ANNUAL REPORT 2 0 1 4 Dually listed on the London Stock Exchange (LSE) and Zimbabwe Stock Exchange (ZSE) ANNUAL REPORT 2 0 1 4 CONTENTS Financial Summary Enquiries Group Profile Chairman's Statement Report of the Directors Statement of Directors' Responsibility Report of the Independent Auditors Statements of Comprehensive Income Statements of Financial Position Statements of Changes in Equity Statements of Cash Flows Significant 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 Members’ Diary Secretary and Registered Office 2 3 4 5 - 7 8 - 13 14 - 15 16 17 18 19 20 21 - 32 33- 80 81 - 83 84 85 86 - 88 89 90 1 FINANCIAL SUMMARY Total income (US$) Operating profit before impairment charge (US$) Attributable profit/(loss) (US$) Basic earnings/(loss) per share (US cents) Total deposits (US$) Total gross loans and advances (US$) Total shareholders' funds (US$) ANNUAL REPORT 2 0 1 4 31 Dec 2014 31 Dec 2013 48 078 454 50 135 302 7 442 884 12 693 945 1 667 247 (3 321 823) 0.43 (1.00) 235 362 677 211 215 066 217 463 319 194 777 798 45 047 616 43 441 403 2 ANNUAL REPORT 2 0 1 4 ENQUIRIES NMBZ HOLDINGS LIMITED Benefit Peter Washaya, Acting Group Chief Executive Officer, NMBZ Holdings Limited benefitw@nmbz.co.zw Benson Ndachena, Chief Finance Officer, NMBZ Holdings Limited bensonn@nmbz.co.zw Website: Email: Telephone: http://www.nmbz.co.zw enquiries@nmbz.co.zw +263-4-759 651/9 3 ANNUAL REPORT 2 0 1 4 GROUP PROFILE for the year ended 31 December 2014 The NMBZ Holdings Group (the Group) comprises the company (NMBZ Holdings Limited) and the operating subsidiaries, NMB Bank Limited (the Bank) and Stewart Holdings Limited (equity holdings). The Bank was established in 1993 as a merchant bank incorporated under the Companies Act (Chapter 24:03) and is now 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 branch locations: Harare: Head Office - Unity Court, Corner Kwame Nkrumah Avenue / First Street Angwa City - Mezzanine Floor, Angwa City, Corner Kwame Nkrumah Avenue / Angwa Street Avondale - 20 King George Road, Avondale Borrowdale - Shops 37 & 38, Sam Levy's Village Eastgate - Shop 24, Eastgate Mall, Corner Sam Nujoma Street / Robert Mugabe Road Joina City - Shop 15, Upper Ground Floor, Joina City, Corner Jason Moyo / Innez Terrace Msasa - 77 Amby Drive Southerton - 7 – 9 Plymouth Road Bulawayo - NMB Centre, Corner George Silundika Street / Leopold Takawira Street Gweru Mutare - 36 Robert Mugabe Road - Embassy Building, Corner Aerodrome Road / Second Street The Bank's Automated Teller Machine (ATM) network, which accepts VISA cards, covers the following locations:- Harare: Angwa City Avondale Borrowdale Card Centre Eastgate Joina City Msasa Southerton Bulawayo Gweru Mutare 4 ANNUAL REPORT 2 0 1 4 CHAIRMAN’S STATEMENT INTRODUCTION The Group recorded an attributable profit of US$1 667 247 which was an improvement from an attributable loss of US$3 321 823 recorded in 2013. The improvement in the operating results was underpinned by the current efforts being made by the Group to contain non-performing loans, implementation of a new credit system and the repositioning of the Bank in the financial services sector. GROUP RESULTS Compliance with International Financial Reporting Standards, the Companies Act and the Banking Act The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have also been prepared in compliance with the provisions of the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20). Assessment of the economic environment The economic slowdown which started in the last two quarters of 2013 persisted into 2014 and the economy has continued to be characterised by company closures, deflation, lack of liquidity and increasing default risk. The slowdown in the economy has further worsened the default risk within the Banking sector with non- performing loans having increased from an industry average of 15.92% as at 31 December 2013 to 20% as at 30 September 2014 before coming down to 16% as at 31 December 2014 largely due to bank closures. Commentary on operating results The profit before taxation was US$2 425 522 during the period under review and this gave rise to an attributable profit of US$1 667 247. Total income for the period decreased by 4% from a prior year of US$50 135 302 to US$48 078 454 which is comprised of interest income of US$31 072 461 (2013 -US$33 181 704), fee and commission income of US$15 121 536 (2013 - US$14 673 834), net foreign exchange gains of US$1 822 432 (2013 - US$1 502 044) and non - interest income of US$62 025 (2013-US$777 720). Operating expenses amounted to US$27 984 051 and these were 11% up from prior year and these were largely driven by administration expenses, depreciation and staff related expenditure. Impairment losses on loans and advances amounted to US$5 017 362 for the current period from a prior year of US$16 645 810 and the decrease was mainly due to reduced write-offs in the current year. The Board took a decision to write off loans and advances amounting to US$5 912 371 during the year under review after recovery efforts had not yielded the anticipated results. Statement of financial position The Group's total assets grew by 10% from US$259 483 112 as at 31 December 2013 to US$286 049 034 as at 31 December 2014. The assets comprised mainly of loans, advances and other assets (US$203 363 052) (2013 - US$181 316 271), investment securities held to maturity (US$3 874 525) (2013 - US$4 685 471), investment in debentures (US$4 614 047) (2013 - US$3 984 723), cash and short term funds (US$54 750 561) (2013 - US$48 871 983), investment properties (US$4 453 300) (2013- US $4 385 300), non-current assets held for sale (US$2 267 300) (2013 - US$2 303 300) and property and equipment (US$6 345 267) (US$2013 - US$7 372 943). Gross loans and advances increased by 12% from US$194 777 798 as at 31 December 2013 to US$217 463 319 as at 31 December 2014 mainly due to increase in loans advanced to civil servants. The deposits increased by 11% from US$211 215 066 as at 31 December 2013 to US$235 362 677 as at 31 December 2014 as a result of an increase in current and deposit accounts from customers. The Bank's liquidity ratio closed the period at 32.38% and this was above the statutory requirement of 30%. 5 ANNUAL REPORT 2 0 1 4 CHAIRMAN’S STATEMENT (continued) Capital The banking subsidiary's capital adequacy ratio at 31 December 2014 calculated in accordance with the guidelines of the Reserve Bank of Zimbabwe (RBZ) was 19.32% (31 December 2013 - 17.28%). The minimum required by the RBZ is 12%. The Group's shareholders' funds have increased by 4% from US$43 441 403 as at 31 December 2013 to US$45 047 616 as at 31 December 2014 mainly as a result of the current year attributable profit. DIVIDEND In view of the need to retain cash in the business for expansion purposes and to strengthen the statutory capital requirements for the banking subsidiary, the Board has proposed not to declare a dividend. CORPORATE SOCIAL INVESTMENTS The Group is committed to playing an active role in the communities it serves. Our social investments during the year were channelled into special education needs, the disadvantaged, vulnerable groups, protection of the environment, wild life conservation, the arts and various sporting disciplines. The activities and charities supported during the year included the Kidzcan Foundation, ZIMRA Charity Ball, Friends of Hwange, Birdlife Zimbabwe, Manicaland Tennis Tournament, Silverlinings School, HIFA and the Dance Trust of Zimbabwe. CORPORATE DEVELOPMENTS The Group introduced mortgage lending in May 2014 and this is in keeping with the aim of providing our clients with a full range of financial services. In response to technological changes and the evolving customer needs, the Group is continuously reviewing the electronic delivery channels inorder to harness opportunities presented for the convenience of our valued customers. OUTLOOK AND STRATEGY The Group has broadened the market catchment segment for the banking subsidiary by tapping into the mass market. The new focus will allow the Group to build a sustainable operation without compromising the service excellence which is synonymous with the Group. A new branch will be opened in Kwekwe in the second quarter of 2015 and a further two branches will be opened in the third quarter of 2015. DIRECTORATE Mr. J. A. Mushore resigned as a director of NMBZ Holdings Limited and NMB Bank Limited due to ill health with effect from 31 October 2014. Dr. J. T. Makoni resigned as a director of NMBZ Holdings Limited with effect from 31 December 2014. Mr. D. Malik resigned as a director of NMBZ Holdings Limited and NMB Bank Limited with effect from 22 September 2014. Mr. J. de la Fargue, an alternate to Mr. J. Chenevix-Trench, resigned from the Board with effect from 31 December 2014. I would like to thank them all for the immense and valuable contributions they made to the Board over the years. Mr. R. Keighley was appointed to the Board with effect from 17 June 2014. I would like to welcome Mr. R. Keighley to the Board and wish him a successful tenure on the Board. Subsequent to year end, the Board appointed Mr. Benedict Chikwanha as chairman of the Boards of NMB Bank Limited and NMBZ Holdings Limited with effect from 19 March 2015. I would like to congratulate Mr. Chikwanha on his appointment and to wish him a fruitful tenure. 6 ANNUAL REPORT 2 0 1 4 CHAIRMAN’S STATEMENT (continued) On a personal note, as I advised at the last Annual General Meeting, I will be retiring from the Chair and from the Boards of NMB Bank Limited and NMBZ Holdings Limited with effect from 18 March 2015. It has been an honour and a privilege to preside over this exceptional institution for the past six years and I would like to thank all of our staff, customers and other stakeholders for the tremendous support that they have always given me over the years. In particular, I would like to thank my colleagues on the Board and members of senior management; I have greatly enjoyed working with you since joining the Board in 2008. It is my fervent hope and expectation that you will support my successor in the same way that you have supported me. I wish each of you, and NMB, every success in the future. APPRECIATION I would like to express my sincere gratitude and appreciation to our valued clients, shareholders and the regulatory authorities for their continued support during the period under review. My appreciation also goes to my fellow Board members, management and staff for their continued dedication and commitment which has underpinned the achievement of these results in the face of an increasingly difficult operating environment. T. N. MUNDAWARARA CHAIRMAN 18 March 2015 7 REPORT OF THE DIRECTORS for the year ended 31 December 2014 We have pleasure in presenting to shareholders our report and the audited financial statements of the Group for the year ended 31 December 2014. ANNUAL REPORT 2 0 1 4 1. SHARE CAPITAL The authorised and issued share capital of the Company are as follows:- 1.1 1.2 Authorised: 600 000 000 ordinary shares of US$0.00028 each. Issued and fully paid: 384 427 351 ordinary shares of US$0.00028 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$1 667 247 for the year ended 31 December 2014 (2013 – loss of US$3 321 823). 3. CAPITAL ADEQUACY As at 31 December 2014, the Bank's capital adequacy ratio computed under the Bank for International Settlements (BIS) rules was 19.32% (2013 – 17.28%). 4. DIRECTORATE 4.1 Board of Directors Mr. T. N. Mundawarara Mr. A. M. T. Mutsonziwa Mr. J.A. Mushore* Mr. B. P. Washaya Mr. B. W. Madzivire Ms. M. Svova Mr. J. Chigwedere Mr. B. Chikwanha Mr. J. Chenevix-Trench** Mr. B. A. M. Zwinkels Mr. C. I. F. Ndiaye Mr D. Malik*** Mr. R. Keighley Dr. J. T. Makoni**** Independent Non-Executive Director (Chairman) Independent Non-Executive Director Group Chief Executive Officer Acting Group Chief Executive Officer Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Non-Executive Director - (alternate Mr. J. de. la Fargue) (representing African Century) Non-Executive Director - (representing AfricInvest) Non-Executive Director - (representing FMO) Non-Executive Director - (alternate Mr. R. Keighley) (representing Norfund) Non-Executive Director - (representing Norfund) Non-Executive Director * Resigned from the Board with effect from 31 October 2014. ** Mr. J. de La Fargue resigned as an alternate director to Mr. J. Chenevix-Trench with effect from 31 December 2014. *** Resigned from the Board with effect from 22 September 2014. ****Resigned from the Board with effect from 31 December 2014. In accordance with the Articles of Association, Mr. J. Chigwedere. Mr. B. W. Madzivire and Mr. A. M. T. Mutsonziwa will retire by rotation at the forthcoming Annual General Meeting (AGM). Mr. B.W. Madzivire, being eligible, offers himself for re-election. Mr. J. Chigwedere and Mr. A.M.T. Mutsonziwa are not offering themselves for re-election. 8 ANNUAL REPORT 2 0 1 4 REPORT OF THE DIRECTORS (continued) 4. DIRECTORATE (continued) 4.2 Directors' Interests As at 31 December 2014 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:- Mr. T. N. Mundawarara Mr. A. M. T. Mutsonziwa Mr. B. W. Madzivire Mr. J. Chigwedere Mr. J. Chenevix-Trench** Mr. B. P. Washaya* Mr. B. A. M. Zwinkels*** Mr. R. Keighley*** Mr. C. I. F. Ndiaye*** Mr. B. Chikwanha Ms. M. Svova 31 Dec 2014 Shares 3 993 5 571 - - 71 207 639 2 070 - - - - - ---------------- 71 219 273 ========= 31 Dec 2013 Shares 3 993 5 571 - - 70 324 370 2 070 - - - - - ---------------- 70 336 004 ========= * Mr. B. P. Washaya is the Acting CEO of NMBZ Holdings Limited and the Managing Director of NMB Bank Limited. ** Mr. J. Chenevix-Trench holds interests in African Century Financial Investments Limited, a shareholder in NMBZ. *** Mr. B. A. M. Zwinkels, Mr. C. I. F. Ndiaye and Mr. R. Keighley represent AfricInvest (34 571 429 shares in NMBZ), FMO (34 571 429 shares in NMBZ) and Norfund (34 571 429 shares in NMBZ) respectively on the board of directors of NMBZ Holdings Limited and NMB Bank Limited. 4.3 Total share options granted to executive directors Mr. J. A. Mushore**** Mr. B. P. Washaya 31 Dec 2014 Share options 344 842 275 873 ---------------- 620 715 ========= 31 Dec 2013 Share options - - ---------------- - ========= ****M r. J. A. Mushore resigned as a director of NMBZ Holdings Limited and NMB Bank Limited with effect from 31 Octobe r 2014. 9 ANNUAL REPORT 2 0 1 4 REPORT OF THE DIRECTORS (continued) 4. DIRECTORATE (continued) 4.4 Directors' attendance at meetings 4.4.1 Board of Directors Name Mr. T. N. Mundawarara Mr. A. M. T. Mutsonziwa Mr. B. W. Madzivire Mr. J. Chigwedere Mr. J. Chenevix-Trench Ms. M. Svova Mr. B. Chikwanha Mr. R. Keighley Mr. B. A. M. Zwinkels Mr. C. I. F. Ndiaye Dr. J. T. Makoni** Mr. J. A. Mushore* Meetings held Meetings attended 9 9 9 9 9 9 9 9 9 9 9 3 9 6 9 8 9 9 9 9 9 9 8 2 * Resigned from the Board of NMBZ Holdings Limited with effect from 31 October 2014. ** Resigned from the Board of NMBZ Holdings Limited with effect from 31 December 2014. 4.4.2 Audit Committee Name Ms. M. Svova Mr. B. W. Madzivire Mr. A. M. T. Mutsonziwa 4.4.3 Risk Management Committee Name Mr. B. W. Madzivire Mr. C. I. F. Ndiaye Mr. R. Keighley Mr. J. A. Mushore* Mr. B. P. Washaya Mr. B. Chikwanha ** Meetings held Meetings attended 4 4 4 4 4 2 Meetings held Meetings attended 4 4 4 3 4 3 4 3 4 2 4 3 * Resigned from the Board of NMBZ Holdings Limited with effect from 31 October 2014. ** Appointed to the committee with effect from 18 March 2014. 10 ANNUAL REPORT 2 0 1 4 REPORT OF THE DIRECTORS (continued) 4. DIRECTORATE (continued) 4.4.4 Asset and Liability Management Committee (ALCO), Finance & Strategy Committee Name Mr. J. Chigwedere Mr. T. N. Mundawarara Mr. J. Chenevix-Trench Mr. R. Keighley Mr. B. A. M. Zwinkels Mr. J. A. Mushore* Mr. B. P. Washaya Meetings held Meetings attended 4 4 4 4 4 3 4 4 4 4 4 4 2 4 * Resigned from the Board of NMBZ Holdings Limited with effect from 31 October 2014. 4.4.5 Loans Review Committee Name Mr. B. Chikwanha Mr. J. Chigwedere Mr. C. I. F. Ndiaye Mr. B. A. M. Zwinkels* Meetings held Meetings attended 4 4 4 4 4 4 3 0 * Appointed to the committee with effect from 18 March 2014. 4.4.6 Human Resources, Remuneration and Nominations Committee Name Mr. A. M. T. Mutsonziwa Mr. T. N. Mundawarara Mr. J. Chenevix-Trench Mr. B. A. M. Zwinkels Dr. J. T. Makoni Mr. C. I. F. Ndiaye** Mr. J. A. Mushore* Mr. B. P. Washaya Meetings held Meetings attended 4 4 4 4 4 3 4 4 3 4 3 4 4 3 2 4 * Resigned from the Board of NMBZ Holdings Limited with effect from 31 October 2014. ** Appointed to the committee with effect from 18 March 2014. 4.4.7 Credit Committee Name Mr. T. N. Mundawarara Mr. J. A. Mushore* Ms. M. Svova** Mr. J. Chenevix-Trench Mr. B. P. Washaya Meetings held Meetings attended 10 8 9 10 10 10 7 9 10 9 * Resigned from the Board of NMBZ Holdings Limited with effect from 31 October 2014. ** Appointed to the committee with effect from 6 March 2014. 11 ANNUAL REPORT 2 0 1 4 REPORT OF THE DIRECTORS (continued) 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, Remuneration and Nominations 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 Following the re-organisation of the Board, the NMBZ Holdings Limited and NMB Bank Limited boards comprise of eleven directors each. The boards of the holding company and the Bank are identical as they share eleven directors. The group obtained regulatory approval to have similar boards for the Group and the banking subsidiary as the Bank was the group's only operating subsidiary. NMBZ Holdings and the Bank boards comprises, of one executive and ten non-executive directors each. 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: Ms. M. Svova Mr. A. M. T. Mutsonziwa Mr. B. W. Madzivire 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: Mr. A. M. T. Mutsonziwa Mr. T. N. Mundawarara Mr. J. Chenevix-Trench Mr. B. A. M. Zwinkels Dr. J. T. Makoni** Mr.C. I. F. Ndiaye Mr. B. W. Madzivire Mr. J. A. Mushore* Mr. B. P. Washaya Chairman - Independent Non-Executive Director Independent Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Independent Non-Executive Director Group Chief Executive Officer Acting Group Chief Executive Officer * Resigned from the committee with effect from 31 October 2014. ** Resigned from the committee with effect from 31 December 2014. 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. B. Chikwanha Mr. J. Chigwedere Mr. C. I. F. Ndiaye Mr. B. A. M. Zwinkels Chairman - Independent Non-Executive Director Independent Non-Executive Director Non - Executive Director Non - Executive Director 12 ANNUAL REPORT 2 0 1 4 REPORT OF THE DIRECTORS (continued) 5. CORPORATE GOVERNANCE (continued) 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* Ms. M. Svova Mr. J. Chenevix-Trench Mr. B. P. Washaya Chairman - Independent Non-Executive Director Group Chief Executive Officer Independent Non-Executive Director Non-Executive Director Acting Group Chief Executive Officer * Resigned from the committee with effect from 31 October 2014. 5.6 Asset and Liability Management Committee (ALCO), Finance and Strategy Committee The ALCO, Finance & Strategy Committee is responsible for deriving the most appropriate strategy for the Group in terms of the mix of assets and liabilities given its expectations of the future and the potential consequences of interest-rate movements, liquidity constraints, foreign exchange exposure and capital adequacy. The committee also ensures that such strategy is in line with the group's risk appetite. In addition, the committee monitors the business and financial strategies of the Company. Membership: Mr. J. Chigwedere Mr. T. N. Mundawarara Mr. J. Chenevix-Trench Mr. R. Keighley Mr. B. A. M. Zwinkels Mr. J. A. Mushore* Mr. B. P. Washaya Chairman-Independent Non-Executive Director Independent Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer Acting Group Chief Executive Officer * Resigned from the committee with effect from 31 October 2014. 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. B. W. Madzivire Mr. C. I. F. Ndiaye Mr. R. Keighley Mr. J. A. Mushore* Mr. B. P. Washaya Mr. B. Chikwanha Chairman-Independent Non-Executive Director Non-Executive Director Non-Executive Director Chief Executive Officer Acting Group Chief Executive Officer Independent Non-Executive Director * Resigned from the committee with effect from 31 October 2014. 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 auditors' remuneration for the year ended 31 December 2014 and to appoint auditors of the Company for the ensuing year. By order of the Board V. Mutandwa Company Secretary Harare 18 March 2015 13 ANNUAL REPORT 2 0 1 4 STATEMENT OF DIRECTOR’S RESPONSIBILITY for the year ended 31 December 2014 1. RESPONSIBILITY The Directors of the Company are mandated by the Companies Act to maintain adequate accounting records and to prepare financial statements that present a true and fair view of the state of affairs of the Company at the end of each financial year. The information contained in these financial statements has been prepared on a going concern basis and is in accordance with the provisions of the Companies Act [Chapter 24:03]; the Banking Act [Chapter 24:20]; and International Financial Reporting Standards (IFRSs). 2. CORPORATE GOVERNANCE In its operations, the Group is guided by principles of corporate governance derived from the King III Report, the United Kingdom Combined Code and the Reserve Bank of Zimbabwe Corporate Governance Guideline. The directors of the Group are cognisant of their responsibility to exercise the duty of care and act in good faith in order to safeguard all stakeholders' interests. 3. BOARD OF DIRECTORS Board appointments are made in a manner that ensures an adequate mix of skills and expertise on the board. The majority of the group's non-executive directors are independent and thus provide the necessary checks and balances on the board and ensure that the interests of all stakeholders are taken into account in the decision making process. The Chairman of the board is an independent non-executive director. The board is assisted by various committees in executing its responsibilities. The board meets at least quarterly to assess risk, review financial performance, and provide guidance to management on operational and policy issues. The board conducts an annual evaluation to assess its effectiveness and develop remedial action plans to address weaknesses noted from the evaluation. The evaluation involves an assessment of collective board performance, the chairperson's performance and individual directors' performance. 4. INTERNAL FINANCIAL CONTROLS The board is responsible for ensuring that effective internal control systems are implemented within the Group. The Group maintains internal controls and systems designed to provide reasonable assurance of the integrity and reliability of its records, safeguard the assets of the group and prevent and detect fraud and errors. The Audit Committee in conjunction with the external auditors of the Group reviews and assesses the internal control systems of the Group in key risk areas. 5. GOING CONCERN The Directors have assessed the ability of the Group and its subsidiaries 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 Internal 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 control including internal financial controls and the conduct of the Group's operations. 7. REMUNERATION The Human Resources, Remuneration and Nominations 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 operationalising 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. 14 ANNUAL REPORT 2 0 1 4 STATEMENT OF DIRECTOR’S RESPONSIBILITY (continued) 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. The activities and charities supported during the year ended31 December 2014 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. 12.FINANCIAL STATEMENTS The Company's directors are responsible for the preparation and fair presentation of the financial statements, comprising the statement of financial position, statement of comprehensive income, statement of changes in equity and the statement of cash flows as at 31 December 2014, together with the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards and legislative and regulatory requirements. The directors' responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Approval of the financial statements The financial statements of the Company and Group appearing on pa 18 March 2015 and are signed on their behalf by: ges 17 to 80 wer e approved by the board of directors on …………………………………. T. N. Mundawarara Chairman …………………………………. B. P. Washaya Acting Group Chief Executive Officer Date: 18 March 2015 Date: 18 March 2015 15 KPMG Mutual Gardens 100 The Chase (West) Emerald Hill P.O. Box 6 Harare Zimbabwe Telephone: 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 consolidated and separate financial statements of NMBZ Holdings Limited, which comprise the statements of financial position as at 31 December 2014, and the statements of comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements which include a summary of significant accounting policies and other explanatory notes, as set out on pages 17 to 80. 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 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, these financial statements present fairly, in all material respects, the consolidated and separate financial position of NMBZ Holdings Limited as at 31 December 2014, and its consolidated and separate financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20) and relevant regulations made thereunder. KPMG CHARTERED ACCOUNTANTS (Zimbabwe) Harare 18 March 2015 KPMG, a Zimbabwean partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (”KPMG International”), a Swiss entity. 16 STATEMENTS OF COMPREHENSIVE INCOME for the year ended 31 December 2014 ANNUAL REPORT 2 0 1 4 Interest income Interest expense Net interest income Net foreign exchange gains Fee and commission income Revenue Non-interest income Share of profit of associate Profit on disposal of associate Operating expenditure Impairment losses on loans and advances Profit/(loss) before taxation Taxation (charge)/credit Profit/(loss) for the year Other comprehensive income for the year, net of tax Total comprehensive income/(loss) for the year Attributable to: Owners of the parent Note 4 5 6.3 6.1 6.2 24 7 21.3 8 6.4 GROUP 2014 US$ 2013 US$ COMPANY 2014 US$ 2013 US$ 31 072 461 (12 651 519) ---------------- 18 420 942 33 181 704 (13 006 505) ---------------- 20 175 199 1 - ---------------- 1 1 822 432 15 121 536 ---------------- 35 364 910 1 502 044 14 673 834 ---------------- 36 351 077 - - ---------------- 1 1 - ---------------- 1 - - ---------------- 1 62 025 - - (27 984 051) 777 720 217 768 580 136 (25 232 756) 430 690 - - (433 080) 719 837 - 1 324 286 (691 502) (5 017 362) ---------------- 2 425 522 (768 455) ---------------- 1 657 067 ---------------- 10 180 ---------------- (16 645 810) ---------------- (3 951 865) 630 042 ---------------- (3 321 823) ---------------- - ---------------- - ---------------- (2 389) (2 345) ---------------- (4 734) ---------------- - ---------------- - ---------------- 1 352 622 (371 010) ---------------- 981 612 ---------------- - ---------------- 1 667 247 ========= (3 321 823) ========= (4 734) ========= 981 612 ========= 1 667 247 ---------------- 1 667 247 ========= (3 321 823) ---------------- (3 321 823) ========= (4 734) ---------------- (4 734) ========= 981 612 ---------------- 981 612 ========= Earnings/(loss) per share (US cents) - Basic - Diluted basic 9.3 9.3 0.43 0.40 (1.00) (0.86) 17 STATEMENTS OF FINANCIAL POSITION as at 31 December 2014 ANNUAL REPORT 2 0 1 4 SHAREHOLDERS' FUNDS Share capital Capital reserves Retained earnings Total equity Redeemable ordinary shares Subordinated loan Total shareholders' funds LIABILITIES Deposits and other liabilities Deferred tax liabilities Total liabilities Total shareholders’ funds and liabilities ASSETS Cash and cash equivalents Current tax assets Investment securities held to maturity Loans, advances and other assets Investment in debentures Non-current assets held for sale Investments:- Trade investments Associates Group companies Quoted and other investments Investment properties Intangible assets Property and equipment Deferred tax assets Total assets Note GROUP 2014 US$ 2013 US$ COMPANY 2014 US$ 2013 US$ 10 11 12 13 14 15 16 19 20 8.4 17.1 21 18 22 23 24 25 26 27 28 29 19 78 598 19 093 810 10 131 991 ---------------- 29 304 399 14 335 253 1 407 964 ---------------- 45 047 616 ---------------- 241 001 418 - ---------------- 241 001 418 ---------------- 78 598 17 937 471 9 604 191 ---------------- 27 620 260 14 335 253 1 485 890 ---------------- 43 441 403 ---------------- 216 041 709 - ---------------- 216 041 709 ---------------- 78 598 15 800 111 748 260 ---------------- 16 626 969 14 335 253 - ---------------- 30 962 222 ---------------- 656 572 - ---------------- 656 572 ---------------- 78 598 15 783 219 752 994 ---------------- 16 614 811 14 335 253 - ---------------- 30 950 064 ---------------- 784 819 6 846 ---------------- 791 665 ---------------- 286 049 034 ========= 259 483 112 ========= 31 618 794 ========= 31 741 729 ========= 54 750 561 1 436 974 3 874 525 203 363 052 4 614 047 2 267 300 81 390 - - 127 291 4 453 300 1 950 733 6 345 267 2 784 594 ---------------- 286 049 034 ========= 48 871 983 1 739 210 4 685 471 181 316 271 3 984 723 2 303 300 190 148 - - 145 850 4 385 300 1 664 369 7 372 943 2 823 544 ---------------- 259 483 112 ========= 53 85 752 - 7 389 - - 52 91 722 - 7 385 - - - - 31 505 686 16 385 - - - 3 529 ---------------- 31 618 794 ========= 113 946 - 31 505 686 22 938 - - - - ---------------- 31 741 729 ========= Directors: …………………………………….. T. N. MUNDAWARARA …………………………………….. B. P. WASHAYA …………………………………….. V. MUTANDWA Company Secretary 18 March 2015 18 ANNUAL REPORT 2 0 1 4 STATEMENTS OF CHANGES TO EQUITY for the year ended 31 December 2014 GROUP Balances at 1 January 2013 Total loss for the year Transfer to regulatory reserve Balances at 31 December 2013 Total comprehensive income for the year Transfer to regulatory reserve Share options issued Balances at 31 December 2014 COMPANY Balances at 1 January 2013 Total comprehensive income for the year Balances at 31 December 2013 Total loss for the year Share options issued Balances at 31 December 2014 Share Capital US$ 78 598 - - ---------------- 78 598 - - - ---------------- 78 598 ========= Share Premium US$ 15 737 548 - - ---------------- 15 737 548 - - - ---------------- 15 737 548 ========= Share Option Reserve US$ 45 671 - - ---------------- 45 671 - - 16 892 ---------------- 62 563 ========= Regulatory Reserve US$ 2 301 683 - (147 431) ---------------- 2 154 252 - 1 139 447 - ---------------- 3 293 699 ========= Retained Earnings US$ 12 778 583 (3 321 823) 147 431 ---------------- 9 604 191 1 667 247 (1 139 447) - ---------------- 10 131 991 ========= Total US$ 30 942 083 (3 321 823) - ---------------- 27 620 260 1 667 247 - 16 892 ---------------- 29 304 399 ========= Share Capital US$ 78 598 - ---------------- 78 598 - - ---------------- 78 598 ========= Share Premium US$ 15 737 548 - ---------------- 15 737 548 - - ---------------- 15 737 548 ========= Share option Reserve US$ 45 671 - ---------------- 45 671 - 16 892 ---------------- 62 563 ========= Retained (loss)/ Earnings US$ (228 618) 981 612 ---------------- 752 994 (4 734) - ---------------- 748 260 ========= Total US$ 15 633 199 981 612 ---------------- 16 614 811 (4 734) 16 892 ---------------- 16 626 969 ========= 19 ANNUAL REPORT 2 0 1 4 GROUP 2014 US$ 2 425 522 2013 US$ (3 951 865) COMPANY 2014 US$ (2 389) 2013 US$ 1 352 622 5 017 362 (37 800) (6 274) 177 413 13 372 (46 900) 1 899 047 (3 000) - 337 118 - - ---------------- 9 775 860 16 645 810 (595 450) (30 022) - (9 892) (4 803) 1 695 856 (21 000) (1 500) 130 716 (217 768) (580 136) ---------------- 13 059 946 - - - - 6 559 - - - - - - - ---------------- 4 170 - - - - 10 801 - - - - - - (1 324 286) ---------------- 39 137 24 959 709 (27 064 142) (629 324) ---------------- 7 042 103 ---------------- 21 039 076 (51 362 087) (3 984 723) ---------------- (21 247 788) ---------------- (128 250) (4) - ---------------- (124 084) ---------------- (209 142) 170 101 - ---------------- 96 ---------------- (422 299) (8 500) ---------------- 6 611 304 ---------------- (2 876 507) (264 574) ---------------- (24 388 869) ---------------- - (6 750) ---------------- (130 834) ---------------- (262 599) - ---------------- (262 503) ---------------- 10 177 (992 076) (30 200) - - 39 000 (623 482) - 810 946 ---------------- (785 635) ---------------- 35 634 (1 506 369) (769 550) 1 850 000 (26 175) 39 500 (1 170 868) - 816 492 ---------------- (731 336) ---------------- - - - - - - - - - ---------------- (130 834) ---------------- - - - 140 487 130 835 (218 413) ---------------- 5 878 578 14 831 145 (495 892) 1 400 000 85 890 - - ---------------- (9 299 062) 48 871 983 ---------------- 54 750 561 ========= 58 171 045 ---------------- 48 871 983 ========= - - - - 130 835 - ---------------- 1 52 ---------------- 53 ========= - - - 1 850 000 (26 175) - - (15 896 574) - ---------------- (14 072 749) ---------------- 14 831 145 (495 892) - - - - ---------------- 1 51 ---------------- 52 ========= STATEMENTS OF CASH FLOWS for the year ended 31 December 2014 CASH FLOWS FROM OPERATING Profit/(loss) before taxation Non-cash items - Impairment losses on loans and advances - Investment properties fair value adjustment - Profit on disposal of property and equipment - Loss on disposal of property and equipment (included in staff costs) - Quoted and other investments fair value adjustment - Impairment reversal on land and buildings - Depreciation - Non-current assets held for sale fair value adjustment - Profit on disposal of non-current asset held for sale - Amortisation of intangible asset - Share of associate's profit - Profit on disposal of associate Operating cash flows before changes in operating assets and liabilities Changes in operating assets and liabilities Deposits and other liabilities Loans, advances and other assets Investment in debentures Net cash inflow/(outflow) generated from operations Taxation Corporate tax paid Capital gains tax paid Net cash inflow/(outflow) from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds on disposal of property and equipment Purchase of property and equipment Acquisition of investment property Proceeds on disposal of associate Expenses on disposal of associate Proceeds on disposal of non-current assets held for sale Acquisition of intangible asset Increase in investment in subsidiary Investment securities held to maturity Net cash outflow from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from redeemable ordinary shares Share issue expenses Proceeds from subordinated loan Interest capitalised on subordinated loan Proceeds on disposal of unquoted investment Repayment of interest on subordinated loan Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year (note 20) 20 ANNUAL REPORT 2 0 1 4 SIGNIFICANT ACCOUNTING POLICIES for the year ended 31 December 2014 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. BUSINESS COMBINATIONS Business combinations are accounted for using the acquisition method as at the acquisition date – i.e. when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Subsidiaries Subsidiaries are those investees controlled by the Group. The Group controls an investee if it is exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the subsidiary. 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. In the holding company's separate financial statements investment in subsidiaries are accounted for at cost. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if they are related to the issue of debt or equity securities. Any contingent consideration payable is measured at fair value at the acquisition date. If the contigent consideration is classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. Associates An associate is an entity over which the Group has significant influence, as evidenced by the Group holding directly or indirectly 20% or more of the voting power of the investee representation on the Board and direct involvement with the policy making processes of the investee. The Group's investment in its associate is accounted for using the equity method. Under the equity method, the investment in the associate is measured in the statement of financial position at cost plus post acquisition changes in the Group's share of the profit or loss and other comprehensive income of the associate until the date on which significant influences ceases. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. Unrealised gains resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is evidence of impairment. The financial statements of the associate are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on the Group's investment in its associate. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the 'share of profit of an associate' in the income statement. Upon loss of significant influence over the associate, the Group measures and recognises any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retaining investment and proceeds from disposal is recognised in profit or loss. Loss of Control When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non- controlling interests (NCI) and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. In the Holding Company's separate financial statements investments in subsidiaries are accounted for at cost. Non-controlling interests NCI are measured at their proportionate share of the acquiree's identifiable net assets at the acquisition date. Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. 21 ANNUAL REPORT 2 0 1 4 SIGNIFICANT ACCOUNTING POLICIES (continued) BUSINESS COMBINATIONS (continued) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses (except for foreign currency transaction gains or losses) arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. FOREIGN CURRENCY TRANSACTIONS Transactions in foreign currencies are translated into United States Dollars (US$), which is the respective functional currency of Group entities at the spot exchange rates at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the spot exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between the amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in the foreign currency translated at the spot exchange rate at the end of the year. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the spot exchange rate at the date on which the fair value is determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated using the spot exchange rate at the date of the transaction. Foreign currency differences arising on translation are generally recognised in profit or loss. TAXATION Income tax Income tax expenses comprise current, capital gains, deferred tax and AIDS levy. It is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income. Current tax Current tax comprises expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. It is measured using rates enacted or substantively 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 Deferred tax is recognised 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 is not recognised for: ! ! ! temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future; and taxable temporary differences arising on the initial recognition of goodwill. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. For this purpose, the carrying amount of investment property measured at fair value is presumed to be recovered through sale, and the Group has not rebutted this presumption. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. 22 ANNUAL REPORT 2 0 1 4 SIGNIFICANT ACCOUNTING POLICIES (continued) TAXATION (continued) Additional taxes that arise from the distribution of dividends by the Bank are recognised at the same time as the liability to pay the related dividend is recognised. These amounts are generally recognised in profit or loss because they generally relate to income arising from transactions that were originally recognised in profit or loss. DIVIDEND DISTRIBUTION Dividend distribution to the Company's shareholders is recognised as a liability in the period in which the dividends are approved by the Company's shareholders. FINANCIAL INSTRUMENTS Financial instruments – initial recognition and subsequent measurement (i) Date of recognition All financial assets and financial liabilities are initially recognised on the trade date, i.e., the date that the Group 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 management's intention in acquiring them. All financial instruments are measured initially at fair value plus transaction costs, except in the case of financial assets and financial liabilities recognised 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 recognised 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, 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 recognised in the statement of financial position at fair value. Changes in fair value are recognised in 'Net gain or loss on financial assets and liabilities designated at fair value through profit or loss'. Interest earned or incurred is accrued in 'Interest income' or 'Interest expense', respectively, using the effective interest rate (EIR), while dividend income is recorded in 'Non-interest income' when the right to the payment has been established. (v) 'Day 1' profit or loss When the transaction price differs from the fair value of other observable current market transactions in the same instrument, or based on a valuation technique whose variables include only data from observable markets, the Group immediately recognises the difference between the transaction price and fair value (a 'Day 1' profit or loss) in 'Net trading income'. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognised in the profit or loss statement when the inputs become observable, or when the instrument is derecognised. 23 ANNUAL REPORT 2 0 1 4 SIGNIFICANT ACCOUNTING POLICIES (continued) FINANCIAL INSTRUMENTS (continued) (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 Group, 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 profit or loss. The losses arising from impairment are recognised in the profit or loss 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 method. (viii) 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. (ix) 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 recognised 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 recognised in equity is recycled to the profit and loss. 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. 24 ANNUAL REPORT 2 0 1 4 SIGNIFICANT ACCOUNTING POLICIES (continued) FINANCIAL INSTRUMENTS (continued) 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 Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. (ii) Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms ,or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in profit or loss. FAIR VALUE MEASUREMENT ‘Fair value' is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk. When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price – i.e. the fair value of the consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out. If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a bid price and liabilities and short positions at an ask price. Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Group on the basis of the net exposure to either market or credit risk are measured on the basis of a price that would be received to sell a net long position (or paid to transfer a net short position) for a particular risk exposure. Those portfolio-level adjustments are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio. 25 ANNUAL REPORT 2 0 1 4 SIGNIFICANT ACCOUNTING POLICIES (continued) FAIR VALUE MEASUREMENT (continued) The fair value of a demand deposit is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid. The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred. 'Fair value' is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction on the measurement date. When available, the Group measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm's length basis. If a market for a financial instrument is not active, then the Group establishes fair value using a valuation technique. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Group, incorporates all factors that market participants would consider in setting a price and is consistent with accepted economic methodologies for pricing financial instruments. The best evidence of the fair value of a financial instrument at initial recognition is the transaction price – i.e. the fair value of the consideration given or received. However, in some cases the initial estimate of fair value of a financial instrument on initial recognition may be different from its transaction price. If this estimated fair value is evidenced by comparison with other observable current market transactions in the same instrument (without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets, then the difference is recognised in profit or loss on initial recognition of the instrument. In other cases, the fair value at initial recognition is considered to be the transaction price and the difference is not recognised in profit or loss immediately but is recognised over the life of the instrument on an appropriate basis or when the instrument is redeemed, transferred or sold, or the fair value becomes observable. If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a bid price and liabilities and short positions at an ask price. Where the Group has positions with offsetting risks, mid-market prices are used to measure the offsetting risk positions and a bid or ask price adjustment is applied only to the net open position as appropriate. The fair value of a demand deposit is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 17. Identification and measurement of impairment At each reporting date, the Group assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets is impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset(s) and that the loss event has an impact on the future cash flows of the asset(s) that can be estimated reliably. Objective evidence that financial assets are impaired includes: ! ! ! ! ! ! significant financial difficulty of the borrower or issuer; default or delinquency by a borrower; the restructuring of a loan or advance by the Group on terms that the Bank would not consider otherwise; indications that a borrower or issuer will enter bankruptcy; the disappearance of an active market for a security; or observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the Group, or economic conditions that correlate with defaults in the Group. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. However, in specific circumstances a smaller decline or a shorter period may be appropriate. The Group considers evidence of impairment for loans and advances and held-to-maturity investment securities at both a specific asset and a collective level. All individually significant loans and advances and held-to-maturity investment securities are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans and advances and held-to-maturity investment securities that are not individually significant are collectively assessed for impairment by grouping together loans and advances and held-to-maturity investment securities with similar risk characteristics. 26 ANNUAL REPORT 2 0 1 4 SIGNIFICANT ACCOUNTING POLICIES (continued) FAIR VALUE MEASUREMENT (continued) In assessing collective impairment, the Group uses statistical modelling of historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than is suggested by historical trends. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate. Impairment losses on assets measured at amortised cost are calculated as the difference between the carrying amount and the present value of estimated future cash flows discounted at the asset's original effective interest rate. If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one due to financial difficulties of the borrower, then an assessment is made of whether the financial asset should be derecognised. If the cash flows of the renegotiated asset are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and the new financial asset is recognised at fair value. The impairment loss before an expected restructuring is measured as follows: ! ! If the expected restructuring will not result in derecognition of the existing asset, then the estimated cash flows arising from the modified financial asset are included in the measurement of the existing asset based on their expected timing and amounts discounted at the original effective interest rate of the existing financial asset. If the expected restructuring will result in derecognition of the existing asset, then the expected fair value of the new asset is treated as the final cash flow from the existing financial asset at the time of its derecognition. This amount is discounted from the expected date of derecognition to the reporting date using the original effective interest rate of the existing financial asset. Impairment losses are recognised in profit or loss and reflected in an allowance account against loans and advances or held-to-maturity investment securities. Interest on the impaired assets continues to be recognised through the unwinding of the discount. If an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, then the decrease in impairment loss is reversed through profit or loss. Impairment losses on available-for-sale investment securities are recognised by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss recognised previously in profit or loss. Changes in impairment attributable to application of the effective interest method are reflected as a component of interest income. The Group writes off a loan or an investment debt security, either partially or in full, and any related allowance for impairment losses, when the Bank Credit Committee and the Board of Directors determines that there is no realistic prospect of recovery. 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 allowance 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 allowance 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 recognised in profit or loss. Non-performing loans Interest on loans and advances is accrued as 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. 27 ANNUAL REPORT 2 0 1 4 SIGNIFICANT ACCOUNTING POLICIES (continued) FAIR VALUE MEASUREMENT (continued) 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. 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 40.1.4 for further analysis of collateral). 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. CASH AND CASH EQUIVALENTS Cash and cash equivalents include notes and coins on hand, unrestricted balances held with central banks and highly liquid financial assets with original maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short term commitments. Cash and cash equivalents are carried at amortised cost in the statement of financial position. 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 recognised in the profit or loss as incurred. Land and buildings are measured at revalued amount less accumulated depreciation on buildings and impairment losses recognised 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 recognised in other comprehensive income and accumulated in the 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 recognised in profit or loss, in which case the increase is recognised in profit or loss. A revaluation deficit is recognised in profit or loss, except to the extent that it offsets an existing surplus on the same asset recognised 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. 28 ANNUAL REPORT 2 0 1 4 SIGNIFICANT ACCOUNTING POLICIES (continued) PROPERTY AND EQUIPMENT (continued) 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 derecognised 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 derecognised. 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. Amortisation of intangible assets: The depreciable amount of an intangible asset with a finite useful life is allocated on a straight line basis over its useful life. The amortisation rate is as follows: Computer software Borrowing costs 20% 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 qualifying 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 rewards 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. 29 ANNUAL REPORT 2 0 1 4 SIGNIFICANT ACCOUNTING POLICIES (continued) PROPERTY AND EQUIPMENT (continued) As lessor Leases where the Group does not transfer substantially all the risks and rewards 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. IMPAIRMENT OF NON FINANCIAL ASSETS The carrying amounts of the Group's non financial assets other than consumables and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets' recoverable amounts are estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The recoverable amount of assets is the greater of their fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. Impairment losses of continuing operations are recognised in profit or loss in those expense categories consistent with the functions of the impaired asset, except for property previously revalued where the revaluation was taken to other comprehensive income. In this case, the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist, or may have decreased. If such an indication exists the bank estimates the assets or CGU's recoverable. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the assets recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss. 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 banking subsidiary 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. 30 ANNUAL REPORT 2 0 1 4 SIGNIFICANT ACCOUNTING POLICIES (continued) 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 or loss, interest income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income includes income arising out of the banking activities of lending and investing. INTEREST EXPENSE Interest expense arises from deposit taking. The expense is recognised in profit or loss as it accrues, taking into account the effective interest cost of the liability. NON-INTEREST INCOME Other income comprises of income such as revenue derived from service fees, commission, facility arrangement fees, bad debts recoveries and profit/losses on disposals of property and equipment. Commission income is brought to account on an accrual basis and bad debts recoveries on a receipt basis. Service fee income is recognised on settlement date, or where determinable, by stage of completion. Arrangement fee income is deferred and recognised over the tenure of the facility. 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. Short term employee benefits/and share based payments Short term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. 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. INVENTORY Inventory is accounted for at weighted average cost. 31 ANNUAL REPORT 2 0 1 4 SIGNIFICANT ACCOUNTING POLICIES (continued) 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. SHAREHOLDERS' FUNDS Shareholders' funds refers to the total investment made by the shareholders to the Group and it consists of share capital, share premium, share options reserve, retained earnings, redeemable ordinary shares and subordinated loans. NON-CURRENT ASSETS HELD FOR SALE Non-current assets or disposal groups are held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. These are measured at the lower of the carrying amount and fair value less costs to sell and they are not depreciated. If the non-current asset or disposal group is scoped out of IFRS 5: Non-current assets held for sale and discontinued operations then the measurement principles of the relevant standard apply,. Non-current assets are valued by independent professional valuers. GOVERNMENT BONDS The Bank currently holds Treasury Bills and Reserve Bank of Zimbabwe Bonds which are valued at cost as there is currently no market information to facilitate application of the fair value principles. 32 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014 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 financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and have been prepared in compliance with the provisions of the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20). The financial statements were approved by the Board of Directors. 2.1 Basis of preparation The financial statements have been prepared under the historical cost convention except for quoted and other investments, investment properties, non-current assets held for sale and financial instruments which are carried at fair value and land and 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 Comparative financial information The consolidated financial statements comprise consolidated statements of financial position, comprehensive income, changes in equity and cash flows. The comparative consolidated statements of comprehensive income, changes in equity and cash flows are for twelve months. 2.3 Use of estimates, judgements and assumptions The preparation of the Group's consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In the process of applying the Group's accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the consolidated financial statements: 2.3.1 Deferred tax Deferred taxation is recognised 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. Differed 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 for assets purchased (in ZWD) prior to 1 January 2009 the directors referred to applicable effective exchange rates at the date of acquisition of assets or incurring of liabilities. The Zimbabwe Revenue Authority (ZIMRA), announced methods to be used to account for the deferred tax arising on assets purchased in ZWD. These methods require the preparer to first estimate the equivalent USD value of those assets at the time of purchase. Since the measurement of transactions in Zimbabwe dollars in the prior periods is affected by several economic variables such as mode of payment and hyperinflation this is an area where the directors have had to apply their judgement and acknowledge there could be significant variations in the results achieved depending on assumptions made. 33 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 2. ACCOUNTING CONVENTION (continued) 2.3.2 Land and buildings The properties were valued by an independent professional valuer. The valuer applied the rental yield method to assess fair value of land and buildings. The determined fair value of land and buildings is most sensitive to the estimated yield as well as the long term vacancy rate. In addition, the property market is currently not stable due to liquidity constraints and hence comparable values are also not stable. 2.3.3 Intangible assets Intangible assets are initially recognised at cost. Subsequently the assets are measured at cost less accumulated amortisation and any accumulated impairment loss. 2.3.4 Investment properties Investment property 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 judgement in determining the residual values of the other property and equipment which have been determined as nil. 2.3.5 Non-current assets held for sale Non-current assets or disposal group are held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. These are measured at the lower of carrying amount and fair value less costs to sell and they are not depreciated. Non-current assets were valued by professional valuers who considered comparable market evidence of recent sale transaction and those transactions where firm offers had been made but waiting acceptance. 2.3.6 RBZ Forex Bond RBZ Bond was valued at cost as there is no market information to facilitate the application of fair value principles. There is currently no active market for these bonds. 2.3.7 Impairment losses on loans and advances The Group reviews its individually significant loans and advances at each reporting date to assess whether an impairment loss should be recorded in profit or loss. In particular, judgement by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, the 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 Significant Accounting Policies – identification measurement of impairment. 2.3.8 Fair value adjustments on unquoted investments Fair value adjustment 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. 34 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 2. ACCOUNTING CONVENTION (continued) 2.3.9 Going concern The Directors have assessed the ability of the Group to continue operating as a going concern and believe that the preparation of these financial statements on a going concern basis is still appropriate. 2. 4 CHANGES IN ACCOUNTING POLICY AND DISCLOSURES 2.4.1 STANDARDS, AMENDMENTS AND INTERPRETATIONS, EFFECTIVE ON OR AFTER 1 JANUARY 2015 The following standards, amendments and interpretations are effective for accounting periods beginning on or after 1 January 2015 and are relevant to the Group. Standard/Interpretation IAS 27 Equity Method in Separate Financial Statements IAS 1 Disclosure Initiative IFRS 15 Revenue from contracts with customers IFRS 9 Financial Instruments (i) IAS 27 Equity Method in Separate Financial Statements Effective date periods beginning on or after 1 January 2016 1 January 2016 1 January 2017 1 January 2018 The amendments in IAS 27 will allow an entity to apply the equity method in its separate financial statements to account for its investments in subsidiaries, associates and joint ventures. The amendments apply retrospectively for annual periods beginning on or after 1 January 2016 and the Group has decided not to early adopt the amendments. (ii) IAS 1 Disclosure Initiative The amendments provide additional guidance on the application of materiality and aggregation when preparing financial statements. The amendments apply for annual periods beginning on or after 1 January 2016. (iii)IFRS 15 Revenue from contracts with customers This standard replaces IAS 11; Construction Contracts, IAS 18; Revenue, IFRIC 13; Customer Loyalty Programmes, IFRIC 15; Agreements for the Construction of Real Estate, IFRIC 18; Transfer of Assets from Customers and SIC-31; Revenue – Barter of Transactions Involving Advertising Services. The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised. (iv)IFRS 9 Financial Instruments The IASB issued the final IFRS 9 Financial Instruments Standard which replaces earlier version of IFRS 9. This standard will have a significant impact on the Group, which will include changes in the measurement bases of the Group's financial assets to amortised cost, fair value through other comprehensive income or fair value through profit or loss. Even though these measurement categories are similar to IAS 39, the criteria for classification into these categories are significantly different. In addition, the IFRS 9 impairment model has been changed from an “incurred loss” model from IAS 39 to an “expected credit loss” model, which is expected to increase the provision for bad debts rec in the Group. The standard is effective for annual periods beginning on or after 1 January 2018. 35 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 3. 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 2014 or 2013. 36 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 3. SEGMENT INFORMATION (continued) 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 2014 Retail Banking US$ Corporate Banking US$ Treasury US$ International Banking US$ Corporate Finance Unallocated US$ US$ Total US$ 21 813 485 19 173 640 3 940 624 1 755 909 986 037 408 758 48 078 453 (1 062 257 ) ---------------- (3 955 105) ---------------- - ---------------- - ---------------- - ---------------- - ---------------- (5 017 362) ---------------- 20 751 228 ---------------- 15 218 535 ---------------- 3 940 624 ---------------- 1 755 909 ---------------- 986 037 ---------------- 408 758 ---------------- 43 061 091 ---------------- 9 645 130 (2 766 971 ) ---------------- 6 878 159 ---------------- 18 806 056 (8 817 799) ---------------- 9 988 257 ---------------- 2 118 193 (1 066 749) ---------------- 1 051 444 ---------------- - - ---------------- - ---------------- 156 389 - ---------------- 156 389 ---------------- 346 693 - ---------------- 346 693 ---------------- 31 072 461 (12 651 519) ---------------- 18 420 942 ---------------- 12 168 355 367 584 - 1 755 909 829 688 - 15 121 536 Income Third party Impairment losses on loans and advances Net operating income Results Interest income Interest expense Net interest income Fee and commission income Depreciation of property and equipment 874 507 150 236 51 713 49 100 28 152 745 339 1 899 047 Amortisation of intangible assets Segment profit/ (loss) before tax Income tax expense Other comprehensive income for the year net of tax Profit/(loss) for the year Assets and liabilities Capital expenditure Total assets Total liabilities - - - - - 337 118 337 118 2 265 727 - (2 944 200) - 2 030 053 - 167 485 - 514 387 - 3 92 070 (768 455) 2 425 522 (768 455) - ---------------- - ---------------- - ---------------- - ---------------- - ---------------- 10 180 ---------------- 10 180 ---------------- 2 265 727 ========= (2 944 200) ========= 2 030 053 ========= 167 485 ========= 514 387 ========= (366 205) ========= 1 667 247 ========= 536 358 73 534 753 71 428 790 2 636 148 614 532 71 735 622 4 957 46 786 313 90 995 763 13 306 95 275 - - 1 526 165 - 1 058 301 15 491 996 6 841 243 1 615 558 286 049 034 241 001 418 37 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 3. SEGMENT INFORMATION (continued) 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 2013 Income Third party Impairment losses on loans and advances Net operating income Results Interest income Interest expense Net interest income Fee and commission income Depreciation of property and equipment Segment profit/ (loss) before tax Income tax credit Profit/(loss) for the year Assets and liabilities Capital expenditure Total assets Total liabilities Retail Banking US$ Corporate Banking US$ Treasury US$ International Banking US$ Corporate Finance Unallocated US$ US$ Total US$ 21 444 523 21 749 625 4 006 239 1 756 443 8 567 1 169 905 50 135 302 (658 002 ) ---------------- (15 987 808) ---------------- - ---------------- - ---------------- - ---------------- - ---------------- (16 645 810) ---------------- 20 786 521 ---------------- 5 761 817 ---------------- 4 006 239 ---------------- 1 756 443 ---------------- 8 567 ---------------- 1 169 905 ---------------- 33 489 492 ---------------- 7 363 929 (2 368 543 ) ---------------- 4 995 386 ---------------- 22 925 394 (9 120 151) ---------------- 13 805 243 ---------------- 2 504 195 (1 517 811) ---------------- 986 384 ---------------- - - ---------------- - ---------------- - - ---------------- - ---------------- 388 186 - ---------------- 388 186 ---------------- 33 181 704 (13 006 505) ---------------- 20 175 199 ---------------- 12 342 153 566 915 - 1 756 199 8 567 - 14 673 834 744 735 135 675 41 694 46 718 28 082 698 952 1 695 856 4 557 210 - ---------------- (11 415 432) - ---------------- 1 544 477 - ---------------- (111 864) - ---------------- (533 329) - ---------------- 2 007 073 630 042 ---------------- (3 951 865) 630 042 ---------------- 4 557 210 ========= (11 415 432) ========= 1 544 477 ========= (111 864) ========= (533 329) ========= 2 637 115 ========= (3 321 823) ========= 1 058 456 54 124 890 72 525 463 133 532 144 209 819 77 182 723 132 113 41 326 313 61 092 072 12 027 121 897 - 2 763 68 854 - 1 338 346 19 631 339 5 241 451 2 677 237 259 483 112 216 041 709 38 NOTES TO THE FINANCIAL STATEMENTS (continued) ANNUAL REPORT 2 0 1 4 4. INTEREST INCOME Loans and advances to banks Loans and advances to customers Investment securities Other 5. INTEREST EXPENSE Due to banks Due to customers Other borrowed funds GROUP COMPANY 2014 US$ 1 908 075 28 879 078 210 321 74 987 ---------------- 31 072 461 ========= 2013 US$ 2 252 247 30 615 147 251 949 62 361 ---------------- 33 181 704 ========= 2014 US$ - - - 1 ---------------- 1 ========= 2014 US$ 4 144 427 8 029 421 477 671 ---------------- 12 651 519 ========= 2013 US$ - - - 1 ---------------- 1 ========= GROUP 2013 US$ 4 637 619 7 960 563 408 323 ---------------- 13 006 505 ========= 6. FEE AND COMMISSION INCOME, NON-INTEREST INCOME, NET FOREIGN EXCHANGE GAINS AND OTHER COMPREHENSIVE INCOME 6.1 Fee and Commission income Retail banking customer fees Corporate banking credit related fees Financial guarantee income International banking commissions Corporate finance fees GROUP COMPANY 2014 US$ 12 168 355 227 064 140 520 1 755 909 829 688 ---------------- 15 121 536 ========= 2013 US$ 12 342 153 358 712 208 203 1 756 199 8 567 ---------------- 14 673 834 ========= 2014 US$ - - - - - ---------------- - ========= 2013 US$ - - - - - ---------------- - ========= 6.2 Non - interest income GROUP COMPANY Quoted and other investments fair value adjustments Profit on disposal of property and equipment Fair value adjustment on investment properties Profit on disposal on non-current assets held for sale Fair value adjustment on non-current assets held for sale Other operating income 6.3 Net foreign exchange gains Net foreign exchange gains 2014 US$ (13 372) 6 274 37 800 - 3 000 28 323 ---------------- 62 025 ========= 2013 US$ 9 892 30 022 595 450 1 500 21 000 119 856 ---------------- 777 720 ========= 2014 US$ (6 559) - - - - 437 249 ---------------- 430 690 ========= 2013 US$ (10 801) - - - - 730 638 ---------------- 719 837 ========= GROUP 2014 US$ 1 822 432 ========= 2013 US$ 1 502 044 ========= Net foreign exchange income includes gains and losses from spot and forward contracts. 39 NOTES TO THE FINANCIAL STATEMENTS (continued) 6. FEE AND COMMISSION INCOME, NON-INTEREST INCOME, NET FOREIGN EXCHANGE GAINS AND OTHER ANNUAL REPORT 2 0 1 4 COMPREHENSIVE INCOME (continued) 6.4 Other comprehensive income Gross revaluation adjustment on land and buildings Tax effect Net revaluation adjustment 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 Amortisation of intangible assets Depreciation Directors' remuneration - Fees for services as directors - Other emoluments Staff costs - salaries, allowances and related costs - termination benefits 8. TAXATION 8.1 Income tax expense/(credit) Current tax Aids levy Capital gains tax Deferred tax 8.2 Reconciliation of income tax charge/(credit) 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 Capital gains tax 2014 US$ 13 710 (3 530) ---------------- 10 180 ========= 2013 US$ - - ---------------- - ========= GROUP 2014 US$ 2013 US$ 2014 US$ 11 798 556 11 496 337 74 014 140 433 (46 900) 337 118 1 899 047 996 571 77 337 128 938 (4 803) 130 716 1 695 856 1 892 296 316 255 680 316 105 190 1 787 106 - - - - - - - - - COMPANY 2013 US$ 16 285 - - - - - - - - 11 699 514 1 085 698 ---------------- 27 984 051 ========= 9 816 079 - ---------------- 25 232 756 ========= 433 080 - ---------------- 433 080 ========= 675 217 - ---------------- 691 502 ========= GROUP COMPANY 2014 US$ 703 432 21 103 8 500 35 420 ---------------- 768 455 ========= 2013 US$ 533 722 14 610 264 574 (1 442 948) ---------------- (630 042) ========= 2014 US$ 5 796 174 6 750 (10 375) ---------------- 2 345 ========= 2013 US$ 84 865 2 546 262 599 21 000 ---------------- 371 010 ========= GROUP 2014 US$ 624 572 2013 US$ (1 017 605) COMPANY 2014 US$ (615) 2013 US$ 348 300 (28 871) 213 715 (49 461) 8 500 ---------------- 768 455 ========= (240 965) 542 108 (178 154) 264 574 ---------------- (630 042) ========= (3 734) 3 678 (3 734) 6 750 ---------------- 2 345 ========= (146 604) 8 962 (102 247) 262 599 ---------------- 371 010 ========= 40 NOTES TO THE FINANCIAL STATEMENTS (continued) 8. TAXATION (continued) 8.3 Total taxation charge/(credit) analysed by company GROUP COMPANY ANNUAL REPORT 2 0 1 4 Stewart Holdings (Private) Limited NMB Bank Limited NMBZ Holdings Limited 8.4 Current tax assets (income tax and aids levy) At 1 January Charge for the year Payments during the year 9. EARNINGS PER SHARE 2014 US$ (1 112) 767 222 2 345 ---------------- 768 455 ========= 2013 US$ 1 365 (973 175) 341 768 ---------------- (630 042) ========= 2014 US$ - - 2 345 ---------------- 2 345 ========= 2013 US$ - - 371 010 ---------------- 371 010 ========= GROUP COMPANY 2014 US$ (1 739 210) 733 035 (430 799) ---------------- (1 436 974) ========= 2013 US$ 588 965 812 906 (3 141 081) ---------------- (1 739 210) ========= 2014 US$ (91 722) 12 720 (6 750) ---------------- (85 752) ========= 2013 US$ (179 133) 350 010 (262 599) ---------------- (91 722) ========= 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/(loss) Attributable earnings/(loss) 9.2 Number of shares Weighted average shares in issue Diluted weighted average number of shares Number of shares at beginning of period Shares issued Redeemable ordinary shares issued – private placement Shares issued on consolidation Effect of dilution: Share options granted but not issued Share options approved but not granted 9.3 Earnings/(loss) per share (US cents) Basic earnings/(loss) per share Diluted earnings/(loss) per share 41 2014 US$ 1 667 247 ========= 2013 US$ (3 321 823) ========= 2014 2013 384 427 351 332 569 065 384 427 351 385 501 688 384 427 351 - - - 280 710 729 103 716 622 103 714 287 2 335 4 128 434 23 942 639 ---------------- 412 498 424 ========= 907 200 167 087 ---------------- 385 501 638 ========= 2014 0.43 0.40 2013 (1.00) (0.86) NOTES TO THE FINANCIAL STATEMENTS (continued) ANNUAL REPORT 2 0 1 4 10.SHARE CAPITAL 10.1 Authorised Ordinary shares of US$0.00028 each 10.2 Issued and fully paid 10.2.1 Ordinary shares 10.2.2 Redeemable ordinary shares At 1 January Shares issued (note 13) 2014 Shares million GROUP AND COMPANY 2014 US$ 2013 Shares million 2013 US$ 600 ========= 600 ========= 168 000 ========= 168 000 ========= GROUP AND COMPANY 31 Dec 2014 US$ 31 Dec 2013 US$ 31 Dec 2014 Shares million 281 ---------------- 281 ========= 31 Dec 2014 Shares million 104 - ---------------- 104 ========= 31 Dec 2013 Shares million 281 ---------------- 281 ========= 31 Dec 2013 Shares million - 104 ---------------- 104 ========= 78 598 ---------------- 78 598 ========= 78 598 ---------------- 78 598 ========= GROUP AND COMPANY 31 Dec 2014 US$ 31 Dec 2013 US$ 29 040 - ---------------- 29 040 ========= - 29 040 ---------------- 29 040 ========= Of the unissued ordinary shares of 215 million shares (2013– 215 million), options which may be granted in terms of the NMBZ 2005 Employee Share Option Scheme (ESOS) amounted to nil (2013 – nil) and the opening balance of 907 200 share options which had been issued but had not been exercised expired on 7 January 2014. Share options which may be granted in terms of the 2012 ESOS amount to 28 071 073 and as at 31 December 2014; 4 128 434 share options had been allocated from the Scheme. 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 Share premium Share option reserve Regulatory Total capital reserve 11.1 Nature and purpose of reserves 11.1.1 Share premium GROUP COMPANY 31 Dec 2014 15 737 548 62 563 3 293 699 ---------------- 19 093 810 ========= 31 Dec 2013 15 737 548 45 671 2 154 252 ---------------- 17 937 471 ========= 31 Dec 2014 15 737 548 62 563 - ---------------- 15 800 111 ========= 31 Dec 2013 15 737 548 45 671 - ---------------- 15 783 219 ========= This reserve represents the excess amount paid for the shares over and above the nominal value of the shares. 11.1.2 Share option reserve The share option reserve is used to recognise the value of equity settled share based payment ransactions provided to employees, including key management personnel, as part of their remuneration. Refer to note 38.3 for further details of these plans. 42 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 11. CAPITAL RESERVES (continued) 11.1.3 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 Analysis of retained profit by company GROUP COMPANY NMBZ Holdings Limited NMB Bank Limited Stewart Holdings (Private) Limited Total 13.REDEEMABLE ORDINARY SHARES Balance at 1 January Redeemable ordinary share capital (note 10.2.2) Share premium 31 Dec 2014 748 260 9 346 447 37 284 ---------------- 10 131 991 ========= 31 Dec 2013 752 994 8 802 981 48 216 ---------------- 9 604 191 ========= 31 Dec 2014 748 260 - - ---------------- 748 260 ========= 31 Dec 2014 US$ 14 335 253 - - ---------------- 14 335 253 ========= 31 Dec 2013 752 994 - - ---------------- 752 994 ========= 31 Dec 2013 US$ - 29 040 14 306 213 ---------------- 14 335 253 ========= On 30 June 2013 the Company received US$14 831 145 capital from Nederlandse Financierings-Maatschappij Voor Ontiwikkelingslanden N.V. (FMO), Norwegian Investment Fund for Developing Countries (Norfund) and AfricInvest Financial Sector Holdings (AfricInvest) who were allocated 34 571 429 shares each (total 103 714 287) for individually investing US$4 943 715. This amount, net of share issue expenses, was used to recapitalise the Bank in order to contribute towards the minimum capital requirements set by the Reserve Bank of Zimbabwe of US$100 million by 31 December 2020. NMBZ Holdings Limited (NMBZ) entered into a share buy-back agreement with Norfund, FMO and AfricInvest, where these three strategic investors have a right on their own discretion at any time after the 5th anniversary but before the 9th anniversary of its first subscription date, to request NMBZ to buy back all or part of its NMBZ shares at a price to be determined using the agreed terms as entailed in the share buy-back agreement. It is a condition precedent that at any point when the share buy-back is being considered, the proceeds used to finance the buy-back should come from the distributable reserves which are over and above the minimum regulatory capital requirements. Further, no buy-back option can be exercised by any investor after the 9th anniversary of the effective date. The share buy-back agreement creates a potential obligation for NMBZ Holdings Limited to purchase its own instruments. The shares issued gave rise to a potential financial liability and are classified as redeemable ordinary shares. 43 NOTES TO THE FINANCIAL STATEMENTS (continued) 14.SUBORDINATED LOAN Balance at 1 January Subordinated loan issued Interest capitalised Interest paid ANNUAL REPORT 2 0 1 4 GROUP 2014 US$ 1 485 890 - 140 487 (218 413) ---------------- 1 407 964 ========= 2013 US$ - 1 400 000 85 890 - ---------------- 1 485 890 ========= In 2013, the Bank received a subordinated loan amounting to US$1.4 million from Norfund which attracts an interest rate of LIBOR plus 10% and has a seven year maturity date from the first disbursement date. The above liability would, in the event of the winding up of the issuer, be subordinated to the claims of depositors and all other creditors of the issuer. The Group has not had any defaults on the principal and interest with respect to this subordinated loan during the year ended 31 December 2014. However, there was a breach regarding the cost to income ratio which stood at 78.9% instead of the 70% limit as at 31 December 2014. 15.TOTAL SHAREHOLDERS' FUNDS Shareholders' funds GROUP COMPANY 2014 US$ 45 047 616 ---------------- 45 047 616 ========= 2013 US$ 43 441 403 ---------------- 43 441 403 ========= 2014 US$ 30 962 222 ---------------- 30 962 222 ========= 2013 US$ 30 950 064 ---------------- 30 950 064 ========= Shareholders' funds refer to the total investments made by the shareholders into the Group and it consists of share capital (refer to Note 10), capital and reserves (refer to Note 11), retained earnings (refer to Note12), redeemable ordinary shares (refer to Note 13) and the subordinated loan (refer to Note 14). 16.DEPOSITS AND OTHER LIABILITIES 16.1 Deposits and other liabilities by type GROUP COMPANY Deposits from banks and other financial institutions** Current and deposit accounts from customers* Total deposits Trade and other payables* 2014 US$ 59 739 033 175 623 644 ---------------- 235 362 677 5 638 741 ---------------- 241 001 418 ========= 2013 US$ 52 338 708 158 876 358 ---------------- 211 215 066 4 826 643 ---------------- 216 041 709 ========= 2014 US$ - - ---------------- - 656 572 ---------------- 656 572 ========= 2013 US$ - - ---------------- - 784 819 ---------------- 784 819 ========= * The carrying amounts of Trade and other payables approximate the related fair value due to their short term nature. ** Included in deposits from banks and other financial institutions is a loan of US$3 915 269 due to Nederlandse Financierings- Maatschappij Voor Ontiwikkelingslanden N.V. (FMO). The Group has not had any defaults on the principal and interest with respect to this loan during the year ended 31 December 2014. There was a breach on the cost to income ratio that stood at 78.9% instead of the 70% limit as at 31 December 2014. The Bank requested for a waiver on the non-compliance ratio as at 31 December 2014 and the waiver was granted and received on 6 March 2015. 44 NOTES TO THE FINANCIAL STATEMENTS (continued) 16. DEPOSITS AND OTHER LIABILITIES (continued) 16.2 Maturity analysis Less than 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 5 years Over 5 years ANNUAL REPORT 2 0 1 4 GROUP 2014 US$ 172 324 494 32 017 300 4 887 371 8 890 799 17 242 713 - ---------------- 235 362 677 ========= 2013 US$ 160 919 521 28 819 465 2 163 310 1 697 507 17 615 263 - ---------------- 211 215 066 ========= 16.3 Sectoral analysis of deposits GROUP Agriculture Banks and other financial institutions Distribution Individuals Manufacturing Mining companies Municipalities and parastatals Other deposits Services Transport and telecommunications companies 17.FINANCIAL INSTRUMENTS 17.1 Investment securities held to maturity Government and public sector Securities – RBZ Bonds 2014 US$ 4 706 661 59 739 033 21 893 891 31 127 616 28 354 313 4 125 974 10 367 121 30 124 932 38 488 209 6 434 927 ---------------- 235 362 677 ========= % 2 25 9 13 12 2 5 13 16 3 ----- 100 === 2013 US$ 9 731 279 52 338 708 21 091 778 28 425 938 26 723 790 3 035 997 10 509 776 20 727 019 32 933 385 5 697 396 ---------------- 211 215 066 ========= % 4 25 10 13 13 1 5 10 16 3 ----- 100 === Cost 2014 US$ Cost 2013 US$ 3 874 525 ========= 4 685 471 ========= The RBZ Bond is valued at cost as there is currently no market information to facilitate application of fair value principles. 17.2 Maturity analysis of investment securities held to maturity Less than 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 year to 5 years Over 5 years 2014 US$ - - 2 582 519 1 292 006 - - ---------------- 3 874 525 ========= 2013 US$ - - 2 424 461 969 004 1 292 006 - ---------------- 4 685 471 ========= 17.3 Fair values of financial instruments The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Group determines fair values using other valuation techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. 45 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 17. FINANCIAL INSTRUMENTS (continued) Valuation models The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements. inputs that are quoted market prices (unadjusted) in active markets for identical instruments. ! Level 1: ! Level 2: inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data. ! Level 3: inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments. The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. 17.3.1 Financial instruments measured at fair value – fair value hierarchy Trade investments Quoted investments GROUP 31 Dec 2014 US$ 81 390 127 291 ---------------- 208 681 ========= Level 1 US$ - 127 291 ---------------- 127 291 ========= Level 2 US$ - - ---------------- - ========= Level 3 US$ 81 390 - ---------------- 81 390 ========= During the reporting period ended 31 December 2014, 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.The trade investments were valued using the net asset value method. Trade investments Quoted investments GROUP 31 Dec 2013 US$ 190 148 145 850 ---------------- 335 998 ========= Level 1 US$ - 145 850 ---------------- 145 850 ========= Level 2 US$ - - ---------------- - ========= Level 3 US$ 190 148 - ---------------- 190 148 ========= During the reporting period ended 31 December 2013, 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. Level 3 fair value measurements Reconciliation 31 December 2014 Trade investments Balance at 1 January Total loss in profit or loss Disposal of investment Balance at 31 December 46 GROUP US$ 190 148 5 188 (113 946) ---------------- 81 390 ========= NOTES TO THE FINANCIAL STATEMENTS (continued) 17. FINANCIAL INSTRUMENTS (continued) 31 December 2013 Trade investments Balance at 1 January Total loss in profit or loss Balance at 31 December ANNUAL REPORT 2 0 1 4 US$ 195 790 (5 642) ---------------- 190 148 ========= 17.3.2 Financial instruments not measured at fair value The below table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised: 31 December 2014 Assets Cash and cash equivalents Advances and other assets Investment in debentures Investment securities held to maturity Total Liabilities Deposits and other liabilities 31 December 2013 Assets Cash and cash equivalents Advances and other assets Investment in debentures Investment securities held to maturity Total Liabilities Deposits and other liabilities Level 1 US$ - - - - ---------------- - ========= Level 2 US$ 54 750 561 203 363 054 4 614 047 - ---------------- 262 727 662 ========= GROUP Total carrying Level 3 US$ - - - 3 874 525 ---------------- 3 874 525 ========= amount US$ 54 750 561 203 363 054 4 614 047 3 874 525 ---------------- 266 602 187 ========= - ---------------- - ========= 241 001 418 ---------------- 241 001 418 ========= - ---------------- - ========= 241 001 418 ---------------- 241 001 418 ========= Level 1 US$ - - - - ---------------- - ========= Level 2 US$ 48 871 983 181 316 271 3 984 723 - ---------------- 234 172 977 ========= GROUP Total carrying Level 3 US$ - - - 4 685 781 ---------------- 4 685 781 ========= amount US$ 48 871 983 181 316 271 3 984 723 4 685 781 ---------------- 238 858 758 ========= - ---------------- - ========= 216 041 709 ---------------- 216 041 709 ========= - ---------------- - ========= 216 041 709 ---------------- 216 041 709 ========= 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: ! The fair values of cash and cash equivalents, advances and other assets and deposits and other liabilities carrying amounts approximate their fair values largely due to the short – term maturities of these instruments. ! Fair value of financial assets and liabilities at fair value through profit or 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. 47 NOTES TO THE FINANCIAL STATEMENTS (continued) 18.INVESTMENT IN DEBENTURES Debentures Provision for impairment ANNUAL REPORT 2 0 1 4 GROUP 2014 US$ 4 787 074 (173 027) ---------------- 4 614 047 ========= 2013 US$ 4 787 074 (802 351) ---------------- 3 984 723 ========= During the period under review, the Group held debentures with a carrying amount of US$4 614 047 with a maturity period of 5 years. The debentures are at an interest rate of 10% per annum. The Bank has an option to convert the debentures to equity or redeem the debentures at par on or before the maturity date of 9 March 2018. 19.DEFERRED TAX Allowance for impairment losses on loans and advances Quoted and other investments Trade investments Non-current assets held for sale Investment properties Property and equipment Marking to market adjustments - IAS 39 Unrealised foreign exchange gains Suspended interest Deferred income Assessed losses Provision for share based payments Closing deferred tax (asset)/liability Deferred tax (asset)/liability at the beginning of the year Current year charge/(credit) Income tax (note 8.1) Relating to other comprehensive income (note 6.4) GROUP COMPANY 2014 US$ (3 058 971) 10 434 - 113 365 222 699 534 901 (46 451) 215 616 (610 275) (156 499) (5 063) (4 350) ---------------- (2 784 594) (2 823 544) ---------------- 38 950 35 420 3 530 2013 US$ (3 008 939) 11 106 5 697 115 165 257 081 432 934 (51 225) 65 951 (243 061) (405 463) (2 790) - ---------------- (2 823 544) 1 380 596 ---------------- (1 442 948) (1 442 948) - 2014 US$ 821 - - - - - - - - - - (4 350) ---------------- (3 529) 6 846 ---------------- 10 375 10 375 - 2013 US$ - 1 149 5 697 - - - - - - - - - ---------------- 6 846 14 154 ---------------- 21 000 21 000 - 20.CASH AND CASH EQUIVALENTS GROUP COMPANY 20.1 Balances with Reserve Bank of Zimbabwe 2014 US$ 2013 US$ Balances with the Central Bank 11 408 222 13 480 628 2014 US$ - 2013 US$ - 20.2 Balances with other banks and cash Current, nostro accounts and cash Interbank placements Interbank placements 15 842 339 27 500 000 ---------------- 54 750 561 ========= 31 391 355 4 000 000 ---------------- 48 871 983 ========= 53 - ---------------- 53 ========= 52 - ---------------- 52 ========= 48 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 21.LOANS, ADVANCES AND OTHER ASSETS 21.1 Total loans, advances and other assets 21.1.1 Advances Fixed term loans Local loans and overdrafts Reclassification to debentures Other assets GROUP COMPANY 2014 US$ 21 889 534 182 413 594 ---------------- 204 303 128 (4 614 047) 3 673 971 ---------------- 203 363 052 ========= 2013 US$ 21 711 476 159 806 508 ---------------- 181 517 984 (3 984 723) 3 783 010 ---------------- 181 316 271 ========= 2014 US$ - - ---------------- - - 7 389 ---------------- 7 389 ========= 2013 US$ - - ---------------- - - 7 385 ---------------- 7 385 ========= 21.1.2.Maturity analysis GROUP COMPANY Less than 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 5 years Over 5 years Total advances Allowance for impairment losses on loans and advances (note 21.3) Provision for suspended interest Reclassification to debentures Other assets (note 21.5) 21.2 Sectoral analysis of utilisations Agriculture and horticulture Conglomerates Distribution Food & beverages Individuals Manufacturing Mining Services 2014 US$ 131 810 553 24 022 035 1 747 453 3 881 236 56 002 042 - ---------------- 217 463 319 (10 790 192) (2 369 999) ---------------- 204 303 128 (4 614 047) 3 673 971 ---------------- 203 363 052 ========= 2014 US$ 17 523 451 10 030 909 55 359 765 442 295 58 353 526 29 100 980 5 044 850 41 607 543 ---------------- 217 463 319 ========= 2013 US$ 118 711 869 18 082 940 3 826 276 2 869 815 51 286 898 - ---------------- 194 777 798 (11 685 201) (1 574 613) ---------------- 181 517 984 (3 984 723) 3 783 010 ---------------- 181 316 271 ========= % 8 5 26 - 27 13 2 19 ----- 100 === 2014 US$ - - - - - - ---------------- - - - ---------------- - - 7 389 ---------------- 7 389 ========= GROUP 2013 US$ 11 208 448 9 190 491 46 458 831 480 502 46 499 825 36 880 202 1 584 085 42 475 414 ---------------- 194 777 798 ========= 2013 US$ - - - - - - ---------------- - - - ---------------- - - 7 385 ---------------- 7 385 ========= % 6 4 24 - 24 19 1 22 ----- 100 === The material concentration of loans and advances are with individuals 27% (2013- 24%) and distribution sector at 26% (2013 – 24%). 49 NOTES TO THE FINANCIAL STATEMENTS (continued) 21. LOANS, ADVANCES AND OTHER ASSETS (continued) 21.3 Allowances for impairment losses on loans, advances and debentures At 1 January Recognised in profit or loss Bad debts written off At 31 December Specific US$ 11 427 356 5 112 012 (5 912 371) ---------------- 10 626 997 ========= 2014 Portfolio US$ 257 845 (94 650) - ---------------- 163 195 ========= GROUP Total US$ 11 685 201 5 017 362 (5 912 371) ---------------- 10 790 192 ========= Specific US$ 7 164 064 16 493 700 (12 230 408) ----------------- 11 427 356 ========= 21.4 Non-performing loans and advances Total non-performing loans and advances Allowance for impairment losses on loans and advances Allowance for impairment losses on debentures (note 18) Interest in suspense Residue ANNUAL REPORT 2 0 1 4 2013 Portfolio US$ 105 735 152 110 - ---------------- 257 845 ========= Total US$ 7 269 799 16 645 810 (12 230 408) ---------------- 11 685 201 ========= GROUP 2014 US$ 38 581 699 (10 626 997) 173 027 (2 369 999) ---------------- 25 757 730 ========= 2013 US$ 38 730 878 (11 427 356) 802 351 (1 574 613) ---------------- 26 531 260 ========= 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$23 465 162 (2013-US$27 308 066). 21.5 Other assets Service deposits Prepayments and stocks Other receivables 21.6 Loans to officers Included in advances and other accounts (note 21.1) are loans to officers:- At 1 January Net additions during the year Fair value adjustment Balance at 31 December GROUP COMPANY 2014 US$ 761 226 1 601 003 1 311 742 ---------------- 3 673 971 ========= 2013 US$ 698 460 1 668 244 1 416 306 ---------------- 3 783 010 ========= 2014 US$ - - 7 389 ---------------- 7 389 ========= 2013 US$ - - 7 385 ---------------- 7 385 ========= GROUP 2014 US$ 2013 US$ 2 513 143 802 917 ---------------- 3 316 060 (180 394) ---------------- 3 135 666 ========= 1 879 479 832 595 ---------------- 2 712 074 (198 931) ---------------- 2 513 143 ========= Loans to officers are granted at a preferential rate of 6% per annum as part of their overall remuneration agreements. 50 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 21. LOANS, ADVANCES AND OTHER ASSETS (continued) 21.7 The terms and conditions applicable to advances are as follows: Tenure Interest rate Overdraft Payable on demand Loan Loan payable over a maximum period of 120 months (includes mortgage loans). Penalty interest rate of ten percentage points above loan rate up to a maximum penalty rate of 32% per annum. From 8% per annum up to a maximum of 22% per annum. Loans to employees and executive directors are at a discounted interest rate. Bankers Acceptances Loan payable over a minimum period of 30 days up to 90 days. Average of 13% per annum. 22.NON-CURRENT ASSETS HELD FOR SALE At 1 January 2013 Transfer from investment property Disposals Fair value adjustment GROUP COMPANY 2014 US$ 2 303 300 - (39 000) 3 000 ---------------- 2 267 300 ========= 2013 US$ 2 225 300 95 000 (38 000) 21 000 ---------------- 2 303 300 ========= 2014 US$ - - - - ---------------- - ========= 2013 US$ - - - - ---------------- - ========= The Group is in possession of land with a fair value of US$2 225 300 at year end. The Group entered into a sale agreement for this piece of land in 2012. However, the execution and finalisation of the sale under this contract has been pending since 2012 due to unexpected delays in obtaining certain regulatory approvals. The prospective buyer has reaffirmed their interest in finalising the sale transaction and the Bank is positive the disposal will be finalised within the next twelve months after the reporting date. 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 6.2). Measurement of fair value Fair value hierarchy The fair value of non-current assets held for sale was determined 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. All non-current assets held for sale are measured at their fair values. The values were arrived at by applying weighted average rate of US$90 per square metre. Level 2 The fair value of non-current assets held for sale of U$2 267 300 has been categorised under level 2 in the fair value hierarchy based on the inputs used for the valuation technique highlighted above. (see note 2.4.5 use of judgement and estimates). 51 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 23.TRADE INVESTMENTS Other Directors' valuation GROUP COMPANY 2014 US$ 81 390 ---------------- 81 390 ========= 81 390 ========= 2013 US$ 190 148 ---------------- 190 148 ========= 190 148 ========= 2014 US$ - ---------------- - ========= - ========= 2013 US$ 113 946 ---------------- 113 946 ========= 113 946 ========= Other investments represent equity investment in SWIFT. During the year the Group disposed its equity investment in Medical Investments (Private) Limited for US$130 835 in order to concentrate on its core business. The trade investments were valued using the net asset value method at 31 December 2014 (see note 17.3 on fair value measurement). 24.INVESTMENTS IN ASSOCIATE Investment in Altiwave Investments (Private) Limited The Bank has a 25.5 % interest in Altiwave Investments (Private) Limited which is the holding company of Lobels (Private) Limited. The investment arose from a Scheme of Arrangement agreed to by Lobels Holdings (Private) Limited shareholders and creditors (banks, suppliers and employees). Lobels Holdings (Private) Limited is in the bread and confectionery business. Altiwave Investments (Private) Limited is a company that is not listed on any public exchange. The following table illustrates the summarised unaudited financial information of Altiwave (Private) Limited. Summary of associate's statement of financial position Current assets Non-current assets Current liabilities Non-current liabilities Equity Share of associate's equity (25.5%) Associate's revenue and profit Revenue Profit Share of associate's profit (25.5%) Reconcilliation of carrying amount 1 January Increase in investment Share of profit in associate Allowance for impairment GROUP 31 Dec 2014 15 974 685 14 361 606 (12 993 517) (32 385 340) ---------------- (15 042 566) ========= 31 Dec 2013 7 867 222 15 487 433 (10 717 574) (30 857 571) ---------------- (18 220 490) ========= (3 835 854) ========= 4 646 225 ========= 87 153 020 ========= 5 348 411 ========= 1 363 845 ========= 64 753 584 ========= 1 759 363 ========= 448 638 ========= - - 1 363 845 (1 363 845) ---------------- - ========= - 510 448 638 (449 148) ---------------- - ========= The investment in Altiwave Investments (Private) Limited has been fully impaired as the company had negative equity as at 31 December 2014. 52 NOTES TO THE FINANCIAL STATEMENTS (continued) 25.INVESTMENTS IN GROUP ENTITIES 25.1 Subsidiaries Investments in subsidiaries: - NMB Bank Limited - Stewart Holdings Limited 25.2 Shareholding ANNUAL REPORT 2 0 1 4 COMPANY 2014 US$ 2013 US$ 31 491 006 14 680 ---------------- 31 505 686 ========= 31 491 006 14 680 ---------------- 31 505 686 ========= The subsidiaries and associates, all of which are registered in Zimbabwe, and the extent of the Group's beneficial interest therein and their principal business activities are listed below:- NMB Bank Limited Brixtun (Private) Limited NMB Fund Management (Private) Limited Stewart Holdings (Private) Limited Invariant (Private) Limited Darksan (Private) Limited Altiwave Investments (Private) Limited 2014 100% (Banking) 100% (Dormant) 100% (Dormant) 100% (Equity holding) 100% (Dormant) 100% (Dormant) 25.5% (Baking) 2013 100% (Banking) 100% (Dormant) 100% (Dormant) 100% (Equity Holdings) 100% (Dormant) 100% (Dormant) 25.5% (Baking) The consolidated financial statements include the financial information of the subsidiaries and associates listed above. 26. QUOTED AND OTHER INVESTMENTS Quoted investments GROUP COMPANY 2014 US$ 127 291 ========= 2013 US$ 145 850 ========= 2014 US$ 16 385 ========= 2013 US$ 22 938 ========= The quoted investments comprise shares stated for year end purposes at the last trading date of 31 December 2014. As these investments are trading on an active market they have been classified as level 1 in the fair value hierarchy. 27.INVESTMENT PROPERTIES At 1 January Improvements Fair value adjustments Transfer to non-current assets held for sale At 31 December GROUP 2014 US$ 4 385 300 30 200 37 800 - ---------------- 4 453 300 ========= 2013 US$ 3 115 300 769 550 595 450 (95 000) ---------------- 4 385 300 ========= Investment properties comprise a commercial property and residential properties that are leased out to third parties and land held for future development. All investment properties of the Group were not encumbered. Measurement of fair value Fair value hierarchy The fair value of the Group's investment properties as at 31 December 2014 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. 53 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 27. INVESTMENT PROPERTIES (continued) The values were arrived at by applying a weighted average market rate of US$34 per square metre. The commercial and residential properties are leased out under operating lease to various tenants. The Bank 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$36 160 (2013 – US$47 618) 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. Level 2 The fair value for investment properties of US$2 659 300 has been categorised under level 2 in the fair value hierarchy based on the inputs used for the valuation technique described below. The following shows reconciliation between the opening and closing balances for level fair values: At 1 January 2014 Improvements Fair value adjustments Balance at 31 December 2014 Level 3 US$ 2 575 300 10 200 73 800 ---------------- 2 659 300 ========= The fair value for investment properties of US$1 794 000 has been categorised under level 3 in the fair value hierarchy based on the inputs used for the valuation technique described below. The following shows reconciliation between the opening and closing balances for level fair values: At 1 January 2014 Improvements Fair value adjustments Balance at 31 December 2014 US$ 1 810 000 20 000 (36 000) ---------------- 1 794 000 ========= The values were arrived at by applying yield rates of 9.5% on rental values of between US$5 – US$7 per square metre. The properties are leased out under operating lease to various tenants. 54 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 27. INVESTMENT PROPERTIES (continued) Valuation technique and significant unobservable inputs The following table shows the valuation technique used in measuring the fair value of investment properties, as well as the significant unobservable inputs used. Valuation technique Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value measurement ! The Investment Method was applied on all income producing properties. Market capitalisation rates were derived from market sales evidence and were determined in consultation with other investors and property brokers in the market . ! The Direct Comparison Method was applied on all residential properties, after PMA Real E s t a t e ( P r i v a t e ) L i m i t e d identified various properties that have been sold or which were on sale and situated in comparable areas using the Main Space Equivalent (MSE) principle. The total (MSE) of comparable areas was then used to determine the value per square metre of (MSE). The estimated fair value would increase/ (decrease) if: ! expected market rental growth were higher/ (lower); void periods were shorter/(longer); the occupancy rates were higher /(lower); the risk adjusted discount rates were lower / (higher). ! Expected market rental growth (weighted average -1%) ! Void period (average 5 months after the end of each lease) ! Occupancy rate (60-100%), weighted average 95%) ! Risk adjusted discount rates (9.5% - 11.5%, weighted average 9.5% ! ! ! 55 NOTES TO THE FINANCIAL STATEMENTS (continued) ANNUAL REPORT 2 0 1 4 28.INTANGIBLE ASSETS Cost Balance at 1 January 2013 Reclassification from property, plant and equipment Acquisitions Balance at 1 January 2014 Acquisitions Balance at 31 December 2014 Accumulated amortisation and impairment Balance at 1 January 2013 Reclassification from property, plant and equipment Amortisation for the year Balance at 1 January 2014 Amortisation for the year Balance at 31 December 2014 Carrying amount At 31 December 2014 At 1 January 2014 At 1 January 2013 Work in Progress US$ Computer Software US$ Total US$ - 740 615 1 170 868 ---------------- 1 911 483 623 482 ---------------- 2 534 965 ---------------- - 740 615 1 170 868 ---------------- 1 911 483 414 809 ---------------- 2 326 292 ---------------- - 116 398 130 716 ---------------- 247 114 - 116 398 130 716 ---------------- 247 114 337 118 ---------------- 584 232 ========= 337 118 ---------------- 584 232 ========= - - - ---------------- - 208 673 ---------------- 208 673 ---------------- - - - ---------------- - - ---------------- - ========= 208 673 ========= - ========= - ========= 1 742 060 ========= 1 664 369 ========= - ========= 1 950 733 ========= 1 664 369 ========= - ========= The amortisation expense of intangible assets is included under operating expenditure (note 7). 56 NOTES TO THE FINANCIAL STATEMENTS (continued) 29.PROPERTY AND EQUIPMENT ANNUAL REPORT 2 0 1 4 Capital work in progress Computers US$ Motor vehicles US$ Furniture & equipment US$ - - - - - ---------------- - 101 375 - - ---------------- 101 375 ========= - - - - ---------------- - - - ---------------- - ---------------- 101 375 ========= - ========= - ========= 2 696 533 340 606 - (9 862) (740 615) ---------------- 2 286 662 319 048 - (4) ---------------- 2 605 706 ========= 846 183 308 164 (8 637) (116 398) ---------------- 1 029 312 356 749 (6) ---------------- 1 386 055 ---------------- 1 219 651 ========= 1 257 350 ========= 1 850 350 ========= 3 322 357 682 969 - (2 198) - ---------------- 4 003 128 392 366 - (234 069) ---------------- 4 161 425 ========= 985 396 910 994 (1 966) - ---------------- 1 894 424 1 030 894 (52 754) ---------------- 2 872 564 ---------------- 1 288 861 ========= 2 108 704 ========= 2 336 961 ========= 2 484 201 459 413 - (29 250) - ---------------- 2 914 364 179 287 - (3) ---------------- 3 093 648 ========= 1 254 054 435 589 (25 092) - ---------------- 1 664 551 456 604 (1) ---------------- 2 121 154 ---------------- 972 494 ========= 1 249 813 ========= 1 230 147 ========= Freehold Land & buildings US$ 2 815 724 23 381 4 803 - - ---------------- 2 843 908 - 60 610 - ---------------- 2 904 518 ========= 45 723 41 109 - - ---------------- 86 832 54 800 - ---------------- 141 632 ---------------- 2 762 886 ========= 2 757 076 ========= 2 770 001 ========= Total US$ 11 318 815 1 506 369 4 803 (41 310) (740 615) ---------------- 12 048 062 992 076 60 610 (234 076) ---------------- 12 866 672 ========= 3 131 356 1 695 856 (35 695) (116 398) ---------------- 4 675 119 1 899 047 (52 761) ---------------- 6 521 405 ---------------- 6 345 267 ========= 7 372 943 ========= 8 187 459 ========= Cost At 1 January 2013 Additions Revaluation gain Disposals Reclassification At 1 January 2014 Additions Revaluation gain Disposals At 31 December 2014 Accumulated depreciation At 1 January 2013 Charge for the year Disposals Transfer to intangible assets At 1 January 2014 Charge for the year Disposals At 31 December 2014 Carrying amount At 31 December 2014 At 1 January 2014 At 1 January 2013 Measurement of fair value Fair value hierarchy Immovable properties were revalued as at 31 December 2014 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 measured 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 9.5% on rental levels of between US$5 - US$7 per square metre. The carrying cost less accumulated depreciation of the land and buildings had revaluations not been performed would be US$3 343 677 as at 31 December 2014 (2013 –US$3 419 586). 57 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 29. PROPERTY AND EQUIPMENT (continued) Level 3 The fair value of immovable properties of US$2 762 886 has been categorised under level 3 in the fair value hierarchy based on the inputs used for the valuation technique described below. The following shows reconciliation between the opening and closing balances for level fair values: At 1 January 2014 Additions Revaluation gain Depreciation Balance at 31 December 2014 US$ 2 757 076 - 60 610 (54 800) ---------------- 2 762 886 ========= Valuation technique and significant unobservable inputs The following table shows the valuation technique used in measuring the fair value of freehold land and buildings, as well as the significant unobservable inputs used. Valuation technique Significant unobservable inputs ! Expected market rental growth (weighted average -1%). ! Average market yield was 9%. ! The Direct Comparison Method was applied on all properties, after PMA Real Estate (Private) Limited identified various properties that have been sold or which were on sale and situated in comparable areas using the Main Space Equivalent (MSE) principle. The total (MSE) of comparable areas was then used to determine the value per square metre of (MSE). Inter-relationship between key unobservable inputs and fair value measurement ! The estimated fair value would increase/(decrease) the expected market rental growth were higher/ (lower). if 58 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 30.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 financial liabilities are categorised by the earlier of contractual repricing or maturity dates. 30.1 Total position At 31 December 2014 Assets Cash and cash equivalents Current tax assets Investment securities held to maturity Investment in debentures Investments Quoted and other investments Loans, advances and other assets Deferred tax Non-current assets held for sale Intangible assets Property, plant and equipment Investment properties Liabilities and equity Deposits and other liabilities Redeemable ordinary shares Equity Subordinated loan Interest rate repricing gap Cumulative gap Up to 1 month US$ 1 month to 3 months US$ 3 months to 1 year US$ year to Non-interest bearing 5 years US$ US$ Total US$ GROUP 54 750 561 - - - - 118 823 390 - - - - - ---------------- 173 573 951 ---------------- 172 324 494 - - - ---------------- 172 324 494 ---------------- 1 249 457 ---------------- 1 249 457 ========= - - - - - 19 234 961 - - - - - ---------------- 19 234 961 ---------------- - - 3 874 525 - - 5 628 688 - - - - - ---------------- 9 503 213 ---------------- 32 017 300 - - - ---------------- 32 017 300 ---------------- (12 782 339) ---------------- (11 532 882) ========= 13 778 170 - - - ---------------- 13 778 170 ---------------- (4 274 957) ---------------- (15 807 839) ========= - - - 4 614 047 - 56 002 042 - - - - - ---------------- 60 616 089 ---------------- 17 242 712 - - 1 407 964 ---------------- 18 650 676 ---------------- 41 965 413 ---------------- 26 157 574 ========= - 1 436 974 - - 208 681 3 673 971 2 784 594 2 267 300 1 950 733 6 345 267 4 453 300 ---------------- 23 120 820 ---------------- 5 638 742 14 335 253 29 304 399 - ---------------- 49 278 394 ---------------- (26 157 574) ---------------- - ========= 54 750 561 1 436 974 3 874 525 4 614 047 208 681 203 363 052 2 784 594 2 267 300 1 950 733 6 345 267 4 453 300 --------------- 286 049 034 --------------- 241 001 418 14 335 253 29 304 399 1 407 964 --------------- 286 049 034 --------------- - --------------- - ========= 59 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 30. INTEREST RATE REPRICING AND GAP ANALYSIS (continued) The table below analyses the Group's interest rate risk exposure on assets and liabilities. The financial assets and financial liabilities are categorised by the earlier of contractual repricing or maturity date. At 31 December 2013 GROUP Up to 1 month US$ 1 month to 3 months US$ 3 months to 1 year US$ 1 year to Non-interest bearing US$ 5 years US$ Total US$ Assets Cash and cash equivalents Current tax assets Investment securities held to maturity Investment in debentures Quoted and other investments Loans, advances and other assets Deferred tax Non-current assets held for sale Intangible assets Property, plant and equipment Investment properties Liabilities and equity Deposits and other liabilities Redeemable ordinary shares Equity Subordinated loan Interest rate repricing gap Cumulative gap 48 871 983 - - - - 106 254 406 - - - - - ---------------- 155 126 389 ---------------- - - - - - 18 082 940 - - - - - ---------------- 18 082 940 ---------------- - - 3 393 465 - - 6 696 091 - - - - - ---------------- 10 089 556 ---------------- 160 919 521 - - - ---------------- 160 919 521 ---------------- (5 793 132) ---------------- (5 793 132) ========= 28 819 465 - - - ---------------- 28 819 465 ---------------- (10 736 525) ---------------- (16 529 657) ========= 3 860 817 - - - ---------------- 3 860 817 ---------------- 6 228 739 ---------------- (10 300 918) ========= - - 1 292 006 3 984 723 - 46 499 824 - - - - - ---------------- 51 776 553 ---------------- 17 615 263 - - 1 485 890 ---------------- 19 101 153 ---------------- 32 675 400 ---------------- 22 374 482 ========= - 1 739 210 - - 335 998 3 783 010 2 823 544 2 303 300 1 664 369 7 372 943 4 385 300 ---------------- 24 407 674 ---------------- 4 826 643 14 335 253 27 620 260 - ---------------- 46 782 156 ---------------- (22 374 482) ---------------- - ========= 48 871 983 1 739 210 4 685 471 3 984 723 335 998 181 316 271 2 823 544 2 303 300 1 664 369 7 372 943 4 385 300 --------------- 259 483 112 --------------- 216 041 709 14 335 253 27 620 260 1 485 890 --------------- 259 483 112 --------------- - --------------- - ========= 60 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 31.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. 31.1 United States dollar At 31 December 2014 Assets Cash and cash equivalents Investment securities held to maturity Investment in debentures Quoted and other investments Loans, advances and other assets Non-current assets held for sale Property, plant and equipment Investment properties Current tax assets Deferred tax Intangible assets Liabilities and equity Deposits and other liabilities Subordinated term loan Redeemable Ordinary shares Equity Interest rate repricing gap Cumulative gap Up to 1 month US$ 1 month to 3 months US$ 3 months to 1 year US$ 1 year to Non-interest bearing US$ 5 years US$ Total US$ GROUP 53 208 157 - - - 118 542 586 - - - - - - ---------------- 171 750 743 ---------------- 170 924 080 - - - ---------------- 170 924 080 ---------------- 826 663 ---------------- 826 663 ========= - - - - 19 234 961 - - - - - - ---------------- 19 234 961 ---------------- - 3 874 525 - - 5 628 688 - - - - - - ---------------- 9 503 213 ---------------- - - 4 614 047 - 56 002 042 - - - - - - ---------------- 60 616 089 ---------------- - - - 127 291 3 673 971 2 267 300 6 345 267 4 453 300 1 436 974 2 784 594 1 950 733 ---------------- 23 039 430 ---------------- 53 208 157 3 874 525 4 614 047 127 291 203 082 248 2 267 300 6 345 267 4 453 300 1 436 974 2 784 594 1 950 733 --------------- 284 144 436 --------------- 32 017 300 - - - ---------------- 32 017 300 ---------------- (12 782 339) ---------------- (11 955 676) ========= 13 778 170 - - - ---------------- 13 778 170 ---------------- (4 274 957) ---------------- (16 230 633) ========= 17 242 712 1 407 964 - - ---------------- 18 650 676 ---------------- 41 965 413 ---------------- 25 734 780 ========= 5 638 742 - 14 335 253 29 304 399 ---------------- 49 278 394 ---------------- (26 238 964) ---------------- (504 184) ========= 239 601 004 1 407 964 14 335 253 29 304 399 --------------- 284 648 620 --------------- (504 184) --------------- - ========= 61 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 31. INTEREST RATE REPRICING AND GAP ANALYSIS (continued) 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. At 31 December 2013 GROUP Up to 1 month US$ 1 month to 3 months US$ 3 months to 1 year US$ year to Non-interest bearing 5 years US$ US$ Total US$ Assets Cash and cash equivalents Investment securities held to maturity Investment in debentures Quoted and other investments Loans, advances and other assets Non-current assets held for sale Property, plant and equipment Investment properties Current tax assets Deferred tax Intangible assets Liabilities and equity Deposits and other liabilities Subordinated term loan Redeemable Ordinary shares Equity Interest rate repricing gap Cumulative gap 45 502 565 - - - 105 979 379 - - - - - - ---------------- 151 481 944 ---------------- - - - - 18 082 940 - - - - - - ---------------- 18 082 940 ---------------- - 3 393 465 - - 6 696 091 - - - - - - ---------------- 10 089 556 ---------------- - 1 292 006 3 984 723 - 46 499 824 - - - - - - ---------------- 51 776 553 ---------------- - - - 259 796 3 783 010 2 303 300 7 372 943 4 385 300 1 739 210 2 823 544 1 664 369 ---------------- 24 331 472 ---------------- 45 502 565 4 685 471 3 984 723 259 796 181 041 244 2 303 300 7 372 943 4 385 300 1 739 210 2 823 544 1 664 369 --------------- 255 762 465 --------------- 156 542 459 - - - ---------------- 156 542 459 ---------------- (5 060 515) ---------------- (5 060 515) ========= 28 819 465 - - - ---------------- 28 819 465 ---------------- (10 736 525) ---------------- (15 797 040) ========= 3 860 817 - - - ---------------- 3 860 817 ---------------- 6 228 739 ---------------- (9 568 301) ========= 17 615 263 1 485 890 - - ---------------- 19 101 153 ---------------- 32 675 400 ---------------- 23 107 099 ========= 4 826 643 - 14 335 253 27 620 260 ---------------- 46 782 156 ---------------- (22 450 684) ---------------- 656 415 ========= 211 664 647 1 485 890 14 335 253 27 620 260 --------------- 255 106 050 --------------- 656 415 --------------- - ========= 62 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 32.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. 32.1 Other foreign currencies At 31 December 2014 Assets Cash and cash equivalents Investment securities held to maturity Loans, advances and other assets Liabilities and equity Deposits and other liabilities Interest rate repricing gap Cumulative gap Up to 1 month US$ 1 month to 3 months US$ 3 months to 1 year US$ year to Non-interest bearing 5 years US$ US$ Total US$ GROUP 1 542 404 - 280 804 ---------------- 1 823 208 ---------------- - - - ---------------- - ---------------- - - - ---------------- - ---------------- - - - ---------------- - ---------------- - 81 390 - ---------------- 81 390 ---------------- 1 542 404 81 390 280 804 --------------- 1 904 598 --------------- 1 400 414 ---------------- 1 400 414 ---------------- 422 794 ---------------- 422 794 ========= - ---------------- - ---------------- - ---------------- 422 794 ========= - ---------------- - ---------------- - ---------------- 422 794 ========= - ---------------- - ---------------- - ---------------- 422 794 ========= - ---------------- - ---------------- 81 390 ---------------- 504 184 ========= 1 400 414 --------------- 1 400 414 --------------- 504 184 --------------- - ========= 63 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 32. INTEREST RATE REPRICING AND GAP ANALYSIS (continued) 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. At 31 December 2013 GROUP Up to 1 month US$ 1 month to 3 months US$ 3 months to 1 year US$ year to Non-interest bearing 5 years US$ US$ Total US$ Assets Cash and cash equivalents Quoted and other investments Loans, advances and other assets Liabilities and equity Deposits and other liabilities Interest rate repricing gap Cumulative gap 3 369 418 - 275 027 ---------------- 3 644 445 ---------------- - - - ---------------- - ---------------- - - - ---------------- - ---------------- - - - ---------------- - ---------------- - 76 202 - ---------------- 76 202 ---------------- 3 369 418 76 202 257 027 --------------- 3 720 647 --------------- 4 377 062 ---------------- 4 377 062 ---------------- (732 617) ---------------- (732 617) ---------------- - ---------------- - ---------------- - ---------------- (732 617) ---------------- - ---------------- - ---------------- - ---------------- (732 617) ---------------- - ---------------- - ---------------- - ---------------- (732 617) ---------------- - ---------------- - ---------------- 76 202 ---------------- (656 415) ---------------- 4 377 062 --------------- 4 377 062 --------------- (656 415) --------------- - --------------- 64 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 33.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. 33.1 At 31 December 2014 GROUP US$ US$ RAND US$ GBP US$ EUR US$ BWP US$ TOTAL US$ Assets Cash and cash equivalents Investment securities held to maturity Investment in debentures Quoted and other investments Loans, advances and other assets Non-current assets held for sale Property, plant and equipment Investment properties Deferred tax Current tax assets Intangible assets . Liabilities and equity Deposits and other liabilities Subordinated term loan Deferred tax liabilities Redeemable Ordinary Shares Equity Net foreign exchange Position 53 208 157 3 874 525 4 614 047 127 291 203 082 248 2 267 300 6 345 267 4 453 300 2 784 594 1 436 974 1 950 733 ---------------- 284 144 436 ---------------- 679 043 - - - 133 874 - - - - - - ---------------- 812 917 ---------------- 73 501 - - - 1 913 - - - - - - ---------------- 75 414 ---------------- 769 628 - - 81 390 143 493 - - - - - - ---------------- 994 511 ---------------- 239 601 004 1 407 964 - 14 335 253 29 304 399 ---------------- 284 648 620 ---------------- (504 184) ========= 1 137 328 - - - - ---------------- 1 137 328 ---------------- (324 411) ========= 77 755 - - - - ---------------- 77 755 ---------------- (2 341) ========= 179 999 - - - - ---------------- 179 999 ---------------- 814 512 ========= 20 232 - - - 1 524 - - - - - - ---------------- 21 756 ---------------- 5 332 - - - - ---------------- 5 332 ---------------- 16 424 ========= 54 750 561 3 874 525 4 614 047 208 681 203 363 052 2 267 300 6 345 267 4 453 300 2 784 594 1 436 974 1 950 733 ---------------- 286 049 034 ---------------- 241 001 418 1 407 964 - 14 335 253 29 304 399 ---------------- 286 049 034 ---------------- - ========= 65 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 33. FOREIGN EXCHANGE POSITIONS (continued) 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. At 31 December 2013 GROUP US$ US$ RAND US$ GBP US$ EUR US$ BWP US$ TOTAL US$ 45 502 565 4 685 471 3 984 723 259 796 181 041 244 2 303 300 7 372 943 4 385 300 2 823 544 1 739 210 1 664 369 ---------------- 255 762 465 ---------------- 211 664 647 1 485 890 - 14 335 253 27 620 260 ---------------- 255 106 050 ---------------- 656 415 ========= 2 830 024 - - - 152 361 - - - - - - ---------------- 2 982 385 ---------------- 66 194 - - - 1 783 - - - - - - ---------------- 67 977 ---------------- 3 960 848 - - - - ---------------- 3 960 848 ---------------- (978 463) ========= 40 174 - - - - ---------------- 40 174 ---------------- 27 803 ========= 537 176 - - 76 202 118 458 - - - - - - ---------------- 731 836 ---------------- 371 645 - - - - ---------------- 371 645 ---------------- 360 191 ========= Assets Cash and cash equivalents Investment securities held to maturity Investment in debentures Quoted and other investments Loans, advances and other assets Non-current assets held for sale Property, plant and equipment Investment properties Deferred tax Current tax assets Intangible assets Liabilities and equity Deposits and other liabilities Subordinated term loan Deferred tax liabilities Redeemable Ordinary Shares Equity Net foreign exchange Position 34.CONTINGENT LIABILITIES Guarantees Commitments to lend Irrevocable Letters of Credit (63 976) - - - 2 425 - - - - - - ---------------- (61 551) ---------------- 48 871 983 4 685 471 3 984 723 335 998 181 316 271 2 303 300 7 372 943 4 385 300 2 823 544 1 739 210 1 664 369 ---------------- 259 483 112 ---------------- 4 395 - - - - ---------------- 4 395 ---------------- (65 946) ========= 216 041 709 1 485 890 - 14 335 253 27 620 260 ---------------- 259 483 112 ---------------- - ========= GROUP 2014 US$ 6 246 933 33 341 817 900 000 ---------------- 40 488 750 ========= 2013 US$ 869 778 41 195 923 1 550 000 ---------------- 43 615 701 ========= The Group enters into various irrevocable commitments and contingent liabilities in its normal course of business in order to meet financial needs of customers. These obligations are not recognised on the statement of financial position, but contain credit risk and are therefore part of the overall risk of the Group. Guarantees commit the Group to make payments on behalf of clients in the event of a specified act. Guarantees carry the same credit risk as loans. Commitments to lend represent contractual commitments to advance loans and revolving credits. Commitments have fixed expiry dates and may expire without being drawn upon, hence total contract amounts do not necessarily represent future cash requirements. 66 NOTES TO THE FINANCIAL STATEMENTS (continued) 35.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. 36.ASSETS UNDER CUSTODY ANNUAL REPORT 2 0 1 4 GROUP 2014 US$ 190 000 3 815 868 ---------------- 4 005 868 ========= 2013 US$ 1 157 882 2 294 978 ---------------- 3 452 860 ========= During the year, the Bank received Treasury Bills from the Reserve Bank of Zimbabwe amounting to US$2 706 327 on behalf of its Tobacco Retention Scheme customers. These Treasury Bills are currently held off balance sheet. 37.OPERATING LEASE COMMITMENTS Lease commitments Up to 1 year 1 – 5 years GROUP 2014 US$ 6 054 886 1 210 977 4 843 909 2013 US$ 5 697 814 1 139 563 4 558 251 Lease commitments relate to future rental commitments up to the expiry of the lease agreements. The amount of operating lease expenses recognised in profit or loss is USD$1 198 902. 38.RELATED PARTIES As required by IAS 24, Related Party Disclosures, the Board's view is that non-executive directors, executive directors and executive management constitute the key management of the Group. Accordingly, key management remuneration is disclosed below. 38.1 Compensation of key management personnel of the Group Short-term employee benefits Post employment benefits Termination benefits GROUP 2014 US$ 1 637 393 113 903 1 085 698 ---------------- 2 836 994 ========= 2013 US$ 1 669 029 118 077 - ---------------- 1 787 106 ========= 38.2 Key management interest in employee share options At 31 December 2014, key management held options to purchase 1 379 366 ordinary shares of the Company. 67 NOTES TO THE FINANCIAL STATEMENTS (continued) 38. RELATED PARTIES (continued) 38.3 Balances of loans to directors, officers and others Loans to directors and officers or their companies are included in advances and other accounts (note 20.1). Non-executive directors Executive directors Officers (Note 21.6) Directors' companies Officers' companies Fair value adjustment 38.4 Other related party disclosures Entities with significant influence over the Group 2014 2013 38.5 Borrowing powers Holding Company ANNUAL REPORT 2 0 1 4 GROUP 2014 US$ - 51 610 3 316 060 - 10 169 ---------------- 3 377 839 (180 394) ---------------- 3 197 445 ========= 2013 US$ 7 000 723 140 2 712 934 4 727 129 26 320 ---------------- 8 196 523 (198 931) ---------------- 7 997 592 ========= Amounts owed by Related parties US$ - 4 734 129 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. 39.EMPLOYEE BENEFITS 39.1 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 included 661 416 shares in NMBZ Holdings Limited as at 31 December 2014. 39.2 Expense recognised in profit or loss Defined Contribution Plan - NSSA Defined Contribution Plan – NMB Bank Pension Fund The expense is recognised in profit or loss as part of staff costs under operating expenses (note 7). GROUP 2014 US$ 183 552 683 091 ---------------- 866 643 ========= 2013 US$ 155 991 651 947 ---------------- 807 938 ========= 68 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 39. EMPLOYEE BENEFITS (continued) 39.3 Employee Share Option Scheme In terms of the Employee Share Option Scheme, up to a maximum of 10% of the issued share capital may be granted by the directors to senior employees by way of options. Each set of options is exercisable at any time within a period of five years from the date the options are granted and the issue price is based on the higher of nominal value of the shares and the middle market price derived from the Zimbabwe Stock Exchange prices for the trading day immediately preceding the date of offer. The options vest immediately from date of issue and the fair value of the options is estimated at the grant date using the Black – Scholes option pricing model, taking into account the terms and conditions upon which the instruments were granted. Movements in the year The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of, and movements in share options during the year. GROUP and COMPANY Outstanding as at 1 January Lapsed Issued Exercised Outstanding as at 31December Terms of options outstanding at 31 December 2014 GROUP & COMPANY Expiry date 18 June 2022 Exercise price US$ 0.04 2014 No. 000's 907 200 (907 200) 4 128 434 - ---------------- 4 128 434 ---------------- WAEP$ 0.047 0. 047 0.04 - ---------------- 0.047 ---------------- 2014 Shares 4 128 434 ---------------- 4 128 434 ========= 2013 WAEP$ No. 000's 907 200 - - - ---------------- 907 200 ---------------- 0 . 0 0 5 - - - ---------------- 0.005 ---------------- 39.4 National Social Security Authority Scheme All employees of the Group are members of the National Social Security Authority Scheme, a defined contribution plan to which both the employer and the employees contribute. Contributions by the employer are recognised in profit or loss account and during the period amounted to US$183 552 (2013 – US$155 991). 69 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 40.EXCHANGE RATES The following exchange rates have been used to translate the foreign currency balances to United States dollars at year end: British Sterling South African Rand European Euro Botswana Pula 41. RISK MANAGEMENT GBP ZAR EUR BWP 31 Dec 2014 Mid - rate US$ 1.5564 11.5764 1.2159 9.5057 31 Dec 2013 Mid - rate US$ 1.6014 9.9487 1.3697 8.5034 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 Group's risk universe, developing policies and monitoring implementation. The Group strengthened its risk management function by appointing a Chief Risk Officer in September 2013 with overall responsibility over all risks in the Group. The Group has complied with Basel II implementation timelines set by the Reserve Bank of Zimbabwe. Risk management is linked logically from the level of individual transactions to the Group level. Risk management activities broadly take place simultaneously at the following different hierarchy levels: b) Macro Level: 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 Group'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. It encompasses risk management within a business area or across business lines. These risk management functions are performed by middle management. 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. c) Micro Level: Risk management is premised on four (4) mutually reinforcing pillars, namely: a) adequate board and senior management oversight; b) adequate strategy, policies, procedures and limits; c) adequate risk identification, measurement, monitoring and information systems; and d) comprehensive internal controls and independent reviews. 41.1 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 Group reviewed its credit risk management structures aimed at enhancing credit risk and asset quality. The Group's general credit strategies centre on sound credit granting process, diligent credit monitoring and strong loan collection and recovery. There is a separation between loan collection and recovery. There is a separation between loan granting and credit monitoring to ensure independency and effective management of the loan portfolio. The Board has put in place sanctioning committees with specific credit approval limits. The Credit Management department does the initial review of all applications before recommending them to the Executive Credit Committee and finally the Board Credit Committee depending on the loan amount. The Group has in place a Board Loans Review Committee responsible for reviewing the quality of the loan book and adequacy or loan loss provisions. The Group has implemented an end to end credit risk management solution. The system automated the bank's credit process from loan origination, appraisal, monitoring and collections. In the last half of 2014, the Bank did a gradual roll-out of the credit risk system to allow for a smooth transition and rigorous assessment of the system's impact on the bank's processes and procedures. The project will be finalised in the first quarter of 2015. 70 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 41. RISK MANAGEMENT (continued) Credit Management ! Responsible for evaluating & approving credit proposals from the business units. ! Together with business units, has primary responsibility on the quality of the loan book. ! Reviewing credit policy for approval by the Board Credit Committee. ! Reviewing business unit level credit portfolios to ascertain changes in the credit quality of individual customers or other counterparties as well as the overall portfolio and detect unusual developments. ! Approve initial customer internal credit grades or recommend to the Credit Committees for approval. ! Setting the credit risk appetite parameters. ! Ensure the Group adheres to limits, mandates and its credit policy. ! Ensure adherence to facility covenants and conditions of sanction e.g. annual audits, gearing levels, management accounts. ! Manage trends in asset and portfolio composition, quality and growth and non-performing loans. ! Manage concentration risk both in terms of single borrowers or group as well as sector concentrations and the review of such limits. Credit Monitoring and Financial Modelling Independent Credit Risk Management. Independent on-going monitoring of individual credit and portfolios. ! ! ! Triggers remedial actions to protect the interests of the Group, if appropriate (e.g. in relation to deteriorated credits). ! Monitors the on-going development and enhancement of credit risk management across the Group. ! Reviews the Internal Credit Rating System. ! On-going championing of the Basel II methodologies across the Group. ! Ensures consistency in the rating processes and performs independent review of credit grades to ensure they conform to the rating standards. ! Confirm the appropriateness of the credit risk strategy and policy or recommends necessary revisions in response to changes/trends identified. Credit Administration ! Prepares and keeps custody of all facility letters. ! Security registration. ! Safe custody of security documents. ! Ensures all conditions of sanction are fulfilled before allowing drawdown or limit marking. ! Review of credit files for documentation compliance e.g. call reports, management accounts. Recoveries The recoveries unit is responsible for all collections and ensures that the Group maximizes recoveries from Non-Performing Loans (NPLs). 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. 71 NOTES TO THE FINANCIAL STATEMENTS (continued) 41. RISK MANAGEMENT (continued) 41.1.1 Maximum exposure to credit risk without taking account of any collateral Cash and cash equivalents (excluding cash on hand) Investment securities held to maturity Investment in debentures Loans, advances and other accounts Total Guarantees Commitments to lend Total Total credit risk exposure Note 17 21 34 34 ANNUAL REPORT 2 0 1 4 GROUP 2014 US$ 42 784 235 3 874 525 4 614 047 204 303 128 ---------------- 255 575 935 ---------------- 6 246 933 33 341 817 ---------------- 39 588 750 ---------------- 295 164 685 ========= 2013 US$ 37 478 596 4 685 471 3 984 723 181 517 984 ---------------- 227 666 774 ---------------- 869 778 41 195 923 ---------------- 42 065 701 ---------------- 269 732 475 ========= 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. 41.1.2 Risk concentrations of maximum exposure to credit risk Agriculture and horticulture Conglomerates Distribution Food and beverages Individuals Manufacturing Mining Services Provision for impairment losses on loans and advances Allowance for impairment loss on debentures Net exposure 41.1.3 Collateral and other credit enhancements 31 Dec 2014 Gross Maximum Exposure US$ 17 523 451 10 030 909 55 359 765 442 295 58 353 526 29 100 980 5 044 850 41 607 543 ---------------- 217 463 319 (10 790 192) 173 027 ---------------- 206 846 154 ========= 31 Dec 2014 Net Maximum Exposure US$ 3 354 701 8 330 909 30 326 615 367 295 58 353 525 9 883 680 824 850 8 546 848 ---------------- 119 988 423 (10 790 192) 173 027 ---------------- 109 371 258 ========= 31 Dec 2013 Gross Maximum Exposure US$ 11 208 448 9 190 491 46 458 831 480 502 46 499 825 36 880 202 184 085 42 475 414 ---------------- 194 777 798 (11 685 201) 802 351 ---------------- 183 894 948 ========= 31 Dec 2013 Net Maximum Exposure US$ 2 700 448 9 190 491 18 027 082 311 208 41 849 843 12 453 702 534 086 6 845 411 ---------------- 91 912 271 (11 685 201) 802 351 ---------------- 81 029 421 ========= The amount and type of collateral required depends on an assessment of credit risk of the counterparty. There are guidelines regarding the acceptability of types of collateral. The main types of collateral obtained are guarantees, cession of debtors, mortgages over residential properties, equities, subordination of shareholder loans and promissory notes. The fair value of all collateral held by the Group at the reporting date is US$97 474 895 (2013 –US$102 865 527). 72 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 41. RISK MANAGEMENT (continued) 41.1.4 Credit quality per sector At 31 December 2014 Agriculture and horticulture Conglomerates Distribution Food and beverages Individuals Manufacturing Mining Services Total At 31 December 2013 Agriculture and horticulture Conglomerates Distribution Food and beverages Individuals Manufacturing Mining Services Total Pass US$ 8 386 990 6 980 006 16 499 037 - 42 770 892 3 312 798 215 178 16 221 472 ---------------- 94 386 373 ========= Pass US$ 5 309 230 6 516 690 11 524 681 352 346 41 156 506 4 625 812 - 18 073 321 ---------------- 87 558 586 ========= Special Mention Substandard US$ 182 714 - 1 708 984 - 4 534 247 2 387 345 - 2 246 246 ---------------- 11 059 536 ========= US$ 7 378 259 3 050 903 28 731 792 7 253 9 988 130 18 592 291 3 047 743 13 698 876 ---------------- 84 495 247 ========= Special Mention Substandard US$ 63 905 - 1 820 472 51 361 2 972 153 3 738 489 1 425 465 3 639 346 ---------------- 13 711 191 ========= US$ 2 901 992 2 673 801 23 018 401 76 795 2 029 363 22 833 550 140 783 14 813 649 ---------------- 68 488 334 ========= Doubtful US$ 1 214 425 - 3 272 537 435 042 886 466 2 406 342 1 781 929 8 505 001 ---------------- 18 501 742 ========= Doubtful US$ 71 912 - 4 991 584 - 341 803 3 028 849 17 837 4 597 298 ---------------- 13 049 283 ========= Loss US$ 361 063 - 5 147 415 - 173 791 2 402 204 - 935 948 ---------------- 9 020 421 ========= Loss US$ 2 861 409 - 5 103 693 - - 2 653 502 - 1 351 800 ---------------- 11 970 404 ========= Total US$ 17 523 451 10 030 909 55 359 765 442 295 58 353 526 29 100 980 5 044 850 41 607 543 ---------------- 217 463 319 ========= Total US$ 11 208 448 9 190 491 46 458 831 480 502 46 499 825 36 880 202 1 584 085 42 475 414 ---------------- 194 777 798 ======== Pass: Refers to loans graded 1 to 3. Special Mention: Refers to loans graded 4 to 7. Substandard: Doubtful: Loss: Refers to loans graded 8. Refers to loans graded 9. Refers to loans graded 10. 73 NOTES TO THE FINANCIAL STATEMENTS (continued) 41. RISK MANAGEMENT (continued) 41.1.5 Credit quality analysis per grade Loans and advances to customers Carrying amount (note 21) Assets at amortised cost Individually impaired Grade 8 Grade 9 Grade 10 Gross amount Allowance for impairment Impairment Suspended interest Carrying amount Collectively impaired 1 to 5 low to fair risk 6 to 7 watch list Gross amount Allowance for impairment Impairment Suspended interest Carrying amount Total carrying amount at amortised cost 41.2 Market risk ANNUAL REPORT 2 0 1 4 31 Dec 2014 US$ 204 303 128 31 Dec 2013 US$ 181 517 984 11 059 536 18 501 742 9 020 421 ---------------- 38 581 699 13 711 191 13 049 283 11 970 404 ---------------- 38 730 878 (10 453 970) (2 369 999) ---------------- 25 757 730 ========= (10 625 005) (1 574 613) ---------------- 26 531 260 ========= 144 009 906 34 871 714 ---------------- 178 881 620 134 300 212 21 746 708 ---------------- 156 046 920 (336 222) - ---------------- 178 545 398 ========= (1 060 196) - ---------------- 154 986 724 ========= 204 303 128 ========= 181 517 984 ========= This is the exposure of the Group'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 Group has in place a Management Asset and Liability Committee (ALCO) which monitors market risk and recommends the appropriate levels to which the Group should be exposed at any time. Net Interest Margin is the primary measure of interest rate risk, supported by periodic stress tests to assess the Group'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 Group'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 Group'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. 74 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 41. RISK MANAGEMENT (continued) Sensitivity of net interest income At 31 December 2014 Currency USD USD USD USD USD USD Increase in interest rates % 5 3 1 -1 -3 -5 0 to 1 months US$ (1 201 696) (721 018) (240 339) 240 339 721 018 1 201 696 1 to 3 months US$ (1 029 873) (617 924) (205 975) 205 975 617 924 1 029 873 3months to 1 year US$ (68 021) (40 813) (13 604) 13 604 40 813 68 021 1 year to 5 years US$ 2 963 418 1 778 051 592 684 (592 684) (1 778 051) (2 963 418) Total US$ 663 828 398 297 132 766 (132 766) (398 297) (663 828) For interest rate repricing and gap analysis refer note 24.1. At 31 December 2013 Currency USD USD USD USD USD USD Increase in interest rates % 5 3 1 (1) (3) (5) 0 to 1 months US$ (289 657) (173 794) (57 931) 57 931 173 794 289 657 1 to 3 months US$ (536 826) (322 096) (107 365) 107 365 322 096 536 826 3months to 1 year US$ 311 437 186 862 62 287 (62 287) (186 862) (311 437) 1 year to 5 years US$ 1 633 770 980 262 326 754 (326 754) (80 262) (1 633 770) Total US$ 1 118 724 671 234 223 745 (223 745 (671 234) (1 118 724) 41.3 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 2014 Currency ZAR ZAR ZAR ZAR ZAR ZAR At 31 December 2013 Currency ZAR ZAR ZAR ZAR ZAR ZAR Effect on equity US$ (14 985) (8 991) (2 997) 2 997 8 991 14 985 Effect on equity US$ (12 231) (7 338) (2 446) 2 446 7 338 12 231 % Change in currency rate Effect on profit before tax US$ 5 3 1 -1 -3 -5 (20 181) (12 109) (4 036) 4 036 12 109 20 181 % Change in currency rate Effect on profit before tax US$ ( 36 692) (22 015) (7 338) 7 338 22 015 36 692 5 3 1 (1) (3) (5) 75 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 41. RISK MANAGEMENT (continued) 41.4 Liquidity risk Liquidity risk is the risk of financial loss arising from the inability of the Group to fund asset increases or meet obligations as they fall due without incurring unacceptable costs or losses. The Group 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 Group for managing liquidity risk is the ratio of net liquid assets to deposits to customers. The Group 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 30.1. The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. The Group monitors its liquidity ratio in compliance with Banking Regulations to ensure that it is not less than 30% 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 2014 Guarantees Commitments to lend At 31 December 2013 Guarantees Commitments to lend On Demand US$ - - ---------------- - ========= 0 to 1 months US$ 3 716 420 944 901 ---------------- 4 661 321 ========= 1 to 3 months US$ 275 000 5 605 940 ---------------- 5 880 940 ========= 3 months to 1 year US$ 2 255 513 23 291 114 ---------------- 25 546 627 ========= 1 year to to 5 years US$ - 3 499 862 ---------------- 3 499 862 ========= Total US$ 6 246 933 33 341 817 --------------- 39 588 750 ========= On Demand US$ - - ---------------- - ========= 0 to 1 months US$ - - ---------------- - ========= 1 to 3 months US$ 199 778 28 223 147 ---------------- 28 422 925 ========= 3 months to 1 year US$ 670 000 11 478 076 ---------------- 12 148 076 ========= 1 year to to 5 years US$ - 1 494 700 ---------------- 1 494 700 ========= Total US$ 869 778 41 195 923 --------------- 42 065 701 ========= The Group expects that not all of the contingent liabilities or commitments will be drawn before expiry of the commitments. 41.5 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 Group utilises monthly Key Risk Indicators to monitor operational risk in all units. Further to this, the Group has an elaborate Operational Loss reporting system in which all incidents with a material impact on the well-being of the Group are reported to risk management. The risk department conducts periodic risk assessments on all the units within the Group 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. 76 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 41. RISK MANAGEMENT (continued) 41.6 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 Group has an independent compliance function which is responsible for identifying and monitoring all compliance issues and ensures the Group complies with all regulatory and statutory requirements. 41.7 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 Group conducts its business. To manage this risk, the Group strictly monitors customers' complaints, continuously train staff at all levels, conducts market surveys and periodic reviews of business practices through its Internal Audit department. The directors are satisfied with the risk management processes in the Group as these have contributed to the minimisation of losses arising from risky exposures. 41.8 Strategic risk This refers to current and prospective impact on a Group's earnings and capital arising from adverse business decisions or implementing strategies that are not consistent with the internal and external environment. To manage this risk, the Group 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 Group. 41.9 Risk ratings 41.9.1 Reserve Bank of Zimbabwe ratings In 2013 the Reserve Bank of Zimbabwe conducted an onsite inspection on the Group's banking subsidiary and detailed below were the final ratings. Subsequent to this, a further review was done in 2014 during which the RBZ indicated that the bank had attended to their satisfaction all matters raised in the 2013 inspection. 41.9.1.1 CAMELS* ratings CAMELS Component Ratings 30/06/2013 Capital Adequacy Asset Quality Management Earnings Liquidity Sensitivity to Market Risk Composite Rating Latest RBS** Ratings 31/01/2008 Previous RBS Ratings 30/06/2007 Previous RBS 2 4 3 2 2 2 3 4 2 3 3 3 3 3 4 3 3 3 3 3 4 * CAMELS is an acronym for Capital Adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to Market Risk. CAMELS rating system uses a rating scale of 1-5, where '1' is Strong, '2' is Satisfactory, '3' is Fair, '4' is Weak and '5' is Critical. ** RBS stands for Risk-Based Supervision. 77 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 41. RISK MANAGEMENT (continued) 41.9.1.2 Summary RAS ratings CAMELS Component Ratings 30/06/2013 Overall Inherent Risk Overall Risk Management Systems Overall Composite Risk Direction of Overall Composite Risk Latest RAS** Ratings 31/01/2008 Moderate Acceptable Moderate Stable Previous RBS Ratings 30/06/2007 Moderate Acceptable Moderate Stable Previous RBS High Weak High Increasing *** RAS stands for Risk Assessment System. 41.9.1.3 Summary risk matrix -30 June 2013 on-site examination Type of Risk Level of Inherent Risk Systems Adequacy of Risk Management Overall Composite Risk Credit Liquidity Interest Rate Foreign Exchange Strategic Risk Operational Risk Legal & Compliance Reputation Overall KEY Level of Inherent Risk High Moderate Moderate Low Moderate Moderate Moderate Moderate Moderate Weak Acceptable Acceptable Acceptable Acceptable Acceptable Strong Strong Acceptable High Moderate Moderate Low Moderate Moderate Moderate Moderate Moderate Direction of Overall Composite Risk Increasing Stable Stable Stable Stable Stable Stable Stable Stable Low – reflects a lower than average probability of an adverse impact on a banking institution's capital and earnings. Losses in a functional area with low inherent risk would have little negative impact on the banking institution's overall financial condition. Moderate – could reasonably be expected to result in a loss which could be absorbed by a banking institution in the normal course of business. High – reflects a higher than average probability of potential loss. High inherent risk could reasonably be expected to result in a significant and harmful loss to the banking institution. Adequacy of Risk Management Systems Weak – risk management systems are inadequate or inappropriate given the size, complexity and risk profile of the banking institution. Institution's risk management systems are lacking in important ways and therefore a cause of more than normal supervisory attention. The internal control systems will be lacking in important aspects particularly as indicated by continued control exceptions or by the failure to adhere to written policies and procedures. Acceptable – management of risk is largely effective but lacking to some modest degree. While the institution might be having some minor risk management weaknesses, these have been recognised and are being addressed. Management information systems are generally adequate. Strong – management effectively identifies and controls all types of risk posed by the relevant functional areas or per inherent risk. The board and senior management are active participants in managing risk and ensure appropriate policies and limits are put in place. The policies comprehensively define the bank's risk tolerance, responsibilities and accountabilities are effectively communicated. 78 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 41. RISK MANAGEMENT (continued) Overall Composite Risk Low – would be assigned to low inherent risk areas. Moderate risk areas may be assigned a low composite risk where internal controls and risk management systems are strong and effectively mitigate much of the risk. Moderate – risk management systems appropriately mitigates inherent risk. For a given low risk area, significant weaknesses in the risk management systems may result in a moderate composite risk assessment. On the other hand, a strong risk management system may reduce the risk so that any potential financial loss from the activity would have only a moderate negative impact on the financial condition of the organisation. High – risk management systems do not significantly mitigate the high inherent risk. Thus, the activity could potentially result in a financial loss that would have a significant impact on the bank's overall condition. Direction of Overall Composite Risk – based on the current information, risk is expected to increase in the next 12 months. Increasing Decreasing – based on current information, risk is expected to decrease in the next 12 months. Stable – based on the current information, risk is expected to be stable in the next 12 months. 41.9.2 External credit rating The external credit ratings were given by Global Credit Rating (GCR), a credit rating agency accredited with the Reserve Bank of Zimbabwe. Security class Long term The current rating expires in August 2015. 41.10 Regulatory compliance 2014 BB+ 2013 BBB- 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. 41.11 Capital management 41.11.1 Holding company The capital allocation to the subsidiary units is in accordance with the regulatory requirements of the business undertaken by the subsidiary. 79 ANNUAL REPORT 2 0 1 4 NOTES TO THE FINANCIAL STATEMENTS (continued) 41. RISK MANAGEMENT (continued) 41.11.2 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. 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 2014 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 Tier 1 capital Tier 2 capital (subject to limit as per Banking Regulations) Fair value gain on investment properties Subordinated debt Regulatory reserve (limited to 1.25% of risk weighted assets) Portfolio provisions (limited to 1.25% of risk weighted assets) Total Tier 1 & 2 capital Tier 3 capital (sum of market and operational risk capital) Total capital base Total risk weighted assets Tier 1 ratio Tier 2 ratio Tier 3 ratio Total capital adequacy ratio RBZ minimum required 42.EVENTS AFTER REPORTING DATE 42.1 Disposal of Lobels Debentures 2014 US$ 16 506 31 474 502 9 346 446 (2 964 628) ---------------- 37 872 826 (467 320) (10 169) ---------------- 2013 US$ 1 6 502 31 474 502 8 802 979 (2 925 868) ---------------- 37 368 119 (1 240 678) (4 734 129) ---------------- 37 395 337 7 294 677 31 393 312 6 823 855 2 964 628 1 407 964 2 636 938 285 147 44 690 014 467 320 ---------------- 45 157 334 ========= 233 766 816 ========= 16.00% 3.12% 0.20% 19.32% 12.00% 2 925 868 1 485 890 2 154 252 257 845 38 217 167 1 240 678 ---------------- 39 457 845 ========= 228 275 322 ========= 13.75% 2.99% 0.54% 17.28% 12.00% Subsequent to year end, the Group entered into an agreement to dispose the debentures it holds in Lobels Private Limited as well as its shares in Altiwave Investments (Private) Limited. The sale is expected to be complete by the end of the first quarter of 2015. 80 ANNUAL REPORT 2 0 1 4 HISTORICAL FIVE YEAR FINANCIAL SUMMARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Interest income Interest expense Net interest income Net foreign exchange gains Fee and commission income Revenue Share of profit/(loss) of associate Non-interest income Profit on disposal of associate Operating expenditure Impairment losses on loans and advances Profit /(loss) before taxation Financial institutions levy Taxation (charge)/credit Profit/(loss) after taxation Other comprehensive income for the year, net of tax Total comprehensive income/(loss) for the year 2014 US$ 2013 US$ 2012 US$ 31 072 461 (12 651 519) ---------------- 18 420 942 1 822 432 15 121 536 ---------------- 35 364 910 - 62 025 - (27 984 051) (5 017 362) ---------------- 2 425 522 - (768 455) ---------------- 1 657 067 10 180 ---------------- 1 667 247 ========= 33 181 704 (13 006 505) ---------------- 20 175 199 1 502 044 14 673 834 ---------------- 36 351 077 217 768 777 720 580 136 (25 232 756) (16 645 810) ---------------- (3 951 865) - 630 042 ---------------- (3 321 823) - ---------------- (3 321 823) ========= 27 543 784 (10 050 003) ---------------- 17 493 781 1 902 337 13 016 115 ---------------- 32 412 233 434 252 2 593 515 - (21 452 714) (3 985 062) ---------------- 10 002 224 - (2 431 722) ---------------- 7 570 502 - ---------------- 7 570 502 ========= 2011 US$ Restated 20 158 766 (8 257 254) ---------------- 11 901 512 1 289 729 11 958 029 ---------------- 25 149 270 113 573 206 662 - (16 979 741) (2 296 111) ---------------- 6 193 653 - (1 655 197) ---------------- 4 538 456 - ---------------- 4 538 456 ========= 2010 US$ 10 014 636 (3 143 168) --------------- 6 871 468 1 055 307 9 691 069 --------------- 17 617 844 (21 444) (316 273) - (15 365 768) (971 803) --------------- 942 556 - (250 322) --------------- 692 234 - --------------- 692 234 ========= 81 HISTORICAL FIVE YEAR FINANCIAL SUMMARY (continued) CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ANNUAL REPORT 2 0 1 4 SHAREHOLDERS' FUNDS Share capital Reserves Equity Subordinated loan Redeemable ordinary shares Total shareholders' funds LIABILITIES Deposits and other liabilities Current tax liabilities Deferred tax liabilities Capital employed ASSETS Cash and cash equivalents Investments securities held to maturity Investments in debentures Deferred tax assets Current tax assets Loans, advances and other assets Non-current assets held for sale Quoted and other investments Trade investments Investment in associate Investment properties Property and equipment Intangible assets Employment of capital 2014 US$ 2013 US$ 2012 US$ 78 598 29 225 801 ---------------- 29 304 399 1 407 964 14 335 253 ---------------- 45 047 616 ========= 78 598 27 541 622 ---------------- 27 620 260 1 485 890 14 335 253 ---------------- 43 441 403 ========= 78 598 30 863 485 ---------------- 30 942 083 - - ---------------- 30 942 083 ========= 241 001 418 - - ---------------- 286 049 034 ========= 54 750 561 3 874 525 4 614 047 2 784 594 1 436 974 203 363 052 2 267 300 127 291 81 390 - 4 453 300 6 345 267 1 950 733 ---------------- 286 049 034 ========= 216 041 709 - - ---------------- 259 483 112 ========= 48 871 983 4 685 471 3 984 723 2 823 544 1 739 210 181 316 271 2 303 300 145 850 190 148 - 4 385 300 7 372 943 1 664 369 ---------------- 259 483 112 ========= 195 002 633 588 966 - ---------------- 226 533 682 ========= 58 171 045 5 501 963 - 1 380 596 - 146 599 994 2 225 300 130 316 195 790 1 025 919 3 115 300 8 187 459 - ---------------- 226 533 682 ========= 2011 US$ Restated 78 598 23 292 983 ---------------- 23 371 581 - - ---------------- 23 371 581 ========= 142 757 778 1 157 974 - ---------------- 167 287 333 ========= 32 265 953 2 126 657 - 421 383 - 122 260 663 - 118 048 190 980 591 667 2 510 000 6 801 982 - ---------------- 167 287 333 ========= 2010 US$ 78 598 18 754 527 ---------------- 18 833 125 - - ---------------- 18 833 125 ========= 83 156 444 641 969 207 966 ---------------- 102 839 504 ========= 18 346 939 1 994 585 - - - 75 620 404 - 134 461 201 666 228 556 2 615 000 3 697 893 - ---------------- 102 839 504 ========= 82 ANNUAL REPORT 2 0 1 4 HISTORICAL FIVE YEAR FINANCIAL SUMMARY (continued) CLOSING NUMBER OF SHARES 384 427 351 384 427 351* 2 807 107 289 2 807 107 289 2 807 107 289 2014 2013 2012 2011 2010 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) Market capitalisation (US$) Financial performance Return on shareholders' funds (%)¹ Return on assets (%) Cost/net income ratio (%)² Non-interest income/total income (%) Effective tax rate (%) 11.72 0.43 - - 10.47 11.30 (1.00) - - (6.50) 1.12 0.29 - - 2.24 0.83 0.16 - - 7.19 0.67 0.03 - - 37 4.5 17 299 224 6.50 24 987 781 0.65 18 246 197 1.15 1.1 32 281 734 30 878 180 3.7 0.6 92.8 35.4 31.68 (8) (1) 110 47 (16) 26 4 70 34 23 19 3 76 36 27.1 3.7 3 95 46 26.6 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. * At an Extraordinary General Meeting held on 19 February 2013, the Company approved a share consolidation exercise at a ratio of 10:1 and consolidated 3 500 000 000 (3.5 billion) shares with a nominal value of US$0.000028 per share to 350 000 000 (350 million) shares with a nominal value of US$0.00028 per share. The Company also approved an increase in the authorized share capital from 350 000 000 shares with a nominal value of US$0.00028 per share to 600 000 000 shares with a nominal value US$0.00028 per share. 83 ANNUAL REPORT 2 0 1 4 NOTICE TO MEMBERS Notice is hereby given that the 20th 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 Thursday 21 May 2015 at 1000 hours for the following purposes: ORDINARY BUSINESS 1. To receive and adopt the Financial Statements for the year ended 31 December 2014, together with the reports of the Directors and Auditors thereon. 2. To appoint/re-appoint Directors. In accordance with the Articles of Association, Mr. J. Chigwedere, Mr. B. W. Madzivire and Mr. A. M. T. Mutsonziwa retire by rotation. Mr. B. W. Madzivire, being eligible, offers himself for re-election. Mr. J. Chigwedere and Mr. A. M. T. Mutsonziwa are not offering themselves for re- election. 3. To approve directors' fees for the year ended 31 December 2014. 4. To appoint KPMG as the Company's Auditors for the year ending 31 December 2015. 5. To approve Messrs KPMG's remuneration for the year ended 31 December 2014. SPECIAL BUSINESS SPECIAL RESOLUTION 1. To consider, and if deemed fit, to pass, with or without modification, the resolution set out below: “That the Company, being duly authorised thereto by Article 10 of its Articles of Association, may undertake general repurchases by way of open market transactions on the Zimbabwe Stock Exchange ("ZSE") of any of its own ordinary shares in such manner or on such terms as the directors may from time to time determine provided that: a. b. c. the maximum number of shares authorized to be acquired is no more than 10% of the Company's ordinary issued share capital. for each share, the minimum price shall not be lower than the nominal value of the Company's shares and the maximum price that may be paid is 5% above the weighted average market price for the ordinary shares in the Company as derived from the Zimbabwe Stock Exchange (ZSE) Daily Price Sheet for the five business days immediately preceding the date on which such ordinary shares are contracted to be purchased. the authority in terms of this special resolution shall unless renewed prior to such time, expire on the first anniversary of this resolution or at the conclusion of the next Annual General Meeting of the Company, whichever is later, save that the Company, may before such expiry, enter into a contract or contracts to purchase its ordinary shares which would or might be completed wholly or partly after the expiry and may purchase its ordinary shares in pursuance of such contract or contracts.'’ 2. To consider, and if deemed fit, to pass, with or without modification, the resolution set out below: That the Articles of Association of the Company be amended by the deletion of Articles 81 and 82 in their entirety and that Article 81 be substituted by the following Article: “At each Annual General Meeting all directors of the Company, including those directors appointed by the directors since the last Annual General Meeting, shall retire from office and may, if eligible, offer themselves for re-election by the members of the Company.” Notes: 1. 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. 2. A Special Resolution is required to be passed by a majority of seventy five per cent of those present and voting (including proxy votes), 3. representing not less than twenty five per cent of the total number of votes in the Company. In terms of special resolution, the directors are seeking authority to allow the use of the Company's available cash resources to purchase its own shares in the market in terms of the Companies Act and the regulations of the ZSE. The directors will only exercise the authority if they believe that to do so would be in the best interests of shareholders generally. In exercising this authority, the directors will duly take into account following such repurchase for the next 12 months, the ability of the Company to pay its debts in the ordinary course of business, the maintenance of an excess of assets over liabilities, and for the Company and Group, the adequacy of ordinary capital and reserves as well as working capital. By Order of the Board V. Mutandwa Company Secretary 18 March 2015 84 ANNUAL REPORT 2 0 1 4 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 J. Chigwedere, B. W. Madzivire and A. M. T. Mutsonziwa. Mr. Madzivire being eligible, offers himself for re-election. Information about Mr Madzivire is shown below:- Betserai Willie Madzivire - BSC (Acounting) Ohio State University, USA; Diploma in Accountancy, School of Accountancy, Socuth Africa. Betserai Willie Madzivire (77) is an Accountant by profession, who joined the bank as a Non-Executive Director in January 2008. Previosuly Betserai was the Finance Director for Aberfoyle Group of Companies, the Director of Audit in the Auditor General's Office, the Chief Internal Auditor for City of Harare and Financial Controller of Pan African Institute for Development in Cameroon. He has extensive experience in auditing, accounting and consultancy. Betserai is also a farmer and business consultant. He has previously held directorships in Olivine Holdings, Zisco Steel, Sea Diamonds (Namibia), Lancashire Steel, Dimon and Air Zimbabwe. Resolution 3 Shareholders are requested to approve director's fees. The directors fees for 2014 amounted to $316 255. Resolution 4 All public companies are required to appoint Auditors at each Annual General Meeting at which Financial Statements are presented, to hold office until the next such meeting in terms of section 150 (2) of the Companies Act [ Chapter 24:03]. This resolution therefore proposes the appointment of auditors in accordance with usual practice and the Banking Act [Chapter 24:20]. Resolution 5 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 Chartered Accountants (Zimbabwe) for the year ended 31 December 2014, which audit fee has been disclosed in the Annual Report. Resolution 6 – Special Resolution This resolution seeks to empower the Company to buy back its shares. The Company is authorised in terms of Article 10 of its Articles of Association to buy back its shares. The Zimbabwe Stock Exchange has limited such buy backs to 10% of the Company's issued share capital. The directors are seeking authority to allow the use of the Company's available cash resources to purchase its own shares in the market in terms of the Companies Act and the regulations of the ZSE. The directors will only exercise the authority if they believe that to do so would be in the best interests of shareholders generally. In exercising this authority, the directors will duly take into account following such repurchase for the next 12 months, the ability of the Company to pay its debts in the ordinary course of business, the maintenance of an excess of assets over liabilities, and for the Company and Group, the adequacy of ordinary capital and reserves as well as working capital. This resolution is required to be passed by a majority of seventy five percent of those present and voting (including proxy votes) representing not less than twenty five per cent of the total number of votes in the Company. Resolution 7 – Special Resolution It is proposed that the Articles of Association of the Company be amended by the deletion of Articles 81 and 82 and the substitution of Article 81 therefore in order to align the provisions of the Articles to international standards and practices in corporate governance. In this respect, it is proposed that instead of a third of directors retiring every year, all directors including those appointed by the directors in between Annual General Meetings retire at each Annual General Meeting and if eligible offer themselves for re-election. This will give shareholders an opportunity to consider the board composition of the Company at each Annual General Meeting. 85 ANNUAL REPORT 2 0 1 4 SHAREHOLDERS’ ANALYSIS 2014 Size of shareholding 0 - 5000 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 Total 2013 Size of shareholding 0 - 5000 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 Total Number of shareholders % Size of shareholding Issued Shares % Shareholding 3538 104 149 26 25 6 17 11 91.30 2.68 3.84 0.67 0.64 0.15 0.44 0.28 3,876 100.00 2, 143, 687 759,384 3,376,416 1,921,650 5,067,52 4,637,569 53,118,630 313,402,489 384,427,351 0.55 0.20 0.88 0.50 1.32 1.21 13.82 81.52 100.00 Number of shareholders % Size of shareholding Issued Shares % Shareholding 3 559 104 155 26 25 4 18 11 91.21 2.67 3.97 0.67 0.64 0.10 0.46 0.28 3,902 100.00 2,182,415 755,014 3,381,855 1,958,965 5,142,480 2,812,588 55,674,814 312,519,220 384,427,351 0.57 0.20 0.88 0.51 1.34 0.73 14.48 81.29 100.00 86 SHAREHOLDERS’ ANALYSIS (continued) 2014 Industry Banks Local Companies Employees Deceased Estates External Companies Fund Managers Insurance Companies Investment Trusts and Property Local Residents Nominees Local Non Residents Non Resident Individuals Other Corporate Holdings Pension Funds Total 2013 Industry Banks Local Companies Employees Deceased Estates External Companies Fund Managers Insurance Companies Investment Trusts and Property Local Residents Nominees Local Non Residents Non Resident Individuals Other Corporate Holdings Pension Funds Total Shareholders % of shareholders 2 350 247 3 7 4 10 34 3107 58 8 28 3 15 3,876 0.05 9.03 6.37 0.08 0.18 0.10 0.26 0.88 80.15 1.50 0.21 0.72 0.08 0.39 100.00 Shareholders % of shareholders 1 354 247 3 7 4 12 34 3123 60 9 29 3 16 0.03 9.07 6.33 0.08 0.18 0.10 0.31 0.87 80.04 1.54 0.23 0.74 0.08 0.41 3,902 100.00 ANNUAL REPORT 2 0 1 4 Shares 19,190 46,122,695 966,863 2,221 99,114,867 2,700 58,693,244 50,751,589 11,737,545 549,868 108,660,745 2,134,883 3,369 5,667,572 84,427,351 Shares 4,290 45,430,001 966,863 2,221 98,231,598 2,700 58,693,340 52,375,430 9,829,341 672,643 110,257,664 2,119,600 3,369 5,838,291 384,427,351 % of Shares 0.00 12.00 0.25 0.00 25.79 0.00 15.27 13.20 3.05 0.14 28.27 0.56 0.00 1.47 100.00 % of Shares 0.00 11.82 0.25 0.00 25.55 0.00 15.27 13.62 2.56 0.17 28.68 0.55 0.00 1.52 100.00 87 ANNUAL REPORT 2 0 1 4 % Shareholding 18.52 8.99 8.99 8.99 8.36 6.91 5.60 4.39 4.39 3.52 % Shareholding 18.29 8.99 8.99 8.99 8.36 6.91 5.60 4.39 4.39 3.52 Number of Shares 71,207,639 34,571,429 34,571,429 34,571,429 32,128,043 26,557,498 21,526,695 16,885,381 16,875,582 13,545,247 Number of Shares 70,324,370 34,571,429 34,571,429 32,128,043 26,557,498 21,526,695 16,885,381 16,875,582 13,545,247 Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N V (FMO) 34,571,429 SHAREHOLDERS’ ANALYSIS (continued) TOP TEN SHAREHOLDERS 2014 Rank Shareholder 1 2 3 4 5 6 7 8 9 African Century Financial Investments Limited Africinvest Financial Sector Holding Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N V Norwegian Investment Fund For Developing Countries (Norfund) Old Mutual Life Assurance Company of Zimbabwe Limited Old Mutual Zimbabwe Limited Lalibela Limited Alsace Trust Cornerstone Trust 10 Wamambo Investments Trust 2013 Rank Shareholder 1 2 3 4 5 6 7 8 9 African Century Financial Investments Limited Africinvest Financial Sector Holding (Africinvest) Norwegian Investment Fund For Developing Countries (Norfund) Old Mutual Life Assurance Company of Zimbabwe Limited Old Mutual Zimbabwe Limited Lalibela Limited Alsace Trust Cornerstone Trust 10 Wamambo Investments Trust 88 ANNUAL REPORT 2 0 1 4 MEMBERS’ DIARY Financial year end Reports:- - Announcement of annual results - Annual financial statements posted to shareholders - Annual General Meeting - Announcement of the 2015 half-year results Dividend payments: - Interim - Final 31 December 2014 26 March 2015 April 2015 21 May 2015 August 2015 n/a n/a 89 SECRETARY AND REGISTERED OFFICE ANNUAL REPORT 2 0 1 4 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 Chartered Accountants (Zimbabwe) 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 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 90
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