NMBZ Holdings Limited HY 2014 financial results
 

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NMBZ Holdings Limited provides premium financial services to corporates, institutions and high net worth individuals and is dual-listed on the Zimbabwe and London Stock Exchanges has released their ...

NMBZ Holdings Limited provides premium financial services to corporates, institutions and high net worth individuals and is dual-listed on the Zimbabwe and London Stock Exchanges has released their condensed unaudited half year results. Check out insights into this company in their presentation which appears below.
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NMBZ Holdings Limited HY 2014 financial results Document Transcript

  • 1. CHAIRMAN'S STATEMENT INTRODUCTION The Group recorded an attributable profit of US$1 386 233 for the period under review which was a significant improvement on the attributable loss of US$3 321 823 for the year ended 31 December 2013. This was largely attributed to the efforts made in containing non- performing loans in an increasingly difficult operating environment. These results were achieved under a deteriorating economic and operating environment which was character- ised by an illiquid market and a general tightening in the economy. GROUPRESULTS Compliance with International Financial Reporting Standards, Companies Act, BankingAct and ZSE Listing Rules and Disclosure Requirements. The condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The condensed consolidated interim financial statements are in compliance with the provisions of the Companies Act (Chapter 24:03), the Banking Act (Chapter 24:20) and the ZSE Listing Rules and Disclosure Requirements. Assessment of the economic environment The slowdown in economic growth, which was prevalent in the last quarter of 2013, persisted into the first half of 2014. This was largely driven by an illiquid market and very tight operating margins as a result of the deflationary pressures. Commentary on operating results The profit before taxation was US$1 867 035 during the period under review and this gave rise to an attributable profit of US$1 386 233. Total income for the period decreased by 7.23% from a prior period of US$25 118 143 to US$23 303 115 which is split into interest income of US$15 033 660 (2013 – US$16 099 196), fee and commission income of US$6 814 567 (2013 – US$7 590 765), net foreign exchange gains of US$945 309 (2013 – US$866 453) and non-interest income of US$509 579 (2013 – US$561 729). Operating expenses increased by 2.5% to US$13 352 244, and these were driven largely by staff costs, depreciation of property and equipment and amortisation of intangible assets. Impairment losses on loans, advances and debentures amounted to US$1 581 045 for the current period from a prior period amount of US$1 887 537 and the decrease was mainly due to increased security obtained on exposures. Commentary on the statement of financial position The Group's total assets grew by 1.74% from US$259 483 112 as at 31 December 2013 to US$264 002 814 as at 30 June 2014. The assets comprised mainly loans, advances and other accounts US$179 128 700 (2013 – US$181 316 271), non-current assets held for sale US$2 264 300 (2013 – US$2 303 300), investment securities held to maturity US$4 763 896 (2013 –US$4 685 471), investment in debentures US$4 117 756 (2013 – US$3 984 723), cash and short term funds US$56 122 895 (2013 –US$48 871 983), investment properties US$4 395 500 (2013 – US$4 385 300) and property and equipment US$7 044 532 (2013 – US$7 372 943). Gross loans and advances decreased by 0.59% from US$194 777 798 as at 31 December 2013 to US$193 620 036 as at 30 June 2014 mainly due to conservative lending in line with the worsening default risk in the economy. Total deposits increased by 1.22% from US$211 215 066 as at 31 December 2013 to US$213 795 232 as at 30 June 2014. The Bank's liquidity ratio closed the period at 35.56% (31 December 2013 -32.52%) and this was above the statutory requirement of 30%. Capital The banking subsidiary's capital adequacy ratio at 30 June 2014 calculated in accordance with the guidelines of the Reserve Bank of Zimbabwe (RBZ) was 17.44% (31 December 2013 – 17.28%).The minimum required by the RBZ is 12%. The Group's shareholder funds increased by 3.21% from US$43 441 403 as at 31 December 2013 to US$44 834 220 as at 30 June 2014 as a result of an increase in retained earnings. DIVIDEND In view of the need to retain cash in the business and to strengthen the statutory capital requirements for the banking subsidiary, the Board has proposed not to declare a dividend. CORPORATE SOCIALINVESTMENTS The Group actively participates in serving the communities it operates in. During the period under review, the Group's investment in the community was channeled into protection of the environment, the arts, sporting disciplines and education. CORPORATE DEVELOPMENTS In pursuit our mission of providing premium financial services to our customer, we launched a Customer Relationship Management System (CRM) which will be instrumental in identifying opportunities to serve our valued clients better. We also upgraded our Automated Teller Machines (ATMs) to accept Chip & Pin cards and this will drastically improve security on our cards and curb fraud risk on the use of cards. OUTLOOKAND STRATEGY The Group has continued to scout for more international lines of credit and explore growth opportunities in other market segments. DIRECTORATE Mr B Zwinkels, Ms M Svova, Mr B Chikwanha, Mr C Ndiaye and Mr D Malik were appointed to both the NMBZ and NMB Bank Boards with effect from 31 January 2014. I would like to extend a warm welcome to the new board members and wish them a successful tenure on the Board. APPRECIATION I would like to pay tribute to our valued clients, shareholders and regulatory authorities for their continued support in the period under review. I would also like to thank my fellow board members, management and staff for their profound commitment and dedication which has made the achievement of these results possible in the face of a deteriorating economic environment. T N MUNDAWARARA CHAIRMAN 20August 2014 Restated 30 Jun 30 Jun 31 Dec 2014 2013 2013 Unaudited Reviewed Audited Total income (US$) 23 303 115 25 118 143 50 135 302 Attributable profit/(loss) (US$) 1 386 233 2 672 911 (3 321 823 ) Basic earnings /(loss) per share (US cents) 0.36 0.95 (1.00 ) Total deposits (US$) 213 795 231 209 273 789 211 215 066 Loans and advances (US$) 193 620 036 183 454 912 194 777 798 Total shareholders' funds (US$) 44 834 220 49 350 247 43 441 403 Enquiries NMBZ HOLDINGS LIMITED JamesAMushore, Group Chief Executive Officer, NMBZ Holdings Limited jamesm@nmbz.co.zw Francis Zimuto, Deputy Group Chief Executive Officer, NMBZ Holdings Limited francisz@nmbz.co.zw Benefit PWashaya, Managing Director, NMB Bank Limited benefitw@nmbz.co.zw Benson Ndachena, Chief Finance Officer, NMBZ Holdings Limited bensonn@nmbz.co.zw Website: http://www.nmbz.co.zw Email: enquiries@nmbz.co.zw Telephone: (+263-4) 759 651-9 CONDENSED UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2014 HIGHLIGHTS Dually listed on the London Stock Exchange (LSE) and Zimbabwe Stock Exchange (ZSE) 1 I N P U R S U I T O F E X C E L L E N C E NMB Bank Limited. Registered Commercial Bank. www.nmbz.co.zw N M B B A N K L I M I T E D
  • 2. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the six months ended 30 June 2014 CONSOLIDATED STATEMENT OF FINANCIALPOSITION as at 30 June 2014 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the six months ended 30 June 2014 CONSOLIDATED STATEMENT OF CASH FLOWS for the six months ended 30 June 2014 30 Jun 30 Jun 2014 2013 Note US$ US$ Unaudited Reviewed Interest income 4 15 033 660 16 099 196 Interest expense (6 502 791 ) (6 610 573 ) ---------------- ---------------- Net interest income 8 530 869 9 488 623 Net foreign exchange gains 945 309 866 453 Fee and commission income 5.1 6 814 567 7 590 765 ---------------- ---------------- Revenue 16 290 745 17 945 841 Non-interest income 5.2 509 579 561 729 Operating expenditure 6 (13 352 244 ) (13 025 587 ) Impairment losses on loans, advances and debentures (1 581 045 ) (1 887 537 ) Share of profits of associate - 217 768 ---------------- ---------------- Profit before taxation 1 867 035 3 812 214 Taxation 7 (480 802 ) (1 139 303 ) ---------------- ---------------- Profit for the period 1 386 233 2 672 911 Other comprehensive income, net of tax - - ---------------- ---------------- Total comprehensive income for the period 1 386 233 2 672 911 ========= ========= Attributable to: - Owners of the parent 1 386 233 2 672 911 - Non – controlling interest - - ---------------- ---------------- 1 386 233 2 672 911 ========= ========= Earnings per share (US cents) - Basic 9.3 0.36 0.95 - Diluted basic 9.3 0.34 0.69 Restated 30 Jun 31 Dec 30 Jun Note 2014 2013 2013 US$ US$ US$ Unaudited Audited Reviewed EQUITY Share capital* 10 78 598 78 598 78 598 Capital reserves* 20 038 633 17 937 471 20 198 908 Retained earnings 8 895 720 9 604 191 13 337 488 ---------------- ---------------- ---------------- Total equity 29 012 951 27 620 260 33 614 994 Redeemable ordinary shares* 11 14 335 253 14 335 253 14 335 253 Subordinated term loan** 12 1 486 016 1 485 890 1 400 000 ---------------- ---------------- ---------------- Total shareholders' funds 44 834 220 43 441 403 49 350 247 LIABILITIES Deposits and other accounts** 13 219 168 594 216 041 709 215 109 737 Current tax liabilities - - 324 423 ---------------- ---------------- ---------------- Total liabilities 219 168 594 216 041 709 215 434 160 ---------------- ---------------- ---------------- Total equity and liabilities 264 002 814 259 483 112 264 784 407 ========= ========= ========= ASSETS Cash and cash equivalents 15 56 122 895 48 871 983 61 029 068 Current tax assets 635 593 1 739 210 - Investment securities held to maturity 14 4 763 896 4 685 471 5 578 070 Investment in debentures 16 4 117 756 3 984 723 3 984 723 Loans, advances and other accounts 17 179 128 700 181 316 271 177 740 224 Non - current assets held for sale 2 264 300 2 303 300 2 216 500 Quoted and other investments 214 679 335 998 363 599 Deferred tax assets 3 540 549 2 823 544 2 367 960 Investment in associate 18 - - - Investment properties 4 395 500 4 385 300 3 020 300 Intangible assets 19 1 774 414 1 664 369 - Property and equipment 20 7 044 532 7 372 943 8 483 963 ---------------- ---------------- ---------------- Total assets 264 002 814 259 483 112 264 784 407 ========= ========= ========= * The amount was restated following the reclassification of shares issued to three strategic foreign investors from ordinary share capital to redeemable ordinary shares (refer to note 11). ** The amount was restated following a reclassification of the subordinated term loan from deposits and other accounts to shareholders' funds (refer to note 12). Capital Reserves Share Share Share Option Regulatory Retained Capital Premium Reserve Reserve Earnings Total US$ US$ US$ US$ US$ US$ Balances at 1 January 2013 78 598 15 737 548 45 671 2 301 683 12 778 583 30 942 083 Total comprehensive income for the six months - - - - 2 672 911 2 672 911 Impairment allowance for loans and advances - - - 2 114 006 (2 114 006 ) - Shares issued-private placement 29 040 14 802 105 - - - 14 831 145 Share issue expenses - (495 892 ) - - - (495 892 ) ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Balances as previously reported at 30 June 2013 107 638 30 043 761 45 671 4 415 689 13 337 488 47 950 247 Restatement* (29 040 ) (14 306 213 ) - - - (14 335 253) ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Restated balances at 30 June 2013 78 598 15 737 548 45 671 4 415 689 13 337 488 33 614 994 Total comprehensive income for the six months - - - - (5 994 734 ) (5 994 734 ) Impairment allowance for loans and advances - - - (2 261 437 ) 2 261 437 - ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Balances at 31 December 2013 78 598 15 737 548 45 671 2 154 252 9 604 191 27 620 260 Total comprehensive income for the six months - - - - 1 386 233 1 386 233 Impairment allowance for loans and advances - - - 2 094 704 (2 094 704 ) - Share based payments – share options issued - - 6 458 - - 6 458 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Balances at 30 June 2014 78 598 15 737 548 52 129 4 248 956 8 895 720 29 012 951 ========= ========= ========= ========= ========= ========= *The amounts were restated following the reclassification of shares issued to three strategic investors from ordinary share capital to redeemable ordinary share capital (refer to Note 10.2.2 and 11). CASH FLOWS FROM OPERATINGACTIVITIES Restated 30 Jun 30 Jun 2014 2013 US$ US$ Unaudited Reviewed Profit before taxation 1 867 035 3 812 214 Non-cash items: - Amortisation of intangible assets 161 435 46 373 - Depreciation 945 146 818 851 - Impairment losses on loans, advances and debentures 1 581 045 1 887 537 - Profit on disposal of unquoted investments (21 055 ) - - Non-current assets held for sale fair value adjustment - 75 300 - Quoted and other investments fair value adjustment 7 374 (37 494 ) - Profit on disposal of associate - (580 137 ) - Profit on disposal of property and equipment (5 365 ) - - Share based payment – remuneration expense 6 458 - - Share of associate profit - (217 768 ) ---------------- ---------------- Operating cash flows before changes in operating assets and liabilities 4 542 073 5 804 876 CASH FLOWS FROM OPERATINGACTIVITIES (continued) Restated 30 Jun 30 Jun 2014 2013 US$ US$ Changes in operating assets and liabilities Unaudited Reviewed Deposits and other liabilities* 3 126 885 20 107 104 Loans, advances and other accounts 741 528 (33 027 768 ) Investment in debentures (133 033 ) (3 984 723 ) ---------------- ---------------- 8 277 453 (11 100 511 ) ---------------- ---------------- Taxation Capital gains tax paid (1 750 ) (264 024 ) Corporate tax paid (92 442 ) (2 127 185 ) ---------------- ---------------- Net cash inflow/(outflow) from operating activities 8 183 261 (13 491 720 ) ---------------- ---------------- CASH FLOWS FROM INVESTINGACTIVITIES Acquisition of intangible assets (271 480 ) - Acquisition of investment property (10 200 ) - Purchase of property and equipment (616 736 ) (1 161 728 ) Proceeds on disposal of property and equipment 5 365 - Proceeds on disposal of non - current assets held for sale 39 000 28 500 Proceeds on disposal of associate - 1 850 000 Expenses on disposal of associate - (26 175 ) Investment securities held to maturity (78 424 ) (76 107 ) ---------------- ---------------- Net cash (outflow)/inflow from investing activities (932 475 ) 614 490 ---------------- ---------------- Net cash inflow/(outflow)before financing activities 7 250 786 (12 877 230 ) ---------------- ---------------- CASH FLOWS FROM FINANCINGACTIVITIES Proceeds from subordinated term loan* - 1 400 000 Repayment of interest on subordinated term loan (85 890 ) - Interest capitalised on subordinated term loan 86 016 - Proceeds from issue of shares - 14 831 145 Share issue expenses - (495 892 ) ---------------- ---------------- Net cash inflow from financing activities 126 15 735 253 ---------------- ---------------- Net increase in cash and cash equivalents 7 250 912 2 858 023 Cash and cash equivalents at the beginning of the period 48 871 983 58 171 045 ---------------- ---------------- Cash and cash equivalents at the end of the period 56 122 895 61 029 068 ========= ========= * The amount was restated following a reclassification of the subordinated term loan from deposits and other accounts to shareholders' funds (refer to note 12). 1. REPORTING ENTITY The Holding Company is incorporated and domiciled in Zimbabwe and is an investment holding company. Its registered office is 64 Kwame Nkrumah Avenue, Harare. Its principal operating subsidiary is engaged in banking and other companies hold investments. 2. ACCOUNTING CONVENTION Statement of compliance These condensed consolidated interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position of the Group since the last annual consolidated financial statements as at and for the year ended 31 December 2013. These condensed consolidated interim financial statements do not include all the information required for the full annual financial statements prepared in accordance with International Financial Reporting Standards. These condensed consolidated interim financial statements were approved by the Board of Directors on 20August 2014. 2.1 Basis of preparation The condensed consolidated interim financial statements have been prepared under the historical cost convention except for quoted and other investments, investment properties and financial instruments which are carried at fair value and land and buildings which are stated at revalued amount. These condensed consolidated financial statements are reported in United States ofAmerica dollars and rounded to the nearest dollar. 2.2 Basis of consolidation The Group financial results incorporate the financial results of the Company, its subsidiaries and associate company. Subsidiaries are investees controlled by the Group. The Group controls an investee if it is exposed to, or has rights to, variable returns from its involvement with the investee. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date when control ceases. The financial results of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra- group balances, transactions, income and expenses; profits and losses resulting from intra-group transactions that are recognised in assets and liabilities are eliminated in full. When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interest and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost. An associate is an entity over which the Group has significant influence, as evidenced by the Group holding directly or indirectly 20% or more of the voting power of the investee, representation on the Board and direct involvement with the policy making processes of the investee.The investment inAssociate is accounted for using the equity method. 2.3 Comparative financial information The interim financial statements comprise consolidated statements of financial position, comprehensive income, changes in equity and cash flows. The comparative consolidated statements of comprehensive income, changes in equity and cash flows are for six months. 2.4 Use of estimates and judgements The preparation of the interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The significant judgements made by management in applying the Group's accounting policies and key sources of estimation and uncertainity were the same as those applied to the consolidated financial statements as at and for the year ended 31 December 2013. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In the process of applying the Group's accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the consolidated financial statements: 2.4.1 Deferred tax Provision for deferred taxation is made using the liability method in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Temporary differences arising out of the initial recognition of assets or liabilities and temporary differences on initial recognition of business combinations that affect neither accounting nor taxable profit are not recognised. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. In determining the amounts used for taxation purposes the directors referred to applicable effective exchange rates at the date of acquisition of assets or incurring of liabilities. The Zimbabwe RevenueAuthority (ZIMRA), announced methods to account for the deferred tax arising on assets purchased in ZWD. These methods require the preparer to first estimate the equivalent USD value of those assets at the time of purchase. Since the measurement of transactions in Zimbabwe dollars in the prior periods is affected by several economic variables such as mode of payment and hyperinflation, this is an area where the directors have had to apply their judgement and acknowledge there could be significant variations in the results achieved depending on assumptions made. 2.4.2 Land and buildings The properties were valued by directors. The determined fair value of land and buildings is most sensitive to the estimated yield as well as the long term vacancy rate. In addition, the property market is currently not stable due to liquidity constraints and hence comparable values are also not stable. 2.4.3 Investment properties Investment properties were valued by directors. The directors considered comparable market evidence of recent sale transactions and those transactions where firm offers had been made but awaiting acceptance. In addition, the property market is currently not stable due to liquidity constraints and hence comparable values are also not stable. The directors exercised their judgment in determining the residual values of the other property and equipment which have been determined as nil. NOTES TO THE CONDENSED FINANCIALSTATEMENTS for the six months ended 30 June 2014 Dually listed on the LSE and ZSE 2
  • 3. 2.4.4 Investment securities held to maturity This relates to the RBZ Bond that was valued at amortised cost as there is currently no market information to facilitate the application of fair value principles, refer to Note 14.1. 2.4.5 Impairment losses on loan and advances The Group reviews all loans and advances at each reporting date to assess whether an impairment loss should be recorded in profit or loss. In particular, judgement by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, the Group makes judgements about the borrower's financial situation and the net realisable value of collateral. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. The collective assessment takes account of data from the loan portfolio (such as credit quality, levels of arrears, credit utilisation, loan to collateral ratios etc.), concentrations of risks and economic data. The impairment loss on loans and advances is disclosed in more detail under note 8 and note 17.3 below. 2.4.6 Going concern The Directors have assessed the ability of the Group to continue operating as a going concern and believe that the preparation of these consolidated financial statements on a going concern basis is still appropriate. 2.4.7 Non-current assets held for sale Non-current assets or disposal group are held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. These are measured at the lower of carrying amount and fair value less costs to sell and they are not depreciated. Non-current assets were valued by the directors who considered comparable market evidence of recent sale transactions and those transactions where firm offers had been made but waiting acceptance. 3. ACCOUNTING POLICIES The selected principal accounting policies applied in the preparation of these condensed financial statements are set out below. These policies have been consistently applied unless otherwise stated. 3.1 Financial instruments 3.1.1 Classification Financial assets and liabilities at fair value through profit and loss include financial assets and liabilities held for trading i.e. those that the Group principally holds for the purpose of short-term profit taking as well as those that were, upon initial recognition, designated by the entity as financial assets or liabilities at fair value through profit and loss. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those classified as held-for-trading and the Group upon initial recognition designates as at fair value through profit or loss and those the Group upon initial recognition designates as available-for-sale. Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold to maturity. Financial assets available-for-sale are non-derivative financial assets that are designated as available-for- sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. 3.1.2 Recognition The Group recognises financial assets at fair value through profit and loss and available-for-sale assets on the date it commits to purchase the assets. From this date any gains and losses arising from changes in fair value of the assets are recognised in the income statement and other comprehensive income respectively. Held-to-maturity investments and loans and receivables are recognised at cost which is the fair value of the consideration given on the day that they are transferred to the Group. 3.1.3 Measurement Financial assets and liabilities are measured initially at fair value. Subsequent to initial recognition, financial assets and liabilities measured at fair value through profit and loss and available-for-sale financial assets are measured at fair value, except that any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is stated at cost, less impairment losses. Held-to-maturity investments and loans and receivables are measured at amortised cost less impairment losses. Amortised cost is calculated using the effective interest rate method. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument. 3.1.4 Fair value measurement principles The fair value of financial instruments is based on their quoted market price at the reporting date without any deduction for transaction costs. If a quoted market price is not available, the fair value of the instrument is estimated using pricing models or discounted cash flow techniques. Where discounted cash flow techniques are used, estimated future cash flows are based on management's best estimates and the discount rate is a market related rate at the reporting date for an instrument with similar terms and conditions. Where pricing models are used, inputs are based on market related measures at the reporting date. 3.2 Investment properties Investment properties are stated at fair value. Gains and losses arising from a change in fair value of investment properties are recognized in the income statement. The fair value is determined at the end of each reporting period. 3.3 Share-based payments The Group issues share options to certain employees in terms of the Employee Share Option Scheme. Share options are measured at fair value at the date of grant. The fair value determined at the date of grant of the options is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. Fair value is measured using the Black-Scholes option pricing model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and other behavioural considerations. 3.4 Property and equipment InternationalAccounting Standard 16 (IAS 16) stipulates that the residual value and the useful life of an asset must be reviewed at least each financial year-end. If the residual value of an asset increases by an amount equal to or greater than the asset's carrying amount, then the depreciation of the asset ceases. Depreciation will resume only when the residual value decreases to an amount below the asset's carrying amount. 3.5 Intangible assets Intangible assets are initially recognised at cost. Subsequently, the assets are measured at cost less accumulated armotisation and any accumulated impairment losses. 3.6 Shareholders’funds Shareholders' funds refers to the total investment made by the shareholders to the Group and it consists of share capital, share premium, share options reserve, retained earnings, redeemable ordinary shares and subordinated term loans. 4. INTEREST INCOME 30 Jun 30 Jun 2014 2013 US$ US$ Loans and advances to banks 737 933 936 587 Loans and advances to customers 14 149 747 15 038 076 Investment securities 115 461 124 426 Other 30 519 107 ---------------- ---------------- 15 033 660 16 099 196 ========= ========= 5. FEEAND COMMISSION INCOMEAND NON-INTEREST INCOME 5.1 FEEAND COMMISSION INCOME 30 Jun 30 Jun 2014 2013 US$ US$ Retail banking customer fees 5 416 345 6 503 259 Corporate banking credit - related fees 94 932 172 005 Financial guarantee income 58 623 95 395 International banking customer fees 824 634 820 106 Corporate finance fees 420 033 - ---------------- ---------------- 6 814 567 7 590 765 ========= ========= NOTES TO THE CONDENSED FINANCIAL STATEMENTS for the six months ended 30 June 2014 NOTES TO THE CONDENSED FINANCIAL STATEMENTS for the six months ended 30 June 2014 5.2 NON-INTEREST INCOME 2014 2013 US$ US$ Net gains from quoted and other investments (7 374 ) 37 494 Fair value adjustment on non - current assets held for sale - (75 300 ) Profit on disposal of property and equipment 5 365 - Profit on disposal of unquoted investments 21 055 - Profit on disposal of associate - 580 137 Insurance claims and recoveries 41 433 4 962 Rental income 30 651 16 940 Profit on disposal of quoted investments 408 725 - Other net operating income/(loss) 9 724 (2 504 ) ---------------- ---------------- 509 579 561 729 ========= ========= 6. OPERATING EXPENDITURE 30 Jun 30 Jun 2014 2013 US$ US$ The operating profit is after charging the following: Administration costs 6 156 186 6 279 681 Staff costs – salaries, allowances and related costs 6 089 477 5 880 682 Amortisation of intangible assets 161 435 46 373 Depreciation 945 146 818 851 ---------------- ---------------- 13 352 244 1 3 025 587 ========= ========= 7. TAXATION 30 Jun 30 Jun 2014 2013 Income tax expense US$ US$ Current tax 1 154 671 1 808 389 Aids levy 34 640 54 252 Deferred tax (717 009 ) (987 362 ) Capital gains tax 8 500 264 024 ---------------- ---------------- 480 802 1 139 303 ========= ========= 8. IMPAIRMENT LOSSES ON LOANSANDADVANCES Impairment losses are applied to write off loans and advances in part or in whole when they are considered partly or wholly irrecoverable.The aggregate impairment losses which are made during the year are dealt with as per paragraph 8.3. 8.1 Specific provisions Specific provisions are made where the repayment of identified loans and advances is in doubt and reflect estimates of the loss. Loans and advances are written off against specific provisions once the probability of recovering any significant amounts becomes remote. 8.2 Portfolio provisions The portfolio provision relates to the inherent risk of losses which, although not separately identified, is known to be present in any loan portfolio. 8.3 Regulatory Guidelines and International Financial Reporting Standards Requirements The Banking Regulations 2000 gives guidance on provisioning for doubtful debts and stipulates certain minimum percentages to be applied to the respective categories of the loan book. International Accounting Standard 39, Financial Instruments Recognition and Measurement (IAS 39), prescribes the provisioning for impairment losses based on the actual loan losses incurred in the past applied to the sectoral analysis of book debts and the discounting of expected cash flows on specific problem accounts. The two prescriptions are likely to give different results. The Group has taken the view that where the IAS 39 charge is less than the amount provided for in the Banking Regulations, the difference is recognized directly in equity as a transfer from retained earnings to a regulatory reserve and where it is more, the full amount will be charged to the profit or loss. 8.4 Non-performing loans Interest on loans and advances is accrued to income until such time as reasonable doubt exists about its collectability, thereafter and until all or part of the loan is written off, interest continues to accrue on customers' accounts, but is not included in income. Such suspended interest is deducted from loans and advances in the statement of financial position. This policy meets the requirements of the Banking Regulations 2000 issued by the RBZ. 9. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary equity holders of NMBZ Holdings Limited by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is calculated by dividing the profit attributable to ordinary equity holders of NMBZ Holdings Limited adjusted for the after tax effect of: (a) any dividends or other items related to dilutive potential ordinary shares deducted in arriving at profit or loss attributable to ordinary equity holders of the parent entity; (b) any interest recognised in the period related to dilute potential ordinary shares; (c) any other changes in income or expense that would result from the conversion of the dilutive potential ordinary shares, by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. 9.1 Earnings 30 Jun 30 Jun 2014 2013 US$ US$ Basic 1 386 233 2 672 911 9.2 Number of shares 30 Jun 30 Jun 2014 2013 9.2.1 Basic earnings per share Weighted average number of ordinary shares for basic earnings per share 384 427 401 280 710 729 9.2.2 Diluted earnings per share Number of shares at beginning of period 384 427 401 280 710 729 Shares issued - 103 716 672 Redeemable ordinary shares (note10.2.2) - 103 714 287 Shares issued on consolidation - 2 385 Effect of dilution: Share options granted but not exercised 5 035 634 907 200 Share options approved but not yet granted 23 942 639 167 087 ---------------- ---------------- 413 405 674 385 501 688 ========= ========= 9.3 Earnings per share (US cents) 30 Jun 30 Jun 2014 2013 Basic 0.36 0.95 Diluted basic 0.34 0.69 10. SHARE CAPITAL 10.1 Authorised Restated Restated 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 2014 2013 2013 2014 2013 2013 Shares Shares Shares US$ US$ US$ million million million Ordinary shares of US$0.00028 each 600 600 600 168 000 168 000 168 000 ========= ========= ========= ========= ========= ========= 10.2 Issued and fully paid 10.2.1 Ordinary shares Restated Restated 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 2014 2013 2013 2014 2013 2013 Shares Shares Shares US$ US$ US$ million million million Ordinary shares 281 281 600 78 598 78 598 78 598 ========= ========= ========= ========= ========= ========= 10.2.2 Redeemable ordinary shares Restated Restated 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 2014 2013 2013 2014 2013 2013 Shares Shares Shares US$ US$ US$ million million million At 1 January 104 - - 29 040 - - Shares issued - 104 104 - 29 040 29 040 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- 104 104 104 29 040 29 040 29 040 ========= ========= ========= ========= ========= ========= Of the unissued ordinary shares of 215 million shares (2013 – 215 million), options which may be granted in terms of the 2012 ESOS amount to 28 071 073 and as at 30 June 2014, 4 128 434 share options had been issued. Subject to the provisions of section 183 of the Companies Act (Chapter 24:03), the unissued shares are under the control of the directors. 30 Jun 30 Jun (losses)/ Dually listed on the LSE and ZSE 3
  • 4. 14.3 Fair values of financial instruments The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Group determines fair values using other valuation techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. Valuation models The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements. Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments. Level 2: inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data. Level 3: inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments. The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. 14.3.1 Financial instruments measured at fair value – fair value hierarchy 30 Jun 2014 Level 1 Level 2 Level 3 US$ US$ US$ US$ Trade investments 76 202 - - 76 202 Quoted investments 138 477 138 477 - - ---------------- ---------------- ---------------- ---------------- 214 679 138 477 - 76 202 ========= ========= ========= ========= During the reporting period ended 30 June 2014, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. The trade investments were valued using the net asset value method. 31 Dec 2013 Level 1 Level 2 Level 3 US$ US$ US$ US$ Trade investments 190 148 - - 190 148 Quoted investments 145 850 145 850 - - ---------------- ---------------- ---------------- ---------------- 335 998 145 850 - 190 148 ========= ========= ========= ========= During the reporting period ended 31 December 2013, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. Level 3 fair value measurements Reconciliation of Trade investments 30 Jun 31 Dec 2014 2013 US$ US$ Opening balance 190 148 195 790 Total loss in profit or loss - (5 642 ) Disposal (113 946 ) - ---------------- ---------------- Closing balance 76 202 190 148 ========= ========= 14.3.2 Financial instruments not measured at fair value The table below sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised. 30 June 2014 Total carrying Level 1 Level 2 Level 3 amount Assets US$ US$ US$ US$ Cash and cash equivalents - 56 122 895 - 56 122 895 Advances and other assets - 179 128 700 - 179 128 700 Investment in debentures - 4 117 756 - 4 117 756 Investment securities held to maturity - 4 763 896 - 4 763 896 ---------------- ---------------- ---------------- ---------------- Total - 244 133 247 - 244 133 247 ========= ========= ========= ========= Liabilities Deposits and other liabilities - 219 168 594 - 219 168 594 ---------------- ---------------- ---------------- ---------------- - 219 168 594 - 219 168 594 ========= ========= ========= ========= The fair value of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values : ! The fair values of cash and cash equivalents, advances and other assets and deposits and other liabilities carrying amounts approximate their fair values largely due to the short – term maturities of these instruments. ! Fair value of financial assets and liabilities at fair value through profit or loss is derived from quoted market prices in active markets. If quoted market prices are not available the fair value is estimated using pricing models or discounted cash flow techniques. 15. CASHAND CASH EQUIVALENTS 30 Jun 31 Dec 2014 2013 US$ US$ Balances with the Central Bank 9 635 428 13 480 628 Current, nostro accounts and cash 21 387 467 31 391 355 Interbank placements 25 100 000 4 000 000 ---------------- ---------------- 56 122 895 48 871 983 ========= ========= 16. INVESTMENT IN DEBENTURES 30 Jun 31 Dec 2014 2013 US$ US$ Debentures 4 787 074 4 787 074 Provision for impairment loss (669 318 ) (802 351 ) ---------------- ---------------- 4 117 756 3 984 723 ========= ========= The Bank has convertible debentures with a carrying amount of US$4 787 074 with a maturity of 5 years from inception. The debentures are at an interest rate of 10% per annum. The Bank has an option to convert the debentures to equity or redeem the debentures at par on or before the maturity date of 9 March 2018. 17. LOANS,ADVANCESAND OTHER ACCOUNTS 17. 1 Total loans, advances and other accounts 17.1.1 Advances 30 Jun 31 Dec 2014 2013 US$ US$ Fixed term loans 20 240 766 21 711 476 Loans and overdrafts 157 927 045 159 806 508 ---------------- ---------------- 178 167 811 181 517 984 Reclassification to debentures (4 117 756 ) (3 984 723 ) Other accounts 5 078 645 3 783 010 ---------------- ---------------- 179 128 700 181 316 271 ========= ========= 11. REDEEMABLE ORDINARYSHARES Restated 30 Jun 31 Dec 30 Jun 2014 2013 2013 US$ US$ US$ Balance at 1 January 14 335 253 - - Transfer from share capital - 29 040 29 040 Transfer from share premium - 14 306 213 14 306 213 ---------------- ---------------- ---------------- 14 335 253 14 335 253 14 335 253 ========= ========= ========= The Company received on 30 June 2013 US$14 831 145 capital from Nederlandse Financierings-Maatschappij Voor Ontiwikkelingslanden N.V. (FMO), Norwegian Investment Fund for Developing Countries (Norfund) andAfricInvest Financial Sector Holdings (AfricInvest) who were allocated 34 571 429 shares each (total of 103 714 287) for individually investing US$4 943 715. This amount, net of share issue expenses, was used to recapitalise the Bank in order to contribute towards the minimum capital requirements set by the Reserve Bank of Zimbabwe of US$100 million by 31 December 2020. NMBZ Holdings Limited (NMBZ) entered into a share buy-back agreement with Norfund, FMO and AfricInvest, where these three strategic investors have a right on their own discretion at any time after the 5th anniversary but before the 9th anniversary of its first subscription date, to request NMBZ to buy back all or part of its NMBZ shares at a price to be determined as the subscription price of US$0.143 plus the proportionate share of the distributable reserves above the minimum regulatory capital at the point of exercising the share buy back . Further, no buy-back option can be exercised by any investor after the 9th anniversary of the effective date. The share buy-back agreement creates a potential obligation for NMBZ Holdings Limited to purchase its own instruments. Thus shares issued gave rise to a financial liability and are classified as redeemable ordinary shares. The investment by the three strategic investors was classified as ordinary shares as at 30 June 2013 but was subsequently reclassified to redeemable ordinary shares in the results for the year ended 31 December 2013. The effect of this change on the 30 June 2013 results is summarised below: 30 Jun 2013 US$ Consolidated Statement of Comprehensive income Effect on income and expenses - ========= Consolidated Statement of Financial Position Decrease in share capital (29 040 ) Decrease in capital reserves (14 306 213 ) Increase in redeemable ordinary shares 14 335 253 ---------------- Effect on shareholders' funds - ========= 12. SUBORDINATED TERM LOAN Restated 30 Jun 31 Dec 30 Jun 2014 2013 2013 US$ US$ US$ At 1 January 1 485 890 - - Subordinated term loan issued - 1 400 000 1 400 000 Interest capitalised 86 016 85 890 - Interest repaid (85 890 ) - - ---------------- ---------------- ---------------- 1 486 016 1 485 890 1 400 000 ========= ========= ========= In 2013, the Bank received a subordinated term loan amounting to US$1.4 million from a Development Financial Institution which attracts an interest rate of LIBOR plus 10% and has a seven year maturity date from the first disbursement date. The loan was initially classified as a deposit as at 30 June 2013 but was subsequently reclassified to shareholders' funds in the results for the year ended 31 December 2013. The effect of this change on the 30 June 2013 results is summarised below: 30 Jun 2013 US$ Consolidated Statement of Comprehensive income Effect on income and expenses - ========= Consolidated Statement of Financial Position Decrease in deposits and other accounts (1 400 000 ) ---------------- Increase in shareholders' funds 1 400 000 ========= The above liability would, in the event of the winding up of the issuer, be subordinated to the claims of depositors and all other creditors of the issuer. The Group has not had any defaults of the principal, interest and other breaches with respect to this subordinated loan during the six months period ended 30 June 2014. 13. DEPOSITSAND OTHERACCOUNTS 13.1 Deposits and other accounts Restated 30 Jun 31 Dec 30 Jun 2014 2013 2013 US$ US$ US$ Deposits from banks and other financial institutions 48 479 775 52 338 708 46 592 182 Current and deposit accounts 165 315 456 158 876 358 162 681 607 ---------------- ---------------- ---------------- Total deposits 213 795 231 211 215 066 209 273 789 Trade and other payables 5 373 363 4 826 643 5 835 948 ---------------- ---------------- ---------------- 219 168 594 216 041 709 215 109 737 ========= ========= ========= 13.2 Maturity analysis Restated 30 Jun 31 Dec 30 Jun 2014 2013 2013 US$ US$ US$ Less than one month 159 326 911 160 919 521 169 304 967 1 to 3 months 15 542 250 28 819 465 10 836 168 3 to 6 months 16 048 644 2 163 310 20 220 081 6 months to 1 year 8 986 475 1 697 507 1 769 715 1 to 5 years 13 890 951 17 615 263 7 142 858 Over 5 years - - - ---------------- ---------------- ---------------- 213 795 231 211 215 066 209 273 789 ========= ========= ========= 13.3 Sectoral analysis of deposits Restated 30 Jun 31 Dec 30 Jun 2014 2013 2013 US$ % US$ % US$ % Agriculture 8 044 176 4 9 731 279 4 6 659 542 3 Banks and financial services 48 479 775 22 52 338 708 25 46 592 182 22 Distribution 21 647 370 10 21 091 778 10 19 842 897 9 Individuals 27 570 708 13 28 425 938 13 33 320 712 16 Manufacturing 28 035 050 13 26 723 790 13 25 123 778 12 Mining companies 4 079 517 2 3 035 997 1 4 171 466 2 Municipalities and parastatals 10 250 389 5 10 509 776 5 16 266 626 8 Other deposits 25 396 221 12 20 727 019 10 20 766 674 10 Services 33 929 554 16 32 933 385 16 30 184 949 15 Transport and telecommunications companies 6 362 471 3 5 697 396 3 6 344 963 3 ---------------- ----- ---------------- ----- ---------------- ----- 213 795 231 100 211 215 066 100 209 273 789 100 ========= === ========= === ========= === 14. FINANCIALINSTRUMENTS 14.1 Investment securities held to maturity 30 Jun 31 Dec 2014 2013 RBZ Bonds US$ US$ Balance at 1 January 4 685 471 5 501 963 Maturity - (969 004 ) Interest 78 425 152 512 ---------------- ---------------- 4 763 896 4 685 471 ========= ========= 14.2 Maturity analysis of investment securities held to maturity 30 Jun 31 Dec 2014 2013 US$ US$ Less than 1 month - - 1 to 3 months - - 3 to 6 months 2 502 886 2 424 461 6 months to 1 year 969 004 969 004 1 to 5 years 1 292 006 1 292 006 Over 5 years - - ---------------- ---------------- 4 763 896 4 685 471 ========= ========= Dually listed on the LSE and ZSE 4 NOTES TO THE CONDENSED FINANCIAL STATEMENTS for the six months ended 30 June 2014 NOTES TO THE CONDENSED FINANCIAL STATEMENTS for the six months ended 30 June 2014
  • 5. 17.1.2 Maturity analysis 2014 2013 US$ US$ Less than one month 128 956 729 118 711 869 1 to three months 10 943 824 18 082 940 3 to 6 months 2 695 378 3 826 276 6 months to 1 year 4 261 535 2 869 815 1 to 5 years 46 762 570 51 286 898 Over 5 years - - ---------------- ---------------- Total advances 193 620 036 194 777 798 Provision for impairment losses on loans and advances (13 266 246 ) (11 685 201 ) Suspended interest (2 185 979 ) (1 574 613 ) ---------------- ---------------- 178 167 811 181 517 984 Reclassification to debentures (4 117 756 ) (3 984 723 ) Other accounts 5 078 645 3 783 010 ---------------- ---------------- 179 128 700 181 316 271 ========= ========= 17.2 Sectoral analysis of utilizations 30 Jun 31 Dec 2014 2013 US$ % US$ % Agriculture and horticulture 11 901 579 6 11 208 448 6 Conglomerates 10 123 896 4 9 190 491 4 Distribution 45 605 482 24 46 458 831 24 Food & beverages 634 913 - 480 502 - Individuals 45 505 188 24 46 499 825 24 Manufacturing 37 811 883 20 36 880 202 19 Mining 401 330 - 1 584 085 1 Services 41 635 765 22 42 475 414 22 ---------------- ------- ---------------- ------- 193 620 036 100 194 777 798 100 ========= ==== ========= ==== The material concentration of loans and advances are in the distribution sector at 24% (2013 - 24%) and individuals at 24% (2013 - 24%). 17.3 Allowance for impairment losses on loans, advances and debentures 30 Jun 2014 31 Dec 2013 Specific Portfolio Total Specific Portfolio Total US$ US$ US$ US$ US$ US$ At 1 January 11 427 356 257 845 11 685 201 7 164 064 105 735 7 269 799 Charge against profits 1 567 875 13 170 1 581 045 16 493 700 152 110 16 645 810 Bad debts written off - - - (12 230 408 ) - (12 230 408 ) ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Balance 12 995 231 271 015 13 266 246 11 427 356 257 845 11 685 201 ========= ========= ========= ========= ========= ========= 17.4 Non-performing loans and advances 30 Jun 31 Dec 2014 2013 US$ US$ Total non-performing loans and advances 38 739 836 38 730 878 Provision for impairment losses on loans and advances (12 995 231 ) (11 427 356 ) Provision for impairment losses on debentures (note 16) 669 318 802 351 Suspended interest (2 185 979 ) (1 574 613 ) ---------------- ---------------- Residue 24 227 944 26 531 260 ========= ========= The residue on these accounts represents recoverable portions covered by realisable security. 18. INVESTMENT INASSOCIATES 18.1 Investment inAfrican Century Limited The Group had a 24.79% interest inAfrican Century Limited, which is involved in the provision of lease finance. The investment was disposed off on the 29th of May 2013 for a consideration of US$1 850 000. African Century Limited is a company that is not listed on any public exchange. The following table illustrates summarized unaudited and audited financial information of the Group's investment inAfrican Century Limited: Share of the associate's statement of financial position: 30 Jun 31 Dec 2014 2013 US$ US$ Unaudited Audited Associate's statement of financial position summary Current assets - - Non-current assets - - Current liabilities - - Non-current liabilities - - ---------------- ---------------- Equity - - ========= ========= Share of associate's equity - - ========= ========= Associate's revenue and profit Revenue - 2 208 806 ========= ========= Profit - 878 451 ========= ========= Share of associate's profit - 217 768 ========= ========= Reconciliation of carrying amount of investment inAssociate Balance at 1 January - 1 025 919 Share of profits of associate - 217 768 Disposal of investment - (1 243 687 ) ---------------- ---------------- Balance - - ========= ========= 18.2 Investment inAltiwave Investments (Private) Limited NMB Bank Limited has a 25.5% interest in Altiwave Investments (Private) Limited which is the holding company of Lobels Holdings (Private) Limited. The investment arose from a Scheme of Arrangement agreed to by Lobels Holdings (Private) Limited shareholders and creditors (banks, trade and employees). Lobels Holdings (Private) Limited is in the bread and confectionery business. Altiwave Investments (Private) Limited is a company that is not listed on any public exchange. The following table illustrates the summarised unaudited financial information of the Group's investment in Altiwave Investments (Private) Limited: 30 Jun 31 Dec 2014 2013 US$ US$ Associate's statement of financial position summary Unaudited Unaudited Current assets 9 700 726 7 867 222 Non-current assets 9 928 174 15 487 433 Current liabilities (6 289 153 ) (10 717 574 ) Non-current liabilities (31 303 684 ) (30 857 571 ) ---------------- ---------------- Equity (17 963 937 ) (18 220 490 ) ========= ========= Share of associate's equity (25.5%) (4 580 804 ) (4 646 225 ) ========= ========= Associate's revenue and profit Revenue 41 842 356 64 753 584 ========= ========= Profit 1 805 676 1 759 363 ========= ========= Share of associate's profit (25.5%) 460 447 448 638 ========= ========= Reconciliation of carrying amount of investment in associate Balance at 1 January - - Increase in investment - 510 Share of profit of associate 460 447 448 638 Allowance for impairment (460 447 ) (449 148 ) ---------------- ---------------- Balance - - ========= ========= 30 Jun 31 Dec 19. INTANGIBLEASSETS Cost US$ Balance at 1 January 2013 - Reclassification from property and equipment 740 615 Acquisitions 1 170 868 ---------------- Balance at 31 December 2013 1 911 483 Acquisitions 271 480 ---------------- Balance at 30 June 2014 2 182 963 ========= Accumulated amortisation and impairment loss Balance at 1 January 2013 - Reclassification from property and equipment 116 398 Amortisation for the year 130 716 ---------------- Balance at 31 December 2013 247 114 Amortisation for the period 161 435 ---------------- Balance at 30 June 2014 408 549 ========= Carrying amount Balance at 30 June 2014 1 774 414 ========= Balance at 31 December 2013 1 664 369 ========= 20. PROPERTYAND EQUIPMENT Freehold Motor Furniture & land & Computers vehicles equipment buildings Total US$ US$ US$ US$ US$ Cost Balance at 1 January 2013 2 696 533 3 322 357 2 484 201 2 815 724 11 318 815 Additions 340 606 682 969 459 413 23 381 1 506 369 Revaluation gain - - - 4 803 4 803 Reclassification to intangible assets (740 615 ) - - - (740 615 ) Disposals (9 862 ) (2 198 ) (29 250 ) - (41 310 ) ---------------- ---------------- ---------------- ---------------- ---------------- At 31 December 2013 2 286 662 4 003 128 2 914 364 2 843 908 12 048 062 Additions 224 815 331 475 60 446 - 616 736 Disposals (5 ) (5 400) (2 ) - (5 407 ) ---------------- ---------------- ---------------- ---------------- ---------------- Balance at 30 June 2014 2 511 472 4 329 203 2 974 808 2 843 908 12 659 391 ---------------- ---------------- ---------------- ---------------- ---------------- Accumulated depreciation At 1 January 2013 846 183 985 396 1 254 054 45 723 3 131 356 Charge for the year 308 164 910 994 435 589 41 109 1 695 856 Reclassification to intangible assets (116 398 ) - - - (116 398 ) Disposals (8 637 ) (1 966 ) (25 092 ) - (35 695 ) ---------------- ---------------- ---------------- ---------------- ---------------- Balance at 31 December 2013 1 029 312 1 894 424 1 664 551 86 832 4 675 119 Charge for the period 170 410 515 775 231 332 27 629 945 146 Disposals (5 ) (5 400 ) (1 ) - (5 406 ) ---------------- ---------------- ---------------- ---------------- ---------------- Balance at 30June 2014 1 199 717 2 404 799 1 895 882 114 461 5 614 859 ========= ========= ========= ========= ========= Carrying amount at 30 June 2014 1 311 755 1 924 404 1 078 926 2 729 447 7 044 532 ========= ========= ========= ========= ========= At 31 December 2013 1 257 350 2 108 704 1 249 813 2 757 076 7 372 943 ========= ========= ========= ========= ========= At 1 January 2013 1 850 350 2 336 961 1 230 147 2 770 001 8 187 459 ========= ========= ========= ========= ========= Measurement of fair value Fair value hierarchy Immovable properties were revalued as at 31 December 2013 on the basis of valuations carried out by independent professional valuers, PMA Real Estate (Private) Limited. The valuation which conforms to International Valuation Standards, was in terms of the policy as set out in the accounting policies section.All movable assets are measured at their carrying amounts which are arrived at by the application of a depreciation charge on their cost values over the useful lives of the assets. The valuation of land and buildings was arrived by applying yield rates of 9.5% on rental levels of between US$6 - US$8 per square metre. During the period under review, the Directors assessed the fair values of the land and buildings and concluded that there were no material changes to the fair values obtained by the professional valuers as at 31 December 2013. The carrying cost less accumulated depreciation of the land and buildings had revaluations not been performed would be US$3 391 957 as at 30 June 2014 (31 December 2013 –US$3 419 586). Level 3 The fair value of immovable properties of US$2 729 447 has been categorised under Level 3 in fair value hierarchy based on the inputs used for the valuation technique highlighted above. The following table shows the reconciliation between the opening and closing balances for level 3 fair values: 30 Jun 31 Dec 2014 2013 US$ US$ At 1 January 2 757 076 2 770 001 Additions - 23 381 Revaluation gain - 4 803 Depreciation (27 629 ) (41 109 ) ---------------- ---------------- Balance 2 729 447 2 757 076 ========= ========= 21. CAPITALCOMMITMENTS 30 Jun 31 Dec 2014 2013 US$ US$ Capital expenditure contracted for 585 000 1 157 882 Capital expenditure authorized but not yet contracted for 2 173 788 2 294 978 ---------------- ---------------- 2 758 788 3 452 860 ========= ========= The capital expenditure will be funded from the Group's own resources. 22. CONTINGENT LIABILITIES 30 Jun 31 Dec 2014 2013 US$ US$ Guarantees 2 192 919 869 778 Commitments to lend 31 111 497 41 195 923 ---------------- ---------------- 33 304 416 42 065 701 ========= ========= 23. EXCHANGE RATES The following exchange rates have been used to translate the foreign currency balances to United States ofAmerica dollars (US$) at period end:- 30 Jun 2014 31 Dec 2013 Mid - rate Mid - rate US$ US$ British Pound Sterling GBP 1.7029 1.6014 SouthAfrican Rand ZAR 10.5835 9.9487 European Euro EUR 1.3646 1.3697 Botswana Pula BWP 8.6806 8.5034 Dually listed on the LSE and ZSE 5 NOTES TO THE CONDENSED FINANCIAL STATEMENTS for the six months ended 30 June 2014 NOTES TO THE CONDENSED FINANCIAL STATEMENTS for the six months ended 30 June 2014
  • 6. STATEMENT OF COMPREHENSIVE INCOME for the six months ended 30 June 2014 STATEMENT OF FINANCIALPOSITION as at 30 June 2014 STATEMENT OF CHANGES IN EQUITY for the six months ended 30 June 2014 STATEMENT OF CASH FLOWS for the six months ended 30 June 2014 30 Jun 30 Jun 2014 2013 US$ US$ Note Unaudited Reviewed Interest income 15 033 660 16 099 198 Interest expense (6 502 936 ) (6 610 712 ) ---------------- ---------------- Net interest income 8 530 724 9 488 486 Net foreign exchange gains 945 309 866 453 Fee and commission income 6 814 567 7 590 765 ---------------- ---------------- Net operating income 16 290 600 17 945 704 Non interest income/(loss) a 496 018 (54 645 ) Operating expenditure b (13 345 786 ) (13 009 202 ) Impairment losses on loans, advances and debentures (1 581 045 ) (1 887 537 ) ---------------- ---------------- Profit before taxation 1 859 787 2 994 320 Taxation (478 303 ) (815 104 ) ---------------- ---------------- Profit for the period 1 381 484 2 179 216 Other comprehensive income net of tax - - ---------------- ---------------- Total comprehensive income for the period 1 381 484 2 179 216 ========= ========= Earnings per share (US cents) - Basic c 8.37 13.21 30 Jun 31 Dec 2014 2013 US$ US$ EQUITY Note Unaudited Audited Share capital d 16 506 16 506 Capital reserves 35 723 458 33 628 754 Retained earnings 8 089 759 8 802 979 ---------------- ---------------- Total shareholder's funds 43 829 723 42 448 239 LIABILITIES Deposits and other accounts 219 126 801 216 020 406 Subordinated term loan 1 486 016 1 485 890 ---------------- ---------------- Total liabilities 220 612 817 217 506 296 ---------------- ---------------- Total shareholder's funds and liabilities 264 442 540 259 954 535 ========= ========= ASSETS Cash and cash equivalents e 56 122 895 48 871 983 Current tax assets 564 834 1 657 722 Investment securities held to maturity 4 763 896 4 685 471 Amount owing from Holding Company 726 527 747 044 Investment in debentures 4 117 756 3 984 723 Loans, advances and other accounts 179 049 163 181 371 734 Non - current asset held for sale g 2 264 300 2 303 300 Unquoted investments 76 202 76 202 Deferred tax assets 3 542 522 2 833 744 Investment properties f 4 395 500 4 385 300 Intangible assets 1 774 414 1 664 369 Property and equipment 7 044 531 7 372 943 ---------------- ---------------- Total assets 264 442 540 259 954 535 ========= ========= Capital reserves Share Share Regulatory Retained Capital Premium Reserve Earnings Total US$ US$ US$ US$ US$ Balances at 1 January 2013 16 502 15 577 932 2 301 683 12 487 547 30 383 664 Shares issued 4 15 896 570 - - 15 896 574 Total comprehensive income for the six months - - - 2 179 216 2 179 216 Impairment allowance for loans and advances - - 2 114 005 (2 114 005 ) - ---------------- ---------------- ---------------- ---------------- ---------------- Balances at 30 June 2013 16 506 31 474 502 4 415 688 12 552 758 48 459 454 Total comprehensive income for the six months - - - (6 011 215 ) (6 011 215 ) Impairment allowance for loans and advances - - (2 261 436 ) 2 261 436 - ---------------- ---------------- ---------------- ---------------- ---------------- Balances at 31 December 2013 16 506 31 474 502 2 154 252 8 802 979 42 448 239 Total comprehensive income for the six months - - - 1 381 484 1 381 484 Impairment allowance for loans and advances - - 2 094 704 (2 094 704 ) - ---------------- ---------------- ---------------- ---------------- ---------------- Balances at 30 June 2014 16 506 31 474 502 4 248 956 8 089 759 43 829 723 ========= ========= ========= ========= ========= 30 Jun 30 Jun 2014 2013 US$ US$ CASH FLOWS FROM OPERATINGACTIVITIES Unaudited Reviewed Profit before taxation 1 859 787 2 994 320 Non-cash items - Impairment losses on loans, advances and debentures 1 581 045 1 887 537 - Non – current assets held for sale fair value adjustment - 75 300 - Profit on disposal of property and equipment (5 365 ) - - Quoted and other investments fair value adjustment - (1 237 ) - Amortisation of intangible assets 161 435 46 373 - Depreciation 945 146 818 851 ---------------- ---------------- Operating cash flows before changes in operating assets and liabilities 4 542 048 5 821 144 Changes in operating assets and liabilities Deposits and other liabilities 3 106 395 21 353 382 Amount owing from holding company 20 517 314 842 Loans, advances and other accounts 741 526 (33 205 251 ) Investment in debentures (133 033 ) (3 984 723 ) ---------------- ---------------- 8 277 453 (9 700 606 ) ---------------- ---------------- Taxation Corporate tax paid (92 442 ) (2 127 185 ) Capital gains tax paid (1 750 ) (1 425 ) ---------------- ---------------- Net cash inflow/(outflow) from operating activities 8 183 261 (11 829 216 ) ---------------- ---------------- CASH FLOWS FROM INVESTINGACTIVITIES Proceeds on disposal of property and equipment 5 365 - Acquisition of intangible assets (271 480 ) - Purchase of property and equipment (616 736 ) (1 161 728 ) Acquisition of investment property (10 200 ) - Proceeds on disposal of non–current assets held for sale 39 000 28 500 Investment securities held to maturity (78 424 ) (76 107) ---------------- ---------------- Net cash outflow from investing activities (932 475 ) (1 209 335 ) ---------------- ---------------- Net cash inflow/(outflow) before financing activities 7 250 786 (13 038 551 ) ---------------- ---------------- STATEMENT OF CASHFLOWS (continued) 30 Jun 30 Jun 2014 2013 US$ US$ CASHFLOWS FROM FINANCINGACTIVITIES Unaudited Reviewed Issue of shares - 15 896 574 Repayment of interest on subordinated term loan (85 890 ) - Interest capitalised on subordinated term loan 86 016 - ---------------- ---------------- Net cash inflow from financing activities 126 15 896 574 ---------------- ---------------- Net increase in cash and cash equivalents 7 250 912 2 858 023 Cash and cash equivalents at beginning of the period 48 871 983 58 171 045 ---------------- ---------------- Cash and cash equivalents at the end of the period 56 122 895 61 029 068 ========= ========= There are no material differences between the Bank and the Group as the Bank is the principal operating subsidiary of the Group. The notes to the financial statements under NMBZ Holdings Limited are therefore the same as those of the Bank in every material respect. a. NON-INTEREST INCOME/(LOSS) 30 Jun 30 Jun 2014 2013 US$ US$ Rental income 30 651 16 940 Non - current assets held for sale fair value adjustments - (75 300 ) Unquoted investments fair value adjustments - 1 237 Insurance claims and recoveries 41 433 4 962 Profit on disposal of property and equipment 5 365 - Profit on disposal of quoted investments 408 725 - Other net operating income/(loss) 9 844 (2 484 ) ---------------- ---------------- 496 018 (54 645 ) ========= ========= b. OPERATING EXPENDITURE 30 Jun 30 Jun 2014 2013 US$ US$ The operating profit is after charging the following: Administration costs 6 156 186 6 637 891 Staff costs – salaries, allowances and related costs 6 083 019 5 506 087 Amortisation of intangible assets 161 435 46 373 Depreciation 945 146 818 851 ---------------- ---------------- 13 345 786 13 009 202 ========= ========= c. EARNINGS PER SHARE 30 Jun 30 Jun 2014 2013 US$ US$ The calculation of earnings per share is based on the following figures: c.1 Earnings Basic 1 381 484 2 179 216 c.2 Number of shares Weighted average shares in issue 16 506 050 16 501 075 c.3 Earnings per share (US cents) Basic 8.37 13.21 d. SHARE CAPITAL d.1 Authorised The authorised ordinary share capital at 30 June 2014 is at the historical cost figure of US$25 000 (2013 – US$25 000) comprising 25 million ordinary shares of US$0.001 each. d.2 Issued and fully paid The issued share capital at 30 June 2014 is at the historical cost figure of US$16 506 (2013 – US$16 506) comprising 16.506 million ordinary shares of US$0.001 each. e. CASHAND CASH EQUIVALENTS 30 Jun 31 Dec 2014 2013 US$ US$ Balances with the Central bank 9 635 428 13 480 628 Current, nostro accounts and cash 21 387 467 31 391 355 Interbank placements 25 100 000 4 000 000 ---------------- ---------------- 56 122 895 48 871 983 ========= ========= f. INVESTMENT PROPERTIES 30 Jun 31 Dec 2014 2013 US$ US$ Balance at 1 January 4 385 300 3 115 300 Additions 10 200 769 550 Transfers to non–current assets held for sale - (95 000 ) Fair value adjustments - 595 450 ---------------- ---------------- Balance 4 395 500 4 385 300 ========= ========= Investment properties comprise a commercial property and residential properties that are leased out to third parties and land held for future development. All investment properties were not encumbered. Measurement of fair value Fair value hierarchy The fair value of the Bank's investment properties as at 31 December 2013 was arrived at on the basis of valuations carried out by independent professional valuers, PMA Real Estate (Private) Limited. The valuation which conforms to International Valuation Standards, was in terms of the policy as set out in the accounting policies section and was derived with reference to market information close to the date of the valuation. The values were arrived at by applying yield rates of 9.5% on rental levels of between US$6 - US$8 per square metre. The properties are leased out under operating lease to various tenants. During the period under review, the Directors assessed the fair values of the non-current assets held for sale and concluded that there were no material changes to the fair values as obtained by the professional valuers as at 31 December 2013. The Bank has no restrictions on the realisability of all investment properties and no contractual obligations to purchase, construct or develop the investment properties or for repairs, maintenance and enhancements. Rental income amounting to US$30 651 (2013 – US$16 940) was received and no operating expenses were incurred on the investment properties in the current period due to the net leasing arrangements on the properties. Level 2 The fair value for investment properties of US$2 585 500 has been categorised under Level 2 in fair value hierarchy based on the inputs used for the valuation technique highlighted above. The following table shows the reconciliation between the opening and closing balances for Level 2 fair values: 30 Jun 31 Dec 2014 2013 US$ US$ At 1 January 2 575 300 2 670 300 Additions 10 200 - Transfer to non-current assets held for sale - (95 000 ) Fair value adjustments - - ---------------- ---------------- Balance 2 585 500 2 575 300 ========= ========= Level 3 The fair value for investment properties of US$1 810 000 has been categorised under Level 3 in fair value hierarchy based on the inputs used for the valuation technique highlighted above. The following table shows the reconciliation between the opening and closing balances for Level 3 fair values: 30 Jun 31 Dec 2014 2013 US$ US$ At 1 January 1 810 000 445 000 Additions - 769 550 Fair value adjustments - 595 450 ---------------- ---------------- Balance 1 810 000 1 810 000 ========= ========= NOTES TO THE FINANCIALSTATEMENTS for the six months ended 30 June 2014 6
  • 7. 4.1 Credit risk Credit risk is the risk that a financial contract will not be honoured according to the original set of terms. The risk arises when borrowers or counterparties to a financial instrument fail to meet their contractual obligations. The Bank reviewed its credit risk management structures aimed at enhancing credit risk and asset quality. The Bank's general credit strategies centre on sound credit granting process, diligent credit monitoring and strong loan collection and recovery. There is a separation between loan collection and recovery. There is a separation between loan granting and credit monitoring to ensure independence and effective management of the loan portfolio. The Board has put in place sanctioning committees with specific credit approval limits. The Credit Management department does the initial review of all applications before recommending them to the Executive Credit Committee and finally the Board Credit Committee depending on the loan amount. The Bank has in place a Board Loans Review Committee responsible for reviewing the quality of the loan book. The Bank is in the process of implementing a Credit Management System and this will entail an automated end to end management of credit from the loan origination to recoveries. The system should be in place by the third quarter of 2014. Management of credit risk is the responsibility of Credit Management, Credit Monitoring, Credit Administration and Recoveries departments with the following responsibilities: Credit Management ! Responsible for evaluating & approving credit proposals from the business units. ! Together with business units, has primary responsibility on the quality of the loan book. ! Reviewing credit policy for approval by the Board Credit Committee. ! Reviewing business unit level credit portfolios to ascertain changes in the credit quality of individual customers or other counterparties as well as the overall portfolio and detect unusual developments. ! Approve initial customer internal credit grades or recommend to the Credit Committees for approval. ! Setting the credit risk appetite parameters. ! Ensure the bank adheres to limits, mandates and its credit policy. ! Ensure adherence to facility covenants and conditions of sanction e.g. annual audits, gearing levels, management accounts. ! Manage trends in asset and portfolio composition, quality and growth and non-performing loans. ! Manage concentration risk both in terms of single borrowers or group as well as sector concentrations and the review of such limits. Credit Monitoring and Financial Modelling ! Independent Credit Risk Management. ! Independent on-going monitoring of individual credit and portfolios. ! Triggers remedial actions to protect the interests of the Bank, if appropriate (e.g. in relation to deteriorated credits). ! Monitors the on-going development and enhancement of credit risk management across the Bank. ! Reviews the Internal Credit Rating System. ! On-going championing of the Basel II methodologies across the Bank. ! Ensures consistency in the rating processes and performs independent review of credit grades to ensure they conform to the rating standards. ! Confirm the appropriateness of the credit risk strategy and policy or recommends necessary revisions in response to changes/trends identified. CreditAdministration ! Prepares and keeps custody of all facility letters. ! Security registration. ! Safe custody of security documents. ! Ensures all conditions of sanction are fulfilled before allowing drawdown or limit marking. ! Review of credit files for documentation compliance e.g. call reports, management accounts. Recoveries The recoveries unit is responsible for all collections and ensures that the Bank maximises recoveries from Non- Performing Loans (NPLs). 4.2 Market risk This is the exposure of the Bank's on and off balance sheet positions to adverse movement in market prices resulting in a loss in earnings and capital. The market prices will range from money market (interest rate risk), foreign exchange and equity markets in which the Bank operates. The Bank has in place a ManagementAsset and Liability Committee (ALCO) which monitors market risk and recommends the appropriate levels to which the bank should be exposed at any time. Net Interest Margin is the primary measure of interest rate risk, supported by periodic stress tests to assess the Bank's ability to withstand stressed market conditions. On foreign exchange risk, the Bank monitors currency mismatches and make adjustments depending on exchange rate movement forecast. The mismatches are also contained within 10% of the Bank's capital position. ALCO meets on a monthly basis and operates within the prudential guidelines and policies established by the Board ALCO. The BoardALCO is responsible for setting exposure thresholds and limits, and meets on a quarterly basis. 4.3 Liquidity risk Liquidity risk is the risk of financial loss arising from the inability of the Bank to fund asset increases or meet obligations as they fall due without incurring unacceptable costs or losses. The Bank identifies this risk through maturity profiling of assets and liabilities and assessment of expected cash flows and the availability of collateral which could be used if additional funding is required. The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All liquidity policies and procedures are subject to review and approval by the BoardALCO. The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers. The Bank also actively monitors its loans to deposit ratio against a set threshold in a bid to monitor and limit funding risk. Liquidity risk is monitored through a daily treasury strategy meeting. This is augmented by a monthly managementALCO and a quarterly BoardALCO. 4.4 Operational risk This risk is inherent in all business activities and is the risk of loss arising from inadequate or failed internal processes, people, systems or from external events. The Bank utilises monthly key risk indicators to monitor operational risk in all units. Further to this, the Bank has an elaborate operational loss reporting system in which all incidents with a material impact on the well-being of the Bank are reported to risk management. The risk department conducts periodic risk assessments on all the units within the Bank aimed at identifying the top risks and ways to minimise their impact. There is a Board Risk Committee whose function is to ensure that this risk is minimized. The Risk Committee with the assistance of the Internal Audit function and the Risk Management department assesses the adequacy of the internal controls and makes the necessary recommendations to the Board. 4.5 Legal and compliance risk Legal risk is risk from uncertainty due to legal actions or uncertainty in the applicability or interpretation of contracts, laws or regulations. Legal risk may entail such issues as contract formation, capacity and contract frustration. Compliance risk is the risk arising from non – compliance with laws and regulations. To manage this risk permanent relationships are maintained with firms of legal practitioners and access to legal advice is readily available to all departments. The Bank has an independent compliance function which is responsible for identifying and monitoring all compliance issues and ensures the Bank complies with all regulatory and statutory requirements. 4.6 Reputational risk Reputation risk is the risk of loss of business as a result of negative publicity or negative perceptions by the market with regards to the way the Bank conducts its business. To manage this risk, the Bank strictly monitors customers' complaints, continuously train staff at all levels, conducts market surveys and periodic reviews of business practices through its internal audit department. The directors are satisfied with the risk management processes in the Bank as these have contributed to the minimization of losses arising from risky exposures. 4.7 Strategic risk This refers to current and prospective impact on a Bank's earnings and capital arising from adverse business decisions or implementing strategies that are not consistent with the internal and external environment. To manage this risk, the Bank always has a strategic plan that is adopted by the Board of directors. Further, attainment of strategic objectives by the various departments is monitored periodically at management level. Further, there is an ALCO, Finance and Strategy Committee at Board level responsible for monitoring overall progress towards attaining strategic objectives for the Bank. The directors are satisfied with the risk management processes in the Bank as these have contributed to the minimisation of losses arising from risky exposures. f. INVESTMENT PROPERTIES (continued) Valuation technique and significant unobservable inputs The following table shows the valuation technique used in measuring the fair value of investment properties, as well as the significant unobservable inputs used. Valuation technique Significant unobservable Inter-relationship between inputs key unobservable inputs and fair value measurement g. NON-CURRENTASSETS HELD FOR SALE 30 Jun 31 Dec 2014 2013 US$ US$ Carrying amount as at 1 January 2 303 300 2 225 300 Transfer from investment properties - 95 000 Fair value adjustments - 21 000 Disposals (39 000 ) (38 000 ) ---------------- ---------------- 2 264 300 2 303 300 ========= ========= The Bank is in possession of land with a fair value of US$2 264 300 as at 30 June 2014. The Bank entered into a sale agreement for a certain piece of land in 2012, however the execution and finalisation of the sale under this contract has not yet been concluded due to unexpected delays in obtaining certain regulatory approvals. The disposal process is expected to be completed by the end of the financial year.The disposal will improve the Bank's cash flows. Measurement of fair value Fair value hierarchy The fair value of non-current assets held for sale was determined by Independent professional valuers. PMA Real Estate (Private) Limited as at 31 December 2013. The valuation which conforms to International Valuation Standards, was in terms of the policy as set out in the accounting policies section and was derived with reference to market information close to the date of the valuation. All non-current assets held for sale are measured at their fair values. The values were arrived at by applying yield rates of 9.5% on rental levels of between US$6 - US$8 per square metre. During the period under review, the Directors assessed the fair values of the non-current assets held for sales and concluded that there were no material changes to the fair values as obtained by the professional valuers as at 31 December 2013. Level 2 The fair value of non-current assets held for sale of U$2 264 300 has been categorised under Level 2 in fair value hierarchy based on the inputs used for the valuation technique highlighted above. (see note 2.4.7 use of judgement and estimates). h. CORPORATE GOVERNANCEAND RISK MANAGEMENT 1. RESPONSIBILITY These condensed interim financial statements are the responsibility of the directors. This responsibility includes the setting up of internal control and risk management processes, which are monitored independently. The information contained in these interim condensed financial statements has been prepared on the going concern basis and is in accordance with the provisions of the CompaniesAct (Chapter 24:03), the BankingAct (Chapter 24:20) and International Financial Reporting Standards. 2. CORPORATE GOVERNANCE The Group adheres to principles of corporate governance derived from the King II Report, the United Kingdom Combined Code and RBZ Corporate Governance Guidelines. The Group is cognisant of its duty to conduct business with due care and in good faith in order to safeguard all stakeholders' interests. 3. BOARD OF DIRECTORS Board appointments are made to ensure a variety of skills and expertise on the Board. Non-executive directors are of such calibre as to provide independence to the Board. The Chairman of the Board is an independent non-executive director. The Board is supported by mandatory committees in executing its responsibilities. The Board meets at least quarterly to assess risk, review performance and provide guidance to management on both operational and policy issues. The Board conducts an annual peer based evaluation on the effectiveness of its activities. The process involves the members evaluating each other collectively as a board and individually as members. The evaluation, as prescribed by the RBZ, takes into account the structure of the board, effectiveness of committees, strategic leadership, corporate social responsibility, attendance and participation of members and weaknesses noted. Remedial plans are invoked to address identified weaknesses with a view to continually improve the performance and effectiveness of the Board and its members. 3.1 Directors' attendance at NMB Bank Limited Board meetings 4. RISK MANAGEMENT The Board of Directors has overall responsibility for the establishment and oversight of the Bank's risk management framework. The Board has established the Board Asset and Liability Management Committee (ALCO) and Board Risk Committee, which are responsible for defining the Bank's risk universe, developing policies and monitoring implementation. The Bank strengthened its risk management function by appointing a Chief Risk Officer in September 2013 with overall responsibility over all risks in the Bank. The Bank has complied with Basel II implementation timelines set by the Reserve Bank of Zimbabwe. Risk management is linked logically from the level of individual transactions to the Bank level. Risk management activities broadly take place simultaneously at the following different hierarchy levels: a) Strategic Level: This involves risk management functions performed by senior management and the board of directors. It includes the definition of risk, ascertaining the Bank's risk appetite, formulating strategy and policy for managing risk and establishes adequate systems and controls to ensure overall risk remains within acceptable levels and is adequately compensated. b) Macro Level: It encompasses risk management within a business area or across business lines. These risk management functions are performed by middle management. c) Micro Level: This involves “On-the-line” risk management where risks are actually created. These are the risk management activities performed by individuals who assume risk on behalf of the organization such as Treasury Front Office, Corporate Banking, Retail banking etc. The risk management in these areas is confined to operational procedures set by management. Risk management is premised on four (4) mutually reinforcing pillars, namely: a) adequate board and senior management oversight; b) adequate strategy, policies, procedures and limits; c) adequate risk identification, measurement, monitoring and information systems; and d) comprehensive internal controls and independent reviews. Human Asset and Liability Resources, Management Remuneration Risk Committee (ALCO) and Board of Audit Management Finance & Strategy Loan Review Nominations Credit Directors Committee Committee Committee Committee Committee Committee TN Mundawarara 2 2 2 2 2 2 5 5 A MTMutsonziwa 2 2 2 2 2 2 JAMushore 2 2 2 2 2 2 2 2 5 5 M Svova 2 2 2 2 5 5 B Chikwanha** 2 2 1 1 1 1 2 2 B W Madzivire 2 2 2 2 2 2 D Malik 2 2 2 2 2 2 J Chigwedere 2 2 2 2 2 2 J Chenevix-Trench 2 2 2 2 2 2 5 5 B PWashaya 2 2 2 2 2 2 2 2 5 5 BAM Zwinkels 2 2 2 2 1 1 2 2 C I F Ndiaye 2 2 2 2 2 2 2 2 2 1 KEY: Meetings planned Meetings attended **Mr B Chikwanha became a member of the Risk Committee on 20 March 2014. **Mr B Chikwanha was a member of theALCO Finance and Strategy Committee until 20 March 2014. 7 NOTES TO THE FINANCIAL STATEMENTS for the six months ended 30 June 2014 NOTES TO THE FINANCIAL STATEMENTS for the six months ended 30 June 2014 ! Discounted cash flows: The discounting method considers the present value of the net cash flows to be generated from the property, taking into account expected growth rate, void periods and occupancy rate. ! The expected net cash flows are discounted using risk adjusted discount rates. ! Among other factors the discount rate estimation considers the quality of the building and its location (prime vs secondary), tenant credit quality and lease terms. ! Expected market rental growth (weighted average 5%) ! Void period (average 2 months after the end of each lease) ! Occupancy rate (70-100%), weighted average 95%) ! Risk adjusted discount rates (9.5% - 11.5%, weighted average 9.5%) ! The estimated fair value would increase (decrease) if: - expected market rental growth were higher (lower); - void periods were shorter (longer); - the occupancy rates were higher (lower); - the risk adjusted discount rates were lower (higher). @one with bank NMB clickeasy NMBclick Global Electronic Banking Services $ ATM NMBDIRECT Internet Banking NMBACCESS and other VISA or ZimSwitch ATMs VISA and ZimSwitch POS locally and internationally SMS Alerts Mobile Banking E-Statements
  • 8. 6. CAPITALMANAGEMENT (continued) Various limits are applied to elements of the capital base. The core capital (Tier 1) shall comprise not less than 50% of the capital base and the regulatory reserves and portfolio provisions are limited to 1.25% of total risk weighted assets. The Bank's regulatory capital position at 30 June 2014 was as follows: 30 Jun 30 Dec 2014 2013 US$ US$ Share capital 16 506 16 506 Share premium 31 474 502 31 474 502 Retained earnings 8 089 759 8 802 979 Fair value gain on investment property (2 925 868 ) (2 925 868 ) ---------------- ---------------- 36 654 899 37 368 119 Less: capital allocated for market and operational risk (533 977 ) (1 240 678 ) Credit to insiders (4 629 174 ) (4 734 129 ) ---------------- ---------------- Tier 1 capital 31 491 748 31 393 312 Tier 2 capital (subject to limit as per Banking Regulations) 7 131 823 6 823 855 Revaluation reserve 2 925 868 2 925 868 Subordinated debt 1 400 000 1 485 890 Regulatory reserve (limited to 1.25% of risk weighted assets) 2 805 955 2 154 252 Portfolio provisions (limited to 1.25% of risk weighted assets) - 257 845 TotalTier 1 & 2 capital 38 623 571 38 217 167 Tier 3 capital (sum of market and operational risk capital) 533 977 1 240 678 ---------------- ---------------- Total capital base 39 157 548 39 457 845 ========= ========= Total risk weighted assets 224 476 411 228 275 322 ========= ========= Tier 1 ratio 14.03% 13.75% Tier 2 ratio 3.17% 2.99% Tier 3 ratio 0.24% 0.54% Total capital adequacy ratio 17.44% 17.28% RBZ minimum required capital adequacy ratio 12.00% 12.00% 7. SEGMENT INFORMATION For management purposes, the Bank is organised into four operating segments based on products and services as follows: Retail Banking - Individual customers deposits and consumer loans, overdrafts, credit card facilities and funds transfer facilities. Corporate Banking - Loans and other credit facilities and deposit and current accounts for corporate and institutional customers. Treasury - Money market investment, securities trading, accepting and discounting of instruments and foreign currency trading. International Banking - Handles the Bank's foreign currency denominated banking business and manages relationships with correspondent banks. Corporate Finance - Corporate restructuring, empowerment transactions, investment advisory services, structured finance and capital raising. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which in certain respects is measured differently from operating profit or loss in the financial statements. Income taxes are managed on a bank wide basis and are not allocated to operating segments. Interest income is reported net as management primarily relies on net interest revenue as a performance measure, not the gross income and expense. Transfer prices between operating segments are on arm's length basis in a manner similar to transactions with third parties. No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Bank’s total revenue in 2014 and 2013. The following table presents income and profit and certain asset and liability information regarding the Bank's operating segments and service units: For the six months ended 30 June 2014 Retail Corporate Treasury International Corporate Banking Banking Banking Banking Finance Unallocated Total US$ US$ US$ US$ US$ US$ US$ Income Third party 10 008 317 9 510 601 1 798 703 824 633 862 440 284 859 23 289 553 Impairment losses on loans, advances and debentures (334 733 ) (1 246 312 ) - - - - (1 581 045 ) ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Net operating income 9 673 584 8 264 289 1 798 703 824 633 862 440 284 859 21 708 508 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Results Interest and similar income 4 591 972 9 357 046 853 394 - 33 722 197 526 15 033 660 Interest and similar expense (1 405 742 ) (4 636 114 ) (461 080 ) - - - (6 502 936 ) ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Net interest income 3 186 230 4 720 932 392 314 - 33 722 197 526 8 530 724 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Fee and commission income 5 416 345 153 556 - 824 633 420 033 - 6 814 567 Amortisation of intangible assets - - - - - 161 435 161 435 Depreciation of property and equipment 411 783 59 840 25 936 23 764 2 346 421 477 945 146 Segment profit/ (loss) 3 272 134 1 254 946 1 138 490 317 722 711 858 (4 835 363 ) 1 859 787 Income tax expense - - - - - (478 303 ) (478 303 ) ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Profit/ (loss) for the period 3 272 134 1 254 946 1 138 490 317 722 711 858 (5 313 666 ) 1 381 484 ========= ========= ========= ========= ========= ========= ========= As at 30 June 2014 Assets and liabilities Capital expenditure 244 658 2 492 3 807 10 503 - 626 750 888 210 Total assets 66 006 673 126 387 266 53 345 164 119 720 1 630 210 16 953 507 264 442 540 Total liabilities 79 124 801 80 942 351 51 942 272 - 1 500 000 7 103 393 220 612 817 The following table presents income and profit and certain asset and liability information regarding the Bank's operating segments: For the six months ended 30 June 2013 Retail Corporate Treasury International Corporate Banking Banking Banking Banking Finance Unallocated Total US$ US$ US$ US$ US$ US$ US$ Income Third party 10 770 870 10 397 840 2 232 510 820 236 - 280 315 24 501 771 Impairment losses on loans, advances and debentures (352 094 ) (1 535 443 ) - - - - (1 887 537 ) ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Net operating income 10 418 776 8 862 397 2 232 510 820 236 - 280 315 22 614 234 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Results Interest and similar income 6 193 946 8 720 435 1 061 013 - - 123 804 16 099 198 Interest and similar expense (1 081 104 ) (4 982 657 ) (546 951 ) - - - (6 610 712 ) ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Net interest income 5 112 842 3 737 778 514 062 - - 123 804 9 488 486 ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Fee and commission income 6 503 259 267 400 - 820 106 - - 7 590 765 Amortisation of property and equipment - - - - - 46 373 46 373 Depreciation of property and equipment 344 989 64 588 15 873 23 372 2 233 367 796 818 851 Segment profit/ (loss) 1 626 455 632 637 443 623 77 767 (219 421 ) 433 259 2 994 320 Income tax expense - - - - - (815 104 ) (815 104 ) ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- Profit/ (loss) for the period 1 626 455 632 637 443 623 77 767 (219 421 ) (381 845 ) 2 179 216 ========= ========= ========= ========= ========= ========= ========= As at 31 December 2013 Assets and liabilities Capital expenditure 1 058 456 133 532 132 113 12 027 2 763 1 338 345 2 677 236 Total assets 54 124 890 144 209 819 41 326 313 121 897 68 854 20 102 762 259 954 535 Total liabilities 72 525 463 77 182 723 61 092 072 - - 6 706 038 217 506 296 8. GEOGRAPHICALINFORMATION The Bank operates in one geographical market, Zimbabwe. NOTES TO THE FINANCIAL STATEMENTS for the six months ended 30 June 2014 4.8 Risk Ratings 4.8.1 Reserve Bank of Zimbabwe Ratings During the year the Reserve Bank of Zimbabwe conducted an onsite inspection on the Bank and the following ratings were issued; 4.8.1.1 CAMELS* Ratings CAMELS Component Latest RBS** Previous RBS Previous RBS Ratings Ratings Ratings 30/06/2013 31/01/2008 30/06/2007 CapitalAdequacy 2 4 4 Asset Quality 4 2 3 Management 3 3 3 Earnings 2 3 3 Liquidity 2 3 3 Sensitivity to Market Risk 2 3 3 Composite Rating 3 3 4 * CAMELS is an acronym for CapitalAdequacy,Asset quality, Management, Earnings, Liquidity and Sensitivity to Market Risk. CAMELS rating system uses a rating scale of 1-5, where '1' is Strong, '2' is Satisfactory, '3' is Fair, '4' is Weak and '5' is Critical. ** RBS stands for Risk-Based Supervision. 4.8.1.2 Summary RAS ratings Latest RAS*** Previous RAS Previous RAS RAS Component Ratings Ratings Ratings 30/06/2013 31/01/2008 30/06/2007 Overall Inherent Risk Moderate Moderate High Overall Risk Management Systems Acceptable Acceptable Weak Overall Composite Risk Moderate Moderate High Direction of Overall Composite Risk Stable Stable Increasing *** RAS stands for Risk Assessment System. 4.8.1.3 Summary risk matrix - 30 June 2013 on–site examination Adequacy of Direction of Type of Inherent Risk Level of Inherent Risk Overall Composite Overall Risk Management Risk Composite Systems Risk Credit High Weak High Increasing Liquidity Moderate Acceptable Moderate Stable Interest Rate Moderate Acceptable Moderate Stable Foreign Exchange Low Acceptable Low Stable Strategic Risk Moderate Acceptable Moderate Stable Stable Operational Risk Moderate Acceptable Moderate Stable Legal & Compliance Moderate Strong Moderate Stable Reputation Moderate Strong Moderate Stable Overall Moderate Acceptable Moderate Stable KEY Level of Inherent Risk Low – reflects a lower than average probability of an adverse impact on a banking institution's capital and earnings. Losses in a functional area with low inherent risk would have little negative impact on the banking institution's overall financial condition. Moderate – could reasonably be expected to result in a loss which could be absorbed by a banking institution in the normal course of business. High – reflects a higher than average probability of potential loss. High inherent risk could reasonably be expected to result in a significant and harmful loss to the banking institution. Adequacy of Risk Management Systems Weak – risk management systems are inadequate or inappropriate given the size, complexity and risk profile of the banking institution. Institution's risk management systems are lacking in important ways and therefore a cause of more than normal supervisory attention. The internal control systems will be lacking in important aspects particularly as indicated by continued control exceptions or by the failure to adhere to written policies and procedures. Acceptable – management of risk is largely effective but lacking to some modest degree. While the institution might be having some minor risk management weaknesses, these have been recognised and are being addressed. Management information systems are generally adequate. Strong – management effectively identifies and controls all types of risk posed by the relevant functional areas or per inherent risk. The board and senior management are active participants in managing risk and ensure appropriate policies and limits are put in place. The policies comprehensively define the bank's risk tolerance, responsibilities and accountabilities are effectively communicated. Overall Composite Risk Low – would be assigned to low inherent risk areas. Moderate risk areas may be assigned a low composite risk where internal controls and risk management systems are strong and effectively mitigate much of the risk. Moderate – risk management systems appropriately mitigates inherent risk. For a given low risk area, significant weaknesses in the risk management systems may result in a moderate composite risk assessment. On the other hand, a strong risk management system may reduce the risk so that any potential financial loss from the activity would have only a moderate negative impact on the financial condition of the organisation. High – risk management systems do not significantly mitigate the high inherent risk. Thus, the activity could potentially result in a financial loss that would have a significant impact on the bank's overall condition. Direction of Overall Composite Risk Increasing – based on the current information, risk is expected to increase in the next 12 months. Decreasing – based on current information, risk is expected to decrease in the next 12 months. Stable – based on the current information, risk is expected to be stable in the next 12 months. 4.8.2 External Credit Ratings The external credit ratings were given by Global Credit Rating (GCR), a credit rating agency accredited with the Reserve Bank of Zimbabwe. Security class 2013 2012 Long term BBB- BBB- 5 REGULATORYCOMPLIANCE There were no instances of regulatory non compliance in the period under review. The Bank remains committed to complying with and adhering to all regulatory requirements. 6. CAPITALMANAGEMENT The primary objective of the Bank's capital management is to ensure that the Bank complies with the RBZ requirements. In implementing the current capital requirements, the RBZ requires the Banking subsidiary to maintain a prescribed ratio of total capital to total risk weighted assets. Regulatory capital consists of Tier 1 capital, which comprises share capital, share premium, retained earnings (including current year profit), statutory reserve and other equity reserves. The other component of regulatory capital is Tier 2 capital, which includes subordinated term debt, revaluation reserves and portfolio provisions. Tier 3 capital relates to an allocation of capital to market and operational risk. NOTES TO THE FINANCIAL STATEMENTS for the six months ended 30 June 2014 8 NMB12-189