CONTENTS Financial Highlights Group Profile Chairman’s Statement 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 Notice to Members Explanations regarding the Notice of the Annual General Meeting Shareholders’ Analysis Top Ten Shareholders Members’ Diary Secretary and Registered Office 2 3 4 - 5 7 - 13 14 - 16 17 19 20 21 22 23 - 36 37 - 80 81 - 83 84 85 - 86 87 - 88 89 90 91 1 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 HIGHLIGHTS Attributable profit Basic earnings per share (US cents) Total deposits Total equity Enquiries: Tel: +263-4-759 651/9 2012 US$ 2011 US$ 7 570 502 0.27 191 422 066 30 942 083 4 538 456 0.16 139 226 144 23 371 581 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 P Washaya, Managing Director, NMB Bank Limited benefitw@nmbz.co.zw Benson Ndachena, Chief Financial Officer, NMBZ Holdings Limited bensonn@nmbz.co.zw Website: http://www.nmbz.co.zw Email: enquiries@nmbz.co.zw 2 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 GROUP PROFILE for the year ended 31 December 2012 The NMBZ Holdings Group (the Group) comprises the company (NMBZ Holdings Limited) and its subsidiaries, NMB Bank Limited (the Bank), Stewart Holdings Limited (equity holdings) and a 24.79% shareholding in African Century Limited (leasing). The Bank was established in 1993 as a bank incorporated under the 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 demands in suitable and convenient locations. Set out below are the Bank’s locations: Head Office - Unity Court, Corner Kwame Nkrumah Avenue/First Street, Harare Angwa City - Corner Kwame Nkrumah Avenue/Angwa Street, Harare Borrowdale - Shops 37 & 38, Sam Levy’s Village, Harare Eastgate - Shop 24, Eastgate Mall, Corner Sam Nujoma Street/Robert Mugabe Road, Harare Joina City - Corner Jason Moyo / Innez Terrace, Harare Msasa - 77 Amby Drive, Harare Southerton - 7 - 9 Plymouth Road, Harare Avondale - 20 King George Road, Avondale, Harare Bulawayo Corporate and Retail Banking - NMB Centre, Corner George Silundika Street/Leopold Takawira Street, Bulawayo Mutare - Embassy Building, Corner Aerodrome Road/Second Street, Mutare Gweru - 36 Robert Mugabe Road, Gweru The Bank’s ATM network, which accepts VISA cards, covers the following locations: • Angwa City – Harare • Borrowdale – Harare • Card Centre – Harare • Eastgate – Harare • Joina City – Harare • Avondale - Harare • NMB Centre - Bulawayo • Msasa - Harare • Mutare • Gweru • Southerton – Harare 3 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 CHAIRMAN’S STATEMENT for the year ended 31 December 2012 INTRODUCTION Capital raising initiatives occupied a greater part of the year under review in a bid to meet the Reserve Bank of Zimbabwe prescribed minimum capital requirement of US$25 million by 31 December 2012 and increases of US$25 million per each half year to 30 June 2014. Subsequent to year end, three strategic foreign investors will invest equity capital amounting to US$14.8 million and this will bring your Bank into the top tier banks in terms of capitalisation. GROUP RESULTS Compliance with International Financial Reporting Standards The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared in compliance with the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20). Commentary on operating results The profit before taxation was US$10 002 224 during the period under review and this gave rise to an attributable profit of US$7 570 502. Net interest income was US$17 493 781 for the period. Non-interest income amounted to US$15 609 630 and this was mainly as a result of net commissions and fee income (US$13 016 115). Operating expenses amounted to US$21 452 714 and these were 26% up on prior year and were driven largely by administration, depreciation and staff related expenditure. Impairment losses on loans and advances amounted to US$3 985 062 for the current period from a prior year of US$2 296 111. This is commensurate with the loans and advances which amounted to US$152 417 375 at 31 December 2012 compared to US$119 596 646 as at 31 December 2011. On 31 January 2013, the Reserve Bank of Zimbabwe and participating members of the Bankers Association of Zimbabwe (BAZ) signed a Memorandum of Understanding (MoU) which seeks to establish an understanding on: 1. Bank charges on accounts whose monthly deposits are less than US$800. 2. Interest rates on lending to a maximum of the Bank’s weighted average cost of funds plus a margin of 12.5%. These measures took effect from 1 February 2013 and going forward these would have a pronounced effect on the Bank’s profitability. Dividend In view of the need to retain cash in the business and to strengthen the statutory capital requirements for the banking subsidiary, the Board has proposed not to declare a dividend. Statement of financial position The Group’s total assets grew by 35% from US$167 287 333 as at 31 December 2011 to US$226 533 682 as at 31 December 2012. The assets comprised mainly loans, advances and other assets (US$146 599 994), investment securities held to maturity (US$5 501 963), cash and short term funds (US$58 171 045), investment properties (US$3 115 300), non-current assets held for sale (US$2 225 300) and property and equipment (US$8 187 459). Gross loans and advances increased by 27% from US$119 596 646 as at 31 December 2011 to US$152 417 375 as at 31 December 2012. The Bank’s liquidity ratio closed the period at 42% and this was above the statutory requirement of 30% at 31 December 2012. 4 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 CHAIRMAN’S STATEMENT (Cont’d) for the year ended 31 December 2012 Capital The banking subsidiary’s capital adequacy ratio at 31 December 2012 calculated in accordance with the guidelines of the Reserve Bank of Zimbabwe (RBZ) was 15.50% (31 December 2011 – 14.37%). The minimum required by the RBZ is 12%. The Group’s equity increased by 32% from US$23 371 581 as at 31 December 2011 to US$ 30 942 083 as at 31 December 2012 as a result of growth in retained earnings. CORPORATE SOCIAL INVESTMENTS The Group is committed to playing an active role in the communities it serves. Our community investments are channelled into education, the disadvantaged, vulnerable groups, protection of the environment, wild life conservation, the arts and various sporting disciplines. During the year the Group invested US$100 000 in cash and practical resources for various deserving projects. CORPORATE DEVELOPMENTS In line with our corporate strategic thrust of enhancing service delivery and banking convenience to our valued high net worth individuals and businesses, we successfully launched the Visa International Debit Card, SMS Alerts, E-Statements, DSTV Payments Real-Time Integration and Real-Time Interface for ZIMRA obligation payments. OUTLOOK AND STRATEGY The Group secured lines of credit amounting to US$26 million in the year and these have allowed the Bank to underwrite more lending business for our clients. DIRECTORATE Mr Mainos Mudukuti resigned from the Board on 22 May 2012. I would like to thank Mr Mudukuti for his invaluable contributions to the Board over the years. There were no other changes to the composition of the Board during the year under review. APPRECIATION I would like to express my gratitude to our valued clients, existing and new shareholders and the Regulatory Authorities for their support during the period under review. I would also like to record my appreciation to my fellow Board members, management and staff for their unwavering commitment and sterling dedication which gave rise to the attainment of these results. T N MUNDAWARARA CHAIRMAN 27 March 2013 5 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 6 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 REPORT OF THE DIRECTORS for the year ended 31 December 2012 We have pleasure in presenting to shareholders our report and the audited financial statements of the Group for the year ended 31 December 2012. 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$7 570 502 for the year ended 31 December 2012 (2011 – US$4 538 456). 3. CAPITAL ADEQUACY As at 31 December 2012, the Bank’s capital adequacy ratio computed under Bank for International Settlements (BIS) rules was 15.50% (2011 – 14.37 %). 4. DIRECTORATE 4.1 Board of Directors Holding Company T N Mundawarara A M T Mutsonziwa J A Mushore* F Zimuto* B Ndachena* J T Makoni B W Madzivire L Majonga (Ms) J Chigwedere J de la Fargue J Chenevix-Trench *Executive (Chairman and Independent Non-executive Director) (Deputy Chairman and Independent Non-Executive Director) (Group Chief Executive Officer) (Deputy Group Chief Executive Officer) (Chief Financial Officer) (Non-Executive Director) (Independent Non-Executive Director) (Independent Non-Executive Director) (Independent Non-Executive Director) (Non-Executive Director) (Non-Executive Director) Mr. M. Mudukuti resigned from the board with effect from 22 May 2012. In accordance with the Articles of Association, Mr B Ndachena, Mr J de la Fargue and Mr J Chenevix-Trench will retire by rotation at the forthcoming Annual General Meeting (AGM). All retiring directors, being eligible, offer themselves for re-election. 7 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 REPORT OF THE DIRECTORS (Cont’d) for the year ended 31 December 2012 The NMBZ Holdings Limited board comprises of eleven directors while the NMB Bank Limited board comprises of thirteen directors. The boards of the Holding company and the Bank are almost identical as they share ten 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 following directors sit on the Bank’s Board only: B P Washaya F S Mangozho L Chinyamutangira 4.2 Directors’ interests As at 31 December 2012 the Directors of the Group (NMBZ Holdings Limited and the Bank) held the following direct and indirect beneficial interests in the shares of the Company: T N Mundawarara A M T Mutsonziwa B Ndachena J A Mushore** J T Makoni** F Zimuto** B W Madzivire L Majonga (Ms) J Chigwedere J de la Fargue*** J Chenevix-Trench*** B P Washaya* F S Mangozho* L Chinyamutangira* 31 December 2012 Shares 31 December 2011 Shares 39 901 55 691 350 000 1 646 969 6 447 904 - - - - - - 20 692 - 170 334 39 901 55 691 350 000 1 646 969 6 447 904 - - - - 5 294 005 2 806 866 20 692 - 152 482 8 731 491 16 814 510 *B P Washaya, F S Mangozho and L Chinyamutangira are NMB Bank Limited Executive Directors. **Dr. J Makoni, Mr J Mushore and Mr F Zimuto hold non-beneficial interests in Cornerstone Trust, Alsace Trust and Wamambo Investments Trust, respectively. ***Mr J Chenevix-Trench and Mr J de la Fargue represent interests in African Century Financial Services Investments. 8 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 REPORT OF THE DIRECTORS (Cont’d) for the year ended 31 December 2012 4.4 Directors’ attendance at meetings 4.4.1 Board of Directors Name Mr T N Mundawarara Mr A M T Mutsonziwa Mr J A Mushore Mr F Zimuto Mr B Ndachena Mr B W Madzivire Mr L Majonga (Ms) Dr J T Makoni Mr J Chigwedere Mr J de la Fargue Mr J Chenevix-Trench 4.4.2 Audit Committee Name Mr B W Madzivire Mr A M T Mutsonziwa Ms L Majonga 4.4.3 Risk Management Committee Name Mr J Chigwedere Ms L Majonga Mr B P Washaya Mr J de la Fargue Mr J A Mushore Mr F Zimuto Mr F Mangozho Meetings held 4 4 4 4 4 4 4 4 4 4 4 Meetings held 4 4 4 Meetings held 4 4 4 4 4 4 4 Meetings attended 4 3 4 4 4 4 4 3 4 4 4 Meetings attended 4 3 4 Meetings attended 4 4 4 3 3 4 4 9 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 REPORT OF THE DIRECTORS (Cont’d) for the year ended 31 December 2012 4.4.4 Asset and Liability Management Committee (ALCO), Finance & Strategy Committee Name Mr T N Mundawarara Mr B P Washaya Mr B Ndachena Mr J Mushore Mr J Chenevix-Trench (alternate J de la Fargue) Mr J Chigwedere Mr F Zimuto Mr F S Mangozho Mr L Chinyamutangira 4.4.5 Loans Review Committee Name Mr A M T Mutsonziwa Ms L Majonga* Mr B Ndachena Meetings held 4 4 4 4 Meetings attended 4 4 4 3 4 4 4 4 4 4 3 4 4 4 Meetings held 4 4 4 Meetings attended 3 2 4 *Ms. L Majonga became a member of the committee with effect from 7 August 2012 and attended the two meetings left in the year subsequent to her appointment. 4.4.6 Human Resources, Remuneration and Nominations Committee Meetings held 4 4 4 4 4 4 4 Meetings held 5 5 5 5 5 5 Meetings attended 3 4 3 4 4 4 4 Meetings attended 4 5 3 5 5 5 Name Mr A M T Mutsonziwa Mr T N Mundawarara Mr J Chenevix – Trench Mr J A Mushore Mr B Madzivire Mr B P Washaya Mr F Zimuto 4.4.7 Credit Committee Name Mr T N Mundawarara Mr J de la Fargue Mr J Mushore Mr F Zimuto B P Washaya Mr L Chinyamutangira 10 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 REPORT OF THE DIRECTORS (Cont’d) for the year ended 31 December 2012 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 three executive and eight non-executive directors while the NMB Bank board comprises of four executive and nine 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 Chairperson - Independent Non-Executive Director Independent Non-Executive Director Independent 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: Chairman - Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Group Chief Executive Officer Deputy Group Chief Executive Officer Mr A M T Mutsonziwa Mr T N Mundawarara Mr B W Madzivire Mr J A Mushore Mr F Zimuto Mr J Chenevix –Trench Non-Executive Director Non-Executive Director Dr J T Makoni Managing Director Mr B P Washaya 11 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 REPORT OF THE DIRECTORS (Cont’d) for the year ended 31 December 2012 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 Ms L Majonga Mr B Ndachena Chairman - Independent Non-Executive Director Independent Non-Executive Director Chief Finance Officer 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 J de la Fargue Mr B P Washaya Mr L Chinyamutangira Executive Director - Banking Chairman - Independent Non-Executive Director Group Chief Executive Officer Deputy Group Chief Executive Officer Non-Executive Director Managing 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 Group. Membership: Chairman-Independent Non-Executive Director Mr T N Mundawarara Independent Non-Executive Director Mr J Chigwedere Group Chief Executive Officer Mr J A Mushore Deputy Group Chief Executive Officer Mr F Zimuto Managing Director Mr B P Washaya Chief Finance Officer Mr B Ndachena Mr F S Mangozho Executive Director -Treasury Mr L Chinyamutangira Executive Director - Banking Mr J Chenevix-Trench Non - Executive Director (alternate J de la Fargue) Dr. J T Makoni Non - Executive Director 12 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 REPORT OF THE DIRECTORS (Cont’d) for the year ended 31 December 2012 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 A Mushore Mr F Zimuto Mr B P Washaya Mr F Mangozho Chairman - Independent Non-Executive Director Non-Executive Director Independent Non-Executive Director Chief Executive Officer Deputy 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 2012 and to appoint auditors of the Company for the ensuing year. By order of the Board V Mutandwa Company Secretary Harare 27 March 2013 13 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 STATEMENT OF DIRECTORS’ RESPONSIBILITY for the year ended 31 December 2012 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. During the current year under review the evaluation of the performance of the collective board, the chairperson’s and the individual directors’ was done. 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. The key procedures which the Board considers essential to provide effective control include: i) An organisation structure with strong management, working within defined limits of responsibility and authority; ii) An annual budgeting process with re-forecasts to reflect changing circumstances, and the identification of key risks and opportunities; and iii) Detailed monthly management accounts with comparisons against budgets through comprehensive variance analyses. Nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these internal control procedures and systems has occurred during the year under review. 14 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 STATEMENT OF DIRECTORS’ RESPONSIBILITY (Cont’d) for the year ended 31 December 2012 5. 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 is still appropriate. 6. INTERNAL AUDIT The internal audit function has formally defined objectives, authority, and responsibilities enshrined in the Audit Charter, which principles are consistent with those of the Institute of Internal Auditors. The function is guided by the Internal Audit Manual and the Reserve Bank of Zimbabwe’s Guideline on Minimum Internal Audit Standards in Banking Institutions, in conducting its activities. The internal audit function is independent of business lines and has unrestricted access to the Audit Committee. The internal audit functions include evaluating the effectiveness of the risk management systems, reviewing the systems of internal controls including internal financial controls and the conduct of the Group’s operations. 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. 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 operationalizing a new share option scheme for staff members approved in the 2012 Annual General Meeting. 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. Activities and charities supported during the year ended 31 December 2012 included special education needs, health and social services, the environment and the arts. 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 that regard, the Group’s values include integrity and excellence. 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 does not conduct business with entities whose activities are unethical. 15 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 STATEMENT OF DIRECTORS’ RESPONSIBILITY (Cont’d) for the year ended 31 December 2012 12. FINANCIAL STATEMENTS The 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 other relevant regulations made thereunder 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. The directors have satisfied themselves that the Group is in a sound financial position and that it has adequate resources to continue operating in the foreseeable future. Accordingly, they are satisfied that it is appropriate to prepare the financial statements of the Group on a going concern basis. Approval of the financial statements The financial statements of the Company and Group appearing on pages 19 to 80 were approved by the board of directors on 27 March 2013 and are signed on their behalf by: …………………………...................………. T N Mundawarara Chairman ………………….........................…….. J A Mushore Group Chief Executive Officer 27 March 2013 27 March 2013 16 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 KPMG Mutual Gardens 100 The Chase (West) Emerald Hill P. O. Box 6 Harare Zimbabwe Tel Fax +263 (4) 303700 +263 (4) 302600 +263 (4) 303699 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 (the Company) and its subsidiaries (the Group), which comprise the consolidated and company statements of financial position as at 31 December 2012, the consolidated and company statements of comprehensive income, changes in equity and cash flows for the year then ended and notes, comprising a summary of significant accounting policies and other explanatory notes to the financial statements as set out on pages 23 to 36 and 37 to 80 respectively. Directors’ responsibility for the financial statements The 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 other relevant regulations made thereunder 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 a true and fair view of the financial position of the Group and Company as at 31 December 2012, and of the Group’s and Company’s financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and in a manner required by the Companies Act (Chapter 24:03), the Banking Act (Chapter 24:20) and relevant regulations made thereunder. KPMG CHARTERED ACCOUNTANTS (ZIMBABWE) 27 March 2013 KPMG, a Zimbabwean partnership and a member firm of the KPMG network of independent member firms affliated with KMPG International Corporative (“KPMG International”), a Swiss entity. 17 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 18 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the year ended 31 December 2012 Note GROUP COMPANY 2011 2011 US$ US$ 2012 US$ 2012 US$ Interest income Interest expense Net interest income Net foreign exchange gains Non-interest income Net operating income Operating expenditure Impairment losses on loans and advances Share of profit of associate Profit before taxation Taxation 6 6 27 543 784 --------------- 17 493 781 1 902 337 15 609 630 ---------------- 35 005 748 4 22 517 188 5 (10 050 003) (8 257 254) --------------- 14 259 934 1 289 729 9 830 798 -------------- 25 380 461 240 740 – --------- 240 740 – 13 260 ---------- 254 000 7 (21 452 714) (17 004 270) (797 333) – – (3 985 062) (2 296 111) 113 573 434 252 20 168 416 – ----------- 168 416 – 77 162 ----------- 245 578 – – – 10 002 224 8 (2 431 722) (1 655 197) 6 193 653 (543 333) 245 578 21 199 (47 306) Profit for the year 7 570 502 4 538 456 (522 134) 198 272 Other comprehensive income for the year, net of tax – – – – Total comprehensive income for the year 7 570 502 4 538 456 (522 134) 198 272 Attributable to: Owners of the parent Non – controlling interests 7 570 502 – 4 538 456 (522 134) 198 272 – – – Earnings per share (US cents) -Basic -Diluted basic 9 9 0.27 0.27 0.16 0.16 7 570 502 4 538 456 (522 134) 198 272 19 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION as at 31 December 2012 Note GROUP COMPANY 2011 2011 US$ US$ 2012 US$ 2012 US$ EQUITY Share capital Capital reserves Retained earnings Total equity LIABILITIES 10 11 12 78 598 18 084 902 12 778 583 78 598 78 598 16 806 650 15 783 219 15 783 219 293 516 6 486 333 (228 618) 78 598 30 942 083 23 371 581 15 633 199 16 155 333 Deposits and other liabilities Current tax liabilities Deferred tax liabilities 13 8.4 15 195 002 633 588 966 – 142 757 778 1 157 974 – 993 958 – – 129 44 798 7 042 Total liabilities 195 591 599 143 915 752 993 958 51 969 Total equity and liabilities 226 533 682 167 287 333 16 627 157 16 207 302 ASSETS Cash and cash equivalents Current tax asset Investment securities held to maturity Loans, advances and other assets Non-current assets held for sale Investments:- Trade investment Associate Subsidiaries Quoted and other investments Investment properties Property and equipment Deferred tax asset 16 8.4 58 171 045 – 32 265 953 – 51 179 129 95 631 – 14 5 501 963 2 126 657 – – 17 18 19 20 21 22 23 24 15 146 599 994 2 225 300 122 260 663 – 177 486 1 749 172 – – 195 790 1 025 919 – 130 316 3 115 300 8 187 459 1 380 596 190 980 591 667 118 048 2 510 000 6 801 982 421 383 113 277 499 538 109 702 499 538 – 15 609 111 13 722 112 31 147 – – – 34 408 – – 14 157 Total assets 226 533 682 167 287 333 16 627 157 16 207 302 …………………………………….. T N MUNDAWARARA ) ) Directors …………………………………….. J A MUSHORE ) 27 March 2013 20 ………………………….… V MUTANDWA Company Secretary 27 March 2013 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY for the year ended 31 December 2012 GROUP Capital reserves Share Capital US$ Share Premium US$ Share Option Regulatory Reserve US$ Reserve US$ Retained Earnings US$ Total US$ 78 598 15 737 548 45 671 883 414 2 087 894 18 833 125 – – – – – – – 4 538 456 4 538 456 140 017 (140 017) – Balances at 1 January 2011 Total comprehensive income for the year Impairment allowance for loans and advances Balances at 31 December 2011 78 598 15 737 548 45 671 1 023 431 6 486 333 23 371 581 Total comprehensive income for the year Impairment allowance for loans and advances – – – – – – – 7 570 502 7 570 502 1 278 252 (1 278 252) – Balances at 31 December 2012 78 598 15 737 548 45 671 2 301 683 12 778 583 30 942 083 COMPANY Share Share Capital Premium US$ US$ Share Option Reserve US$ Retained /(loss) Earnings US$ Total US$ Balances at 1 January 2011 Total comprehensive income for the year Balances at 31 December 2011 Total comprehensive income for the year 78 598 15 737 548 45 671 95 244 15 957 061 – – – 198 272 198 272 78 598 15 737 548 45 671 293 516 16 155 333 – – – (522 134) (522 134) Balances at 31 December 2012 78 598 15 737 548 45 671 (228 618) 15 633 199 21 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 CONSOLIDATED STATEMENTS OF CASH FLOWS for the year ended 31 December 2012 GROUP COMPANY 2012 US$ 2011 US$ 2012 US$ 2011 US$ 10 002 224 CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before taxation Non-cash items – -Impairment losses on loans and advances 3 985 062 – -Investment properties fair value adjustment (2 538 710) -(Profit)/loss on disposal of property and equipment (725) – -Quoted and other investments fair value adjustment (17 078) (5 689) (6 837) (22 989) – (27 173) -Profit on disposal of quoted and other investments – (27 173) – – -Impairment reversal on land and buildings (77 472) (250 000) – – -Depreciation 756 191 – – -Share of associate’s profit (434 252) (113 573) 2 296 111 40 000 18 046 6 193 653 (543 333) 245 578 1 430 956 – – – Operating cash flows before changes in operating assets and liabilities 12 350 005 8 907 566 (550 170) 195 416 Changes in operating assets and liabilities Deposits and other liabilities 52 244 855 59 601 334 Loans, advances and other assets (28 324 393) (48 936 370) Investment securities held to maturity (3 375 306) (132 072) 993 829 1 571 687 – – 93 190 – Net cash inflow generated from operations 32 895 161 19 440 458 2 015 346 288 606 Taxation Corporate tax paid (note 8.4) (3 959 943) (1 765 544) (223 927) – Capital gains tax paid (2 998) – (400) (2 998) Net cash inflow from operating activities 28 935 218 17 671 916 1 791 419 285 208 CASH FLOWS FROM INVESTING ACTIVITIES – 4 688 Proceeds on disposal of property and equipment – Purchase of property and equipment (2 744 679) (3 568 013) – Improvements to investment property (291 890) – Increase in investment in subsidiary – (1 886 999) – Proceeds from disposal of quoted and other investments Increase in investment in associate – 59 961 – (249 538) 6 443 – 59 961 – (249 538) – – – – Net cash outflow from investing activities (3 030 126) (3 752 902) (1 886 999) (189 577) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares – – – – Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year 25 905 092 13 919 014 (95 580) 95 631 32 265 953 18 346 939 95 631 – Cash and cash equivalents at the end of the year (note 16) 58 171 045 32 265 953 51 95 631 22 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 CONSOLIDATED STATEMENTS OF CASH FLOWS for the year ended 31 December 2012 SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2012 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; • 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; and • 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. 23 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2012 Associates (Cont’d) 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. IAS 28 “Investment in associates” states that investments in associates by venture capital organisations, mutual funds, unit trusts and similar organisations that are classified as available for sale and accounted for in accordance with IAS 39 “Financial instruments: Recognition and Measurement” are exempt from equity accounting. The Group measures such investments at cost. 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 indicated that it might be impaired. Impairment losses on goodwill are not reversed. If the cost of acquisition is less than the fair values of the identifiable net assets acquired, the discount on acquisition is recognised directly in profit or loss in the year of acquisition. FOREIGN CURRENCY TRANSACTIONS The consolidated financial statements are presented in United States Dollars (US$), which is also the parent Company’s functional currency. Transactions in foreign currencies are translated at the foreign exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies, are translated at the closing rate at the reporting date. Non-monetary assets and liabilities measured at historical cost denominated in foreign currencies are translated at the exchange rates ruling at the transaction date. Foreign exchange differences arising on translation are recognised in profit or loss. Non – monetary items measured at fair value in foreign currency are translated using the exchange rates at the date when the fair value was determined. 24 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2012 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. • 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. 25 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2012 SHARE CAPITAL Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax from the proceeds. Dividend distribution Dividend distribution on ordinary shares are recognised in equity in the period in which they are declared by the Company’s directors. 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. 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. 26 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2012 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. (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. 27 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2012 FINANCIAL INSTRUMENTS (Cont’d) Financial instruments – initial recognition and subsequent measurement (Cont’d) (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; • 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. 28 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2012 (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. 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. 29 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2012 (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 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. 30 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2012 (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. 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. 31 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) For the year ended 31 December 2012 (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 value at the repossession date in line with the Group’s policy. 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. 32 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2012 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. 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. 33 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2012 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. 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. As lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned. Impairment of non – financial assets The carrying amounts of the Group’s non- financial assets other than consumables 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 Cash Generating Unit’s (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. 34 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2012 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. 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 at 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. 35 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 SIGNIFICANT ACCOUNTING POLICIES (Cont’d) for the year ended 31 December 2012 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. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash and bank balances, and short term highly liquid investments with maturities of three months or less when purchased. EMPLOYEE BENEFITS Retirement benefits are provided for the Group’s employees through a defined contribution plan and the National Social Security Authority Scheme. Defined Contribution Plan Obligations for contribution to the defined contribution pension plan are recognised as an expense in profit or loss as they are incurred. National Social Security Authority Scheme The cost of retirement benefits applicable to the National Social Security Authority, which commenced operations on 1 October 1994 is determined by the systematic recognition of legislated contributions. INVENTORY Inventory is accounted for at weighted average cost. PROVISIONS Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in profit or loss net of any reimbursements. 36 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2012 1. REPORTING ENTITY The Holding Company is incorporated and domiciled in Zimbabwe and is an investment holding company. Its registered office is 64 Kwame Nkrumah Avenue, Harare. Its principal operating subsidiary is engaged in banking and other companies hold investments. 2. ACCOUNTING CONVENTION Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board. The consolidated financial statements have been prepared in compliance with the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20). The consolidated financial statements were approved by the Board of Directors on 19 March 2013. 2.1 Basis of measurement The consolidated financial statements have been prepared under the historical cost convention except for quoted and other investments, investment properties and financial instruments which are carried at fair value and land, buildings which are stated at revalued amount. These consolidated financial statements are reported in United States of America dollars and rounded to the nearest dollar. 2.2 Basis of consolidation The Group financial results incorporate the financial results of the Company, its subsidiaries and associate company. Subsidiary undertakings are those companies in which the Group, directly or indirectly, has an interest of more than one half of the voting rights and is able to exercise control of the operations. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial results of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, income and expenses; profits and losses resulting from intra-group transactions that are recognised in assets and liabilities are eliminated in full. 2.3 Comparative financial information The consolidated financial statements comprise a consolidated statement of financial position, a consolidated statement of comprehensive income, a consolidated statement of changes in equity and a consolidated statement of cash flows. The comparative consolidated statement of comprehensive income and the consolidated comparative statements of changes in equity and consolidated cash flows are for twelve months. 2.4 Use of estimates and judgements The preparation of consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In the process of applying the Group’s accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the consolidated financial statements: 37 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 2.4.1 Deferred tax liability/(asset) Provision for deferred taxation is made using the liability method in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences arising out of the initial recognition of assets or liabilities and temporary differences on initial recognition of business combinations that affect neither accounting nor taxable profit are not recognised. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. In determining the amounts used for taxation purposes the directors referred to applicable effective exchange rates at the date of acquisition of assets or incurring of liabilities. The Zimbabwe Revenue Authority (ZIMRA), announced methods to account for the deferred tax arising on assets purchased in ZWD. These methods require the preparer to first estimate the equivalent USD value of those assets at the time of purchase. Since the measurement of transactions in Zimbabwe dollars in the 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. 2.4.2 Land and buildings The properties were valued by professional valuers. The valuer applied the rental yield method and comparable market evidence to assess fair value of land and buildings. The determined fair value of land and buildings is most sensitive to the estimated yield as well as the long term vacancy rate. In addition, the property market is currently not stable due to liquidity constraints and hence comparable values are also not stable. 2.4.3 Investment properties and property and equipment Investment properties were valued by professional valuers. The professional valuers considered comparable market evidence of recent sale transactions and those transactions where firm offers had been made but awaiting acceptance. In addition, the property market is currently not stable due to liquidity constraints and hence comparable values are also not stable. The directors exercised their judgment in determining the residual values of the other property and equipment which have been determined as nil. 2.4.4 RBZ Bond The RBZ Bond was valued at cost as there is currently no market information to facilitate the application of fair value principles. There is currently no active market for these bonds. 2.4.5 Impairment losses on loans and advances The Group reviews all loans and advances at each reporting date to assess whether an impairment loss should be recorded in profit or loss. In particular, judgement by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, the Group makes judgements about the borrower’s financial situation and the net realisable value of collateral. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. The collective assessment takes account of data from the loan portfolio (such as credit quality, levels of arrears, credit utilisation, loan to collateral ratios etc.), concentrations of risks and economic data. The impairment loss on loans and advances is disclosed in more detail under note 17.3 below. 38 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 2.4.6 Fair value adjustments of unquoted investments Subject to contractual provisions, the fair value of unquoted investments is established with reference to the net asset value and the earnings capacity of the business. Valuations on the earnings basis is calculated as the sustainable earnings for the entity multiplied by discounted Price Earnings Ratio of a quoted Company with similar operations in a similar environment. The valuation of investment in unlisted companies has been carried in the statement of financial position of the Group based on the audited net asset values of the investee companies. 2.4.7 Going concern The Directors have assessed the ability of the Group to continue operating as a going concern and believe that the preparation of these consolidated financial statements on a going concern basis is still appropriate. 2.5 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2012, and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are stated out below. The Group does not plan to adopt these standards early. (i) IFRS 9 Financial Instruments (2010) and IFRS 9 Financial Instruments (2009)(together IFRS 9) IFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. IFRS 9 (2010) introduces additions relating to financial liabilities. The IASB currently has an active project to make limited amendments to the classification and measurement requirements of IFRS 9 and add new requirements to address the impairment of financial assets and hedge accounting. The IFRS 9 (2009) requirements represent a significant change from the existing requirements in IAS 39 in respect of financial assets. The standard contains two primary measurement categories of financial assets: amortised cost and fair value. A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset’s contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be measured at fair value. The standard eliminates the existing IAS 39 categories of held to maturity, available-for-sale and loans and receivables. For an investment in an equity instrument which is not held for trading, the standard permits an irrevocable election, on initial recognition, on an individual share-by-share basis, to present all fair value changes from the investment in other comprehensive income. No amount recognised in other comprehensive income would ever be reclassified to profit or loss at a later date. However, dividends on such investments are recognised in profit or loss, rather than other comprehensive income unless they clearly represent a partial recovery of the cost of the investment. Investments in equity instruments in respect of which an entity does not elect to present fair value changes in other comprehensive income would be measured at fair value with changes in fair value recognised in profit or loss. The standard requires that derivatives embedded in contracts with a host that is a financial asset within the scope of the standard are not separated; instead the hybrid financial instrument is assessed in its entirely as to whether it should be measured at amortised cost or fair value. 39 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 (i) IFRS 9 Financial Instruments (2010), IFRS 9 Financial Instruments (2009)(Cont’d) IFRS 9 (2010) introduces a new requirement in respect of financial liabilities designated under the fair value option to generally present fair value changes that are attributable to the liability’s credit risk in other comprehensive income rather than in profit or loss. Apart from this change, IFRS 9 (2010) largely carries forward without substantive amendment the guidance on classification and measurement of financial liabilities from IAS 39. IFRS 9 is effective for annual periods beginning on or after 1 January 2015 with early adoption permitted. The IASB decided to consider making limited amendments to IFRS 9 to address practice and other issues. The Group has commenced the process of evaluating the potential effect of this standard but is awaiting finalisation of the limited amendments before the evaluation can be completed. Given the nature of the Group’s operations, this standard is expected to have a pervasive impact on the Group’s financial statements. (ii) Amendments to IFRS 7 and IAS 32 on offsetting financial assets and financial liabilities (2011) Disclosures – Offsetting Financial Assets and Financial Liabilities (amendments to IFRS 7) introduces disclosures about the impact of netting arrangements on an entity’s financial position. The amendments are effective for annual periods beginning on or after 1 January 2013 and interim periods within those annual periods. Based on the new disclosure requirements the Group will have to provide information about what amounts have been offset in the statement of financial position and the nature and extent of rights of set-off under master netting arrangements or similar arrangements. Offsetting Financial Assets and Financial Liabilities (amendments to IAS 32) clarify the offsetting criteria in IAS 32 by explaining when an entity currently has a legally enforceable right to set-off and when gross settlement is equivalent to net settlement. The amendments are effective for annual periods beginning on or after 1 January 2014 and interim periods within those annual periods. Earlier application is permitted. Based on management’s initial assessment, the Group is not expecting a significant impact from the adoption of the amendments to IAS 32. However, the adoption of the amendments to IFRS 7 requires more extensive disclosures about rights of set-off. (iii) IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of interest in Other Entities (2011) IFRS 10 introduces a single control model to determine whether an investee should be consolidated. As a result, the Group may need to change its consolidation conclusion in respect of its investees, which may lead to changes in the current accounting for these investees. IFRS 11 is not expected to have any impact on the Group because the Group does not have interests in joint ventures. IFRS 12 brings together into a single standard all the disclosure requirements about an entity’s interests in subsidiaries, joint arrangements, associates and risks and financial effects of these interests. The Group is currently assessing the disclosure requirement for interests in subsidiaries and unconsolidated structured entities in comparison with the existing disclosures. These standards are effective for annual periods beginning on or after 1 January 2013 with early adoption permitted. 40 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 (i) IFRS 13 Fair Value Measurement IFRS 13 provides a single source of guidance on how fair value is measured, and replaces the fair value measurement guidance that is currently dispersed throughout IFRS. Subject to limited exceptions, IFRS 13 is applied when fair value measurements or disclosures are required or permitted by other IFRSs. The Group is currently reviewing its methodologies for determining fair values. Although many of the IFRS 13 disclosure requirements regarding financial assets and financial liabilities are already required, the adoption of IFRS 13 will require the Group to provide additional disclosures. These includes fair value hierarchy disclosures for non- financial assets/liabilities and disclosures on fair value measurements that are categorised in Level 3. IFRS 13 is effective for annual periods beginning on or after 1 January 2013 with early adoption permitted. (ii) IAS 19 Employee Benefits (2011) IAS 19 (2011) changes the definition of short-term and other long-term employee benefits to clarify the distinction between the two. For defined benefit plans, removal of accounting policy choice for recognition of actuarial gains and losses will not have any impact on the Group. However, the group may need to assess the impact of the change in measurement principles of the expected return on plan assets. IAS 19 (2011) is effective for annual periods beginning on or after 1 January 2013 with early adoption permitted. 2. SEGMENT INFORMATION For management purposes, the Group is organised into four operating segments based on products and services as follows: Retail banking - Individual customers 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 2012 or 2011. 41 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 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 2012 Income Third party Impairment losses on Retail Corporate International in Investment Banking Banking Treasury Banking Associate Unallocated US$ US$ US$ US$ US$ US$ Total US$ 17 420 843 20 054 690 2 806 291 1 441 235 loans and advances (631 814) (3 353 248) – – Net operating income 16 789 029 16 701 442 2 806 291 1 441 235 Results Interest income Interest expense 6 178 887 19 669 296 1 695 601 (1 921 638) (7 335 899) (792 466) Net interest income 4 257 249 12 333 397 903 135 Share of profit of associate – – – – – – – – – – – – – 434 252 3 766 943 45 490 003 – (3 985 062) 3 766 943 41 504 941 – – – – – 27 543 784 (10 050 003) 17 493 781 434 252 13 038 151 Fee and commission income 11 136 085 450 746 – 1 429 285 22 036 Depreciation of property and equipment 615 387 127 980 20 727 27 064 – 639 798 1 430 956 Segment profit/ (loss) 4 885 798 7 907 300 2 431 151 416 494 434 252 (5 072 771) 10 002 224 Income tax expense – – – – (2 431 722) (2 431 722) Profit/(loss) for the year 4 885 798 7 907 300 2 431 151 416 494 434 252 (7 504 493) 7 570 502 Assets and liabilities Capital expenditure 974 520 107 131 450 160 829 Total assets 41 315 622 116 785 290 48 849 157 Total liabilities and equity 75 893 282 76 327 413 40 146 035 160 829 – – – – 1 501 749 2 744 679 19 422 784 226 533 682 34 166 957 226 533 682 42 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 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 Income Third party Impairment losses Retail Corporate International in Investment Banking Banking Treasury Banking Associate Unallocated US$ US$ US$ US$ US$ US$ Total US$ 12 122 517 17 608 301 2 521 784 1 190 962 on loans and advances (284 178) (2 011 933) – – Net operating income 11 838 339 15 596 368 2 521 784 1 190 962 Results Interest income Interest expense 6 344 950 14 772 128 1 232 055 (1 496 919) (6 078 341) (681 994) Net interest income 4 848 031 8 693 787 550 061 Share of profit of associate – – – – – – – Fee and commission income 5 777 114 3 040 821 – 1 190 962 Depreciation of property and equipment 323 115 63 296 7 075 11 582 – – – – – – 307 724 33 751 288 – (2 296 111) 307 724 31 455 177 168 055 – 22 517 188 (8 257 254) 168 055 14 259 934 113 573 – 113 573 – – (204 643) 9 804 254 351 123 756 191 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) (1 655 197) Profit/(loss) for the year 3 141 886 7 926 550 1 224 334 340 776 113 573 (8 208 663) 4 538 456 Assets and liabilities Capital expenditure 1 618 558 157 634 78 298 Total assets Total liabilities and equity 37 333 931 23 340 594 99 879 097 14 815 783 51 995 615 63 092 803 49 038 49 038 - - 1 664 485 3 568 013 591 667 - 14 617 817 28 858 321 167 287 333 167 287 333 43 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 4. INTEREST INCOME Loans and advances to banks Loans and advances to customers Investment securities Other 5. INTEREST AND SIMILAR EXPENSE Due to banks Due to customers Other borrowed funds GROUP COMPANY 2012 US$ 2011 US$ 2012 US$ 2011 US$ 1 448 696 25 554 697 246 905 293 486 27 543 784 1 097 573 21 089 867 134 480 195 268 22 517 188 – – – 240 740 240 740 – – – 168 416 168 416 3 168 308 6 731 855 149 840 10 050 003 2 750 670 5 505 989 595 8 257 254 6. NON-INTEREST INCOME AND NET FOREIGN EXCHANGE GAINS 6.1 Non – interest income Quoted and other investments fair value adjustments Commission and fee income Profit/(loss) on disposal of property 17 078 13 016 115 5 689 9 804 254 6 837 – 22 989 – and equipment 725 (18 046) Fair value adjustment on investment properties 2 538 710 (40 000) – – – – Profit on disposal of quoted and other investments Other operating income 6.2 Net foreign exchange gains – 37 002 15 609 630 27 173 51 728 9 830 798 – 6 423 13 260 27 173 27 000 77 162 Net foreign exchange gains 1 902 237 1 289 729 Net foreign exchange income includes gains and losses from foreign currency switches. 44 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 7. OPERATING EXPENDITURE The operating profit is after charging the following:- Administration costs Audit fees: – Current year – Prior year Impairment reversal on land and buildings Depreciation Directors’ remuneration – Fees for services as directors – Other emoluments Staff costs – salaries, allowances and related costs 8. TAXATION Income tax expense 8.1 Current tax Aids levy Capital gains tax Deferred tax (note 15) 8.2 Reconciliation of income tax charge Based on results for the period at a rate of 25.75% Arising due to: Income not subject to tax Non-deductible expenses Tax rate differential on capital gains 8.3 Total taxation charge/ (credit) analysed by company Stewart Holdings (Private) Limited NMB Bank Limited NMBZ Holdings Limited GROUP COMPANY 2012 US$ 2011 US$ 2012 US$ 2011 US$ 9 540 865 8 599 112 51 885 199 356 (77 472) 1 430 956 1 734 980 64 990 1 669 990 31 290 120 225 (250 000) 756 191 1 506 630 47 520 1 459 110 – – – – – – – – 8 572 144 21 452 714 6 240 822 17 004 270 797 333 797 333 – – – – – – – – – – 3 292 170 98 765 – (959 213) 2 431 722 2 215 095 66 453 2 998 (629 349) 1 655 197 – – – (21 199) (21 199) 43 495 1 304 2 998 (491) 47 306 2 575 573 1 594 866 (139 908) 63 236 – 385 258 (529 110) 2 431 722 (45) 65 811 (5 435) 1 655 197 – 118 760 (51) (21 199) (12 477) 1 982 (5 435) 47 306 598 2 452 323 (21 199) 2 431 722 (1 024) 1 574 148 82 073 1 655 197 – – (21 199) (21 199) 8.4 Current tax liabilities (income tax and aids levy) At 1 January Charge for the year Payments during the year 1 157 974 3 390 935 (3 959 943) 588 966 641 969 2 281 549 (1 765 544) 1 157 974 44 798 – (223 927) (179 129) – – 47 306 47 306 400 44 798 (400) 44 798 45 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 9. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary equity holders of NMBZ Holdings Limited by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by dividing the profit attributable to ordinary equity holders of NMBZ Holdings Limited adjusted for the after tax effect of: (a) any dividends or other items related to dilutive potential ordinary shares deducted in arriving at profit or loss attributable to ordinary equity holders of the parent entity; (b) any interest recognised in the period related to dilute potential ordinary shares; (c) any other changes in income or expense that would result from the conversion of the dilutive potential ordinary shares, by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. 9.1 Earnings 2012 US$ 2011 US$ Attributable earnings 7 570 502 4 538 456 9.2 Number of shares Weighted average number of 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 earnings per share Diluted earnings per share 10. SHARE CAPITAL 2 807 107 289 2 807 107 289 2 817 850 158 2 817 850 158 2 807 107 289 2 807 107 289 9 072 000 1 670 869 9 072 000 1 670 869 2 817 850 158 2 817 850 158 0.27 0.27 0.16 0.16 2012 Shares million GROUP AND COMPANY 2011 2012 Shares million US$ 2011 US$ 10.1 Authorised Ordinary shares of US$0.000028 each 3 500 3 500 98 000 98 000 10.2 Issued and fully paid At 1 January 2 807 2 807 78 598 78 598 Shares issued At 31 December – 2 807 – 2 807 – – 78 598 78 598 46 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 10. SHARE CAPITAL (cont’d) Of the unissued ordinary shares of 692 892 711 (2011– 692 892 711), options which may be granted in terms of the NMBZ 2005 Employee Share Option Scheme (ESOS) amounted to 85 360 962 (2011 – 85 360 962) and out of these 1 670 869 (2011 – 1 670 869) had not been issued. The unissued shares will expire and not be carried over to the new scheme. As at 31 December 2012, 9 072 000 (2011 – 9 072 000) share options out of the issued shares had not been exercised. Share options which may be granted in terms of the 2012 ESOS amount to 280 710 729 and allocations in terms of the scheme will only commence in 2013. Subject to the provisions of section 183 of the Companies Act (Chapter 24:03), the unissued shares are under the control of the directors. 11. CAPITAL RESERVES GROUP 2012 US$ COMPANY 2011 US$ 2012 US$ 2011 US$ Share premium Share option reserve Regulatory reserve 15 737 548 45 671 2 301 683 15 737 548 45 671 1 023 431 15 737 548 45 671 – 15 737 548 45 671 – Total capital reserves 18 084 902 16 806 650 15 783 219 15 783 219 Nature and purpose of reserves Share premium This reserve represents the excess amount paid for the shares over and above the nominal value of the shares. 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 33.3 for further details of these plans. 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. 12. RETAINED EARNINGS GROUP COMPANY 2012 US$ 2011 US$ 2012 US$ 2011 US$ Analysis of retained profit by company NMBZ Holdings Limited NMB Bank Limited Stewart Holdings (Private) Limited 268 522 12 487 547 22 514 356 400 6 116 397 13 536 (228 618) – – 293 516 – – Total 12 778 583 6 486 333 (228 618) 293 516 47 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 GROUP COMPANY 2011 US$ 2012 US$ 2012 US$ 2011 US$ 13. DEPOSITS AND OTHER LIABILITIES 13.1 Deposits and other liabilities by type Deposits from other banks and other financial institutions Current and deposit accounts* from customers Total deposits Trade and other payables* 38 969 071 43 009 970 – 152 452 995 191 422 066 3 580 567 195 002 633 96 216 174 139 226 144 3 531 634 142 757 778 – – 993 958 993 958 *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 13.3 Sectoral analysis of deposits Banks and other financial institutions Transport and telecommunications Agriculture Mining Manufacturing Distribution Services Individuals Municipalities and parastatals Other deposits 159 048 090 8 388 210 5 686 674 1 675 259 16 623 833 – 191 422 066 105 423 635 17 727 720 13 874 789 2 200 000 – – 139 226 144 2012 US$ 38 969 071 6 040 981 9 085 971 3 221 341 23 888 559 17 912 925 28 199 595 29 115 145 18 768 175 16 220 303 191 422 066 GROUP % 2011 US$ 20 3 5 2 12 9 15 15 10 9 43 009 970 5 297 087 3 180 921 1 144 080 16 811 439 8 046 243 13 678 483 21 438 755 19 879 203 6 739 963 100 139 226 144 – – – 129 129 % 31 4 2 1 12 6 10 15 14 5 100 48 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 14. FINANCIAL INSTRUMENTS 14.1 Investment securities held to maturity GROUP Carrying Amount 2012 US$ Fair Value 2012 US$ Carrying Amount 2011 US$ Fair Value 2011 US$ Government and public sector securities RBZ Bond (1) Investment securities held to maturity 5 501 963 5 501 963 5 501 963 5 501 963 5 501 963 5 501 963 2 126 657 2 126 657 2 126 657 2 126 657 2 126 657 2 126 657 (1) Investment securities held to maturity were classified as such in accordance with IAS 39. The RBZ Bond is valued at cost as there is no market information to facilitate application of fair value principles. 14.2 Maturity analysis of investment securities held to maturity Less than one month 1 to 3 months 3 to 6 months 6 months to 1 year 1 year to 5 years Over 5 years GROUP 2012 US$ – – 2 271 949 969 004 2 261 010 – 5 501 963 2011 US$ – – – 2 126 657 – – 2 126 657 49 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 14.3 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. GROUP Financial assets Cash and cash equivalents Investment securities held to maturity Advances and other assets Trade investments Quoted and other investments Total Financial liabilities Deposits and other liabilities Carrying Amount 2012 US$ 58 171 045 5 501 963 146 599 994 195 790 130 316 210 599 108 Fair value 2012 US$ Fair value 2011 US$ Carrying amount 2011 US$ 58 171 043 5 501 963 32 265 953 2 126 657 146 599 994 122 260 663 190 980 118 048 210 599 108 156 962 301 195 790 130 316 32 265 953 2 126 657 122 260 663 190 980 118 048 156 962 301 195 002 633 195 002 633 195 002 633 142 757 778 195 002 633 142 757 778 142 757 778 142 757 77 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 2012, 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. 50 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 14.3 Other financial assets and financial liabilities summary (cont’d) Assets measured at fair value GROUP 31 Dec 2012 US$ Level 1 US$ Level 2 US$ Level 3 US$ Trade investments Quoted investments 195 790 130 316 – 130 316 – – 195 790 – During the reporting year ended 31 December 2012, 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. GROUP 31 Dec 2011 US$ Level 1 US$ Level 2 US$ Level 3 US$ Trade investments Quoted investments 190 980 118 048 – 118 048 – – 190 980 – During the year ended 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. 15. DEFERRED TAX GROUP COMPANY Allowance for impairment losses on loans and advances Quoted and other investments Investments:-Trade investments Non-current assets held for sale Investment properties Property and equipment Marking to market adjustments Unrealised foreign exchange gains Suspended interest Deferred income Assessed losses Closing deferred tax (asset)/liability Deferred tax (asset)/liability at the beginning of the year Current year credit (note 8.1) 2012 US$ 2011 US$ 2012 US$ (1 871 973) 10 640 5 664 111 265 142 387 424 649 (45 583) 321 153 (145 613) (308 840) (24 345) (863 678) 7 014 5 485 – 129 493 412 667 33 514 332 105 (269 862) (208 121) – – 1 720 5 664 – – – – – – – (21 541) 2011 US$ – 1 557 5 485 – – – – – – – – (1 380 596) (421 383) (14 157) 7 042 (421 383) (959 213) 207 966 (629 349) 7 042 (21 199) (7 533) (491) 51 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 16. CASH AND CASH EQUIVALENTS GROUP COMPANY 2012 US$ 2011 US$ 2012 US$ 2011 US$ 16.1 Balances with Reserve Bank of Zimbabwe Balances with the Central Bank 22 671 712 12 255 166 – – 16.2 Balances with other banks and cash Current, nostro accounts and cash Interbank placements 14 999 333 20 500 000 58 171 045 13 231 912 6 778 875 32 265 953 51 – 51 95 631 – 95 631 17. LOANS, ADVANCES AND OTHER ASSETS 17.1 Total loans, advances and other assets 17.1.1 Advances Fixed term loans Local loans and overdrafts 57 124 283 86 823 914 36 116 550 79 078 001 143 948 197 115 194 551 – – – – – – Statutory reserves* Other assets – 2 651 797 3 231 838 3 834 274 146 599 994 122 260 663 – 177 486 177 486 – 1 749 172 1 749 172 *The statutory reserves balance with the Reserve Bank of Zimbabwe was non-interest bearing. The balance was determined on the basis of deposits held and was not available to the bank for daily use. The balances owed to banks were converted to tradable interest bearing instruments on 16 February 2012. The amount was reclassified to Investment securities held to maturity (note 14). 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 92 386 313 19 352 134 3 271 119 4 968 635 32 439 174 – 75 306 517 20 829 309 2 423 418 2 875 529 18 161 873 – Total advances 152 417 375 119 596 646 Allowance for impairment losses on loans and advances Provision for suspended interest (7 269 799) (1 199 379) 143 948 197 (3 354 088) (1 048 007) 115 194 551 – – – – – – – – – – – – – – – – – – Statutory reserves Other assets (note 17.5) – 2 651 797 146 599 994 3 231 838 3 834 274 122 260 663 – 177 486 177 486 – 1 749 172 1 749 172 52 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 17.2 Sectoral analysis of utilisations Manufacturing Distribution Agriculture and horticulture Conglomerates Services Mining Food & beverages Individuals 2012 US$ GROUP % 2011 US$ 29 008 475 46 673 432 9 894 729 4 683 682 30 216 258 1 347 402 214 163 30 379 234 152 417 375 19 31 6 3 20 1 – 20 26 977 166 33 713 556 9 121 606 4 700 752 17 076 201 3 856 637 5 747 287 18 403 441 100 119 596 646 % 23 28 8 4 14 3 5 15 100 The material concentration of loans and advances are in the distribution sector at 31% (2011 – 28%). 17.3 Allowance for impairment losses on loans and advances GROUP Specific US$ 2012 Portfolio US$ Total US$ Specific US$ 2011 Portfolio US$ Total US$ At 1 January Charge against profits Bad debts written off 3 354 088 3 879 327 (69 351) – 105 735 – 3 354 088 3 985 062 (69 351) 1 057 977 2 296 111 – – 1 057 977 – 2 296 111 – – At 31 December 7 164 064 105 735 7 269 799 3 354 088 – 3 354 088 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 2012 US$ 2011 US$ 23 996 312 (7 164 064) (1 199 379) 15 632 869 10 294 437 (3 354 088) (1 048 007) 5 892 342 The residue on these accounts represents recoverable portions covered by realisable security which includes guarantees, cessation of debtors, mortgages over residential properties, equities and promissory notes all fair valued at US$15 916 654 (2011– US$4 142 500). 17.5 Other assets Service deposits Prepayments and stocks Other receivables GROUP 2012 US$ 552 875 1 793 025 305 897 2 651 797 2011 US$ 183 909 1 029 791 2 620 574 3 834 274 COMPANY 2012 US$ – – 177 486 177 486 2011 US$ – – 1 749 172 1 749 172 53 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 17.6 Loans to officers Included in advances and other accounts (note 17.1) are loans to officers: At 1 January Net additions during the year Fair value adjustment Balance at 31 December GROUP 2012 US$ 2011 US$ 1 055 223 1 001 278 2 056 501 (177 022) 1 879 479 786 221 355 154 1 141 375 (86 152) 1 055 223 Of which housing loans comprised: – – Loans to officers are granted at a preferential rate of 6% per annum as part of their overall remuneration agreements. 17.7 The terms and conditions applicable to advances are as follows: Overdraft Tenure Payable on demand Loans Loan payable over a maximum period of 24 months Bankers Acceptances Loan payable over a minimum period of 30 days 18. NON-CURRENT ASSETS HELD FOR SALE Interest rate Minimum lending rate plus a margin on unauthorised facility Minimum lending rate plus a margin. Loans to employees and directors are at discounted interest rates. Average rate of 19.5% per annum. GROUP COMPANY 2012 US$ 2011 US$ 2012 US$ 2011 US$ Investment property 2 225 300 – – – The Group is in possession of land with a fair value of US$2 225 300 at year end. During the last quarter of 2012 management decided to sell the property and have identified interested buyers. The disposal process is expected to be completed in May 2013. The disposal will improve the Group’s cashflows. The fair value adjustment on recognition as non-current asset held for sale is included under non-interest income (note 6). 54 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 19. TRADE INVESTMENTS Unlisted Other GROUP COMPANY 2012 US$ 2011 US$ 2012 US$ 2011 US$ 195 790 195 790 190 980 190 980 113 277 113 277 109 702 109 702 Directors’ valuation 195 790 190 980 113 277 109 702 Other investments represents equity investments in SWIFT and Medical Investments (Private) Limited t/a Avenues Clinic. The trade investment was valued by directors at fair value at 31 December 2012. 20. INVESTMENT IN ASSOCIATE The Group has a 24.79% interest in African Century Limited, which is involved in the provision of lease finance. African Century Limited is a company that is not listed on any public exchange. The following table illustrates summarised audited financial information of the Group’s investment in African Century Limited. Share of the associate’s statement of financial position: Current assets Non-current assets Current liabilities Non – current liabilities Equity 5 036 603 56 750 (457 427) (3 610 007) 1 025 919 2 831 891 68 577 (133 823) (2 174 978) 591 667 Share of the associate’s revenue and profit Revenue Profit 904 446 571 617 434 252 113 573 – – – – – - - – – – – – - - Carrying amount of the investment 1 025 919 591 667 499 538 499 538 Reconciliation of carrying amount of investment in Associate: Balance at 1 January Increase in investment Share of profit in associate 591 667 - 434 252 228 556 249 538 113 573 499 538 - - 250 000 249 538 - Balance at 31 December 1 025 919 591 667 499 538 499 538 55 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 21. INVESTMENTS IN GROUP COMPANIES 21.1 Subsidiaries Investments in subsidiaries: NMB Bank Limited Stewart Holdings Limited 21.2 Shareholding COMPANY 2012 US$ 2011 US$ 15 594 431 14 680 15 609 111 13 707 432 14 680 13 722 112 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:- 2012 2011 NMB Bank Limited Brixtun (Private) Limited NMB Fund Management (Private) Limited Stewart Holdings (Private) Limited Invariant (Private) Limited Darksan (Private) Limited African Century Limited 100% (Banking) 100% (Dormant) 100% (Dormant) 100% (Equity holdings) 100% (Dormant) 100% (Dormant) 24.79% (Leasing) 100% (Banking) 100% (Dormant) 100% (Dormant) 100% (Equity Holdings) 100% (Dormant) 100% (Dormant) 25% (Leasing) The consolidated financial statements include the financial statements and results of the subsidiaries and associates listed above. 22. QUOTED AND OTHER INVESTMENTS GROUP COMPANY 2011 US$ 2012 US$ 2012 US$ 2011 US$ Quoted investments 130 316 118 048 34 408 31 147 The quoted investments comprise shares stated for year-end purposes at the last trading date of 31 December 2012. 23. INVESTMENT PROPERTIES At 1 January Improvements Fair value adjustments Net transfer to property and equipment Transfer to Non-current assets held for sale At 31 December 2 510 000 291 890 2 538 710 – 2 615 000 – (40 000) (65 000) (2 225 300) 3 115 300 – 2 510 000 56 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 23. INVESTMENT PROPERTIES (cont’d) The fair value of the Group’s investment properties as at 31 December 2012 has been arrived at on the basis of valuations carried out by independent professional valuers, PMA Real Estate (Private) Limited. The valuation which conforms to International Valuation Standards, was in terms of the policy as set out in the accounting policies section and was derived with reference to market information close to the date of the valuation. The values were arrived at by applying yield rates of between 9% – 11% on rental levels of between $5 – $8 per square metre. The properties are leased out under operating lease to various tenants. The Group has no restrictions on the realisability of all investment properties and no contractual obligations to purchase, construct or develop the investment properties or for repairs, maintenance and enhancements. Rental income amounting to US$12 408 (2011 – US$6 600) was received and no operating expenses were incurred on the investment properties in the current year due to the net leasing arrangement on the properties. 57 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 24. PROPERTY AND EQUIPMENT Motor Furniture & Vehicles US$ Computers US$ GROUP Freehold Land & Equipment US$ Building US$ Total U S $ Cost At 1 January 2011 Additions Revaluation gain Disposals Reclassification Transfer from Investment property At 1 January 2012 Additions Revaluation gain Reclassifications Disposals At 31 December 2012 Accumulated depreciation At 1 January 2011 Charge for the year Disposals Reclassifications At 1 January 2012 Charge for the year Reclassifications Disposals 717 599 818 939 – (27 930) 15 663 220 119 1 564 286 – (17 890) – 1 389 505 1 176 536 – (71 677) (15 663) 2 415 000 8 252 250 000 – – 4 742 223 3 568 013 250 000 (117 497) – – – – 65 000 65 000 1 524 271 920 559 – 251 703 – 2 696 533 1 766 515 1 556 092 – – (250) 3 322 357 2 478 701 268 028 – (251 703) (10 825) 2 484 201 2 738 252 – 77 472 – – 2 815 724 8 507 739 2 744 679 77 472 – (11 075) 11 318 815 317 306 178 694 (29 157) 3 133 469 976 310 381 65 826 – 77 024 256 817 (10 640) – 323 201 662 445 – (250) 649 931 320 456 (54 967) (3 133) 912 287 412 700 (65 826) (5 107) 69 224 – – 293 45 430 – – 1 044 330 756 191 (94 764) – 1 705 757 1 430 956 – (5 357) At 31 December 2012 846 183 985 396 1 254 054 45 723 3 131 356 Net book amount At 31 December 2012 1 850 350 2 336 961 1 230 147 2 770 001 8 187 459 At 1 January 2012 1 054 295 1 443 314 1 566 414 2 737 959 6 801 982 At 1 January 2011 400 293 143 095 739 574 2 414 931 3 697 893 58 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 24. PROPERTY AND EQUIPMENT (cont’d) Immovable properties were revalued as at 31 December 2012 on the basis of valuations carried out by independent professional valuers, PMA Real Estate (Private) Limited. The valuation which conforms to International Valuation Standards, was in terms of the policy as set out in the accounting policies section. All movable assets are carried at their carrying amounts which are arrived at by the application of a depreciation charge on their cost values over the useful lives of the assets. The valuation of land and buildings was arrived by applying yield rates of between 9% - 11% on rental levels of between $5 – $8 per square metre. It has not been possible to fully comply with the requirements of International Accounting Standards (IAS16: Property, Plant and Equipment), as regards disclosure of the carrying cost less accumulated depreciation of properties had revaluations not been performed. This information is not material in the context of the Group financial statements. 59 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 25. INTEREST RATE REPRICING AND GAP ANALYSIS The table below analyses the Group’s interest rate risk exposure on assets and liabilities. The financial assets and liabilities are categorised by the earlier of contractual repricing or maturity dates. 25.1 Total position At 31 December 2012 Assets Cash and cash equivalents Investment securities held to maturity Investment in associate Quoted and other investments Loans, advances and other assets Non-current assets held for sale Property, plant and equipment Investment properties Deferred tax Liabilities and equity Deposits and other liabilities Current tax liabilities Equity Interest rate repricing gap Up to 1 1 month month to 3 months US$ US$ GROUP 3 months to 1 year US$ 1 year to Non-interest bearing 5 years US$ US$ Total US$ 58 171 045 – – – – – – – – – – 58 171 045 3 240 953 2 261 010 – – – 1 025 919 5 501 963 1 025 919 – – 326 106 326 106 83 917 136 19 352 134 8 239 754 32 439 173 2 651 797 146 599 994 – – – – 2 225 300 2 225 300 – – – 142 088 181 19 352 134 11 480 707 34 700 183 – – – – – – – – – 8 187 459 3 115 300 1 380 596 8 187 459 3 115 300 1 380 596 18 912 477 226 533 682 159 048 090 – – 159 048 090 8 388 210 – – 8 388 210 7 361 933 16 623 833 – – 7 361 933 16 623 833 – – 3 580 567 195 002 633 588 966 588 966 30 942 083 30 942 083 35 111 616 226 533 682 (16 959 909) 10 963 924 4 118 774 18 076 350 (16 199 130) Cumulative gap (16 959 909) (5 995 985) (1 877 211) 16 199 139 – 60 – – NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 25.1 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 date. At 31 December 2011 GROUP Up to 1 1 month month to 3 months US$ US$ 3 months to 1 year US$ 1 year to 5 years US$ Non-interest bearing US$ Total US$ Assets Cash and cash equivalents Investment securities held to maturity Investment in associate Quoted and other investments Loans, advances and other assets Property, plant and equipment Investment properties Deferred tax Liabilities and equity Deposits and other liabilities Current tax liabilities Equity Interest rate repricing gap 32 265 953 – – – – – – – – 2 126 657 – – – – – – – 32 265 953 – 591 667 2 126 657 591 667 309 028 309 028 72 381 881 20 345 346 5 128 510 17 338 815 7 066 111 122 260 663 – – – – – – 104 647 834 20 345 346 – – – 7 255 167 17 338 815 – – – 6 801 982 2 510 000 421 383 6 801 982 2 510 000 421 383 17 700 171 167 287 333 105 423 635 17 727 720 16 074 789 – – 105 423 635 17 727 720 16 074 789 – – – – – – – – 3 531 634 142 757 778 1 157 974 1 157 974 23 371 581 23 371 581 28 061 189 167 287 333 (775 801) 2 617 626 (8 819 622) 17 338 815 (10 361 018) Cumulative gap (775 801) 1 841 825 (6 977 797) 10 361 018 – – – 61 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 26. 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. 26.1. United States dollar At 31 December 2012 Up to 1 1 month month to 3 months US$ US$ GROUP 3 months 1 year to Non-interest bearing 5 years to 1 year US$ US$ US$ Total US$ Assets Cash and cash equivalents Investment securities held to maturity Investment in associate Quoted and other investments Loans, advances and other assets Non-current assets held for sale Property, plant and equipment Investment properties Deferred tax Liabilities and equity Deposits and other liabilities Current tax liabilities Equity Interest rate repricing gap 54 256 160 – – – – – – – – – – 54 256 160 3 240 953 2 261 010 – – – 1 025 919 5 501 963 1 025 919 – – 243 593 243 593 83 736 075 19 352 134 8 239 754 32 439 173 2 651 797 146 418 933 – – – – 2 225 300 2 225 300 8 187 459 – 3 115 300 – 1 380 596 – 137 992 235 19 352 134 11 480 707 34 700 183 18 329 964 222 355 223 8 187 459 3 115 300 1 380 596 – – – – – – – – – 155 270 761 – – 155 270 761 8 388 210 – – 8 388 210 3 580 567 191 225 304 7 361 933 16 623 833 – 588 966 – 30 942 083 30 942 083 7 361 933 16 623 833 35 111 616 222 756 353 588 966 – – (17 278 526) 10 963 924 4 118 774 18 076 350 (16 281 652) (401 130) Cumulative gap (17 278 526) (6 314 602) (2 195 828) 15 880 522 (401 130) – 62 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 26. 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. 26.1 United States dollar At 31 December 2011 Assets Cash and cash equivalents Investment securities held to maturity Investment in associate Quoted and other investments Loans, advances and other assets Property, plant and equipment Investment properties Deferred tax Liabilities and equity Deposits and other liabilities Current tax liabilities Equity Interest rate repricing gap Up to 1 1 month month to 3 months US$ US$ GROUP 3 months 1 year to Non-interest bearing 5 years to 1 year US$ US$ US$ Total US$ 28 035 809 – – – – – – 2 126 657 – – – – – – – – – 28 035 809 – 591 667 2 126 657 591 667 227 750 227 750 71 944 721 20 345 346 5 128 510 17 338 815 7 066 111 121 823 503 6 801 982 2 510 000 421 383 99 980 530 20 345 346 7 255 167 17 338 815 17 618 893 162 538 751 6 801 982 2 510 000 421 383 – – – – – – – - – – - – 101 387 356 17 582 458 16 074 789 – – 101 387 356 17 582 458 16 074 789 – – – – 3 531 634 138 576 237 – 1 157 974 1 157 974 – – 23 371 581 23 371 581 – 28 061 189 163 105 792 (1 406 826) 2 762 888 (8 819 622) 17 338 815 (10 442 296) (567 041) Cumulative gap (1 406 826) 1 356 062 (7 463 560) 9 875 255 (567 041) – 63 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 27. INTEREST RATE REPRICING AND GAP ANALYSIS The table below analyses the Group’s interest rate risk exposure on assets and liabilities denominated in currencies other than United States Dollars. The amounts are shown at the equivalent values in United States Dollars, the presentation currency. The financial assets and liabilities are categorised by the earlier of contractual repricing or maturity dates. 27.1. Other foreign currencies At 31 December 2012 Up to 1 1 month month to 3 months US$ US$ GROUP 3 months 1 year to Non-interest bearing 5 years to 1 year US$ US$ US$ Total US$ Assets Cash and cash equivalents Investment securities held to maturity Quoted and other investments Loans, advances and other assets Liabilities and equity Deposits and other liabilities 3 914 885 – – 181 061 4 095 946 3 777 329 3 777 329 Interest rate repricing gap 318 617 – – – – – – – – – – – – – – – – – – – – – – – – – – 3 914 885 – 82 513 82 513 – 82 513 181 061 4 178 459 – – 3 777 329 3 777 329 82 513 401 130 Cumulative gap 318 617 318 617 318 617 318 617 401 130 – 64 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 28. INTEREST RATE REPRICING AND GAP ANALYSIS The table below analyses the Group’s interest rate risk exposure on assets and liabilities denominated in currencies other than United States Dollars. The amounts are shown at the equivalent values in United States Dollars, the presentation currency. The financial assets and liabilities are categorised by the earlier of contractual repricing or maturity dates. 28.1 Other Foreign currencies At 31 December 2011 Up to 1 1 month month to 3 months US$ US$ GROUP 3 months 1 year to Non-interest bearing 5 years to 1 year US$ US$ US$ Total US$ Assets Cash and cash equivalents Investment securities held to maturity Investment in associate Quoted and other investments Loans, advances and other assets Liabilities and equity Financial liabilities at fair value through profit and loss Deposits and other liabilities 4 230 144 – – – 437 160 4 667 304 – – – – – – – – 4 036 279 4 036 279 145 262 145 262 – – – – – – – – – Interest rate repricing gap 631 025 – (145 262) – – – – – – – – – – – – – 4 230 144 – – 81 278 81 278 – 81 278 437 160 4 748 582 – – – – 4 181 541 4 181 541 81 278 567 041 Cumulative gap 631 025 485 763 485 763 485 763 567 041 – 65 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 28. 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. 28.1 At 31 December 2012 Assets Cash and cash equivalents Investment securities held to maturity Investment in associate Quoted and other investments Loans, advances and other assets Non-current assets held for sale Property, plant and equipment Investment properties Deferred tax Liabilities and equity Deposits and other liabilities Current tax liabilities Equity Net foreign exchange Position GROUP US$ US$ RAND US$ GBP US$ EUR US$ BWP US$ TOTAL US$ 54 256 160 2 363 652 62 750 1 466 870 21 613 58 171 045 5 501 963 1 025 919 243 593 – – – – – – – – 82 513 – – – 5 501 963 1 025 919 326 106 146 418 933 173 952 2 742 1 213 3 154 146 599 994 2 225 300 – – – – 2 225 300 8 187 459 3 115 300 1 380 596 222 355 223 – – – 2 537 604 – – – – – – 65 492 1 550 596 – – – 8 187 459 3 115 300 1 380 596 24 967 226 533 682 191 225 304 588 966 30 942 083 222 756 353 2 483 554 – – 2 483 554 48 090 1 239 777 – – 48 090 1 239 777 – – 5 908 195 002 633 – 588 966 – 30 942 083 5 908 226 533 682 (401 130) 54 050 17 402 310 819 18 859 – 66 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 28. 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. 28.1 At 31 December 2011 GROUP US$ US$ RAND US$ GBP US$ EUR US$ BWP US$ TOTAL US$ 28 035 808 2 708 277 (5 017) 1 504 542 22 343 32 265 953 2 126 657 591 667 227 750 – – – – – – – – 81 278 – – – 2 126 657 591 667 309 028 Assets Cash and cash equivalents Investment securities held to maturity Investment in associate Quoted and other investments Advances and other accounts 121 823 504 329 273 7 455 95 045 5 386 122 260 663 Property, plant and equipment Investment properties Deferred tax Liabilities and equity Deposits and other liabilities Current tax liabilities Equity Net foreign exchange 6 801 982 2 510 000 421 383 162 538 751 – – – 3 037 550 – – – – – – 2 438 1 680 865 – – – 27 729 6 801 982 2 510 000 421 383 167 287 333 138 576 237 1 157 974 23 371 581 163 105 792 2 371 994 – – 2 371 994 17 830 1 774 704 – – 17 830 1 774 704 – – 17 013 – – 17 013 142 757 778 1 157 974 23 371 581 167 287 333 position (567 041) 665 556 (15 392) (93 839) 10 716 – 29. CONTINGENT LIABILITIES Guarantees Commitments to lend At 31 December GROUP 2012 US$ 2011 US$ 7 827 744 29 326 528 37 154 272 6 374 815 20 385 351 26 760 166 The Group enters into various irrevocable commitments and contingent liabilities in its normal course of business in order to meet financial needs of customers. These obligations are not recognised on the statement of financial position, but contain credit risk and are therefore part of the overall risk of the Group. 67 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 Guarantees commit the Group to make payments on behalf of clients in the event of a specified act. Guarantees carry the same credit risk as loans. Commitments to lend represent contractual commitments to advance loans and revolving credits. Commitments have fixed expiry dates and may expire without being drawn upon, hence total contract amounts do not necessarily represent future cash requirements. 30. CAPITAL COMMITMENTS Capital expenditure contracted for Capital expenditure authorised but not yet contracted for At 31 December Capital commitments will be financed from the Group’s own resources. 31. OPERATING LEASE COMMITMENTS Lease commitments Up to 1 year 1 – 5 years GROUP 2012 US$ - 2011 US$ 45 107 5 739 655 5 739 655 6 908 068 6 953 175 4 923 042 984 608 3 938 434 4 726 271 945 254 3 781 017 Lease commitments relate to future rental commitments up to the expiry of the lease agreements. 32. RELATED PARTIES As required by IAS 24, Related Parties Disclosures, the Board’s view is that non-executive and executive directors constitute the key management of the Group. Accordingly, key management remuneration is disclosed below. 32.1 Compensation of key management personnel of the Group Short – term employee benefits Contribution to pension funds 32.2 Key management interest in an employee share options 1 658 807 94 314 1 753 121 1 437 437 69 193 1 506 630 At 31 December 2012, key management held no options to purchase ordinary shares of the Company. 32.3 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). Non - executive directors Executive directors Officers (Note 17.6) Directors’ companies Officers’ companies Fair value adjustment 68 28 497 471 352 2 056 501 2 202 631 - 4 758 981 (177 022) 4 581 959 26 848 176 832 1 141 375 892 862 - 2 237 917 (86 152) 2 151 765 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 32.4 Other related party disclosures Entities with significant influence over the Group 2012 2011 Amounts owed by related parties US$ 4 581 959 2 151 765 32.5 BORROWING POWERS Holding Company In terms of the existing Articles of Association, Article 102, the directors may from time to time, at their discretion, borrow or secure the payment of any sum or sums of money for the purposes of the company without any limitation. Banking subsidiary In terms of the existing Articles of Association, Article 55, the directors may from time to time, at their discretion, borrow or secure the payment of any sum or sums of money for the purposes of the company without any limitation. 33. EMPLOYEE BENEFITS 33.1 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 2012. 33.2 Expense recognised in profit or loss Defined Contribution Plan - NSSA Defined Contribution Plan – NMB Bank Pension Fund GROUP 2012 US$ 98 045 575 594 673 639 2011 US$ 74 255 376 174 450 429 The expense is recognised in profit or loss as part of staff costs under operating expenses (note 7). 33.3 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 69 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 33.3 Employee Share Option Scheme (cont’d) any time within a period of five years from the date the options are granted and the issue price is based on the higher of nominal value of the shares and the middle market price derived from the Zimbabwe Stock Exchange prices for the trading day immediately preceding the date of offer. The options vest immediately from date of issue and the fair value of the options is estimated at the grant date using the Black – Scholes option pricing model, taking into account the terms and conditions upon which the instruments were granted. Movements in the year The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in share options during the year. GROUP AND COMPANY Outstanding as at 1 January Lapsed Issued Exercised Outstanding as at 31 December 2012 No. 000’s 9 072 – – – 9 072 WAEP$ 0.005 – – – 0.005 Terms of options outstanding at 31 December 2012 GROUP AND COMPANY Expiry date 7 January 2013 12 March 2013 Exercise price US$ nil nil 33.4 National Social Security Authority Scheme WAEP$ 0.005 – – – 0.005 2011 No. 000’s 9 072 – – – 9 072 2012 Shares 000’s 9 072 - 9 072 All employees of the Group are members of the National Social Security Authority Scheme, a defined contribution plan to which both the employer and the employees contribute. Contributions by the employer are charged to the profit and loss account and during the period amounted to US$98 045 (2011 – US$74 255). 33.5 Number of employees The total number of employees of the Group at 31 December 2012 was 303 (2011– 301). 70 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 34. EXCHANGE RATES The following exchange rates have been used to translate the foreign currency balances to United States dollars at year end: British Sterling GBP South African Rand ZAR European Euro EUR Botswana Pula BWP 35. RISK MANAGEMENT 31 December 2012 Mid - rate US$ 1.6156 8.4776 1.3200 7.7721 31 December 2011 Mid - rate US$ 1.5416 8.1852 1.2944 7.5301 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 Committee (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 management 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, formulating 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) c) Macro Level: It encompasses risk management within a business area or across business lines. These risk management functions are performed by middle management. 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 etc. The risk management in these areas is confined to operational procedures set by management. Risk management is premised on four (4) mutually reinforcing pillars, namely: a) b) c) d) adequate board and senior management oversight; adequate strategy, policies, procedures and limits; adequate risk identification, measurement, monitoring and information systems; and comprehensive internal controls and independent reviews. 35.1 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 71 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 35.1 Credit risk (cont’d) 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. 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 regulatory 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 limits, prior to facilities being committed to clients by the business unit concerned. Renewals and reviews of facilities are subject to the same review process; Limiting concentrations of exposure to counter parties and industry for loans and advances; Maintaining and monitoring the risk grading as per the RBZ requirement in order to categorize exposures 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. 35.1.2 Maximum exposure to credit risk without taking account of any collateral Cash and cash equivalents (excluding cash on hand) Investment securities held to maturity Loans, advances and other accounts Total Guarantees Commitments to lend Total GROUP Note 2012 US$ 2011 US$ 47 966 102 14 5 501 963 17 143 948 197 197 416 262 28 669 484 2 126 657 115 194 551 145 990 692 29 29 7 827 744 29 326 528 37 154 272 6 374 815 20 385 351 26 760 166 Total credit risk exposure 234 570 534 172 750 858 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. 72 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 35.1.3 Risk concentrations of maximum exposure to credit risk 31 December 2012 Gross Maximum Exposure US$ 9 894 729 4 683 682 29 008475 46 673 432 30 216 258 1 347 402 214 163 30 379 234 152 417 375 31 December 31 December 31 December 2011 Net Maximum Exposure US$ 2011 Gross Maximum Exposure US$ 2012 Net Maximum Exposure US$ 9 121 606 1 386 729 4 700 752 4 683 682 26 977 166 4 581 975 33 713 556 18 241 682 17 076 201 4 869 704 3 856 637 297 402 5 747 287 176 663 26 021 587 18 403 441 60 259 454 119 596 646 3 308 817 4 700 752 1 267 557 15 856 566 5 151 471 1 870 743 5 094 937 14 425 810 51 676 653 (7 269 799) (7 269 799) (3 354 088) (3 354 088) Agriculture and horticulture Conglomerates Manufacturing Distribution Services Mining Food and beverages Individuals Provision for impairment losses on loans and advances Net exposure 145 147 576 52 989 655 116 242 558 48 322 565 35.1.4 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$92 157 951 (2011 –US$67 919 993). 73 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 35.1.5 Credit quality per sector At 31 December 2012 Manufacturing Distribution Agriculture and horticulture Conglomerates Services Mining Food and beverages Individuals Total At 31 December 2011 Manufacturing Distribution Agriculture and horticulture Conglomerates Services Mining Food and beverages Individuals Total 35.2 Market risk Grade A Pass US$ Grade B Grade C Special Mention Substandard US$ US$ Grade D Doubtful US$ Grade E Loss US$ Total US$ 20 664 326 26 955 454 5 514 298 5 231 224 137 621 7 074 318 – 1 044 287 2 692 230 6 368 149 29 008 475 46 673 432 6 886 323 4 683 682 24 389 591 170 590 – – 2 729 470 1 157 915 37 510 – 748 973 – – – 398 709 – 2 970 896 – 1 949 515 18 897 9 864 729 4 683 682 30 216 258 1 347 402 214 163 29 780 934 113 745 063 – 43 094 14 676 001 – 327 284 8 325 706 – 181 449 1 624 445 – 46 473 214 163 30 379 234 14 046 160 152 417 375 22 097 295 25 745 875 1 884 589 4 360 000 602 211 507 000 1 932 421 901 396 460 650 2 199 285 26 977 166 33 713 556 6 153 611 4 700 752 3 837 870 3 130 446 – – 2 097 675 – – – 143 821 – 2 967 995 - 282 572 18 767 – – 7 335 – 9 121 606 4 700 752 17 076 201 3 856 637 1 395 821 17 925 638 96 401 660 4 332 908 225 376 12 900 548 – 51 495 1 304 527 18 558 191 721 6 313 430 – 9 211 5 747 287 18 403 441 2 676 481 119 596 646 This is the exposure of the Bank’s on and off balance 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, 74 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 35.2 Market risk (cont’d) 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 2012 Currency Increase/ (decrease) in interest rates % 0 to 1 months US$ 1 to 3 months US$ USD USD USD USD USD USD 5 3 1 (1) (3) (5) (3 226 334) (1 935 800) (645 267) 645 267 1 935 800 3 226 334 548 196 328 918 109 639 (109 639) (328 918) (548 196) For interest rate repricing and gap analysis refer note 24.1. 3months to 1 year US$ 322 010 193 206 64 402 (64 402) (193 206) (322 010) 1 year to 5 years US$ Total US$ 1 695 009 1 017 006 339 002 (339 002) (1 017 006) (1 695 009) (661 119) (396 670) (132 224) 132 224 396 670 661 119 Sensitivity of net interest income At 31 December 2011 Currency Increase/ (decrease) in interest rates % 0 to 1 months US$ 1 to 3 months US$ USD USD USD USD USD USD 5 3 1 (1) (3) (5) 1 164 136 (698 481) (232 827) 232 827 698 481 (1 164 136) 155 079 93 048 31 016 (31 016) (93 048) (155 079) 3months to 1 year US$ (432 006) (259 203) (86 401) 86 401 259 203 432 006 1 year to 5 years US$ Total US$ 908 094 544 857 181 619 (181 619) (544 857) (908 094) 1 795 303 (319 779) (106 593) 106 593 319 779 (1 795 303) 75 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 35.3 Foreign currency exchange rate risk The table below calculates the effect of a reasonable possible movement of the significant currency rate against the United States Dollar, with all other variables held constant. A negative amount in the table reflects a potential net reduction in the statement of comprehensive income or equity while a positive amount reflects a net potential increase. At 31 December 2012 Currency ZAR ZAR ZAR ZAR ZAR ZAR At 31 December 2011 Currency ZAR ZAR ZAR ZAR ZAR ZAR 34.4 Liquidity risk % Change in Effect on profit before tax US$ currency rate 5 3 1 (1) (3) (5) 17 183 10 310 3 437 (3 437) (10 310) (17 183) % Change in Effect on profit before tax US$ currency rate 5 3 1 (1) (3) (5) (33 278) (19 967) (6 656) 6 656 19 967 33 278 Effect on equity US$ 5 728 3 437 1 146 (1 146) (3 437) (5 728) Effect on equity US$ (24 709) (14 825) (4 942) 4 942 14 825 24 709 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 cash flows 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 to 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. 76 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 34.4 Liquidity risk (cont’d) 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 2012 Guarantees Commitments to lend At 31 December 2011 Guarantees Commitments to lend On Demand US$ 0 to 1 months US$ 1 to 3 months US$ 3 months to 1 year US$ 1 year to to 5 years US$ Total US$ – 4 001 505 – – – 4 001 505 – – – 3 826 239 – 7 827 744 15 526 528 19 352 767 13 800 000 13 800 000 29 326 528 37 154 272 804 213 222 811 443 734 4 904 057 – 17 489 137 804 213 17 711 948 2 141 902 2 585 636 754 312 5 658 369 – – – 6 374 815 20 385 351 26 760 166 The Group expects that not all of the contingent liabilities or commitments will be drawn before expiry of the commitments. 35.5 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 management. 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. 35.6 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 legal 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. 77 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 35.7 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. 35.8 Strategic risk This refers to current and prospective impact on a Bank’s earnings and capital arising from adverse business decisions or implementing strategies that are not consistent with the internal and external environment. To manage this risk, the 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 management 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. 35.9 External credit ratings The external trading ratings were given by Global Credit Rating (GCR), a credit rating agency accredited with the Reserve Bank of Zimbabwe Security class Long term 2012 BBB- 35.10 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. 35.11 Capital Management 35.11.1 Holding Company The capital allocation to the subsidiary units is in accordance with the regulatory requirements of the business undertaken by the subsidiary. 35.11.2 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 earnings (including current year profit), statutory reserve and other equity reserves. 78 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 35.11.2 Banking Subsidiary (cont’d) The other component of regulatory capital is Tier 2 capital, which includes subordinated term debt, revaluation reserves and portfolio provisions. Tier 3 capital relates to an allocation of capital to market and operational risk. Various limits are applied to elements of the capital base. The core capital (Tier 1) shall compromise not less than 50% of the capital base and portfolio provisions are limited to 1.25% of total risk weighted assets. The Bank’s regulatory capital position at 31 December 2012 was as follows:- Share capital Share premium Retained earnings Fair value gain on investment properties Less: capital allocated for market and operational risk Credit to insiders 2012 US$ 2011 US$ 16 502 15 577 932 12 487 547 (2 411 775) 25 670 206 16 501 13 690 931 6 116 397 – 19 823 829 (1 198 520) (2 231 128) (571 954) (892 862) Tier 1 capital Tier 2 capital (subject to limit as per Banking Regulations) 22 240 558 4 819 193 18 359 013 1 023 431 Revaluation reserve Subordinated debt Regulatory reserve (limited to 1.25% of risk weighted assets) Portfolio provisions (limited to 1.25% of risk weighted assets) 2 411 775 – 2 301 683 105 735 – – 1 023 431 – Total Tier 1 & 2 capital Tier 3 capital (sum of market and operational risk capital) Total capital base 27 059 751 19 382 444 1 198 520 571 954 28 258 271 19 954 398 Total risk weighted assets 182 361 802 138 868 906 Tier 1 ratio Tier 2 ratio Tier 3 ratio Total capital adequacy ratio RBZ minimum required 12.20% 2.64% 0.66% 15.50% 12.00% 13.22% 0.74% 0.41% 14.37% 10.00% 79 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 35. EVENTS AFTER REPORTING DATE 35.1 Memorandum of understanding On 31 January 2013, the Reserve Bank of Zimbabwe and participating members of the Bankers Association of Zimbabwe (BAZ) signed a Memorandum of Understanding (MoU) which seeks to establish an understanding on: 1. Bank charges on accounts whose monthly deposits are less than US$800. 2. Interest rates on lending to a maximum of the Bank’s weighted average cost of funds plus a margin of12.5%. These measures took effect from 1 February 2013 and going forward these would have a pronounced effect on the Bank’s profitability. 35.2 Recapitalisation The shareholders of NMBZ Holdings Limited approved at an Extraordinary General Meeting held on 19 February 2013 an investment of US$14.8 million equity capital by three (3) strategic foreign investors. In addition, one of the strategic foreign investors will provide a 7 year subordinated debt of US$1.4 million to the Bank. The US$14.8 million equity will be invested as equity capital in the Bank by the holding company. 80 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)for the year ended 31 December 2012 HISTORICAL FIVE YEAR FINANCIAL SUMMARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 2012 US$ 2011 US$ 2010 US$ 2009 US$ Restated 2008 US$ Interest from lending activities Interest from investing activities Interest expense 540 391 27 003 393 14 222 680 5 936 086 27 543 784 20 158 766 (8 257 254) (10 050 003) 7 024 287 2 990 349 10 014 636 (3 143 168) 652 267 874 455 1 526 722 (723 626) Net interest income Net foreign exchange gains Non-interest income 17 493 781 11 901 512 1 289 729 15 609 630 12 164 691 1 902 337 6 871 468 1 055 307 9 374 796 803 096 379 236 7 236 949 Net operating income Operating expenditure Impairment losses on loans and advances Share of profit/(loss) associate 35 005 748 25 355 932 (21 452 714) (16 979 741) 17 301 571 (15 365 768) 8 419 281 (7 385 212) (3 985 062) (2 296 111) 113 573 434 252 (971 803) (21 444) (92 887) – Profit before taxation Financial institutions levy Taxation 10 002 224 – (2 431 722) 6 193 653 – (1 655 197) 942 556 – (250 322) 941 182 (44 661) 1 381 766 Profit after taxation 7 570 502 4 538 456 692 234 2 278 287 Other comprehensive income /(loss) for the year, net of tax – – – – Total comprehensive income for the year 7 570 502 4 538 456 692 234 2 278 287 – – – – – – – – – – – – – – – – – 81 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 HISTORICAL FIVE YEAR FINANCIAL SUMMARY(Cont’d) CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 2012 US$ 2011 US$ 2010 US$ 2009 US$ Restated 2008 US$ EQUITY Share capital Reserves Equity LIABILITIES 78 598 78 598 30 863 485 23 292 983 78 598 18 754 527 – 8 568 005 30 942 083 23 371 581 18 833 125 8 568 005 Deposits and other liabilities Current tax liabilities Deferred tax liabilities 195 002 633 142 757 778 1 157 974 – 588 966 – 83 156 444 641 969 207 966 30 094 657 299 162 746 107 Capital employed 226 533 682 167 287 333 102 839 504 39 707 931 ASSETS Cash and cash equivalents Loans, advances and other assets Investments securities held to maturity Non-current assets held for sale Quoted and other investments Trade investments Investment in associate Investment properties Property and equipment Deferred tax assets 58 171 045 32 265 953 146 599 994 122 260 663 18 346 939 75 620 404 12 203 181 18 349 286 5 501 963 2 225 300 130 316 195 790 1 025 919 3 115 300 8 187 459 1 380 596 2 126 657 – 118 048 190 980 591 667 2 510 000 6 801 982 421 383 1 994 585 – 134 461 201 666 228 556 2 615 000 3 697 893 – 1 789 836 – 455 638 108 003 – 3 219 600 3 582 387 – Employment of capital 226 533 682 167 287 333 102 839 504 39 707 931 – – – – – – – – – – – – – – – – – – 82 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 HISTORICAL FIVE YEAR FINANCIAL SUMMARY(Cont’d) CLOSING NUMBER OF SHARES 2 807 107 289 2 807 107 289 2 807 107 289 1 641 225 424* 1 608 159 059 2012 2011 2010 2009 2008 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 Closing price per share (US cents) 1.12 0.29 – – 2.24 0.65 0.83 0.16 – – 7.19 1.15 0.67 0.03 – – 37 1.1 0.52 0.14 – – 5.71 0.80 Market capitalisation (US$) 18 246 197 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 (%) 26 4 70 34 23 19 4 76 36 27.1 3.7 3 95 46 26.6 26 0.70 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. – – – – – – – – 6 – – – 83 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 NOTICE TO MEMBERS Notice is hereby given that the 18th 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 18 June 2013 at 1000 hours for the following purposes: ORDINARY BUSINESS 1. To receive and adopt the Financial Statements for the year ended 31 December 2012, together with the reports of the Directors and Auditors thereon. 2. To appoint Directors. In accordance with the Articles of Association, Mr. B. Ndachena, Mr. J. Chenevix-Trench, and Mr. J. de la Fargue retire by rotation. Being eligible, the retiring directors offer themselves for re-election. 3. To appoint Auditors for 2013. 4. To approve Messrs KPMG’s remuneration for the year ended 31 December 2012. Note: A member of the company entitled to attend and vote at this meeting is entitled to appoint a proxy to attend, speak and on a poll, vote in his stead. A proxy need not be a member of the company. Proxy forms should be forwarded to 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 28 March 2013 84 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 EXPLANATIONS REGARDING THE NOTICE OF THE ANNUAL GENERAL MEETING 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 B. Ndachena, J. Chenevix-Trench, and J. de la Fargue. All the retiring directors being eligible offer themselves for re- election. Information about these directors is shown below: Benson Ndachena - B. Acc (Hons) (UZ), CA(Z), ACMA, CGMA, MBL (Unisa). Benson Ndachena, a Chartered Accountant by profession, joined the Group as the Senior Manager of Finance and Administration on 1 July 2001. Prior to joining the Group, he held the position of Financial Controller of OK Zimbabwe where he managed the Division’s Accounting Department. Benson commenced his career with Deloitte & Touche Chartered Accountants (Zimbabwe) where he rose through the ranks to become an Audit Manager and Senior Consultant and gained extensive experience in auditing, accounting, consultancy and taxation, over a period of eight years. Benson is a Director of several private companies. He is the current Treasurer of the Mashonaland District Society of Chartered Accountants. Jonathan Chenevix-Trench - Literae Humaniores Jonathan Chenevix-Trench graduated from Oxford University in 1984 with a degree in Classics (Classical History and Philosophy), and joined the Investment banking Division of Morgan Stanley in London. After two years as an analyst in Corporate Finance, he moved into the fixed income division, and spent the next 19 years in various trading and management roles. From 2000 until 2005, Jonathan was responsible for the global Government, Interest Rate Derivative and Foreign Exchange Trading Group, and in 2005 he became Chief Executive Officer of Morgan Stanley’s European business, covering Fixed Income, Equities, Investment Banking, Asset Management and Wealth Management. In this capacity, he also chaired the boards of Morgan Stanley’s regulated banks in the UK and in Russia. In August 2007, Jonathan took on the role of Chief Operating Officer for the global Institutional Securities Group, and continued in this position until resigning in December 2007. Jonathan now serves as Chairman of Ashdown Funding Ltd, and Chairman of Elgeti Ashdown Advisers Ltd, both concerned with the real estate business in the UK and Germany. Jonathan is also co-founder of African Century, which is building an agri-business across sub-Saharan East Africa. Jonathan has served on the boards of both ISDA (International Swaps and Derivatives Association) and ICMA (International Capital Markets Association), and is currently on the boards of the Royal Academy and of the Royal Ballet School in London, as well as being a Trustee of the Chelsea Physics Garden. James de la Fargue - BA Business Organisation (Herrit-Watt University), ACCA, Diplomas in Marketing & Marketing Research, Certificate in General Agriculture James de la Fargue is an accountant by profession. James has worked for a number of international organizations including Touche Ross Management Consultants, Unilever PLC and Chargeurs SA. He is the former president of the Zimbabwe Tobacco Association and worked at MBCA as a senior executive in charge of Corporate Finance. James was a non- executive director of Tetrad Holdings Limited. From 1998 to date, James has been involved in business consultancy work and management of an integrated farm in Centenary. 85 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 NOTICE TO MEMBERS EXPLANATIONS REGARDING THE NOTICE OF THE ANNUAL GENERAL MEETING (Cont’d) 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]. The current auditors of the Group are KPMG Chartered Accountants and it is proposed that KPMG be re-appointed as auditors of the Group. 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, KPMG for the year ended 31 December 2012. 86 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 SHAREHOLDERS’ ANALYSIS Size of Shareholding 0 - 5 000 5 001 - 10 000 10 001 - 50 000 50 001 - 100 000 100 001 - 500 000 500 001 - 1 000 000 1 000 001 - 10 000 000 10 000 001 and above 2012 Number of shareholders % of Holders 2012 Issued shares % shareholding 2 324 593 684 108 157 25 24 26 3 822 178 58.96 4 372 488 15.05 14 474 231 17.36 7 822 368 2.74 34 563 027 3.98 18 986 040 0.63 0.61 70 714 057 0.66 2 652 352 900 0.14 0.15 0.51 0.28 1.23 0.68 2.52 94.49 Total 3 941 100.00 2 807 107 289 100.00 Size of Shareholding 0 - 5 000 5 001 - 10 000 10 001 - 50 000 50 001 - 100 000 100 001 - 500 000 500 001 - 1 000 000 1 000 001 - 10 000 000 10 000 001 and above 2011 Number of shareholders % of Holders 2011 Issued shares % shareholding 2 328 606 708 117 155 29 24 25 3 865 246 58.31 4 470 512 15.18 14 930 904 17.74 8 413 516 2.93 33 874 789 3.88 21 143 052 0.73 0.60 83 774 024 0.63 2 636 635 246 0.14 0.16 0.53 0.30 1.21 0.75 2.98 93.93 Total 3 992 100.00 2 807 107 289 100.00 87 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 SHAREHOLDERS’ ANALYSIS (cont’d) Industry Bank Corporates Employees Deceased Estates External Companies Fund Managers Insurance Companies Investment Trusts and property Local Residents Local Nominees Non Residents Other Corporate Holdings Pension Funds 2012 Holders % of Holders 2012 % shares Shareholding 1 357 487 4 7 5 12 38 2 925 58 31 3 13 0.03 9.06 12.36 0.10 0.18 0.13 0.30 0.96 74.22 1.47 0.78 0.08 0.33 42 900 456 312 527 40 528 741 10 521 350 982 315 941 40 053 586 943 544 533 713 511 60 046 945 4 749 183 78 680 392 8 440 53 203 762 0.00 16.26 1.44 0.38 34.99 0.00 20.91 19.01 2.14 0.17 2.80 0.00 1.90 Total 3 941 100.00 2 807 107 289 100.00 Industry Bank Corporates Employees Deceased Estates External Companies Fund Managers Insurance Companies Investment Trusts and property Local Residents Local Nominees Non Residents Other Corporate Holdings Pension Funds 2011 Holders 1 361 518 3 5 6 10 37 2 948 61 28 2 12 % of Holders 0.03 9.04 12.98 0.08 0.13 0.15 0.25 0.93 73.85 2 0.7 0.05 0.3 2011 % Shares Shareholding 0.00 42 900 15.29 430 472 797 1.46 41 247 975 0.37 10 506 424 19.88 559 772 582 0.00 34 297 20.94 589 581 677 18.89 531 949 711 2.05 57 707 863 16 438 663 405 3.43 96 684 281 0.00 8 082 1.79 50 435 295 Total 3 992 100.00 2 807 107 289 100.00 88 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 TOP TEN SHAREHOLDERS 2012 Number % of shares Shareholding 703 243 692 586 855 157 215 266 942 168 853 795 168 755 799 142 260 092 109 627 112 77 282 178 76 834 507 70 534 276 24.98 20.84 7.65 6.02 6.01 5.07 3.89 2.74 2.72 2.51 2011 Number % of shares Shareholding 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 20.93 14.72 9.97 7.65 6.02 6.01 5.07 3.89 3.01 2.74 1 African Century Financial Investments Limited 2 Old Mutual Zimbabwe Limited 3 Lalibela Limited 4 Alsace Trust 5 Cornerstone Trust 6 Wamambo Investments Trust 7 Drakmore Investments (Private) Limited 8 Martcap Investments (Private) Limited 9 Stanbic Nominees (Private) Limited 10 Tamlidge Investments (Private) Limited 1 Old Mutual Zimbabwe Limited 2 Les Nominees (Private) Limited 3 African Century Financial Investments Limited LLP* 4 Lalibela Limited 5 Alsace Trust 6 Cornerstone Trust 7 Wamambo Investments Trust 8 Drakmore Investments (Private) Limited 9 Stanbic Nominees (Private) Limited 10 Martcap Investments (Private) Limited * African Century Financial Investments Limited LLP also held its shareholding through Les Nominees (Private) Limited TOP TEN SHAREHOLDERS 89 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 MEMBERS’ DIARY Financial year end 31 December 2012 Reports:- • Announcement of annual results 28 March 2013 • Annual financial statements posted to shareholders May 2013 • Annual General Meeting 18 June 2013 • Announcement of the 2013 half-year results August 2013 Dividend payments: – Interim – Final n/a n/a 90 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 Company Secretary V. Mutandwa Registered Offices 4th Floor Unity Court Corner 1st/ Kwame Nkrumah Avenue Harare Zimbabwe Telephone: +263 4 759651-9 / 759601-6 Facsimile +263 4 759648 Website: http://www.nmbz.co.zw Email: enquiries@nmbz.co.zw Auditors KPMG Mutual Gardens 100 The Chase (West) Emerald Hill Harare Zimbabwe Transfer Secretaries In Zimbabwe First Transfer Secretaries 1 Armagh Avenue, Eastlea Harare Zimbabwe Legal Advisors In Zimbabwe Gill, Godlonton & Gerrans 7th Floor, Beverley Court 100 Nelson Mandela Avenue Harare Zimbabwe SECRETARY AND REGISTERED OFFICE NMB Centre Corner George Silundika Avenue/ Leopold Takawira Street Bulawayo Zimbabwe +263 9 70169 +263 9 68535 In UK Computershare Investor Services PLC The Pavilion Bridgewater Road Bristol BS599 6ZZ United Kingdom In UK Dechert 160 Queen Victoria Street London EC4 V4 QQ UK 91 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 ANNUAL GENERAL MEETING FORM OF PROXY I/We, ……………………………………………………....………………..………………………………...….…...................... of ……………………………………..……………………………………………………………….…………….. being a member of the above company and entitled to vote, hereby appoint ……………………………………………………………………………………………..………………………… of …………………………………………….…………………………………………………………...………….. or failing him …………………………………………………………………………………………..……………. of …………………………………………………………………………………………………………………….. or failing him, the Chairman of the meeting as my/our proxy to vote for me/us on my/our behalf at the ANNUAL GENERAL MEETING of the Company to be held on 18 June 2013 at 10:00 hours and at any adjournment thereof. Signed this …………..………………………….. day of …………………………………………………….2013 Signature of member ……………………………………………………………………………………………….. Note: ( i) In terms of Section 129 of the Companies Act (Chapter 24:03) a member of the company is entitled to appoint one or more proxies to act in the alternative to attend, vote and speak in his stead. A proxy need not be a member of the Company. (ii) Sections 75 and 76 of the Company’s Articles of Association provide that instruments of proxy must be signed and returned to reach the Registered Office of the Company not less than forty-eight hours before the time for holding the meeting. 92 NMBZ HOLDINGS LIMITED | ANNUAL REPORT 2012 NMBZ Holdings Limited 4th Floor, Unity Court, Cnr Kwame Nkrumah Ave/First Street, Harare, Zimbabwe Tel: (263-4) 759 651/9 Tel 2: (263-4) 759 601/6 Fax: (263-4) 798850
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