NMBZ Holdings Limited Annual Report 2016 Contents Financial Summary 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 2 3 4 - 5 6 - 11 12 - 13 14 - 17 18 19 20 21 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 Shareholders’ Information Secretary and Registered Office Annual General Meeting Form of Proxy 22 - 29 30 - 77 78 - 80 81 - 82 83 - 84 85 - 87 88 89 90 [ 1 Financial Summary Total income (US$) Operating profit before impairment charge (US$) Total comprehensive income (US$) Basic earnings per share (US cents) Total deposits (US$) Total gross loans and advances (US$) Total shareholders’ funds (US$) Enquiries: NMBZ HOLDINGS LIMITED Benefit Peter Washaya, Chief Executive Officer, NMBZ Holdings Limited Benson Ndachena, Chief Finance Officer, NMBZ Holdings Limited Website: Email: Telephone: 31 December 2016 51 520 403 14 268 630 5 055 196 1.32 260 550 383 205 858 392 55 600 406 31 December 2015 59 396 619 17 405 739 5 490 068 1.43 277 216 769 243 241 018 50 543 864 benefitw@nmbz.co.zw bensonn@nmbz.co.zw http://www.nmbz.co.zw enquiries@nmbz.co.zw Tel: +263-4-759 651/9 2 ] NMBZ Holdings Limited Annual Report 2016 Group Profile The NMBZ Holdings Limited Group (the Group) comprises the company (NMBZ Holdings Limited) and the wholly owned banking subsidiary, NMB Bank Limited (the Bank) and equities holding company, Stewart Holdings Limited. The Bank was established in 1993 as a merchant bank incorporated under the Companies Act (Chapter 24:03) of Zimbabwe and is now registered as a commercial bank in terms of the Banking Act (Chapter 24:20) of Zimbabwe. It operates through a branch network in Harare, Bulawayo, Masvingo, Kwekwe, Mutare, Gweru and Chinhoyi. 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: Avondale - 20 King George Road, Avondale, Harare Borrowdale - Shops 37 & 38, Sam Levy’s Village, Borrowdale, Harare Borrowdale Excellence Centre - Block 3 Suite F, Sam Levy Village, Borrowdale, Harare Bulawayo - NMB Centre, Corner George Silundika Street/Leopold Takawira Street, Bulawayo Chinhoyi - 469 Magamba Way, Chinhoyi Eastgate - Shop 24, Eastgate Mall, Corner Sam Nujoma Street/Robert Mugabe Road, Harare Gweru - 36 Robert Mugabe Road, Gweru Head Office - Unity Court, Corner Kwame Nkrumah Avenue/First Street, Harare Joina City - Shop 105A, First floor, Joina City Corner Jason Moyo / Innez Terrace, Harare Kwekwe - 57A Robert Mugabe Way, Kwekwe Masvingo - Stand no. 377 Robert Mugabe Way, Masvingo Msasa -77 Amby Drive, Harare Mutare - Embassy Building, Corner Aerodrome Road/Second Street, Mutare Southerton - 7 - 9 Plymouth Road, Harare The Bank’s Automated Teller Machine (ATM) network, which accepts VISA cards, covers the following locations: ■ Avondale - Harare ■ Borrowdale - Harare ■ Bulawayo ■ Card Centre - Harare ■ Chinhoyi ■ Eastgate - Harare ■ Fruit & Veg - Greendale, Harare ■ Gweru ■ Joina City - Harare ■ Kwekwe ■ Masvingo ■ Msasa - Harare ■ Mutare ■ Southerton - Harare [ 3 Chairman’s Statement (Cont’d) for the year ended 31 December 2016 Mr James de la Fargue was appointed to both boards of NMBZ Holdings Limited and NMB Bank Limited with effect from 4 May 2016. Ms. Sabinah N Chitehwe and Mr Benson Ndachena were appointed to the boards of NMBZ Holdings Limited and NMB Bank Limited with effect from 19 September 2016. I would like to wish the new board members a fruitful tenure on the Board. Subsequent to year end, Mr Benardus A M Zwinkels, who represented AfricInvest, resigned from the Board and was replaced by Mr Julius Tichelaar effective 1 January 2017. I would like to thank Mr Zwinkels for his fruitful tenure on the Board and welcome Mr Tichelaar to the Board. OUTLOOK AND STRATEGY The Group has continued to broaden the market catchment for the banking subsidiary by tapping into some segments of the mass market and this saw the launch in August 2016 of the NMBLite product offering which is targeted at the low income segment. The uptake of the mass market products has been encouraging and this has contributed to the financial inclusion agenda. The Bank has accelerated the deployment of POS machines throughout the country and has enhanced all the e-channels for the convenience of our transacting customers in the current environment which is characterised by cash shortages. CORPORATE SOCIAL INVESTMENTS We remain committed to playing an active role in the communities we serve. Our social investments during the year were channelled into the country’s educational system, the disadvantaged, vulnerable groups, protection of the environment, wildlife conservation, the arts and various sporting disciplines. The activities and charities supported during the year included Tinokwirira Special School, Deaf Zimbabwe Trust, Birdlife Zimbabwe, Hockey Association of Zimbabwe, Kwekwe and Sanyati Districts Better Schools Programme initiatives and many other charity golf tournaments. CORPORATE DEVELOPMENTS The low cost NMBLite account, which is targeted at the low income sector, was launched in August 2016. The Bank relaunched the mobile banking platform which now incorporates Android and Apple applications. APPRECIATION I would like to express my appreciation to our clients, shareholders and regulatory authorities for their continued support. I would also like to thank my fellow Board members, management and staff for their steadfast commitment, dedication and passion which has seen the achievement of these results in the face of an increasingly challenging operating environment. MR. B. A. CHIKWANHA CHAIRMAN 15 March 2017 [ 5 Report of the Directors for the year ended 31 December 2016 SHARE CAPITAL The authorised and issued share capital of the Company are as follows:- 1.1 Authorised: 600 000 000 ordinary shares of US$0.00028 each. 1.2 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. GROUP ACTIVITIES AND RESULTS The Group’s total comprehensive income was US$5 055 196 for the year ended 31 December 2016 (2015 - US$5 490 068). CAPITAL ADEQUACY As at 31 December 2016, the Bank’s regulatory capital adequacy ratio was 23.32% (2015 - 19.26%). 1. 2. 3. 4. DIRECTORATE 4.1 Board of Directors During the year ended 31 December 2016, Messrs J. Chenevix - Trench, K. Qurashi and Ms. M. R. Svova retired from the boards of NMBZ Holdings Limited and NMB Bank Limited and Ms S. Chitehwe and Messrs B. Ndachena were appointed to the Board. Mr. B. A. Chikwanha Mr. B. P. Washaya Mr. J. Chenevix-Trench* Ms. M. R. Svova** Mr. K. Qurashi** Mr. B. A. M. Zwinkels Ms. J. Maguranyanga Mr. E. Sandersen Mr. C.I.F Ndiaiye***** Mr. C. Chikaura Mr. J. de la Fargue*** Ms. S. Chitehwe**** Mr. B. Ndachena**** (Chairman and Independent Non-executive Director) (Chief Executive Officer) (Non-Executive Director) (Independent Non-Executive Director) (Non-Executive Director) (Non-Executive Director) (Independent Non-Executive Director) (Non-Executive Director) (Non-Executive Director) (Independent Non-Executive Director) (Non - Executive Director) (Independent Non - Executive Director) (Chief Finance Officer) *Resigned on 21 March 2016. **Resigned on 20 May 2016. ***Appointed on 4 May 2016. ****Appointed on 19 September 2016. *****Resigned on 17 November 2016 In accordance with the Articles of Association, all directors will retire by rotation at the forthcoming Annual General Meeting (AGM). All retiring directors, being eligible, offer themselves for re-election. 4.2 Directors’ Interests As at 31 December 2016 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. B. A. Chikwanha* Ms. J. Maguranyanga Mr. B. P. Washaya** Mr. J. de la Fargue*** Mr. B .A .M. Zwinkels**** Mr.E. Sandersen**** Mr. B. Ndachena Mr. C. Chikaura Ms. S. Chitehwe 31 Dec 2016 Shares 10 000 31 Dec 2015 Shares 10 000 600 2 070 - - - 77 642 - - 90 312 600 2 070 - - - 77 642 - - 90 312 *Mr. B. A. Chikwanha is the Chairman of the board of directors of NMBZ Holdings Limited and NMB Bank Limited. **Mr. B. P. Washaya is the CEO of NMBZ Holdings Limited and NMB Bank Limited. ***Mr. J. de la Fargue represents African Century Financial Investments Limited (71 207 639 shares) on the board of directors of NMBZ Holdings Limited and NMB Bank Limited. ****Mr.B. Zwinkels and Mr. E Sandersen represent AfricInvest (34 571 429 shares), and Norfund (34 571 429 shares) respectively on the board of directors of NMBZ Holdings Limited and NMB Bank Limited. 6 ] NMBZ Holdings Limited Annual Report 2016 Report of the Directors (Cont’d) for the year ended 31 December 2016 4. DIRECTORATE (cont’d) 4.3 Total share options granted to executive directors Mr. B. P. Washaya Mr. B. Ndachena 4.4 Directors’ attendance at meetings 4.4.1 Board of Directors Name Mr. B. P. Washaya Mr. B. A. Chikwanha Mr. J. Chenevix Trench* Ms. M. R. Svova** Mr. K. Qurashi** Mr. B. Ndachena*** Ms. S. Chitehwe*** Mr. J. de la Fargue**** Mr. B. A. M. Zwinkels Mr. C. I. F. Ndiaye***** Mr. E. Sandersen Ms. J. Maguranyanga Mr. C. Chikaura 31 Dec 2016 Share options 275 873 193 111 468 984 31 Dec 2015 Share options 275 873 193 111 468 984 Meetings held Meetings attended 4 4 1 2 2 1 1 3 4 4 4 4 4 4 4 1 2 2 1 1 3 4 4 4 4 4 *Mr. J. Chenevix Trench resigned from the NMBZ Holdings Limited and NMB Bank Limited boards with effect from 21 March 2016. **Ms. M.R. Svova and Mr K. Qurashi resigned from the NMBZ Holdings Limited and NMB Bank Limited boards with effect from 20 May 2016. ***Mr. B. Ndachena and Ms. S. Chitehwe were appointed to the NMBZ Holdings Limited and NMB Bank Limited boards on 19 September 2016. ****Mr. J. de la Fargue was appointed to the NMBZ Holdings Limited and NMB Bank Limited boards on 4 May 2016. *****Mr. C.I. F. Ndiaye resigned from the NMBZ Holdings Limited and NMB Bank Limited boards with effect from 17 November 2016. 4.4.2 Audit Committee Name Ms. M. R. Svova* Mr. K. Qurashi* Mr. C. Chikaura Ms. J. Maguranyanga** Ms. S. Chitehwe*** Meetings held Meetings attended 2 2 4 2 1 2 2 4 2 1 *Ms. M.R. Svova and Mr. K. Qurashi resigned with effect from 20 May 2016. **Ms. J. Maguranyanga became a member of the committee with effect from 16 August 2016. ***Ms. S. Chitehwe was appointed with effect from 19 September 2016. [ 7 Report of the Directors (Cont’d) for the year ended 31 December 2016 4. DIRECTORATE (cont’d) 4.4.3 Risk Management Committee Name Mr. K. Qurashi* Mr. C. Chikaura Mr. C. I. F. Ndiaye** Mr. E. Sandersen Mr. B. A. Chikwanha Meetings held Meetings attended 2 4 4 4 4 2 3 3 3 4 *Mr. K. Qurashi resigned with effect from 20 May 2016. **Mr. C. I. F Ndiaye reigned with effect from 17 November 2016. 4.4.4 Asset and Liability Management (ALCO) & Finance Committee Meetings held Meetings attended 2 1 4 4 4 3 2 1 1 Meeting attended 4 4 4 4 1 1 Name Ms. M. R. Svova** Mr. J. Chenevix-Trench* Mr. B. A. M. Zwinkels Mr. E. Sandersen Mr. B. P. Washaya Mr. J. de la Fargue*** Mr. C. Chikaura**** Mr. B. Ndachena***** Ms. S. Chitehwe****** 2 1 4 4 4 3 2 1 1 *Mr.J. Chevenix - Trench resigned with effect from 21 March 2016. **Mr. M.R. Svova resigned with effect from 20 May 2016. ***Mr. J. de la Fargue was appointed with effect from 4 May 2016. ****Mr. C. Chikaura became a member of the committee with effect from 16 August 2016. ***** Mr. B. Ndachena was appointed with effect from 19 September 2016. ******Ms. S. Chitehwe was appointed with effect from 19 September 2016. 4.4.5 Loans Review Committee Name Ms. J. Maguranyanga Mr.C. I. F. Ndiaye*** Mr. B. A. M. Zwinkels Mr. E. Sandersen Mr. J. Chenevix-Trench* Ms. S. Chitehwe** Meetings held 4 4 4 4 1 1 *Mr. J. Chenevix - Trench resigned with effect from 21 March 2016. **Ms. S. Chitehwe was appointed with effect from 19 September 2016. ***Mr. C. I. F. Ndiaye resigned with effect from 17 November 2016. 8 ] NMBZ Holdings Limited Annual Report 2016 Report of the Directors (Cont’d) for the year ended 31 December 2016 4. DIRECTORATE (cont’d) 4.4.6 Human Resources, Remuneration and Nominations Committee Name Ms. J. Maguranyanga Mr. B. A. Chikwanha Mr. C. I. F. Ndiaye*** Mr. J. Chenevix-Trench* Mr. B. A. M. Zwinkels Mr. C. Chikaura Mr. J. de la Fargue** Meetings held Meetings attended 4 4 4 1 4 4 2 4 4 4 1 4 4 2 *Mr. J. Chenevix - Trench resigned with effect from 21 March 2016. **Mr. J. de la Fargue became a member of the committee with effect from 16 August 2016. ***Mr. C. I. F. Ndiaye resigned with effect from 17 November 2016. 4.4.7 Credit Committee Name Mr. B. A. Chikwanha Ms. M. R. Svova* Mr. K. Qurashi * Mr. B. P. Washaya Mr. J. de la Fargue** Mr. C. Chikaura*** Meetings held Meetings attended 4 2 2 4 3 2 4 2 2 4 3 2 *Ms. M. R. Svova and Mr. K. Qurashi resigned with effect from 20 May 2016. **Mr. J. de la Fargue was appointed with effect from 4 May 2016. ***Mr. C. Chikaura became a member of the committee with effect from 15 August 2016. [ 9 Report of the Directors (Cont’d) for the year ended 31 December 2016 5. 5.1 5.2 CORPORATE GOVERNANCE The Group 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, the National Code on Corporate Governance and the Reserve Bank of Zimbabwe (RBZ) Corporate Governance Guideline No. 01-2004/BSD. The Board has set up the Audit Committee, Human Resources and Remuneration Committee, ALCO & Finance Committee, Credit Committee, Loans Review Committee and the Risk Management Committee to assist in the discharge of its duties and responsibilities. The Board of Directors The NMBZ Holdings Limited and NMB Bank Limited boards comprise of nine directors each. The boards of the holding company and the Bank are identical. The Group obtained regulatory approval to have one board for NMBZ Holdings Limited and the banking subsidiary. The boards comprise, of two executive and nine non-executive directors. Of the seven non-executive directors, four are independent non-executive directors. The Chairpersons of the board and all the board committees are independent non-executive directors. The boards and the board committees meet at least four times a year. 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 internal and external auditors. Both the internal and external auditors have unrestricted access to the audit committee to ensure their independence and objectivity. Membership: Mr. C. Chikaura Ms. J. Maguranyanga Ms. S. Chitehwe 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: Ms. J. Maguranyanga Mr. J. de la Fargue Mr. B. A. M. Zwinkels Mr. C. Chikaura Mr. B. A. Chikwanha Chairperson-Independent Non-Executive Director Non-Executive Director Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director 5.4 Loans Review Committee The Loans Review Committee assesses compliance of the loan book with the lending policy and the Banking Regulations. The Committee conducts loan reviews independent of any person or committee responsible for sanctioning credit. Membership: Ms. J. Maguranyanga Ms. S. Chitehwe Mr. B. A. M. Zwinkels Mr. E. Sandersen Chairperson-Independent Non-Executive Director Independent Non-Executive Director Non-Executive Director Non-Executive Director 5.5 Credit Committee The Credit Committee’s main responsibilities are to consider loan applications beyond the discretionary limits of the Management Credit Committee and to direct the formulation of, review and monitor the credit principles and policies of the Group. Membership: Mr. B. A. Chikwanha Mr. B. P. Washaya Mr. J. de la Fargue Mr. C. Chikaura Chairperson - Independent Non-Executive Director Chief Executive Officer Non-Executive Director Independent Non-Executive Director 10 ] NMBZ Holdings Limited Annual Report 2016 Statement of Directors’ Responsibility for the year ended 31 December 2016 1. 2. 3. 4. 5. 6. 7. RESPONSIBILITY The Directors of the Group are mandated by the Companies Act (Chapter 24:03) of Zimbabwe to maintain adequate accounting records and to prepare consolidated and separate financial statements that present a true and fair view of the state of affairs of the Group and Company at the end of each financial year. The information contained in these consolidated and separate financial statements has been prepared on a going concern basis and is in accordance with the provisions of the Companies Act (Chapter 24:03) of Zimbabwe, the Banking Act (Chapter 24:20) of Zimbabwe, and International Financial Reporting Standards (IFRSs). CORPORATE GOVERNANCE In its operations, the Group is guided by principles of corporate governance derived from the King III Report of South Africa, the National Code on Corporate Governance, the United Kingdom Combined Code and the Reserve Bank of Zimbabwe Corporate Governance Guideline No. 01-2004/ BSD. 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. 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. 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 and internal auditors of the Group reviews and assesses the internal control systems of the Group in key risk areas. 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. 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. 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. 12 ] NMBZ Holdings Limited Annual Report 2016 Statement of Directors’ Responsibility (Cont’d) for the year ended 31 December 2016 8. 9. 10. 11. 12. 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 Group’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. SOCIAL RESPONSIBILITY The Group recognises its responsibility in the society within which it operates. The Group’s social investments were channelled into the country’s educational system, the disadvantaged, vulnerable groups, protection of the environment, wildlife conservation, the arts and various sporting disciplines. 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. 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. FINANCIAL STATEMENTS The Group’s Directors are responsible for the preparation and fair presentation of these consolidated and separate financial statements in accordance with International Financial Reporting Standards (IFRS) and in the manner required by the Companies Act (Chapter 24:03) of Zimbabwe and the Banking Act (Chapter 24:20) of Zimbabwe and for such internal control as the directors determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Directors have satisfied themselves that the Bank is in a sound financial position and that it has adequate resources to continue operating in the foreseeable future. Accordingly, they are satisfied that it is appropriate to prepare the consolidated and separate financial statements of the Group on a going concern basis. Preparation of the Group financial statements These Group financial statements have been prepared under the supervision of Mr Benson Ndachena, a Chartered Accountant (Zimbabwe), PAAB registration number 00327. Approval of the Group financial statements The consolidated and separate financial statements of the Group appearing on pages 18 to 77 were approved by the board of directors on 15 March 2017 and are signed on their behalf by: Mr B. A. Chikwanha Chairman 15 March 2017 Mr B. P. Washaya Group Chief Executive Officer 15 March 2017 [ 13 Statements of Comprehensive Income for the year ended 31 December 2016 Interest income Interest expense Net interest income Fee and commission income Net foreign exchange gains Revenue Other income Share of profit of associate Operating income /(loss) Operating expenditure Impairment losses on loans and advances Profit/(loss) before taxation Taxation (charge)/credit Profit/(loss) for the year Other comprehensive income Items that will not be reclassified to profit or loss Revaluation, net of tax Note GROUP 2016 US$ 2015 US$ COMPANY 2016 US$ 2015 US$ 4 5 33 860 139 (11 075 067) 35 761 355 (15 118 231) 22 785 072 20 643 124 6.1 15 179 149 743 255 20 984 694 1 416 445 6.2 24 7 21.3 8 38 707 476 43 044 263 1 737 860 - 1 234 125 - 40 445 336 (26 176 706) (8 059 726) 44 278 388 (26 872 649) (9 496 601) 6 208 904 (1 150 738) 7 909 138 (2 422 040) 5 058 166 5 487 098 - - - - - - (819) - (819) - - (819) 41 (778) - - - - - - (5 735) - (5 735) - - (5 735) 289 (5 446) (2 970) 2 970 - - Total comprehensive income/(loss) for the year 5 055 196 5 490 068 (778) (5 446) Earnings per share (US cents) -Basic -Diluted 9.3 9.3 1.32 1.23 1.43 1.33 18 ] NMBZ Holdings Limited Annual Report 2016 Statement of Changes in Equity for the year ended 31 December 2016 GROUP Share Capital US$ 78 598 - - - 78 598 - - - Share Premium US$ 15 737 548 - - - 15 737 548 - - - Balances at 1 January 2015 Profit for the year Other comprehensive income Transfer to regulatory reserve Balances at 31 December 2015 Profit for the year Other comprehensive income Transfer from regulatory reserve Share Option Regulatory Reserve US$ Reserve US$ 62 563 - - - 62 563 - - - 3 293 699 - - 453 030 3 746 729 - - (1 961 593) Revaluation Reserve US$ Retained Earnings US$ Total US$ - - 2 970 - 2 970 - (2 970) - 10 131 991 29 304 399 5 487 098 5 487 098 2 970 - - (453 030) 15 166 059 34 794 467 5 058 166 5 058 166 (2 970) - - 1 961 593 Balances at 31 December 2016 78 598 15 737 548 62 563 1 785 136 - 22 185 818 39 849 663 COMPANY Balances at 1 January 2015 Loss for the year Balances at 31 December 2015 Loss for the year Share Capital US$ 78 598 - 78 598 - Share Premium US$ 15 737 548 - 15 737 548 - Share Option Reserve US$ 62 563 - 62 563 - Retained Earnings US$ 748 260 (5 446) 742 814 (778) Total US$ 16 626 969 (5 446) 16 621 523 (778) Balances at 31 December 2016 78 598 15 737 548 62 563 742 036 16 620 745 20 ] NMBZ Holdings Limited Annual Report 2016 Statement of Cashflows for the year ended 31 December 2016 CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before taxation Non-cash items -Impairment losses on loans and advances -Investment properties fair value adjustment -(Profit)/loss on disposal of property and equipment -Profit on disposal of investment properties -Loss on disposal of property and equipment (included in staff costs) -Quoted and other investments fair value adjustment -Impairment on land and buildings -Depreciation -Non-current assets held for sale fair value adjustment -Interest capitalised on subordinated loan -Amortisation of intangible asset GROUP 2016 US$ 2015 US$ 6 208 904 7 909 138 8 059 726 (412 006) (368 206) (50 000) - (31 554) 51 600 1 319 396 3 000 158 599 532 768 9 496 601 (118 278) 46 924 (635 500) 68 470 62 654 44 200 1 690 902 3 000 134 676 509 687 Operating cash flows before changes in operating assets and liabilities 15 472 227 19 212 474 Changes in operating assets and liabilities (Decrease)/increase in deposits and other liabilities Decrease/(increase) in loans, advances and other assets Increase Investment in debentures (17 902 723) 27 412 159 - 42 285 825 (41 222 530) 4 614 047 Net cash generated from operations 24 981 663 24 889 816 Taxation Corporate tax paid Capital gains tax paid (1 842 635) (12 234) (37 843) (91 850) Net cash from operating activities 23 126 794 24 760 123 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds on disposal of property and equipment Purchase of property and equipment Acquisition of investment property Acquisition of intangible asset Increase in investment securities Proceeds on disposal of investment properties 581 414 (1 267 404) (5 794 464) (490 417) (10 196 760) 180 000 101 767 (2 271 943) (8 230 860) (248 339) (10 673 466) 5 380 000 Net cash used in investing activities (16 987 631) (15 942 841) CASH FLOWS FROM FINANCING ACTIVITIES Payment of interest on subordinated loan Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year (157 253) (128 496) (157 253) (128 496) 5 981 910 63 439 347 8 688 786 54 750 561 Cash and cash equivalents at the end of the year (note 20) 69 421 257 63 439 347 COMPANY 2016 US$ (819) - - - - - 819 - - - - - - - - - - - - - - - - - - - - - - - 53 53 2015 US$ (5 735) - - - - - 5 735 - - - - - - (4) 4 - - - - - - - - - - - - - - - 53 53 [ 21 Significant Accounting Policies for the year ended 31 December 2016 BASIS OF CONSOLIDATION The consolidated and separate financial statements comprise of the financial statements of the Group and company. 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 to, 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 In the holding company’s separate financial in subsidiaries are statements accounted for at cost. investment 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. is Any contingent consideration payable measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not re-measured and settlement for within equity. Otherwise is accounted subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. Interests in equity accounted investees Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. 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. 22 ] NMBZ Holdings Limited Annual Report 2016 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. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra- group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. 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 and deferred tax. Income tax 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 tax 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. Significant Accounting Policies (Cont’d) for the year ended 31 December 2016 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. 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. (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: 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) (iii) (iv) 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. 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. 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; and ■ 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’. (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 profit or loss. 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 when the inputs become observable, or when the instrument is derecognised. ■ Those that the Group intends to sell immediately or in the near term and those initial recognition, designates as at fair value through profit or loss; the Group, upon that ■ Those that the Group, upon initial recognition, designates as available for sale; and ■ 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 effective interest rate (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. Impairment losses are recognised in profit or loss under ‘Impairment losses on loans and advances’. into certain lending The Group may enter 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). [ 23 Significant Accounting Policies (Cont’d) for the year ended 31 December 2016 FINANCIAL INSTRUMENTS (cont’d) Financial instruments - initial recognition and subsequent measurement (cont’d) (vii) (viii) (ix) 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. Quoted and trade investments Quoted investments comprise interests in equities listed on a public exchange and are accounted for at fair value. These investments are held for trading and are measured at fair value through profit and loss.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. Reclassification of financial assets 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. 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. 24 ] NMBZ Holdings Limited Annual Report 2016 Significant Accounting Policies (Cont’d) for the year ended 31 December 2016 FINANCIAL INSTRUMENTS (cont’d) 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. 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. 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. 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. [ 25 receivables, Collateral valuation The Group seeks to use collateral, where possible, to mitigate its credit risks on financial assets. The collateral comes in various forms such as cash, securities, letters of credit/guarantees, inventories, other real estate, 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 41.1.4 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. Significant Accounting Policies (Cont’d) for the year ended 31 December 2016 FINANCIAL INSTRUMENTS (cont’d) Identification and measurement of impairment (cont’d) 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, Statutory Instrument, 205 of 2000 issued by the Reserve Bank of Zimbabwe (RBZ) gives guidance on allowance for doubtful debts and stipulate certain minimum percentages to be applied to the respective categories of the loan book. 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. The suspended interest is recognised as a provision in the statement of financial position. Such suspended interest is deducted from loans and advances in the statement of financial position. This policy meets the requirements of the Banking Regulations, Statutory Instrument, 205 of 2000. Renegotiated loans and advances Where possible, the Group seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been re-negotiated, any impairment is measured using the original effective interest rate (EIR) as calculated before the modification of terms and the loan is no longer considered past due. Management continuously renews re-negotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loans original EIR. 26 ] NMBZ Holdings Limited Annual Report 2016 Significant Accounting Policies (Cont’d) for the year ended 31 December 2016 CASH AND CASH EQUIVALENTS Cash and cash equivalents include notes and coins on hand, unrestricted balances held with the central bank 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 recognised in the carrying amount of the equipment as a replacement if the recognition criteria are satisfied. The previous remaining carrying amount is derecognised. 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 performed 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. 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 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 Land and capital work-in-progress are not depreciated. 20% 25% 20% 2% INTANGIBLE ASSETS Intangible assets are initially recognised at cost. Subsequently the assets are measured at cost less accumulated amortisation and any impairment loss. 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 20% [ 27 Significant Accounting Policies (Cont’d) for the year ended 31 December 2016 LEASES 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. 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 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 amount. 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. Rental income from investment properties is recognised as revenue on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. 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 at the end of each year by a registered independent 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. FEES AND COMMISSION INCOME Fees and commission income and expense that are integral to the effective interest rate on a financial asset or financial liability are included in the measurement of the EIR. Other fees and commission – including retail banking customer fees, corporate banking and credit related fees, fees from financial guarantee contracts, commission from international banking activities and fees from corporate finance – are recognised as the related services are performed. If a loan commitment 28 ] NMBZ Holdings Limited Annual Report 2016 Significant Accounting Policies (Cont’d) for the year ended 31 December 2016 is not expected to be drawn down of a loan, then the related commitment fees are recognised on a straight line basis over the commitment period. Other fees and commitment expense relate mainly transaction and service fees, which are expensed as the services are received. 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 and borrowings. The expense is recognised in profit or loss as it accrues, taking into account the effective interest cost of the liability. 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 measured at the weighted average cost. PROVISIONS Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in profit or loss net of any reimbursements. 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. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity. Income tax relating to transaction costs of an equity transaction is accounted for in accordance with IAS 12. 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. Such assets are generally measured at the lower of the carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale and subsequent gains and losses on remeasurement are recognised in profit or loss. Once classified as held for sale, intangible assets and property and equipment are no longer amortised or depreciated. [ 29 Notes to the Financial Statements for the year ended 31 December 2016 1. 2. 2.1 2.2 2.3 2.3.1 2.3.2 2.3.3 2.3.4 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 commercial and retail banking. ACCOUNTING CONVENTION Statement of compliance The consolidated and separate financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and have been prepared in the manner required by the Companies Act (Chapter 24:03) of Zimbabwe and the Banking Act (Chapter 24:20) of Zimbabwe. The consolisated and separate financial statements were approved by the Board of Directors on 15 March 2017. Basis of preparation The consolidated and separate 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 the revalued carrying amount. These consolidated financial statements are reported in United States dollars and rounded to the nearest dollar. Comparative financial information The Group financial statements comprise the consolidated and separate statements of financial position, comprehensive income, changes in equity and cash flows. The comparative information covers a period of twelve months. Use of estimates, judgements and assumptions In preparation of the consolidated and separate financial statements, Directors have made 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 estimates are recognised prospectively. Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ending 31 December 2017 is included in the following notes: 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. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Land and buildings The properties were valued by an independent professional valuer. The determined fair value of land and buildings is most sensitive to significant unobservable inputs. In addition, the property market is currently not stable due to liquidity constraints and hence comparable values are also not readily available. Investment properties Investment properties were valued by an independent professional valuer. In addition, the properties market is currently not stable due to liquidity constraints and hence comparable values are also not readily available. Non-current assets held for sale Non-current assets were valued by an independent professional valuer. All non-current assets held for sale are measured at their fair values. The valuer applied the rental yield method to assess fair value of non-current assets held for sale. The determined fair value of non-current assets held for sale 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. 30 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 2. ACCOUNTING CONVENTION (cont’d) 2.3 Use of estimates, judgements and assumptions (cont’d) 2.3.5 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. 2.3.6 Going concern The Directors have assessed the ability of the Group and Company to continue operating as a going concern and believe that the preparation of these financial statements on a going concern basis is still appropriate. 2. 4 2.4.1 2.4.2 2.4.3 Standards issued and not yet adopted A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2016 and earlier application is permitted; however, the Group has not early adopted the following new or amended standards in preparing these financial statements. Disclosure Initiative (Amendments to IAS 7) The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. The amendments are effective for annual periods beginning on or after 1 January 2017, with early adoption permitted. To satisfy the new disclosure requirements, the Group will assess the potential impact on these financial statements resulting from these new amendments and possibly present reconciliation between the opening and closing balances for liabilities with changes arising from financing activities in the financials for the year ending 31 December 2017. Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12) The amendments clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value. The amendments are effective for annual periods beginning on or after 1 January 2017, with early adoption permitted. The Group is assessing the potential impact on its financial statements resulting from the amendments. So far, the Group does not expect any significant impact. IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. The Group is still in the process of its initial assessment of the potential impact of the adoption of IFRS 15 on its financial statements. The Group has completed an initial assessment of the potential impact of the adoption of IFRS 15 on its financial statements. This focused on a review of fees and commission income. The Group earns fee and commission income (other than fees included in the calculation of the effective interest rate) on provision of the following services: ■ Retail banking; ■ Corporate banking; ■ Corporate finance; ■ International banking; and ■ Treasury services. The initial review indicates that IFRS 15 will not have a material impact on the timing of recognition or measurement of fees and commission income. The Group is currently performing a detailed impact assessment. [ 31 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) 2. 4 Standards issued and not yet adopted (cont’d) 2.4.4 IFRS 9 Financial Instruments In July 2014, the International Accounting Standards Board issued the final version of IFRS 9 Financial Instruments. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. The Group currently plans to apply IFRS 9 initially on 1 January 2018. The actual impact of adopting IFRS 9 on the Group’s financial statements in 2018 is not known and cannot be reliably estimated because it will be dependent on the financial instruments that the Group holds and economic conditions at that time as well as accounting elections and judgements that it will make in the future. The new standard will require the Group to revise its accounting processes and internal controls related to reporting financial instruments. The Group is in the process of implementing these changes. The Group has performed a preliminary assessment of the potential impact on the following areas of adoption of IFRS 9 based on its positions at 31 December 2016: (a) Classification – Financial assets IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics. IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale. Based on its preliminary assessment, the Group does not believe that the new classification requirements, if applied at 31 December 2016, would have had a material impact on its accounting for, loans and advances already measured at amortised cost, Investment securities and trade and other investments measured at armotised cost. If these investments continue to be held for the same purpose at initial application of IFRS 9, the Group may elect then to classify them as FVOCI or FVTPL. The Group has not yet made a decision in this regard. (b) Impairment – Financial assets and contract assets IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking ‘expected credit loss’ (ECL) model. This will require considerable judgement as to how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis. The new impairment model will apply to financial assets measured at amortised cost or FVOCI, except for investments in equity instruments, and to contract assets. Under IFRS 9, loss allowances will be measured on either of the following bases: ■ 12-month ECLs. These are ECLs that result from possible default events within the 12 months after the reporting date; and ■ Lifetime ECLs. These are ECLs that result from all possible default events over the expected life of a financial instrument. Lifetime ECL measurement applies if the credit risk of a financial asset at the reporting date has increased significantly since initial recognition and 12-month ECL measurement applies if it has not. An entity may determine that a financial asset’s credit risk has not increased significantly if the asset has low credit risk at the reporting date. However, lifetime ECL measurement always applies for trade receivables and contract assets without a significant financing component; an entity may choose to apply this policy also for trade receivables and contract assets with a significant financing component. The Group believes that impairment losses are likely to increase and become more volatile for assets in the scope of the IFRS 9 impairment model. The Group has not completed its preliminary assessment that would indicate the likely movement of the impairment losses. The Group is still to finalise the impairment methodologies that it will apply under IFRS 9. Additional information will be disclosed before the adoption of the standard. (c) Classification - Financial liabilities IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. However, under IAS 39 all fair value changes of liabilities designated as at FVTPL are recognised in profit or loss, whereas under IFRS 9 these fair value changes are generally presented as follows: ■ the amount of change in the fair value that is attributable to changes in the credit risk of the liability is presented in OCI; and ■ the remaining amount of change in the fair value is presented in profit or loss. The Group has not designated any financial liabilities at FVTPL and the Group has no current intention to do so. The Group’s preliminary assessment did not indicate any material impact if IFRS 9’s requirements regarding the classification of financial liabilities were applied at 31 December 2016. 32 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) 2. 4 Standards issued and not yet adopted (cont’d) (d) Disclosures IFRS 9 will require extensive new disclosures, in particular about, credit risk and expected credit losses. The Group’s preliminary assessment included an analysis to identify data gaps against current processes and the Group plans to implement the system and controls changes that it believes will be necessary to capture the required data. (e) Transition The Group plans to take advantage of the exemption allowing it not to restate comparative information for prior periods with respect to classification and measurement (including impairment) changes. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 generally will be recognised in retained earnings at 1 January 2018. The following assessments have to be made on the basis of the facts and circumstances that exist at the date of initial application. ■ The determination of the business model within which a financial asset is held; ■ The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL; and ■ The designation of certain investments in equity instruments not held for trading as at FVOCI. 2.4.5 Clarifying share-based payment accounting (Amendments to IFRS 2) Currently, there is ambiguity over how a company should account for certain types of share-based payment arrangements. The International Accounting Standards Board (IASB) has responded by publishing amendments to IFRS 2 Share-based payment. The amendments cover three accounting areas: Measurement of cash-settled share-based payments –The new requirements do not change the cumulative amount of expense that is ultimately recognised, because the total consideration for a cash-settled share-based payment is still equal to the cash paid on settlement. Classification of share-based payments settled net of tax withholdings –The amendments introduce an exception stating that, for classification purposes, a share-based payment transaction with employees is accounted for as equity-settled if certain criteria are met. Accounting for a modification of a share-based payment from cash-settled to equity-settled –. The amendments clarify the approach that companies are to apply.The new requirements could affect the classification and/or measurement of these arrangements and potentially the timing and amount of expense recognised for new and outstanding awards. The amendments are effective for annual periods commencing on or after 1 January 2018 and the Group does not expect a material impact with the application of this standard. 2.4.6 IFRS 16 Leases IFRS 16 was published in January 2016. It sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 replaces the previous leases Standard, IAS 17 Leases, and related Interpretations. IFRS 16 has one model for lessees which will result in almost all leases being included on the Statement of Financial position. No significant changes have been included for lessors. The standard is effective for annual periods beginning on or after 1 January 2019, with early adoption permitted only if the entity also adopts IFRS 15. The transitional requirements are different for lessees and lessors. The Group have begun assessing the potential impact on the financial statements resulting from the application of IFRS 16. 2.4.7 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) The amendments require the full gain to be recognised when assets transferred between an investor and its associate or joint venture meet the definition of a ‘business’ under IFRS 3 Business Combinations. Where the assets transferred do not meet the definition of a business, a partial gain to the extent of unrelated investors’ interests in the associate or joint venture is recognised. The definition of a business is key to determining the extent of the gain to be recognised. The IASB has decided to defer the effective date for these amendments indefinitely. Adoption is still permitted. [ 33 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) 2. 4 Standards issued and not yet adopted (cont’d) 2.4.8 Other new standards or amendments for 2016 and forthcoming requirements The following new or amended standards are not expected to have a significant impact on the Group’s financial statements: ■ IFRS 14 Regulatory Deferral Accounts. ■ Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11). ■ Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38). ■ Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41). ■ Equity Method in Separate Financial Statements (Amendments to IAS 27). ■ Annual Improvements to IFRSs 2012–2014 Cycle – various standards. ■ Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28). ■ Disclosure Initiative (Amendments to IAS 1). 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 Group’s total revenue in 2016 or 2015. 34 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 3. SEGMENT INFORMATION (Cont’d) The following table presents income and profit and certain asset and liability information regarding the Group’s operating segments and service units: For the year ended 31 December 2016 Retail Banking US$ Corporate Banking US$ International Corporate Finance US$ Banking US$ Treasury US$ Other US$ Total US$ Third party income Impairment losses on loans and advances 29 011 529 (4 527 156) 14 595 988 (3 496 994) 4 813 944 - 451 117 - 660 345 (35 576) 1 987 517 - 51 520 440 (8 059 726) Net operating income 24 484 373 11 098 994 4 813 944 451 117 624 769 1 987 517 43 460 714 Interest income Interest expense 15 724 296 (5 021 782) 13 336 078 (4 580 004) 4 070 689 (1 417 555) Net interest income 10 702 514 8 756 074 2 653 134 - - - 479 424 (55 726) 249 652 - 33 860 139 (11 075 067) 423 698 249 652 22 785 072 Fee and commission income Depreciation of property and equipment Amortisation of intangible assets Segment profit/(loss) before tax Income tax expense Other comprehensive income for the year net of tax 13 287 237 1 002 084 - 466 829 - 1 259 874 48 765 - 1 197 279 - - 31 329 - 3 182 690 - 451 117 26 261 - (800 014) - 180 921 22 665 - 174 604 - 188 292 532 768 1 987 516 - (1 150 738) 15 179 149 1 319 396 532 768 6 208 904 (1 150 738) - - - - - (2 970) (2 970) Profit/(loss) for the year 466 829 1 197 279 3 182 690 (800 014) 174 604 833 808 5 055 196 As at 31 December 2016 Assets and liabilities Capital expenditure Total assets Total liabilities 997 785 36 759 84 579 341 125 687 660 61 017 973 101 048 104 - 87 613 797 97 437 938 236 10 137 - - 723 041 1 757 821 240 957 22 853 035 320 984 927 7 295 995 266 800 010 - [ 35 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 3. SEGMENT INFORMATION (Cont’d) The following table presents income and profit and certain asset and liability information regarding the Group’s operating segments and service units: For the year ended 31 December 2015 Retail Banking US$ Corporate Banking US$ International Corporate Finance US$ Banking US$ Treasury US$ Other US$ Total US$ Third party income Impairment losses on loans and advances 30 779 845 (2 551 763) 19 942 424 (6 944 838) 5 108 349 - 1 597 671 - 992 446 - 975 884 - 59 396 619 (9 496 601) Net operating income 28 228 082 12 997 586 5 108 349 1 597 671 992 446 975 884 49 900 018 Interest income Interest expense 13 722 707 (5 246 473) 18 168 196 (7 523 511) 3 254 024 (2 059 002) Net interest income 8 476 234 10 644 685 1 195 022 - - - 436 786 (289 245) 179 642 - 35 761 355 (15 118 231) 147 541 179 642 20 643 124 Fee and commission income Depreciation of property and equipment Amortisation of intangible assets Segment profit/(loss) before tax Income tax expense Other comprehensive income for the year net of tax 17 057 135 1 211 150 - 5 904 945 - 1 774 228 138 300 - (243 837) - - 55 011 - 1 189 656 - 1 597 671 61 312 - (193 878) - 555 660 34 234 - 276 368 - 190 895 509 687 975 884 - (2 422 040) 20 984 694 1 690 902 509 687 7 909 138 (2 422 040) - - - - - 2 970 2 970 Profit/(loss) for the year 5 904 945 (243 837) 1 189 656 (193 878) 276 368 (1 443 186) 5 490 068 - 1 219 309 2 520 282 3 183 641 17 187 304 333 831 107 6 775 798 284 701 387 - As at 31 December 2015 Assets and liabilities Capital expenditure Total assets Total liabilities 1 251 784 45 811 126 097 301 120 542 673 83 704 208 76 966 500 1 178 66 724 913 117 254 881 2 200 95 275 - 36 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 4. INTEREST INCOME Loans and advances to banks Loans and advances to customers Investment securities 5. INTEREST EXPENSE Due to banks Due to customers Other borrowed funds 6. NON INTEREST INCOME 6.1 Fee and commission income Retail banking customer fees Corporate banking credit related fees Financial guarantee fees International banking commissions Corporate finance fees 6.2 Other income Quoted and other investments fair value adjustments Profit/(loss) on disposal of property and equipment Fair value adjustment on investment properties Profit on disposal on investment properties Fair value adjustment on non-current assets held for sale Rental income Bad debts recovered Other operating income GROUP COMPANY 2016 US$ 1 245 664 29 789 449 2 825 026 33 860 139 2015 US$ 2 226 621 32 271 843 1 262 891 35 761 355 2016 US$ - - - - GROUP COMPANY 2016 US$ 3 903 230 6 833 176 338 661 11 075 067 2015 US$ 4 443 681 10 378 937 295 613 15 118 231 2016 US$ - - - - GROUP COMPANY 2016 US$ 13 287 237 1 029 037 230 837 451 117 180 921 15 179 149 2015 US$ 17 057 135 1 567 808 206 420 1 597 671 555 660 20 984 694 2016 US$ - - - - - - GROUP COMPANY 2016 US$ 31 554 368 205 412 006 50 000 (3 000) 142 400 675 006 61 689 1 737 860 2015 US$ (62 654) (46 924) 118 278 635 500 (3 000) 49 523 430 851 112 551 1 234 125 2016 US$ (819) - - - - - - - (819) 2015 US$ - - - - 2015 US$ - - - - 2015 US$ - - - - - - 2015 US$ (5 735) - - - - - - - (5 735) [ 37 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 7. OPERATING EXPENDITURE The operating profit is after charging the following:- Administration costs Audit fees: Current year Prior year Impairment 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. 8.1 TAXATION Income tax expense/(credit) Current tax Capital gains tax Deferred tax (note 19) 8.2 Reconciliation of income tax charge/(credit) Based on results for the period at a rate of 25.75% Tax effect of: -Income not subject to tax -Non-deductible expenses -Tax rate differential on capital gains -Capital gains tax 8.3 Total taxation charge/(credit) analysed by company Stewart Holdings (Private) Limited NMB Bank Limited NMBZ Holdings Limited 8.4 Current tax assets At 1 January Charge for the year Payments during the year 38 ] NMBZ Holdings Limited Annual Report 2016 GROUP 2016 US$ 2015 US$ COMPANY 2016 US$ 2015 US$ 12 098 932 12 702 704 61 468 84 892 51 600 532 768 1 319 396 620 616 311 431 309 185 85 557 109 325 44 200 509 687 1 690 902 499 024 232 705 266 319 11 407 034 - 26 176 706 10 362 780 868 470 26 872 649 - - - - - - - - - - - - GROUP COMPANY 2016 US$ 1 497 265 12 234 (358 761) 1 150 738 2015 US$ 1 381 742 161 850 878 448 2 422 040 2016 US$ - - (41) (41) GROUP COMPANY 2016 US$ 1 598 793 (730 316) 274 266 (4 239) 12 234 1 150 738 2015 US$ 2 036 603 (155 208) 392 950 (14 155) 161 850 2 422 040 2016 US$ (211) - 211 (41) - (41) GROUP COMPANY 2016 US$ 1 010 1 149 769 (41) 2015 US$ (2 720) 2 425 049 (289) 1 150 738 2 422 040 2016 US$ - - (41) (41) - - - - - - - - - - - - 2015 US$ - - (289) (289) 2015 US$ (1 477) - 3 398 (2 210) - (289) 2015 US$ - - (289) (289) GROUP COMPANY 2016 US$ (23 075) 1 509 499 (1 854 869) 2015 US$ (1 436 974) 1 543 592 (129 693) 2016 US$ (85 752) - - 2015 US$ (85 752) - - (368 445) (23 075) (85 752) (85 752) Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 9. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary equity holders of NMBZ Holdings Limited by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by dividing the profit attributable to ordinary equity holders of NMBZ Holdings Limited adjusted for the after tax effect of: (a) any dividends or other items related to dilutive potential ordinary shares deducted in arriving at profit or loss attributable to ordinary equity holders of the parent entity; (b) any interest recognised in the period related to dilutive potential ordinary shares; and (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. Profit for the year 9.2 Number of shares Weighted average shares in issue Diluted weighted average number of shares Weighted average number of shares Effect of dilution: Share options granted but not issued Share options approved but not granted Diluted weighted average number of shares 9.3 Earnings per share Basic earnings per share (US cents) Diluted earnings per share (US cents) 2016 US$ 2015 US$ 5 058 166 5 487 098 2016 384 427 351 2015 384 427 351 412 498 424 412 498 424 384 427 351 384 427 351 4 128 434 23 942 639 4 128 434 23 942 639 412 498 424 412 498 424 1.32 1.23 1.43 1.33 [ 39 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 10. SHARE CAPITAL 10.1 Authorised GROUP and COMPANY 2016 Shares million 2015 Shares million 2016 US$ 2015 US$ Ordinary shares of US$0.00028 each 600 600 168 000 168 000 10.2 Issued and fully paid 10.2.1 Ordinary shares Ordinary shares 10.2.2 Redeemable ordinary shares At 1 January GROUP AND COMPANY 31 Dec 2015 Shares million 281 31 Dec 2016 US$ 78 598 31 Dec 2016 Shares million 281 281 281 78 598 31 Dec 2015 US$ 78 598 78 598 31 December 2016 Shares million 104 31 December 2015 Shares million 104 31 December 2016 US$ 31 December 2015 US$ 29 040 29 040 29 040 104 104 29 040 Of the unissued ordinary shares of 215 million shares (2015 - 215 million), options which may be granted in terms of the 2012 ESOS amount to 28 071 073 (2015 - 28 071 073). As at 31 December 2016; 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 Revaluation reserve Regulatory Total capital reserve 11.1 Nature and purpose of reserves 11.1.1 Share premium GROUP 2016 US$ 2015 US$ COMPANY 2016 US$ 2015 US$ 15 737 548 62 563 - 1 785 136 15 737 548 62 563 2 970 3 746 729 15 737 548 62 563 - - 15 737 548 62 563 - - 17 585 247 19 549 810 15 800 111 15 800 111 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 transactions provided to employees, including key management personnel, as part of their remuneration. Refer to note 39.3 for further details of these plans. 11.1.3 Regulatory reserve This reserve represents the excess of the regulatory provision when compared to the IAS 39 impairment allowance on loan and advances. 11.1.4 Revaluation reserve The Reserve represent gains on the revaluation of property and equipment. 40 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 12. RETAINED EARNINGS Analysis of retained profit by company NMBZ Holdings Limited NMB Bank Limited Stewart Holdings (Private) Limited GROUP 2016 US$ 2015 US$ 742 036 21 437 257 6 525 742 814 14 436 753 (13 508) COMPANY 2016 US$ 742 036 - - 2015 US$ 742 814 - - Total 22 185 818 15 166 059 742 036 742 814 13. REDEEMABLE ORDINARY SHARES Nominal value (note 10.2.2) Share premium GROUP 2016 US$ 29 040 14 306 213 2015 US$ 29 040 14 306 213 14 335 253 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$100 million by 31 December 2020. NMBZ Holdings Limited (NMBZ) entered into a share buy-back agreement with Norfund, FMO and AfricInvest, where these three strategic investors have a right on their own discretion at any time after the 5th anniversary (30 June 2018) but before the 9th anniversary (30 June 2022) of its first subscription date, to request NMBZ to buy back all or part of its NMBZ shares at a price to be determined using the agreed terms as entailed in the share buy-back agreement. It is a condition precedent that at any point when the share buy-back is being considered, the proceeds used to finance the buy-back should come from the distributable reserves which are over and above the minimum regulatory capital requirements. Further, no buy- back option can be exercised by any investor after the 9th anniversary (30 June 2022) of the effective date. The share buy-back agreement creates a potential obligation for NMBZ Holdings Limited to purchase its own instruments. The shares issued gave rise to a potential financial liability and are classified as redeemable ordinary shares. 14. SUBORDINATED LOAN Balance at 1 January Interest capitalised Interest paid GROUP 2016 US$ 1 414 144 158 599 (157 253) 2015 US$ 1 407 964 134 676 (128 496) 1 415 490 1 414 144 In 2013, the Bank received a subordinated term loan amounting to US$1.4 million from a Development Financial Institution which attracts an interest rate of LIBOR plus 10% and has a seven year maturity date (13 June 2020) from the first disbursement date. The above liability would, in the event of the winding up of the issuer, be subordinated to the claims of depositors and all other creditors of the issuer. The Group has not had any defaults on the principal and interest with respect to this subordinated loan during the year ended 31 December 2016. [ 41 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 15. TOTAL SHAREHOLDERS’ FUNDS GROUP 2016 US$ 2015 US$ COMPANY 2016 US$ 2015 US$ Shareholders’ funds 55 600 406 50 543 864 30 955 998 30 956 776 55 600 406 50 543 864 30 955 998 30 956 776 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 Deposits from banks and other financial institutions** Current and deposit accounts from customers* GROUP COMPANY 2016 US$ 50 002 468 210 547 915 2015 US$ 63 192 674 214 024 095 2016 US$ - - 2015 US$ - - Total deposits Trade and other payables* 260 550 383 4 834 137 277 216 769 6 070 474 - 656 568 - 656 568 265 384 520 283 287 243 656 568 656 568 * The carrying amounts of current and deposit accounts and trade and other payables approximate the related fair values due to their short term nature. **Included in deposits from banks and other financial institutions is a loan balance of US$5 263 122 due to Societe de Promotion de Participation Pour la Cooperation Economique SA (Proparco) respectively. The Group has not had any defaults on the principal and interest with respect to these loans during the year ended 31 December 2016. However, there were breaches to the financial covenants regarding the following ratios: ■ Non-performing loans ratio - 11% (instead of a maximum of 10%); and ■ Loans loss reserve ratio - 42% (instead of a maximum of 40%). The Bank will apply for a waiver of the non-compliant ratios by 31 March 2017. Refer to note 20 with respect to restrictions on cash and cash equivalents 16.2 Maturity analysis Less than 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 5 years Over 5 years 16.3 Sectoral analysis of deposits Agriculture Banks and other financial institutions Distribution Individuals Manufacturing Mining companies Municipalities and parastatals Other deposits Services Transport and telecommunications companies 42 ] NMBZ Holdings Limited Annual Report 2016 GROUP 2016 US$ 185 752 420 35 339 615 2 927 632 6 358 137 29 980 749 191 830 260 550 383 2015 US$ 184 324 981 66 129 516 3 241 887 14 969 876 8 550 509 - 277 216 769 GROUP 2015 US$ 7 959 554 63 192 674 28 153 680 30 782 718 37 633 942 6 268 507 11 833 310 34 054 452 47 908 714 9 429 218 277 216 769 % 3 19 9 8 15 2 6 14 21 3 100 % 3 23 10 11 14 2 4 12 17 4 100 2016 US$ 6 274 099 50 002 468 24 098 216 21 782 045 39 033 359 5 056 123 16 027 950 36 014 266 54 712 221 7 549 636 260 550 383 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 17. FINANCIAL INSTRUMENTS 17.1 Investment securities Held to maturity Loans and receivables 2016 US$ 12 476 046 12 268 706 24 744 752 2015 US$ 3 817 687 10 730 305 14 547 992 The Group holds Treasury Bills and Government bonds amounting to US$24 744 752 with interest rates ranging from 2% to 5%. Liquidity induced trades have occurred in the secondary market and there is industry consensus that these trades do not represent free market activity. In light of the absence of an observable active market for the Treasury Bills, the instruments are measured at amortised cost. Of the total Treasury Bills balance, a total of US$22 156 958 has been pledged as security on interbank borrowings. 17.2 Maturity analysis of investment securities held to maturity Less than 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 year to 5 years Over 5 years 17.3 Maturity analysis of investment securities - loans and receivables Less than 1 month 1 to 3 months 6 months to 1 year 1 year to 5 years Over 5 years 17.4 Fair values of financial instruments 2016 US$ - - - - 2 424 461 10 051 585 12 476 046 2016 US$ - 168 563 48 341 266 785 11 785 017 2015 US$ - 1 314 802 2 502 885 - - - 3 817 687 2015 US$ - - 6 329 114 3 400 415 1 000 776 12 268 706 10 730 305 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. [ 43 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 17. FINANCIAL INSTRUMENTS (cont’d) 17.4 Fair values of financial instruments (cont’d) 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. ■ Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments; ■ 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; and ■ 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. Financial instruments measured at fair value – fair value hierarchy Trade investments Quoted investments Trade investments Quoted investments 31 Dec 2016 US$ 88 930 88 650 GROUP Level 1 US$ - 88 650 177 580 88 650 31 Dec 2015 US$ 77 805 68 220 Level 1 US$ - 68 220 146 025 68 220 Level 2 US$ - - - Level 2 US$ - - - Level 3 US$ 88 930 - 88 930 Level 3 US$ 77 805 - 77 805 44 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 17. FINANCIAL INSTRUMENTS (cont’d) 17.4 Fair values of financial instruments (cont’d) During the reporting periods ended 31 December 2015 and 31 December 2016, 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. 17.4.1 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 2016 Assets Cash and cash equivalents Loans, advances and other assets Investment securities Liabilities Deposits and other liabilities 31 December 2015 Assets Cash and cash equivalents Loans, advances and other assets Investment in debentures Investment securities Liabilities Deposits and other liabilities Total carrying amount US$ 69 431 257 199 617 095 24 744 752 293 793 104 Total carrying amount US$ 63 439 347 235 088 981 - 14 547 992 GROUP Level 1 US$ Level 2 US$ Level 3 US$ - 199 617 095 24 744 752 224 361 847 - - - - - - 69 431 257 - - 69 431 257 265 384 520 265 384 520 - - 265 384 520 265 384 520 Level 1 US$ Level 2 US$ Level 3 US$ 63 439 347 - - - - 235 088 981 - 14 547 992 - - - - - - - 63 439 347 249 636 973 313 076 320 283 287 243 283 287 243 - - 283 287 243 283 287 243 Cash and cash equivalents Cash and cash equivalents consists of balances with the Central Bank, other banks and cash with original maturities of three months or less. These balances are subject to insignificant risk of change in their fair value. It is the Directors’ assessment that the carrying amount of these balances approximates their fair value at any given time. Loans, advances and other assets The estimated fair value of loans, advances and other assets is estimated to approximate the carrying amount due to non-availability of benchmark interest rates to discount the expected future cash flows thereof. The Directors believe that current interest rates are market related and would re-issue the loans at the same interest rate if needed. It is from this assessment that Directors believe that the carrying amount of these balances reasonably approximate fair value as discounting the future cash flow using the current interest rates would not result in significant differences from the carrying amount. Investment securities These financial assets consist of open market treasury bills and government bonds. There is currently no observable active market for these instruments; or a reliable proxy to discount the expected future cash flows. Directors believe that the carrying amount approximates fair value on these instruments. In performing this assessment, Directors have determined that interest rates are consistent with the latest transactions that the Group entered into and the average tenor of the portfolio was short-term in nature. Deposits and other liabilities The estimated fair value of deposits with no stated maturity, which includes non-interest bearing deposits, is the amount repayable on demand. The estimated fair value of fixed interest-bearing deposits approximates the carrying amount as interest rates quoted are market related. It is the view of Directors that the carrying amounts of these assets and liabilities reasonably approximate fair values. [ 45 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 17. FINANCIAL INSTRUMENTS (cont’d) 17.4.2 RECONCILIATION OF LEVEL 3 FAIR VALUE MEASUREMENTS 31 December 2016 Balance at 1 January Net movement Balance at 31 December 31 December 2015 Balance at 1 January Net movement Balance at 31 December 18. INVESTMENT IN DEBENTURES Debentures Redemption of debentures GROUP Loans, advances and other assets US$ Investment securities US$ Trade investments US$ Total US$ 77 805 11 125 235 088 981 (35 471 886) 14 547 992 10 196 760 249 714 778 (25 264 001) 88 930 199 617 095 24 744 752 224 450 777 GROUP Loans, advances and other assets US$ Investment securities US$ Trade investments US$ Total US$ 81 390 (3 585) 203 363 052 31 725 929 3 874 525 10 673 467 207 318 967 42 395 811 77 805 235 088 981 14 547 992 249 714 778 GROUP 2016 US$ - - - 2015 US$ 4 787 074 (4 787 074) - The Group had convertible debentures with a carrying amount of US$4 787 074 with a maturity of 5 years from inception. The debentures were at an interest of 10% per annum. The Group had an option to convert the debentures to equity or redeem the debentures at par on or before the maturity date of 9 March 2018. The debentures were redeemed at par on 17 March 2015. 19. DEFERRED TAX GROUP COMPANY Allowance for impairment losses on loans and advances Bad debts Prepayments Quoted and other investments Non-current assets held for sale Investment properties Property and equipment Staff loans Unrealised foreign exchange gains Suspended interest Deferred income Assessed losses Provision for share based payments Provision for leave pay 2016 US$ (2 138 568) (908 972) 336 274 8 369 113 065 441 701 494 505 (98 336) 170 795 (530 711) (66 025) (11 743) (4 350) (70 911) 2015 US$ (2 210 029) (201 922) 166 012 6 789 113 215 283 451 444 063 (75 544) 219 959 (463 111) (106 365) (8 150) (4 350) (69 134) Closing deferred tax asset Deferred tax asset at the beginning of the year (2 264 907) (1 905 116) (1 905 116) (2 784 594) Current year (credit)/charge (359 791) 879 478 Relating to profit or loss (note 8.1) Relating to other comprehensive income (358 761) (1 030) 878 448 1 030 46 ] NMBZ Holdings Limited Annual Report 2016 2016 US$ - - - 491 - - - - - - - - - (4 350) (3 859) (3 818) (41) (41) - 2015 US$ - - - 532 - - - - - - - - - (4 350) (3 818) (3 529) (289) (289) - Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 20. CASH AND CASH EQUIVALENTS Balances with Reserve Bank of Zimbabwe GROUP 2016 US$ 2015 US$ Balances with the Central Bank 36 166 732 26 238 681 Balances with other banks and cash Current, nostro accounts and cash Interbank placements 8 754 525 24 500 000 11 700 666 25 500 000 69 421 257 63 439 347 COMPANY 2016 US$ - 53 - 53 2015 US$ - 53 - 53 Balances with the Central Bank, other banks and cash are used to facilitate customer transactions which include payments and cash withdrawals. During the year the Central Bank through Exchange Control Operational Guide 8 (ECOGAD8) introduced prioritisation criteria which has to be followed when making foreign payments on behalf of customers. After prioritisation, foreign payments are then made subject to availability of bank balances with our foreign correspondent banks, resulting in possible delay of payment of telegraphic transfers. However, no delay is expected in the settlement of local transactions through the Real Time Gross Settlement (RTGS) system. Of the cash and cash equivalents balance an amount of US$526 316 was pledged to Proparco as collateral for offshore lines of credit. 21. LOANS, ADVANCES AND OTHER ASSETS Fixed term loans Local loans and overdrafts Other assets 21.1.1 Maturity analysis Less than 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 5 years Over 5 years GROUP 2016 US$ 2015 US$ 16 889 687 178 602 573 25 138 443 207 408 465 195 492 260 4 124 835 199 617 095 232 546 908 2 542 073 235 088 981 COMPANY 2016 US$ - - - 7 385 7 385 GROUP 2016 US$ 2015 US$ COMPANY 2016 US$ 86 086 528 9 247 720 7 423 426 16 327 018 86 773 700 - 136 146 912 24 125 652 2 387 188 15 686 184 64 895 082 - 243 241 018 (8 582 636) (2 111 474) - - - - - - - - - 2015 US$ - - - 7 385 7 385 2015 US$ - - - - - - - - - Total loans and advances Allowance for impairment losses on loans and advances (note 21.3) Provision for suspended interest 205 858 392 (8 305 117) (2 061 015) Other assets (note 21.5) 195 492 260 4 124 835 232 546 908 2 542 073 199 617 095 235 088 981 - 7 385 7 385 - 7 385 7 385 [ 47 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 21. LOANS, ADVANCES AND OTHER ASSETS (cont’d) 21.2 Sectoral analysis of utilisations Agriculture and horticulture Conglomerates Distribution Food & beverages Individuals Manufacturing Mining Services 2016 US$ 22 172 296 8 149 399 22 957 893 7 016 516 90 381 441 14 562 333 789 502 39 829 012 GROUP 2015 US$ 13 907 259 11 348 334 37 364 138 5 692 742 101 585 312 29 774 899 1 067 328 42 501 006 % 11 4 11 4 44 7 - 19 % 6 5 16 2 42 12 - 17 205 858 392 100 243 241 018 100 The material concentration of loans and advances are with individuals 44% (2015 - 42%) and services sector at 19% (2015 - 17%). 21.3 Allowances for impairment losses on loans, advances and debentures Specific US$ At 1 January Recognised in profit or loss Bad debts written off 7 574 789 6 970 128 (8 337 245) 2016 Portfolio US$ 1 007 847 1 089 598 - GROUP Total US$ Specific US$ 8 582 636 8 059 726 (8 337 245) 10 626 997 8 651 949 (11 704 157) 2015 Portfolio US$ 163 195 844 652 - Total US$ 10 790 192 9 496 601 (11 704 157) At 31 December 6 207 672 2 097 445 8 305 117 7 574 789 1 007 847 8 582 636 During the period under review, the Bank reviewed the basis and assumptions for recognising the portfolio impairment allowance in view of the current macro and micro economic conditions prevailing in Zimbabwe. The review resulted in an increase in the level of the portfolio impairment allowance recognised by the Group in proportion to its loan book size. 21.4 Non-performing loans and advances Gross non-performing loans and advances Allowance for impairment losses on loans and advances Retail loans insurance Interest in suspense Net non-performing loans and advances GROUP 2015 2016 US$ US$ 32 092 184 22 015 828 (7 574 789) (6 207 672) (1 577 628) (1 682 840) (1 748 031) (1 798 490) 12 482 497 21 036 065 The net non-performing loans and advances represent 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$17 573 875 (2015 -US$22 797 088). 48 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 21. LOANS, ADVANCES AND OTHER ASSETS (cont’d) 21.5 Other assets Service deposits* Prepayments and stocks Other receivables GROUP 2016 US$ 1 725 910 1 555 840 843 085 2015 US$ 1 171 927 913 532 456 614 4 124 835 2 542 073 COMPANY 2016 US$ - - 7 385 7 385 2015 US$ - - 7 385 7 385 *Service deposits relate to amounts pledged as collateral for VISA and the RTGS accounts. 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 2016 US$ 4 893 893 2 487 222 7 381 115 (369 784) 2015 US$ 3 135 666 2 043 080 5 178 746 (284 853) 7 011 331 4 893 893 Loans to officers amounting to US$3 723 737 were granted at a preferential rate of 6% per annum as part of their overall remuneration agreements, US$2 994 905 was granted at a commercial rate of 13% per annum and the balance amounting to US$662 473 being mortgage loans which were granted at a commercial rate of 12% per annum. 21.7 The terms and conditions applicable to loans and advances are as follows: Product Overdraft Loan Tenure Interest rate Payable on demand Loan payable over a maximum period of 120 months (includes mortgage loans). Penalty interest rate of ten percentage points above loan rate up to a maximum penalty rate of 18% per annum. From 8% per annum up to a maximum of 18% per annum. Loans to employees and executive directors are at a discounted interest rate. Bankers Acceptances Loan payable over a minimum period of 30 days up to 90 days. Average of 13% per annum. [ 49 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 22. NON-CURRENT ASSETS HELD FOR SALE At 1 January 2015 Fair value adjustment GROUP COMPANY 2016 US$ 2 264 300 (3 000) 2015 US$ 2 267 300 (3 000) 2 261 300 2 264 300 2016 US$ - - - 2015 US$ - - - The Group is in possession of land with a fair value of US$2 264 300 at year end. The Group entered into a sale agreement for a portion of the land in 2012 (at a price of US$2 150 000), however the execution and finalisation of the sale under this contract has been pending since then. The buyer has expressed commitment towards finalisation of the sale and the disposal process is now expected to be completed within the next twelve months. The disposal will improve the Group’s cash flows. The fair value adjustment is included under other income (note 6.2). Measurement of fair value Fair value hierarchy The fair value of non-current assets held for sale was determined by an independent professional valuer, 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. Non-current assets held for sale are measured at fair value. The values were arrived at by applying weighted average rate of US$7.50 per square metre. Level 2 The fair value of non-current assets held for sale of U$2 261 300 (2015 – US$2 264 300) has been categorised under level 2 in the fair value hierarchy based on the inputs used for the valuation technique highlighted above. (see note 2.3.5 use of judgement and estimates). 23. TRADE INVESTMENTS Unlisted Directors’ valuation GROUP 2016 US$ 2015 US$ 88 930 77 805 88 930 77 805 COMPANY 2016 US$ - - 2015 US$ - - Unlisted trade investments represent an equity investment in SWIFT. The trade investments were valued using the net asset value method at 31 December 2016 (see note 17.4 on fair value measurement). 50 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 24. INVESTMENTS IN ASSOCIATES Investment in Altiwave Investments (Private) Limited The Group had 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. The investment was disposed off on 17 March 2015. Altiwave Investments (Private) Limited 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 Share of profit in associate Allowance for impairment GROUP 31 December 2016 US$ 28 February 2015 US$ 12 798 956 10 243 534 (5 212 870) (30 857 918) (13 028 298) (3 322 216) 5 251 729 422 251 107 674 - 107 674 (107 674) - - - - - - - - - - - - - - The investment in Altiwave Investments (Private) Limited had been fully impaired as the company had negative equity as at date of disposal, 17 March 2015. 25. INVESTMENTS IN GROUP COMPANIES 25.1 Subsidiaries Investments in subsidiaries: -NMB Bank Limited -Stewart Holdings Limited COMPANY 2016 US$ 2015 US$ 31 491 006 14 680 31 491 006 14 680 31 505 686 31 505 686 25.2 Shareholding The subsidiaries and associates, all of which are registered in Zimbabwe, and the extent of the Group’s beneficial interest therein and their principal business activities are listed below:- NMB Bank Limited Stewart Holdings (Private) Limited 2016 100% (Banking) 100% (Equity holdings) 2015 100% (Banking) 100% (Equity Holdings) The consolidated financial statements include the financial information of the subsidiaries and associates listed above. 26. QUOTED AND OTHER INVESTMENTS Quoted investments GROUP COMPANY 2016 US$ 88 650 2015 US$ 68 220 2016 US$ 9 831 2015 US$ 10 650 The quoted investments comprise shares stated for year-end purposes at the last trading date of 31 December 2016. As these investments are trading on an active market they have been classified as Level 1 in the fair value hierarchy. [ 51 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 27. INVESTMENT PROPERTIES At 1 January Improvements Fair value adjustments Transfer from property and equipment Disposal At 31 December GROUP 2016 US$ 2015 US$ 8 125 800 5 794 464 412 006 - (130 000) 4 453 300 8 230 860 118 278 67 862 (4 744 500) 14 202 270 8 125 800 Investment properties comprise commercial and residential properties that are leased out to third parties and land held for future development. No properties were encumbered. Rental income amounting to US$142 400 (2015 - US$49 523) 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. Included in investment property is a property which was acquired as part of the foreclosure process with marketability restrictions measured at US$3 201 470 as at 31 December 2016. The Group has no restrictions on the realisability of all the remaining investment properties and no contractual obligations to purchase, construct or develop the investment properties or for repairs, maintenance and enhancements Measurement of fair value Fair value hierarchy The fair value of the Group’s investment properties as at 31 December 2016 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. Level 2 The fair value for investment properties of US$7 382 270 (2015 - US$2 830 800) has been categorised under level 2 in the fair value hierarchy based on the inputs used for the valuation technique described below. The following shows reconciliation between the opening and closing balances for level 2 fair values: At 1 January Improvements Disposals Fair value adjustments Balance at 31 December 31 December 2016 US$ 2 830 800 3 988 019 - 563 451 31 December 2015 US$ 2 673 300 3 200 000 (3 200 000) 157 500 7 382 270 2 830 800 Level 3 The fair value for investment properties of US$6 820 000 (2015 - US$5 295 000) has been categorised under level 3 in the fair value hierarchy based on the inputs used for the valuation technique described below. The following shows reconciliation between the opening and closing balances for level fair values: At 1 January Improvements Transfer from Property and Equipment Disposals Fair value adjustments Balance at 31 December 31 December 31 December 2016 US$ 5 295 000 1 806 445 - (130 000) (151 445) 2015 US$ 1 780 000 5 030 860 67 862 (1 544 500) (39 222) 6 820 000 5 295 000 The values were arrived at by applying yield rates of 10% on rental values of between US$5 - US$10 per square metre. The properties are leased out under operating lease to various tenants. 52 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 27. INVESTMENT PROPERTIES (cont’d) Valuation technique and significant unobservable inputs The following table shows the valuation technique used in measuring the fair value of investment properties, as well as the significant unobservable inputs used. Valuation technique Significant unobservable inputs inter-relationship between key unobservable inputs and fair value measurement investment method The (Discounted cash flows) was used to value all income producing properties. ■ Weighted average expected market rental growth (20%); The estimated fair value would increase / (decrease) if: ■ Void period (average 3 months after the end ■ expected market rental growth were of each lease); higher/ (lower); The direct comparison method was applied on all residential properties ■ Occupancy rate (55%); and ■ Average market yield of 8%. 28. INTANGIBLE ASSETS Cost Balance at 1 January 2015 Acquisitions Balance at 1 January 2016 Acquisitions Balance at 31 December 2016 Accumulated amortisation and impairment Balance at 1 January 2015 Amortisation for the year Balance at 1 January 2016 Amortisation for the year Balance at 31 December 2016 Carrying amount At 31 December 2016 At 1 January 2016 At 1 January 2015 The amortisation expense of intangible assets is included under operating expenditure (note 7). ■ void periods were shorter/(longer); ■ the occupancy rates were higher / (lower); and ■ the risk adjusted discount rates were lower/ (higher). Work in Progress US$ Computer Software US$ Total US$ 208 673 2 326 292 2 534 965 19 922 228 417 248 339 228 595 - 2 554 709 490 417 2 783 304 490 417 228 595 3 045 126 3 273 721 - - - - - 584 232 509 687 584 232 509 687 1 093 919 532 768 1 093 919 532 768 1 626 687 1 626 687 228 595 1 418 439 1 647 034 228 595 1 460 790 1 689 385 208 673 1 742 060 1 950 733 [ 53 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 29. PROPERTY AND EQUIPMENT Cost At 1 January 2015 Additions Capitalisation Revaluation loss Disposals Reclassification to investment properties Work in progress US$ 101 375 585 511 (33 513) - - (67 862) Freehold Capital Computers US$ 2 605 706 334 338 33 513 - (11 220) Motor vehicles US$ 4 161 425 418 383 - - (869 083) Furniture & equipment US$ 3 093 648 540 202 - - - Land & buildings US$ 2 904 518 393 509 - (40 200) - Total US$ 12 866 672 2 271 943 - (40 200) (880 303) - - - - (67 862) At 1 January 2016 585 511 2 962 337 3 710 725 3 633 850 3 257 827 14 150 250 Additions Capitalisations Revaluation loss Disposals 188 947 (585 511) - - 541 737 173 827 - - 192 113 180 000 - (2 799 390) 215 716 64 348 - - 128 891 167 336 (55 600) - 1 267 404 - (55 600) (2 799 390) At 31 December 2016 188 947 3 677 901 1 283 448 3 913 914 3 498 454 12 562 664 Accumulated depreciation At 1 January 2015 Charge for the year Disposals At 1 January 2016 Charge for the year Disposals At 31 December 2016 Carrying amount At 31 December 2016 - - - - - - - 1 386 055 392 601 (3 197) 1 775 459 427 666 - 2 872 564 775 381 (659 946) 2 987 999 370 383 (2 586 182) 2 121 154 464 885 - 2 586 039 458 831 - 141 632 58 035 - 199 667 62 516 - 6 521 405 1 690 902 (663 143) 7 549 164 1 319 396 (2 586 182) 2 203 125 772 200 3 044 870 262 183 6 282 378 188 947 1 474 776 511 248 869 044 3 236 271 6 280 286 At 1 January 2016 585 511 1 186 878 722 726 1 047 811 3 058 160 6 601 086 At 1 January 2015 101 375 1 219 651 1 288 861 972 494 2 762 886 6 345 267 54 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 29. PROPERTY AND EQUIPMENT (cont’d) Measurement of fair value Fair value hierarchy Immovable properties were revalued as at 31 December 2016 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 10% on rental levels of between US$5 - US$10 per square metre. The carrying cost less accumulated depreciation of the land and buildings had revaluations not been performed would be US$3 887 520 as at 31 December 2016 (2015 - US$3 669 148). Level 3 The fair value of immovable properties of US$3 236 271 (2015 - US$3 058 160) has been categorised under level 3 in the fair value hierarchy based on the inputs used for the valuation technique described below. The following shows reconciliation between the opening and closing balances for level 3 fair values: At 1 January Additions Transfers from work in progress Revaluation loss Depreciation Balance at 31 December 31 December 2016 US$ 3 058 160 128 891 167 336 (55 600) (62 516) 31 December 2015 US$ 2 762 886 393 509 - (40 200) (58 035) 3 236 271 3 058 160 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 inter-relationship between key unobservable inputs and fair value measurement The Direct Comparison Method was applied on all residential properties ■ Weighted average expected market rental growth (20%); ■ Average market yield of 6%. ■ Marketability restrictions on a specific The estimated fair value would increase / (decrease) if: ■ expected market rental growth were higher/ (lower); and property with a fixed purchase consideration. ■ the risk adjusted discount rates were lower/ (higher). [ 55 Notes To The Financial Statements (Cont’d) for the year ended 31 December 2016 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 2016 Up to 1 month US$ 1 month to 3 months US$ Assets Cash and cash equivalents Current tax assets Investment securities Quoted and other investments Loans, advances and other assets Deferred tax Non-current assets held for sale Intangible assets Property and equipment Investment properties 69 421 257 - - - 75 720 395 - - - - - - - 168 563 - 9 247 720 - - - - - GROUP 3 months to 1 year US$ - - 315 126 - 23 750 444 - - - - - 1 year to 5 years US$ Non-interest bearing US$ Total US$ - - 24 261 063 - 86 773 701 - - - - - - 368 445 - 177 580 4 124 835 2 264 907 2 261 300 1 647 034 6 280 286 14 202 270 69 421 257 368 445 24 744 752 177 580 199 617 095 2 264 907 2 261 300 1 647 034 6 280 286 14 202 270 145 141 652 9 416 283 24 065 570 111 034 764 31 326 657 320 984 926 Liabilities and equity Deposits and other liabilities Redeemable ordinary shares Equity Subordinated loan 185 752 420 - - - 35 339 615 - - - 9 285 769 - - - 30 172 579 - - 1 415 490 4 834 137 14 335 253 39 849 663 - 265 384 520 14 335 253 39 849 663 1 415 490 185 752 420 35 339 615 9 285 769 31 588 069 59 019 053 320 984 926 Interest rate repricing gap (40 610 768) (25 923 332) 14 779 801 79 446 695 (27 692 396) Cumulative gap (40 610 768) (66 534 100) (51 754 299) 27 692 396 - - - 56 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 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 2015 Up to 1 month US$ 1 month to 3 months US$ 3 months to 1 year US$ 1 year to 5 years US$ Non-interest bearing US$ Total US$ GROUP Assets Cash and cash equivalents Current tax assets Investment securities Investment in debentures Quoted and other investments Loans, advances and other assets Deferred tax Non-current assets held for sale Intangible assets Property and equipment Investment properties Liabilities and equity Deposits and other liabilities Redeemable ordinary shares Equity Subordinated loan 63 439 347 - - - - 125 452 802 - - - - - 188 892 149 184 324 981 - - - - - 1 314 802 - - 24 125 652 - - - - - 25 440 454 66 129 516 - - - - - 8 831 999 - - 18 073 372 - - - - - 26 905 371 18 211 763 - - - - - 4 401 191 - - 64 895 082 - - - - - 69 296 273 - 23 075 - - 146 025 2 542 073 1 905 116 2 264 300 1 689 385 6 601 086 8 125 800 23 296 860 63 439 347 23 075 14 547 992 -I 146 025 235 088 981 1 905 116 2 264 300 1 689 385 6 601 086 8 125 800 333 831 107 8 550 509 - - 1 414 144 6 070 474 14 335 253 34 794 467 - 283 287 243 14 335 253 34 794 467 1 414 144 184 324 981 66 129 516 18 211 763 9 964 653 55 200 194 333 831 107 Interest rate repricing gap 4 567 168 (40 689 062) 8 693 608 59 331 620 (31 903 334) Cumulative gap 4 567 168 (36 121 894) (27 428 286) 31 903 334 - - - [ 57 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 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 dollars At 31 December 2016 Up to 1 month US$ 1 month to 3 months US$ Assets Cash and cash equivalents Current tax assets Investment securities Quoted and other investments Loans, advances and other assets Deferred tax Investment properties Intangible assets Property and equipment Non-current assets held for sale 60 109 588 - - - 75 345 696 - - - - - - - 168 563 - 9 247 720 - - - - - GROUP 3 months to 1 year US$ - - 315 126 - 23 750 444 - - - - - 1 year to 5 years US$ Non-interest bearing US$ Total US$ - - 24 261 063 - 86 773 701 - - - - - - 368 445 - 88 650 4 124 835 2 264 907 2 261 300 1 647 034 6 280 286 14 202 270 60 109 588 368 445 24 744 752 88 650 199 242 396 2 264 907 2 261 300 1 647 034 6 280 286 14 202 270 135 455 284 9 416 283 24 065 570 111 034 764 31 237 727 311 209 628 Liabilities and equity Deposits and other liabilities Redeemable ordinary shares Equity Subordinated loan 178 196 328 - - - 35 339 615 - - - 9 285 769 - - - 30 172 579 - - 1 415 490 4 834 137 14 335 253 39 849 663 - 257 828 428 14 335 253 39 849 663 1 415 490 178 196 328 35 339 615 9 285 769 31 588 069 59 019 053 313 428 834 Interest rate repricing gap (42 741 044) (25 923 332) 14 779 801 79 446 695 (27 781 326) (2 219 206) Cumulative gap (42 741 044) (68 664 376) (53 884 575) 25 562 120 (2 219 206) - 58 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 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 dollars At 31 December 2015 GROUP Up to 1 month US$ 1 month to 3 months US$ 3 months to 1 year US$ 1 year to 5 years US$ Non-interest bearing US$ Total US$ Assets Cash and cash equivalents Current tax assets Investment securities Investment in debentures investments Quoted and other investments Loans, advances and other assets Deferred tax Non-current assets held for sale Intangible assets Property and equipment Investment properties 58 375 898 - - - - 124 949 290 - - - - - - - 1 314 802 - - 24 125 652 - - - - - - - 8 831 999 - - 18 073 372 - - - - - - - 4 401 191 - - 64 895 082 - - - - - - 23 075 - - 68 220 2 542 073 1 905 116 2 264 300 1 689 385 6 601 086 8 125 800 58 375 898 23 075 14 547 992 - 68 220 234 585 469 1 905 116 2 264 300 1 689 385 6 601 086 8 125 800 183 325 188 25 440 454 26 905 371 69 296 273 23 219 055 328 186 341 Liabilities and equity Deposits and other liabilities Redeemable ordinary shares Equity Subordinated loan 172 295 815 - - - 66 129 516 - - - 18 211 763 - - - 8 550 509 - - 1 414 144 6 070 474 14 335 253 34 794 467 - 271 258 077 14 335 253 34 794 467 1 414 144 172 295 815 66 129 516 18 211 763 9 964 653 55 200 194 321 801 941 Interest rate repricing gap 11 029 373 (40 689 062) 8 693 608 59 331 620 (31 981 139) 6 384 400 Cumulative gap 11 029 373 (29 659 689) (20 966 081) 38 365 539 6 384 400 - [ 59 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 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 2016 GROUP Up to 1 month US$ 1 month to 3 months US$ 3 months to 1 year US$ 1 year to Non-interest 5 years bearing US$ US$ Total US$ Assets Cash and cash equivalents Quoted and other instruments Loans, advances and other assets Liabilities and equity Deposits and other liabilities Equity 9 311 669 - 374 699 9 686 368 7 556 092 - 7 556 092 Interest rate repricing gap 2 130 276 - - - - - - - - - - - - - - - 88 930 - 9 311 669 88 930 374 699 - - 88 930 9 775 298 - - - - - - - - - - 7 556 092 - 7 556 092 88 930 2 219 206 Cumulative gap 2 130 276 2 130 276 2 130 276 2 130 276 2 219 206 - 60 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 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 2015 GROUP Up to 1 month US$ 1 month to 3 months US$ 3 months to 1 year US$ 1 year to Non-interest 5 years bearing US$ US$ Total US$ Assets Cash and cash equivalents Investment securities Quoted and other instruments Loans, advances and other assets Liabilities and equity Deposits and other liabilities Equity 5 063 449 - 503 512 5 566 961 12 029 166 - 12 029 166 Interest rate repricing gap (6 462 205) - - - - - - - - - - - - - - - - - - - - - - - - 5 063 449 77 805 - 77 805 503 512 77 805 5 644 766 - - - 12 029 166 - 12 029 166 77 805 (6 384 400) Cumulative gap (6 462 205) (6 462 205) (6 462 205) (6 462 205) (6 384 400) - [ 61 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 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 2016 US$ US$ 60 109 588 24 744 752 88 650 199 242 396 2 261 300 6 280 286 14 202 270 2 264 907 368 445 1 647 034 RAND US$ 8 357 416 - - 374 614 - - - - - - GROUP EUR GBP US$ US$ 103 746 - - 234 004 - 88 930 51 - - - - - - 6 - - - - - - BWP US$ 616 503 - - 28 - - - - - - TOTAL US$ 69 421 257 24 744 752 177 580 199 617 095 2 261 300 6 280 286 14 202 270 2 264 907 368 445 1 647 034 311 209 628 8 732 030 103 797 322 940 616 531 320 984 926 Assets Cash and cash equivalents Investment securities Quoted and other investments Loans, advances and other assets Non-current assets held for sale Property and equipment Investment properties Deferred tax Current tax assets Intangible assets Liabilities and equity Deposits and other liabilities Subordinated term loan Redeemable Ordinary shares Equity 257 828 428 1 415 490 14 335 253 39 849 663 6 757 766 - - - 42 215 - - - 486 685 - - - 269 426 - - - 265 384 520 1 415 490 14 335 253 39 849 663 313 428 834 6 757 766 42 215 486 685 269 426 320 984 926 Net foreign exchange position (2 219 206) 1 974 264 61 582 (163 745) 347 105 - 62 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 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 2015 US$ US$ RAND GBP EUR US$ US$ US$ TOTAL BWP US$ US$ GROUP Assets Cash and cash equivalents Investment securities Quoted and other investments Loans, advances and other assets Non-current assets held for sale Property and equipment Investment properties Deferred tax Current tax assets Intangible assets 58 375 898 14 547 992 68 220 234 585 469 2 264 300 6 601 086 8 125 800 1 905 116 23 075 1 689 385 4 383 218 - - 501 307 - - - - - - 55 638 - - 1 353 - - - - - - 363 351 - 77 805 261 242 - - 852 - - - - - - - - - - - - - 63 439 347 14 547 992 146 025 235 088 981 2 264 300 6 601 086 8 125 800 1 905 116 23 075 1 689 385 Liabilities and equity 328 186 341 4 884 525 56 991 442 008 261 242 333 831 107 Deposits and other liabilities Subordinated term loan Redeemable Ordinary Shares Equity 271 258 077 1 414 144 14 335 253 34 794 467 11 570 506 - - - 144 633 - - - 264 495 - - - 49 532 - - - 283 287 243 1 414 144 14 335 253 34 794 467 321 801 941 11 570 506 144 633 264 495 49 532 333 831 107 Net foreign exchange Position 6 384 400 (6 685 981) (87 642) 177 513 211 710 - [ 63 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 34. CONTINGENT LIABILITIES Guarantees Facilities approved but not drawn down Irrevocable Letters of Credit GROUP 2016 US$ 2015 US$ 2 159 937 25 175 267 450 000 5 305 263 39 468 072 1 264 607 27 785 204 46 037 942 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 and advances to customers. Facilities approved but not drawn down represent contractual commitments to advance loans and revolving credits. These have fixed expiry dates and may expire without being drawn upon, hence total contract amounts do not necessarily represent future cash requirements. 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. GROUP 2016 US$ 2015 US$ 69 315 5 379 915 807 000 3 516 220 5 449 230 4 323 220 36. ASSETS UNDER CUSTODY In 2014, the Group received Treasury Bills from the Reserve Bank of Zimbabwe amounting to US$2 706 327 on behalf of its Tobacco Retention Scheme customers. A third of the Treasury Bills mature in April 2017, April 2018 and April 2019. These Treasury Bills are currently held off balance sheet. 37. OPERATING LEASE COMMITMENTS Lease commitments Up to 1 year 1 – 5 years GROUP 2016 US$ 2015 US$ 4 581 665 6 346 410 916 333 3 665 332 1 280 147 5 066 263 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$1 061 072. 64 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 38. RELATED PARTIES As required by IAS 24 Related Party Disclosure, the Board’s view is that non-executive directors, executive directors and executive management constitute the key management of the Group. Accordingly, key management remuneration is disclosed below. 38.1 Compensation of key management personnel of the Group Short term employee benefits Post employment benefits Termination benefits 38.2 Key management interest in employee share options At 31 December 2016, key management held options to purchase 793 125 ordinary shares of the Company. 38.3 Balances of loans to directors, officers and others Loans to directors and officers or their companies are included in advances and other accounts (note 21.1). Non - executive directors Executive directors Officers (Note 21.6) Directors’ companies Officers’ companies Fair value adjustment GROUP 2016 US$ 934 396 62 150 - 2015 US$ 873 038 57 406 868 470 996 546 1 798 914 GROUP 2016 US$ - 240 705 7 381 115 - - 7 621 820 (381 887) 2015 US$ - 136 276 5 178 746 - - 5 315 022 (293 377) 7 239 933 5 021 645 38.4 Other related party transactions The Group outsourced services of a non-executive director in respect of consultancy services for Group employee contracts. This service was outsourced at arms length at an amount of US$4 500. 38.5 Borrowing powers Holding Company In terms of the existing Articles of Association, Article 102, the directors may from time to time, at their discretion, borrow or secure the payment of any sum or sums of money for the purposes of the Company without any limitation. 39. EMPLOYEE BENEFITS 39.1 Pension Fund All eligible employees of the Group contribute to the NMB Bank Pension Fund, which is a defined contribution plan. The assets of the Pension Fund are held separately from those of the Group in funds under the control of Trustees. The pension fund assets included 878 344 shares in NMBZ Holdings Limited as at 31 December 2016. [ 65 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 39. EMPLOYEE BENEFITS (cont’d) 39.2 Expense recognised in profit or loss Defined Contribution Plan - NSSA Defined Contribution Plan - NMB Bank Pension Fund GROUP 2016 US$ 191 221 558 670 2015 US$ 182 568 659 921 749 891 842 489 The expense is recognised in profit or loss as part of staff costs under operating expenses (note 7). 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 WAEP$ 2016 2015 WAEP$ No. 000’s 0.036 - - - 4 128 434 - - - 0.04 - - - 0.04 Outstanding as at 1 January Lapsed Issued Exercised No. 000’s 4 128 434 - - - Outstanding as at 31 December 4 128 434 0.036 4 128 434 Terms of options outstanding at 31 December 2016 Expiry date 18 June 2022 GROUP and COMPANY Exercise price US$ 0.04 2016 Shares 4 128 434 4 128 434 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$191 221 (2015 - US$182 568). 40. EXCHANGE RATES The following exchange rates have been used to translate the foreign currency balances to United States dollars at year end: British Sterling South African Rand European Euro Botswana Pula 66 ] NMBZ Holdings Limited Annual Report 2016 31 Dec 2016 Mid - rate US$ 31 Dec 2015 Mid - rate US$ 1.2375 13.700 1.0570 10.6838 1.4800 15.5039 1.0882 11.1111 GBP ZAR EUR BWP Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 41. RISK MANAGEMENT (cont’d) 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’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 of loan loss provisions. The Group has automated credit processes from loan origination, appraisal, monitoring and collections. The system has a robust loan monitoring and reporting module which is critical in managing credit risk. In view of the group’s move into the mass market, retail credit has become a key area of focus. The group has put in place robust personal loan monitoring systems and structures to mitigate retail loan delinquencies. This includes a rigorous scheme assessment and a dedicated pre-delinquency team and a separate recoveries team. 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 maximises recoveries from Non-Performing Loans (NPLs) and loans and advances written off. [ 67 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 41. RISK MANAGEMENT (cont’d) The table below shows the maximum exposure to credit for the components of the statement of financial position. The maximum exposure is shown as gross. 41.1.2 Maximum exposure to credit risk without taking account of any collateral Cash and cash equivalents (excluding cash on hand) Investment securities held to maturity Investment in debentures Loans, advances and other accounts Total Guarantees Facilities approved but not drawn down Irrevocable lines of credit Total Total credit risk exposure Note 17 21 34 34 34 GROUP 2016 US$ 2015 US$ 62 033 603 24 744 752 - 195 492 260 53 471 405 14 547 992 - 232 546 908 282 270 615 300 566 305 2 159 937 25 175 267 450 000 5 305 263 39 468 072 1 264 607 27 785 204 46 037 942 310 055 819 346 604 247 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. 41.1.3 Risk concentrations of maximum exposure to credit risk 31 December 2016 Gross Maximum Exposure US$ 31 December 2016 Net Maximum Exposure US$ 31 December 2015 Gross Maximum Exposure US$ 31 December 2015 Net Maximum Exposure US$ 22 172 296 8 149 399 22 957 893 7 016 516 90 381 441 14 562 333 789 502 39 829 012 12 801 701 8 149 399 9 201 073 230 769 83 825 012 6 397 747 22 995 6 462 626 13 907 259 11 348 334 37 364 138 5 692 742 101 585 312 29 774 899 1 067 328 42 501 006 - 11 348 334 - 1 655 242 97 343 706 12 624 048 - - Agriculture and horticulture Conglomerates Distribution Food and beverages Individuals Manufacturing Mining Services Allowance for impairment losses on loans and advances 205 858 392 (8 305 117) 127 091 322 (8 305 117) 243 241 018 (8 582 636) 122 971 330 (8 582 636) Net exposure 197 553 275 118 786 205 234 658 382 114 388 694 41.1.4 Collateral and other credit enhancements The amount and type of collateral required depends on an assessment of credit risk of the counterparty. There are guidelines regarding the acceptability of types of collateral. The main types of collateral obtained are guarantees, cession of debtors, mortgages over residential properties, equities, subordination of shareholder loans and promissory notes. The fair value of all collateral held by the Group at the reporting date is US$78 767 070 (2015 - US$120 269 688). 68 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 41. RISK MANAGEMENT (cont’d) 41.1.5 Credit quality per sector At 31 December 2016 Agriculture and horticulture Conglomerates Distribution Food and Beverage Individuals Manufacturing Mining Services Pass US$ 7 878 415 - 3 629 042 3 267 057 75 582 031 848 365 - 8 720 002 Special Mention US$ 12 568 962 8 149 399 16 589 450 3 560 712 8 112 552 11 086 035 41 636 23 808 906 Substandard US$ 318 870 - 272 327 - 4 318 380 607 449 7 871 1 085 105 Doubtful US$ 931 763 - 792 820 188 747 2 247 293 861 631 723 037 5 303 873 Loss US$ 474 286 - 1 674 254 - 121 185 1 158 853 16 958 911 126 Total US$ 22 172 296 8 149 399 22 957 893 7 016 516 90 381 441 14 562 333 789 502 39 829 012 Total 99 924 912 83 917 652 6 610 002 11 049 164 4 356 662 205 858 392 At 31 December 2015 Agriculture and horticulture Conglomerates Distribution Food and Beverage Individuals Manufacturing Mining Services Pass US$ 3 951 666 - 5 883 680 1 939 940 66 686 290 202 179 - 8 404 584 Special Mention US$ 8 192 253 11 348 334 23 903 379 3 752 802 27 506 267 24 552 460 328 391 24 496 609 Substandard US$ 136 848 - 991 717 - 5 184 962 2 905 321 - 4 945 801 Doubtful US$ 1 282 053 - 3 476 085 - 1 207 793 1 662 023 738 937 4 299 028 Loss US$ 344 439 - 3 109 277 - 1 000 000 452 916 - 354 984 Total US$ 13 907 259 11 348 334 37 364 138 5 692 742 101 585 312 29 774 899 1 067 328 42 501 006 Total 87 068 339 124 080 495 14 164 649 12 665 919 5 261 616 243 241 018 Refers to loans graded 1 to 3 Pass: 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 [ 69 31 Dec 2016 US$ 31 Dec 2015 US$ 195 492 260 232 546 908 6 610 003 11 049 164 4 356 662 14 164 649 12 665 919 5 261 616 22 015 829 32 092 184 (6 207 673) (1 748 031) (7 574 789) (1 798 490) 14 060 125 22 718 905 155 770 677 28 071 887 182 512 639 28 636 195 183 842 564 211 148 834 (2 097 445) (312 984) (1 007 847) (312 984) 181 432 135 209 828 003 195 492 260 232 546 908 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 41. RISK MANAGEMENT (cont’d) 41.1.6 Credit quality analysis per grade Loans and advances to customers Carrying amount (note 21.1.1) Assets at amortised cost Individually impaired Grade 8 Grade 9 Grade 10 Gross amount Allowance for impairment Impairment allowance Suspended interest Carrying amount Collectively impaired 1 to 5 low to fair risk 6 to 7 watch list Gross amount Allowance for impairment Impairment allowance Suspended interest Carrying amount Total carrying amount at amortised cost 70 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 41. RISK MANAGEMENT (cont’d) 41.2 Market risk 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 per currency are contained within 5% 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 2016. At 31 December 2016 Currency USD USD USD USD USD USD At 31 December 2015 Currency USD USD USD USD USD USD Sensitivity of net interest income Increase in interest rates 0 to 1 months US$ 5% 3% 1% -1% -3% -5% (2 137 050) (1 282 230) (427 410) 427 410 1 282 230 2 137 050 1 to 3 months US$ (1 296 165) (777 699) (259 233) 259 233 777 699 1 296 165 3months to 1 year US$ 738 990 443 394 147 798 (147 798) (443 394) (738 990) Sensitivity of net interest income Increase in interest rates 5% 3% 1% -1% -3% -5% 0 to 1 months US$ 551 470 330 882 110 294 (110 294) (330 882) (551 470) 1 to 3 months US$ (2 034 455) (1 220 673) (406 891) 406 891 1 220 673 2 034 455 3months to 1 year US$ 434 680 260 808 86 936 (86 936) (260 808) (434 680) 1 year to 5 years US$ 3 972 335 2 383 401 794 467 (794 467) (2 383 401) (3 972 335) 1 year to 5 years US$ 2 966 580 1 779 948 593 316 (593 316) (1 779 948) (2 966 580) Total US$ 1 278 110 766 866 255 622 (255 622) (766 866) (1 278 110) Total US$ 1 918 275 1 150 965 383 655 (383 655) (1 150 965) (1 918 275) 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 2016 Currency ZAR ZAR ZAR ZAR ZAR ZAR Change in currency rate Effect on profit before tax US$ 5% 3% 1% -1% -3% -5% 98 715 59 229 19 743 (19 743) (59 229) (98 715) Effect on equity US$ 73 294 43 977 14 659 (14 659) (43 977) (73 295) [ 71 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 41. RISK MANAGEMENT (cont’d) 41.3 Foreign currency exchange rate risk (cont’d) At 31 December 2015 Currency ZAR ZAR ZAR ZAR ZAR ZAR 41.4 Liquidity risk Change in currency rate Effect on profit before tax US$ 5% 3% 1% -1% -3% -5% (334 300) (200 580) (66 860) 66 860 200 580 334 300 Effect on equity US$ (248 215) (148 929) (49 643) 49 643 148 929 248 215 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 bank 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. The group monitors funding concentration risk by reviewing the ratio of top 20 depositors to the total funding. Funding mix is also monitored by monitoring the contribution of wholesale and demand deposits to the total funding for the bank. Liquidity risk is monitored through a daily liquidity 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. 72 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 41. RISK MANAGEMENT (cont’d) 41.4 Liquidity risk (cont’d) Maturity profile for contingent liabilities The table below shows the contractual expiry by maturity of the Group’s contingent liabilities and facilities approved but not drawn down. At 31 December 2016 Guarantees Facilities approved but not drawn down Irrevocable letters of credit At 31 December 2015 Guarantees Facilities approved but not drawn down Irrevocable letters of credit On Demand US$ - 0 to 1 months US$ 1 087 357 1 to 3 months US$ 268 580 3 months to 1 year US$ 804 000 1 year to to 5 years US$ - Total US$ 2 159 937 - - - On Demand US$ - - - - 591 116 - 3 302 870 - 17 428 238 450 000 3 853 043 - 25 175 267 450 000 1 678 473 3 571 450 18 682 238 3 853 043 27 785 204 0 to 1 months US$ 142 935 667 004 689 607 1 to 3 months US$ 850 139 3 months to 1 year US$ 4 312 189 1 year to to 5 years US$ - Total US$ 5 305 263 5 559 624 575 000 23 170 136 - 10 071 308 - 39 468 072 1 264 607 1 499 546 6 984 763 27 482 325 10 071 308 46 037 942 The Group expects that not all of the contingent liabilities or facilities approved but not drawn down will be drawn before expiry. 41.5 41.6 41.7 41.8 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 minimised. 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. 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. 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. 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. [ 73 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 41. RISK MANAGEMENT (cont’d) 41.9 Risk ratings (cont’d) 41.9.1 Reserve Bank of Zimbabwe ratings The Reserve Bank of Zimbabwe conducted an onsite inspection on the Group’s banking subsidiary in the last quarter of 2016. The Results of the onsite are yet to be finalised. The last onsite before the 2016 one was conducted in 2013 and a 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 Capital Adequacy Asset Quality Management Earnings Liquidity Sensitivity to Market Risk Composite Rating Latest RBS** Ratings 30/06/2013 Previous RBS Ratings 31/01/2008 Previous RBS 30/06/2007 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. 41.9.1.2 Summary RAS ratings RAS Component Overall Inherent Risk Latest RAS*** Ratings 30/06/2013 Moderate Overall Risk Management Systems Acceptable Overall Composite Risk Moderate Direction of Overall Composite Risk Stable ** RAS stands for Risk Assessment System. Previous RAS Ratings 31/01/2008 Moderate Acceptable Moderate Stable Previous RAS Ratings 30/06/2007 High Weak High Increasing 74 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 41. RISK MANAGEMENT (cont’d) 41.9 Risk ratings (cont’d) 41.9.1.3 Summary risk matrix -30 June 2013 on – site examination Type of Risk Level of Inherent Risk Adequacy of Risk Management Systems Overall Composite Risk Direction of Overall Composite Risk Credit Liquidity Interest Rate High Moderate Moderate Foreign Exchange Low Strategic Risk Operational Risk Legal & Compliance Reputation Overall KEY Moderate Moderate Moderate Moderate Moderate Weak Acceptable Acceptable Acceptable Acceptable Acceptable Strong Strong Acceptable High Moderate Moderate Low Moderate Moderate Moderate Moderate Moderate Increasing Stable Stable Stable Stable Stable Stable Stable Stable Level of Inherent Risk 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. 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 Increasing – based on the current information, risk is expected to increase in the next 12 months. 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. [ 75 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 41. RISK MANAGEMENT (cont’d) 41.9 Risk ratings (cont’d) 441.9.2 External credit ratings 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 2016 BB+ 2015 BB+ The current rating expires in August 2017. 41.10 Regulatory compliance There were no instances of regulatory non compliance in the period under review. The Bank remains committed to complying with and adhering to all regulatory requirements. 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. 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. 76 ] NMBZ Holdings Limited Annual Report 2016 Notes to the Financial Statements (Cont’d) for the year ended 31 December 2016 41. RISK MANAGEMENT (cont’d) 41.11 Capital management (cont’d) 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 2016 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) Revaluation reserve 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 2016 US$ 16 506 31 474 502 21 437 257 (1 797 022) 51 131 243 (980 355) - 50 150 888 5 691 960 1 797 022 849 294 1 785 136 1 260 508 2015 US$ 16 506 31 474 502 14 439 723 (3 112 902) 42 817 829 (722 035) - 42 095 794 7 812 084 3 112 902 1 414 144 2 277 191 1 007 847 55 842 848 980 355 49 907 878 722 035 56 823 203 50 629 913 243 651 546 262 803 080 20.58% 16.02% 2.97% 2.34% 0.40% 0.27% 19.26% 23.32% 12.00% 12% [ 77 Historical Five Year Financial Summary for the year ended 31 December 2016 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 Other income Profit on disposal of associate Operating income Operating expenditure Impairment losses on loans and advances Profit /(loss) before taxation Taxation (charge)/credit 2016 US$ 33 860 139 (11 075 067) 2015 US$ 35 761 355 (15 118 231) 2014 US$ 31 072 461 (12 651 519) 2013 US$ 33 181 704 (13 006 505) 2012 US$ 27 543 784 (10 050 003) 22 785 072 743 255 15 179 149 38 707 476 - 1 737 860 - 20 643 124 1 416 445 20 984 694 43 044 263 - 1 234 125 - 18 420 942 1 822 432 15 121 536 35 364 910 - 62 025 - 20 175 199 1 502 044 14 673 834 36 351 077 217 768 777 720 580 136 17 493 781 1 902 337 13 016 115 32 412 233 434 252 2 593 515 - 40 445 336 (26 176 706) 44 278 388 (26 872 649) 35 426 935 (27 984 051) 37 926 201 (25 232 756) 35 440 000 (21 452 714) (8 059 726) (9 496 601) (5 017 362) (16 645 810) (3 985 062) 6 208 904 (1 150 738) 7 909 138 (2 422 040) 2 425 522 (768 455) (3 951 865) 630 042 10 002 224 (2 431 722) Profit/(loss) after taxation Other comprehensive income for the year, net of tax 5 058 166 (2 970) 5 487 098 2 970 1 657 067 10 180 (3 321 823) - 7 570 502 - Total comprehensive income/(loss) for the year 5 055 196 5 490 068 1 667 247 (3 321 823) 7 570 502 78 ] NMBZ Holdings Limited Annual Report 2016 Historical Five Year Financial Summary (Cont’d) for the year ended 31 December 2016 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION SHAREHOLDERS’ FUNDS Share capital Reserves Equity Subordinated loan Redeemable ordinary shares 2016 US$ 2015 US$ 2014 US$ 2013 US$ 2012 US$ 78 598 39 771 065 78 598 34 715 869 78 598 29 225 801 78 598 27 541 662 78 598 30 863 485 39 849 663 1 415 490 14 335 253 34 794 467 1 414 144 14 335 253 29 304 399 1 407 964 14 335 253 27 620 260 1 485 890 14 335 253 30 942 083 - - Total shareholders’ funds 55 600 406 50 543 864 45 047 616 43 441 403 30 942 083 LIABILITIES Deposits and other liabilities Current tax liabilities 265 384 520 - 283 287 243 - 241 001 418 - 216 041 709 - 195 002 633 588 966 Capital employed 320 984 926 333 831 107 286 049 034 259 483 112 226 533 682 ASSETS Cash and cash equivalents Investments securities 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 69 421 257 24 744 752 - 2 264 907 368 445 199 617 095 2 261 300 88 650 88 930 - 14 202 270 6 280 286 1 647 034 63 439 347 14 547 992 - 1 905 116 23 075 235 088 981 2 264 300 68 220 77 805 - 8 125 800 6 601 086 1 689 385 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 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 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 - Employment of capital 320 984 926 333 831 107 286 049 034 259 483 112 226 533 682 [ 79 Historical Five Year Financial Summary for the year ended 31 December 2016 CLOSING NUMBER OF SHARES 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 2016 2015 2014 2013 2012 384 427 351 384 427 351 384 427 351 384 427 351 384 427 351* 14.46 1.32 - - 2.97 12.78 1.43 - - 2.5 3.9 14 992 667 3.5 13 454 952 11.72 0.43 - - 10.47 4.5 17 299 224 11.30 (1.00) - - (6.50) 1.12 0.29 - - 2.24 6.50 0.65 24 987 781 18 246 197 Return on shareholders’ funds (%)¹ Return on assets (%) Cost/net income ratio (%)² Non-interest income/total income (%) Effective tax rate (%) 9.1 1.6 84.6 43.7 18.59 10.9 1.7 82.1 53.8 30 3.7 0.6 92.8 35.4 31.68 (8) (1) 110 47 (16) 26 4 70 34 23 1. 2. The return on shareholders’ funds is based on shareholders’ funds at the end of the year. Includes charge for impairment of losses on loans and advances. * At an Extraordinary General Meeting held on 19 February 2014, 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. 80 ] NMBZ Holdings Limited Annual Report 2016 NOTICE TO MEMBERS for the year ended 31 December 2016 Notice is hereby given that the 22nd 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 Wednesday, 24 May 2017 at 1000 hours for the following purposes: ORDINARY BUSINESS 1. 2. a. b. 3. 4. 5. To receive and adopt the Financial Statements for the year ended 31 December 2016, together with the reports of the Directors and Auditors thereon. To appoint/re-appoint Directors. In accordance with the Articles of Association, Mr. B.A Chikwanha, Mr. B.P. Washaya, Ms. J. Maguranyanga, Mr. E. Sandersen and Mr C. Chikaura retire by rotation. Being eligible, the directors offer themselves for re-election. Mr. J. de la Fargue, Ms. S. Chitehwe and Mr. B. Ndachena were appointed as directors during the year and in accordance with the Articles of Association retire from office. Mr. J. Tichelaar, who was appointed subsequent to year end and in accordance with the Articles of Association retires from office. All retiring directors being eligible, they offer themselves for election. To approve directors’ fees for the year ended 31 December 2016. To approve Messrs KPMG’s remuneration for the year ended 31 December 2016. To appoint new Company Auditors for the year ending 31 December 2017. 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. 2. the maximum number of shares authorised 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.’’ 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 substitution of Articles 83 and 84 in their entirety by the following Articles: “83.1 At each annual general meeting, one third of the Directors who are subject to retirement by rotation or, if their number is not three or a multiple of three, the number nearest to but not greater than one-third, shall retire from office by rotation, but so that, if there are fewer than three Directors who are subject to retirement by rotation, those eligible for retirement one shall retire from office. 83.2 Subject to Article 79, no Executive Director shall be subject to retirement by rotation, but shall remain a Director on such terms and for such period as determined by the terms of their employment agreement. 84.1 Subject to the provisions of the Statutes and of these Articles, the Directors to retire by rotation shall include (so far as necessary to obtain the number required) any Director who wishes to retire and not to offer himself for re-election. Any further Directors so to retire shall be those of the other Directors subject to retirement by rotation who have been longest in the office since their last re-election or appointment, and so that as between persons who became or were last re-elected Directors on the same day those retire shall (unless they otherwise agree among themselves) be determined by lot. A retiring Director shall be eligible for re-election. The Directors to retire on each occasion (both as to number and identity) shall be determined by the composition of the board of Directors at the start of business on the date of the notice convening the annual general meeting notwithstanding any change in the number or identity of the Directors after that time but before the close of the meeting.” Notes: 1. 2. 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/her 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. A Special Resolution is required to be passed by a majority of seventy five per cent of those present and voting (including proxy votes), representing not less than twenty five per cent of the total number of votes in the Company. [ 81 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 all 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 Mr. B.A Chikwanha, Mr. B.P Washaya, Ms. J. Maguranyanga, Mr. E. Sandersen, Mr. C. Chikaura, Mr. J. de la Fargue, Ms. S. Chitehwe, Mr. B. Ndachena and Mr. J. Tichelaar. All the retiring directors, being eligible, offer themselves for re-election. Information about these directors is shown below: Benedict Chikwanha – Independent Non-Executive Director (Chairman) Benedict Chikwanha was appointed as a non-executive director of NMB Bank Limited and NMBZ Holdings Limited on 31 January 2014. Mr. Chikwanha is an experienced banker, with over forty years working experience in the banking sector, 32 of which were spent at Barclays Zimbabwe. Benedict Chikwanha has held various positions in Risk Management, Retail Banking, Human Resources, Corporate Banking and Corporate Finance. He has held various management roles in the banking sector including being a Director Risk Management and Managing Director. Currently Ben Chikwanha is an Executive Director of the Leonard Cheshire Disability Zimbabwe Trust. Benefit P. Washaya- Chief Executive Officer Benefit Washaya commenced his banking career with Barclays Bank in 1978 where he held general management positions including Director’s Assistant, Risk Management and Business Centre Director. He left Barclays Bank in 1997 to join NMB Bank where he became Divisional Director, Risk Management and was responsible for setting up the Risk Management systems in the bank. Benefit Washaya moved to Metropolitan Bank of Zimbabwe Limited in March 2004 as Chief Executive Officer. He re-joined NMB Bank as Managing Director on 7 January 2008 during a very difficult period in the history of the bank. He successfully presided over the change-over period from the ZWD to the multi-currency regime in 2009 when most bank balance sheets started from a near zero base. In 2010, he was part of the team that successfully raised $10 million through a rights issue which broadened the bank’s shareholder profile and again in 2013 he was part of the team that was involved in a private placement which raised close to $15 million and brought on board three strategic institutional investors. Benefit Washaya is a Certified Member of the Institute of Bankers of South Africa ACIB (SA) and a Chartered Secretary (ACIS). He holds a Masters’ Degree in Business Administration, specialising in Finance, from the University of Wales. Jean Maguranyanga - Independent Non - Executive Director Jean Maguranyanga is a lawyer by profession with over 20 years’ experience. Jean commenced her career as a Prosecutor in the Ministry of Justice Legal and Parliamentary affairs and moved after one year to Parliament. She worked as a Legal Advisor at the Parliament of Zimbabwe for three years after which she left to study for her Master’s Degree in Corporate and Commercial Law. Following the completion of her Master’s degree Jean took up a lectureship post with the University of Zimbabwe a position she held for two years. Thereafter, Jean joined the Reserve Bank of Zimbabwe where she served as Legal Counsel and later as Division Chief Corporate Affairs / Bank Secretary for a total period of seventeen years. Currently Jean is a partner at Chinamasa Mudimu and Maguranyanga Legal Practitioners. Erik Sandersen - Non-Executive Director Mr. Erik Sandersen represents Norfund on the board. Erik is a holder of an MSc in Engineering as well as a Master’s in Business Administration. Erik has 9 years’ experience in management and IT consultancy which he acquired at Anderson Consulting and Boston Consulting Group. Erik has an additional five years’ experience in operational management. Of the five years that Erik was in operational management, two of these were served as CEO at Circle Innovation AS and Hands ASA. From 2004 to 2014, Erik was involved in investments management, having co-founded a venture capital company called Incitia Ventures AS. Currently Erik is an Investments Director with Norfund. Charles Chikaura - Independent Non-Executive Director Charles Chikaura is an independent non-executive director who was appointed to the NMBZ Holdings and NMB Bank Limited boards on 24 December 2015. Charles holds a Bachelor of Arts Honours degree and a Masters in Business Administration degree from the University of Zimbabwe as well as an Institute of Bankers diploma. Charles has 35 years of banking experience, of which 23 of these were with the Reserve Bank of Zimbabwe where he held several positions including Manager Exchange Control, General Manager Operations, Senior General Manager and Deputy Governor. Charles was thereafter appointed Chief Executive Officer of the Infrastructure Development Bank of Zimbabwe a position he held for 12 years, until August 2015 when he retired. Currently Charles is a full time farmer and holds several directorships. James de la Fargue - Non-Executive Director James de la Fargue represents African Century on the Board. He is a holder of a BA Business Organisation (Herrit-Watt University), ACCA, Diplomas in Marketing & Marketing Research and a Certificate in General Agriculture. James worked for a number of international organizations including Deloitte & Touché Management Consultants, Unilever PLC and Chargeurs SA. He is a former president of the Zimbabwe Tobacco Association and worked at MBCA as a senior executive in charge of Corporate Finance. James was involved in business consultancy work and management of an integrated farm in Centenary from 1998 to 2008. Since 2009, James has been with African Century Limited where he initially consulted for the group and later took up a position as Business Development Director of African Century Financial Holdings and as Executive Chairman of Frango King. [ 83 Explanations Regarding The Notice Of The Annual General Meeting (cont’d) Sabinah N. Chitehwe - Independent Non-Executive Director Sabinah Chitehwe is a qualified and experienced Chartered Accountant and a Registered Public Auditor. She holds a Bachelor of Accounting Science. She has over ten years’ experience in senior management and advisory in finance and accounting, auditing, tax planning, strategy development & implementation and transaction advisory. Sabinah worked for a number of international organisations including Deloitte & Touché Management Consultants. She is currently the Chief Operating Officer of Cure Chem Overseas (Pvt) Limited, a company with global representation in India, Zambia, Tanzania, Mozambique and South Africa. Benson Ndachena - Finance Director Benson Ndachena is a Chartered Accountant with over fifteen years working experience in the banking sector. Benson began his career with Deloitte & Touché from January 1990 up until April 1998. During that time he held management positions of Audit Manager and Senior Consultant – Management Consultancy. He left Deloitte & Touché to join OK Zimbabwe as Financial Controller and held that position until June 2001. On 1 July 2001, he joined NMB Bank as the Head Finance & Administration and progressed within the Bank to his current position of Finance Director. Benson Ndachena holds a Bachelor of Accountancy Degree from the University of Zimbabwe, a Master of Business Leadership Degree from the University of South Africa (UNISA) and is an associate of the Chartered Institute of Management Accountants (ACMA). Julius Tichelaar - Non Executive Director Julius Tichelaar represents AfricInvest on the board. Mr. Tichelaar is currently the Senior Manager - Financial Sector of AfricInvest Capital Partners. He has over 9 years of experience in Financial Sector Development in Africa, all of which have been spent in AfricInvest. Julius holds a Bachelor of Science and Business Economics, Bachelor (pre-master program) of Business Administration and a Master of Finance & Investments. Resolution 3 Shareholders are requested to approve director’s fees. The directors fees for 2016 amounted to $252 828. Resolution 4 The Remuneration of the auditors is required to be fixed by the Company in a General meeting in terms of section 150 (6) of the Companies Act [Chapter 24:20]. Accordingly, Members will be requested to approve the remuneration paid to the external auditors of the Group, KPMG for the year ended 31 December 2016, which audit fee has been disclosed in the Annual Report. Resolution 5 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]. In addition section 41 of the Banking Act [Chapter 24:20] provides that the term of external auditors is limited to five years within any eight year period. KPMG, as the company’s auditors, completed their five year term which ended 31 December 2016. As such a new company auditor must be appointed. This resolution therefore proposes the appointment of a new audit firm as the company’s auditors in accordance with the Companies Act [Chapter 24:03] and the Banking Act [Chapter 24:20]. 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 This resolution seeks to provide for the retirement by rotation of one-third of Directors at each annual general meeting. This therefore means that the tenure of directorship should run for at least three years before a Director is subject to retirement and eligible for re-election. Furthermore, the resolution provides that Executive Directors’ employment contracts render them ineligible for retirement by rotation. 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. 84 ] NMBZ Holdings Limited Annual Report 2016 Shareholders’ Analysis 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 Size of shareholding 0 - 5,000 5,001 - 10,000 10,001 - 50,000 50,001 - 100,000 100,001 - 500,000 500,001 - 1,000,000 1,000,001 - 10,000,000 10,000,001 and above Total 2016 Number of shareholders % of Holders 2016 Issued Shares % Shareholding 3,533 96 141 29 21 6 15 11 91.71% 2.49% 3.66% 0.75% 0.55% 0.16% 0.39% 0.29% 3,852 100.00% 2, 119, 240 697,072 3,131,473 2,204,542 4,346,711 4,983,833 52,899,454 314,045,026 384,427,351 0.55% 0.18% 0.81% 0.57% 1.13% 1.30% 13.77% 81.69% 100.00% 2015 Number of shareholders % of Holders 2015 Issued Shares % Shareholding 3,531 100 139 27 24 10 14 11 91.58% 2.59% 3.60% 0.70% 0.62% 0.26% 0.36% 0.29% 3,856 100.00% 2,120,835 735,115 3,120,692 2,037,869 5,023,164 7,943,954 50,040,970 313,404,752 384,427,351 0.55% 0.19% 0.81% 0.52% 1.31% 2.07% 13.02% 81.53% 100.00% [ 85 Shareholders’ Analysis (cont’d) 2016 Industry Bank Local Companies Employee 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 Fund Total 2015 Industry Bank Bank And Nominees Local Companies Employee 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 Fund Total Shareholders % of shareholders 2 347 242 3 6 3 10 36 3,090 54 8 33 3 15 3,852 0.05% 9.01% 6.28% 0.08% 0.16% 0.08% 0.26% 0.93% 80.21% 1.40% 0.21% 0.86% 0.08% 0.39% 100% Holders % of Holders 1 1 351 243 3 11 3 8 33 3,091 47 6 31 11 16 3,856 0.03% 0.03% 9.10% 6.30% 0.08% 0.28% 0.08% 0.21% 0.86% 80.15% 1.22% 0.16% 0.80% 0.29% 0.41% 100% Shares 19,190 51,607,869 817,410 2,221 99,113,967 2,510 59,656,157 49,895,835 7,850,102 434,145 108,291,249 701,716 3,369 6,031,611 384 427 351 Shares 4,290 14,900 47,620,446 820,410 2,221 104,004,827 2,510 32,135,746 49,884,095 10,185,891 424,061 106,442,385 682,622 26,615,992 5,586,955 384,427,351 % of Shares 0.00% 13.42% 0.21% 0.00% 25.78% 0.00% 15.53% 12.98% 2.04% 0.11% 28.18% 0.18% 0.00% 1.57% 100% % of Shares 0.00% 0.00% 12.39% 0.21% 0.00% 27.05% 0.00% 8.36% 12.98% 2.65% 0.11% 27.69% 0.18% 6.93% 1.45% 100% 86 ] NMBZ Holdings Limited Annual Report 2016 Shareholders’ Analysis (cont’d) Rank Shareholder 2016 Number of Shares % Shareholding 1 2 3 4 5 6 7 8 9 African Century Financial Investments Ltd 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 TOTAL 71,207,639 34,571,429 34,571,429 34,571,429 32,769,985 26,557,498 21,526,695 16,885,381 16,875,582 13,545,247 303,082,314 18.52% 8.99% 8.99% 8.99% 8.52% 6.91% 5.60% 4.39% 4.39% 3.52% 78.82% Rank Shareholder 2015 Number of Shares % Shareholding 1 2 4 5 6 7 8 9 African Century Financial Investments Ltd Africinvest Financial Sector Holding Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N V (Fmo) Norwegian Investment Fund For Developing Countries Old Mutual Life Assurance Company Of Zimbabwe Limited Old Mutual Zimbabwe Limited Lalibela Limited Alsace Trust Cornerstone Trust 10 Wamambo Investments Trust TOTAL 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 13,545,247 302,440,372 18.52% 8.99% 8.99% 8.99% 8.36% 6.91% 5.60% 4.39% 4.39% 3.52% 78.66% [ 87 Shareholders’ Information MEMBERS’ DIARY Financial year end Reports:- ■ Announcement of annual results ■ Annual financial statements posted to shareholders ■ Annual General Meeting ■ Announcement of the 2017 half-year results ■ Dividend payments: ■ Interim ■ Final 31 December 2016 March 2017 April 2017 24 May 2017 August 2017 n/a n/a 88 ] NMBZ Holdings Limited Annual Report 2016 Secretary And Registered Office COMPANY SECRETARY S. PASHAPA 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 Charted 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 [ 89 Annual General Meeting Form Of Proxy I/We, ……………………………………………………....………………..…....................................................................................……………………………...….…. of ……………………………………..………………………………………………....................................................................................……………….…………….. being a member of the above company and entitled to vote, hereby appoint ……………………………………………………………………………………………..………....................................................................................………………… of …………………………………………….……………………………………………………...................................................................................……...………….. or failing him ………………………………………………………………………………………….........................................................................................………… of …………………………………………………....................................................................................………………………………………………………………….. or failing him, the Chairman of the meeting as my/our proxy to vote for me/us on my/our behalf at the ANNUAL GENERAL MEETING of the Company to be held on 24 May 2017 at 10:00 hours and at any adjournment thereof. Signed this …………..…................……………………….. day of ……………………………………………….................................................................…….2017 Signature of member ……………..................................................................................………………………………………………………………………………… Note (i) In terms of Section 129 of the Companies Act (Chapter 24:03) a member of the company is entitled to appoint one or more proxies to act in the alternative to attend, vote and speak in his stead. A proxy need not be a member of the Company. (ii) Sections 75 and 76 of the Company’s Articles of Association provide that instruments of proxy must be signed and returned to reach the Registered Office of the Company not less than forty-eight hours before the time for holding the meeting. 90 ] NMBZ Holdings Limited Annual Report 2016
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