the financial position and performance. This standard becomes effective for annual periods beginning on or after 1 January 2013. www.nmbz.co.zw NMBZ Holdings Limited 40 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 3. SEGMENT INFORMATION For management purposes, the Group is organised into four operating segments based on products and services as follows: Retail banking - Individual customer deposits and consumer loans, overdrafts, credit card facilities and funds transfer facilities. Corporate banking - Loans and other credit facilities and deposit and current accounts for corporate and institutional customers. Treasury - Money market investment, securities trading, accepting and discounting of instruments and foreign currency trading. International banking - 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 2011 or 2010. NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 41 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 2011 Retail Corporate International in Investment Banking Banking Treasury Banking Associate Unallocated US$ US$ US$ US$ US$ US$ Total US$ Income Third party 12 122 517 17 608 301 2 521 784 1 190 962 - 283 255 33 726 819 ------------- ------------- ------------ ----------- --------- ------------- -------------- Total operating income 12 122 517 17 608 301 2 521 784 1 190 962 Impairment losses on loans and advances (284 178) (2 011 933) - - - - 283 255 33 726 819 - (2 296 111) ------------- ------------- ------------ ----------- --------- ------------- -------------- Net operating income 11 838 339 15 596 368 2 521 784 1 190 962 - 283 255 31 430 708 ------------- ------------- ------------ ----------- --------- ------------- -------------- Results Interest income 4 191 175 14 567 481 1 232 055 Interest expense (1 496 919) (6 078 341) (681 994) - - - - 168 055 20 158 766 - (8 257 254) ------------- ------------- ------------ ----------- --------- ------------- -------------- Net interest income 2 694 256 8 489 140 550 061 - - 168 055 11 901 512 ------------- ------------- ------------ ----------- --------- ------------- -------------- Share of profit of associate - - - - 113 573 - 113 573 ------------- ------------- ------------ ----------- --------- ------------- -------------- Fee and commission income 7 930 889 3 040 821 - 1 190 962 - - - - ------------- ------------- ------------ ----------- --------- ------------- -------------- - - (204 643) 11 958 029 - - Fee and commission expense Net fees and commission income 7 930 889 3 040 821 - 1 190 962 - (204 643) 11 958 029 ------------- ------------- ------------ ----------- --------- ------------- -------------- Depreciation of property and equipment 323 115 63 296 7 075 11 582 - 351 123 756 191 Segment profit/ (loss) 3 141 886 7 926 550 1 224 334 340 776 113 573 (6 553 466) 6 193 653 Income tax expense - - - - - - (1 655 197) ------------- ------------- ------------ ----------- --------- ------------- -------------- Profit/(loss) for the year 3 141 886 7 926 550 1 224 334 340 776 113 573 (6 553 466) 4 538 456 ========= ========= ======== ======== ====== ========= ========= www.nmbz.co.zw NMBZ Holdings Limited 42 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 3. SEGMENT INFORMATION (Cont’d) for the year ended 31 December 2011 Retail Corporate Banking US$ Banking US$ International Investment in Treasury Banking Associate Unallocated US$ US$ US$ US$ Total US$ Assets and Liabilities Capital expenditure 78 298 Total assets 37 333 931 99 879 097 14 815 783 Total liabilities and equity 23 340 594 51 995 615 63 092 803 1 618 558 157 634 49 038 49 038 - - 3 568 013 1 664 485 591 667 14 617 817 167 287 333 - 28 858 321 167 287 333 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 Corporate Banking US$ Banking US$ International Investment in Treasury Banking Associate Unallocated US$ US$ US$ US$ Total US$ Income Third party Total operating income Impairment losses on loans and advances 6 344 836 12 508 781 ------------ ------------- 1 371 284 ------------ 695 863 ----------- - ---------- (497 470) 20 423 294 ------------- ------------- 6 344 836 12 508 781 1 371 284 695 863 - (497 470) 20 423 294 (883 862) (87 941) ------------ ------------- - ------------ - ----------- - ---------- ------------- - (971 803) ------------- Net operating income 6 256 895 11 624 919 ------------ ------------- 1 371 284 ------------ 695 863 ----------- - (497 470) 19 451 491 ------------- ------------- ---------- Results Interest income Interest expense 7 489 810 2 110 273 (669 134) (2 339 207) ------------ ------------- 426 006 (135 080) ------------ - - ----------- - - ---------- 253 ------------- (11 453) 10 014 636 Net interest income 1 441 139 5 150 603 ------------ ------------- 290 926 ------------ - ----------- - ---------- (11 200) ------------- (3 143 168) ------------- 6 871 468 ------------- Share of loss of associate - ------------ ------------- - - ------------ - ----------- Fee and commission income 4 234 563 - Fee and commission expense 4 929 796 - ------------ ------------- - - ----- ------ 695 863 - ----------- (21 444) ---------- - - ---------- - ------------- (21 444) ------------- (169 153) - ------------- 9 691 069 - ------------- Net fees and commission income Depreciation of property and equipment Segment profit/ (loss) Income tax expense 4 234 563 4 929 796 ------------ ------------- - ------------ 695 863 ----------- - ---------- (169 153) ------------- 9 691 069 ------------- 139 376 18 583 5 807 16 261 - 117 505 297 532 496 672 5 854 649 - - ------------ ------------- 1 075 705 (150 877) - ----------- - ------------ (21 444) - (6 312 149) - ---------- ------------- 942 556 (250 322) ------------- Profit/(loss) for the year 496 672 5 854 649 ======== ========= 1 075 705 (150 877) ======= ======== (21 444) (6 312 149) 692 234 ======= ========= ========= NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 43 3. SEGMENT INFORMATION (Cont’d) for the year ended 31 December 2010 Retail Corporate International in Investment Banking Banking Treasury Banking Associate Unallaocated US$ US$ US$ US$ US$ US$ Total US$ Assets and Liabilities Capital expenditure 368 979 49 197 15 374 43 048 - 255 585 732 183 Total assets 12 396 655 56 968 230 27 600 964 Total liabilities and equity 14 158 924 35 278 465 32 344 518 - - 228 556 5 645 099 102 839 504 - 21 057 597 102 839 504 4. INTEREST INCOME GROUP COMPANY Loans and advances to banks Loans and advances to customers Investment securities Other 5. INTEREST AND SIMILAR EXPENSE 2011 2010 2011 2010 US$ US$ US$ US$ 1 097 573 297 752 14 054 625 6 721 892 4 811 300 2 990 349 - - - - - - 195 268 ------------- 4 643 ------------- 168 416 ------------ - ------------ 20 158 766 10 014 636 ========= ========= 168 416 - ======== ======== Due to banks Due to customers Other borrowed funds Interest expense on financial liabilities designated at fair value through profit and loss GROUP 2011 US$ 2010 US$ 2 750 670 843 705 912 697 501 763 595 561 -------------- -------------- 3 663 962 1 346 029 4 593 292 1 797 139 -------------- -------------- 8 257 254 3 143 168 ======== ======== www.nmbz.co.zw NMBZ Holdings Limited 44 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 6 NON-INTEREST INCOME AND NET FOREIGN EXCHANGE GAINS 6.1 Non – interest income GROUP COMPANY Quoted and other investments fair value adjustments Commission and fee income (Loss)/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 Other operating income 2011 2010 2011 2010 US$ US$ US$ US$ 5 689 94 139 22 989 106 864 11 958 029 9 691 069 (18 046) 64 527 (40 000) (784 600) 180 118 27 173 54 404 13 232 - - - - 27 173 - - - - - 51 728 -------------- 242 025 ------------ 27 000 ----------- 17 000 ----------- 12 164 691 ========= 9 374 796 ======== 77 162 123 864 ======= ======= 6.2 Net foreign exchange gains Net foreign exchange gains GROUP 2011 US$ 2010 US$ 1 289 729 1 055 307 ======== ======== Net foreign exchange income includes gains and losses from spot and forward contracts and other currency derivatives. NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 45 7. OPERATING EXPENDITURE The operating profit is after charging The following:- Administration costs Audit fees Impairment (gain)/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 Capital gains tax Deferred tax Tax adjustment due to changes in tax law GROUP COMPANY 2011 2010 2011 2010 US$ US$ US$ US$ 8 599 112 5 924 296 151 515 153 864 (250 000) 756 191 1 506 630 298 811 297 532 587 612 47 520 45 625 1 459 110 541 987 6 216 293 5 014 041 - ------------- 3 089 612 ------------- 16 979 741 15 365 768 ========= ========= 140 - - - - - - - - - - - - - - - --------- - ====== - --------- 140 ====== GROUP COMPANY 2011 2010 2011 2010 US$ US$ US$ US$ 2 215 095 765 499 43 495 66 453 2 998 22 965 - (629 349) (514 224) 1 304 2 998 (491) - ------------- (23 918) ------------- - --------- 1 655 197 250 322 ========= ========= 47 306 ====== 388 12 - 9 284 - --------- 9 684 ====== www.nmbz.co.zw NMBZ Holdings Limited 46 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 8.2 Reconciliation of income tax charge GROUP COMPANY 2011 2010 2011 2010 US$ US$ US$ US$ Based on results for the period at a rate of 25% 1 548 413 235 639 61 395 30 931 Arising due to: Income not subject to tax Non-deductible expenses Tax rate differential on capital gains Aids levy Tax expense (44) (10 206) (9 958) (21 259) 45 810 1 924 - - (5 435) ------------ - ----------- (5 435) --------- - ---------- 1 588 744 227 357 46 002 9 672 66 453 ----------- 1 655 197 ======= 22 965 ----------- 250 322 ======= 1 304 --------- 12 ---------- 47 306 9 684 ====== ======= 8.3 Total taxation charge/ (credit) analysed by company Stewart Holdings (Private) Limited NMB Bank Limited NMBZ Holdings Limited Current tax liabilities (income tax, aids levy) At 1 January Charge for the year Payments during the year GROUP COMPANY 2011 2010 2011 2010 US$ US$ US$ US$ (1 024) 1 574 148 82 073 ------------ 1 655 197 ======== (4 079) 250 239 4 162 ----------- 250 322 ======= - - - - 47 306 --------- 9 684 ---------- 47 306 9 684 ====== ======= GROUP COMPANY 2011 2010 2011 2010 US$ US$ US$ US$ 641 969 299 162 400 2 281 549 788 464 44 798 - 400 (1 765 544) ------------ 1 157 974 ======== (445 657) (400) --------- ----------- - ---------- 641 969 ======= 44 798 400 ====== ======= NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 47 9. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary equity holders of NMBZ Holdings Limited by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by dividing the profit attributable to ordinary equity holders of NMBZ Holdings Limited adjusted for the after tax effect of: (a) any dividends or other items related to dilutive potential ordinary shares deducted in arriving at profit or loss attributable to ordinary equity holders of the parent entity; (b) any interest recognised in the period related to dilute potential ordinary shares; (c) any other changes in income or expense that would result from the conversion of the dilutive potential ordinary shares, by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. 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 4 538 456 692 234 2011 US$ 2010 US$ 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 Diluted weighted average number of shares 9.3 Earnings per share (US cents) Basic 2011 2010 2 807 107 289 2 228 151 974 2 817 850 158 2 238 894 843 2 807 107 289 2 228 151 974 9 072 000 9 072 000 1 670 869 ----------------- 1 670 869 ----------------- 2 817 850 158 2 238 894 843 =========== =========== 2011 0.16 2010 0.03 www.nmbz.co.zw NMBZ Holdings Limited 48 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 10. SHARE CAPITAL 10.1 Authorised Ordinary shares of US$0.000028 each 10.2 Issued and fully paid At 1 January Redenomination of share capital Shares issued – rights issue Shares issued – share options At 31 December GROUP AND COMPANY 2011 Shares million 2010 Shares million 2011 US$ 2010 US$ 3 500 ===== ===== 3 500 98 000 ====== 98 000 ====== GROUP AND COMPANY 2011 Shares million 2010 Shares million 2011 US$ 2010 US$ 2 807 - - - ------- 2 807 ===== 1 648 - 1 156 3 ------- 2 807 ===== 78 598 - - - --------- 78 598 ====== - 46 147 32 364 87 --------- 78 598 ====== Of the unissued ordinary shares of 692 892 711 (2010– 692 892 711), options which may be granted in terms of the NMBZ 2005 Employee Share Option Scheme (ESOS) amounted to 85 360 962 (2010 – 85 360 962) and out of these 1 670 869 (2010 – 1 670 869) had not been issued. As at 31 December 2011, 9 072 000 (2010 – 9 072 000) 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 2010 for a consideration of US$9 012 resulting in a surplus on disposal of US$787. This surplus is included in the consolidated statement of changes in equity. 11. CAPITAL RESERVES GROUP COMPANY 2011 US$ 2010 US$ 2011 US$ 2010 US$ Share premium Treasury shares Share option reserve Regulatory reserve Total capital reserves - 45 671 1 023 431 ------------- 15 737 548 15 737 548 15 737 548 15 737 548 - - 45 671 45 671 - 883 414 ------------ ------------- ------------ 16 806 650 16 666 633 15 783 219 15 783 219 ========= ======== ========= ======== - 45 671 - NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 49 Nature and purpose of reserves Capital reserves Share premium This reserve represents the increase in share capital attributable to: • • • during the year. 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 Share option reserve The share option reserve is used to recognise the value of equity – settled share based payment transactions provided to employees, including key management personnel, as part of their remuneration. Refer to note 32.3 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 in 2010 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 Analyses of retained profit by company GROUP COMPANY 2011 US$ 2010 US$ 2011 US$ 2010 US$ NMBZ Holdings Limited NMB Bank Limited Stewart Holdings (Private) Limited Total 79 322 1 976 437 13 536 32 135 ------------ 356 400 6 116 397 ------------ 6 486 333 ======== 2 087 894 ======== 293 516 - - ---------- 293 516 ======= 95 244 - - ---------- 95 244 ======= www.nmbz.co.zw NMBZ Holdings Limited 50 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 13. DEPOSITS AND OTHER LIABILITIES 13.1 Deposits and other liabilities by type GROUP COMPANY 2011 2010 2011 2010 US$ US$ US$ US$ Deposits from other banks and other financial institutions 43 009 970 26 598 041 - - Other money market deposits Current and deposit accounts** Total deposits Trade and other payables** 40 148 860 17 177 109 56 067 314 36 074 237 -------------- -------------- 139 226 144 79 849 387 3 307 057 ------------- 3 531 634 -------------- 142 757 778 83 156 444 Less: Financial liabilities disclosed*in note 14.1 (40 148 860) (17 177 109) - - -------- - 129 -------- 129 - - - -------- - 129 -------- 129 - -------------- ------------- -------- --------- 102 608 918 65 979 335 ======== ========= 129 ===== 129 ===== *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 carrying amount. 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 GROUP 2011 US$ 2010 US$ 105 423 635 54 179 210 17 727 720 15 575 677 13 874 789 10 090 000 4 500 - - ------------- 2 200 000 - - --------------- 139 226 144 79 849 387 ========== ========= NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 51 13.3 Sectoral analysis of deposits Banks and other financial institutions Transport and telecommunicationscompanies Mining companies Industrial companies Municipalities and parastatals Individuals Agriculture Other deposits GROUP 2011 US$ % 2010 US$ 43 009 970 5 297 087 1 144 080 38 536 164 19 879 203 21 438 755 3 180 921 6 739 964 --------------- 139 226 144 ========== 4 31 23 183 081 5 829 647 1 1 200 512 28 24 377 638 14 4 539 082 15 10 653 099 4 427 417 2 5 5 638 911 ----- ------------- 100 79 849 387 ======== === % 29 7 1 31 6 13 6 7 ----- 100 === 14. FINANCIAL INSTRUMENTS 14.1 Financial liabilities at fair value through profit and loss* Carrying Amount 2011 US$ Fair Value 2011 US$ Fair Carrying Value Amount 2010 US$ 2010 US$ Fixed term deposits Negotiable Certificates of Deposits 8 910 353 8 910 353 3 469 068 3 469 068 31 238 507 31 238 507 13 708 041 13 708 041 ------------- ------------ ------------- ------------- Total financial liabilities at fair value through profit and loss 40 148 860 40 148 860 17 177 109 17 177 109 ========= ========= ========= ======== 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. www.nmbz.co.zw NMBZ Holdings Limited 52 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 14.2 Maturity analysis of 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 2011 US$ 22 407 235 11 666 836 3 874 789 2 200 000 - - --------------- 40 148 860 ========== 2010 US$ 8 747 376 8 335 233 90 000 4 500 - - ------------- 17 177 109 ========= 14.3 Financial assets at fair value through profit and loss Carrying Amount 2011 US$ Fair Fair Carrying Value* Value Amount 2011 US$ 2010 US$ 2010 US$ Government and public sector securities 2 126 657 2 126 657 1 994 585 1 994 585 RBZ Forex Bond (1) 2 126 657 2 126 657 1 994 585 1 994 585 Bills-own acceptance (2) 22 196 067 22 401 174 14 805 628 14 769 753 Promissory Notes (2) Total financial assets at fair value through profit and loss 57 884 ------------- 57 424 ------------- 499 379 498 798 ------------- ------------- 24 380 608 ========= 24 585 255 17 299 592 17 263 136 ========= ========= ========= (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, market rates of interest and assumptions regarding market liquidity, where relevant. NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 53 14.4 Maturity analysis of financial assets 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 2011 US$ 2010 US$ 10 770 543 7 707 188 10 150 024 6 884 042 3 664 688 2 708 362 - - - - - ------------- - ------------ 24 585 255 17 299 592 ======== ========= 14.5 Other financial assets and financial liabilities summary 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. Cash and cash equivalent Financial assets at fair value through profit and loss Advances and other assets Trade investments Quoted and other investments Total Financial liabilities Deposits and other liabilities Financial liabilities at fair value through profit and loss Carrying amount 2011 US$ Fair Value 2011 US$ Fair Carrying Value amount 2010 US$ 2010 US$ 32 265 953 32 265 953 18 346 939 18 346 939 24 380 608 24 585 255 17 299 592 17 263 136 95 943 262 95 697 791 59 492 813 59 474 284 190 980 190 980 201 666 201 666 118 048 118 048 -------------- -------------- 134 461 ------------- 134 461 ------------- 152 898 851 152 858 027 95 475 471 95 420 486 ========= ========= ========= ========= 102 608 918 102 608 918 65 979 335 65 979 335 40 148 860 40 148 860 17 177 109 17 177 109 ------------- -------------- -------------- -------------- 142 757 778 142 757 778 83 156 444 83 156 444 ========= ========= ========= ========= www.nmbz.co.zw NMBZ Holdings Limited 54 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 14.5 Other financial assets and financial liabilities summary (Cont’d) 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 assets, deposits and other liabilities approximate their carrying amounts largely due to the short – term maturities of these instruments. Fair value of quoted 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 2011, 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. Level 3: Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. Assets measured at fair value Financial assets at fair value through Profit and loss Trade investments Quoted investments Liabilities measured at fair value GROUP 31 Dec 2011 US$ Level 1 Level 2 Level 3 US$ US$ US$ 24 585 255 - 22 458 598 2 126 657 190 980 118 048 - 190 980 118 048 - - - 31 Dec 2011 US$ Level 1 Level 2 Level 3 US$ US$ US$ Financial liabilities of fair value through profit and loss 40 148 860 - 40 148 860 - During the reporting period ending 31 December 2011, 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. NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 55 14.5 Other financial assets and financial liabilities summary (Cont’d) GROUP 31 Dec 2010 US$ Level 1 Level 2 Level 3 US$ US$ US$ Financial assets at fair value through profit and loss 17 299 592 - 15 305 007 1 994 585 Trade investments Quoted investments 201 666 134 461 - 201 666 134 461 - - - Liabilities measured at fair value 31 Dec 2010 US$ Level 1 Level 2 Level 3 US$ US$ US$ Financial liabilities at fair value through profit and loss 17 177 109 - 17 177 109 - 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. 14.6 Fair value adjustment to profit and loss Fair value gain on financial assets designated at fair value through profit and loss 2011 US$ 2010 US$ 180 118 ---------- 180 118 ====== 54 404 ---------- 54 404 ====== 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. www.nmbz.co.zw NMBZ Holdings Limited 56 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 15. DEFERRED TAX GROUP COMPANY Allowance for impairment losses on loans and advances (863 678) (272 429) - 2011 US$ 2010 US$ 2011 US$ 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 7 014 16 806 1 557 5 485 129 493 412 667 33 514 - 5 485 134 743 268 036 17 408 - - - 332 105 271 742 - (269 862) (161 703) - - (208 121) (58 601) - - - (8 036) ----------- - ---------- ------------ - ---------- 2010 US$ - 1 393 6 140 - - - - Closing deferred tax liability/ (asset) (421 383) 207 966 7 042 7 533 Deferred tax liability at the beginning of the year (746 108) ------------ ----------- ( 207 966) (7 533) ---------- Current year credit (note 8.1) (629 349) ======== (538 142) ======= (491) ======= 1 751 ---------- 9 284 ======= 16. CASH AND CASH EQUIVALENTS GROUP COMPANY 16.1 Balances with Reserve Bank of Zimbabwe US$ US$ US$ US$ 2011 2010 2011 2010 Balances with the Central Bank 12 255 166 5 669 979 - - 16.2 Balances with other banks and cash Current, nostro accounts and cash 20 010 787 12 676 960 -------------- ------------- 95 631 ----------- - ------------ 32 265 953 18 346 939 ========= ========= 95 631 ======= - ======== NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 57 17. LOANS, ADVANCES AND OTHER ASSETS 17.1 Total loans, advances and other assets 17.1.1 Advances GROUP COMPANY Fixed term loans Local loans and overdrafts Statutory reserves* Other assets 2011 2010 2011 2010 US$ US$ US$ US$ 36 116 550 16 553 444 56 619 403 39 674 193 3 231 838 3 265 176 - - - - - - 3 834 274 -------------- 822 584 ------------- 1 748 172 ------------ 99 802 065 60 315 397 ========= ========= 1 748 172 ======== 1 842 363 ------------ 1 842 363 ======== *The statutory reserve balance with the Reserve Bank of Zimbabwe is non-interest bearing. The balance was determined on the basis of deposits held and is not available to the Bank for daily use. The Reserve Bank of Zimbabwe announced on 16 February 2012 that the balances owed to the banks would be converted to tradable interest bearing instruments (refer note 35). 17.1.2 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 64 535 974 45 997 447 10 679 285 3 554 191 885 387 2 511 409 2 875 529 5 106 790 18 161 873 743 752 - - - - - - - - - - - -------------- - ------------- - ------------ - ----------- Total advances 97 138 048 57 913 589 - Provision for impairment losses on loans and advances Provision for suspended interest Statutory reserves Other assets (note 17.5) - - (3 354 088) (1 057 977) - (1 048 007) -------------- (627 975) ------------- 92 735 953 56 227 637 3 231 838 3 265 176 ----------- ----------- - - - - 3 834 274 -------------- 822 584 ------------- 1 748 172 ------------ 99 802 065 60 315 397 ========= ========= 1 748 172 ======== 1 842 363 ------------ 1 842 363 ======== www.nmbz.co.zw NMBZ Holdings Limited 58 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 17.2 Sectoral analysis of utilisations GROUP 2011 US$ % 2010 US$ % Industrials 50 988 641 52 30 158 132 52 Agriculture and horticulture 6 526 499 Conglomerates Services Mining Food & beverages Individuals 222 088 12 800 879 2 449 213 5 747 287 18 403 441 ------------- 97 138 048 ========= 7 - 13 3 6 19 ----- 100 === 5 079 399 3 151 309 8 876 982 1 120 858 2 153 130 7 373 779 ------------- 57 913 589 ========= 9 5 15 2 4 13 ----- 100 === The material concentration of loans and advances are in the industrial sector at 52% (2010 – 52%). 17.3 Allowance for impairment losses on loans and advances (including acceptances) GROUP 2011 2010 Specific Portfolio US$ US$ Total US$ Specific Portfolio US$ US$ Total US$ At 1 January 1 057 977 Charge against profits 2 296 111 - - 1 057 977 2 296 111 106 105 971 803 - - 106 105 971 803 Bad debts written off - ------------ - ---------- - ------------ (19 931) ----------- - ---------- (19 931) ------------ At 31 December 3 354 088 ======== - ======= 3 354 088 ======== 1 057 977 ======== - 1 057 977 ======= ======== NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 59 17.4 Non-performing loans and advances Total non-performing loans and advances Provision for impairment loss on loans and advances Interest in suspense Residue GROUP 2011 2010 US$ US$ 8 983 037 5 939 359 (3 354 088) (1 048 007) ------------- 4 580 942 ========= (1 057 977) (627 975) ------------- 4 253 407 ========= The residue on these accounts represents recoverable portions covered by realisable security. 17.5 Other assets Service deposits Prepayments and stocks Other receivables GROUP COMPANY 2011 2010 2011 2010 US$ US$ US$ US$ 183 909 1 029 791 2 620 574 ------------ 3 834 274 ======== 117 772 589 026 115 786 ---------- - - 1 749 172 ----------- 822 584 ======= 1 749 172 ======== - - 1 842 363 ----------- 1 842 363 ======== www.nmbz.co.zw NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 61 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 audited financial information of the Group’s investment in African Century Limited. Share of the associate’s statement of financial position: GROUP COMPANY 2011 US$ 2010 US$ 2011 US$ 2010 US$ Current assets 2 831 891 222 185 Non-current assets 68 577 26 058 Current liabilities (133 823) (19 687) - - - - - - Non – current liabilities (2 174 978) ------------- - ----------- - - --------- ----------- Equity 591 667 ========= 228 556 - ======= ======= ====== - Share of the associate’s revenue and profit/(loss) Revenue Profit/(loss) 571 617 ========= 676 ======= 113 573 ========= (21 444) ======= Carrying amount of the investment 591 667 228 556 ======= ========= - ======= - ======= 499 538 ======= Reconciliation of carrying amount of investment in Associate: Balance at 1 January 228 556 - Increase in investment 249 538 250 000 250 000 249 538 Share of profit/(loss) in associate 113 573 ------------- (21 444) ----------- - ---------- Balance at 31 December 591 667 ========= 228 556 ======= 499 538 ======= - ====== - ====== 250 000 ====== - 250 000 - --------- 250 000 ====== www.nmbz.co.zw NMBZ Holdings Limited 62 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 20. INVESTMENTS IN GROUP COMPANIES 20.1 Subsidiaries COMPANY 2011 US$ 2010 US$ 13 707 432 14 680 ------------- 13 707 432 14 680 ------------- 13 722 112 ========= 13 722 112 ========= Investments in subsidiaries: - NMB Bank Limited - Stewart Holdings Limited 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:- 2011 2010 NMB Bank Limited Brixtun (Private) Limited 100% (Banking) 100% (Dormant) NMB Fund Management (Private) Limited 100% (Dormant) 100% (Banking) 100% (Dormant) 100% (Dormant) Stewart Holdings (Private) Limited 100% (Equity holdings) 100% (Equity Holdings) Invariant (Private) Limited Darksan (Private) Limited African Century Limited 100% (Dormant) 100% (Dormant) 25% (Leasing) 100% (Dormant) 100% (Dormant) 25% (Leasing) The consolidated financial statements include the financial statements and results of the subsidiaries and associates listed above. 21. QUOTED AND OTHER INVESTMENTS GROUP COMPANY Quoted investments 2011 US$ 118 048 ---------- 118 048 ====== 2010 US$ 2011 US$ 134 461 ---------- 31 147 ---------- 2010 US$ 27 854 --------- 134 461 31 147 27 854 ====== ====== ====== The quoted investments comprise shares stated for year end purposes at the last trading date of 31 December 2011. NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 63 22. INVESTMENT PROPERTIES GROUP At 1 January Improvements Fair value adjustments Net transfer to Property and Equipment At 31 December 2011 US$ 2 615 000 - (40 000) (65 000) ------------ 2 510 000 ======== 2010 US$ 3 219 600 180 000 (784 600) - ------------- 2 615 000 ========= Rental income amounting to US$6 600 (2010 – US$3 855) was received and no operating expenses were incurred on the investment properties in the current year. Included in the investment properties is a property which is encumbered by the Reserve Bank of Zimba- bwe. All liabilities in relation to this encumbrance have already been discharged and the Group is in the process of cancelling this mortgage bond and it is the Group’s firm belief that the bond will be cancelled. The Group has no restrictions on the realisability of all other investment properties and no contractual obligations to either purchase, construct or develop the investment properties or for repairs, maintenance and enhancements. Investment properties are stated at fair value, which has been determined based on valuations performed by professional valuers as at 31 December 2011. The professional valuers considered comparable market evidence of recent sale transactions and those transactions where firm offers had been made but awaiting acceptance. www.nmbz.co.zw NMBZ Holdings Limited 64 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 23. PROPERTY AND EQUIPMENT GROUP Computers US$ Motor Vehicles US$ Freehold Furniture & Land & Buildings Equipment US$ US$ Total US$ Cost At 1 January 2010 Additions Impairment loss Disposals 148 515 503 325 108 804 214 274 - - - (37 200) ------------ ----------- 982 502 407 003 2 711 709 2 102 - (298 811) - ------------ ------------ 4 346 051 732 183 (298 811) - (37 200) ------------- 1 389 505 220 119 At 31 December 2010 1 176 536 1 564 286 Additions - - Revaluation gain - (15 663) Reclassifications Transfer in from investment property - - Disposals (27 930) (17 890) (71 677) ------------ ----------- 2 478 701 1 524 271 ------------ ----------- 717 599 818 939 - 15 663 - ------------ 1 766 515 ------------ At 31 December 2011 2 415 000 8 252 250 000 - 65 000 - ------------ 2 738 252 ------------ 4 742 223 3 568 013 250 000 - 65 000 (117 497) ------------- 8 507 739 ------------- Accumulated depreciation At 1 January 2010 Charge for the year Disposals 204 192 113 114 49 905 43 985 - (16 866) ------------ ----------- 509 556 140 375 - ------------ 11 58 763 664 297 532 - (16 866) ------------- ----------- 317 306 At 31 December 2010 Charge for the year 178 694 Disposals (29 157) 3 133 Reclassifications ----------- 469 976 ----------- At 31 December 2011 649 931 77 024 256 817 320 456 (10 640) (54 967) - (3 133) ------------ 912 287 ------------ ------------ 323 201 ------------ 69 224 1 044 330 756 191 - (94 764) - - ------------- ------------ 1 705 757 293 ------------- ------------ Net book amount At 1 January 2010 Net book amount At 31 December 2010 Net book amount At 31 December 2011 299 133 ======== 98 610 ======== 472 946 ======== 2 711 698 ======== 3 582 387 ========= 400 293 ======== 143 095 ======== 739 574 2 414 931 ======== ======== 3 697 893 ========= 1 054 295 1 443 314 ======== ======== 1 566 414 ======== 2 737 959 ======== 6 801 982 ========= The land and buildings were valued by professional valuers as at 31 December 2011 for year end purposes and the open market value was US$2 730 000. The Group has four properties which are encumbered by the Reserve Bank of Zimbabwe. All liabilities in relation to the encumbrances have already been discharged and the Group is in the process of cancelling these mortgage bonds and it is the Group’s firm belief that the bonds will be cancelled. NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 65 24. INTEREST RATE REPRICING AND GAP ANALYSIS The table below analyses the Group’s interest rate risk exposure on assets and liabilities. The financial assets and liabilities are categorised by the earlier of contractual repricing or maturity dates. 24.1 Total position At 31 December 2011 Assets Cash and cash GROUP Up to 1 1 month 3 months 1 year to Non-interest month to 3 months to 1 year 5 year bearing US$ US$ US$ US$ US$ Total US$ equivalents 32 265 953 - - Financial assets at fair value through profit and loss 10 770 543 10 150 024 3 664 688 - - - - 32 265 953 24 585 255 Loans, advances and other assets 61 611 338 10 195 322 3 590 479 17 338 815 7 066 111 99 802 065 Quoted and other investments Investment properties Property and equipment Investment in associate - - - - - - - - - - - - - - - - 309 028 309 028 2 510 000 2 510 000 6 801 982 6 801 982 591 667 591 667 Deferred tax assets - --------------- -------------- -------------- - - 421 383 ------------- --------------- - 421 383 -------------- 104 647 834 20 345 346 --------------- -------------- -------------- 7 255 167 17 338 815 17 700 171 167 287 333 -------------- ------------- --------------- Liabilities and equity Financial liabilities at fair value through profit and loss 22 407 236 11 666 836 6 074 789 Deposits and other liabilities 83 016 399 6 060 884 10 000 000 Current tax liabilities - - - - - - - 40 148 861 3 531 634 102 608 917 1 157 974 1 157 974 Equity - --------------- -------------- -------------- - - 23 371 581 ------------- --------------- - 23 371 581 -------------- 105 423 635 17 727 720 16 074 789 --------------- -------------- -------------- ------------- --------------- - 28 061 189 167 287 333 -------------- Interest rate repricing gap (775 801) --------------- -------------- -------------- 2 617 626 (8 819 622) 17 338 815 (10 361 018) ------------- --------------- - -------------- Cumulative gap (775 801) - (6 977 797) 10 361 018 ========== ========== ========= ========= ========== ========== 1 841 825 - www.nmbz.co.zw NMBZ Holdings Limited 66 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 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 (Cont’d) GROUP Up to 1 1 month 3 months 1 year to Non-interest month to 3 months to 1 year 5 years bearing US$ US$ US$ US$ US$ Total US$ Assets Cash and cash equivalents 18 346 939 - - Financial assets at fair value through profit and loss 7 707 188 6 884 042 2 708 362 Loans, advances and - - - 18 346 939 - 17 299 592 other assets 44 658 392 3 450 723 7 396 422 722 100 4 087 760 60 315 397 Investment in associate Quoted and other investments Investment properties Property and equipment - - - - - - - - - - - - - -------------- - --------------- ------------- ----------- - - 228 556 336 127 228 556 336 127 2 615 000 2 615 000 3 697 893 3 697 893 -------------- -------------- 70 712 519 -------------- 722 100 10 334 765 10 104 784 -------------- ------------- ----------- 10 965 336 102 839 504 -------------- -------------- Liabilities and equity Financial liabilities at fair value through profit and loss 8 747 376 8 335 233 94 500 Deposits and other liabilities 45 431 834 7 240 444 10 000 000 - - - - - - - - - - - 17 177 109 3 307 057 65 979 335 641 969 207 966 641 969 207 966 Current tax liabilities Deferred tax liabilities Equity Interest rate repricing gap Cumulative gap - --------------- - -------------- - - ------------ ----------- 18 833 125 18 833 125 -------------- -------------- 54 179 210 --------------- 15 575 677 10 094 500 -------------- - ------------ ----------- 22 990 117 102 839 504 -------------- -------------- 16 533 309 --------------- (5 240 912) -------------- 10 284 722 100 ------------ ----------- - (12 024 781) -------------- -------------- 16 533 309 11 292 397 11 302 681 12 024 781 ========== ========== ======== ======== - ========= ========= - NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 67 25. INTEREST RATE REPRICING AND GAP ANALYSIS 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 2011 Assets Cash and cash GROUP Up to 1 1 month 3 months 1 year to Non-interest month to 3 months to 1 year 5 years bearing US$ US$ US$ US$ US$ Total US$ equivalents 28 035 809 - - Financial assets at fair value through profit and loss 10 770 543 10 150 024 3 664 688 - - - - 28 035 809 24 585 255 Loans, advances and other assets 61 174 178 10 195 322 3 590 479 17 338 815 7 066 111 99 364 905 Investment in associate Quoted and other investments Investment properties Property and equipment - - - - - - - - - - - - - - - - 591 667 227 750 591 667 227 750 2 510 000 2 510 000 6 801 982 6 801 982 Deferred tax assets - -------------- - ------------- - ------------- - ------------- 421 383 -------------- 421 383 -------------- 99 980 530 20 345 346 ------------- -------------- 7 255 167 17 388 815 ------------- ------------- 17 618 893 162 538 751 -------------- -------------- Liabilities and equity Financial liabilities at fair value through profit and loss 22 407 236 11 521 574 6 074 789 Deposits and other liabilities 78 980 120 6 060 884 10 000 000 Current tax liabilities - - - - - - - 40 003 599 3 531 634 98 572 638 1 157 974 1 157 974 Equity - -------------- - ------------- -------------- - - ------------- 23 371 581 -------------- 23 371 581 -------------- 101 387 356 17 582 458 -------------- 16 074 789 ------------- -------------- - ------------- 28 061 189 163 105 792 -------------- -------------- Interest rate repricing gap Cumulative gap (1 406 826) --------------- 2 762 888 ------------- -------------- (8 819 622) 17 338 815 (10 442 296) -------------- ------------- (567 041) --------------- (1 406 826) (7 463 560) ========== ========= ========== 1 356 062 9 875 255 (567 041) ======== ========== - ========= www.nmbz.co.zw NMBZ Holdings Limited 68 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 25. INTEREST RATE REPRICING AND GAP ANALYSIS 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 (Cont’d) At 31 December 2010 GROUP Up to 1 month to 3 months 1 month 3 months to 1 year US$ US$ US$ Assets 1 year to Non-interest bearing 5 years US$ US$ Total US$ Cash and cash equivalents Financial assets at fair value through profit and loss Loans, advances and other assets Investment in associate Quoted and other investments Investment properties Property and equipment 14 435 521 7 707 188 - - 6 884 042 2 708 362 - - - 14 435 521 - 17 299 592 3 450 723 7 396 422 44 274 497 - - - - - - - - ------------ ------------ -------------- 66 417 206 10 334 765 10 104 784 ------------ ------------ -------------- - - - - 722 100 - - - - ---------- 722 100 ---------- 228 556 257 255 2 615 000 3 697 893 4 087 760 59 931 502 228 556 257 255 2 615 000 3 697 893 ------------- -------------- 10 886 464 98 465 319 ------------- -------------- Liabilities and equity Financial liabilities at fair value through profit and loss Deposits and other liabilities Current tax liabilities Deferred tax liabilities Equity 8 747 376 8 171 759 94 500 - - 17 013 635 7 240 444 10 000 000 43 121 883 - - - - - - - - - -------------- ------------- ------------ 51 869 259 15 412 203 10 094 500 ------------- ------------ -------------- - - - - ----------- - ----------- 641 969 207 966 3 307 057 63 669 384 641 969 207 966 18 833 125 18 833 125 ------------- ------------- 22 990 117 100 366 079 ------------- ------------- Interest rate repricing gap Cumulative gap 14 547 947 (5 077 438) 10 284 -------------- -------------- ------------ 14 547 947 ----------- 9 470 509 9 480 793 10 202 893 ========== ========= ======== ======== 722 100 (12 103 653) (1 900 760) ------------- - ======== ------------- (1 900 760) ========= NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 69 26. INTEREST RATE REPRICING AND GAP ANALYSIS The table below analyses the Group’s interest rate risk exposure on assets and liabilities denominated in cur- rencies 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 con- tractual repricing or maturity dates. 26.1 Other Foreign currencies At 31 December 2011 GROUP Up to 1 1 month month to 3 months 3 months to 1 year 1 year to Non-interest bearing 5 years US$ US$ US$ US$ US$ Total US$ Assets 4 230 144 - - Cash and cash equivalents Financial assets at fair value through profit and loss Quoted and other investments Loans, advances and other assets Investment properties Property and equipment 437 160 - - ------------ 4 667 304 ------------ Liabilities and equity - - - - - - - - - - 4 230 144 - 81 278 - 81 278 - - - ------------ - ------------ - - - ------------ - ------------ - - - ------------ - ------------ - - - -------------- 81 278 -------------- 437 160 - - -------------- 4 748 582 -------------- Financial liabilities at fair value through profit and loss Deferred tax liabilities Deposits and other liabilities Current tax liabilities Equity - - 145 262 - - - - - - - 145 262 - 4 036 279 - - ------------- 4 036 279 ------------- - - - ------------ 145 262 ------------ - - - ------------ - ------------ - - - ------------ - ------------ - - - -------------- - -------------- 4 036 279 - - ------------- 4 181 541 ------------- Interest rate repricing gap 631 025 ========= Cumulative gap 631 025 ========= (145 262) ======== 485 763 ======== - ======== 485 763 ======== - ======== 485 763 ======== 81 278 ======== 567 041 ======== 567 041 ======== - ======== www.nmbz.co.zw NMBZ Holdings Limited 70 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 26. INTEREST RATE REPRICING AND GAP ANALYSIS The table below analyses the Group’s interest rate risk exposure on assets and liabilities denominated in cur- rencies 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 con- tractual repricing or maturity dates. 26.1 Other Foreign currencies (Cont’d) At 31 December 2010 GROUP 1 month Up to 1 month to 3 months 3 months to 1 year 1 year to Non-interest bearing 5 years US$ US$ US$ US$ US$ Total US$ Assets 3 911 418 - - Cash and cash equivalents Financial assets at fair value through profit and loss Quoted and other investments Loans, advances and other assets Investment properties Property and equipment 383 895 - - ------------ 4 295 313 ------------ Liabilities and equity - - - - - - - - - - 3 911 418 - 78 872 - 78 872 - - - ------------ - ------------ - - - ----------- - ----------- - - - ----------- - ----------- - - - ------------ 78 872 ------------ 383 895 - - -------------- 4 374 185 -------------- Financial liabilities at fair value through profit and loss Deferred tax liabilities Deposits and other liabilities Current tax liabilities Equity - - 163 474 - - - - - - - 163 474 - 2 309 951 - - ------------ 2 309 951 ------------ - - - ------------ 163 474 ------------ - - - ----------- - ----------- - - - ------------ - ------------ - - - ------------ - ------------ 2 309 951 - - -------------- 2 473 425 -------------- Interest rate repricing gap 1 985 362 (163 474) ======== ======== 1 821 888 Cumulative gap 1 985 362 ======== ======== - ======= 1 821 888 ======= - ======== 1 821 888 ======== 78 872 ======== 1 900 760 ======== 1 900 760 ========= - ========= NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 71 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 2011 GROUP US$ US$ RAND US$ GBP US$ EUR US$ BWP US$ TOTAL US$ Assets 28 035 808 99 364 906 591 667 Cash and cash equivalents Financial assets at fair value through profit and loss 24 585 255 Loans,advances and other assets Investment in associate Quoted and other 227 750 investments Investment properties 2 510 000 Property and equipment 6 801 982 421 383 Deferred tax assets -------------- 162 538 751 -------------- Liabilities and equity Financial liabilities at fair value through profit and loss 40 003 598 Deferred tax liabilities - Deposits and other liabilities Current tax liabilities Equity 98 572 639 1 157 974 2 708 277 (5 017) 1 504 542 22 343 32 265 953 - - - - 24 585 255 329 273 - 7 455 - 95 045 - 5 386 - 99 802 065 591 667 - - - - ------------ 3 037 550 ------------ - - - - ---------- 2 438 ---------- 81 278 - - - ------------ 1 680 865 ------------ - - - - ----------- 309 028 2 510 000 6 801 982 421 383 --------------- 27 729 167 287 333 ----------- ========== 145 262 - - - - - - - 40 148 860 - 17 830 1 774 705 17 013 102 608 918 2 226 732 - - - 1 157 974 - 23 371 581 - - ------------ -------------- ---------- 2 371 994 17 830 1 774 705 17 013 167 287 333 ------------ ----------- ========== ---------- ------------ - ------------ ----------- - 23 371 581 -------------- 163 105 792 -------------- Net foreign exchange position (567 041) ========= 665 556 ======== (15 392) ======= (93 840) 10 716 ======== ======== www.nmbz.co.zw NMBZ Holdings Limited 72 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 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 GROUP Assets US$ US$ RAND US$ GBP US$ EUR US$ BWP US$ TOTAL US$ 14 435 521 Cash and cash equivalents Financial assets at fair value through profit and loss 17 299 592 Loans,advances and other assets Investment in associate Quoted and other 257 255 investments Investment properties 2 615 000 Property and equipment 3 697 893 -------------- 98 465 319 -------------- 59 931 502 228 556 2 573 026 125 456 1 136 318 76 618 18 346 939 - 381 402 - - - - ------------ 2 954 428 ------------ - 697 - - 525 - - 17 299 592 1 271 - 60 315 397 228 556 - - - ---------- 126 153 ---------- 78 872 - - ------------ 1 215 715 ------------ - - - ---------- 336 127 2 615 000 3 697 893 -------------- 77 889 102 839 504 ---------- ========== Liabilities and equity Financial liabilities at fair value through profit and loss 17 013 635 Deferred tax liabilities 207 966 Deposits and other liabilities Current tax liabilities Equity 63 669 384 641 969 18 833 125 -------------- 100 366 079 -------------- 163 474 - 1 281 077 - - ----------- 1 444 551 ----------- - - - - - - 17 177 109 207 966 41 453 924 087 - - - ---------- ------------ 41 453 924 087 ---------- ------------ - - ---------- 63 334 65 979 335 - 641 969 18 833 125 -------------- 63 334 102 839 504 ---------- ========== Net foreign exchange position (1 900 760) ========= 1 509 877 ======== 84 700 291 628 ======= ======== 14 555 ======== NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 73 28. CONTINGENT LIABILITIES GROUP 2011 US$ 2010 US$ Guarantees 6 374 815 5 002 123 Commitments to lend 20 385 351 13 417 179 At 31 December -------------- 26 760 166 ========= ------------- 18 419 302 ========= 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 state- ment 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. Guar- antees carry the same credit risk as loans. Commitments to lend represent contractual commitments to advance loans and revolving credits. Commit- ments have fixed expiry dates and may expire without being drawn upon, hence total contract amounts do not necessarily represent future cash requirements. 29. CAPITAL COMMITMENTS GROUP Capital expenditure contracted for 2011 US$ 45 107 2010 US$ - Capital expenditure authorised but not yet contracted for 6 908 068 2 411 250 At 31 December ------------ 6 953 175 ======== ------------ 2 411 250 ======== Capital commitments will be financed from the Group’s own resources. 30. OPERATING LEASE COMMITMENTS GROUP 2011 US$ 2010 US$ Lease commitments 4 726 271 2 658 249 Up to 1 year 1 – 5 years 945 254 3 781 017 531 650 2 126 599 Lease commitments relate to future rental commitments up to the expiry of the lease agreements. www.nmbz.co.zw NMBZ Holdings Limited 74 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 31. RELATED PARTIES As required by IAS 24, Related Parties Disclosures, the Board’s view is that non-executive and execu- tive directors constitute the key management of the Bank. Accordingly, key management remuneration is disclosed below. 31.1 Compensation of key management personnel of the Bank GROUP Short – term employee benefits Contribution to pension funds 2011 US$ 1 437 437 69 193 ------------ 1 506 630 ======== 2010 US$ 569 162 18 443 ---------- 587 605 ======= 31.2 Key management interest in an employee share options At 31 December 2011, key management held no options to purchase ordinary shares of the Company. 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). GROUP 2011 US$ Non - executive directors Executive directors Officers (Note 17.6) Directors’ companies Officers’ companies Intra group loans Fair value adjustment 2010 US$ - 140 683 847 844 115 772 - - 26 848 176 832 1 141 375 892 862 - - ------------ 2 237 917 ------------ 1 104 299 (86 152) (61 623) ------------ 1 042 676 ======== 2 151 765 ======== ------------ NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 75 31.4 Other related party disclosures Entities with significant influence over the Group 2011 2010 31.5 BORROWING POWERS Amounts owed by related parties US$ 2 151 765 1 042 676 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. 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 2011. 32.2 Expense recognised in profit or loss GROUP Defined Contribution Plan - NSSA Defined Contribution Plan – NMB Bank Pension Fund 2011 US$ 74 255 376 174 ---------- 450 429 ======= 2010 US$ 101 441 54 241 --------- 155 682 ====== 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. www.nmbz.co.zw NMBZ Holdings Limited 76 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 32.3 Employee Share Option Scheme (Cont’d) 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. Outstanding as at 1 January Lapsed Issued Exercised Outstanding as at 31 December GROUP and COMPANY 2011 2010 No. WAEP$ No. WAEP$ 000’s 9 072 - - - -------- 9 072 -------- 0.005 - - - - 000’s 12 159 - - (3 087)* ---------- 9 072 ---------- 0.005 - - 0.005 0.005 *No share options were exercised during the year. The weighted average share price at the date of exer- cise for the options exercised was US$0.01 in 2010. Terms of options outstanding at 31 December 2011 GROUP & COMPANY Expiry date Exercise price 5 September 2012 7 January 2013 12 March 2013 US$ nil nil nil 2011 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 con- tribution 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$74 255 (2010 – US$101 441). 32.5 Number of employees The total number of employees of the Group at 31 December 2011 was 301 (2010– 258). NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 77 33. EXCHANGE RATES The following exchange rates have been used to translate the foreign currency balances to United States dollars at year end: 31 December 2011 31 December 2010 Mid - rate Mid - rate US$ 1.5416 8.1852 1.2944 7.5301 US$ 1.5442 6.6249 1.3305 6.4570 British Sterling South African Rand European Euro Botswana Pula GBP ZAR EUR BWP 34. RISK MANAGEMENT The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board has established the Board Asset and Liability Management Com- mittee (ALCO) and Board Risk Committee, which are responsible for defining the Bank’s risk universe, developing policies and monitoring implementation. The Bank has a Risk Management department, which reports to the Managing Director and is responsible for the management of the bank’s overall risk universe. The Bank is working towards full implementation of Basel II requirements as set by the Reserve Bank of Zimbabwe. Risk management is linked logically from the level of individual transactions to the Bank level. Risk man- agement activities broadly take place simultaneously at the following different hierarchy levels: a) Strategic Level: This involves risk management functions performed by senior management and the board of directors. It includes the definition of risk, ascertaining the Bank’s risk appetite, formulat- ing strategy and policy for managing risk and establishes adequate systems and controls to ensure overall risk remains within acceptable levels and is adequately compensated. b) Macro Level: It encompasses risk management within a business area or across business lines. These risk management functions are performed by middle management. c) Micro Level: This involves “On-the-line” risk management where risks are actually created. These are the risk management activities performed by individuals who assume risk on behalf of the organization such as Treasury Front Office, Corporate Banking, Retail banking e.t.c. The risk manage- ment in these areas is confined to operational procedures set by management. Risk management is premised on four (4) mutually reinforcing pillars, namely: a) adequate board and senior management oversight; b) adequate strategy, policies, procedures and limits; c) adequate risk identification, measurement, monitoring and information systems; and d) comprehensive internal controls and independent reviews. 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 with specific credit approval limits. The Credit Risk Management department does the initial review of all applications before passing them on to the Executive Credit Committee and finally Board Credit Committee depending on the loan amount. The bank has in place a Board Loans Review Committee responsible for reviewing the quality of the loan book. www.nmbz.co.zw NMBZ Holdings Limited 78 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 34.1 Credit risk (Cont’d) The Credit Risk Management department is responsible for implementing the group’s credit risk policies and standards and this includes: • Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regu- latory and statutory requirements ; • Establishing the authorization structure for the approval and renewal of credit facilities. Facilities require authorization by the Risk Management Committee, Executive Committee or the Board Credit Committee depending on amount as per set limits; • The Credit Risk Management department assesses all credit exposures in excess of designated lim- its, 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 grading as per the RBZ requirement in order to categorize expo- sures according to the degree of risk of financial loss faced and to focus management on the attendant risks. • Reviewing compliance of business units with agreed exposure limits, including those for selected industries; and • Providing advice, guidance and specialist skills to business units to promote best practice throughout the Group in the management of credit risk. 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 GROUP Note 2011 2010 US$ US$ 28 669 484 13 042 536 14 24 585 255 17 299 592 17 92 735 953 56 227 637 -------------- ------------- 145 990 692 86 569 765 -------------- ------------- 28 6 374 815 5 002 123 28 20 385 351 13 417 179 ------------- ------------- 26 760 166 18 419 302 ------------- ------------- 172 750 858 104 989 067 ========= ========= NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 79 34.1.2 Maximum exposure to credit risk without taking account of any collateral (Cont’d) 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. 34.1.3 Risk concentrations of maximum exposure to credit risk Industrials Agriculture and horticulture Conglomerates Services Mining Food and beverages Individuals 31 December 31 December 2011 Gross Maximum Exposure US$ 50 988 641 6 526 499 222 088 12 800 879 2 449 213 5 747 287 18 403 441 -------------- 97 138 048 2010 Gross Maximum Exposure US$ 30 158 132 5 079 399 3 151 309 8 876 982 1 120 858 2 153 130 7 373 779 -------------- 57 913 589 Provision for impairment losses on loans and advances (3 354 088) (1 057 977) Net exposure -------------- --------------- 93 783 960 56 855 612 ========== ========= 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 Bank at the reporting date is US$ 67 919 958 (2010 –US$38 647 557). www.nmbz.co.zw NMBZ Holdings Limited 80 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 34.1.5 Credit quality per sector At 31 December 2011 Grade B Grade A Special Grade C Grade D Grade E Pass Mention Substandard Doubtful US$ US$ US$ US$ Loss US$ Total US$ Industrials 38 141 089 6 244 589 1 109 211 2 833 817 2 659 935 50 988 641 Agriculture and horticulture 3 558 504 Conglomerates 222 088 - - - - 2 967 995 - - - 6 526 499 222 088 Services Mining 10 269 476 2 097 675 143 821 282 572 7 335 12 800 879 Food and beverages 1 395 821 4 332 908 2 430 446 - - - 18 767 18 558 - - 2 449 213 5 747 287 Individuals 17 925 638 225 376 51 495 191 721 9 211 18 403 441 -------------- ------------ ------------ ------------ ------------ ------------- Total 73 943 062 12 900 548 1 304 527 6 313 430 2 676 481 97 138 048 ========= ========= ======== ======== ======== ========= At 31 December 2010 Grade B Grade A Special Grade C Grade D Grade E Pass Mention Substandard Doubtful US$ US$ US$ US$ Loss US$ Total US$ Industrials 10 571 086 18 388 454 931 200 267 392 Agriculture and horticulture 2 278 313 2 801 086 Conglomerates 3 151 309 - - - - - - - - 30 158 132 5 079 399 3 151 309 Services Mining Food and beverages 1 442 980 2 928 403 903 470 3 444 849 157 280 8 876 982 - 1 102 811 - 2 153 130 - - 18 047 - - - 1 120 858 2 153 130 Individuals 1 947 645 5 209 112 87 189 122 729 7 104 7 373 779 ------------- ------------- ------------ ------------ ---------- ------------- Total 19 391 333 32 582 996 1 921 859 3 853 017 164 384 57 913 589 ========= ========= ======== ======== ======= ========= NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 81 34.2 Market risk This is the exposure of the Bank’s on and off balace sheet positions to adverse movement in market prices resulting in a loss in earnings and capital. The market prices will range from money market (interest rate risk), foreign exchange and equity markets in which the bank operates. The Bank has in place a Management Asset and Liability Committee (ALCO) which monitors market risk and recommends the appropriate levels to which the bank should be exposed at any time. Net Interest Margin is the primary measure of interest rate risk, supported by periodic stress tests to assess the bank’s ability to withstand stressed market conditions. On foreign exchange risk, the bank monitors currency mismatches and make adjustments depending on exchange rate movement forecast. The mismatches are also contained within 10% of the Bank’s capital position ALCO meets on a monthly basis and operates within the prudential guidelines and policies established by the Board ALCO. The board ALCO is responsible for setting exposure thresholds and limits, and meets on a quarterly basis. 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. Sensitivity of net interest income At 31 December 2011 Currency interest rates months months to 1 year 5 years Increase in 0 to 1 1 to 3 3months 1 year to US$ US$ US$ US$ Total US$ USD USD USD USD USD USD % 5 3 1 -1 -3 -5 1 164 136 155 079 (432 006) 908 094 1 795 303 (698 481) 93 048 (259 203) 544 857 (319 779) (232 827) 31 016 (86 401) 181 619 (106 593) 232 827 698 481 (31 016) (93 048) 86 401 (181 619) 106 593 259 203 (544 857) 319 779 (1 164 136) (155 079) 432 006 (908 094) (1 795 303) Sensitivity of net interest income At 31 December 2010 Currency interest rates months months to 1 year 5 years Increase in 0 to 1 1 to 3 3months 1 year to US$ US$ US$ US$ Total US$ USD USD USD USD USD USD % +5 +3 +1 -1 -3 -5 1 025 954 (265 046) 615 573 (159 028) 205 191 (53 009) (205 191) (615 573) (1 025 954) 53 009 159 028 265 046 (4 758) (2 855) (952) 952 2 855 4 758 37 188 22 313 793 338 476 003 7 438 158 668 (7 438) (158 668) (22 313) (476 003) (37 188) (793 338) www.nmbz.co.zw NMBZ Holdings Limited 82 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 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 re- flects a potential net reduction in the statement of comprehensive income or equity while a positive amount reflects a net potential increase. At 31 December 2011 % Change in Effect on profit currency rate +5 +3 +1 -1 -3 -5 before tax US$ Effect on equity US$ (33 278) (24 709) (19 967) (6 656) 6 656 19 967 33 278 (14 825) (4 942) 4 942 14 825 24 709 % Change in Effect on profit currency rate before tax US$ Effect on equity US$ +5 +3 +1 -1 -3 -5 91 094 54 657 18 219 (18 219) (54 657) (91 094) 67 638 40 583 13 528 (13 528) (40 583) (67 638) Currency ZAR ZAR ZAR ZAR ZAR ZAR At 31 December 2010 Currency ZAR ZAR ZAR ZAR ZAR ZAR NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 83 34.4 Liquidity risk Liquidity risk is the risk of financial loss arising from the inability of the Bank to fund asset increases or meet obligations as they fall due without incurring unacceptable costs or losses. The bank identifies this risk through maturity profiling of assets and liabilities and assessment of expected cashflows and the availability of collateral which could be used if additional funding is required. 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 the Board ALCO. The key measure used by the bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers. The bank also actively monitors its loans to deposit ratio against a set threshold in a bid to monitor and limit funding risk. Liquidity risk is monitored through a daily treasury strategy meeting. This is augmented by a monthly management ALCO and a quarterly board 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 Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers. The Bank monitors its liquidity ratio in compliance with Banking Regulations to ensure that it is not less than 25% 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 2011 On Demand US$ 0 to 1 months US$ 1 to 3 3 months to 1 year months US$ US$ 1 year to to 5 years US$ Total US$ Guarantees Commitments to lend 804 213 443 734 222 811 2 141 902 - 17 489 137 ------------ ---------- ------------- 804 213 17 711 948 2 585 636 ======= ========= ======== - 4 904 057 - 754 312 ------------ ------------ 5 658 369 - ======== ======== 6 374 815 20 385 351 ------------- 26 760 166 ========= At 31 December 2010 On Demand US$ 0 to 1 months US$ 1 to 3 3 months to 1 year months US$ US$ 1 year to to 5 years US$ Total US$ Guarantees Commitments to lend 592 918 321 236 1 641 889 3 957 730 ------------- -------------- 4 278 966 2 234 807 ======== ======== 5 002 123 943 907 13 417 179 7 817 560 -------------- ------------- 18 419 302 8 761 467 ======== ======== ======== ========= 3 144 062 - ------------- 3 144 062 - - ------------- - The Group expects that not all of the contingent liabilities or commitments will be drawn before expiry of the commitments. www.nmbz.co.zw NMBZ Holdings Limited 84 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 34.5 Operational risk This risk is inherent in all business activities and is the risk of loss arising from inadequate or failed internal processes, people, systems or from external events. The Bank utilises monthly Key Risk Indicators to monitor operational risk in all units. Further to this, the Bank has an elaborate Operational Loss reporting system in which all incidents with a material impact on the well-being of the Bank are reported to risk man- agement. The risk department conducts periodic risk assessments on all the units within the Bank aimed at identifying the top risks and ways to minimise their impact. There is a Board Risk Committee whose function is to ensure that this risk is minimized. The Risk Committee with the assistance of the internal audit function and the Risk Management department 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. Compliance risk is the risk arising from non – compliance with laws and regulations. To manage this risk permanent relationships are maintained with firms of legal practitioners and access to le- gal advice is readily available to all departments. The Bank has an independent compliance function which is responsible for identifying and monitoring all compliance issues and ensures the Bank complies with all regulatory and statutory requirements. 34.7 Reputational risk Reputation 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 Bank conducts its business. To manage this risk, the Bank strictly monitors customers’ complaints, continuously train staff at all levels, conducts market surveys and periodic reviews of business practices through its internal audit department. The directors are satisfied with the risk management processes in the bank as these have contributed to the minimization of losses arising from risky exposures. 34.8 Strategic risk This refers to current and prospective impact on a Bank’s earnings and capital arising from adverse busi- ness decisions or implementing strategies that are not consistent with the internal and external environ- ment. To manage this risk, the Bank always has a strategic plan that is adopted by the board of directors. Further, attainment of strategic objectives by the various departments is monitored periodically at manage- ment level. Further, there is an ALCO, Finance and Strategy Committee at board level responsible for monitoring overall progress towards attaining strategic objectives for the Bank. The directors are satisfied with the risk management processes in the Bank as these have contributed to the minimisation of losses arising from risky exposures. 34.9 Regulatory Compliance There were no instances of regulatory non – compliance in the period under review. The Bank remains committed to complying with and adhering to all regulatory requirements. 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 busi- ness undertaken by the subsidiary. 34.10.2 Banking Subsidiary The primary objective of the Bank’s capital management is to ensure that the Bank 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 earn- ings (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, revalua- tion reserves and portfolio provisions. NMBZ Holdings Limited NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 85 34.10.2 Banking Subsidiary (Cont’d) 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 comprise 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$12.5 million. The Bank’s regulatory capital position at 31 December 2011 was as follows: Share capital Share premium Retained earnings 31 December 31 December 2011 US$ 2010 US$ 16 501 13 690 931 6 116 397 -------------- 16 501 13 690 931 1 976 437 -------------- 19 823 829 15 683 869 Less: capital allocated for market and operational risk (571 954) (1 580 551) Credit to insiders Tier 1 capital Tier 2 capital (subject to limit as per Banking Regulations) (892 862) -------------- (115 772) ------------- 18 359 013 1 023 431 13 987 546 883 414 Subordinated debt - Regulatory reserve (limited to 1.25% of risk weighted assets) 1 023 431 Portfolio provisions (limited to 1.25% of risk weighted assets) - - 883 414 - Total Tier 1 & 2 capital Tier 3 capital (sum of market and operational risk capital) Total capital base Total risk weighted assets Tier 1 ratio Tier 2 ratio Tier 3 ratio Total capital adequacy ratio RBZ minimum required -------------- -------------- 19 382 444 571 954 --------------- 19 954 398 ========== 14 870 960 1 580 551 ------------- 16 451 511 ========= 138 868 906 ========== 94 154 367 ========= 13.22% 0.74% 0.41% 14.37% 10.00% 14.9% 0.9% 1.7% 17.5% 10.0% www.nmbz.co.zw NMBZ Holdings Limited 86 NOTES TO THE FINANCIAL STATEMENTS (Cont’d) for the year ended 31 December 2011 35. EVENTS AFTER REPORTING DATE The Reserve Bank of Zimbabwe issued a statement on 16 February 2012 in which it stated that the Gov- ernment of Zimbabwe would be issuing tradable and interest bearing instruments through the Reserve Bank of Zimbabwe, in lieu of the statutory reserve balances owed to financial institutions. The instruments, which will carry liquid asset status, will be issued effective 1 January 2012 as follows: % of Total Tenor Interest Rate 30% 30% 40% 2 years 3 years 4 years 2.5% p.a 3.0% p.a 3.5% p.a Financial institutions that are not willing to partake in the above would be accorded an option to take up a 15 year bond at an interest rate of 3% per annum. The Bank awaits the receipt of the instruments at which point the maturity profile of the amount included on note 17 would be re-profiled. NMBZ Holdings Limited HISTORICAL FIVE YEAR FINANCIAL SUMMARY 87 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Interest from lending activities Interest from investing activities Interest expense 2011 US$ 2010 US$ 2009 US$ 2008 US$ 2007 US$ Restated 14 222 680 7 024 287 652 267 - - 5 936 086 -------------- 2 990 349 -------------- 874 455 - ----------- ---------- - --------- 20 158 766 10 014 636 1 526 722 - - (8 257 254) (3 143 168) (723 626) -------------- -------------- - ----------- ---------- - --------- Net interest income 11 901 512 6 871 468 803 096 Net foreign exchange gains 1 289 729 1 055 307 379 236 Share of profit/(loss) associate 113 573 (21 444) - - - - - - - Non-interest income 12 164 691 -------------- 9 374 796 -------------- 7 236 949 - ------------ ---------- - --------- Net operating income 25 469 505 17 280 127 8 419 281 Operating expenditure (16 979 741) (15 365 768) (7 385 212) - - - - Impairment losses on loans and advances (2 296 111) -------------- (971 803) -------------- (92 887) - ------------ ---------- - --------- Profit before taxation 6 193 653 942 556 941 182 Financial institutions levy - - (44 661) - - - - Taxation (1 655 197) -------------- (250 322) -------------- ------------- ---------- ----------- 1 381 766 - - Profit after taxation 4 538 456 692 234 2 278 287 - - Other comprehensive income/(loss) for the year, net of tax Total comprehensive income for the year - -------------- - -------------- - - ------------ ---------- ------------ - 4 538 456 - ========== ========== ======== ======= ======= 2 278 287 692 234 - www.nmbz.co.zw NMBZ Holdings Limited 88 HISTORICAL FIVE YEAR FINANCIAL SUMMARY (Cont’d) CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Deposits and other liabilities 102 608 918 65 979 335 23 649 725 Financial liabilities at fair value through EQUITY Share capital Reserves Equity LIABILITIES profit and loss Current tax liabilities Deferred tax liabilities Capital employed ASSETS 2011 US$ 2010 US$ 2009 US$ 2008 US$ 2007 US$ Restated 78 598 78 598 - - - 23 292 983 --------------- 18 754 527 ------------- 8 568 005 ------------ - --------- - --------- 23 371 581 18 833 125 8 568 005 40 148 860 17 177 109 6 444 932 1 157 974 641 969 299 162 - --------------- 167 287 333 ========== 207 966 -------------- 746 107 -------------- - --------- - --------- 102 839 504 ========= 39 707 931 ======== - - ====== ====== - - - - - - - - - - - - - - - - - - - - - - - - Cash and cash equivalents 32 265 953 18 346 939 12 203 181 Loans, advances and other assets 99 802 065 60 315 397 13 004 099 Financial assets at fair value through profit and loss Quoted and other investments Trade investments Investment in associate Investment properties Property and equipment Deferred tax assets Employment of capital 24 585 255 17 299 592 7 135 023 118 048 190 980 591 667 2 510 000 6 801 982 134 461 201 666 228 556 455 638 108 003 - 2 615 000 3 219 600 3 697 893 3 582 387 421 383 --------------- - -------------- - -------------- - --------- - --------- 167 287 333 ========== 102 839 504 ========= 39 707 931 ======== - - ====== ====== NMBZ Holdings Limited HISTORICAL FIVE YEAR FINANCIAL SUMMARY (Cont’d) 89 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 2011 2010 2009 2008 2007 CLOSING NUMBER OF SHARES 2 807 107 289 2 807 107 289 1 641 225 424* 1 608 159 059 1 569 339 001 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 0.83 0.16 - - 7.19 0.67 0.03 - - 37 0.52 0.14 - - 5.71 Closing price per share (US cents) 1.15 1.1 0.80 Market capitalisation (US$) 32 281 734 30 878 180 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 (%) 19 3 76 48 27.1 3.7 0.70 95 46 26.6 26 6 89 79 (142) - - 1. The return on shareholders’ funds is based on shareholders’ funds at the end of the year. 2. Includes charge for impairment of losses on loans and advances. * excludes own equity instruments amounting to 1 028 172 shares. - - - - - - - - - - - - - - - - - - - - - - www.nmbz.co.zw NMBZ Holdings Limited 90 NOTICE TO MEMBERS Notice is hereby given that the 17th Annual General Meeting of Members of NMBZ Holdings Limited will be held at the Registered Office of the Company at 4th Floor, Unity Court, Corner 1st Street/ Kwame Nkrumah Avenue, Harare on Tuesday 19 June 2012 at 10:00 hours for the following purposes: ORDINARY BUSINESS 1. 2. 3. 4. To receive and adopt the Financial Statements for the year ended 31 December 2011, together with the reports of the Directors and Auditors thereon. To appoint Directors. In accordance with the Articles of Association, Mr F. Zimuto, who was appointed subsequentto the last Annual General Meeting (AGM) will retire at the forthcoming AGM and Mr. T. N. Mundawarara, Mr. J. Chigwedere and Mr. A. M. T. Mutsonziwa retire by rotation. Being eligible, all the retiring directors offer themselves for re-election. To appoint Auditors for 2012. To approve Messrs Ernst & Young’s remuneration for the year ended 31 December 2011. SPECIAL BUSINESS SPECIAL RESOLUTIONS 5. 6. To consider and if deemed appropriate, to approve with or without amendment: “That the 2012 Executive Share Option Scheme (“the Scheme”), setting aside for the Scheme ordinary shares not exceeding 10% of the issued ordinary share capital of the Company at the time of implementing the scheme, be and is hereby approved and adopted by the Members of the Company, subject to the Zimbabwe Stock Exchange Listing Rules.” To consider, and if deemed fit, to pass, with or without modification, the resolution set out below: “That the Company, being duly authorised thereto by Article 10 of its Articles of Association, may undertake general repurchases by way of open market transactions on the Zimbabwe Stock Exchange (“ZSE”) of any of its own ordinary shares in such manner or on such terms as the directors may from time to time determine provided that: i. the maximum number of shares authorized to be acquired is no more than 10% of the Company’s ordinary issued share capital. ii. for each share, the minimum price shall not be lower than the nominal value of the Company’s shares and the maximum price that may be paid is 5% above the weighted average market price for the ordinary shares in the Company as derived from the Zimbabwe Stock Exchange (ZSE) Daily Price Sheet for the five business days immediately preceding the date on which such ordinary shares are contracted to be purchased. iii. the authority in terms of this special resolution shall unless renewed prior to such time, expire on the first anniversary of this resolution or at the conclusion of the next Annual General Meeting of the Company, whichever is later, save that the Company, may before such expiry, enter into a contract or contracts to purchase its ordinary shares which would or might be completed wholly or partly after the expiry and may purchase its ordinary shares in pursuance of such contract or contracts.’’ Notes: 1. A Special Resolution is required to be passed by a majority of seventy five per cent of those present and voting (including proxy votes), representing not less than twenty five per cent of the total number of votes in the Company. 2. 3. In terms of resolution 6, the directors are seeking authority to allow the use of the Company’s available cash resources to purchase its own shares in the market in terms of the Companies Act and the regulations of the ZSE. The directors will only exercise the authority if they believe that to do so would be in the best interests of shareholders generally. In exercising this authority, the directors will duly take into account following such repurchase for the next 12 months, the ability of the Company to pay its debts in the ordinary course of business, the maintenance of an excess of assets over liabilities, and for the Company and Group, the adequacy of ordinary capital and reserves as well as working capital. 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 the Registered Office of the company at least 48 hours before the commencement of the meeting. By Order of the Board V. Mutandwa Company Secretary 24 May 2012 EXPLANATIONS REGARDING THE NOTICE OF THE ANNUAL GENERAL MEETING 91 NMBZ Holdings Limited Resolution 1 The Directors of the Company are obliged to present their Report and Accounts to shareholders of the Company at an Annual General Meeting. This is a standard form of resolution common to all Annual General Meetings. Resolution 2 The Company’s Articles of Association require a third of the Directors to stand down at each Annual General Meeting and if they are eligible, they may offer themselves for re-election. The Directors standing down are Messrs F. Zimuto, T. N. Mundawarara, J. Chigwedere and A. M. T. Mutsonziwa. All the retiring directors being eligible offer themselves for re-election. Information about these directors is shown below: Francis Zimuto - Certified Associate of the Institute of Bankers in South Africa, Associate of the Institute of Bankers in Zimbabwe Francis Zimuto (49) is a founding executive director of NMB Bank Limited with a wide range of experience at all levels of retail and merchant banking. Francis was instrumental in the listing of NMBZ Holdings Limited on both the Zimbabwe and the London Stock Exchanges. Francis resigned from the NMBZ Holdings board in 2004. He rejoined the NMBZ Holdings Limited board in 2011. Tendayi Nelson Mundawarara - MBF (Banking and Finance), (Milan, Italy), MPIA (Public and International Affairs), (University of Pittsburgh), BA (Political Science), (George Washington University) Tendayi Nelson Mundawarara (53) is a banker by profession. He joined the NMBZ Holdings Limited Group as a Non-Executive Director in February 2008 and was appointed Chairman in August 2010. Previously, he headed the Corporate Banking Divisions of ZB Bank and Leasing Company of Zimbabwe, before heading UKI Limited, an unquoted public investment company with interests in financial services, insurance, communications and manufacturing. Tendayi was instrumental in the establishment of a stock broking company, UKI Securities (now Genesis Securities), which he chaired; he also chaired the Boards of Fidelity Life Asset Management Company (FLAM), Firstel Cellular and Schweppes Zimbabwe Limited, and was a Director of Nicoz Diamond Insurance, Fidelity Life Assurance, Zimbabwe Insurance Brokers, First Banking Corporation, CFI Holdings, ZIMRE Limited and CFX Bank. Tendayi is currently Chairman of Willdale Limited. James Chigwedere - LLB (Leeds), Diploma in Public Administration (Glasgow) James Chigwedere (79) is a lawyer by profession who has over 50 years’ experience in administration. In 1981 he joined the Ministry of Home Affairs as the Deputy Registrar General and was subsequently promoted to the position of Registrar General. He was promoted to become the Deputy Secretary in the Ministry of Home Affairs in 1983. He left the Ministry of Home Affairs and joined International Trade Meridian (ITM) as the Managing Director and later became the Executive Chairman. He currently manages his business ventures which include cattle ranching and construction. James was appointed as a non-executive director of the Group in February 2008. Arthur Morris Tendayi Mutsonziwa - BL (Hons), LLB (UZ) Arthur Mutsonziwa (57) is a lawyer by profession, who joined the Group as a Non-Executive Director in 1998. He is a senior partner at Atherstone & Cook, a firm of legal practitioners, where he specialises in insurance and commercial law. Arthur is a non-executive director of Associated Newspapers of Zimbabwe (Private) Limited, Ruzawi Schools (Private) Limited, Tunatemore (Private) Limited, Chairman of the Board of Governors of Ruzawi School and a member of the Board of Governors and of the Executive Committee of the Peterhouse Group of Schools. Resolution 3 All public companies are required to appoint Auditors at each Annual General Meeting at which financial statements are presented, to hold office until the next such meeting in terms of section 150 (2) of the Companies Act [ Chapter 24:03]. This resolution therefore proposes the appointment of auditors in accordance with usual practice and the Banking Act [Chapter 24:20]. Resolution 4 The remuneration of the auditors is required to be fixed by the Company in a General Meeting in terms of section 150 (6) of the Companies Act [Chapter 24:20]. Accordingly, Members will be requested to approve the remuneration paid to the external auditors of the Group, Ernst & Young for the year ended 31 December 2011. Resolution 5 – Special Resolution The Company proposes the setting up of an Executive Share Option Scheme, not exceeding 10% of the issued share capital of the company. The Articles of Association of the Company, require that such a scheme be sanctioned by the Members of the Company through a Special Resolution. The Executive Share Option Scheme document, detailing the scheme and initialled by the Chairman, will be available for inspection, at the registered office of the Company, during normal business hours from the date of publication of the notice of the Annual General Meeting. Resolution 6 – Special Resolution In terms of this resolution, the Directors are seeking authority to allow the purchase of the Company’s own shares in the market in terms of the Companies Act and the regulations of the ZSE. The Director’s will only exercise the authority if they believe that to do so would be in the best interest of shareholders generally. In exercising this authority, the Directors will duly take into account , following such repurchase for the next 12 months, the ability of the Company to pay its debts in the ordinary course of business, the maintanace of an excess of assets over liabilities and, for the Company and Group, the adequacy of ordinary capital and reserves as well as working capital. The Director’s have no present intention of acquiring the Company’s own shares. www.nmbz.co.zw NMBZ Holdings Limited 92 SHAREHOLDERS’ ANALYSIS 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 Size of Shareholding - - - - - - - - 5 000 10 000 50 000 100 000 500 000 1 000 000 10 000 000 And over 1 5 001 10 001 50 001 100 001 500 001 1 000 001 10 000 001 Total 2011 Number of Shareholders 2 328 606 708 117 155 29 24 25 --------- 3 992 ====== 2010 Number of Shareholders 2 485 671 792 124 191 40 35 24 --------- 4 362 ====== 2011 % 58.31 15.18 17.74 2.93 3.88 0.73 0.60 0.63 -------- 100 ===== % 56.97 15.38 18.16 2.84 4.38 0.92 0.80 0.55 -------- 100 ===== Industry Shareholders % Banks and nominees Employees Deceased estates External companies Insurance companies Investment, trusts and property companies Other corporate holdings Non-resident individuals Pension funds Resident individual/trusts 62 518 3 5 10 404 2 28 12 2 948 ------- 3 992 ===== 1.55 12.98 0.08 0.13 0.25 10.12 0.05 0.70 0.30 73.84 ------- 100 ===== 2011 Issued Shares 3 865 246 4 470 512 14 930 904 8 413 516 33 874 789 21 143 052 83 774 024 2 636 635 246 ---------------- 2 807 107 289 =========== 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 ----------------- 2 807 107 289 ============ % 0.14 0.16 0.53 0.30 1.21 0.75 2.98 93.93 --------- 100 ====== % 0.15 0.18 0.60 0.32 1.48 1.00 3.82 92.45 --------- 100 ====== 2011 Shares 438 706 305 41 247 975 10 506 424 559 772 582 589 581 677 962 456 805 8 082 96 684 281 50 435 295 57 707 863 ----------------- 2 807 107 289 ============ % 15.63 1.47 0.37 19.94 21.00 34.29 - 3.44 1.80 2.06 ------- 100 ===== NMBZ Holdings Limited SHAREHOLDERS’ ANALYSIS (Cont’d) 93 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 Shareholders 16 378 5 5 15 127 29 397 20 % 0.37 8.67 0.11 0.11 0.34 2.91 0.66 9.10 0.46 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 % 0.01 1.48 0.40 38.15 21.06 27.27 0.16 7.11 1.78 3 370 --------- 4 362 ====== 77.27 --------- 72 132 368 ----------------- 2.58 --------- 100 ===== 2 807 107 289 =========== 100 ====== TOP TEN SHAREHOLDERS 1 2 3 Old Mutual Life Assurance Company of Zimbabwe LES Nominees (Pvt) Ltd African Century Financial Services Investments LLP* 4 Lalibela Limited 5 Alsace Trust 6 Cornerstone Trust 7 8 9 Wamambo Investments Trust Drakmore Investments (Private) Limited Stanbic Nominees(Private) Limited 10 Martcap Investments (Private) Limited 2011 Shares 589 521 823 414 601 550 280 710 729 215 266 942 168 853 795 168 755 799 142 260 092 109 627 112 84 710 850 77 282 178 % of Total 20.93 14.72 9.97 7.65 6.00 5.99 5.05 3.89 3.01 2.74 *African Century Financial Services Investments LLP also holds its shareholding through LES Nominees (Pvt) Ltd. 1 2 African Century Financial Services Investment LLP Old Mutual Life Assurance Co Zim Ltd 3 Lalibela Limited 4 Alsace Trust 5 Cornerstone Trust 6 7 8 9 Wamambo Investments Trust Drakmore Investments (Pvt) Ltd Martcap Investments (Pvt) Ltd Elsha Investments (Pvt) Ltd 10 Local Authorities Pension Fund 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 % of Total 28.21 21.00 7.67 6.01 6.01 5.06 3.90 2.75 1.90 1.55 www.nmbz.co.zw NMBZ Holdings Limited 94 SHAREHOLDERS’ INFORMATION MEMBERS’ DIARY Financial year end Reports:- 31 December 2011 - Announcement of annual results 29 March 2012 - Annual financial statements - Annual General Meeting posted May 2012 19 June 2012 - Announcement of the 2012 half-year results August 2012 Dividend payments: - Interim - Final n/a n/a NMBZ Holdings Limited SECRETARY AND REGISTERED OFFICE 95 Secretary V Mutandwa Registered Offices 4th Floor , Unity Court Cnr 1st Street/Kwame Nkrumah Avenue Harare Zimbabwe Telephone Facsimile +263 4 759651 +263 4 759648 Website: http://www.nmbz.co.zw Email: enquiries@nmbz.co.zw Auditors Ernst & Young Chartered Accountants (Zimbabwe) Angwa City Julius 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 882068 In UK Computershare Services PLC 36 St Andrew Square Edinburgh EH2 2YB UK In UK Dechert 160 Queen Victoria Street London EC4 V4QQ UK www.nmbz.co.zw
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