TIDMNMB
RNS Number : 1462X
NMBZ Holdings Ld
26 April 2019
NMBZ HOLDINGS LIMITED
Holding company of
NMB BANK LIMITED (Registered Commercial Bank)
CONDENSED AUDITED CONSOLIDATED RESULTS
FOR THE YEARED 31 DECEMBER 2018
FINANCIAL SUMMARY
31 December 31 December
2018 2017
Total income (US$) 74 740 671 53 606 281
------------ ------------
Operating profit before impairment
charge (US$) 31 155 227 16 870 839
------------ ------------
Total comprehensive income (US$) 21 267 632 10 029 136
------------ ------------
Basic earnings per share (US cents) 5.43 2.58
------------ ------------
Dividend per share (US cents) 0.96 0.36
------------ ------------
Total deposits (US$) 434 957 949 348 956 385
------------ ------------
Total gross loans and advances (US$) 262 335 026 211 005 418
------------ ------------
Total shareholders' funds and shareholders'
liabilities (US$) 79 962 313 65 651 843
------------ ------------
Enquiries:
NMBZ HOLDINGS LIMITED
Benefit P Washaya, Chief Executive Officer, NMBZ Holdings
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:
+263-242-759 651/9
CHAIRMAN'S STATEMENT
INTRODUCTION
The Group has continued in the pursuit of its short and medium
term goals and the accompanying results are testimony to the
considerable progress towards our stated strategy. The financial
results continue to be largely driven by the Bank's continued
diversification into the broader market segments, enhanced use of
the bank's digital offerings, stricter credit underwriting
standards and containment of non-performing loans. The bank
witnessed a slowdown in business activity during the last quarter
of 2018 as businesses adjusted to the new policy measures outlined
in the Transitional Stabilisation Policy presented in August 2018
soon after the national elections. Notwithstanding the slowdown,
the group's financial performance was well above budget.
The key financial highlights of the Group as at 31 December 2018
are depicted below:
- Shareholders' funds and shareholders liabilities stood at
US$80.0 million (2017 -- US$65.7 million).
- Total assets stood at US$527.1 million (2017 -- US$422.6
million).
- Total comprehensive income of US$21.3 million (2017 -- US$10.0
million).
- Basic earnings per share (US cents) of 5.43 (2017 --
2.58).
GROUP RESULTS
The profit before taxation was US$27 143 275 (2017 - US$13 017
690) during the period under review and this gave rise to total
comprehensive income of US$21 267 632 (2017 - US$10 029 136). The
Group achieved a basic earnings per share of 5.43 cents (2017 -
2.58 cents).
Operating expenses amounted to US$34 720 428 and these were up
26% from a prior year amount of US$27 578 347. The increase in
operating expenses was due to increased transaction processing and
operational costs arising from the Bank's digital drive, continued
expansion into the broader market segments and general inflationary
pressures largely driven by foreign currency shortages.
Impairment losses on financial assets measured at amortised cost
amounted to US$4 011 952 for the current period from a prior year
amount of US$3 853 149 and the increase was mainly due to the
adoption of IFRS 9 with effect from 1 January 2018. The bank has
continued with its drive to reduce non-performing loans (NPLs) and
the ratio stood at 7.43% as at 31 December 2018. This was lower
than the 31 December 2017 ratio of 7.98%. The decrease in the NPL
ratio was largely due to aggressive collections and stricter credit
underwriting standards.
Financial position
The Group's total assets increased by 25% from US$422 564 352 as
at 31 December 2017 to US$527 067 596 as at 31 December 2018 mainly
due to a 27% increase in investment securities, a 21% increase in
loans, advances and other assets, a 10% increase in investment
properties, an increase of 26% in cash and cash equivalents and a
143% increase in property and equipment.
The bank continued with its intermediation role and support for
the productive sectors as reflected by a 24% increase in gross
loans and advances from US$211 005 418 as at 31 December 2017 to
US$262 335 026 as at 31 December 2018.
Investment securities (Treasury Bills and Bonds) increased by
27% from US$92 245 425 as at 31 December 2017 to US$117 249 434 as
at 31 December 2018 mainly due to some purchases from both the
primary and secondary bond markets. The bank has set maximum limits
for investment securities to ensure most of our funds are channeled
towards loans and advances.
Total deposits increased by 25% from US$348 956 385 as at 31
December 2017 to US$434 957 949 as at 31 December 2018 as a result
of strong deposit mobilisation strategies coupled with a
significant improvement in market liquidity.
The Bank's liquidity ratio closed the period at 41.62% (2017 -
47.53%) and this was above the statutory requirement of 30%.
Capital
The banking subsidiary's capital adequacy ratio stood at 23.25%
as at 31 December 2018 (31 December 2017 - 24.26%). The ratio was
well above the statutory minimum of 12%. Our capitalisation level
is adequate to cover all risks and supports the underwriting of new
business.
The Group's shareholders' funds and shareholders' liabilities
have increased by 22% from US$65 651 843 as at 31 December 2017 to
US$79 962 313 as at 31 December 2018 as a result of the current
year's total comprehensive income.
The Bank's regulatory capital as at 31 December 2018 was US$74
927 487 and is above the minimum required regulatory capital of
US$25 million. Furthermore, the bank is on course to meet the
required US$100 million capitalisation by 2020.
FUNCTIONAL CURRENCY AND AUDIT OPINION
Between 2014 and 2016, the Zimbabwean economy experienced a
massive liquidity crisis which eventually prompted the Monetary
Authorities to introduce the bond notes in November 2016 whilst
encouraging the public to continue using the other currencies in
the multi-currency basket. The bond notes were introduced at an
official fixed exchange rate of 1:1 with the USD and the Monetary
Authorities specifically directed financial institutions not to
open separate vault and cash accounts for the USD and the bond
notes.
In October 2018, the Monetary Authorities instructed financial
institutions to separate bond notes and USD accounts and indicated
that corporates and individuals could proceed to open Nostro
Foreign Currency Accounts (FCA), for foreign currency holdings,
which were now being exclusively distinguished from the existing
RTGS based accounts. However, it should be noted that at the time
of this policy pronouncement, the Monetary Authorities did not
state that they had introduced a new currency for Zimbabwe, which
actually meant that the USD remained as the currency of reference.
By 31 December 2018, there had been no pronouncement by the
Monetary Authorities to the effect that there had been a new
currency introduced, which could be considered as the country's
functional currency. On 22 February 2019, the Reserve Bank of
Zimbabwe (RBZ) issued an Exchange Control Directive, RU 28 of 2019
which established an interbank foreign exchange market to formalise
the buying and selling of foreign currency through the Banks and
Bureaux de change. In order to establish an exchange rate between
the current monetary balances and foreign currency, the Monetary
Authorities denominated the existing RTGS balances in circulation
as RTGS Dollars. Initial trades on 22 February 2019 were at USD1:
RTGS$2.5. On the same date, Statutory Instrument 33 (SI 33) of 2019
was also issued and it specified that for accounting and other
purposes, all assets and liabilities that were in USD immediately
before the 22nd of February 2019 were deemed to have been valued in
RTGS Dollars at a rate of
US$1: RTGS$1.
The fixed exchange rate of US$1: RTGS$1 for the period prior to
the effective date of 22 February 2019 is not in compliance with
IAS 21. In terms of IAS 21, foreign currency monetary items shall
be translated using the closing rate, non-monetary items that are
measured in terms of historical cost in a foreign currency shall be
translated using the exchange rate at the date of the transaction;
and non-monetary items that are measured at fair value in a foreign
currency shall be translated using the exchange rates at the date
when the fair value was measured. Foreign currency transactions
shall be recorded, on initial recognition in the functional
currency, by applying to the foreign currency amount the spot
exchange rate between the functional currency and the foreign
currency at the date of the transaction. The Group used a fixed
exchange rate of US$1: RTGS$1 for the year ended 31 December 2018
and thus did not comply with the requirements of International
Accounting Standard 21 (IAS 21) "The Effects of Changes in Foreign
Exchange Rates", as doing so would have been in contravention of SI
33 of 2019. However, the Directors performed a sensitivity analysis
on note 23.1 to illustrate the impact on the Group's statement of
financial position as at 31 December 2018 had the financial
statements been restated using the first available interbank
mid-rate on 22 February 2019 of
USD1:RTGS$2.5. A further analysis of the impact on the statement
of financial position has also been performed using the rates of
USD1:RTGS$3 and USD1:RTGS$4.
In light of the failure to fully comply with the requirements of
IAS 21, the Group's independent auditors, Ernst & Young, have
issued an adverse opinion on the financial statements for the year
ended 31 December 2018.
DIVID
In view of the significantly improved financial performance
recorded by the Group in the year under review and the sound
capital ratio, the Board proposes to declare a final scrip dividend
alternative to the cash dividend of 0.96 RTGS cents per share. The
scrip dividend option was arrived at after taking into account
shareholders' expectations, value preservation and the need to
ensure sustainable organic growth in view of the banking
subsidiary's regulatory capitalisation requirements.
DIRECTORATE
There were no changes to the directorate during the period under
review. The directors of both NMBZ Holdings Limited and NMB Bank
Limited boards remain as follows: Mr Benedict A. Chikwanha (Board
Chairman), Mr Benefit P. Washaya (Chief Executive Officer), Mr
Benson Ndachena (Chief Finance Officer), Mr Charles Chikaura
(Independent Non-Executive Director), Mr Erik Sandersen
(Non-Executive Director) Mr James de la Fargue (Non-Executive
Director), Ms Jean Maguranyanga (Independent Non-Executive
Director), Mr Julius Ticheelar (Non-Executive Director) and Ms
Sabinah Chitehwe (Independent Non-Executive Director).
Subsequent to year end, Mr Erik Sandersen resigned from the
Board of NMBZ Holdings Limited on 24 January 2019. I would like to
thank Erik for his contributions to NMBZ Holdings Limited and the
Board over the years and wish him success in his new
endeavours.
CORPORATE SOCIAL INVESTMENTS
During the period under review, the Group channeled its social
investments efforts into the country's educational system,
enhancement of youth entrepreneurial skills through partnerships,
support for the disadvantaged and vulnerable groups as well as
environmental protection and conservation causes.
The Group donated to the Glen View community following an
outbreak of the cholera epidemic in September 2018. In addition to
donations to social causes, donations were made to the Albino Trust
of Zimbabwe, commemorations of World Kidney Day and to Friends of
Dzikwa, a charity organisation which operates in the Dzivarasekwa
community.
In line with promotion of sports, the group partnered several
schools in their sporting activities and the highlight of these
were the ZiMwana Trust Street Athletics and Friends of Dzikwa Trust
16(th) Annual Sports Day for Orphans whose thrust was the promotion
of an inclusive society through sports. Partnerships with groups
and organisations that promote the conservation of the environment
and wildlife were maintained during the period under review, with
BirdLife Zimbabwe and Friends of Hwange being some of the partner
organisations.
CORPORATE DEVELOPMENTS
In line with our strategy to reach the broader market segments,
the Bank opened two service centres in Bindura and Chitungwiza in
May 2018 and December 2018 respectively. We continue to establish
representation in areas where the Bank is currently not represented
and plans to open a service centre in Victoria Falls are at an
advanced stage.
The Group undertook the construction of its new Head Office
along Borrowdale Road in April 2018 and the new building should be
ready for occupation in the last quarter of 2019. The new Head
Office reinforces the Group's commitment to the country and its
foreseeable future.
OUTLOOK AND STRATEGY
In line with the Bank's financial inclusion drive, we have
intensified efforts to open low cost accounts. Further investment
is continuously being directed towards the digital channels to
enhance service delivery as well as accommodate the increased
transactional volumes created by the broadened customer base as the
Bank continues to increase its footprint. The Bank has intensified
its efforts in rolling out the low-cost Point of Sale devices
(mPOS) in order to support our growing SMEs and sole traders'
clientele base.
The year 2019 is likely to be a period in which inflation,
currency fluctuations and a shortage of foreign currency play a
pivotal role in determining the impact on revenue generation and
operating costs. The combination will require a steady guiding hand
from the relevant authorities as well as management and Board
focus. Early indications point to a tough operating environment for
the banking sector.
APPRECIATION
I would like to express my profound appreciation to our valued
clients, shareholders, regulatory authorities and other valued
stakeholders for their continued support in this difficult
operating environment. To my fellow Board members, management and
staff, I extend my sincere gratitude for their hard work,
diligence, commitment and resilience which has underpinned the
achievement of the commendable results.
MR. B. A. CHIKWANHA
CHAIRMAN
17 April 2019
DIRECTORS' REPORT
for the year ended 31 December 2018
1. RESPONSIBILITY
The Directors of the Group are mandated by the Companies Act
(Chapter 24:03) of Zimbabwe to maintain adequate accounting records
and to prepare consolidated and separate financial statements that
present a true and fair view of the state of affairs of the Group
and Company at the end of each financial year. The information
contained in these consolidated and separate financial statements
has been prepared on a going concern basis and is in accordance
with the provisions of the Companies Act (Chapter 24:03) of
Zimbabwe, the Banking Act (Chapter 24:20) of Zimbabwe and
International Financial Reporting Standards (IFRSs).
2. INTERNAL FINANCIAL CONTROLS
The board is responsible for ensuring that effective internal
control systems are implemented within the Group. The Group
maintains internal controls and systems designed to provide
reasonable assurance of the integrity and reliability of its
records, safeguard the assets of the Group and prevent and detect
fraud and errors. The Audit Committee in conjunction with the
external and internal auditors of the Group reviews and assesses
the internal control systems of the Group in key risk areas.
3. GOING CONCERN
The Directors have assessed the ability of the Group and its
subsidiaries to continue operating as a going concern and believe
that the preparation of these financial statements on a going
concern is still appropriate.
4. STATEMENT OF COMPLIANCE
The condensed consolidated financial statements are prepared
with the aim of complying fully with International Financial
Reporting Standards (IFRSs) and have been prepared in the manner
required by the Companies Act (Chapter 24:03) of Zimbabwe and the
Banking Act (Chapter 24:20) of Zimbabwe. The financial statements
show the impact of the first time adoption of IFRS 9 which was
adopted by the Group effective 1 January 2018. The detailed impact
of this adoption is disclosed in the section on significant
accounting policies (Changes in accounting policy Note 3.12).
The Directors have been able to achieve full compliance with
IFRSs in previous reporting periods. However, the 31 December 2018
financial reporting could only achieve partial compliance to the
IFRS reporting framework due to developments detailed below.
The IFRS Conceptual Framework states that to achieve fair
presentation to the financial statements, companies should consider
the underlying economic substance of the transaction over and above
the legal form. International Accounting Standard (IAS 21) "The
Effects of Changes in Foreign Exchange Rates" requires the
Directors to determine the functional currency of the reporting
entity in preparing the entity's financial statements. In arriving
at this conclusion, the entity is required to apply certain
parameters which the Directors duly applied in their judgement.
Furthermore, IAS 21 also requires the reporting entity to make
certain judgements in determining the appropriate exchange rates to
apply for certain transactions conducted in currencies other than
the functional currency of the reporting entity.
As explained in Note 2.4.7, "Determination of the functional
currency", it is our opinion that following the Monetary Policy
pronouncements of 1 October 2018 and 20 February 2019, as well as
the issuance of Exchange Control Directive RU 28 of 2019 on 22
February 2019, the country's functional currency appeared to have
changed from the United States Dollar in terms of the IAS 21
considerations. However, the Government of Zimbabwe issued
Statutory Instrument (SI 33) of 2019 on 22 February 2019, which
prescribes the rate of USD1:RTGS$1 in accounting for all
transactions and events before the effective date of the statutory
instrument.
Furthermore, it is our interpretation that the SI 33 of 2019
issued in terms of the Presidential Powers Temporary Measures Act
[Chapter 10:20], ranks supreme to any contrary legislation
including quasi-legislations, which therefore implies that in
preparing the financial statements, we sought to comply with the
provisions of SI 33 of 2019 ahead of the IAS 21 requirements.
This, in our opinion resulted in non-compliance with IAS 21 and
that non-compliance had a significant impact on the true and fair
presentation of the Group's financial position and would therefore
urge users of the financial statements to exercise due caution. To
provide users with additional information, note 23 of the
Consolidated Financial Statements provides a detailed analysis of
the impact on the Group's Statement of Financial Position had the
aforementioned events after the reporting period been treated as
adjusting events at reporting date.
The consolidated and separate financial statements were approved
by the Board of Directors on 17 April 2019.
..................................................
...................................
MR B. A. CHIKWANHA MR B. P. WASHAYA
CHAIRMAN CHIEF EXECUTIVE OFFICER
17 APRIL 2019 17 APRIL 2019
AUDITOR'S STATEMENT
These financial results should be read in conjunction with the
complete set of financial statements for the year ended 31 December
2018, which have been audited by Ernst & Young Chartered
Accountants (Zimbabwe) and an adverse opinion issued thereon due to
non-compliance with International Accounting Standard 21 (The
Effects of Foreign Exchange Rates) as explained in the Directors'
Report. The auditor's report is available for inspection at the
Holding Company's registered office. There were no key audit
matters communicated in the auditor's report.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2018
31 December 2018 31 December 2017
US$ US$
----- ----------------- -----------------
Note
----- ----------------- -----------------
Interest income 4 39 333 178 32 061 931
----- ----------------- -----------------
Interest expense (8 865 016) (9 157 095)
----- ----------------- -----------------
--------------- --------------
----- ----------------- -----------------
Net interest income 30 468 162 22 904 836
----- ----------------- -----------------
Fee and commission income 5.1 28 539 376 18 832 185
----- ----------------- -----------------
Net foreign exchange gains 1 899 670 1 583 164
----- ----------------- -----------------
---------------- -------------
----- ----------------- -----------------
Revenue 60 907 208 43 320 185
----- ----------------- -----------------
Other income 5.2 4 968 447 1 129 001
----- ----------------- -----------------
---------------- ----------------
----- ----------------- -----------------
Operating income 65 875 655 44 449 186
----- ----------------- -----------------
Operating expenditure 6 (34 720 428) (27 578 347)
----- ----------------- -----------------
---------------- ----------------
----- ----------------- -----------------
Operating income before impairment
charge 31 155 227 16 870 839
----- ----------------- -----------------
Impairment losses on financial
assets measured
----- ----------------- -----------------
at amortised cost 16.3 (4 011 952) -
----- ----------------- -----------------
Impairment losses on loans and
advances 16.3 - (3 853 149)
----- ----------------- -----------------
--------------- ---------------
----- ----------------- -----------------
Profit before taxation 27 143 275 13 017 690
----- ----------------- -----------------
Taxation charge 7 (5 922 074) (3 078 864)
----- ----------------- -----------------
--------------- ---------------
----- ----------------- -----------------
Profit for the period 21 221 201 9 938 826
----- ----------------- -----------------
Other comprehensive income
----- ----------------- -----------------
Items that will not be reclassified
to profit or loss
----- ----------------- -----------------
Revaluations, net of tax 46 431 90 310
----- ----------------- -----------------
-------------- --------------
----- ----------------- -----------------
Total comprehensive income for
the year 21 267 632 10 029 136
----- ----------------- -----------------
========= =========
----- ----------------- -----------------
Earnings per share (US cents)
----- ----------------- -----------------
- Basic 9.3 5.43 2.58
----- ----------------- -----------------
- Diluted 9.3 5.09 2.43
----- ----------------- -----------------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2018
31 December 2018 31 December 2017
Note US$ US$
------- -------------------------- -----------------------
SHAREHOLDERS' FUNDS
------- -------------------------- -----------------------
Share capital 10.2.1 80 975 78 751
------- -------------------------- -----------------------
Capital reserves 16 526 297 18 119 337
------- -------------------------- -----------------------
Revaluation reserves 136 741 90 310
------- -------------------------- -----------------------
Retained earnings 47 377 400 31 612 288
------- -------------------------- -----------------------
-------------- -------------
------- -------------------------- -----------------------
Total equity 64 121 413 49 900 686
------- -------------------------- -----------------------
Redeemable ordinary shares 11 14 335 253 14 335 253
------- -------------------------- -----------------------
Subordinated term loan 12 1 505 647 1 415 904
------- -------------------------- -----------------------
-------------- --------------
------- -------------------------- -----------------------
Total shareholders' funds and
shareholders'
liabilities 79 962 313 65 651 843
------- -------------------------- -----------------------
-------------- --------------
------- -------------------------- -----------------------
LIABILITIES
------- -------------------------- -----------------------
Deposits and other liabilities 13.1 447 105 283 356 912 509
------- -------------------------- -----------------------
----------------- -----------------
------- -------------------------- -----------------------
Total shareholders' funds and
liabilities 527 067 596 422 564 352
------- -------------------------- -----------------------
========== ==========
------- -------------------------- -----------------------
ASSETS
------- -------------------------- -----------------------
Cash and cash equivalents 15 112 440 912 89 553 202
------- -------------------------- -----------------------
Current tax assets 285 822 231 007
------- -------------------------- -----------------------
Loans, advances and other assets 16.11 254 202 945 210 483 221
------- -------------------------- -----------------------
Investment securities 14.1 117 249 434 92 245 425
------- -------------------------- -----------------------
Non-current assets held for
sale 17 36 000 36 000
------- -------------------------- -----------------------
Trade and other investments 14.5.1 112 501 117 880
------- -------------------------- -----------------------
Investment properties 20 950 606 18 977 000
------- -------------------------- -----------------------
Intangible assets 18 2 036 775 2 380 180
------- -------------------------- -----------------------
Property and equipment 19 17 844 069 7 335 988
------- -------------------------- -----------------------
Deferred tax assets 1 908 532 1 204 449
------- -------------------------- -----------------------
----------------- -------------------
------- -------------------------- -----------------------
Total assets 527 067 596 422 564 352
------- -------------------------- -----------------------
========== ===========
------- -------------------------- -----------------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018
Share Share Premium Share Option Regulatory Revaluation Retained Total
Capital Reserve Reserve Reserve Earnings
-------------- --------------- ------------- --------------- --------------- -------------- --------------
US$ US$ US$ US$ US$ US$ US$
-------------- --------------- ------------- --------------- --------------- -------------- --------------
Balances at 1 22 185 39 849
January 2017 78 598 15 737 548 62 563 1 785 136 - 818 663
-------------- --------------- ------------- --------------- --------------- -------------- --------------
Profit for the 9 938 9 938
year - - - - - 826 826
-------------- --------------- ------------- --------------- --------------- -------------- --------------
Other
comprehensive
income - - - - 90 310 - 90 310
-------------- --------------- ------------- --------------- --------------- -------------- --------------
Share based
payments -
share options
exercised 153 21 734 - - - - 21 887
-------------- --------------- ------------- --------------- --------------- -------------- --------------
Transfer to
regulatory (512
reserve - - - 512 356 - 356) -
-------------- --------------- ------------- --------------- --------------- -------------- --------------
------------- -------------- ------------ ------------ ----------- ------------- -------------
-------------- --------------- ------------- --------------- --------------- -------------- --------------
Balances at 31 31 612 49 900
December 2017 78 751 15 759 282 62 563 2 297 492 90 310 288 686
-------------- --------------- ------------- --------------- --------------- -------------- --------------
IFRS 9
adjustments -
1 January 2018
-------------- --------------- ------------- --------------- --------------- -------------- --------------
Transfer from
regulatory 2 297
reserve - - - (2 297 492) - 492 -
-------------- --------------- ------------- --------------- --------------- -------------- --------------
Expected
credit loss
(ECL)
adjustment
1 January (8 575 (8 575
2018 - - - - - 988) 988)
-------------- --------------- ------------- --------------- --------------- -------------- --------------
Deferred tax
on ECL
adjustment 1
January 2 208 2 208
2018 - - - - - 317 317
-------------- --------------- ------------- --------------- --------------- -------------- --------------
------------- ------------- ------------ ------------- -------------- ------------ -------------
-------------- --------------- ------------- --------------- --------------- -------------- --------------
Restated
balances at 1 27 542 43 533
January 2018 78 751 15 759 282 62 563 - 90 310 109 015
-------------- --------------- ------------- --------------- --------------- -------------- --------------
Share issue -
scrip
dividend 2 224 704 452 - - - - 706 676
-------------- --------------- ------------- --------------- --------------- -------------- --------------
Profit for the 21 221 21 221
year - - - - - 201 201
-------------- --------------- ------------- --------------- --------------- -------------- --------------
Other
comprehensive
income - - - - 46 431 - 46 431
-------------- --------------- ------------- --------------- --------------- -------------- --------------
(1 385 (1 385
Dividend paid - - - - - 910) 910)
-------------- --------------- ------------- --------------- --------------- -------------- --------------
------------- -------------- ------------ -------------- -------------- ------------- -------------
-------------- --------------- ------------- --------------- --------------- -------------- --------------
Balances at 31 47 377 64 121
December 2018 80 975 16 463 734 62 563 - 136 741 400 413
-------------- --------------- ------------- --------------- --------------- -------------- --------------
======== ======== ======= ======== ======== ======== ========
-------------- --------------- ------------- --------------- --------------- -------------- --------------
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2018
31 December 31 December
2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES US$ US$
------------------ ------------------------
Profit before taxation 27 143 275 13 017 690
------------------ ------------------------
Non-cash items:
------------------ ------------------------
-Depreciation 1 370 312 1 136 810
------------------ ------------------------
-Amortisation of intangible assets 879 376 832 567
------------------ ------------------------
-Impairment losses on financial assets measured
at amortised costs 4 011 952 3 853 149
------------------ ------------------------
-Investment properties fair value adjustment (2 551 436) (302 255)
------------------ ------------------------
-Trade and other investments fair value adjustment (10 154) (35 176)
------------------ ------------------------
-(Profit)/loss on disposal of property and
equipment (22 396) 56 637
------------------ ------------------------
-Loss on disposal of non-current asset held
for sale - 75 300
------------------ ------------------------
-Profit on disposal of investment properties (567 032) (12 951)
------------------ ------------------------
-Loss on disposal of quoted investments 15 074 -
------------------ ------------------------
-Interest capitalised on subordinated loan 171 483 165 345
------------------ ------------------------
-Impairment reversal on land and buildings (76 661) (89 660)
------------------ ------------------------
-Unrealised foreign exchange loss/(gain) 20 689 (16 555)
------------------ ------------------------
-------------- --------------
------------------ ------------------------
Operating cash flows before changes in operating
assets and liabilities 30 384 482 18 680 901
------------------ ------------------------
Changes in operating assets and liabilities
------------------ ------------------------
Increase in deposits and other liabilities 90 105 608 91 525 302
------------------ ------------------------
Increase in loans, advances and other assets (56 133 883) (14 719 275)
------------------ ------------------------
--------------- ---------------
------------------ ------------------------
Net cash generated from operations 64 356 207 95 486 928
------------------ ------------------------
Taxation ------------- -------------
------------------ ------------------------
Corporate tax paid (4 488 757) (1 757 028)
------------------ ------------------------
Capital gains tax paid - (155 265)
------------------ ------------------------
Tax on dividends paid (97 294) -
------------------ ------------------------
-------------- ----------------
------------------ ------------------------
Net cash from operating activities 59 770 156 93 574 635
------------------ ------------------------
CASH FLOWS FROM INVESTING ACTIVITIES -------------- ----------------
------------------ ------------------------
Acquisition of intangible assets (535 971) (1 565 713)
------------------ ------------------------
Acquisition of investment securities (25 004 005) (67 500 670)
------------------ ------------------------
Proceeds on display of property and equipment 22 396 1 076
------------------ ------------------------
Acquisition of property and equipment (9 490 840) (2 038 933)
------------------ ------------------------
Proceeds on disposal of investment properties 4 801 846 332 951
------------------ ------------------------
Acquisition of investment properties (6 082 924) (4 792 476)
------------------ ------------------------
Proceeds on disposal of non-current asset
held for sale - 2 150 000
------------------ ------------------------
Proceeds on disposal of quoted investments 458 94 877
------------------ ------------------------
----------------- -----------------
------------------ ------------------------
Net cash used in investing activities (36 289 040) (73 318 888)
------------------ ------------------------
CASH FLOWS FROM INVESTING ACTIVITIES ----------------- -----------------
------------------ ------------------------
Payment of interest on subordinated term
loan (81 740) (164 931)
------------------ ------------------------
Proceeds from share based payments - share
option exercised - 21 887
------------------ ------------------------
Cash dividend paid (573 719) -
------------------ ------------------------
Share issue costs - scrip dividend (8 221) -
------------------ ------------------------
--------------- ---------------
------------------ ------------------------
Net cash used in financing activities (663 680) (143 044)
------------------ ------------------------
-------------- ----------------
------------------ ------------------------
Net increase in cash and cash equivalents 22 817 436 20 112 703
------------------ ------------------------
Net foreign exchange differences on cash
and cash equivalents 70 274 19 242
------------------ ------------------------
Cash and cash equivalents at beginning of
the year 89 553 202 69 421 257
------------------ ------------------------
------------- --------------
------------------ ------------------------
Cash and cash equivalents at the end of the
year (Note 15) 112 440 912 89 553 202
------------------ ------------------------
========= ========
------------------ ------------------------
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2018
1. REPORTING ENTITY
The Holding Company is incorporated and domiciled in Zimbabwe
and is an investment holding company. Its registered office address
is 64 Kwame Nkrumah Avenue, Harare. Its principal operating
subsidiary is engaged in commercial and retail banking. NMB Bank
Limited is a registered commercial bank and was incorporated in
Zimbabwe on 16 October 1992 and commenced trading on 1 June 1993.
The Bank operated as an Accepting House until 6 December 1999 when
the licence was converted to that of a Commercial Bank. The Bank is
exposed to the following risks in its operations: liquidity risk,
credit risk, market risk, operational risk, foreign currency
exchange rate risk and interest rate risk.
2. ACCOUNTING CONVENTION
Statement of compliance
The condensed consolidated financial statements are prepared and
presented on the basis that they reflect the information necessary
to be a fair summary of the annual financial statements from which
they are derived. This includes financial results that agree with
or can be recalculated from the related information in the audited
consolidated financial statements and that contain the information
necessary so as not to be misleading in the circumstances. The
information contained in these consolidated financial results does
not contain all the disclosures required by International Financial
Reporting Standards, the Companies Act (Chapter 24:03) of Zimbabwe
and the Banking Act (Chapter 24:20) of Zimbabwe, which are
disclosed in the full consolidated annual financial statements from
which this set of condensed financial statements were derived. For
a better understanding of the Group`s financial position, its
financial performance and cash flows for the year, these condensed
financial statements should be read in conjunction with the audited
consolidated annual financial statements.
2.1 Basis of preparation
The condensed consolidated financial statements have been
prepared under the historical cost convention except for quoted and
other investments, investment properties and non-current assets
held for sale which are carried at fair value and land and
buildings which are stated at revalued carrying amount. These
condensed consolidated financial statements are reported in United
States of America dollars and rounded to the nearest dollar.
2.2 Basis of consolidation
The Group financial results incorporate the financial results of
the Company and its subsidiaries. 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 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.
2.3 Comparative financial information
The comparative information covers a period of twelve
months.
2.4 Use of estimates and judgements
In preparation of the Group financial statements, Directors have
made judgments, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ
from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to estimates are recognised prospectively.
Information about assumptions and estimation uncertainties that
have a significant risk of resulting in a material adjustment in
the year ended 31 December 2018 is included in the following
notes:
2.4.1 Deferred tax
Deferred taxation is recognised in respect of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation
purposes. Temporary differences arising out of the initial
recognition of assets or liabilities and temporary differences on
initial recognition of business combinations that affect neither
accounting nor taxable profit are not recognised. The amount of
deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and
liabilities, using tax rates enacted or substantively enacted at
the reporting date. 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.
2.4.2 Land and buildings
The properties were valued by an independent professional
valuer. The determined fair value of land and buildings is most
sensitive to significant unobservable inputs. The property market
is currently not stable due to liquidity constraints.
2.4.3 Investment properties
Investment property were valued by an independent professional
valuer. The property market is currently not stable due to
liquidity constraints.
2.4.4 Investment securities
The Group has treasury bills and government bonds for which
there is currently no market information to facilitate the
application of fair value principles in determining fair value
disclosures. Directors have made a significant judgment in
determining that the carrying amount approximates fair value.
(refer to note 14.1).
2.4.5 Impairment losses on loans and advances
The Bank adopted IFRS 9 with effect from 1 January 2018. As
permitted by the IFRS 9 transitional provisions, the Bank elected
not to restate comparative figures.
The Bank recognises loss allowances for Expected Credit Losses
(ECLs) on the following financial
instruments that are not measured at Fair Value through Profit
or Loss (FVTPL):
-- loans and advances to banks;
-- loans and advances to customers;
-- debt investment securities;
-- lease receivables;
-- loan commitments issued; and
-- financial guarantee contracts issued.
No impairment loss is recognised on equity investments.
With the exception of purchased or originated credit-impaired
(POCI) financial assets (which are considered separately below),
ECLs are measured through a loss allowance at an amount equal
to:
-- 12-month ECL, i.e. lifetime ECL that result from those
default events on the financial instrument that are possible within
12 months after the reporting date, (referred to as Stage 1);
or
-- Full lifetime ECL, i.e. lifetime ECL that result from all
possible default events over the life of the
financial instrument, (referred to as Stage 2 and Stage 3).
A loss allowance for full lifetime ECL is required for a
financial instrument if the credit risk on that financial
instrument has increased significantly since initial recognition.
For all other financial instruments, ECLs are measured at an amount
equal to the 12-month ECL.
The impairment loss on loans and advances is disclosed in more
detail under note 8 and note 16.3.
2.4.6 Non-current assets held for sale
Non-current assets were valued by an independent professional
valuer. All non-current assets held for sale are measured at their
fair values. The determined fair value of non-current assets held
for sale is most sensitive to significant unobservable inputs. In
addition, the property market is currently not stable due to
liquidity constraints and hence comparable values are also not
stable.
2.4.7 Determination of the functional currency
The Government of Zimbabwe adopted a multi-currency regime in
2009. The British Pound, Euro, United States Dollar (USD), South
African Rand (ZAR) and Botswana Pula were adopted as the
multi-currency basket in February 2009. In January 2014, the
Reserve Bank of Zimbabwe (RBZ) issued a Monetary Policy Statement
which added the Chinese Yuan, Australian Dollar, Indian Rupee,
Japanese Yen into the basket of multi-currencies. At the onset, the
USD and the ZAR were the commonly used currencies, with the USD
eventually gaining prominence resulting in it being designated as
the functional and presentation currency by the transacting public
and the Monetary Authorities, including the Group.
Between 2014 and 2016, the Zimbabwean economy experienced a
massive liquidity crisis which eventually prompted the Monetary
Authorities to introduce the bond notes in November 2016 whilst
encouraging the public to continue using the other currencies in
the multi-currency basket. The bond notes were introduced at an
official fixed exchange rate of 1:1 with the USD and the Monetary
Authorities specifically directed financial institutions not to
open separate vault and cash accounts for the USD and the bond
notes. The introduction of the bond notes gave rise to a three (3)
tier pricing system wherein sellers and service providers would
quote three (3) separate prices (USD, bond notes and
RTGS/electronic transfers) for their merchandise and services
respectively. Significant discounts were being offered for USD
payments whilst a premium would be added for prices quoted in bond
notes or electronic settlement via the Real Time Gross Settlement
System (RTGS). These developments triggered a debate around the
functional currency of Zimbabwe. It should be noted that the group
never participated in the three tier pricing and none of its
products had multiple prices during the same period.
In October 2018, the Monetary Authorities instructed financial
institutions to separate bond notes and USD accounts and indicated
that corporates and individuals could proceed to open Nostro
Foreign Currency Accounts (FCA), for foreign currency holdings,
which were now being exclusively distinguished from the existing
RTGS based accounts. However, it should be noted that at the time
of this policy pronouncement, the Monetary Authorities did not
state that they had introduced a new currency for Zimbabwe, which
actually meant that the USD remained as the currency of reference.
By 31 December 2018, there had been no pronouncement by the
Monetary Authorities to the effect that there had been a new
currency introduced, which could be considered as the country's
functional currency.
On 22 February 2019, the Reserve Bank of Zimbabwe (RBZ) issued
an Exchange Control Directive, RU 28 of 2019 which established an
interbank foreign exchange market to formalise the buying and
selling of foreign currency through the Banks and Bureaux de
change. In order to establish an exchange rate between the current
monetary balances and foreign currency, the Monetary Authorities
denominated the existing RTGS balances in circulation as RTGS
Dollars. Initial trades on 22 February 2019 were at USD1:
RTGS$2.5.
On the same date, Statutory Instrument 33 of 2019 was also
issued and it specified that for accounting and other purposes, all
assets and liabilities that were in USD immediately before the
22(nd) of February 2019 were deemed to have been valued in RTGS
Dollars at a rate of 1:1.
In light of the developments summarised above, the directors are
of the opinion that the USD was the Group's functional and
presentation currency due to the following factors:
-- There was no alternative currency at reporting date as the
Monetary Authorities only introduced the RTGS Dollars on 22
February 2019; and
-- SI 33 of 2019 specified that for accounting and other
purposes, all assets and liabilities that were in USD immediately
before the 22(nd) of February 2019 were deemed to have been valued
in RTGS Dollars at a rate of 1:1.
-- Furthermore, the official rate between the USD and bond notes
as well as RTGS/electronic balances was pegged at 1:1 on 31
December 2018 and no reliance could be placed on the unofficial
rates which were being quoted i.e. the parallel market rate and the
Old Mutual Implied Rate, both of which have significant legal
limitations.
-- Neither the Group nor its subsidiary ever had a three tier
pricing system on any of its products and services during the
period under review.
-- Furthermore, neither the Group nor its subsidiary ever
sourced foreign currency using either of the two unofficial rates
from the time the rates emerged until the introduction of the
official interbank foreign exchange market by the Monetary
Authorities on 22 February 2019.
2.4.8 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 condensed consolidated financial statements on a going
concern basis is still appropriate.
3. ACCOUNTING POLICIES
The selected principal accounting policies applied in the
preparation of these condensed consolidated financial statements
are set out below. These policies have been consistently applied
unless otherwise stated.
3.1 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 measured at fair value. Gains and
losses arising from a change in fair value of investment properties
are recognised in the statement of comprehensive income. The fair
value is determined at the end of each reporting period, by a
registered professional valuer.
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
The residual value and the useful life of property and equipment
are 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 Taxation
Income tax
Income tax expenses comprise current and deferred tax. It is
recognised in profit or loss except to the extent that it relates
to items recognised directly in equity or in other comprehensive
income.
Current tax
Current tax comprises expected tax payable or receivable on the
taxable income or loss for the year and any adjustment to the tax
payable or receivable in respect of previous years. It is measured
using rates enacted or substantively enacted at the reporting date
in the country where the Bank operates and generates taxable income
and any adjustment to tax payable in respect of previous years.
Current income tax assets and liabilities for the current period
are measured at the amount expected to be recovered from or paid to
the taxation authorities.
Deferred taxation
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is not recognised for:
-- temporary differences on the initial recognition of assets or
liabilities in a transaction that is not a business combination and
that affects neither accounting nor taxable profit or loss;
-- temporary differences related to investments in subsidiaries
to the extent that it is probable that they will not reverse in the
foreseeable future; and
-- taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognised for unused tax losses, unused
tax credits and deductible temporary differences to the extent that
it is probable that future taxable profits will be available
against which they can be used. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
Deferred tax is measured at the tax rates that are expected to be
applied to temporary differences when they reverse, using tax rates
enacted or substantively enacted at the reporting date.
The measurement of deferred tax reflects the tax consequences
that would follow the manner in which the Group expects, at the
reporting date, to recover or settle the carrying amount of its
assets and liabilities. For this purpose, the carrying amount of
investment property measured at fair value is presumed to be
recovered through sale, and the Group has not rebutted this
presumption.
Deferred tax assets and liabilities are offset if there is a
legally enforceable right to offset current tax liabilities and
assets, and they relate to taxes levied by the same tax authority
on the same taxable entity, or on different tax entities, but they
intend to settle current tax liabilities and assets on a net basis
or their tax assets and liabilities will be realised
simultaneously.
Additional taxes that arise from the distribution of dividends
by the Group are recognised at the same time as the liability to
pay the related dividend is recognised. These amounts are generally
recognised in profit or loss because they generally relate to
income arising from transactions that were originally recognised in
profit or loss.
3.7 Cash and cash equivalents
Cash and cash equivalents comprise cash and bank balances, and
short term highly liquid investments with maturities of three
months or less when purchased. Cash and cash equivalents are
measured at amortised cost in the statement of financial
position.
3.8 Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured, regardless of when the payment is being made.
Revenue is measured at the fair value of the consideration received
or receivable, taking into account contractually defined terms of
payment and excluding taxes or duty. The specific recognition
criteria described below must also be met before revenue is
recognised.
3.9 Interest income
For all financial instruments measured amortised cost and
financial instruments designated at fair value through profit or
loss, interest income or expense is recorded using the effective
interest rate (EIR), which is the rate that exactly discounts the
estimated future cash payments or receipts through the expected
life of the financial instrument or a shorter period, where
appropriate, to the net carrying amount of the financial asset or
liability. Interest income includes income arising out of the
banking activities of lending and investing.
3.10 Interest expense
Interest expense arises from deposit taking. The expense is
recognised in profit or loss as it accrues, taking into account the
effective interest cost of the liability.
3.11 Shareholders' funds and shareholders' liabilities
Shareholders' funds and shareholders' liabilities refer to the
investment made by the shareholders in the Group and it consists of
share capital, share premium, share options reserve, retained
earnings, revaluation reserve, redeemable ordinary shares and
subordinated term loans.
3.12 Changes in accounting policy
The Bank has adopted IFRS 9 as issued by the International
Accounting Standards Board (IASB) in July 2014 with a date of
transition of 1 January 2018, which resulted in changes in
accounting policies and adjustments to the amounts previously
recognised in the financial statements.
As permitted by the transitional provisions of IFRS 9, the Bank
elected not to restate comparative figures.
Any adjustments to the carrying amounts of financial assets and
liabilities at the date of transition were recognised in the
opening retained earnings and other reserves of the current period.
Consequently, for notes disclosures, the consequential amendments
to IFRS 7 disclosures have also only been applied to the current
period. The comparative period notes disclosures repeat those
disclosures made in the prior year.
The adoption of IFRS 9 has resulted in changes in the Bank's
accounting policies for recognition, classification and measurement
of financial assets and financial liabilities and impairment of
financial assets. IFRS 9 also significantly amends other standards
dealing with financial instruments such as IFRS 7 Financial
Instruments: Disclosures.
Set out below are disclosures relating to the impact of the
adoption of IFRS 9 on the Bank.
(a) Classification and measurement of financial instruments
The measurement category and the carrying amount of financial
assets and liabilities in accordance with IAS 39 and IFRS 9 at 1
January 2018 are compared as follows:
IAS 39 IFRS 9
Measurement Category Carrying Measurement Category Carrying
Amount Amount
US$ US$
------------------------- ------------ --------------------- --------------
Financial Assets
Cash and cash Amortised cost (Loans
equivalents and advances) 89,553,202 Amortised cost 89,526,431
------------------------- ------------ --------------------- --------------
Amortised cost (Loans
Loans and advances and advances) 210,483,221 Amortised cost 202,308,086
------------------------- ------------ --------------------- --------------
Investment Amortised cost (Loans
securities and advances) 92,245,425 Amortised cost 91,871,343
------------------------- ------------ --------------------- --------------
Unquoted and
other investments FVPL (Held for trading) 117,880 FVPL 117,880
------------------------- ------------ --------------------- --------------
383,823,
Total 392,399,728 740
------------ --------------------- --------------
Financial Liabilities
Total deposits
and other liabilities Amortised cost 356,912,509 Amortised cost 356,912,509
------------------------- ------------ --------------------- --------------
(b) Reconciliation of statement of financial position balances
from IAS 39 to IFRS 9
The Bank performed a detailed analysis of its business models
for managing financial assets and an analysis of their cash flow
characteristics to determine how the instruments shall be
measured.
The following table reconciles the carrying amounts of financial
assets, from their previous measurement categories in accordance
with IAS 39 to their new measurement categories upon transition to
IFRS 9 on 1 January 2018:
Carrying amount
1 January 2018
US$
Amortised cost
----------------
Cash and cash equivalents
----------------
Opening balance - IAS 39 89 553 202
----------------
Additional IFRS 9 impairment allowance - Expected
Credit Loss (ECL) (26 771)
----------------
--------------
----------------
Closing balance - IFRS 9 89 526 431
----------------
========
----------------
Loans and advances
----------------
Opening balance - IAS 39 210 483 221
----------------
Additional IFRS 9 impairment allowance - (ECL) (8 175 135)
----------------
Less reclassifications -
----------------
---------------
----------------
Closing balance - IFRS 9 202 308 086
----------------
=========
----------------
Investment securities
----------------
Opening balance - IAS 39 92 245 425
----------------
Additional IFRS 9 impairment allowance (374 082)
----------------
Less reclassifications -
----------------
--------------
----------------
Closing balance - IFRS 9 91 871 343
----------------
========
----------------
Total financial assets measured at amortised cost 383 705 860
----------------
Fair value through profit or loss
----------------
Unquoted investments 117 880
----------------
---------------
----------------
Total financial assets 383 823 740
----------------
=========
----------------
The Directors concluded that there were no measurement
difference between IAS 39 and IFRS 9 for the Bank's liabilities on
1 January 2019.
(c) Reconciliation of impairment allowance balance from IAS 39 to IFRS 9
The following table reconciles the prior period closing
impairment allowance measured in accordance with the IAS 39
incurred loss model to the new expected credit loss allowance
measured in accordance with the IFRS 9 expected loss model at 1
January 2018:
IAS 39 Impairment IFRS 9 Impairment
loss allowance loss allowance
Measurement Category balance Remeasurement balance US$
US$ US$
Interbank placements - 26 771 26 771
------------------ ---------------- ------------------
Investment securities - 374 082 374 082
------------------ ---------------- ------------------
5 445 968 8 175 135 13 621 103
------------------ ---------------- ------------------
Loans and advances 5 445 968 6 162 469 11 608 437
------------------ ---------------- ------------------
Loan commitments - 1 551 975 1 551 975
------------------ ---------------- ------------------
Financial guarantees - 460 691 460 691
------------------ ---------------- ------------------
------------ ------------- --------------
------------------ ---------------- ------------------
Total 5 445 968 8 575 988 14 021 956
------------------ ---------------- ------------------
======= ======== ========
------------------ ---------------- ------------------
3.12.1 Financial Instruments
Measurement methods
Armotised cost and effective interest rates
The amortised cost is the amount at which the financial asset or
financial liability is measured at initial recognition minus the
principal repayments, plus or minus the cumulative amortisation
using the effective interest method of any difference between that
initial amount and the maturity amount and, for financial assets,
an adjustment for any loss allowance.
The effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts through the expected
life of the financial asset or financial liability to the gross
carrying amount of a financial asset (i.e. its amortised cost
before any impairment allowance) or to the amortised cost of a
financial liability. The calculation does not consider expected
credit losses and includes transaction costs, premiums or discounts
and fees and points paid or received that are integral to the
effective interest rate, such as origination fees. For purchased or
originated credit-impaired ('POCI') financial assets - assets that
are credit-impaired at initial recognition - the Bank calculates
the credit-adjusted effective interest rate, which is calculated
based on the amortised cost of the financial asset instead of its
gross carrying amount and incorporates the impact of expected
credit losses in estimated future cash flows.
When the Bank revises the estimates of future cash flows, the
carrying amount of the respective financial assets or financial
liability is adjusted to reflect the new estimate discounted using
the original effective interest rate. Any changes are recognised in
profit or loss.
Interest Income
Interest income is calculated by applying the effective interest
rate to the gross carrying amount of financial assets, except
for:
a) Purchased or originated credit-impaired (POCI) financial
assets, for which the original credit-adjusted effective interest
rate is applied to the amortised cost of the financial asset.
b) Financial assets that are not 'POCI' but have subsequently
become credit-impaired (or 'stage 3'), for which interest revenue
is calculated by applying the effective interest rate to their
amortised cost (i.e net of the expected credit loss provision).
Initial recognition and measurement
Financial assets and financial liabilities are recognised when
the entity becomes a party to the contractual provisions of the
instrument. Regular way purchases and sales of financial assets are
recognised on trade-date, the date on which the Bank commits to
purchase or sell the asset.
At initial recognition, the Bank measures a financial asset or
financial liability at its fair value plus or
minus, in the case of a financial asset or financial liability
not at fair value through profit or loss; transaction costs that
are incremental and directly attributable to the acquisition or
issuance of the financial asset or financial liability
respectively, such as fees and commissions. Transaction costs of
financial assets and financial liabilities carried at fair value
through profit or loss are expensed in profit or loss. Immediately
after initial recognition, an expected credit loss allowance (ECL)
is recognised for financial assets measured at amortised cost and
investments in debt instruments measured at FVOCI, which results in
an accounting loss being recognised in profit or loss when an asset
is newly originated.
When the fair value of financial assets and liabilities differs
from the transaction price on initial recognition, the entity
recognises the difference as follows:
(a) When the fair value is evidenced by a quoted price in an
active market for an identical asset or liability (i.e. a Level 1
input) or based on a valuation technique that uses only data from
observable markets, the difference is recognised as a gain or
loss.
(b) In all other cases, the difference is deferred and the
timing of recognition of deferred day one profit or loss is
determined individually. It is either amortised over the life of
the instrument, deferred until the instrument's fair value can be
determined using market observable inputs, or realised through
settlement.
3.12.1.1 Financial Assets
(i) Classification and subsequent measurement
From 1 January 2018, the Group has applied IFRS 9 and classifies
its financial assets in the
following measurement categories:
-- Fair value through profit or loss (FVPL);
-- Fair value through other comprehensive income (FVOCI); or
-- Amortised cost.
The classification requirements for debt and equity instruments
are described below:
Debt instruments
Debt instruments are those instruments that meet the definition
of a financial liability from the issuer's perspective, such as
loans, government and corporate bonds and trade receivables
purchased from clients in factoring arrangements without
recourse.
Classification and subsequent measurement of debt instruments
depend on:
-- the Bank's business model for managing the asset; and
-- the cash flow characteristics of the asset.
Based on these factors, the Bank classifies its debt instruments
into one of the following three measurement categories:
-- Amortised cost: Assets that are held for collection of
contractual cash flows where those cash flows represent solely
payments of principal and interest ('SPPI'), and that are not
designated at FVPL, are measured at amortised cost. The carrying
amount of these assets is adjusted by any expected credit loss
allowance. Interest income from these financial assets is included
in interest and similar income using the effective interest rate
method.
-- Fair value through other comprehensive income (FVOCI):
Financial assets that are held for collection of contractual cash
flows and for selling the assets, where the assets' cash flows
represent solely payments of principle and interest and that are
not designated at FVPL, are measured at fair value through other
comprehensive income (FVOCI). Movements in the carrying amount are
taken through OCI, except for the recognition of impairment gains
or losses, interest revenue and foreign exchange gains and losses
on the instrument's amortised cost which are recognised in profit
or loss. When the financial asset is derecognised, the cumulative
gain or loss previously recognised in OCI is reclassified from
equity to profit or loss and recognised in "Net Investment Income'.
Interest income from these financial assets is included in
'Interest Income' using the effective interest rate method.
-- Fair value through profit or loss: Assets that do not meet
the criteria for amortised cost or FVOCI are measured at fair value
through profit or loss. A gain or loss on a debt investment that is
subsequently measured at fair value through profit or loss and is
not part of a hedging relationship is recognised in profit or loss
and presented in the profit or loss statement within 'Net Trading
Income" in the period in which it arises, unless it arises from
debt instruments that were designated at fair value or which are
not held for trading, in which case they are presented separately
in 'Net Investment Income'. Interest income from these financial
assets is included in "Interest income" using the effective
interest rate method.
Business model: the business model reflects how the Bank manages
the assets in order to generate cash flows. That is, whether the
Bank's objective is solely to collect the contractual cash flows
from the assets or is to collect both the contractual cash flows
and cash flows arising from the sale of assets. If neither of these
is applicable (e.g. financial assets are held for trading
purposes), then the financial assets are classified as part of
'other' business model and measured at FVPL. Factors considered by
the Bank in determining the business model for a group of assets
include past experience on how the cash flows for these assets were
collected, how the asset's performance is evaluated and reported to
key management personnel, how risks are assessed and managed and
how managers are compensated. Securities held for trading are held
principally for the purpose of selling in the near term or are part
of a portfolio of financial instruments that are managed together
and for which there is evidence of a recent actual pattern of
short-term profit-taking. These securities are classified in the
'other' business model and measured at FVPL.
Where the business model is to hold assets to collect
contractual cash flows or to collect contractual cash flows and
sell, the Bank assesses whether financial instruments' cash flows
represent solely payments of principal and interest (the "SPPI"
test). In making this assessment, the Bank considers whether the
contractual cash flows are consistent with a basic lending
arrangement i.e. interest includes only consideration for the time
value of money, credit risk, other basic lending risks and a profit
margin that is consistent with a basic lending arrangement. Where
the contractual terms introduce exposure to risk or volatility that
are inconsistent with a basic lending arrangement, the related
financial asset is classified and measured at fair value through
profit or loss.
The Bank reclassifies debt investments when and only when its
business model for managing those assets changes. The
reclassification takes place from the start of the first reporting
period following the change. Such changes are expected to be very
infrequent and none occurred during the period.
Equity instruments
Equity instruments are instruments that meet the definition of
equity from the issuer's perspective; that is, instruments that do
not contain a contractual obligation to pay and that evidence a
residual interest in the issuer's net assets. Examples of equity
instruments include basic ordinary shares.
The Bank subsequently measures all equity investments at fair
value through profit or loss, except where the Bank's management
has elected, at initial recognition, to irrevocably designate an
equity investment at fair value through other comprehensive income.
The Bank policy is to designate equity investments as FVOCI when
those investments are held for purposes other than to generate
investment returns. When this election is used, fair value gains
and losses are recognised in OCI and are not subsequently
reclassified to profit or loss, including on disposal. Impairment
losses (and reversal of impairment losses) are not reported
separately from other changes in fair value. Dividends, when
representing a return on such investments, continue to be
recognised in profit or loss as other income when the Bank's right
to receive payments is established.
Gains and losses on equity investments at FVPL are included in
the 'Other Income' line in the statement of profit or loss.
(ii) Impairment
The Bank recognises loss allowances for Expected Credit Losses
(ECLs) on the following financial instruments that are not measured
at Fair Value through Profit or Loss (FVTPL):
-- loans and advances to banks;
-- loans and advances to customers;
-- debt investment securities;
-- lease receivables;
-- loan commitments issued; and
-- financial guarantee contracts issued.
No impairment loss is recognised on equity investments.
With the exception of POCI financial assets (which are
considered separately below), ECLs are measured through a loss
allowance at an amount equal to:
-- 12-month ECL, i.e. lifetime ECL that result from those
default events on the financial instrument that are possible within
12 months after the reporting date, (referred to as Stage 1);
or
-- Full lifetime ECL, i.e. lifetime ECL that result from all
possible default events over the life of the financial instrument,
(referred to as Stage 2 and Stage 3).
A loss allowance for full lifetime ECL is required for a
financial instrument if the credit risk on that financial
instrument has increased significantly since initial recognition.
For all other financial instruments, ECLs are measured at an amount
equal to the 12-month ECL.
Expected Credit Losses
ECLs are a probability-weighted estimate of the present value of
credit losses. These are measured as the present value of the
difference between the cash flows due to the Bank under the
contract and the cash flows that the Bank expects to receive
arising from the weighting of multiple future economic scenarios,
discounted at the asset's EIR.
For undrawn loan commitments, the ECL is the difference between
the present value of the difference between the contractual cash
flows that are due to the Bank if the holder of the commitment
draws down the loan and the cash flows that the Bank expects to
receive if the loan is drawn down; and
For financial guarantee contracts, the ECL is the difference
between the expected payments to reimburse the holder of the
guaranteed debt instrument less any amounts that the Bank expects
to receive from the holder, the debtor or any other party.
The Bank measures ECL on an individual basis, or on a collective
basis for portfolios of loans that share similar economic risk
characteristics. The measurement of the loss allowance is based on
the present value of the asset's expected cash flows using the
asset's original EIR, regardless of whether it is measured on an
individual basis or a collective basis.
Credit-impaired financial assets
A financial asset is credit-impaired when one or more events
that have a detrimental impact on the estimated future cash flows
of that financial asset have occurred. Evidence that a financial
asset is credit-
impaired include observable data about the following events:
(a) significant financial difficulty of the issuer or the
borrower;
(b) a breach of contract, such as a default or past due
event;
(c) the lender(s) of the borrower, for economic or contractual
reasons relating to the borrower's financial difficulty, having
granted to the borrower a concession(s) that the lender(s) would
not otherwise consider;
(d) it becoming probable that the borrower will enter bankruptcy
or other financial reorganisation;
(e) the disappearance of an active market for that financial
asset because of financial difficulties; or
(f) the purchase or origination of a financial asset at a deep
discount that reflects the incurred credit losses.
It may not be possible to identify a single discrete
event-instead, the combined effect of several events may have
caused financial assets to become credit-impaired.
Purchased or originated credit-impaired (POCI) financial
assets
For POCI the Bank only recognises the cumulative changes in
lifetime expected credit losses since initial recognition. At each
reporting date, the Bank recognises in profit or loss the amount of
the change in lifetime expected credit losses as an impairment gain
or loss. The Bank recognises favourable changes in lifetime
expected credit losses as an impairment gain, even if the lifetime
expected credit losses are less than the amount of expected credit
losses that were included in the estimated cash flows on initial
recognition.
The Bank assesses on a forward-looking basis the expected credit
losses ('ECL') associated with its debt instrument assets carried
at amortised cost and FVOCI and with the exposure arising from loan
commitments and financial guarantee contracts. The Bank recognises
a loss allowance for such losses at each reporting date. The
measurement of ECL reflects:
-- An unbiased and probability-weighted amount that is
determined by evaluating a range of possible outcomes;
-- The time value of money; and
-- Reasonable and supportable information that is available
without undue cost or effort at the reporting date about past
events, current conditions and forecasts of future economic
conditions.
For loan commitments and financial guarantee contracts, the loss
allowance is recognised as a provision. The Bank keeps track of the
changes in the loss allowance for financial assets separately from
those for loan commitments and financial guarantee contracts.
However, if a financial instrument includes both a loan (i.e.
financial asset) and an undrawn commitment (i.e. loan
commitment) component and the Bank does not separately identify the
expected credit losses on the loan commitment component from those
on the financial asset component, the expected credit losses on the
loan commitment is recognised together with
the loss allowance for the financial asset. To the extent that
the combined expected credit losses exceed the gross carrying
amount of the financial asset, the expected credit losses is
recognised as a provision.
Definition of default
Critical to the determination of ECL is the definition of
default. The definition of default is used in measuring the amount
of ECL and in the determination of whether the loss allowance is
based on 12-month or lifetime ECL, as default is a component of the
probability of default (PD) which affects both the measurement of
ECLs and the identification of a significant increase in credit
risk.
The Bank considers the following as constituting an event of
default:
-- The borrower is past due more than 90 days on any material credit obligation to the Bank or;
-- The borrower is unlikely to pay its credit obligations to the Bank in full.
The definition of default is appropriately tailored to reflect
different characteristics of different types of assets. Overdrafts
are considered as being past due once the customer has breached an
advised limit or has been advised of a limit smaller than the
current amount outstanding.
When assessing if the borrower is unlikely to pay its credit
obligation, the Bank takes into account both qualitative and
quantitative indicators. The information assessed depends on the
type of the asset, for example in corporate lending a qualitative
indicator used is the breach of covenants, which is not relevant
for retail lending. Quantitative indicators, such as overdue status
and non-payment on another obligation of the same counterparty are
key inputs in this analysis. The Bank uses a variety of sources of
information to assess default which are either developed internally
or obtained from external sources.
Significant increase in credit risk
The Bank monitors all financial assets, undrawn loan commitments
and financial guarantee contracts that are subject to the
impairment requirements to assess whether there has been a
significant increase in credit risk since initial recognition. If
there has been a significant increase in credit risk the Bank will
measure the loss allowance based on lifetime rather than 12-month
ECL. The Bank's accounting policy is not to use the practical
expedient that financial assets with 'low' credit risk at the
reporting date are deemed not to have had a significant increase in
credit risk. As a result the Bank monitors all financial assets,
undrawn loan commitments and financial guarantee contracts that are
subject to impairment for significant increase in credit risk.
In assessing whether the credit risk on a financial instrument
has increased significantly since initial recognition, the Bank
compares the risk of a default occurring on the financial
instrument at the reporting date based on the remaining maturity of
the instrument with the risk of a default occurring that was
anticipated for the remaining maturity at the current reporting
date when the financial instrument was first recognised. In making
this assessment, the Bank considers both quantitative and
qualitative information that is reasonable and supportable,
including historical experience and forward-looking information
that is available without undue cost or effort, based on the Bank's
historical experience and expert credit assessment including
forward-looking information.
Multiple economic scenarios form the basis of determining the
probability of default at initial recognition and at subsequent
reporting dates. Different economic scenarios will lead to a
different probability of default. It is the weighting of these
different scenarios that forms the basis of a weighted average
probability of default that is used to determine whether credit
risk has significantly increased.
For corporate lending, forward-looking information includes the
future prospects of the industries in which the Bank's lenders
operate, obtained from economic expert reports, financial analysts,
governmental bodies and other similar organisations, as well as
consideration of various internal and external sources of actual
and forecast economic information. For the retail portfolio,
forward looking information includes the same economic forecasts as
the corporate portfolio with additional forecasts of local economic
indicators, particularly for regions with a concentration to
certain industries, as well as internally generated information of
customer payment behaviour. The Bank allocates its counterparties
to a relevant internal credit risk grade depending on their credit
quality. The quantitative information is a primary indicator of
significant increase in credit risk and is based on the change in
lifetime PD by comparing:
-- The remaining lifetime PD at the reporting date; with
-- the remaining lifetime PD for this point in time that was
estimated based on facts and circumstances at the time of initial
recognition of the exposure.
The PDs used are forward looking and the Bank uses the same
methodologies and data used to measure the loss allowance for
ECL.
The qualitative factors that indicate significant increase in
credit risk are reflected in PD models on a timely basis. However,
the Bank still considers separately additional qualitative factors
to assess if credit risk has increased significantly. For corporate
lending there is particular focus on assets that are included on
the Bank's 'watch list' and for the retail portfolio the Bank
considers the expectation of forbearance and payment holidays,
credit scores and any other changes in the borrower's circumstances
which are likely to adversely affect one's ability to meet
contractual obligations.
Given that a significant increase in credit risk since initial
recognition is a relative measure, a given change, in absolute
terms, in the PD will be more significant for a financial
instrument with a lower initial PD than compared to a financial
instrument with a higher PD.
The Bank assumes that when an asset becomes 30 days past due,
the Bank considers that a significant increase in credit risk has
occurred and the asset is in stage 2 of the impairment model, i.e.
the loss allowance is measured as the lifetime ECL.
(iii) Modification of loans
The Bank sometimes renegotiates or otherwise modifies the
contractual cash flows of loans to customers. When this happens,
the Bank assesses whether or not the new terms are substantially
different to the
original terms. The Bank does this by considering, among others,
the following factors:
-- If the borrower is in financial difficulty, whether the
modification merely reduces the contractual cash flows to amounts
the borrower is expected to be able to pay.
-- Whether any substantial new terms are introduced, such as a
profit share/equity-based return that substantially affects the
risk profile of the loan.
-- Significant extension of the loan term when the borrower is
not in financial difficulty. Significant change in the interest
rate.
-- Change in the currency the loan is denominated in.
-- Insertion of collateral, other security or credit
enhancements that significantly affect the credit risk associated
with the loan.
If the terms are substantially different, the Bank derecognises
the original financial asset and recognises a 'new' asset at fair
value and recalculates the new effective interest rate for the
asset. The date of renegotiation is consequently considered to be
the date of initial recognition for impairment calculation
purposes, including for the purpose of determining whether a
significant increase in credit risk has occurred. However, the Bank
also assesses whether the new financial asset recognised is deemed
to be credit-impaired at initial recognition, especially in
circumstances where the renegotiation was driven by the
debtor being unable to make the originally agreed payments.
Differences in the carrying amount are also
recognised in profit or loss as a gain or loss on
derecognition.
If the terms are not substantially different, the renegotiation
or modification does not result in derecognition, and the Bank
recalculates the gross carrying amount based on the revised cash
flows of the financial asset and recognises a modification gain or
loss in profit or loss. The new gross carrying amount is
recalculated by discounting the modified cash flows at the original
effective interest rate (or credit-adjusted effective interest rate
for purchased or originated credit-impaired financial assets).
(iv) Derecognition other than on a modification
Financial assets, or a portion thereof, are derecognised when
the contractual rights to receive the cash flows from the assets
have expired, or when they have been transferred and either
-- the Bank transfers substantially all the risks and rewards of ownership, or
-- the Bank neither transfers nor retains substantially all the
risks and rewards of ownership and the Bank has not retained
control.
The Bank enters into transactions where it retains the
contractual rights to receive cash flows to other entities and
transfers substantially all of the risks and rewards. These
transactions are accounted for as 'pass through' transfers that
result in derecognition if the Bank:
(i) Has no obligation to make payments unless it collects equivalent amounts from the assets;
(ii) Is prohibited from selling or pledging the assets; and
(iii) Has an obligation to remit any cash it collects from the
assets without material delay.
Collateral (shares and bonds) furnished by the Bank under
standard repurchase agreements and securities lending and borrowing
transactions are not derecognised because the Bank retains
substantially all the risks
3.12.1.2 Financial liabilities
i) Classification and subsequent measurement
In both the current and prior period, financial liabilities are
classified as subsequently measured at amortised cost, except
for:
-- Financial liabilities at fair value through profit or loss:
this classification is applied to financial liabilities held for
trading (e.g. short positions in the trading booking) and other
financial liabilities designated as such at initial recognition.
Gains or losses on financial liabilities designated at fair value
through profit or loss are presented partially in other
comprehensive income (the amount of change in the fair value of the
financial liability that is attributable to changes in the credit
risk of that liability, which is determined as the amount that is
not attributable to changes in market conditions that give rise to
market risk) and partially profit or loss (the remaining amount of
change in the fair value of the liability). This is unless such a
presentation would create, or enlarge, an accounting mismatch, in
which case the gains and losses attributable to changes in the
credit risk of the liability are also presented in profit or
loss;
-- Financial liabilities arising from the transfer of financial
assets which did not qualify for
derecognition, whereby a financial liability is recognised for
the consideration received for the transfer. In subsequent periods,
the Bank recognises any expense incurred on the financial
liability.
(ii) Derecognition
Financial liabilities are derecognised when they are
extinguished (i.e. when the obligation specified in the contract is
discharged, cancelled or expires).
The exchange between the Bank and its original lenders of debt
instruments with substantially different terms, as well as
substantial modifications of the terms of existing financial
liabilities, are accounted for as an extinguishment of the original
financial liability and the recognition of a new financial
liability. The terms are substantially different if the discounted
present value of the cash flows under the new terms, including any
fees paid net of any fees received and discounted using the
original effective interest rate, is at least 10% different from
the discounted present value of the remaining cash flows of the
original financial liability. In addition, other qualitative
factors, such as the currency that the instrument is denominated
in, changes in the type of interest rate, new conversion features
attached to the instrument and change in covenants are also taken
into consideration. If an exchange of debt instruments or
modification of terms is accounted for as an extinguishment, any
costs or fees incurred are recognised as part of the gain or loss
on the extinguishment. If the exchange or modification is not
accounted for as an extinguishment, any costs or fees incurred
adjust the carrying amount of the liability and are amortised over
the remaining term of the modified liability.
3.12.1.3 Financial guarantee contracts and loan commitments
Financial guarantee contracts are contracts that require the
issuer to make specified payments to reimburse the holder for a
loss it incurs because a specified debtor fails to make payments
when due, in accordance with the terms of a debt instrument. Such
financial guarantees are given to banks, financial institutions and
others on behalf of customers to secure loans, overdrafts and other
banking facilities.
Financial guarantee contracts are initially measured at fair
value and subsequently measured at the higher of:
-- The amount of the loss allowance; and
-- The premium received on initial recognition less income
recognised in accordance with the principles of IFRS 15.
Loan commitments provided by the Bank are measured as the amount
of the loss allowance. The Bank has not provided any commitment to
provide loans at below-market interest rate, or that can be settled
net in cash or by delivering or issuing another financial
instrument.
For loan commitments and financial guarantee contracts, the loss
allowance is recognised as a provision. However, for contracts that
include both a loan and an undrawn commitment and the Bank cannot
separately identify the expected credit losses on the undrawn
commitment component from those on the loan component, the expected
credit losses on the undrawn commitment are recognised together
with the loss allowance for the loan. To the extent that the
combined expected credit losses exceed the gross carrying amount of
the loan, the expected credit losses are recognised as a
provision.
3.12.1.4 Critical accounting estimates and judgements
The preparation of financial statements requires the use of
accounting estimates which, by definition, will seldom equal the
actual results. Management also needs to exercise judgement in
applying the Bank's accounting policies.
Note 2.4 (Use of estimates and judgements) provides an overview
of the areas that involve a higher degree of judgement or
complexity, and major sources of estimation uncertainty that have a
significant risk of resulting in a material adjustment within the
next financial year. Detailed information about each of these
estimates and judgements is included in the related notes together
with information about the basis of calculation for each affected
line item in the financial statements.
3.12.1.5 Measurement of the expected credit loss allowance
The measurement of the expected credit loss allowance for
financial assets measured at amortised cost and FVOCI is an area
that requires the use of complex models and significant assumptions
about future economic conditions and credit behaviour (e.g. the
likelihood of customers defaulting and the resulting losses). A
number of significant judgements are also required in applying the
accounting requirements for measuring ECL, such as:
-- Determining criteria for significant increase in credit risk;
-- Choosing appropriate models and assumptions for the measurement of ECL;
-- Establishing the number and relative weightings of
forward-looking scenarios for each type of product/market and the
associated ECL; and
-- Establishing groups of similar financial assets for the purposes of measuring ECL.
The Bank evaluates ECLs for 7 portfolios of audited corporates
with overdraft limits, audited corporates without overdraft limits,
unaudited corporates with overdraft limits, unaudited corporates
without overdraft limits, SMEs with limits, SMEs without limits and
Retail loans.
The guiding principle of the Expected Credit Loss evaluation is
to reflect the general pattern of deterioration or improvement in
the credit quality of financial instruments and allocate
commensurate
loss provisions. Under the general approach, there are two
measurement bases:
-- 12-month ECLs (Stage 1 ECLs) that is evaluated for all
financial instruments with no significant deterioration in credit
quality since initial recognition.
-- Lifetime ECLs (Stages 2 and 3 ECLs) that is evaluated for
financial instruments for which significant increase in credit risk
or default has occurred on an individual or collective basis.
Probability of Default (PD)
The Bank defines Probability of Default as the likelihood that a
borrower will fail to meet their contractual obligations in the
future. The Bank's PD models have been built using historical
credit default experience, present credit information as well as
forward looking factors which affect the capacity of borrowers to
meet their contractual obligations. The Bank used the logistic
regression approach to construct PD models for Corporate, SME,
Retail and Treasury Bills portfolios while the Merton model was
adopted for Interbank Placements. The PD models are used at entity
level to evaluate 12-month PDs for Day 1 losses and for financial
instruments with no significant deterioration in credit risk since
initial recognition, whilst lifetime PD is used for financial
instruments for which significant increase in credit risk or
default has occurred. 12-month PDs are derived using borrower
present risk characteristics while lifetime PDs are derived using a
combination of 12-month PDs, present borrower behaviour and forward
looking macroeconomic factors.
Exposure at Default (EAD)
The Bank defines Exposure at Default as an estimation of the
extent to which the Bank will be exposed to a counterparty in the
event of a default. The Bank's EAD models have been built using
historical experience of debt instruments that defaulted. The Bank
used the linear regression approach to construct EAD models for
Corporate, SME and Retail portfolios. For TBs and Interbank
Placements, the Bank took a conservative approach of considering
the full outstanding balance as the EAD at any given point in the
lifetime of an instrument. The Bank's EAD models that use Credit
Conversion Factors (CCFs) are applied on fully drawn down
instruments while models that use Loan Equivalents (LEQs) are
applied on partly drawn instruments. The EAD models are used at
entity level to evaluate the proportion of the exposure that will
be outstanding at the point of default.
Loss Given Default (LGD)
The Bank defines Loss Given Default as an estimate of the
ultimate credit loss in the event of a default. The Bank's LGD
models were built using historical experience of defaulted debt
instruments and observed recoveries. The Bank used the linear
regression approach to construct LGD models for Corporate, SME and
Retail portfolios. For Treasury Bills and Interbank Placements, the
Bank took a conservative approach of taking a fixed 100% as the LGD
at any given point in the lifetime of an instrument. The LGD models
are used at portfolio level to evaluate 12-month LGDs for financial
instruments with no significant increase in credit risk since
initial recognition and lifetime is applied LGDs for financial
instruments for which significant increase in credit risk has
occurred. 12-month LGDs were derived as historical loss rates while
lifetime LGDs were derived using a combination of 12-month LGDs and
forward looking macroeconomic factors such as GDP and
Inflation.
The Bank's ECL model combines the output of the PD, EAD and LGD
and computes an Expected Credit
Loss that takes into account time value of money using the
Effective Interest Rates (EIR) and time to maturity of the debt
instruments.
The final ECL is a probability-weighted amount that is
determined by evaluating three (3) possible outcomes of Best Case
ECL, Baseline Case ECL, and Worst Case ECL. The Bank has modelled
these three cases in such a way that the Best Case represents
scenario of lower than market average default rates, the Base Case
represents scenarios of comparable market average default rates and
the Worst Case represent scenarios of higher than market average
default rates.
3.12.2 Regulatory guidelines and International Financial
Reporting Standards requirements in respect of the Bank's
activities
Renegotiated loans and advances
Where possible, the Bank seeks to restructure loans rather than
to take possession of collateral. This may involve extending the
payment arrangements and the agreement of new loan conditions. Once
the terms have been re-negotiated, any impairment is measured using
the original effective interest rate (EIR) as calculated before the
modification of terms and the loan is no longer considered past
due. Management continuously renews re-negotiated loans to ensure
that all criteria are met and that future payments are likely to
occur. The loans continue to be subject to an individual or
collective impairment assessment, calculated using the loans
original EIR.
Collateral valuation
The Bank seeks to use collateral, where possible, to mitigate
its risks on financial assets. The collateral comes in various
forms such as cash, securities, letters of credit/guarantees, real
estate, receivables, inventories, other non-financial assets and
credit enhancements such as netting agreements. The fair value of
collateral is generally assessed, at a minimum, at inception and
based on the Bank's quarterly reporting schedule, however, some
collateral, for example, cash or securities relating to margining
requirements, is valued daily. To the extent possible, the Bank
uses active market data for valuing financial assets, held as
collateral. Other financial assets which do not have a readily
determinable market value are valued using models. Non-financial
collateral, such as real estate, is valued based on data provided
by third parties such as mortgage brokers, housing price indices,
audited financial statements, and other independent sources.
Collateral repossessed
The Bank's policy is to determine whether a repossessed asset is
best used for its internal operations or should be sold. Assets
determined to be useful for the internal operations are transferred
to their relevant asset category at the lower of their repossessed
value or the carrying value of the original secured asset. Assets
that are determined better to be sold are immediately transferred
to assets held for sale at their fair value at the repossession
date in line with the Bank's policy.
4. INTEREST INCOME
31 December 2018 31 December 2017
US$ US$
----------------- -----------------
Loans and advances to banks 793 220 1 139 233
----------------- -----------------
Loans and advances to customers 28 570 221 25 986 567
----------------- -----------------
Investment securities 9 969 737 4 936 131
----------------- -----------------
--------------- --------------
----------------- -----------------
39 333 178 32 061 931
----------------- -----------------
========= =========
----------------- -----------------
5. NON INTEREST INCOME
5.1 FEE AND COMMISSION income
31 December 31 December
2018 2017
US$ US$
------------------------ -----------------------
Retail banking customer fees 11 107 290 5 718 711
------------------------ -----------------------
Corporate banking credit related fees 2 621 449 1 463 126
------------------------ -----------------------
Financial guarantee fees 148 518 222 187
------------------------ -----------------------
International banking commissions 491 279 546 651
------------------------ -----------------------
Digital banking fees 14 170 840 10 881 510
------------------------ -----------------------
------------- --------------
------------------------ -----------------------
28 539 376 18 832 185
------------------------ -----------------------
======== =========
------------------------ -----------------------
5.2 OTHER income
31 December 31 December
2018 2017
US$ US$
----------------- --------------------------
Trade and other investments fair value
adjustments 10 154 35 176
----------------- --------------------------
Loss of disposal of quoted investments (15 074) -
----------------- --------------------------
Fair value adjustment on investment properties 2 551 436 302 255
----------------- --------------------------
Profit on disposal of investment properties 567 032 12 951
----------------- --------------------------
Profit on disposal of property and equipment 22 396 -
----------------- --------------------------
Rental income 365 269 135 900
----------------- --------------------------
Bad debts recovered 1 295 428 580 295
----------------- --------------------------
Loss on disposal of non-current asset
held for sale - (75 300)
----------------- --------------------------
Other net operating income 171 806 137 724
----------------- --------------------------
-------------- -------------
----------------- --------------------------
4 968 447 1 129 001
----------------- --------------------------
======== ========
----------------- --------------------------
6. Operating EXPITURE
31 December 31 December
2018 2017
US$ US$
--------------- ---------------
The operating profit is after recognising
the following:
--------------- ---------------
Administration costs 15 963 308 11 866 111
--------------- ---------------
Audit fees:
--------------- ---------------
-Current year 98 991 35 938
--------------- ---------------
-Prior year 111 406 95 456
--------------- ---------------
Impairment reversal on land and buildings* (76 661) (89 660)
--------------- ---------------
Depreciation 1 370 312 1 136 810
--------------- ---------------
Amortisation of intangible assets 879 376 832 567
--------------- ---------------
Directors' remuneration 971 121 719 318
--------------- ---------------
-Fees 219 246 233 102
--------------- ---------------
-Expenses 17 364 9 393
--------------- ---------------
-Services rendered 734 511 476 823
--------------- ---------------
Staff costs - salaries, allowances and
related costs 15 402 575 12 981 807
--------------- ---------------
-------------- --------------
--------------- ---------------
34 720 428 27 578 347
--------------- ---------------
========= ========
--------------- ---------------
*The impairment reversal on land and building arose due to fair
value changes on the Group's land and buildings
measured using the revaluation model.
7. taxation
31 December 31 December
2018 2017
Income tax expense US$ US$
-------------- --------------
Current tax 4 433 942 1 930 812
-------------- --------------
Deferred tax 1 488 132 1 029 133
-------------- --------------
Capital gains tax - 118 919
-------------- --------------
------------- -------------
-------------- --------------
5 922 074 3 078 864
-------------- --------------
======== ========
-------------- --------------
8. IMPAIRMENT LOSSES ON LOANS AND ADVANCES
Impairment losses are calculated by estimating the expected
credit losses for all financial assets (including loan commitments
and guarantees) measured at amortised cost or fair value through
OCI (FVOCI). ECLs arising from financial assets measured at
armotised cost and at FVOCI are recognized in profit or loss.
However, the loss allowance in respect of assets measured at FVOCI
shall not reduce the carrying amount of the financial asset in the
Statement of Financial Position but will be accumulated in a
reserve through OCI. The aggregate impairment losses which are made
during the year are dealt with as per paragraph 8.3.
8.1 Lifetime expected credit losses
Lifetime ECLs are recognized where the Bank's counterparty to a
financial asset has been classified as default as defined in the
Bank's accounting and credit policies. Financial assets are written
off against lifetime ECL provisions once the probability of
recovering any significant amounts becomes remote.
8.2 Twelve month expected credit losses
The 12-Month ECL relates to the day 1 impairment provisions on
financial assets as well as financial assets which are considered
not to have had a significant increase in credit risk as defined in
the Bank's accounting and credit policies.
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.
IFRS 9, Financial Instruments IFRS 9, prescribes the
provisioning for impairment losses based on the expected credit
losses from the expected cash flows from financial assets held by
the bank, including guarantees and loan commitments.
The two prescriptions are likely to give different results. The
Group has taken the view that where the IFRS 9 charge is less than
the amount provided for in the Banking Regulations, the difference
is recognised directly in equity as a transfer from retained
earnings to a regulatory reserve and where it is more, the full
amount will be charged to the profit or loss.
8.4 Suspended interest
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. 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.
9. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the profit
for the year attributable to ordinary equity holders of NMBZ
Holdings Limited by the weighted average number of ordinary shares
outstanding during the year.
Diluted earnings per share is calculated by dividing the profit
attributable to ordinary equity holders of NMBZ Holdings Limited
adjusted for the after tax effect of: (a) any dividends or other
items related to dilutive potential ordinary shares deducted in
arriving at profit or loss attributable to ordinary equity holders
of the parent entity; (b) any interest recognised in the period
related to dilutive potential ordinary shares; (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
31 December 2018 31 December 2017
US$ US$
----------------- --------------------------------
Profit for the year 21 221 201 9 938 826
----------------- --------------------------------
======== =======
----------------- --------------------------------
9.2 Number of shares
9.2.1 Basic earnings per share
31 December 2018 31 December 2017
Weighted average number of ordinary
shares for
basic earnings per share 390 959 988 384 746 646
----------------- -----------------
9.2.2 Diluted earnings per share
31 December 2018 31 December 2017
Number of shares at beginning
of period 384 974 542 384 427 351
----------------- -----------------
Effect of dilution:
----------------- -----------------
Share options exercised - 547 191
----------------- -----------------
Shares issued - scrip dividend 7 980 654 -
----------------- -----------------
-------------- ---------------
----------------- -----------------
392 955 196 384 974 542
----------------- -----------------
Share options approved but not
granted 23 942 639 23 942 639
----------------- -----------------
--------------- ---------------
----------------- -----------------
416 897 835 408 917 181
----------------- -----------------
========= =========
----------------- -----------------
9.3 Earnings per share (US cents)
31 December 2018 31 December 2017
Basic 5.43 2.58
----------------- -----------------
Diluted 5.09 2.43
----------------- -----------------
10. SHARE CAPITAL
10.1 Authorised
31 December 31 December 31 December 31 December
2018 2017 2018 2017
Shares (million) Shares (million) US$ US$
----------------- ----------------- ------------ -------------
Ordinary shares of
US$0.00028
each 600 600 168 000 168 000
----------------- ----------------- ------------ -------------
==== ==== ====== ======
----------------- ----------------- ------------ -------------
10.2 Issued and fully paid
10.2.1 Ordinary shares
31 December 31 December 31 December 31 December
2018 2017 2018 2017
Shares (million) Shares (million) US$ US$
----------------- ----------------- ------------------- -------------------
Ordinary shares 290 282 80 975 78 751
----------------- ----------------- ------------------- -------------------
==== ==== ===== =====
----------------- ----------------- ------------------- -------------------
10.2.2 Redeemable ordinary shares
31 December 31 December 31 December 31 December
2018 2017 2018 2017
Shares (million) Shares (million) US$ US$
------------------ ----------------- ------------------- ------------------
Redeemable ordinary
shares 104 104 29 040 29 040
------------------ ----------------- ------------------- ------------------
=== === ===== =====
------------------ ----------------- ------------------- ------------------
A total of 7 943 318 ordinary shares were issued to existing
shareholders in March 2018 as scrip dividend.
Of the unissued ordinary shares of 206 million shares (2017 -
214 million), options which may be granted in terms of the 2012
ESOS amount to 23 942 639 (2017 - 23 942 639). No share options
were exercised from the Scheme as at 31 December 2018. The share
option scheme expires in 2022.
Subject to the provisions of section 183 of the Companies Act
(Chapter 24:03) of Zimbabwe, the
unissued shares are under the control of the directors.
11. REDEEMABLE ORDINARY SHARES
31 December 2018 31 December
2017
US$ US$
----------------- ---------------
Nominal value (note 10.2.2) 29 040 29 040
----------------- ---------------
Share premium 14 306 213 14 306 213
----------------- ---------------
-------------- --------------
----------------- ---------------
14 335 253 14 335 253
----------------- ---------------
======== ========
----------------- ---------------
On 30 June 2013, the Group received US$14 831 145 capital from
Nederlandse Financierings-Maatschappij Voor Ontiwikkelingslanden
N.V. (FMO), Norwegian Investment Fund for Developing Countries
(Norfund) and AfricInvest Financial Sector Holdings (AfricInvest)
who were allocated 34 571 429 shares each (total 103 714 287) for
individually investing US$4 943 715. This amount, net of share
issue expenses, was used to recapitalise the Bank in order to
contribute towards the minimum capital requirements set by the
Reserve Bank of Zimbabwe of US$100 million by 31 December 2020. FMO
and Norfund came together with Rabobank to form ARISE which is a
development finance institution primarily focusing on investing in
African financial institutions to support and enhance financial
service delivery in Africa.
NMBZ Holdings Limited (NMBZ) entered into a share buy-back
agreement with Norfund, FMO and AfricInvest, where these three
strategic investors have a right at their own discretion at any
time after the 5(th) anniversary (30 June 2018) but before the
9(th) anniversary (30 June 2022) of its first subscription date, to
request NMBZ to buy back all or part of its NMBZ shares at a price
to be determined using the agreed terms as entailed in the share
buy-back agreement. It is a condition precedent that at any point
when the share buy-back is being considered, the proceeds used to
finance the buy-back should come from the distributable reserves
which are over and above the minimum regulatory capital
requirements. Further, no buy-back option can be exercised by any
investor after the 9(th) anniversary (30 June 2022) of the
effective date.
The share buy-back agreement creates a potential obligation for
NMBZ Holdings Limited to purchase its own instruments. The shares
issued gave rise to a potential financial liability and are
classified as redeemable ordinary shares.
12. SUBORDINATED TERM LOAN
31 December 2018 31 December
2017
US$ US$
------------------------------ ------------------------
At 1 January 1 415 904 1 415 490
------------------------------ ------------------------
Interest capitalised 171 483 165 345
------------------------------ ------------------------
Interest paid (81 740) (164 931)
------------------------------ ------------------------
------------- --------------
------------------------------ ------------------------
1 505 647 1 415 904
------------------------------ ------------------------
======== ========
------------------------------ ------------------------
In 2013, the Group received a subordinated term loan amounting
to US$1.4 million from a Development Financial Institution which
attracts an interest rate of LIBOR plus 10% and has a seven year
maturity date (13 June 2020) from the first disbursement date.
The above liability would, in the event of the winding up of the
issuer, be subordinated to the claims of depositors and all other
creditors of the issuer. The Group defaulted on a principal
repayments with respect to this subordinated loan during the year
ended 31 December 2018 as a result of the prevailing nostro funding
challenges affecting the economy. However, there were no defaults
on interest payments. There was a breach to the financial covenant
regarding to the aggregate large exposure ratio which stood at
25.12% instead of a maximum of 25%. The Group will apply for a
waiver of the non-compliant ratio by 31 March 2019.
13. DepositS and other LIABILITIES
13.1 Deposits and other liabilities
31 December 31 December
2018 2017
US$ US$
------------------ -----------------
Deposits from banks and other financial
institutions** 74 110 527 17 213 617
------------------ -----------------
Current and deposit accounts from
customers* 360 847 422 331 742 768
------------------ -----------------
----------------- ----------------
------------------ -----------------
Total deposits 434 957 949 348 956 385
------------------ -----------------
Trade and other payables* 12 147 334 7 956 124
------------------ -----------------
----------------- ----------------
------------------ -----------------
447 105 283 356 912 509
------------------ -----------------
========== =========
------------------ -----------------
*The carrying amounts of current and deposit accounts and trade
and other payables approximate the
related fair values due to their short term nature.
** Included in deposits from banks and other financial
institutions are loan balances of US$8 244 147,
US$4 129 484 and US$1 043 957 due to Nederlandse
Financierings-Maatschappij Voor Ontiwikkelingslanden (FMO),
Swedfund and Societie de Promotion de Paticipation Pour la
Cooperation Economique SA (Proparco) respectively. The carrying
amounts of deposits from other banks and other financial
institutions approximate the related fair values. The Group has not
had any defaults on the principal and interest with respect to
these loans during the period ended 31 December 2018. However,
there were breaches to the financial covenants with respect to the
following ratios :-
-- Non-performing loans ratio - 7.43% (instead of a maximum of
7%); and
-- Aggregate large exposure ratio - 25.12% instead of a maximum
of 25%.
13.2 Maturity analysis
31 December 2018 31 December 2017
US$ US$
----------------- -----------------
Less than 1 month 374 121 777 279 698 410
----------------- -----------------
1 to 3 months 25 835 037 37 746 638
----------------- -----------------
3 to 6 months 7 515 300 2 472 911
----------------- -----------------
6 months to 1 year 11 781 062 11 751 881
----------------- -----------------
1 to 5 years 15 512 943 17 094 715
----------------- -----------------
Over 5 years 191 830 191 830
----------------- -----------------
--------------- ----------------
----------------- -----------------
434 957 949 348 956 385
----------------- -----------------
========= ==========
----------------- -----------------
13.3 Sectoral analysis of deposits
31 December 31 December
2018 2017
US$ % US$ %
----------------- --------- ------------------ -------
Agriculture 11 005 126 2 10 034 242 3
----------------- --------- ------------------ -------
Banks and other financial
institutions 74 110 527 17 17 213 617 5
----------------- --------- ------------------ -------
Distribution 42 030 992 10 38 540 570 11
----------------- --------- ------------------ -------
Individuals 27 742 789 6 29 133 379 8
----------------- --------- ------------------ -------
Manufacturing 69 798 745 16 62 426 525 18
----------------- --------- ------------------ -------
Mining companies 9 077 534 2 8 086 319 2
----------------- --------- ------------------ -------
Municipalities and parastatals 28 945 864 7 25 633 695 7
----------------- --------- ------------------ -------
Other deposits 59 781 285 14 57 598 053 17
----------------- --------- ------------------ -------
Services 98 028 025 23 87 501 920 25
----------------- --------- ------------------ -------
Transport and telecommunications 14 437 062 3 12 788 065 4
----------------- --------- ------------------ -------
---------------- -------- ----------------- ------
----------------- --------- ------------------ -------
434 957 949 100 348 956 385 100
----------------- --------- ------------------ -------
========= ===== ========== ===
----------------- --------- ------------------ -------
14. FINANCIAL INSTRUMENTS
14.1 Investment securities
Note 31 December 2018 31 December 2017
US$ US$
----- ----------------- -----------------
Held to maturity - 13 744 715
----- ----------------- -----------------
Loans and receivables - 78 500 710
----- ----------------- -----------------
Armotised cost - Gross 117 693 824 -
----- ----------------- -----------------
Impairment allowance 16.3 (444 390) -
----- ----------------- -----------------
-ECL at 1 January 2018 (374 082) -
----- ----------------- -----------------
-ECL charged thought profit (70 308) -
and loss
----- ----------------- -----------------
--------------- ---------------
----- ----------------- -----------------
117 249 434 92 245 425
----- ----------------- -----------------
========= =========
----- ----------------- -----------------
The Group holds treasury bills and government bonds amounting to
US$117 693 825 with interest rates ranging from 2% to 10%. The
Treasury Bills are measured at amortised cost in line with the
Bank's business model to collect contractual cashflows and the
contractual terms are such that the financial assets give rise to
cashflows that are solely payments of principal and interest. Of
the total Treasury Bills balance of US$117 693 825, a total of
US$85 415 837 had been pledged as security against interbank
borrowings.
14.2 Maturity analysis of investment securities held to maturity
31 December 2018 31 December 2017
US$ US$
----------------- -----------------
Less than 1 month - -
----------------- -----------------
1 to 3 months 142 245 -
----------------- -----------------
3 to 6 months 6 133 977 -
----------------- -----------------
6 months to 1 year 43 004 020 -
----------------- -----------------
1 year to 5 years 57 031 351 -
----------------- -----------------
Over 5 years 11 382 231 -
----------------- -----------------
-------------- --------------
----------------- -----------------
117 693 824 -
----------------- -----------------
Expected Credit loss allowance (444 390)
----------------- -----------------
-------------- --------------
----------------- -----------------
117 249 434 -
----------------- -----------------
======== ========
----------------- -----------------
14.3 Maturity analysis of investment securities - loans and receivables
31 December 2018 31 December 2017
US$ US$
------------------- -----------------
Less than 1 month - -
------------------- -----------------
1 to 3 months - -
------------------- -----------------
3 to 6 months - -
------------------- -----------------
6 months to 1 year - 2 424 461
------------------- -----------------
1 year to 5 years - -
------------------- -----------------
Over 5 years - 11 320 254
------------------- -----------------
----------------- --------------
------------------- -----------------
- 13 744 715
---------------------------------------- -----------------
========== =========
---------------------------------------- -----------------
14.4 Maturity analysis of investment securities - loans and
receivables
31 December 2018 31 December 2017
US$ US$
------------------- -----------------
Less than 1 month - 6 150 000
------------------- -----------------
1 to 3 months - 142 246
------------------- -----------------
3 to 6 months - 722 972
------------------- -----------------
6 months to 1 year - 6 138 889
------------------- -----------------
1 year to 5 years - 65 346 603
------------------- -----------------
----------------- --------------
------------------- -----------------
- 78 500 710
---------------------------------------- -----------------
========== ========
---------------------------------------- -----------------
14.5 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.
14.5.1 Financial instruments measured at fair value - fair value
hierarchy
31 Dec 2018 Level 1 Level 2 Level 3
US$ US$ US$ US$
--------------- -------------- ------------ -----------------
Trade investments 112 501 - - 112 501
--------------- -------------- ------------ -----------------
Quoted investments - - - -
--------------- -------------- ------------ -----------------
-------------- ------------- ----------- ----------------
--------------- -------------- ------------ -----------------
112 501 - - 112 501
--------------- -------------- ------------ -----------------
======== ======== ======= ===========
--------------- -------------- ------------ -----------------
31 Dec 2017 Level 1 Level 2 Level 3
US$ US$ US$ US$
--------------- -------------- ------------ -----------------
Trade investments 102 347 - - 102 347
--------------- -------------- ------------ -----------------
Quoted investments 15 533 15 533 - -
--------------- -------------- ------------ -----------------
-------------- ------------- ----------- ----------------
--------------- -------------- ------------ -----------------
117 880 15 533 - 102 347
--------------- -------------- ------------ -----------------
======== ======== ======= =========
--------------- -------------- ------------ -----------------
During the reporting periods ended 31 December 2018 and 31
December 2017, there were no transfers between Level 1 and Level 2
fair value measurements, and no transfers into and out of Level 3
fair value measurements.
Level 3 fair value measurements
Reconciliation
31 December 2018
Trade investments
US$
------------------
Balance at 1 January 102 347
------------------
Gain recognised in profit or loss 10 154
------------------
-----------
------------------
Balance at 31 December 112 501
------------------
=======
------------------
31 December 2017
Trade investments
US$
------------------
Balance at 1 January 88 930
------------------
Gain recognised in profit or loss 13 417
------------------
-----------
------------------
Balance at 31 December 102 347
------------------
=======
------------------
14.5.2 Financial instruments not measured at fair value
Below is a list of the Group's financial investments not
measured at fair value, but whose carrying amounts approximate fair
value.
31 December 2018
Total carrying
amount
Assets US$
------------------
Cash and cash equivalents 112 440 912
------------------
Loans, advances and other accounts 254 202 945
------------------
Investment securities 117 249 434
------------------
-----------------
------------------
483 893 291
------------------
==========
------------------
Liabilities
------------------
Deposits and other liabilities 447 105 283
------------------
-----------------
------------------
447 105 283
------------------
==========
------------------
31 December 2017
Total carrying
amount
Assets US$
------------------
Cash and cash equivalents 89 553 202
------------------
Loans, advances and other accounts 210 483 221
------------------
Investment securities 92 245 425
------------------
-----------------
------------------
392 281 848
------------------
==========
------------------
Liabilities
------------------
Deposits and other liabilities 356 912 509
------------------
-----------------
------------------
356 912 509
------------------
==========
------------------
The carrying amount of financial assets and liabilities not
measured at fair approximate fair value.
15. CASH AND CASH EQUIVALENTS
31 December 2018 31 December
2017
Note US$ US$
----- ----------------- ---------------
Balances with the Central
Bank 89 081 480 79 876 937
----- ----------------- ---------------
Current, nostro accounts*
and cash 13 426 360 6 676 265
----- ----------------- ---------------
Interbank placements (see
below) 10 000 000 3 000 000
----- ----------------- ---------------
Expected credit loss allowance (66 928) -
(see below)
----- ----------------- ---------------
-------------- --------------
----- ----------------- ---------------
112 440 912 89 553 202
----- ----------------- ---------------
========= =========
----- ----------------- ---------------
Interbank placements 31 December 2018 31 December
2017
----- ----------------- ---------------
US$ US$
----- ----------------- ---------------
Interbank placements 10 000 000 3 000 000
----- ----------------- ---------------
Expected Credit Loss allowance
- Stage 1 16.3 (66 928) -
----- ----------------- ---------------
-ECL charged at 1 January (26 770) -
2018
----- ----------------- ---------------
-ECL charged through profit (40 158) -
and loss
----- ----------------- ---------------
------------- ------------
----- ----------------- ---------------
9 933 072 3 000 000
----- ----------------- ---------------
======== =======
----- ----------------- ---------------
*Nostro accounts are foreign domiciled bank accounts operated by
the Bank for the facilitation of offshore transactions on behalf of
clients.
Balances with the Central Bank, other banks and cash are used to
facilitate customer transactions which include
payments and cash withdrawals. During the year the Central Bank
through Exchange Control Operational
Guide 8 (ECOGAD8) introduced prioritisation criteria which have
to be followed when making foreign
payments on behalf of customers. After prioritisation, foreign
payments are then made subject to availability of bank balances
with foreign correspondent banks, resulting in possible delay of
payment of telegraphic transfers. However, no delay is expected in
the settlement of local transactions through the Real Time Gross
Settlement (RTGS) system. Of the cash and cash equivalents balance
an amount of US$526 316 was pledged to Proparco as collateral for
offshore lines of credit.
Expected credit loss (ECL) is not significant on balances with
the Central Bank and Nostro accounts.
16.1 Total loans, advances and other assets
16.1.1 Loans, advances and other assets
31 December 31 December
2018 2017
US$ US$
---------------- ----------------
Fixed term loans - Corporate 58 036 580 54 435 318
---------------- ----------------
Fixed term loans - Retail 77 580 291 65 227 917
---------------- ----------------
Mortgages 61 390 107 37 295 987
---------------- ----------------
Overdrafts 50 946 710 47 374 705
---------------- ----------------
--------------- ---------------
---------------- ----------------
247 953 688 204 333 927
---------------- ----------------
Other assets 6 249 257 6 149 294
---------------- ----------------
-------------- --------------
---------------- ----------------
254 202 945 210 483 221
---------------- ----------------
========= =========
---------------- ----------------
16.1.2 Maturity analysis
31 December 31 December
2018 2017
US$ US$
---------------- -----------------
Less than one month 67 413 196 71 137 746
---------------- -----------------
1 to 3 months 19 263 549 10 680 845
---------------- -----------------
3 to 6 months 6 828 594 2 954 340
---------------- -----------------
6 months to 1 year 24 887 015 11 024 220
---------------- -----------------
1 to 5 years 94 242 902 80 804 577
---------------- -----------------
Over 5 years 49 699 770 34 403 690
---------------- -----------------
--------------- ----------------
---------------- -----------------
Total advances 262 335 026 211 005 418
---------------- -----------------
Allowances for impairment losses on loans
and advances (13 300 688) (5 445 968)
---------------- -----------------
-IAS 39 impairment loss allowance at
1 January (5 445 968) (8 305 117)
---------------- -----------------
-ECL recognized through retained earnings (8 175 135) -
---------------- -----------------
-ECL charged through profit and loss (3 901 487) -
---------------- -----------------
-IAS 39 charge through profit and loss - (3 853 149)
---------------- -----------------
Bad debts written off 4 221 902 6 712 298
---------------- -----------------
Suspended interest on credit impaired
financial assets (1 080 650) (1 225 523)
---------------- -----------------
-------------- -------------
---------------- -----------------
247 953 688 204 333 927
---------------- -----------------
Other assets 6 249 257 6 149 294
---------------- -----------------
--------------- ---------------
---------------- -----------------
254 202 945 210 483 221
---------------- -----------------
========= =========
---------------- -----------------
16.2 Sectoral analysis of utilizations
31 December % 31 December 2017 %
2018
Agriculture and horticulture 37 386 857 14 28 631 460 14
------------------ --------- ----------------- ---------
Conglomerates 10 692 402 4 9 210 926 4
------------------ --------- ----------------- ---------
Distribution 28 902 108 11 28 737 726 14
------------------ --------- ----------------- ---------
Food & beverages 6 304 863 3 10 417 745 5
------------------ --------- ----------------- ---------
Individuals 100 512 291 38 82 589 355 39
------------------ --------- ----------------- ---------
Manufacturing 8 731 095 3 8 565 178 4
------------------ --------- ----------------- ---------
Mining 703 294 - 736 466 -
------------------ --------- ----------------- ---------
Services 69 102 116 27 42 216 562 20
------------------ --------- ----------------- ---------
----------------- -------- --------------- --------
------------------ --------- ----------------- ---------
262 335 026 100 211 005 418 100
------------------ --------- ----------------- ---------
========== ===== ========= =====
------------------ --------- ----------------- ---------
The material concentration of loans and advances is with
individuals at 38% (2017 - 39%) and services sector at 27% (2017 -
20%).
16.3 Impairment analysis of financial assets measured at
amortised
Stage 1 Stage 2 Stage 3 Total
Gross carrying amount at 1 343 389
January 2018 307 212 628 19 328 471 16 848 747 846
--------------------- --------------------- ------------------- ------------------
Transfers (9 071 715) (2 794 360) 11 866 075 -
--------------------- --------------------- ------------------- ------------------
-to 12 month ECL 1 422 126 (1 096 550) (325 576) -
--------------------- --------------------- ------------------- ------------------
-to lifetime ECL not credit
impaired (9 561 225) 10 357 548 (796 323) -
--------------------- --------------------- ------------------- ------------------
-to lifetime ECL credit
impaired (932 616) (12 055 358) 12 987 974 -
--------------------- --------------------- ------------------- ------------------
Net movement in financial
assets 74 121 127 8 583 823 (9 235 272) 73 469 678
--------------------- --------------------- ------------------- ------------------
-------------------- ------------------- ----------------- ----------------
--------------------- --------------------- ------------------- ------------------
Balance as at 31 December 416 859
2018 372 262 040 25 117 934 19 479 550 524
--------------------- --------------------- ------------------- ------------------
============ =========== ========== ==========
--------------------- --------------------- ------------------- ------------------
Loss allowance analysis
--------------------- --------------------- ------------------- ------------------
At 1 January 2018 (IAS 39
Provisions) - - - 5 445 968
--------------------- --------------------- ------------------- ------------------
Adjustment on initial
application
of IFRS 9* - - - 8 575 988
--------------------- --------------------- ------------------- ------------------
ECL on 1 January 2018 9 075 323 1 335 253 3 611 380 14 021 956
--------------------- --------------------- ------------------- ------------------
-ECL - loans and advances 8 674 470 1 335 253 3 611 380 -
--------------------- --------------------- ------------------- ------------------
-ECL - Investment securities 374 082 - - -
--------------------- --------------------- ------------------- ------------------
-ECL - Interbank placements 26 771 - - -
--------------------- --------------------- ------------------- ------------------
Transfers (445 983) (3 253 424) 3 699 407 -
--------------------- --------------------- ------------------- ------------------
-to 12 month ECL 30 024 (18 951) (11 073) -
--------------------- --------------------- ------------------- ------------------
-to lifetime ECL not credit
impaired (219 448) 356 161 (136 713) -
--------------------- --------------------- ------------------- ------------------
-to lifetime ECL credit
impaired (256 559) (3 590 634) 3 847 193 -
--------------------- --------------------- ------------------- ------------------
Net increase/(decrease) in
ECL (879 896) 2 771 543 2 120 305 4 011 952
--------------------- --------------------- ------------------- ------------------
Bad debts written off - - (4 221 902) (4 221 902)
--------------------- --------------------- ------------------- ------------------
-------------------- ------------------- ----------------- ----------------
--------------------- --------------------- ------------------- ------------------
Balance as at 31 December
2018 7 749 444 853 372 5 209 190 13 812 006
--------------------- --------------------- ------------------- ------------------
=========== ============ ========== ==========
--------------------- --------------------- ------------------- ------------------
Loans and advances 7 238 126 853 372 5 209 190 13 300 688
--------------------- --------------------- ------------------- ------------------
Investment securities 444 390 - - 444 390
--------------------- --------------------- ------------------- ------------------
Interbank placements 66 928 - - 66 928
--------------------- --------------------- ------------------- ------------------
------------------- -------------------- ------------------ -----------------
--------------------- --------------------- ------------------- ------------------
7 749 444 853 372 5 209 190 13 812 006
--------------------- --------------------- ------------------- ------------------
=========== ============ ========== ==========
--------------------- --------------------- ------------------- ------------------
* The Group adopted IFRS 9 effective 1 January 2018 and the
resultant increase in impairment allowance on the effective date
was recognized through retained earnings as the Group did not elect
retrospective application of the Standard.
The Bank is continuing recovery efforts in respect of loans
written off amounting to US$1 316 711.
16.4 Allowance for impairment on loans and advances and
financial assets measured at amortised cost
31 December 2017
Specific Portfolio Total
--------------- --------------- ----------------
US$ US$ US$
--------------- --------------- ----------------
At 1 January 6 207 672 2 097 445 8 305 117
--------------- --------------- ----------------
Charge against profits 3 334 133 519 016 3 853 149
--------------- --------------- ----------------
Bad debts written off (6 712 298) - (6 712 298)
--------------- --------------- ----------------
------------- ------------- --------------
--------------- --------------- ----------------
2 829 507 2 616 461 5 445 968
--------------- --------------- ----------------
======= ======== ========
--------------- --------------- ----------------
16.5 Credit-impaired financial assets
31 December 31 December
2018 2017
US$ US$
--------------- ------------------
Total credit impaired financial assets 19 479 550 16 848 747
--------------- ------------------
Expected credit losses on credit impaired (5 209 190) -
financial assets
--------------- ------------------
Allowance for impairment loss on loans
and advances - (2 829 507)
--------------- ------------------
Retail loans insurance (499 057) (1 457 059)
--------------- ------------------
Suspended interest on credit-impaired
financial assets (1 080 650) (1 225 523)
--------------- ------------------
-------------- -----------------
--------------- ------------------
Net credit impaired financial assets 12 690 653 11 336 658
--------------- ------------------
======== ==========
--------------- ------------------
The net credit impaired financial assets represents recoverable
portions covered by realisable security, which includes guarantees,
cessation of debtors, mortgages over properties, equities and
promissory notes all fair valued at US$9 212 125 (2017 - US$15 483
487).
16.6 Loans to related parties (included under loans, advances and other assets)
31 December 2018 31 December 2017
US$ US$
----------------- -----------------
Executive directors 90 036 201 084
----------------- -----------------
Officers 12 115 488 7 566 669
----------------- -----------------
Officers' companies - -
----------------- -----------------
-------------- --------------
----------------- -----------------
12 205 524 7 767 753
----------------- -----------------
Fair value adjustments - (276 695)
----------------- -----------------
ECL on staff loans - Stage 1 (160 529) -
----------------- -----------------
------------- --------------
----------------- -----------------
12 044 995 7 491 058
----------------- -----------------
======== =========
----------------- -----------------
17. NON-CURRENT ASSETS HELD FOR SALE
31 December 2018 31 December 2017
US$ US$
------------------- -----------------
At 1 January 36 000 2 261 300
------------------- -----------------
Fair value adjustment - -
------------------- -----------------
Disposals - (2 225 300)
------------------- -----------------
------------------ --------------
------------------- -----------------
36 000 36 000
------------------- -----------------
=========== =========
------------------- -----------------
18. INTANGIBLE ASSETS
Work in Computer
Progress Software Total
------------- ------------- ---------------
US$ US$ US$
------------- ------------- ---------------
Cost
------------- ------------- ---------------
Balance at 1 January 2017 228 595 3 045 126 3 273 721
------------- ------------- ---------------
Acquisitions - 1 565 713 1 565 713
------------- ------------- ---------------
------------ ------------ --------------
------------- ------------- ---------------
Balance at 1 January 2018 228 595 4 610 839 4 839 434
------------- ------------- ---------------
Acquisitions - 535 971 535 971
------------- ------------- ---------------
Capitalisations (228 595) 228 595 -
------------- ------------- ---------------
------------ ------------ -------------
------------- ------------- ---------------
Balance at 31 December 2018 - 5 375 405 5 375 405
------------- ------------- ---------------
======= ======= =======
------------- ------------- ---------------
Accumulated amortisation
------------- ------------- ---------------
Balance at 1 January 2017 - 1 626 687 1 626 687
------------- ------------- ---------------
Amortisation for the year - 832 567 832 567
------------- ------------- ---------------
----------- ------------ ------------
------------- ------------- ---------------
Balance at 1 January 2018 - 2 459 254 2 459 254
------------- ------------- ---------------
Amortisation for the year - 879 376 879 376
------------- ------------- ---------------
------------ ----------- -----------
------------- ------------- ---------------
Balance at 31 December 2018 - 3 338 630 3 338 630
------------- ------------- ---------------
======= ----------- -----------
------------- ------------- ---------------
Carrying amount
------------- ------------- ---------------
At 31 December 2018 - 2 036 775 2 036 775
------------- ------------- ---------------
======== ======= =========
------------- ------------- ---------------
At 1 January 2018 228 595 2 151 585 2 380 180
------------- ------------- ---------------
======== ======== =========
------------- ------------- ---------------
At 1 January 2017 228 595 1 418 439 1 647 034
------------- ------------- ---------------
======== ========= =========
------------- ------------- ---------------
19. PROPERTY AND EQUIPMENT
Capital Computers Motor Vehicles Furniture Freehold Total
work in and equipment land and
progress buildings*
Cost/Revaluation US$ US$ US$ US$ US$ US$
amount
------------------- --------------- ---------------- --------------- --------------- ----------------
12 562
At 1 January 2017 188 947 3 677 901 1 283 448 3 913 914 3 498 454 664
------------------- --------------- ---------------- --------------- --------------- ----------------
Additions 268 310 1 598 813 52 454 115 296 4 060 2 038 933
------------------- --------------- ---------------- --------------- --------------- ----------------
Capitalisations (163 541) 163 541 - - - -
------------------- --------------- ---------------- --------------- --------------- ----------------
Revaluation gain - - - - 211 290 211 290
------------------- --------------- ---------------- --------------- --------------- ----------------
Disposals - (4 930) (80 000) - - (84 930)
------------------- --------------- ---------------- --------------- --------------- ----------------
--------------- -------------- -------------- -------------- -------------- --------------
------------------- --------------- ---------------- --------------- --------------- ----------------
At 31 December 14 727
2017 293 716 5 435 325 1 255 902 4 029 210 3 713 804 957
------------------- --------------- ---------------- --------------- --------------- ----------------
Additions 7 179 544 1 978 026 123 267 210 003 - 9 490 840
------------------- --------------- ---------------- --------------- --------------- ----------------
Capitalisations (309 266) - - 257 626 - (51 640)
------------------- --------------- ---------------- --------------- --------------- ----------------
Revaluation gain - - - - 139 194 139 194
------------------- --------------- ---------------- --------------- --------------- ----------------
Disposals - - (109 399) (18 616) - (128 015)
------------------- --------------- ---------------- --------------- --------------- ----------------
Reclassification
from investment
property 2 300 000 - - - - 2 300 000
------------------- --------------- ---------------- --------------- --------------- ----------------
------------- ------------- --------------- -------------- -------------- ---------------
------------------- --------------- ---------------- --------------- --------------- ----------------
At 31 December 26 478
2018 9 463 994 7 413 351 1 269 770 4 478 223 3 852 998 336
------------------- --------------- ---------------- --------------- --------------- ----------------
======== ======= ========= ======== ======== ========
------------------- --------------- ---------------- --------------- --------------- ----------------
Accumulated
depreciation
------------------- --------------- ---------------- --------------- --------------- ----------------
At 1 January 2017 - 2 203 125 772 200 3 044 870 262 183 6 282 379
------------------- --------------- ---------------- --------------- --------------- ----------------
Charge for the
year - 563 658 191 573 316 222 65 357 1 136 810
------------------- --------------- ---------------- --------------- --------------- ----------------
Disposals - (2 219) (25 000) - - (27 219)
------------------- --------------- ---------------- --------------- --------------- ----------------
-------------- -------------- -------------- -------------- -------------- -------------
------------------- --------------- ---------------- --------------- --------------- ----------------
At 1 January 2018 - 2 764 564 938 774 3 361 092 327 540 7 391 970
------------------- --------------- ---------------- --------------- --------------- ----------------
Charge for the
year - 843 339 178 887 283 982 64 104 1 370 312
------------------- --------------- ---------------- --------------- --------------- ----------------
Disposals - - (109 399) (18 616) - (128 015)
------------------- --------------- ---------------- --------------- --------------- ----------------
------------- -------------- ------------- ------------- ------------ --------------
------------------- --------------- ---------------- --------------- --------------- ----------------
At 31 December
2018 - 3 607 903 1 008 262 3 626 458 391 644 8 634 267
------------------- --------------- ---------------- --------------- --------------- ----------------
Carrying amount ======== ======== ======= ======= ======= ========
------------------- --------------- ---------------- --------------- --------------- ----------------
At 31 December 17 844
2018 9 463 994 3 805 448 261 509 851 764 3 461 354 069
------------------- --------------- ---------------- --------------- --------------- ----------------
------------- -------------- ------------- -------------- -------------- ------------
------------------- --------------- ---------------- --------------- --------------- ----------------
At 1 January 2018 293 716 2 670 762 317 129 668 118 3 386 264 7 335 988
------------------- --------------- ---------------- --------------- --------------- ----------------
------------- -------------- ------------- -------------- -------------- -----------
------------------- --------------- ---------------- --------------- --------------- ----------------
At 1 January 2017 188 947 1 474 776 511 248 896 044 3 236 271 6 280 286
------------------- --------------- ---------------- --------------- --------------- ----------------
------------- -------------- ------------- -------------- -------------- ------------
------------------- --------------- ---------------- --------------- --------------- ----------------
*Assets measured using the revaluation model
Measurement of fair value
Fair value hierarchy
Immovable properties were revalued as at 31 December 2018 on the
basis of valuations carried out by independent professional
valuers, PMA Real Estate (Private) Limited. The valuation which
conforms to International Valuation Standards, was in terms of the
policy as set out in the accounting policies section. All movable
assets are measured at their carrying amounts which are arrived at
by the application of a depreciation charge on their cost values
over the useful lives of the assets.
The valuation of land and buildings was arrived by applying
yield rates of 10% on rental levels of between US$3 - US$7 per
square metre.
Level 3
The fair value of immovable properties of US$3 461 354 (2017 -
US$3 386 264) has been categorised under level 3 in the fair value
hierarchy based on the inputs used for the valuation technique
described below.
The following shows reconciliation between the opening and
closing balances for level 3 fair values:
31 December 2018 31 December 2017
US$ US$
----------------- -----------------
At 1 January 3 386 264 3 236 271
----------------- -----------------
Additions - 4 060
----------------- -----------------
Transfers from work in progress - -
----------------- -----------------
Revaluation gain 62 533 121 630
----------------- -----------------
Impairment reversal 76 661 89 660
----------------- -----------------
Depreciation (64 104) (65 357)
----------------- -----------------
------------- -------------
----------------- -----------------
Balance at 31 December 3 461 354 3 386 264
----------------- -----------------
======= ========
----------------- -----------------
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 Significant Unobservable Inter-relationship between
Technique Inputs key unobservable inputs and
fair value measurement
The Direct The estimated fair value
Comparison * Weighted average expected market rental growth (5%); would increase /(decrease)
Method was and if:
applied * expected market rental growth were higher/ (lower);
on all and
residential * Average market yield of 10%.
properties
* the risk adjusted discount rates were lower/
(higher).
Below is an indication of
the sensitivity analysis
at different discount rates:-
Change in Change in
rate fair value
+5% 139 000
------------
+3% 83 400
------------
+1% 27 800
------------
-1% -27 800
------------
-3% -83 400
------------
-5% -139 000
------------
----------------------------------------------------------- -----------------------------------------------------------
20. CAPITAL COMMITMENTS
31 December 31 December
2018 2017
US$ US$
-------------- --------------
Capital expenditure contracted for 2 931 385 607 736
-------------- --------------
Capital expenditure authorised but not
yet contracted for 9 092 999 10 502 287
-------------- --------------
------------- -------------
-------------- --------------
12 024 384 11 110 023
-------------- --------------
======== ========
-------------- --------------
The capital expenditure will be funded from the Group's own
resources.
21. CONTINGENT LIABILITIES
31 December 31 December
2018 2017
US$ US$
------------------- ---------------------------
Guarantees 6 159 566 8 195 056
------------------- ---------------------------
Facilities approved but not drawn down 20 671 107 28 943 947
------------------- ---------------------------
Expected credit losses on facilities approved (1 520 945) -
but not drawn down
------------------- ---------------------------
Expected credit losses on guarantees (553 538) -
------------------- ---------------------------
------------- --------------
------------------- ---------------------------
24 756 190 37 139 003
------------------- ---------------------------
======== ========
------------------- ---------------------------
22. EXCHANGE RATES
The following exchange rates have been used to translate the
foreign currency balances to United States dollars at year
end:-
Mid-rate Mid-rate
31 December 31 December 2017
2018
----- ------------ -----------------
US$ US$
----- ------------ -----------------
British Pound Sterling GBP 1.2785 1.3525
----- ------------ -----------------
South African Rand ZAR 14.2254 12.3250
----- ------------ -----------------
European Euro EUR 1.1490 1.1994
----- ------------ -----------------
Botswana Pula BWP 10.7296 9.8232
----- ------------ -----------------
23. EVENTS AFTER THE REPORTING PERIOD
On 20 February 2019, the Reserve Bank of Zimbabwe (RBZ)
announced in its Monetary Policy Statement (MPS) that the Monetary
Authorities had established an interbank foreign exchange market to
formalise the buying and selling of foreign currency through the
Banks and Bureaux de change. The Monetary Policy statement was
followed by the issuance of Statutory Instrument 33 of 2019 (SI 33)
on 22 February 2019.
The Statutory Instrument introduced RTGS dollars as a legal
tender in Zimbabwe and advised that the RTGS dollars at a rate of
1:1 to the USD would be used by all entities and individuals in
Zimbabwe for the purposes of pricing goods and services, record
debts, accounting and settlement of domestic transactions with
effect from 20 February 2019. All foreign liabilities or legacy
debts due to suppliers and service providers, declared dividends
e.t.c shall be treated separately after registering such debts with
the RBZ Exchange Control Department for the purposes of providing
the Reserve Bank of Zimbabwe with sufficient information to
determine an orderly expunging of these legacy debts.
The Directors, based on their analysis of IFRSs, had considered
the MPS of 20 February 2019 and the subsequent emergence of the USD
interbank exchange rate to be an adjusting post balance sheet event
in terms of International Accounting Standard 10 (IAS 10) "Events
After the Reporting Period" as the developments were reflective of
underlying conditions that existed at reporting date. The
introduction of the RTGS$ as a currency and initial trades on 22
February 2019 at USD1: RTGS$2.5, was in the opinion of the
Directors, a confirmation of a market wide practice which had
recognised and accepted RTGS$ as a form of currency which was
different from the United States Dollars. However, due to the
limitations provided by SI 33 of 2019, these events after the
reporting period have not been adjusted for as doing so would
result in non-compliance with local laws and regulations.
The Directors performed a sensitivity analysis on note 23.1 to
illustrate the impact on the Group's statement of financial
position as at 31 December 2018 had the financial statements been
restated using the first available interbank mid-rate on 22
February 2019 of USD1:RTGS$2.5. A further analysis of the impact on
the statement of financial position has also been performed using
the rates of USD1:RTGS$3 and USD1:RTGS$4.
Assumptions
In coming up with the sensitivity analysis of the Group's
Statement of Financial Position as at 31 December 2018, the
Directors based the analysis on the assumptions of parity and
interchangeability between the USD and RTGS balances. Furthermore,
the figures on the sensitivity analysis are not reflective of the
opening balances for future periods.
Foreign liabilities or legacy debts, which are being registered
with the RBZ for them to determine an orderly expunging of the
debts, have been restated at the assumed interbank mid-rates above
pending a determination by the Reserve Bank of Zimbabwe.
23.1 Sensitivity Analysis for events after the reporting
period
Components of reported amounts Sensitivity Analysis
Monetary Monetary Non Monetary Non Monetary Total Total Total RTGS$ Total RTGS$
USD RTGS$
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Assets Assets/ Assets/ Assets/ @ 1:1 @1:2.5 @1:3 @1:4
/Liabilities Liabilities Liabilities Liabilities
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Nostro RTGS USD RTGS$
FCA
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Shareholders'
funds
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Share Capital - 80 975 - - 80 975 80 975 80 975 80 975
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Capital 16 526 16 526 16 526 16 526 16 526
Reserves - 297 - - 297 297 297 297
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Revaluation
Reserve - - 136 741 - 136 741 341 853 410 223 546 964
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Foreign
currency
translation 9 019 12 026 18 039
reserve - - - - - 801 401 601
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Retained 47 377 47 377 47 377 47 377 47 377
earnings - 400 - - 400 400 400 400
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
----------------- ----------------- ------------------ ------------------ --------------- --------------- ----------------- ------------------
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
63 984 64 121 73 346 76 421 82 571
Total equity - 672 136 741 - 413 327 297 239
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Redeemable
ordinary 14 335 14 335 14 335 14 335 14 335
shares - 253 - - 253 253 253 253
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Subordinated 1 505 3 764
term loan 1 505 647 - - - 647 118 4 516 941 6 022 588
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
---------------- ----------------- ------------------ ------------------ --------------- --------------- ----------------- ------------------
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Total
shareholders'
funds and
shareholders' 78 319 79 962 91 445 95 273 102 929
liabilities 1 505 647 925 136 741 - 313 698 491 080
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Liabilities
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Deposits and
Other 28 953 418 151 447 105 490 536 505 013 533 967
Accounts 975 308 - - 283 246 233 208
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Deferred 1 219
taxation - - - - - 546 2 262 240 4 347 626
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
----------------- ----------------- ------------------ --------------- --------------- ----------------- ------------------
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Total 28 953 418 151 447 105 491 755 507 275 538 314
liabilities 975 308 - - 283 792 473 834
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
----------------- ----------------- ------------------ ----------------- --------------- --------------- ----------------- ------------------
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Total
shareholders'
funds and 30 459 496 471 527 067 583 201 602 548 641 243
liabilities 622 233 136 741 - 596 490 694 914
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
========== ========== =========== ========== ========= ========= ========== ===========
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Assets
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Cash and cash 12 692 99 748 112 440 131 479 137 825 150 518
equivalents 524 388 - - 912 698 960 484
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Current tax
assets - 285 822 - - 285 822 285 822 285 822 285 822
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Investment 117 249 117 249 117 249 117 249 117 249
securities - 434 - - 434 434 434 434
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Loans,
advances and
other 254 198 254 202 254 209 254 211 254 215
accounts 4 081 864 - - 945 067 107 188
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Non-current
assets held
for
sale - - 36 000 - 36 000 90 000 108 000 144 000
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Trade and
other
investments 112 501 - - - 112 501 281 253 337 503 450 004
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Investment 13 838 20 950 41 708 48 627 62 466
properties - - 490 7 112 116 606 341 586 076
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Intangible 2 036 2 036
assets - - - 2 036 775 775 775 2 036 775 2 036 775
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Property and 12 011 17 844 35 861 41 866 53 878
equipment - - 354 5 832 715 069 100 777 131
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
Deferred 1 908
taxation - 1 908 532 - - 532 - - -
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
----------------- ----------------- ------------------ ------------------ --------------- --------------- ----------------- -----------------
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
12 809 473 391 25 885 14 981 527 067 583 201 602 548 641 243
Total assets 106 040 844 606 596 490 964 914
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
========== ========== =========== =========== ========= ========= ========== ==========
------------------ ------------------ ------------------- ------------------- ---------------- ---------------- ------------------ -------------------
DIVID DECLARATION NOTICE
Notice is hereby given that the board declared a scrip dividend
alternative to the cash dividend of 0.96 RTGS cents per share for
the year ended 31 December 2018 payable in respect of all the
ordinary shares of the Company. The ratio of allotment for the
scrip dividend shall be one (1) for every twenty five (25) shares
held. The conversion price of the scrip dividend is 24 RTGS cents
which was the market price as at 17(th) April 2019, being the date
the directors approved the dividend. This dividend will be payable
in full to all Shareholders of the Company registered at the close
of business on 10 May 2019.
The payment of the dividend will take place on or about 11 June
2019. The applicable shareholders' tax will be deducted from the
Gross Dividends.
The shares of the Company will be traded cum-dividend on the
Zimbabwe Stock Exchange up to the market day of 7 May 2019 and
ex-dividend as from 8 May 2019.
The forms of election with the full details and terms of the
scrip/cash dividend offer will be mailed to shareholders on 17 May
2019 and the last date of receiving the forms of election is 7 June
2019.
Shareholders are requested to submit/update their mailing and
banking details to the Transfer Secretaries and also immediately
contact the Transfer Secretary should they not have received their
dividend election forms by 24 May 2019 on the following
contacts.
First Transfer Secretaries (Pvt) Ltd
1 Armagh Avenue
Eastlea
Harare
Telephone: +263 (242) 782869/72 or 776628/49/59/69/74
Email: info@fts-net.com
By order of the Board
S. PASHAPA
Company Secretary
17 April 2019
NMB BANK LIMITED
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2018
31 December 31 December 2017
2018
Note US$ US$
------ ----------------------------- -----------------
Interest income 39 333 178 32 061 931
----------------------------- -----------------
Interest expense (8 865 016) (9 157 095)
----------------------------- -----------------
---------------- --------------
------ ----------------------------- -----------------
Net interest income 30 468 162 22 904 836
----------------------------- -----------------
Fee and commissions income 28 539 376 18 832 185
----------------------------- -----------------
Net foreign exchange gains 1 899 670 1 583 164
----------------------------- -----------------
---------------- --------------
------ ----------------------------- -----------------
Revenue 60 907 208 43 320 185
----------------------------- -----------------
Other income a 4 983 521 1 107 241
------ ----------------------------- -----------------
---------------- ---------------
------ ----------------------------- -----------------
Operating income 65 890 729 44 427 426
----------------------------- -----------------
Operating expenditure b (34 712 711) (27 578 347)
------ ----------------------------- -----------------
-------------- --------------
------ ----------------------------- -----------------
Operating income before impairment
charge 31 178 018 16 849 079
----------------------------- -----------------
Impairment losses on financial assets
measured at amortised cost (4 011 952) -
------ ----------------------------- -----------------
Impairment losses on loans and advances - (3 853 149)
----------------------------- -----------------
-------------- --------------
------ ----------------------------- -----------------
Profit before taxation 27 166 066 12 995 930
----------------------------- -----------------
Taxation (5 923 385) (3 078 579)
----------------------------- -----------------
-------------- -------------
------ ----------------------------- -----------------
Profit for the period 21 242 681 9 917 351
----------------------------- -----------------
Other comprehensive income
------ ----------------------------- -----------------
Revaluations, net of tax c 46 431 90 310
------ ----------------------------- -----------------
------------- ------------
------ ----------------------------- -----------------
Total comprehensive income for the
period 21 289 112 10 007 661
----------------------------- -----------------
======= ========
------ ----------------------------- -----------------
Earnings per share (US cents)
------ ----------------------------- -----------------
-Basic d 128.70 60.08
------ ----------------------------- -----------------
NMB BANK LIMITED
STATEMENT OF FINANCIAL POSITION
as at 31 December 2018
31 December 2018 31 December 2017
Note US$ US$
------ ------------------- -------------------
SHAREHOLDER'S FUNDS
------ ------------------- -------------------
Share capital e 16 506 16 506
------ ------------------- -------------------
Share premium 31 474 502 31 474 502
------------------- -------------------
Regulatory Reserve - 2 297 492
------------------- -------------------
Revaluation reserve 136 741 90 310
------------------- -------------------
Retained earnings 47 267 030 30 842 252
------------------- -------------------
--------------- ---------------
------ ------------------- -------------------
Total shareholder's funds 78 894 779 64 721 062
------------------- -------------------
--------------- ---------------
------ ------------------- -------------------
LIABILITIES
------ ------------------- -------------------
Deposits and other liabilities 447 138 216 356 977 472
------------------- -------------------
Subordinated term loan 1 505 647 1 415 904
------------------- -------------------
----------------- ----------------
------ ------------------- -------------------
Total liabilities 448 643 863 358 393 376
------------------- -------------------
---------------- ---------------
------ ------------------- -------------------
Total shareholder's funds
and liabilities 527 538 642 423 114 438
------------------- -------------------
========== =========
------ ------------------- -------------------
ASSETS
------ ------------------- -------------------
Cash and cash equivalents f 112 440 912 89 553 202
------ ------------------- -------------------
Current tax assets 210 302 155 488
------------------- -------------------
Loans, advances and other
assets 254 195 558 210 475 836
------------------- -------------------
Investment securities 117 249 434 92 245 425
------------------- -------------------
Amount owing from Holding
Company 558 303 651 564
------------------- -------------------
Non-current assets held for
sale 36 000 36 000
------------------- -------------------
Unquoted investments 112 501 102 347
------------------- -------------------
Investment properties g 20 950 606 18 977 000
------ ------------------- -------------------
Intangible assets 2 036 775 2 380 180
------------------- -------------------
Property and equipment 17 844 069 7 335 988
------------------- -------------------
Deferred tax assets 1 904 182 1 201 408
------------------- -------------------
------------------ ------------------
------ ------------------- -------------------
Total assets 527 538 642 423 114 438
------------------- -------------------
=========== ===========
--------------------------------------- ------------------- -------------------
NMB BANK LIMITED
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018
Share Share Revaluation Regulatory Retained
Capital Premium Reserve Reserve Earnings Total
US$ US$ US$ US$ US$ US$
------------- --------------- ---------------- --------------- ----------------- ---------------
Balances at 1
January 2017 16 506 31 474 502 - 1 785 136 21 437 257 54 713 401
------------- --------------- ---------------- --------------- ----------------- ---------------
Profit for the
year - - - - 9 917 351 9 917 351
------------- --------------- ---------------- --------------- ----------------- ---------------
Other
comprehensive
income - - 90 310 - - 90 310
------------- --------------- ---------------- --------------- ----------------- ---------------
Transfer from
retained
earnings - - - 512 356 (512 356) -
------------- --------------- ---------------- --------------- ----------------- ---------------
-------- ------------- --------------- -------------- ---------------- --------------
------------- --------------- ---------------- --------------- ----------------- ---------------
Balances at 31
December 2017 16 506 31 474 502 90 310 2 297 492 30 842 252 64 721 062
------------- --------------- ---------------- --------------- ----------------- ---------------
IFRS 9
adjustments -
1 January 2018
------------- --------------- ---------------- --------------- ----------------- ---------------
Transfer from
regulatory
reserve - - - (2 297 492) 2 297 492 -
------------- --------------- ---------------- --------------- ----------------- ---------------
Expected
credit loss
(ECL)
adjustment
1 January
2018 - - - - (8 575 988) (8 575 988)
------------- --------------- ---------------- --------------- ----------------- ---------------
Deferred tax
on ECL
adjustment -
1
January 2018 - - - - 2 208 317 2 208 317
------------- --------------- ---------------- --------------- ----------------- ---------------
------------ ------------- -------------- ------------- ------------- -------------
------------- --------------- ---------------- --------------- ----------------- ---------------
Restated
balances at 1
January 2018 16 506 31 474 502 90 310 - 26 772 073 58 353 391
------------- --------------- ---------------- --------------- ----------------- ---------------
Profit for the
year - - - - 21 242 681 21 242 681
------------- --------------- ---------------- --------------- ----------------- ---------------
Other
comprehensive
income - - 46 431 - - 46 431
------------- --------------- ---------------- --------------- ----------------- ---------------
Dividend paid - - - - (747 724) (747 724)
------------- --------------- ---------------- --------------- ----------------- ---------------
-------- -------------- --------------- -------------- ------------- --------------
------------- --------------- ---------------- --------------- ----------------- ---------------
Balances at 31
December 2018 16 506 31 474 502 136 741 - 47 267 030 78 894 779
------------- --------------- ---------------- --------------- ----------------- ---------------
===== ======== ========= ======== ======== ========
------------- --------------- ---------------- --------------- ----------------- ---------------
NMB BANK LIMITED
STATEMENT OF CASH FLOWS
for the year ended 31 December 2018
31 December 31 December
2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES US$ US$
----------------- ----------------
Profit before taxation 27 166 066 12 995 930
----------------- ----------------
Non-cash items
----------------- ----------------
-Impairment losses on financial assets measured
at amortised cost 4 011 952 3 853 149
----------------- ----------------
-Investment properties fair value adjustment (2 551 436) (302 255)
----------------- ----------------
-Profit on disposal of property and equipment (22 396) -
----------------- ----------------
* Loss on disposal of property and equipment (included
in staff costs) - 56 637
----------------- ----------------
-Loss on disposal of non current asset held
for sale - 75 300
----------------- ----------------
-Profit on disposal of investment properties (567 032) (12 951)
----------------- ----------------
-Trade and other investments fair value adjustment (10 154) (13 417)
----------------- ----------------
-Impairment reversal on land and buildings (76 661) (89 660)
----------------- ----------------
-Depreciation 1 370 312 1 136 810
----------------- ----------------
-Interest capitalised on subordinated term
loan 171 483 165 345
----------------- ----------------
-Amortisation of intangible assets 879 376 832 567
----------------- ----------------
-Unrealised foreign exchange loss/(gain) 20 689 (16 555)
----------------- ----------------
---------------- --------------
----------------- ----------------
Operating cash flows before changes in operating
assets and liabilities 30 392 199 18 680 900
----------------- ----------------
Changes in operating assets and liabilities
----------------- ----------------
Increase in deposits and other liabilities 90 073 581 91 620 178
----------------- ----------------
Increase in loans, advances and other assets (56 133 878) (14 656 426)
----------------- ----------------
--------------- ---------------
----------------- ----------------
Net cash generated from operations 64 331 902 95 644 652
----------------- ----------------
--------------- ---------------
----------------- ----------------
Taxation
----------------- ----------------
Capital gains tax paid - (155 265)
----------------- ----------------
Corporate tax paid (4 488 757) (1 757 028)
----------------- ----------------
-------------- ---------------
----------------- ----------------
Net cash inflow from operating activities 59 843 145 93 732 359
----------------- ----------------
-------------- ---------------
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
----------------- ----------------
Proceeds on disposal of property and equipment 22 396 1 076
----------------- ----------------
Acquisition of intangible assets (535 971) (1 565 713)
----------------- ----------------
Acquisition of property and equipment (9 490 840) (2 038 933)
----------------- ----------------
Acquisition of investment properties (6 082 924) (4 792 475)
----------------- ----------------
Proceeds or disposal of non-current asset
held for sale - 2 150 000
----------------- ----------------
Acquisition of investment securities (25 004 013) (67 500 670)
----------------- ----------------
Decrease/(increase) in amount owing from
Holding Company 93 261 (40 961)
----------------- ----------------
Proceeds on disposal of investment properties 4 801 846 332 951
----------------- ----------------
---------------- ---------------
----------------- ----------------
Net cash outflow from investing activities (36 196 245) (73 454 725)
----------------- ----------------
---------------- ---------------
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
--------------- ----------------
Dividend paid (747 724) -
--------------- ----------------
Payment of interest on subordinated term
loan (81 740) (164 931)
--------------- ----------------
-------------- ---------------
--------------- ----------------
Net cash inflow from financing activities (829 464) (164 931)
--------------- ----------------
-------------- ---------------
--------------- ----------------
Net increase in cash and cash equivalents 22 817 436 20 112 703
--------------- ----------------
Net foreign exchange differences on cash
and cash equivalents 70 274 19 242
--------------- ----------------
Cash and cash equivalents at beginning
of the year 89 553 202 69 421 257
--------------- ----------------
-------------- ---------------
--------------- ----------------
Cash and cash equivalents at the end of
the year (note f) 112 440 912 89 553 202
--------------- ----------------
======== ========
--------------- ----------------
NMB BANK LIMITED
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
for the year ended 31 December 2018
There are no material differences between the Bank and the
Holding company 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 where applicable.
a. OTHER income
31 December 2018 31 December 2017
----------------- -----------------
US$ US$
----------------- -----------------
Loss on disposal of non-current assets
held for sale - (75 300)
----------------- -----------------
Unquoted investments fair value adjustments 10 154 13 416
----------------- -----------------
Profit on disposal of investment
properties 567 032 12 951
----------------- -----------------
Profit on disposal of property and 22 396 -
equipment
----------------- -----------------
Fair value adjustment on investment
properties 2 551 436 302 255
----------------- -----------------
Rental income 365 269 135 900
----------------- -----------------
Bad debts recovered 1 295 428 580 295
----------------- -----------------
Other operating income 171 806 137 724
----------------- -----------------
-------------- ------------
----------------- -----------------
4 983 521 1 107 241
----------------- -----------------
======== ======
----------------- -----------------
b. Operating EXPITURE
31 December 2018 31 December 2017
----------------- -----------------
US$ US$
----------------- -----------------
The operating profit is after recognising
the following:
----------------- -----------------
Administration costs 15 955 591 11 866 111
----------------- -----------------
Audit fees:
----------------- -----------------
- Current year 98 991 35 938
----------------- -----------------
- Prior year 111 406 95 456
----------------- -----------------
Impairment reversal on land and buildings* (76 660) (89 660)
----------------- -----------------
Depreciation 1 370 312 1 136 810
----------------- -----------------
Amortization of intangible assets 879 376 832 567
----------------- -----------------
Directors' remuneration 971 121 719 318
----------------- -----------------
-Fees for services as directors 219 246 233 102
----------------- -----------------
-Expenses 17 364 9 393
----------------- -----------------
-services rendered 734 511 476 823
----------------- -----------------
Staff costs - salaries, allowances
and related costs 15 402 574 12 981 807
----------------- -----------------
-------------- ---------------
----------------- -----------------
34 712 711 27 578 347
----------------- -----------------
======== =========
----------------- -----------------
*The impairment reversal on land and buildings arose due to fair
value changes on the Group's land and buildings measured using the
revaluation model.
c. OTHER COMPREHENSIVE INCOME
31 December 2018 31 December 2017
-------------------- ---------------------
US$ US$
-------------------- ---------------------
Revaluation gain on land and buildings 62 533 121 630
-------------------- ---------------------
Tax effect (16 102) (31 320)
-------------------- ---------------------
----------- ------------
-------------------- ---------------------
46 431 90 310
-------------------- ---------------------
====== ======
-------------------- ---------------------
d. EARNINGS PER SHARE
The calculation of earnings per share is based on the following
figures:
d.1 Earnings
31 December 2018 31 December 2017
US$ US$
----------------- -----------------
Profit for the year 21 242 681 9 917 351
----------------- -----------------
d.2 Number of shares
Weighted average shares in issue 16 506 050 16 506 050
d.3 Earnings per share (US cents)
Basic 128.70 60.08
e. SHARE CAPITAL
e.1 Authorised
The authorised ordinary share capital at 31 December 2018 is at
the historical cost figure of US$25 000 (2017 - US$25 000)
comprising 25 million ordinary shares of US$0.001 each.
e.2 Issued and fully paid
The issued share capital at 31 December 2018 is at the
historical cost figure of US$16 506 (2017 - US$16 506) comprising
16 506 050 (2017 - 16 506 050) ordinary shares of US$0.001
each.
f. CASH AND CASH EQUIVALENTS
31 December 2018 31 December 2017
US$ US$
----------------- -----------------
Balances with the Central Bank 89 081 480 79 876 937
----------------- -----------------
Current, nostro accounts and cash 13 426 360 6 676 265
----------------- -----------------
Interbank placements (see below) 10 000 000 3 000 000
----------------- -----------------
--------------- ---------------
----------------- -----------------
112 507 840 89 553 202
----------------- -----------------
Expected Credit loss allowance (see (66 928) -
below)
----------------- -----------------
--------------- ----------------
----------------- -----------------
112 440 912 89 553 202
----------------- -----------------
========= =========
----------------- -----------------
Interbank placements
----------------- -----------------
Interbank placements 10 000 000 3 000 000
----------------- -----------------
Expected Loss allowance - Stage 1 (66 928) -
----------------- -----------------
-ECL at 1 January 2018 (26 770) -
----------------- -----------------
-ECL charge through profit or loss (40 158) -
----------------- -----------------
------------- -------------
----------------- -----------------
9 933 072 3 000 000
----------------- -----------------
======= =======
----------------- -----------------
g. INVESTMENT PROPERTIES
31 December 2018 31 December 2017
US$ US$
----------------- -----------------
At 1 January 18 977 000 14 202 270
----------------- -----------------
Acquisitions 6 082 924 4 792 475
----------------- -----------------
Disposals (4 360 754) (320 000)
----------------- -----------------
Fair value adjustments 2 551 436 302 255
----------------- -----------------
Reclassification to property and equipment (2 300 000) -
----------------- -----------------
------------- -------------
----------------- -----------------
At 31 December 20 950 606 18 977 000
----------------- -----------------
======== ========
----------------- -----------------
Investment properties comprise a commercial property and
residential properties that are leased out to third parties and
land held for future development. No properties were
encumbered.
Rental income amounting to US$365 269 (2017 - US$135 900) was
received and no operating expenses were incurred on the investment
properties in the current year due to the net leasing arrangement
on the properties.
Included in investment properties are properties which were
acquired as part of the foreclosure process with marketability
restrictions measured at US$8 355 662 as at 31 December 2018. The
Bank has no restrictions on the realisability of all the remaining
investment properties and no contractual obligations to purchase,
construct or develop the investment properties or for repairs,
maintenance and enhancements.
Measurement of fair value
Fair value hierarchy
The fair value of the Bank's investment properties as at 31
December 2018 has been arrived at on the basis of valuations
carried out by independent professional valuers, PMA Real Estate
(Private) Limited. The valuation which conforms to International
Valuation Standards, was in terms of the policy as set out in the
accounting policies section and was derived with reference to
market information close to the date of the valuation.
Level 2
The fair value for investment properties of US$12 594 944 (2017
- US$8 722 000) has been categorised under level 2 in the fair
value hierarchy based on the inputs used for the valuation
technique described below.
The following shows reconciliation between the opening and
closing balances for level 2 fair values:
31 December 2018 31 December 2017
US$ US$
--------------------------- ---------------------------
At 1 January 8 722 000 7 382 270
--------------------------- ---------------------------
Acquisitions 3 247 175 1 740 158
--------------------------- ---------------------------
Disposals - (320 000)
--------------------------- ---------------------------
Fair value adjustments 1 281 769 (80 428)
--------------------------- ---------------------------
Transfers from Level 3 1 644 000 -
--------------------------- ---------------------------
Reclassification to property and (2 300 000) -
equipment
--------------------------- ---------------------------
--------------- -------------
--------------------------- ---------------------------
Balance at 31 December 12 594 944 8 722 000
--------------------------- ---------------------------
========= ========
--------------------------- ---------------------------
Level 3
The fair value for investment properties of US$8 355 662 (2017 -
US$10 255 000) has been categorised under level 3 in the fair value
hierarchy based on the inputs used for the valuation technique
described below.
The following shows reconciliation between the opening and
closing balances for level 3 fair values:
31 December 2018 31 December 2017
US$ US$
--------------------------- ---------------------------
At 1 January 10 255 000 6 820 000
--------------------------- ---------------------------
Acquisitions 2 835 749 3 052 317
--------------------------- ---------------------------
Disposals (4 360 754) -
--------------------------- ---------------------------
Fair value adjustments 1 269 667 382 683
--------------------------- ---------------------------
Transfers to Level 2 (1 644 000) -
--------------------------- ---------------------------
--------------- -------------
--------------------------- ---------------------------
Balance at 31 December 8 355 662 10 255 000
--------------------------- ---------------------------
========= ========
--------------------------- ---------------------------
The values were arrived at by applying yield rates of 5% on
rental values of between US$4 - US$7 per square metre. The
properties are leased out under operating lease to various
tenants.
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 Significant unobservable inter-relationship between
technique inputs key unobservable inputs
and fair value measurement
The The estimated fair value
investment * Weighted average expected market rental growth (5%); would increase /(decrease)
method if:
Discounted * expected market rental growth were higher/ (lower);
cash flows * Void period (average 3 months after the end of each
was used to lease);
value all * void periods were shorter/(longer);
income
producing * Occupancy rate (55%); and
properties. * the occupancy rates were higher /(lower); and
The direct * Average market yield of 10%.
comparison * the risk adjusted discount rates were lower/
method was (higher).
applied on * Marketability restrictions for level 3 items due to
all underlying contractual agreements with third parties
residential .
properties.
--------------------------------------------------------------- ----------------------------------------------------------
Below is an indication of the sensitivity analysis at different
discount rates:-
Change in rate Change in fair value
+5% 1 165 911
---------------------
+3% 699 546
---------------------
+1% 233 182
---------------------
-1% -233 182
---------------------
-3% -699 546
---------------------
-5% -1 165 911
---------------------
h. CORPORATE GOVERNANCE AND RISK MANAGEMENT
1. RESPONSIBILITY
These financial statements are the responsibility of the
directors. This responsibility includes the setting up of internal
controls and risk management processes, which are monitored
independently. The information contained in these financial
statements has been prepared on the going concern basis and is in
accordance with the provisions of the Companies Act (Chapter 24:03)
of Zimbabwe, the Banking Act (Chapter 24:20) of Zimbabwe and
International Financial Reporting Standards.
2. CORPORATE GOVERNANCE
The Bank adheres to principles of corporate governance derived
from the National Code on Corporate Governance Zimbabwe, King IV
Report, the United Kingdom Combined Code and Reserve Bank of
Zimbabwe corporate governance guidelines. The Bank is cognisant of
its duty to conduct business with due care and in good faith in
order to safeguard all stakeholders' interests.
Board and Director evaluations are carried out an annual basis,
wherein the effectiveness of the Board is reviewed, including its
gender and skills mix. Furthermore, the independence of Independent
Non-Executive Directors is reviewed on an annual basis.
The Bank has in place an Ethics Charter ("Code of Ethics") that
all Board and staff members are required to adhere to. Also the
Bank adheres to its Environmental and Social Risk Management
Framework, wherein its main objectives are to:
-- Identify and assess environmental and social risks and
opportunities associated with a Client's activities and its sphere
of influence;
-- Promote improved social and environmental performance of a Client's companies; and
-- Avoid, or where avoidance is not possible, minimize,
mitigate, or compensate for adverse impacts on workers, affected
communities, and the environment.
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 (NMB Bank Limited Board is the same as
the NMBZ Holdings Limited Board)
Human
Asset and Resources,
Liability Remuneration
Management Loans and
Board of Audit Risk Committee Review Nominations Credit
Directors Committee Management (ALCO) & Committee Committee Committee
Finance
Committee
Mr. B. A.
Chikwanha 4 3 4 3 4 3 4 3
----- ------ ----- ------ --- --------- --- ---------- ---- ------- ---- --------- ----- ------
Mr. B.
Ndachena (E) 4 4 4 4
----- ------ ----- ------ --- --------- --- ---------- ---- ------- ---- --------- ----- ------
Mr. E.
Sandersen 4 4 4 4 4 4 4 4
----- ------ ----- ------ --- --------- --- ---------- ---- ------- ---- --------- ----- ------
Mr. B. P.
Washaya (E) 4 4 4 4 4 4 4 4
----- ------ ----- ------ --- --------- --- ---------- ---- ------- ---- --------- ----- ------
Ms. S.
Chitehwe 4 4 10 10 4 4 4 4
----- ------ ----- ------ --- --------- --- ---------- ---- ------- ---- --------- ----- ------
Mr. J.
Tichelaar 4 4 4 4 4 4 4 4
----- ------ ----- ------ --- --------- --- ---------- ---- ------- ---- --------- ----- ------
Mr. J. de la
Fargue 4 4 4 4 4 4 4 4 4 4
----- ------ ----- ------ --- --------- --- ---------- ---- ------- ---- --------- ----- ------
Ms. J.
Maguranyanga 4 4 10 9 4 4 4 4
----- ------ ----- ------ --- --------- --- ---------- ---- ------- ---- --------- ----- ------
Mr. C.
Chikaura 4 4 10 10 4 4 4 4 4 4 4 4
----- ------ ----- ------ --- --------- --- ---------- ---- ------- ---- --------- ----- ------
KEY
Meetings planned
(E) Executive.
4. RISK MANAGEMENT
The Board of Directors has overall responsibility for the
establishment and oversight of the Group's risk management
framework. The Board has established the Board Asset and Liability
Management Committee (ALCO) and the Board Risk and Compliance
Committee, which are responsible for defining the Group's risk
universe, developing policies and monitoring implementation. The
Board also has the Board Credit Committee (BCC) which is
responsible for sanctioning credits and the Board Loans Review
Committee (LRC), which is responsible for monitoring asset quality
and adherence to the credit risk management policy.
Risk management is linked logically from the level of individual
transactions to the Group level. Risk management activities broadly
take place simultaneously at the following different hierarchy
levels:
a) Strategic Level: This involves risk management functions
performed by senior management and the board of directors. It
includes the definition of risk, ascertaining the Group's risk
appetite, formulating strategy and policy for managing risk and
establishes adequate systems and controls to ensure overall risk
remains within acceptable levels and is adequately compensated.
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 organisation 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.
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 Group's general credit
strategies centre on sound credit granting process, diligent credit
monitoring and strong loan collection and recovery. There is a
separation between loan collection and recovery. There is a
separation between loan granting and credit monitoring to ensure
independency and effective management of the loan portfolio. The
Board has put in place sanctioning committees with specific credit
approval limits. The Credit Management department does the initial
review of all applications before recommending them to the
Executive Credit Committee and finally the Board Credit Committee
depending on the loan amount. The Group has in place a Board Loans
Review Committee responsible for reviewing the quality of the loan
book and adequacy of loan loss provisions.
The Group has an automated credit processes from loan
origination, appraisal, monitoring and collections. The system has
a robust loan monitoring and reporting module which is critical in
managing credit risk. In view of the group's move into the mass
market, retail credit has become a key area of focus. The group has
put in place robust personal loan monitoring systems and structures
to mitigate retail loan delinquencies. This includes a rigorous
scheme assessment and a dedicated pre-delinquency team and a
separate recoveries team.
Credit Management
-- Responsible for evaluating & approving credit proposals from the business units.
-- Together with business units, has primary responsibility on
the quality of the loan book.
-- Reviewing credit policy for approval by the Board Credit Committee.
-- Reviewing business unit level credit portfolios to ascertain
changes in the credit quality of individual customers or other
counterparties as well as the overall portfolio and detect unusual
developments.
-- Approve initial customer internal credit grades or recommend
to the Credit Committees for approval.
-- Setting the credit risk appetite parameters.
-- Ensure the Group adheres to limits, mandates and its credit policy.
-- Ensure adherence to facility covenants and conditions of
sanction e.g. annual audits, gearing levels, management
accounts.
-- Manage trends in asset and portfolio composition, quality and
growth and non-performing loans.
-- Manage concentration risk both in terms of single borrowers or group as well as sector concentrations and the review of such limits.
Credit Monitoring and Financial Modelling
-- Independent credit risk management.
-- Independent on-going monitoring of individual credit and portfolios.
-- Triggers remedial actions to protect the interests of the
Group, if appropriate (e.g. in relation to deteriorated
credits).
-- Monitors the on-going development and enhancement of credit
risk management across the Group.
-- Reviews the Internal Credit Rating System.
-- On-going championing of the Basel II methodologies across the Group.
-- Ensures consistency in the rating processes and performs
independent review of credit grades to ensure they conform to the
rating standards.
-- Confirm the appropriateness of the credit risk strategy and
policy or recommends necessary revisions in response to
changes/trends identified.
Credit Administration
-- Prepares and keeps custody of all facility letters.
-- Security registration.
-- Safe custody of security documents.
-- Ensures all conditions of sanction are fulfilled before
allowing drawdown or limit marking.
-- Review of credit files for documentation compliance e.g. call
reports, management accounts.
Recoveries
The recoveries unit is responsible for all collections and
ensures that the Group maximises recoveries from Non-Performing
Loans (NPLs) and loans and advances written off.
4.2 Market risk
This is the exposure of the Group's on and off balance sheet
positions to adverse movement in market
prices resulting in a loss in earnings and capital. The market
prices will range from money market
(interest rate risk), foreign exchange and equity markets in
which the bank operates. The Group has in place a Management Asset
and Liability Committee (ALCO) which monitors market risk and
recommends the appropriate levels to which the Group should be
exposed at any time. Net Interest
Margin is the primary measure of interest rate risk, supported
by periodic stress tests to assess the
Group's ability to withstand stressed market conditions. On
foreign exchange risk, the bank monitors
currency mismatches and make adjustments depending on exchange
rate movement forecast. The
mismatches per currency are contained within 5% of the Group's
capital position.
Management ALCO meets on a monthly basis and operates within the
prudential guidelines and policies established by the Board ALCO.
The Board ALCO is responsible for setting exposure thresholds and
limits, and meets on a quarterly basis.
4.3 Liquidity risk
Liquidity risk is the risk of financial loss arising from the
inability of the Group to fund asset increases or meet obligations
as they fall due without incurring unacceptable costs or losses.
The Group identifies this risk through maturity profiling of assets
and liabilities and assessment of expected cash flows and the
availability of collateral which could be used if additional
funding is required.
The daily liquidity position is monitored and regular liquidity
stress testing is conducted under a variety of scenarios covering
both normal and more severe market conditions. All liquidity
policies and procedures are subject to review and approval by the
Board ALCO.
The key measure used by the bank for managing liquidity risk is
the ratio of net liquid assets to deposits to customers. The Group
also actively monitors its loans to deposit ratio against a set
threshold in a bid to monitor and limit funding risk. The group
monitors funding concentration risk by reviewing the ratio of top
20 depositors to the total funding. Funding mix is also monitored
by monitoring the contribution of wholesale and demand deposits to
the total funding for the bank. Liquidity risk is monitored through
a daily liquidity reports produced by the Risk Management
department. This is augmented by a monthly management ALCO and a
quarterly board ALCO meetings.
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
Group utilises monthly Key Risk Indicators to monitor operational
risk in all units. Further to this, the Group has an elaborate
Operational Loss reporting system in which all incidents with a
material impact on the well-being of the Group are reported to risk
management. The risk department conducts periodic risk assessments
on all the units within the Group aimed at identifying the top
risks and ways to minimise their impact. There is a Board Risk and
Compliance Committee whose function is to ensure that this risk is
minimised. The Risk Committee with the assistance of the internal
audit function and the Risk Management department assesses the
adequacy of the internal controls and makes the necessary
recommendations to the Board.
4.5 Legal and compliance risk
Legal risk is the risk from uncertainty due to legal actions or
uncertainty in the applicability or interpretation of contracts,
laws or regulations. Legal risk may entail such issues as contract
formation, capacity and contract frustration. Compliance risk is
the risk arising from non - compliance with laws and regulations.
To manage this risk, permanent relationships are maintained with
firms of legal practitioners and access to legal advice is readily
available to all departments. The Group has an independent
compliance function which is responsible for identifying and
monitoring all compliance issues and ensures the Group complies
with all regulatory and statutory requirements.
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 Group conducts its
business. To manage this risk, the Group
strictly monitors customers' complaints, continuously train
staff at all levels, conducts market surveys
and periodic reviews of business practices through its Internal
Audit department. The directors are
satisfied with the risk management processes in the Group as
these have contributed to the minimisation
of losses arising from risky exposures.
4.7 Strategic risk
This refers to current and prospective impact on a Group's
earnings and capital arising from adverse business decisions or
implementing strategies that are not consistent with the internal
and external environment. To manage this risk, the Group always has
a strategic plan that is adopted by the Board of Directors.
Further, attainment of strategic objectives by the various
departments is monitored periodically at management level.
4.8 Risk Ratings
4.8.1 Reserve Bank of Zimbabwe Ratings
The Reserve Bank of Zimbabwe conducted an onsite inspection on
the Group's banking subsidiary on 24 November 2016. Below are the
final ratings from the onsite examination.
4.8.1.1 CAMELS* Ratings
Latest RBS** Previous RBS Previous RBS
CAMELS Component Ratings Ratings Ratings
24/11/2016 30/06/2013 31/01/2008
Capital Adequacy 2 2 4
------------- ------------- -------------
Asset Quality 3 4 2
------------- ------------- -------------
Management 3 3 3
------------- ------------- -------------
Earnings 2 2 3
------------- ------------- -------------
Liquidity 3 2 3
------------- ------------- -------------
Sensitivity to Market
Risk 2 2 3
------------- ------------- -------------
Composite Rating 3 3 3
------------- ------------- -------------
*CAMELS is an acronym for Capital Adequacy, Asset quality,
Management, Earnings, Liquidity and Sensitivity to Market Risk.
CAMELS rating system uses a rating scale of 1-5, where '1' is
Strong, '2' is Satisfactory, '3' is Fair, '4' is Weak and '5' is
Critical.
**RBS stands for Risk-Based Supervision.
4.8.1.2 Summary RAS ratings
Latest RAS*** Previous RAS Previous
RAS Component Ratings Ratings RAS Ratings
24/11/2016 30/06/2013 31/01/2008
Overall Inherent Risk High Moderate Moderate
-------------- ------------- -------------
Overall Risk Management Acceptable Acceptable Acceptable
Systems
-------------- ------------- -------------
Overall Composite Risk Moderate Moderate Moderate
-------------- ------------- -------------
Direction of Overall Composite Stable Stable Stable
Risk
-------------- ------------- -------------
*** RAS stands for Risk Assessment System.
4.8.1.3 Summary risk matrix - 24 November 2016 on - site
examination
Level of Inherent Adequacy of Overall Direction
Type of Risk Risk Risk Management Composite of Overall
Systems Risk Composite
Risk
Credit High Acceptable High Stable
------------------ ----------------- ----------- ------------
Liquidity High Acceptable High Stable
------------------ ----------------- ----------- ------------
Interest Rate Moderate Acceptable Moderate Stable
------------------ ----------------- ----------- ------------
Foreign Exchange Low Acceptable Low Stable
------------------ ----------------- ----------- ------------
Strategic Risk Moderate Acceptable Moderate Stable
------------------ ----------------- ----------- ------------
Operational Risk Moderate Acceptable Moderate Stable
------------------ ----------------- ----------- ------------
Legal & Compliance Moderate Acceptable Moderate Stable
------------------ ----------------- ----------- ------------
Reputation High Acceptable 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 2018 2017
Long term BBB- BB+
The current rating expires in August 2019.
4.9 Regulatory Compliance
There was no regulatory breach resulting in penalties during the
period under review. The Bank is committed to comply with and
adhere to all regulatory requirements.
5. CAPITAL MANAGEMENT
The primary objective of the Bank's capital management is to
ensure that the Bank complies with the RBZ requirements. In
implementing the current capital requirements, the RBZ requires the
Banking subsidiary to maintain a prescribed ratio of total capital
to total risk weighted assets.
Regulatory capital consists of Tier 1 capital, which comprises
share capital, share premium, retained earnings (including current
year profit), statutory reserve and other equity reserves.
The other component of regulatory capital is Tier 2 capital,
which includes subordinated term debt, revaluation reserves and
portfolio provisions.
Tier 3 capital relates to an allocation of capital to market and
operational risk.
Various limits are applied to elements of the capital base. The
core capital (Tier 1) shall 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 31 December was as
follows:
31 December 31 December
2018 2017
US$ US$
------------------ ---------------
Share capital 16 506 16 506
------------------ ---------------
Share premium 31 474 502 31 474 502
------------------ ---------------
Retained earnings 47 267 030 30 842 252
------------------ ---------------
Fair value gain on investment properties (3 257 631) (1 197 871)
------------------ ---------------
--------------- --------------
------------------ ---------------
75 500 407 61 135 389
------------------ ---------------
Less: capital allocated for market and
operational risk (3 886 799) (2 918 935)
------------------ ---------------
Credit to insiders - -
------------------ ---------------
-------------- --------------
------------------ ---------------
Tier 1 capital 71 613 608 58 216 454
------------------ ---------------
Tier 2 capital (subject to limit as per
Banking Regulations) 8 197 298 5 183 773
------------------ ---------------
Revaluation reserve 3 257 631 1 197 871
------------------ ---------------
Revaluation of property and equipment 136 741 90 310
------------------ ---------------
Subordinated debt 302 152 477 782
------------------ ---------------
Regulatory reserve (limited to 1.25% of
risk weighted assets) - 2 297 492
------------------ ---------------
Stage 1 & 2 ECL provisions - (limited to 4 500 774 -
1,25% of risk weighted assets)
------------------ ---------------
Portfolio provisions (limited to 1.25%
of risk weighted assets) - 1 120 318
------------------ ---------------
--------------- --------------
------------------ ---------------
Total Tier 1 & 2 capital 79 810 906 63 400 227
------------------ ---------------
Tier 3 capital (sum of market and operational
risk capital) 3 886 799 2 918 935
------------------ ---------------
--------------- --------------
------------------ ---------------
Total capital base 83 697 705 66 319 162
------------------ ---------------
========= =========
------------------ ---------------
Total risk weighted assets 360 061 931 273 424 840
------------------ ---------------
========= =========
------------------ ---------------
Tier 1 ratio 19.89% 21.29%
------------------ ---------------
Tier 2 ratio 2.28% 1.90%
------------------ ---------------
Tier 3 ratio 1.08% 1.07%
------------------ ---------------
Total capital adequacy ratio 23.25% 24.26%
------------------ ---------------
RBZ minimum required 12.00% 12.00%
------------------ ---------------
6. SEGMENT INFORMATION
For management purposes, the Bank is organised into five
operating segments based on products and services as follows:
Retail Banking Individual customer's deposits and consumer
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.
Digital Banking Handles the Bank's Digital Banking products
including Card and POS Services.
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
2018 and 2017.
The following table presents income and profit and certain asset
and liability information regarding the bank's operating segments
and service units:
Retail Banking Corporate Treasury International Digital
Banking Banking Banking Banking Other Total
For the year
ended 31 US$ US$ US$ US$ US$ US$ US$
December
2018
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
Third party 14 206
income 24 477 869 17 934 170 12 662 627 491 279 279 4 983 521 74 755 745
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
Interest and
similar
expense (1 555 990) (3 049 358) (4 259 668) - - - (8 865 016)
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
------------- -------------- ------------ ------------- ------------- -------------- -------------
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
Net operating 14 206
income 22 921 879 14 884 812 8 402 959 491 279 279 4 983 521 65 890 729
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
-------------- -------------- ------------ ------------- -------------- --------------- --------------
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
Other material
non-cash
items:
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
Impairment
losses on
financial
assets
measured at
armotised
cost 1 263 783 2 637 704 110 465 - - - 4 011 952
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
Depreciation
of property
and equipment 404 593 38 933 2 842 4 471 413 438 506 035 1 370 312
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
Amortisation
of intangible
assets - - - - - 879 376 879 376
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
Segment
profit/
(loss) 10 610 669 6 478 395 7 135 831 (262 253) 9 658 564 (6 455 140) 27 166 066
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
Income tax
charge - - - - - (5 923 385) (5 923 385)
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
Other
comprehensive
income - - - - - 46 431 46 431
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
-------------- -------------- ------------- ------------ ------------ -------------- -------------
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
Profit/(loss) (12 322
for the year 10 610 669 6 478 395 7 135 831 (262 253) 9 658 564 094) 21 289 112
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
------------- -------------- --------------- ------------- ------------ -------------- ---------------
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
At 31 December
2018
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
Assets and
liabilities
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
Capital
expenditure 709 351 232 845 1 731 3 236 4 254 017 4 680 032 9 881 214
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
100 998 157 788 527 538
Total assets 573 029 160 181 794 3 722 839 5 652 611 99 052 400 642
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
Total 123 421 159 912 448 643
liabilities 353 290 135 168 359 15 654 293 - 14 487 568 863
--------------- --------------- ---------------- -------------- --------------- ---------------- ----------------
The following table presents income and profit and certain asset
and liability information regarding the bank's operating segments
and service units:
Retail Banking Corporate Treasury International Digital
Banking Banking Banking Banking Other Total
For the year US$ US$ US$ US$ US$ US$ US$
ended 31
December
2017
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Third party 10 914
income 18 806 390 14 340 614 7 658 528 546 651 710 1 317 628 53 584 521
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Interest and
similar (1 950
expense 582) (3 392 090) (3 814 423) - - - (9 157 095)
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
------------- -------------- ------------ ------------- ------------- -------------- -------------
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Net operating 10 914
income 16 855 808 10 948 524 3 844 105 546 651 710 1 317 628 44 427 426
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
-------------- -------------- ------------ ------------- ------------- --------------- --------------
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Other material
non-cash items
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Impairment
losses on
loans
and advances 1 599 035 2 254 114 - - - - 3 853 149
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Depreciation
of property
and equipment 476 499 15 069 9 566 6 127 486 916 142 633 1 136 810
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Amortisation
of intangible
assets - - - - - 832 567 832 567
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Segment
profit/
(loss) 2 946 565 3 372 984 2 774 647 (91 733) 2 675 839 1 317 628 12 995 930
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Income tax
charge - - - - - (3 078 579) (3 078 579)
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Other
comprehensive
income - - - - - 90 310 90 310
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
------------- -------------- ------------- -------------- ------------ -------------- -------------
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Profit/(loss)
for the year 2 946 565 3 372 984 2 774 647 (91 733) 2 675 839 (1 670 640) 10 007 662
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
======== ======== ======== ======== ======== ======== ========
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
As at 31
December 2017
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Assets and
liabilities
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Capital
expenditure 325 455 2 388 1 958 2 873 1 060 815 2 211 157 3 604 646
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
103 344 118 870 423 114
Total assets 444 152 311 200 271 3 612 619 5 312 423 39 663 481 438
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
Total 109 755 358 393
liabilities 085 128 928 542 96 952 318 15 052 401 - 7 705 030 376
--------------- --------------- -------------- --------------- -------------- ---------------- ---------------
6.1 GEOGRAPHICAL INFORMATION
The Bank operates in one geographical market, Zimbabwe.
7. EVENTS AFTER REPORTING PERIOD
Sensitivity analysis for events after the reporting period
Components of reported amounts Sensitivity Analysis
Monetary Monetary Non Monetary Non Monetary Total Total Total Total
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Assets/ Assets/ Assets/ Assets/ USD RTGS$ RTGS$ RTGS$
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Liabilities Liabilities Liabilities Liabilities @1:1 @1:2.5 @1:3 @1:4
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Nostro FCA RTGS$ USD RTGS$
USD
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Shareholder's
funds
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Share capital - 16 506 - - 16 506 16 506 16 506 16 506
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
31 474 31 474 31 474 31 474
Share premium - 502 - - 502 502 502 31 474 502
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Revaluation
reserve - - 136 741 - 136 741 341 853 410 223 546 964
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Foreign
currency
translation 12 026
reserve - - - - - 9 019 801 401 18 039 601
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Retained 47 267 47 267 47 267 47 267
earnings - 030 - - 030 030 030 47 267 030
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
--------------- --------------- ----------------- --------------- --------------- --------------- --------------- ----------------
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Total
shareholder's 78 758 78 894 88 119 91 194
funds - 038 136 741 - 779 692 662 97 344 603
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Liabilities
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Deposits and
other 418 184 447 138 490 569 505 046 534 000
accounts 28 953 975 241 - - 216 179 166 141
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Subordinated
term loan 1 505 647 - - - 1 505 647 3 764 118 4 516 941 6 022 588
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Deferred tax
liability - - - - - 1 223 898 2 266 591 4 351 978
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
--------------- ---------------- ----------------- -------------- --------------- --------------- ---------------- ----------------
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Total 418 184 448 643 495 557 511 829 544 374
liabilities 30 459 622 241 - - 863 195 698 707
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
--------------- ---------------- ----------------- -------------- --------------- --------------- --------------- ----------------
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Total
shareholder's
funds
and 496 942 527 538 583 676 603 024 641 719
liabilities 30 459 622 279 136 741 - 642 887 360 310
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
========= ========= ========== ========= ========= ========= ========= =========
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Assets
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Cash and cash 99 748 112 440 131 479 137 825 150 518
equivalents 12 692 524 388 - - 912 698 960 484
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Current tax
assets - 210 302 - - 210 302 210 302 210 302 210 302
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Investment 117 249 117 249 117 249 117 249 117 249
securities - 434 - - 434 434 434 434
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Amount owing
from Holding
Company - 558 303 - - 558 303 558 303 558 303 558 303
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Loans,
advances and
other 254 191 254 195 254 201 254 203 254 207
accounts 4 081 477 - - 558 681 720 801
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Non current
assets held
for sale - - 36 000 - 36 000 90 000 108 000 144 000
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Unquoted
investments 112 501 - - - 112 501 281 253 337 503 450 004
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Investment 20 950 41 708 48 627
properties - - 13 838 490 7 112 116 606 341 586 62 466 076
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Intangible
assets - - - 2 036 775 2 036 775 2 036 775 2 036 775 2 036 775
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Property and 17 844 35 861 41 866
equipment - - 12 011 354 5 832 715 069 100 777 53 878 131
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Deferred tax
asset - 1 904 182 - - 1 904 182 - - -
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
---------------- ---------------- --------------- --------------- --------------- --------------- --------------- ----------------
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
473 862 14 981 527 538 583 676 603 024 641 719
12 809 106 086 25 885 844 606 642 887 360 310
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
========= ========= ========= ======== ========= ========= ========= =========
----------------- ----------------- ------------------ ---------------- ---------------- ---------------- ----------------- -----------------
Registered Offices
4(th) Floor NMB Centre
Unity Court George Silundika Avenue/
Cnr 1(st) Street/Kwame Nkrumah Avenue Leopold Takawira Street
Harare Bulawayo
Zimbabwe Zimbabwe
Telephone +263 4 759651-7 +263 9 70169
Facsimile +263 4 759648 +263 9 882068
Website: http://www.nmbz.co.zw
Email: enquiries@nmbz.co.zw
Transfer Secretaries
In Zimbabwe In UK
First Transfer Secretaries Computershare Investor Services
PLC
1 Armagh Avenue The Pavilions
(Off Enterprise Road) Bridgewater Road
Eastlea Bristol
P.O. Box 11 BS99 9ZZ
Harare United Kingdom
Zimbabwe
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR IAMITMBJTBRL
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