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2008 Annual Report

2008 Annual Report

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ZANACO: 2008 annual report Document Transcript

  • 1. 2008 Annual I
  • 2. Table of I contents REPORTS PAGE ~lsslon, l o n values ~ , 3 F l - t Statements: Profff and Lass account 22 Balance Sheet 23 hbment o Changes in Equb f 24 Cash Flow Statement 25 Notes Zambia National Commercial Bank PIC 2008 Annual Rep01
  • 3. History, Ownership Hlstory Zambia National Commercial Bank PIC(7anacoM) established in 1969 to servlce the financial needs of the was Zambian economy and it has since evolved into a leading retail bank nationwide. In 2007 the Government of the Republlc of Zambla (GRZ)sold a 49% (3.41%of these shares were lcrter sold to Zambla National Farmers Union (ZNFU])stake in the bank to Rabobank Financial InstitutionsDevelopment B.V, a subsidiary of the AAA rated RabobankGroup of the Netherlands. T l was followed by the transfer of a further 25.8%stake In the bank from hs G Z to the Zambla Prlvcrtlsatlon Trust Fund (ZPTF), whlch heralded the flrst steps towards the I O which was successfully R P , completed in 2008. T e relatlonshlp wtth Rabobank enables Zanaco to beneflt from technical assistance and best practlce In varlous areas h of banking. Our Customers Our customers are fully representative of Zambia as a whole: from G Z to prlvate sector, from multlnatlonalto S E , R Ms from industry and mining to agriculture, from civil servants to salaried workers, and reaching out to the unbanked, Zanaco can trully be considered the people's Bank your Bank. As a citizen owned bank you can expect nothing less than Zanaco being able to serve Zambians of all walks of life, with a fair pricing for our services. Our People Our people, Justover 1000 of them, are now also shareholders In ZANACO and together wlth their famllles now have a direct interest and stake in the long term success of their bank your bank They are empowered, motivated and committed to make it happen and exceeding your expectations. Ownenhlp Structure Post lnltlal Public Offer T e current ownership shucture of Zanaco Is as follows: h Rabobank Group GZ R Public Employees (ESOP) ZNFU Zambia National Commercial Bank PIC 2008 Annual Report
  • 4. Mission, Vision, Values MISSION T consistently exceed stakeholder expectations in proactively designing, selling, delivering and servicing o competitively priced financial solutions for all key segments of the Zambian public, in rural and urban areas, through appropriate technology and distribution channels, with empowered and motivated staff, VLE AUS What drives us? Proactive, Results oriented, Pride How do we achieve our goals? Team work, Accountability, Competence What guides us? Integrity, Respect, Professionalism VISION T be the People's Bank and to be the leading financial services firm in Zambia, providing sustainable financial o returns and beneflts to all its stakeholders. Zambla Natlonal Commercial Bank PIC 2008 Annual Repol
  • 5. Products CREDIT FACILITIES TREASURY AND INVESTMENTS Trade finance Forex (spot and forward) Working capital Investments: Term loans Time deposits Project finance Treasury bills & bonds Syndicated loans Securities Agriculture seasonal finance Asset finance E-BANKING TRADE SERVICES Payroll management Imports Letters of Credit lnternet banking Export collections Bulk payments Swift payments CASH SERVICES Cash in transit Nationwide payments and collections Cash pool1sweep accounts Retail A C C O U N T SERVICES XAPlT INSTANT BANKING! Current accounts -Instant off site account opening *Savingsaccounts -InstantVisa Electron Card activation *Instantcell phone transactability: Airtime PERSONAL LOANS Bill payments *Premier Loans Transfers *EmployerScheme Loans -Home Loans REMlllANCES Salaries (Payflex) Moneygram E-BANKING Bill Muster Vlsa Electron Cards Swift transfers *SMS Banking CASH SERVICES E-Tracer Kwacha AM Ts * Forex: P S Terminals O Cash lnternet Banklng Travellers' Cheques Zambia National Commercial Bank PIC 2008 Annual Report
  • 6. Financial Highlights FINANCIAL HIGHLIGHTS Loens and Ildrmcee -- -- - - - - - - Revenue Total Assub Profit 1 - - 1 Net Interest Revemu Zambia National Commercial Bank PIC 2008 Annual Repor
  • 7. Board of Directors - Arnold J.A.M. Kuijpers Non-Executhre Director Mr. Kuijpers, aged 55, I Managing Director of s Rabobank Financial institutions Development B.V. H Is also a member of the Board of Directors of e Natlonal Microfinance Bank (Tanzanla),Banco Terra (Mozambique),Banco Regional (Paraguay),Banque Populaire du Rwanda and a member of Executlve Committee of the European Assoclatlon of Co-operative Banks. - Mark H. Wlesslng Executlve Dlrector Mr. Wlesslng, aged 50, was appointed Managing Director in April 2007. H has 2 years management e 4 experience In commercial banklng, of which over Arnold Kuijpers Mark Wiessing 10 years have been at executive management Chairman Managing Director level, principally in emerging markets (in Latin America, Eastern Europe, Asia and Africa). H is an e executive member of the Board of Dlrectors of the company, He holds a Bachelor'sdegree In Business Administration (BBA) and a Master's degree in Business Administration (MBA). - Chlntu Y Mulendema Non-Executlve Dlrector . Mr. Mulendema, aged 50, I Managing Partner of s C M Management and Public Accountants. H Is Y A e a Commissioner on the Board of the Securmes and Exchange Commission (SEC)Zambia. Mr. Mulendema Is also president of the Zambia Institute of Chartered Accountants (ZICA). Frederlkus Weenlg- Non-Executhre Dlrector Guy Robinson Chlntu Mulendema Mr. Weenlg aged 47, i Head Speclal Asset s Board Member Vice Chairman Management of Rabobank Group. He currently holds no other positions. Guy H. Robinson - Non-Executive Director Mr. Robinson, aged 61, I a businessman and farmer. s He represents the Zambla National Farmers Unlon (ZNFU).He i also a member of the boards of s Livestock Services Co-operativeTrust, Livestock Development Agency and Is trustee of the Cotton Association of Zambia. I - Getrude M. Akapelwa-Ehueni (Mn] Non-Executive Dlrector Mrs. Akapelwa-Ehueni, aged 60, is the Executive Chalrperson of the Vlctorla Falls University of Getrude Akapelwa - Frederikus Weenig Technology. She is also Chairperson of the board of L Residence Investments Limited and Wce- e Ehuenl Board Member Chairperson of the board of Innovative Capital Fund Board Member (2)Limited. She served as Division Manager at the African Development Bank for 23 years. Zambia National Commercial Bank PIC 2008 Annual Report
  • 8. Managerrlent M Wiessing Managing Director S Katowa Director - Corporate Support D Kaunda Director - Human Resources A Molenkamp Director - Retail Banking E Mutale Director - Finance N Nyambe Director - Treasury P Van Barneveld Director - Rs ik O u r aim ts to grow Suzyo M. Ngandu (Mrs) and sustain our Bank Secretary profit ability, to IG Muyunda (Mrs) Head - Internal Audit, Compliance and ensure that we remain u leading Zanaco is commited to good corporate governance for the player in the benefit of ail stakeholders. financial sector" in executing its duties of overseeing the bank's strategy, performance and compliance to codes and regulations, the Board of Directors has established a number of committees that facilitate the execution of its main objectives. These include the Board Audit Committee, the Board Credit Committee and the Board Loans Review Committee, which operate under agreed terms of reference.'The board and its cornmitees meet at least quarterly, for a minimum of four meetings a year, with additional meetings scheduled to discuss topics of relevance at that moment. T e board consists of three members appointed by Rabobank h (inciuding one executive, being the CEO of the bank),two members appointed by G Z and one nominated on behalf of R, the independent Party, the Zambia National Farmers Union. in addition, the management of the bank has a number of committees, inciuding the Executive Committee, the Management Credit Committee, A C [Asset Liabiiw Committee], L O Control Risk and Compliance Committee, Management Loans Review Committee and Human Resources Committee. Zambia National Commercial Bank PIC 2008 Annual Rep01
  • 9. Chairman's Statement Once again Zambia National Commercial Bank P C (Zanaco)has had a momentous L year, a year capped by improved financial performance and by the Initial Public Offering (IPO)of the bank, thus successfully completing the last step of the bank's privatisation journey. Privatisation This journey started in earnest in 2007 with the sale by the Government of the Republic of Zambia (GRZ] of a 49% stake in the bank to Rabobank Financial Institutions Development B.V. a subsidiary of the AAA rated Rabobank Group of the Netherlands. This was followed by the transfer of a further 25.8% stake in the bank from G Z to the R . Zambia Privatisation Trust Fund IZPTFI, which heralded the first stem towards the IPO. . h Initial Public Offering (IPO) The IPO of Zanaco was unique in that it was the very last, as well as the largest ever IPO under the ZPTF privatisation mandate. It was also unique in that the IPO combined, for the first time ever in the history of Zambian capital markets, an offer for sale of existing shares (bythe ZPTF), and an offer to the public for subscription of new shares. The IPO's total value was about K200 billion, of which K120 billion represented the offer for sale, and A K80 billion was Capital Raise, raised through the offer for subscription. The shares were priced at K470 per share. The IPO, which opened on 29 September and closed on 23 October 2008, was successfully completed, despite worsening AABOBANK 45.59% external circumstances, thanks to significant L support from local institutional, retail and employee investors. The shares were listed on the Lusaka Stock Exchange on 27th November 2008 at a colourful ceremony which was officiated by the new minister of Finance and National Planning, Hon. Musokotwane, and thus concluding ahead of schedule, the full privatisation of the bank, which heralded a new era in the life of the Bank. The IPO afforded many Zambians an opportunity to buy a stake in 'their bank" as originally intended by GRZ, with just over 54% of the bank owned by eligible Zambian institutions and Zambian individuals, and ensuring that Zanaco could be considered as of the listing date, as 'Citizen Owned" as defined in the Citizens Economic Empowerment Act. Financial and business Performance in 2008 The bank has continued to provide broad based retail and corporate banking services to both new and existing customers throughout its 54 points of representation around the country, including in rural areas, while continuing to improve its services to the key segments of the Zambian market, all in line with the bank's strategic plan. The bank's overall performance has accordingly improved, despite a challenging external environment as a result of the global credit crisis. Most of the bank's indicators have performed well and are consistently moving in the direction of the medium term targets the Board and management have agreed upon, in the context of the banks strategic plan, in line with the Vision and Mission statements. Zambia National Commercial Bank PIC 2008 Annual Report
  • 10. Chairman's Statement Continued The key metrics inciude revenues up by 34%. cost to income ratio down to 70%, profit before tax (PBT) almost doubled from K45,336 miiiion in 2007 to K86,050 miiiion. Customer deposits were up by 29% whiie ioan growth, coming off a relatively low base, remained conservative given worsening externai clrcumstances, and the ioan to deposit ratio thus has dropped to 43%. There is still concern about the hlgh ievei of Non Performing Loans (NPL)and provisions, which reflect a more conservative policy in recognislng legacy issues in the bank's ioan portfoiio and thus in recognising N L and providing Ps' for them. The comparativeiy smaii size of the ioan portfolio, and the aiready high ievei of provisioning at 9.5%of the total loans and advances, give some comfort although there is a residual risk of continued provisions in a further weakening economy. The improved profit after tax figures were tempered only by the fact that Zanaco has now reverted to paying income tax at the full tax rate applicable to banks, after several years of benefiting from tax loss carry forwards. Future Outlook The bank's performance has been much improved in a worsening external environment. Yet, as at early 2009, expectations for 2009 remain cautiously optimistic with official forecasts for G P growth at 5% and inflation at 10%. D The bank's own internal forecasts however take into account the possibility Y2rmuco on of further slowdown in G P growth, and higher than targeted inflation, which D may be more aligned with global expectations for sub-saharan Africa and track.. .suppar ted with continued weakness of copper prices, whiie expecting higher imported inflation pressures as a result of the Kwacha depreciatlon. Higher Inflation by slgniflcunt and associated higher interest rates may have a negative impact on Zambian banks' ioan ~ortfoiios. milestones in the 'The bank wiii be able to address these concerns through a conservative 600ks' ownership, lending policy, whiie benefiting from the strong foundations laid in the last two years since privatisation, which inciude; having a strong focus on customer deposits and transactional income having a comparativeiy smaii and aiready weii provided ioan book having accessed attractively priced foreign currency funding in late 2008, having increased the banks shareholders funds to K322.281 miiiion the Bank's capitai adequacy computed using the international Finanaciai Reporting Standards (IFRS)Compliant financial statements stands at 22% which translates into a prudential capitai adequacy ratio of 18% weii above the minimum 10% required by the Central Bank improved operationai efficiencies, as evidenced by the improved cost to income ratio Strong liquidity from core customer deposits, strong capitalisation, and a balanced cost to income ratio wiii contribute to Zanaco remaining big, strong and reliable. Most importantly, this shall contribute to Zanaco remaining a sustainable bank for the future despite a difficult externai environment. With a history of 40 years of doing business, as a Zambian Bank for Zambians, Zanaco is on track to claim its leadership position on the market. 'The board in its meeting of 5th March 2009 has recommended a dividend of K18,191 miiiion up by 82% from earlier years on the back of improved operationai performance but remaining mindful of the need to remain strongly capitaiised in times of uncertainty. Signed Arnold J.A.M Kuijpers Chairman Zambia National Commercial Bank PIC 2008 Annual Rep01
  • 11. Managing Director's Statement The year 2008 saw the implementation of many initiatives the Management Team had set in motion earlier In 2007 and 2008, which resulted in gratifying improvement in the bank's performance, despite uncertain external environment toward the end of the year under review. Followingthe partial priiatisalionof the bank in April 2007, the bank's management had focused on key deliverables for the first 100 days after the sale by G Z of R a 49% stake in the bank to Rabobank Group, followed by a full strategic review. The strategic review addressed matters such as segmentation, products, dlstrlbution, information technology and comrnunicatlons, internal processes, people and risk matters. This strategy was underpinned by shared views on the banKs Vision, Mission and financial aspirations for the period to 2012 as captured in our Business Plan. These strategic choices continue to guide Zanaco's board and management, laying the foundation for continued future growth, sustainable profitability and aiming for market leadership in key segments and product lines. MAJOR MILESTONES FOR 2008 Some of the initiatives taken within the context of our medium term business plan were successfully completed in 2008, including: opening of a branch in Senanga, our 54th point of representation. gradual conversion of our proprietary card base to Visa Electron rollout of our Corporate Social Responsibility (CSR)program focused on building financial literacy completion of an Employee Share Ownershlp Programme which saw close to 800 of our staff become shareholders and who now have a direct stake in the future success of the Bank several local accolades and prizes for innovative products and first prize MReachingout for our stands at trade fairs implementation of performance management and variable pay component by remaining for all staff installation of G R enabled Point of Sale (POS)terminals PS affordable to our customer base" Zambia National Commercial Bank PIC 2008 Annual Report
  • 12. Managing Director's Statement Continued launch of corporate and retail Internet banking by Rabobank and other consultants, much work remains modules to be done, before we can be seen to consistently operate from a low base of 35 A M in 2007, we have T s on best practice basis in all parts of our business, including expanded our ATM network to 67 in 2008 and we expect in areas such as customer service, Internal controls, human to install an additional 78 A M to bring the number of T s resourcesl training, etc machines to145 by December 2009. launch of cellphone airtime top up on our NM's, as FINANCIAL PERFORMANCE 2008 The numbers show that in 2008 we were able to grow the very first bank to do so in Zambia revenues by about 34%. This revenue growth compares to Leadingedge banking likee-tracerand about 24% achieved in 2007, showing that after the internal Internet banking focus of the bank in 2007 we were able to improve customer re-launchof Seba, the nation's lowest cost entry level focus and sales in 2008, as planned. account branch refurbishments and face lifts across our network The bank achieved volume growth on its loans and advances to customers (up 25%) and on investment and many other projects designed to make the securities (up17%), funded by significant growth in deposits. customer experience in ulilising Zanaco products simpler, Customer deposits grew by 29% in 2008 (significantlyahead better and faster of budget), compared to 20% in 2007, while we were able to maintain the lowest cost of funds of all major banks in W are working at further Improvingservice levels through e the market, we also benefited from Increased interest rates. simplified processes and reduced branch queuing, Expenses remain under control and below budget, despite while encouraging the use of alternative electronic ongoing staff separation costs and some litigation channels at more attractive pricing and convenience. settlements. Capex investments remained behind plan due to capacity issues in the implementation, but generally But the most visible milestones of the bank may well we kept our focus on controlling expenses which are up have been the following: 20% on last year. the bank's historic Initial Public Offering the rebranding of the bank using a modernised and sparkling version of the bank's respected "cog and Ingot" logo enhanced by the "Zanaco" short version of the "Zambia IVational Commercial Bank PLC" With solid revenue growth at 34% and controlled expense successful drawdown Of USD25 milli0n in a USD 35 growth at 20% we were thus able to improve our profit mllllon senior unsecured facility from FMOIProparco, the before tax (PBT] by 90% to K86.050 million. A a result, our s very first time in Zanaco's history that it closed a bilateral operational (excluding impairments) cost to income ratio, foreign currency funding deal. has improved since privatisation from about 79% to 70%. the launch of Xapit instant banking, with Zanaco the The ongoing concern remains around our Impairments line nation's very first bank to offer fully functional cellphone where we continue to recogniselargeprovisions, principally banking platform available from the convience of on loans that were In the books at the time of the anyone's handset privatisation in Aprll 2007, mostly on corporate, S E and M agriculture related loans. " h k i n g has never Nonetheless, our PBT (after impairments)is up by 90% close been eusIef to double last year's number. Our profit after tax (PAT]for 2008 is also up, only adversely impacted by the fact that we do not benefit anymore from While progress has been made in many areas, including tax loss carry forward and we now pay the full tax rate of through the Technical Assistance programme supported 40%. Zambia National Commercial Bank PIC 2008 Annual Rep01
  • 13. Managing Director's Statement Continued The PBT number is therefore perhaps more illustrative of the who have continued to support Zanaco, the people's true operational improvement of the bank. Our prudential bank, their bank our bank!!!! Capital Adequacy is steadily improving and well in excess of regulatory requirements, on the back of our improved With a history of 40 years of doing business, as a profitability, and as a result of the K 80 billion capital raised Zambian bank for Zambians, Zanaco is on track to in our IPO. reclaim its leadership position on the market, supported by significant milestones in the bank's ownership, Overall, financial results are in line with, or better than, the performanceand products. IPO forecast, as well as the medium term plan approved by the Board, and above 2007 and 2006 historic financials. Signed OUTLOOK: Mark Wiessing For 2009, we will build on the progress and achievements Managing Director of 2008, with unchanged strategic intent while remaining mindful of the possible need to make short term adjustments in light of the financial crisis that spreads around us and is also impacting Africa. The focus will be on customers and sales, while maintaining continued vigilance on loan growth and improving the quality of the loan portfolio through workouts and cautious lending standards. W will continue the rollout of further operational e improvements through the Technical Assistance programme. W have ambitious targets, which remain in line with the e "Zanaco regains its financial targets of our medium term plan, but may need adjustment depending on external circumstances related leading position in to the global credit crisis. customer deposits" The adverse global developments are starting to have their repercussions in Zambia as demonstrated by the following. depreciating local currency increasing inflation and higher interest rates curtailing of investments and capex in key sectors, including mining expectation of gradual slowdown in economic growth 'The outlook for Zambia remains therefore rather challenging in the short run, and will no doubt have an impact on the banking industry as a whole. W will also be faced with e increased competition from new entrants. However we believe that Zanaco is well positlonedto further strengthen its market position based on strong liquidity and core deposits, strong capitalisation and improved financial and operational efficiencies. W wish to acknowledgethe contributionof our staff, exjsting e and new shareholders, customers and other stakeholders Zambia National Commercial Bank Plc 2008 Annual Report
  • 14. Directors' Report 'The directors submit their report together with the audited financial statements for the year ended 31 December 2008, which disclose the state of affairs of the Bank. PRINCIPAL ACTIVITIES 'The Bank is engaged in the business of banking and the provision of related services. The bank has continued with its network expansion programme during the year. SHARE CAPITAL At the extraordinary General Meeting held on 18 August 2008, the members approved the increase in authorised share capital of the Bank from 984,375,009 shares to 1,500,000,000 shares of Kl0 par value. At the same meeting the members approved a capital raise of K80,194 million out of the new shares and the listing of the Bank's shares on Lusaka Stock Exchange The additional funds from the share issue are needed to improve the banks capacity to meet the needs of its diverse clientele. RESULTS AND DIVIDENDS The net profit for the year of K51,985 million has been added to retained earnings. The Bank paid dividends during the year amounting to K10,OOl million in respect of 2007 profit ( 2006:K10,001 million).The Board has recommended a dividend per share of K15.75 per share amounting to K18.191 million. DIRECTORS The directors who held office during the year and to the date of this report were: M A J A M Kui,jpers r - Chairman Appointed 3 April 2007 M C Y Mulendema r - Vice Chairman Appointed 3 April 2007 M M H Wiessing r - Managing Director Appointed 3 April 2007 Mrs G M Akapelwa-Ehueni Appolnted 3 April 2007 M G Robinson r Appolnted 18 April 2008 M F Weenig r Appointed 18 April 2008 NUMBER OF EMPLOYEES AND REMUNERATION 'The total remuneration of employees during the year amounted to K133,866 million (2007: K123,833 million] and the average number of employees was as follows: Month Number Month Number January July February August March September April October May November June December The Bank has policies and procedures to safeguard the occupational health, safety, and welfare of its employees. GIFTS AND DONATIONS During the year the Bank made donations of K59 million (2007:K41 million)to charitable organisations and events. PROPERTY, PLANT AND EQUIPMENT The Bank purchased properly plant and equipment amounting to K36,179 million (2007: K8.269 million)during the year. In the opinion of the directors, the carrying value of properly, plant and equipment Is not less than their recoverable value. RESEARCH AND DEVELOPMENT During the year the Bank did not conduct any research and development activities. Zambia National Commercial bank PIC 2008 Annual R p 1 e0
  • 15. Directors' Report Continued RELATED PARTY TRANSACTIONS Related party transactions are disclosed in Note 31 of the financial statements. DIRECTORS' EMOLUMENTS AND INTERESTS Directors' emoluments and interests are disclosed in Note 31 to the financial statements. PROHIBITED BORROWINGS OR LENDING There were no prohibited borrowings or lending as defined under Sections 72 and 7 of the Zambia BanWng and Financial 3 Services Act, 1994, (as amended). RISK MANAGEMENTAND CONTROL The Bank, through Its normal operations, is exposed to a number of risks, the most significant of which are credit, market, operational and liquidity risks. The Bank's risk management objectives, policies and strategies are disclosed in Note 4 of the financial statements. COMPLIANCE FUNCTION The Bank has in place a compliance function whose responsibility is to monitor compliance with the regulatory environment and the various internal control processes and procedures. KNOW YOUR CUSTOMER (KYC) AND ANTI-MONEY LAUNDERING POLICIES (AML) The Bank has adopted a know your customer policy and the Anti-money laundering policies and adheres to current legislation In these areas. Auditors The Bank's auditors, PriceWaterhouseCoopers, have indicated their willingness to continue in office. A resolution for thelr reappointment will be proposed at the Annual General Meeting. B order of the Board y Secretary 6 March 2009 Zambia National Commercial Bank PIC 2008 Annual Report
  • 16. Statement on Corporate Governance Directors' responsibilities The Directors are required to maintain adequate accounting records to prepare annual financial statements that fairly present the state of the affairs of the Bank as at the end of each financial year and the profit or loss for the year. Furthermore, in order to achieve fair presentation, these financial statements are drawn up to comply with International Financial Reporting Standards. The financial statements are the responsibility of the Directors and it is the responsibility of the independent auditors to report thereon. T enable the Directors to meet these responsibilities, the Board sets standards and implements systems of internal o controi aimed at reducing the risk of error or loss in a cost-effective manner. The controls include proper delegation of responsibilities within a clearly defined framework effective accounting procedures and adequate segregation of duties ensuring an acceptable level of risk. The controls are monitored throughout the Bank and all employees are required to maintain the highest ethical standards in ensuring that the Bank's business is conducted in a manner that in all reasonable circumstances is beyond reproach. Compliance The Bank is aware of the need to exhibit a high level of integrity and professionalism in accordance wlth generally accepted corporate governance practice in order to safeguard the interest of Shareholders, Depositors , Employees and other Stakeholders. The Bank ensures that it is in compliance with the requirements of various legislations which govern its operations including the Banking and Financial Services Act, Bank of Zambia corporate governance guidelines, the Companies Act, the Securlties Act. Members of the management team participate in various industry initiatives such as the Bankers Association of Zambia (BAZ) technical committee and committee setup to formulate the Flnancial Charter of the Citizens Economic Empowerment Act. Following the listing of the Zanaco on the Lusaka Stock Exchange, the Bank has further compliance requirements which include the contlnuing obligation to comply with the Lusaka Stcok Exchange (LuSE)Listing Rules and the L S Corporate Governance Code. uE An Insider dealing policy was recently rolled out to all staff and the whistle blowlng policy has been adopted as part of the code of ethics. Directorate The Board of Directors meets quarterly throughout the year, retains full and effective controi of the Bank and monitors executive management. The Board is also responsible for the Bank's direction, policies and strategies and ail investment and divestment decisions. it also ensures that the Bank meets its responsibilities to ail its stakeholders. It further ensures that the Bank is protected against the major risks inherent in general business dynamics. In this respect, the Board makes key decisions to ensure that it retains proper direction and controi of the Bank. 'The Directors bring a wealth of experience and expertise from their own fields of business to ensure that debate on matters of strategy, policy and performance is robust, informed and constructive. Furthermore the role of the Chairman and Managing Director do not vest in one person The Board structure is such that no one individual or group dominates the decision making process. There is a schedule of matters reserved for the full Board's approval and clear delegation of authority to the Managing Director and other senior executives within the Bank for specific matters. A procedure exists for the determination of matters arising between scheduled meetings. There are established procedures in existence for planning and capital expenditure, for the making of investment decisions, and for information and reporting systems for monitoring the bank's business and performance. Newly appointed Directors are subject to re-election by the shareholders at the Annual General Meeting. The Company'sArticles of Association provides that, on a rotation basis one third of the Directors resign every year and, being eligible, offer themselves for re-election. 'The Chairman and Managing Director agree the agenda for Board meetings, but ail Board members are entitled to raise other matters. 'The Chairman ensures that all Board members are properly briefed on all issues arising from the Board meetings. It is the responsibility of the executive management to ensure that the Board is supplied with information in a timely manner in a form and of a quality appropriate to enable it to carry out its duties. The Board comprises the Managing Director and Non-Executive Directors. The Non-Executive Directors enhance the Board's independence on business strategy recommendations. Refer to Director's Report for the Directors who held office in the year under review. Zambia National Commercial Bank PIC 2008 Annual R p 1 e0
  • 17. Statement on Corporate Governance Continued Board Meetings The Schedule of Board Meetings Is agreed at the beginning of the year and additional meetings may be scheduled, as and when required. 'The attendance record at the Board meetings during the financial year was as follows: March May August November . Mr A.J.A.MKuijpers cl cl cl cl . Mr C.Y Mulendema cl cl cl cl . Mr M.H.Wiessing cl cl cl cl . Mrs G.M. Akapelwa-Ehueni cl cl cl cl . Mr G. Robinson cl cl cl . Mr F. Weenig cl cl cl Board Committees 'The Board has further established three principal standing committees, each governed by written terms of reference, defining the frequency of meetings, power and duties and reporting obligations. These committees continuously evaluate progress towards meeting the Bank's overall objectives in addition to ensuring efficlent and effective management of the entire Bank's core functions. A non-executive director, chairs each committee. The said committees are as follows:- Audit Committee It comprises three(3) Non-Executive Directors. Other members of the Bank executive management attend by invitation. The Audit Committee oversees internal controls and procedures for safeguarding the Bank'sassets, ensure adherence to accounting standards, and compliance with legal and regulatory requirements. The Committee reviews the annual financial statements and interim financial reports, receives reports from external auditors, reviews the findings of the external auditors, and directs the internal audit function, monitors management accounting procedures and policies. It also recommends to the Board on the remuneration of the external auditors. 'The Audit Committee met and deliberated on various matters, in the course of the year and the attendance was as follows: March May August November M A.J.A.M. Kuijpers r cl rl rl rl M C.Y. Mulendema r rl rl rl rl Mrs G.M. Akapelwa-Ehueni cl cl cl cl Zambia National Commercial Bank PIC 2008 Annual Report
  • 18. Statement on Corporate Governance Continued Loans Review Committee This committee comprises two(2) Non-Executive Directors and the Managing Director. Other members of the executive management attend by invitation. It revlews on a quarterly basis the Bank's lending portfolio and assesses its performance, by ensuring adherence to not only statutory and regulatory requirements but also the lending practice and procedures as stipulated in the credit policy. This committee is responsible for reviewing the quality of loans in the Bank's portfolio and their performance. The attendance by the Directors was as follows: Directors Name 2008 mUyUPl I.V.TI I IYTI M F. Weenig r J J M C.Y. Muiendema r J J J M M.H. Wiessing r J J J Credit Committee This committee comprises three(3) Non-Executive Directors and the Managing Director. Other members of the executive management attend by invitation. It supervises the effective implementation of credit and risk management policies and ensures enhancement of the bank's credit risk management systems and processes -- in line with the best practice in loan ratinglcredit risk modelling, loan pricing and strategic loan management, including identification and control of concentration of risk. The Credit Committee also approves credit with values beyond the mandate of Management. I 2008 I March May August November M A.J.A.M. Kuijpers r J J J J M M.H. Wiessing r J J J J Mrs G.M. Akapelwa-Ehueni J J J J -Mr G. Robinson J J J Executive Committee (EXCO) 'The Executive Committee comprising of the Managing Director, internal Directors, Head of Internal Audit, Compliance and Controls and the Bank Secretary, meet fortnightly to discuss operational issues, various reports and address matters of concern. This ensures close cohesion between the members of Senior Management and ensures an internal peer review process. Zambia National Commercial Bank PIC 2008 Annual Rep01
  • 19. Statement on Corporate Governance Continued Policies Anti-Money Laundering Policy The Bank has enhanced its money laundering procedures by having access to an internationally reported database for people and entities who are involved in money iaundering activities. The Bank has also developed procedures for the management of politically exposed persons. Environment and Social Management Policy The Management and Board of Directors of ZANACO recognise that environmental management is the responsibility of all public and private institutions. As a good corporate citizen, ZANACO intends to fulfill this responsibiiity by actively working towards the reaiisation of sustainable development. Through our business activities and services, the Bank will support environmental conservation efforts within its operational scope as well as those in the service supply chain in order to contribute to the realisation of sustainabie development in Zambia. T this end an Environmentai and Social Management Policy was approved by o the Board which inciudes specific objectives such as Environmentai Management at the Workplace - i.e.Training Staff in Environmentai Management and improving the quality of the working environment within the Bank. b. Environmentai Management in the Supply Chain-Taking into account the potential environmental impact of clients activities, the Bank will "Giving back to the assist clients In environmental mainstreaming, which entails strategically addressing the environmental and sociai issues of their businesses, as community through a cross cutting dimension of development. finuncial literacy , ,, , The Basei li Framework isdefined by the Bank of international Settlements (BiS) and aims to incentivise banks, through more efficient capital allocations, to causes a improve their risk management processes. Bank of Zambia is currently still consulting on the roil out of the Basei Ii Framework and ZANACO participates in industry consultations. Corporate Social Responsibility Zanaco's mission inciudes providing sustainabie financial returns and benefits to our stakeholders. W will primarily deploy our corporate sociai responsibility e initiatives in support of our broad mission by enhancing the access, usage and understandingof financial services, in both rural and ubarn areas with specific emphasis on the unbanked. B improving financiai literacy, we will aim at y changing behaviours with a view to improve the wellbeing of individuals in a sustainable way. Under the financiai fitness programme we are targeting three major groups which include: Children through special educative programmes aimed at introducing financiai llteracy basics early in life to help them build strong financiai foundations; The General adult population and Entrepreneursthrough media sensitisation and interactive programmes aimed at strengthening their financiai knowledge1skills to help them make better informed decisions on the current and future use of their financiai resources. Zanaco F C The Zanaco Football Club has been a mainstay of the Zambian Football League, having won several national championships. W will continue to support the Club, not Justfor the sake of sport and football, e but also in support of our Corporate Social Responsibility initiatives and the Bank's marketing and sales programmes. Zambia National Commercial Bank PIC 2008 Annual Report
  • 20. Statement o Directors' f responsibilities The Companies Act requires the directors to prepare financial statements for each year that give a true and fair view of the state of affairs of the Bank as at the end of the financial year and of Its profit or loss. It also requires the directors to ensure that the Bank keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Bank. They are also responsible for safeguarding the assets of the Bank. The directors accept responsibilityfor the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable estimates, in conformity with International Financial Reporting Standards and the requirements of the Companies Act and the Banking and Financial Services Act. The directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Bank and of its profit or loss at 31 December 2008 in accordance with International Financial Reporting Standards, the Zambian Companies Act and the Banking and Financial Servlces Act. The directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of the financial statements, as well as designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement. Nothing has come to the attention of the directors to indicate the Bank will not remain a going concern for at least twelve months from the date of this statement. Signed on their behalf by: Director Director 6 March 2009 I 2008 Annual Report
  • 21. Repot of the Auditors Report on the financial statements W have audited the accompanying financial statements of Zambia National Commercial Bank PIC set out on e pages 22 to 58. 'These financial statements comprise the balance sheet at 31 December 2008, and the profit and loss account, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Directors' responsibility for the financial statements 'The directors are responsible for the preparation and fair presentation of these financial statements in accordance with lnternational Financial Reporting Standards and with the requirements of the Zambian Companies Act and the Banking and Financial Services Act. 'This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor's responsibility Our responsibility is to express an independent opinion on the financial statements based on our audit. W conducted our audit in accordance with lnternational Standards on Auditing. Those standards require that e we comply with ethical requirements and plan and perform our audit to obtain reasonable assurance that the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's Judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. W e believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion the accompanying financial statements give a true and fair view of the state of the company's financial affairs at 31 December 2008 and of its profit and cash flows for the year then ended in accordance with lnternational Financial Reporting Standards, the Zambian Companies Act and the Banking and Financial Services Act. Report on other legal requirements The Zambian Companies Act requires that in carrying out our audit we consider whether the company has kept the accounting records, other records and registers required by this Act. W confirm that in our opinion the e accounting records, other records, and registers required by the Companies' Act have been kept by the company, so far as appears from our examination of those records. In addition, the Banking and Financial Services Act requires that in carrying out our audit we consider and report on the following matters. W confirm that: e i) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit; ii) no transactions or conditions affecting the well being of the bank have come to our attention that in our opinion are not satisfactory and require rectification; iii) we are not aware of any transaction that has not been within the powers of the bank or which was contrary to the Banking and Financial Services Act; iv) there were no non-performing or restructured loan owing to the bank whose principal amount exceeds 5% of the regulatory capital of the bank; PricewaterhouseCoopers Chartered Accountants Lusaka 10 March 2009 Richard Mazombwe Partner Zambia National Commercial Bank PIC 2008 Annual Repol
  • 22. Financial Statements Profit and Loss account Year ended Year ended 3 '1 -December 3 1-December 2008 2007 Notes Restated K million K million lnterest income lnterest expense Net interest income Fee and commission income Net fee and commission income Foreign exchange income Other operating income Total income Impairment losses on loans and advances Operating expenses Profit before income tax Income tax (expense)/credlt Profit for the period Baslc earnings per share (Kwacha] Dlluted earnings per share (Kwacha Dividend: Proposed flnal divldend Zambia National Commercial Bank PIC 2008 Annual Report
  • 23. Balance sheet A 31 December t A 31 December t 2008 2007 Notes K million K million Restated AST S ES Cash and balances with Bank of Zambia Placements with other banks Current tax recoverable Investment securiies - available-for-sale - held-to-maturity Loans and advances to customers Propemand equipment Investment properties Other assets Total assets LIABILI'I'IES Customer deposits Deposits from other banks Deferred tax liability Other liabilities Borrowed funds Total liabilities E UT Q IY Share capital General banking reserve Revaluation reserve Statutory reserves Share premium Retained earnings Total equity Total equity and liabilities The financial statements on pages 22 to 58 were approved for issue by the Board of Directors on 6th March 2009 and signed on its behalf by: Director Dlrector Bank Secretary Zambia National Commercial Bank PIC 2008 Annual Repor
  • 24. Financial Statements Statement of changes In equity Banklng Share Statutory Revaluation general Retalned Share capital reserve reserve reserve earnlngs premlum Total K million K million K mllllon K mllllon K mllllon K mllllon K mllllon Balance at 1 January 2007 Revaluation surplus Deferred tax on revaluation Tmnsfer of depreclatlon after dlsposal Statutory lmpalrment provlslon Net change In available -for-saleflnanclal assets Transfer of excess depreciation Deferred tax on excess depreclatlon Deferred tax on available-for-sale-financialassets Net IncomeI (expense)recognlsed In equlty Restated prom (Note 30) DMdends pald Balance at 31 December 2007 Balance at 1 January 2008 As previoush/ r p w eo Rior year adjustment (Note 30) As restated Net change in available-for-saleflnancial assets Stabtory impairment provision Shares lssued Tmnsfer of excess depreclatlon Statutory transfer Defened tax on excess depreclatlon Net Income 1 (ewnse) recognlsed In equHy Profit for the year Total recognlsed income for the year DMdends pald At 31 December 2008 I Zambia National Commercial Bank PIC 2008 Annual Report
  • 25. Financial 'Statements Cash flow statement 31 December 31 December Notes 2008 2007 K mllllon K million Cash flows from operating activities Interest receipts Interest payments Net fee and commission receipts Foreign currency dealings and other Income (Prow loss on sale of f ~ e d assets Falr value gain on Investment properties Payments to employees and suppliers Incometax paid Depreciation Cash flows from operating activities before changes in operating assets and IiabIlHes Changes in operating assets and liabilities: - loans and advances - statutory Reserves - other assets - customer deposits - other liabilities - government securities Net cash from operating actMties Cash flows from investing activities Purchase of properly and equipment Proceeds from sale of properly and equipment Net cash used in investing activities Cash flows from financing activities Borrowed funds Dividends paid Shares issued Share premium Net cash from financing actMtles Net increase in cash and cash equivalents Cash and cash equivalents at start of year Cash and cash equivalents a end of year t Zambia National Commercial Bank PIC 2008 Annual Repol
  • 26. Financial Statements notes 1 General information The Bank is incorporated in Zambia under the Companies Act as a limited liability Bank and is domiciled in Zambia. The address of its registered office is: Plot 21 18-2121 P Box 3361 1 O Cairo Road Lusaka 2 Summary of significant accounting policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. (a) Basis of preparation The financial statements are prepared in compliance with International Financial Reporting Standards (IFRS). The measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies below. The financial statements are presented in Zambian Kwacha (K), rounded to the nearest million. The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions. It also requires management to exercise its judgement in the process of applying the Bank's accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are significant to the financial statements, are disclosed in Note 3. Interpretationseffective in 2008 In 2008, the following new and revised standards and interpretations became effective for the first time but have not had an impact on the Bank's financial statements: IFRlC 1 1 - I R 2 - Group and treasury share transactions FS I 1 1 12 - Service Concession Arrangements F7C IFRlC 14 - I S 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction A I S 39 and I R 7 - Reclassificationof financial assets. A FS Standards, interpretations and amendments to published standards that are not yet effective One new standard (IFRS 8 - Operating Segments) and numerous amendments to existing standards and new interpretations have been published and will be effective for the Bank's accounting periods beginning on or after 1 January 2009, but the Bank has not early adopted any of them. The Directors have assessed the relevance of the new standard and interpretations, and amendments to existing standards with respect to the Bank's operations and concluded that they will not have any impact on the Bank's financial statements, other than for the amendments to I S 1 - Presentation of Financial Statements, which will A require non-owner changes in equity to be presented in a 'Comprehensive Statement of Income'. (b) Interest income and expense lnterest income and expense for all interest-bearingfinancial instruments, except for those classified as held for trading or designated at fair value through profit or loss, are recognised within 'interest income' or 'interest expense' in the profit and loss account using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. 'The effective interest Zambia National Commercial Bank PIC 2008 Annual Report
  • 27. Financial Statements notes continued rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financiai asset or financial liability. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and ail other premiums or discounts. Once a financiai asset or a group of similar financial assets has been written down as a result of an impairment ioss, interest income is recognised using the rate of interest that was used to discount the future cash flows for the purpose of measuring the impairment ioss. (c) Fees and commission income Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. (d) Translation of foreign currencies Transactions are recorded on initiai recognition in Zambian Kwacha, being the currency of the primary economic environment in which the Bank operates (the functional currency]. Transactions in foreign currencies during the year are converted into the functional currency using the exchange rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account. (e) Financial assets 'The Bank classifies its financial assets into the following categories: financial assets at fair value through profit or ioss; loans, advances and receivables; held-to-maturityfinancial assets; and available-for-saleassets. Management determines the appropriate classification of its financial assets at initial recognition. [i) Loans, advances and receivables Loans, advances and receivables are non-derivativefinancial assets with fixed or determinabie payments that are not quoted in an active market, other than: [a] those classified as held for trading and those that the Bank on initiai recognition designates as at fair vaiue through profit and loss; (b)those that the Bank upon initial recognition designates as available-for-sale;or (c)those for which the holder may not recover substantially ail of its initiai investment, other than because of credit deterioration. (11) Held-to maturity Held-to-maturityassets are non-derivativefinancial assets with fixed or determinabie payments and fixed maturities that management has the positive intention and ability to hold to maturity. Were the Bank to sell more than an insignificant amount of held-to-maturityassets, the entire category would have to be reclassified as available for sale. (iii)Available-for-sale Available-for-sale assets are non-derivativesthat are either designated in this category or not classified in any other categories. Regular way purchases and sales of financiai assets at fair vaiue through profit or ioss, held-to-maturityand available-for-saleare recognised on trade-date - the date on which the Bank commits to purchase or sell the asset. Financial assets are initially recognised at fair value plus, for all financiai assets except those carried at fair value through profit or loss, transaction costs. Financial assets are derecognised when the rights to receive cash flows from the financiai assets have expired or where the Bank has transferred substantially all risks and rewards of ownership. Zambia National Commercial Bank PIC 2008 Annual Repol
  • 28. Financial Statements notes continued Loans, advances and receivables and held-to-maturityfinancial assets are carried at amortised cost using the effective interest method. Available-for-salefinancial assets and financial assets at fair value through profit or loss are carried at fair value. Gains and losses arising from changes in the fair value of 'financial assets at fair value through profit or loss' are included in the profit and loss account in the period in which they arise. Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised directly in equity until the financial asset is derecognised or impaired, at which time the cumulative gain or loss previously recognised in equity is recognised in the profit or loss account. However, interest calculated using the effective interest method is recognised in the profit and loss account. (f) Impairment of financial assets The Bank assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The crlterla . that the Bank uses to determine that there is objective evidence of an impairment loss include: . Delinquency in contractual payments of principal or interest; Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage of . . sales); Breach of loan covenants or conditions; . . Initiation of bankruptcy proceedings; Deterioration of the borrower's competitive position; . Deterioration in the value of collateral; and Downgrading below investment grade level. The estimated period between a loss occurring and its identification is determined by management for each identified portfolio. In general, the periods used vary between 3 months and 6 months. (i) Assets carried at amortised cost The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on financial assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excludingfuture credit losses that have not been incurred) discounted at the financial instrument's original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the profit and loss account. If a loan or held-to-maturityasset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. A a practlcal expedient, the Bank may s measure impairment on the basis of an instrument's fair value using an observable market price. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e,on the basis of the Bank's grading process that considers asset type, industry, Zambia National Commercial Bank PIC 2008 Annual Report
  • 29. Financial Statements notes continued geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors' ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historlcal loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historlcal loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are wrltten off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in the income statement. If, in a subsequent perlod, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the previously recognised impairment loss is reversed by adjustlng the allowance account. The amount of the reversal is recognised in the income statements. (ii) Assets carried at fair value In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. If any such evidence exists for available-for-salefinancial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in the profit and loss account. Impairment losses recognised in the profit and loss account on equity instruments are not reversed through the profit and loss account. If, in a subsequent period, the fair value of a debt instrument classified as available-for-saleincreases and the Increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the income statement. (iii)Renegotiated loans Loans that are either subject to collective impairment assessment or individually significant and whose terms have been renegotiated are no longer considered to be past due but are treated as new loans. In subsequent years, the renegotiated terms apply in determining whether the asset is considered to be past due. (g) Property and equipment Land and buildings comprise mainly branches and offices. All property and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of these assets. Freehold land is not depreciated. Depreciation on other assets is calculated on the straight line basis to allocate thelr cost less their residual values over their estimated useful lives, as follows: Buildings 2% - 50 years Computers 20% - 5 years Fixtures, fittings and equipment 20% - 5 years Motor vehicles 25% - 4 years Office machines 20% - 5 years Zambia National Commercial Bank PIC 2008 Annual Repol
  • 30. Financial Statements notes continued The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. The Bank assesses at each reporting date whether there is any indication that any item of property, plant and equipment is impaired. If any such indication exists, the Bank estimates the recoverable amount of the relevant assets. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generatingunits). Gains and losses on disposal of properly and equipment are determined by reference to their carrying amount and are taken into account in determining profit. (h) Intangible assets Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (three to five years). Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Bank, and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised over their estimated useful lives (not exceeding four years) (i) lncome tax lncome tax expense is the aggregate of the charge to the profit and loss account in respect of current income tax and deferred income tax. T x is recognised in the profit and loss account unless it relates to items recognised a directly in equity, in which case it is also recognised directly in equity. Current income tax is the amount of income tax payable on the taxable profit for the year determined in accordance with the Zambian lncome T x Act. a Deferred income tax is recognised, using the liability method, for all temporary differences arising between the tax bases of assets and liabillties and their carrying values for financial reporting purposes. However, the deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. (j) Accounting for leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. All other leases are classified as finance leases. (i) With the Bank as lessee T date, all leases entered into by the Bank are operating leases. Payments made under operating leases are o charged to the profit and loss account on a straight-line basis over the period of the lease. Zambia National Commercial Bank PIC 2008 Annual Report
  • 31. Financial Statements notes continued (k) Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, including: cash and non-restricted balances with the Central Bank of Zambia, Treasury and other eligible bills, and amounts due from other banks. Cash and cash equivalents excludes the cash reserve requirement held with the Central Bank of Zambia. (I) Employee benefits (I) Retirement benefit obligations 'The Bank operates a defined benefit scheme for its non-contractualemployees. 'The Bank and all its employees also contribute to the National Pension Scheme Authority, which is a defined contribution scheme. A defined contribution plan is a retirement benefit plan under which the Bank pays fixed contributions into a separate entity. The Bank has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a retirement benefit plan that is not a defined contribution plan. 'The assets of all schemes are held in separate trustee administered funds, which are funded by contributions from both the Bank and employees. The Bank's contributions to the defined contributlon schemes are charged to the profit and loss account in the year in which they fall due. The liability recognised in the balance sheet in respect of defined benefit plan is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency In which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are charged or credited to income over the employees' expected average remaining working lives. Past-servicecosts are recognised immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past- service costs are amortised on a straight-line basis over the vesting period. (11) Other entitlements 'The estimated monetary liability for employees' accrued annual leave entitlement at the balance sheet date is recognised as an expense accrual. (m) Borrowings Borrowings are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds net of transaction costs and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. ((n) Offsetting Financial assets and liabilities are offset and the net amount reported In the balance sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. Zambia National Commercial Bank PIC 2008 Annual Repor
  • 32. Financial Statements notes continued (0) Sale and repurchase agreements Securities sold subject to repurchase agreements ('repos') are classified in the financial statements as pledged assets when the transferee has the right by contract or custom to sell or re-pledgethe collateral; the counterparty liability is included in amounts due to other banks, deposits from banks, other deposits or deposits due to customers, as appropriate. Securities purchased under agreements to resell ('reverse repos') are recorded as loans and advances to other banks or customers, as appropriate. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also retained In the financial statements. (p) Share capital Ordinary shares are classified as 'share capital' in equity. Any premium received over and above the par value of the shares is classified as 'share premium' in equity. (q) Dividends payable Dividends on ordinary shares are charged to equity in the period in which they are declared. Proposed dividends are shown as a separate component of equity until declared. (r) Fiduciary activities The Bank commonly acts as trustees and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Bank. (s) Acceptances and letters of credit Acceptances and letters of credit are accounted for as off-balance sheet transactions and disclosed as contingent liabilities. 3 Critical accounting estimates and judgements in applying accounting policies The Bank makes estimates and assumptions concerning the future. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. (a) lmpairment losses on loans and advances 'The Bank reviews its loan portfolios to assess impairment at least on a monthly basis. In determining whether an lmpairment loss should be recorded in the Income statement, the Bank makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers In a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of lmpairment similar to those in the porffolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. (b) Fair value of Financial lnstruments The fair values of financial lnstruments that are not quoted in active markets are determined by using valuation technlques. Where valuation technlques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. T the extent practicable, models use only observable data. However, areas o Zambia National Commercial Bank PIC 2008 Annual Report
  • 33. Financial Statements notes continued such as credit risk (bothown and counterparty),volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financiai instruments. (c) Held-to-maturity financial assets The Bank follows the guidance of iAS 39 on classifying non-derivativefinancial assets with fixed or determinable payments and fixed maturing as held-to-maturity. This classification requires significant Judgement. In making this judgement, the Bank evaluates its intention and abiiity to hold such assets to maturity. If the Bank fails to keep these assets to maturity other than for the specific circumstances - for example. selling an insignificant amount close to maturity - it will be required to classify the entire class as available-for-sale. The assets are currently measured at amortised cost. 4 Financial risk management The Bank's activities expose it to a variety of financial risks: market risk (includingcurrency risk, fair value interest rate rlsk, cash flow interest rate rlsk and price risk], credit risk and liquidity rlsk. Those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the Bank's business, and the financial risks are an inevitable consequence of being in business. 'The Bank's aim is therefore to achieve an appropriate balance between risk and return and minimise potential adverse effects on its financial performance. i7isk management is carried out by the Risk department under poiicies approved by the Board of Directors. Risk identifies, evaluates financiai risks in close cooperation with the operating units. The Board provides written principles for overall risk management, as well as written poiicies covering specific areas such as foreign exchange risk, interest rate risk, credit risk, use of derivative and non-derivativefinanciai instruments. (a) Credit risk The Bank takes on exposure to credit risk which is the risk that a counterparty will cause a financial loss to the Bank by falling to pay amounts in full when due. Credit risk is the most important risk for the Bank's business: management therefore carefully manages the exposure to credit risk. Credit exposures arise principally in iending and investment activities. There is aiso credit risk in off-balance sheet financial instruments, such as loan commitments. Credit risk management and control is centraiised through the risk management team in the Credit department, which reports regularly to the Board of Directors. 'The Bank structures the levels of credit rlsk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to industry segments. Such risks are monitored on a revolving basis and subject to annual or more frequent review. Limits on the level of credit risk by product and industry sector are approved quarterly by the Board of Directors. The exposure to any one borrower including banks is further restricted by sub-limits covering on- and off-balance sheet exposures and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts. Actual exposures against limits are monitored daily. Exposure to credit risk is managed through regular analysis of the abiiity of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing iending limits where appropriate. Exposure to credit risk is aiso managed in part by obtaining collateral and corporate and personal guarantees, but a significant portion is personal lending where no such facilities can be obtained. Credit related commitments: The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby ietters of credit, which represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial ietters of credit, which are written undertakings by the Bank on behalf of a customer authorlsing a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions, Zambia National Commercial Bank PIC 2008 Annual Repor
  • 34. Financial Statements notes continued are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct borrowing. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss In an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. Maximum exposure to credlt risk before collateral held 2008 2007 K million K million Balances with Bank of Zambia Placements with other banks Loans and advances to customers Investment securitles: - available-for-sale - held-to-maturity Other assets Credlt risk exposures relatlng to off-balancesheet items: - Acceptances and letters of credlt - Guarantee and performance bonds - Commltments to lend T e above table represents a worst case scenario of credit risk exposure to the Bank at 31 December 2008 and 2007, h without taklng account of any collateral held or other credit enhancements attached. For on-balancesheet assets, the exposures set out above are based on carn/ing amounts as reported in the balance sheet. As shown above, 47% of the total mcvdmum exposure is derived from loans and advances to banks and customers (2007: 47).22% represents investments in debt securltles (2007: 27%). Zambia National Commercial Bank PIC 2008 Annual Report
  • 35. Financial Statements notes continued Management Is confident In its abillly to contlnue to control and sustaln mlnlmal exposure of credit risk to the Bank resulting from both its loan and advances portfolio and debt securities based on the following: the Bank exercises stringent controls over the granting of new loans 62% of the loans and advances portfolio are nelther past due nor impaired 51% of the loans and advances portfolio are backed by collateral 100% of the Investments In debt securiies are government securiies. Financial assets that are past due or impaired Loans and advances are summarised as follows: 2008 2007 K million K million Neither past due nor impaired Past due but not impaired Individually impaired Gross Less: allowance for impairment (Note 14) Net No other financial assets are either past due or impaired. Loans and advances neither past due nor impaired The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the internal ratlng system adopted by the Bank 2008 2007 K million K million Standard Watch List Total Zambla National Commercial Bank PIC 2008 Annual Repor
  • 36. Financial Statements notes continued Loans and advances past due but not impaired Loans and advances less than 90 days past due are not considered impaired, unless other information i available to s indicate the contrary. T e gross amounts of loans and advances that were past due but not impaired were as follows: h 2008 2007 K million K million Past due up to 30 days Past due 31 - 60 days Past due 61 - 90 days Total Fair value of collateral held Loans and advances indMdualiy impaired Of the total gross amount of impaired loans, the following amounts have been individually assessed: 2008 2007 K million K million Individually assessed impaired loans and advances - corporate - retail Fair value of collateral held Zambia Natlonal Commercial Bank PIC 2008 Annual Report
  • 37. Financial Statements notes continued Economic sector risk concentrationswlthin the customer loan and deposit portfolios were as follows: Loans and Credit Customer advances commitments deposits At 31 December 2008 % Yo Yo Manufacturing Wholesale and retail trade Transport and communications Business services Agricultural lndivlduals Government Other At 31 December 2007 loans and Credit Customer advances commitments deposits % Yo Yo Manufacturing Wholesale and retail trade Transport and communications Business services Agricultural lndlviduals Government Other (c) Liquidity risk Liquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its financial liabilities as they fall due and to replace funds when they are withdrawn. The Bank is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, and calls on cash settled contingencies. The Bank does not maintain cash resources to meet all of these needs as experience shows that a minlmum level of reinvestment of maturing funds can be predicted with a high level of certainty. The Bank of Zambia requires that the Bank maintain a cash reserve ratio. In addition, the Board sets limits on the minimum proportion of maturing funds available to meet such calls and on the minlmum level of inter-bank and other borrowing facilities that should be in place to cover withdrawals at unexpected levels of demand. The Treasury department monitors liquidity ratios on a dally basis. The table below presents the undiscounted cash flows payable by the Bank under financial liabilities by remaining contractual maturities at the balance sheet date and from financial assets by expected maturity dates. All figures are in millions of Zambian Kwacha. Zambia National Commercial Bank PIC 2008 Annual Repor
  • 38. Financial Statements notes continued At 31 December 2008 U p to 12 1-3 3-5 Over 5 months years years years Total Liabilities Deposits from banks Deposits due to customers Borrowed fund Other liabilities Total financial Liabilities Assets Cash and Balances with Bank of Zambia 774,674 774,674 Loans and advances to Banks 316,282 316,282 Loans and advances to customers 401,275 374,764 173,749 146,529 1,096,317 Investment in securities 401,648 56,000 209.81 7 265 667,730 Other assets 27,539 27,539 Total financial assets U p to 12 1-3 3-5 Over 5 months years years years Total Liabilities Deposits from banks Deposits due to customers Other liabilities Total financial liability Assets Cash and balances with bank of Zambia Loans and advances to Banks Loans and advances to customers Investment in securities Other assets Total financial assets Zambia Natlonal Commercial Bank PIC 2008 Annual Report
  • 39. Iirlancial Statements notes continued (d) Market risk Market risk is the risk that changes in market prices, which include currency exchange rates and interest rates, will affect the fair value or future cash flows of a financial instrument. Market risk arises from open positions in interest rates and foreign currencies, both of which are exposed to general and specific market movements and changes in the level of volatility. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while optimising the return on risk. Overall responsibility for managing market risk rests with the Assets and Liabilities Committee (ALCO). Currency risk 'The Bank takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The table below summarises the Bank's exposure to foreign currency exchange rate risk at 31 December. Included in the table are the Bank's financial instruments, categorised by currency (all amounts expressed in millions of Zambian Kwacha) The off-balance sheet position represents the difference between the notional amounts of foreign currency derivative financial instruments and their fair values. A 31 December 2008 t USD GP B Euro Total Assets Cash and Balances with Bank of Zambia Loans and advances to banks Loans and advances to customers Other financial assets Total assets Liabilities Deposits from banks Deposits due to customers Borrowed fund Other Liabilities Total liabilities Net position A 31 December 2007 t Total assets Total liabilities Net position Zambia National Commercial Bank PIC 2008 Annual Repor
  • 40. Iirlancial Statements notes continued lnterest rate risk The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. lnterest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. The Board of Directors sets limits on the level of mismatch of interest rate re-pricing that may be undertaken, which is monitored daily. The table below summarises the Bank's exposure to interest rate risks, included in the table are the Bank's assets and liabilities at carrying amounts, categorised by the earlier of contractual re-pricingor maturity dates. The Bank does not bear any interest rate risk on off balance sheet Items. All figures are in millions of Kwacha. The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Bank. It is unusual for banks ever to be completely matched since business transacted is often of uncertain terms and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The maturiiies of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the liquidity of the Bank and Its exposure to changes In lnterest rates and exchange rates. Non At 31 December 2008 Up to 12 1-3 3-5 Over 5 interest months Years Years years bearing Total Assets Cash and Balances with Bank of Zambia 401,000 Loans and advances to banks 193,692 Loans and advances to customers Investment in securities Others assets Total financial assets Liabilities Deposits from banks Deposits from customers Borrowed fund Other llabllitles Totai iiabiiities lnterest re-pricing gap At 31 December 2007 Totai financiai iiabiiities Totai assets Total interest repricing gap (d) Fair values of financial assets and liabilities The fair value of held-to-maturityinvestment securities at 31 December 2008 is estimated at K344.350 miiiion (2007: K312.971 miiiion).T e fair vaiues of the Bank'sother financiai assets and iiabiiities approximate the respective carrying h amounts, due to the generally short periods to contractual re-pricing or maturity dates as set out above. Fair vaiues are based on discounted cash flows using a discount rate based upon the borrowing rate that the directors expect would be available to the Bank at the balance sheet date. Zambia Natlonal Commercial Bank PIC 2008 Annual Report
  • 41. Iirlancial Statements notes continued (e) Capital management The Bank's objectives when managing capital, which is a broader concept than the 'equity' on the balance sheets, are: to comply with the capital requirements set by the Banking and Financial Services Act; to safeguard the Bank's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; to maintain a strong capital base to support the development of its business. Capital adequacy and use of reguiatory capital are monitored regularly by management, employing techniques based on the guidelines developed by the Basel Commlttee, as implemented by the Bank of Zambia for supervisory purposes. The required information is flled with the Bank of Zambia on a monthly basis. 'The Bank of Zambia requires each bank to: (a)hold the minimum level of regulatory capltai of K2,000 million; (b)malntain a ratio of totai regulatory capitai to the risk-weightedassets plus risk-weightedoff-balance sheet assets (the 'Basel ratio') at or above the required minimum of 10%; (c)maintain primary or tier 1 capitai of not less than 5% of total risk weighted assets; and (d) maintain totai capitai of not less than 10% of risk-weighted assets plus risk-weighted off-balance sheet items. The bank's totai regulatory capitai is divided into two tiers: Tier 1 capltal (primarycapltal): common shareholders' equlty, qualifying preferred shares and minority interests in the equity of subsidiaries that are less than wholly owned. Tier 2 capital (secondarycapital):qualifying preferred shares, 40% of revaluation reserves, subordinated term debt or loan stock with a minimum original term of maturity of over five years (subjectto a straight-lineamortisation during the last five years leaving no more than 20% of the original amount outstanding in the final year before redemption) and other capitai instruments which the Bank of Zambia may allow. The maximum amount of secondary capital is limited to 100%of primary capital. The risk weighted assets are measured by means of a hierarchy of four risk weights classified according to the nature of - and reflecting an estimate of the credit risk associated with - each asset and counterpafty, A similar treatment is adopted for off-balancesheet exposure, with some adjustments to reflect the more contingent nature of the potential losses. Zambia National Commercial Bank PIC 2008 Annual Repor
  • 42. Financial Statements notes continued 2008 2007 K million K million Tier 1 capital + Tier 1 Tier 2 capital Risk-weightedassets On-balancesheet Off-balance sheet Total risk-weightedassets Basel ratio Tier 1 (Regulatory minimum - 5%) Tier 1 + Tier 2 [Reguiatory minimum - 10%) 2008 2007 K million K million 5 lnterest income Customer loans and advances Loans and advances to Banks Government and other securities Cash and short term funds Other lnterest income recognised on impaired financial assets was K20,867 million (2007:K13.642 million). 2008 2007 K million K million 6 Interest expense Customer deposits Deposits by banks Other 7 Expenses by nature T e following items are included within operating expenses: h Employee benefits expense (Note 8) Depreciation of properly and equipment (Note 15) Auditors' remuneration other Zambia Natlonal Commercial Bank PIC 2008 Annual Report
  • 43. Financial Statements notes continued 8 Employee benefits expense The following items are included within employee benefits expense: 2008 2007 K million K million Retirement benefit costs: -Salaries and allowances -Pension Scheme -National pension scheme 9 lncome tax expense Current income tax Deferred income tax (Note 1 7) The tax on the Bank's profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows: 2008 2007 K million K million Profit before income tax T x calculated at the statutory lncome tax rate of 40% (2007: a 40%) T x effect of: a Bank of Zambia provisions lncome not subject to tax Expenses not deductible for tax purposes lncome taxed separately at (35%) lncome taxed separately @ 15% Deferred tax asset not recognised in prior year lncome taxed @ 35% (K250 million) T x rebate for listing @ 2% a lncome tax (expense)/credlt 10 Dividends per share At the annual general meeting to be held on 31 March 2009, a final dividend in respect of the year ended 31 December 2008 of K15.75 per share amountlng to a total of K18.191 million Is to be proposed. The total dlvldents for the year is therefore K15.75 per share (2007: K10.17)amountlng to a total of K18,191 million (2007: K 10,001 million). Payment of dividends is subject to withholding tax at a rate of 5% for resident and 10% for non-resident shareholders. Zambia National Commercial Bank PIC 2008 Annual Repor
  • 44. Financial Statements notes continued 11 Cash and balances with Bank of Zambia 2008 2007 K million K million Cash in hand Other money market placements Balances with Bank of Zambia 12 Placements with other banks Items in course of collection Placements Loans and advances to other banks 13 Investment securities Securities available-for-sale Government securities - at fair value - Maturing wlthin 90 days of the date of acquisltlon - Maturing after 90 days of the date of acquisition Total securities wallable-for-sale Securities held-to-maturity Government securities - at amortised cost - Maturing after 90 days of the date of acquisitlon Total Investment securities Current Non-Current Zambia Natlonal Commercial Bank PIC 2008 Annual Report
  • 45. Financial Statements notes continued 'The movement in investment securiies available-for-salemay be summarised as follows: 2008 2007 K million K million At start of year Additions Gains from changes in fair value transferred to equity (Note 26) Disposals (sale and redemption) At end of year 14 Loans and advances to customers Overdrafts Personal loans Mortgages Commercial loans Gross loans and advances Less: Provision for Impairment of loans and advances - Individually assessed - Collectively assessed Current Non - current Movements in provisions for impairment of loans and advances are as follows: Personal Commercial Commercial Overdrafts Overdraft Personal loans Loans Total K million K million K million K million K million At 1 January 2007 Provision for loan impairment Recoveries Exchange differences At 31 December 2007 Net increase in implarment Zambia National Commercial Bank PIC 2008 Annual Repor
  • 46. Financial Statements notes continued Personal Commercial Commercial Overdrafts Overdraft Personal loans Loans Total K million K million K million K million K million At January 2008 Provision for loan impairment Write- offs Recoveries Exchange differences At 31 December 2008 Net increase in impairment All impaired loans have been wrmen down to their estimated recoverable amount. 'The aggregate carrying amount of impaired loans at 31 December 2008 was K70.8 billion (2007:K 51.6 billion). Fixtures, 15 Properly and equipment Motor fittings and Work Buildings vehicles equipment in Progress Total K million K million K million K million K million At 1 January 2007 Valuation Accumulated depreciatlon Net book amount Opening net book amount Revaluation surplus Additions Disposals Depreciation charge Depreciation write back on revaluation Closing net book amount Year ended 31 December 2008 Gross carrying amount Accumulated depreciatlon Net book amount Opening net book amount Additlons Depreciationcharge Closing net book amount Zambia National Commercial Bank PIC 2008 Annual Report
  • 47. Financial Statements notes continued 16 Investment Properties K million Year ended 31 December 2007 Cost Valuation Net book amount Opening net book amount Fair value galn Year ended 31 December 2008 Cost Valuation Opening net book amount Fair value gain A at 31 December 2008 the Bank revalued Its investment properties using independent external valuers T.P s Chibwe Properly Consultants and CMM Property Consultants. 17 Deferred income tax Deferred tax income is calculated using the enacted income tax rate of 40% (2007:40%). The movement on the deferred lncome account tax is as follows:- 2008 2007 K million K million At start of year Income statement credit/(charge)(Note9) Equity At end of year Zambia National Commercial Bank PIC 2008 Annual Repor
  • 48. Financial Statements notes continued The deferred income tax asset, deferred income tax charge/(credit)in the profit and loss account, and deferred income tax charge/(credit)in equity are attributable to the following items: Charged1 Charged1 31.12.2007 (credited) (credited) Year ended 31 December 2007 1.1.2007 to PI1 to equity K million K million K million K million Deferred income tax liabilities Properly and equipment Deferred income tax assets Provisions for impairment Other deductible temporary differences Net deferred income tax asset Charged1 (credited) Year ended 31 December 2008 1.1.2008 to PI1 31.12.2008 K million K million K million Deferred income tax liabilities Properly and equipment Deferred income tax assets T x loss a Loss on amortised cost of bonds Fair value gain on investment properties Other deductible temporary differences lNet deferred income tax asset 2008 2007 18 Other assets K million K million Account recehlable Fair value of staff loans Prepayment Other Current Non current Zambia Natlonal Commercial Bank PIC 2008 Annual Report
  • 49. binancia1 statements notes continued 19 Customer deposits 2008 2007 K million K million Current and demand deposlts Savings accounts Fixed deposit accounts Current Non-Current 20 Deposits from other banks Overnight borrowing Deposits Items in course of collection 21 Retirement benefit obligations The amounts not recognised in the balance sheet are determined as follows: Present value of funded obligations Fair value of plan assets Present value of over-funded/ (unfunded)obligations Unrecognised actuarial gains Assets not recognised in the balance sheet The movement in the defined benefit obligation over the year was as follows: At start of year Current service cost Interest cost Actuarial (gains]/losses Benefits paid At end of year Zambia National Commercial Bank PIC 2008 Annual Repor
  • 50. Financial Statements notes continued T e movement in the fair value of the plan assets is as follows: h 31 December 3'1 December 2008 2007 K million K million At start of year 85,541 60,404 Expected return on scheme assets 16,839 22.1 98 Actuarial losses (9.589) (1 5.1 80) Employer contributions 1 1,390 18,945 Employee contributions 5,695 9,473 Benefits paid (1 6,846) (1 0.299) At end of year 2008 2007 Plan assets comprise: K million K million Equity instruments Debt instruments Propew Other The expected return on plan assets is determined by considering the expected returns available on the assets underlying the investment policy. Expected yields on flxed interest investments are based on gross redemptlon ylelds as at the balance sheet date. Expected returns on equity and properly investments reflect long-term real rates of return experienced in the respectlve markets. Expected contributions to the plan for the year ending 31 December 2009 are K18.031 million. 31 December 3'1 December 2008 2007 K million K million Current servlce cost interest cost Expected return on plan assets Net actuarial loss recognised during the period Contributions paid in December not in the actuary's report Movement in asset not recognised in the balance sheet Net charge for the period included in the profit and loss account Zambia Natlonal Commercial Bank PIC 2008 Annual Report
  • 51. Financial Statements notes continued 2008 2007 K million K million Opening net asset not recognised Net charge for the period Contribution paid - current year Movement in the asset not recognised in the balance sheel Closing net asset not recognised In line with the provision of IAS 19, the above asset on the defined benefit pension scheme has not been recognised since it is uncertain that any economic benefits will be available in the future. The actual return on scheme assets was K4,464 million (2007: K7.699 million). The principal actuarial assumptions used were as follows : - discount rate - expected rate of return on scheme assets - future salary increases - future pension increases 'Three year summary: 2008 2007 2006 K million K million K million Present value of defined benefit obligation Fair value of plan assets Surplus 1 (deficit)in the plan IVo disclosures have been made for the year 2004 and 2005 as the first valuation was done in 2006 22 Other liabilities 2008 2007 K million K million Bills payable Fair value of staff loan Accrued expenses Retirement provision Other Current Non-Current Zambia National Commercial Bank PIC 2008 Annual Repor
  • 52. Financial Statements notes continued 2008 2007 Movement in provision for retirement K million K million At start 3,655 345 Provision 31,019 9,338 Payment (1 3,028) (6.028) At closing 23 Borrowed fund FMO Proparco During the year the Bank borrowed $1 2.5 million from Nederlandse Financierings-MaatschappijVoor Ontiwlkkelingslanden N.V (FMO)and $1 2.5 million from Societe de Promotion et de Participation pour la Cooporation Economique (PROPARCO).The loan is repayable over a period of 5 years. 'The interest rate on the loan is 2.75% above 6 months Ilbor. This loan was a syndication between F O and P O A C . Under the terms of this loan, the Bank is required to observe inter alia, the following financial M R PR O covenants: -Capital adequacy ratio: Minimum 10% -Open loan exposure ratio: not to exceed 25% -Related party lending ratio: not to exceed 20% -Net interest margin: Minimum 2% -Cost to income ratio: not exceed 70% after 2010 Ordinary Share Number of shares shares premium 24 Share capital (million) K million K million Balance at 1 January 2007 Balance at 1 January 2008 Issue of shares Balance at 3'1 December 2008 T e total authorised number of ordinary shares is 1,500 million with a par value of K 10 per share. 1,155 million shares are issued h and fully paid. On 30 November 2008, the Bank issued 171 million new shares in a capital ralse .These shares were allotted to the shareholders at a price of K470 per share. 2008 2007 25 General Banking Reserves K million K million Balance brought forward Statutory impairment provlslon At end of year Zambia National C o m m e r c i a l Bank PIC 2008 Annual Report
  • 53. Financial Statements notes continued The balance in the general banking reserve represents the excess of impairment provisions determined in accordance with the Prudential Regulations over the impairment provisions recognised in accordance with the Bank's accounting policy. The reserve is not distributable 26 Revaluation reserves 2008 2007 Revaluation reserve - Property & plant and equipment K million K million At start of year Revaluatlon surplus Transfer of excess depreciation Deferred tax on excess depreciatlon Deferred tax on revaluation Transfer on disposal of assets At end of year Revaluation reserve - available-for-salesecurities At start of year lVet losses from changes in fair value Deferred income tax on net (gains)/losses Net gains transferred to profit and loss account on disposal At end of year Net change in available-for-sale Net loss in change in fair value Net loss transferred to profit and loss on maturity At end of year Total Revaluation reserves Properly, plant and equipment Available -for-sale-Investment At end of year 27 Regulatory reserve At start of year Transfer from retained earnings At end of year The regulatory reserve represents an appropriation from retained earnings to comply with the Bank of Zambia's Prudential Regulations. The reserve is not distributable. Zambia National Commercial Bank PIC 2008 Annual Repor - #
  • 54. Financial Statements notes continued 28 Off balance sheet financial instruments, contingent liabilities and commitments In common with other banks, the Bank conducts business involvingacceptances, letters of credit, guarantees, performance bonds and indemnities. 'The majorii of these facilities are offset by corresponding obligations of third parties. In addition, there are other off-balancesheet financial instruments including forward contracts for the purchase and sale of foreign currencies, the nominal amounts of which are not reflected in the balance sheet. 2008 2007 Contingent liabilities K million K million Acceptances and letters of credit Guarantees and performance bonds Nature of contingent liabilities An acceptance is an undertaking by a bank to pay a bill of exchange drawn on a customer. The Bank expects most acceptances to be presented, and reimbursement by the customer is normally immediate. Letters of credit commit the Bank to make payments to third parties, on production of documents, which are subsequently reimbursed by customers. Guarantees are generally written by a bank to support performance by a customer to third parties. The Bank will only be required to meet these obligations in the event of the customer's default. Legal proceedings The Bank is also party to various legal proceedings, including those involving former management staff who have sued the Bank for additional retirement compensation. Based on legal counsel, the directors are of the opinion that an amount of K10.6 billion may be required to meet these obligations. A provision for this amount has been included in these financial statements Other commitments 2008 2007 K million K million Undrawn formal stand-byfacilities, credit lines and other commitments to lend Nature of commitments Commltmentsto lend are agreements to lend to a customer in future subject to certain conditions. Such commitments are normally made for a fixed period. The bank may wlthdraw from its contractual obligation for the undrawn portlon of agreed overdraft limits by giving reasonable notice to the customer. Foreign exchange forward contracts are agreements to buy or sell a specified quantlly of foreign currency, usually on a specified future date at an agreed rate. Zambia National Commercial Bank PIC 2008 Annual Report
  • 55. Financial Statements notes continued 29 Analysis of cash and cash equivalents as shown in the cash flow statement 2008 2007 K million K million Cash and balances with Bank of Zambia(Note 1 1) Less: cash reserve requirement (see below) Government and other securities (Note 13) Placements with other banks (Note 12) Amounts due to Banking Institutions (Note 20) For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than 90 days maturih/ from the date of acqulsitlon Including:cash and balances with central bank Treasury bills and other eliglble bills, and amounts due from other banks. Cash and cash equivalents exclude the cash reserve requirement held with the Bank of Zambia. Banks are required to maintain a prescribed minimum cash balance with the Bank of Zambia that i not available s to flnance the bank's day-todayactivities. T e amount i determined as 8% of the average outstanding customer h s deposits over a cash reserve cycle period of one week. 30 Prior year adjustments The Bank changed Its accounting policy In relation to the treatment of the employee benefit arising from the marking to market of employee staff loans. The employee benefit is now accounted for in accordance with I SA 19. Previously they were accounted for under I S 39. This has resulted in restatement of the figures for 2007. A Profit for the Staff loans Year Year ended 2007 As previously reported Employee benefit adjustment Restated balance 'The net effect of restatement on the profit for the year ended 31 December 2007 was an increase of K3.412 million. 31 Related party transactions T e BanKs major shareholders Is Coopercrtlon Raffeisen -BoerenleenbankC (Rabobank)incorporatedIn Netherlands. h V There are no other companies which are related to Zambia National Commercial Bank Plc. In the normal course of business, current accounts are operated and placings of foreign currencies are made with Rabobank at interest in line with the market. Zambia National Commercial Bank PIC 2008 Annual Report
  • 56. Financial Statements notes continued Placement with shareholder 2008 2007 K million K million Placement with Rabobank lnterest Income There were no loans and advances to Directors or their famiiies or companies controlled by directors or their famiiies during the year (2007: nil) At 31 December 2008 advances to employees amounted to K94.875 million (2007:K81,458million). None of the advances to employees were glven on commercial terms and at market rates except for personal development ioans and some House Loans ail amounting to K19.406 miiiion (2007:K21,539 miiiion) 2008 2007 K million K million interest income earned on staff ioans No provisions have been recognised in respect of ioans given to related parties (2007: nil]. During the year there were no deposits from Directors (2007: nil) 2008 2007 Key management compensation K million K million Salaries and other short-term employment benefits Termination benefits Management fees paid to Rabobank The above management fees have been accrued in the accounts based on management contracts wlth Rabobank. 2007 2008 K million K million Directors' remuneration Fees for services as a director 757 Shareholder deposits Deposits lnterest exDense incurred 5 1 National Commercial Bank PIC 6 Zambia 2008 Annual Report
  • 57. Financial Statements notes continued 32 Segmental reporting Business segments T e Bank comprises the following main business segments: h Corporate Banking Retail Banking Business segments as at 31 December 2008 Corporate Retail Consolidated banking banking lNet interest income Net fee and commission income Other operating income Total income Impairment charge on financial assets Operating expenses Operating profit Income tax expense Profit for the year Segment assets Total assets Segment liabilities Total liabilities Zambla National Commercial Bank PIC 2008 Annual Repor
  • 58. FinanciaT 'Statements notes continued Corporate Retail Business segments as at 31 December 2007 banking banking Consolidated Net interest Net fee and commission income Other operating income Total income Impairment charge on financial assets Operating expenses Operating proflt Income tax expense Profit for the year Segment assets Total assets Segment liabilities Total liabilities Zambia National Commercial Bank PIC 2008 Annual Report
  • 59. Financial Statements F i e year financial trend Interest lncome Interest expense Net Interest lncome Commission and other lncome Operating income Operating expenses Impairment losses on loans and advances Profit before lncome tax lncome tax expense Profit for the year Cash and Balances with Bank of Zambia Placement with other Banks lnvestment in securities Loans and advances Property, plant and equipment lnvestment properties Other assets Total Assets Customer deposits Deposits and balances due to other banks Other liabilities Total Liabilities Share capital Reserves Shareholders' funds Total equity and liabilities Zambia National Commercial Bank PIC 2008 Annual Report
  • 60. Branch Network and ATM locator Contacts HEAD OFFICE E-BANKINGACCESS Zambia National Commercial Bank Pic Online Banking Plot 21 18/21 19, Cairo Road Xapit instant Banking P 0 Box 3361 1 Information Technology LSK UAA Tei: +260 21 1 223001 Tei: +260 21 1 238880 Fax: +260 21 1 224056 Fax: +260 21 1 223082 Emall: ebanking@zanaco.co.zm Website: www.zanaco.co.zm Emall: marketlng@zanaco,co,zm C R O A E BANKING RELATIONSHIPMANAGEMENT OP RT Relationship Management BRANCHES Product Support Branch Management Treasury Tel: +260 21 1 224558 Corporate Banking Division Fax: +260 21 1 222534 Emall:branchmanagement@zanaco.co.zm Tei: +260 21 1 224066 Fax: +260 21 1 225285 SUPPLIERS/TENDERS Corporate Support Division Tel: +260 21 1 225450 Fax:+260 21 1 223093 Email: corpsupport@zanaco.co.zm CRES AER Human Resources Division Tel: +260 21 1 223079 Fax: +260 21 1 Email: hr@zanaco.co.zm Zambia National Commercial Bank PIC 2008 Annual Report