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NMBZ HOLDINGS LIMITED

Holding company of

NMB BANK LIMITED (Registered Commercial Bank)

AUDITED HISTORICAL COST RESULTS 

FOR THE YEAR ENDED 31 DECEMBER 2008

HIGHLIGHTS

Historical	2008
	Z$ trillion
Attributable profit	125 466 224 688
Basic earnings per share	77
Total deposits	105 107 857 291
Shareholders' funds	230 742 119 001

            

    

 Enquiries:

NMBZ HOLDINGS LIMITED                   Tel: +263-4-759 651/9

Benefit P Washaya, Chief Executive Officer     benefitw@nmbz.co.zw

Benson Ndachena, Chief Financial Officer        bensonn@nmbz.co.zw 

Website:                                                          http://www.nmbz.co.zw

Email:                                                              enquiries@nmbz.co.zw

  NMBZ HOLDINGS LIMITED

________________________________________________________________________________________________

CHAIRMAN'S STATEMENT

The year under review was characterized by:

• Rapidly rising inflation

• High money supply growth

• Accelerating domestic and external debt

• Negative interest rates

• Supply side constraints

GROUP RESULTS

Compliance with International Financial Reporting Standards

The existence of hyperinflation as defined by International Accounting Standard (IAS) 29 'Reporting in Hyperinflationary Economies' was formally identified in Zimbabwe by the Zimbabwe Accounting Practices Board, which decided that IAS 29 would be applied for financial periods beginning on or after 1 January 2000. The results of the Group have not been adjusted to reflect the changes in the general level of prices due to unavailability of official Consumer Price Indices(CPI) as these were last published for July 2008. Consequently, these results have not been prepared in compliance with IAS 29, which requires the adjustment of the financial statements on the basis of the inflation indices over the reporting period and a restatement of prior year comparative figures.  

An adverse audit opinion has been issued on the results of the Group as the financial statements have not been prepared in accordance with IAS 29 due to the absence of official inflation statistics.

 

Comparative figures

The Zimbabwe dollar was debased on 1 August 2008 by the removal of ten zeros and consequently, as the figures are reported in trillions, all the comparative figures are nil.

The Zimbabwe dollar was further debased on 1 February 2009 by the removal of an additional twelve zeros. As this was subsequent to 31 December 2008, the figures presented in this statement have not been adjusted for this effect.

Commentary on results

The profit before taxation was Z$150 113 390 956 trillion during the period under review. A historical cost attributable profit of Z$125 466 224 688 trillion was recorded for the year. Net interest income was Z$1 274 662 330 trillion. Non-interest income amounted to Z$234 847 412 514 trillion and this was mainly as a result of fair value adjustments on investment properties.  

Operating expenses amounted to Z$26 209 605 370 trillion largely driven by forex denominated expenses.

While a conservative approach continues to be taken with respect to provisions for bad and doubtful debts, the charge amounted to Z$469 156 306 trillion for the current year. This is reflective of the loans and advances which amounted to Z$2 426 716 390 trillion at 31 December 2008, as well as a prudent lending policy in an uncertain environment.

Dividend

In light of the need to conserve cash in the business, the Board has proposed not to declare a dividend.

BALANCE SHEET

The Group's total asset base was Z$419 659 855 890 trillion and comprised mainly of financial assets at fair value through profit and loss (Z$120 000 056 trillion), cash and short term funds (Z$47 187 135 390 trillion), investment properties (Z$214 900 000 000 trillion) and property and equipment (Z$131 600 000 000 trillion).

  NMBZ HOLDINGS LIMITED

________________________________________________________________________________________________

 

Capital 

The banking subsidiary's capital adequacy ratio at 31 December 2008 calculated on the historical cost basis in accordance with the guidelines of the Reserve Bank of Zimbabwe (RBZ) was 62% (31 December 2007 - 20.21%). The minimum required by the RBZ is 10%.  

The Group will continue to monitor and manage its capital base in view of market and economic developments.

OUTLOOK AND STRATEGY

The advent of the inclusive government and the changing political and economic landscape will usher in a conducive environment for business. The company will reconfigure itself in response to the new operating environment.

DIRECTORATE

There were no changes to the Company's directorate during the period.

APPRECIATION

I would like to thank our clients for their support and patience during the year under review. In addition, I would like to thank the Monetary Authorities for their wise counsel and guidance. I would also like to express my appreciation and gratitude to my fellow Board members, management and staff for their commitment and dedication during this particularly difficult year.

 

GIBSON MANYOWA MANDISHONA 

CHAIRMAN

7 May 2009

  NMBZ HOLDINGS LIMITED

________________________________________________________________________________________________

HISTORICAL CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2008

	Note	2008
		Z$ trillion
Interest income	4	1 288 157 794
Interest expense		(13 495 464)
Net interest income		1 274 662 330
Net foreign exchange gains		(59 329 922 212)
Non-interest income	5	234 847 412 514
Net operating income		176 792 152 632
Operating expenditure	6	(26 209 605 370)
Impairment losses on loans and advances		(469 156 306)
Profit before taxation		150 113 390 956
Taxation	7	(23 780 437 749)
Financial institutions levy	7	(866 728 519)
Profit for the year		125 466 224 688
Earnings/(losses) per share (Z$ trillion)
- Basic	9.3	76.76
- Headline	9.3	(38.17)
- Diluted basic	9.3	75.49
- Diluted headline	9.3	(37.54)

Comparative figures are nil due to the revaluation of the currency on 1 August 2008 and the reporting of figures in trillions.  NMBZ HOLDINGS LIMITED

________________________________________________________________________________________________

HISTORICAL CONSOLIDATED BALANCE SHEET

as at 31 December 2008

	Note	2008
Shareholders' funds		Z$ trillion
Share capital	10	-
Capital reserves		105 280 000 017
Revenue reserves		125 462 118 984
Total shareholders' funds		230 742 119 001
Liabilities
Deposits and other accounts	11	137 924 059 052
Financial liabilities	12	28 347 562
Provision for current taxation		869 337 330
Deferred taxation		50 095 992 945
		419 659 855 890
Assets
Cash and cash equivalents	13	47 187 135 390
Financial assets at fair value through profit and loss	12.5	120 000 056
Available-for-sale securities	12.3	235 269
Advances and other accounts	14	5 887 252 878
Quoted and other investments		19 965 232 297
Investment properties		214 900 000 000
Property and equipment	15	131 600 000 000
		419 659 855 890

Comparative figures are nil due to the revaluation of the currency on 1 August 2008 and the reporting of figures in trillions.

 

NMBZ HOLDINGS LIMITED

_________________________________________________________________________________________________________________________________________

CONSOLIDATED HISTORICAL COST STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2008

		Capital Reserves
	Share	Share	Revaluation	Accumulated
	Capital	Premium	Reserve	Profit	Total
	Z$ trillion	Z$ trillion	Z$ trillion	Z$ trillion	Z$ trillion
Balances at 1 January 2008	-	-	-	-	-
Net profit for the year	-	-	-	125 466 224 688	125 466 224 688
Additional impairment losses on loans and advances as per RBZ grading	-	-	-	(5 941 670)	(5 941 670)
Deferred tax on impairment losses on loans and advances	-	-	-	1 835 976	1 835 976
Revaluation of properties	-	-	131 600 000 000	-	131 600 000 000
Deferred tax on revaluation of properties	-	-	(26 319 999 983)	-	(26 319 999 983)
Own equity instruments (note 10.3)	-	-	(10)	-	(10)
Dividends paid	-	-	-	-	-
	-------------------	-----------------	----------------------	---------------------	----------------------
Balances at 31 December 2008	-	-	105 280 000 017	125 462 118 984	230 742 119 001
	============	===========	==============	=============	==============

NMBZ HOLDINGS LIMITED

_________________________________________________________________________________________

HISTORICAL CONSOLIDATED CASH FLOW STATEMENTS

for the year ended 31 December 2008

	2008
CASH FLOWS FROM OPERATING ACTIVITIES	Z$ trillion
Profit before taxation	150 113 390 956
Non-cash items
Impairment losses on loans and advances	469 156 306
Investment properties fair value adjustment	(214 900 000 000)
Quoted and other investments fair value adjustment	(19 915 416 850)
Operating cash flows before changes in operating
assets and liabilities	(84 232 869 588)
Changes in operating assets and liabilities
Financial liabilities	28 347 562
Deposits and other accounts	137 924 059 052
Advances and other accounts	(6 362 350 854)
Financial assets at fair value through profit and loss	(120 000 056)
Available-for-sale securities	(235 269)
	47 236 950 847
Taxation
Corporate tax paid	-
Net cash inflow from operating activities	47 236 950 847
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	-
Purchase of quoted and other investments	(49 815 447)
Net cash outflow from investing activities	(49 815 447)
Net cash inflow before financing activities	47 187 135 400
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of own equity instruments	(10)
Dividends paid	-
	(10)
Net cash outflow from financing activities	47 187 135 390
Cash and cash equivalents at beginning of year	-
Cash and cash equivalents at the end of the year (note 13)	47 187 135 390

Comparative figures are nil due to the revaluation of the currency on 1 August 2008 and the reporting of figures 

in trillions.  NMBZ HOLDINGS LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

1.    REPORTING ENTITY

 

The Company is incorporated and domiciled in Zimbabwe and is an investment holding company and its registered office is 64 Kwame Nkrumah Avenue, Harare. Its principal operating subsidiary is engaged in banking and other companies hold property. The details of the Bank's non-operating subsidiary are shown under note 'f' to the Bank's accounts. The consolidated financial statements of the bank as at and for the year ended 31 December 2008 comprise the bank and its subsidiaries. 

 

2    BASIS OF PREPARATION

 

2.1    Statement of compliance

 

The consolidated financial statements have not been prepared in accordance with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board due to the non compliance with IAS 29. The consolidated financial statements have been prepared in accordance with the requirements of the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20). The results of the Group have not been adjusted to reflect the changes in the general level of prices as required by IAS 29 due to unavailability of official Consumer Price Indices (CPI) as these were last published for July 2008. The accounting policies have been consistently applied by the Group and are consistent with those used in the previous year and will be fully disclosed in the Company's Annual Report.  

 

An adverse audit opinion has been issued on the results of the Group as the financial statements have not been prepared in accordance with IAS 29 due to the absence of official inflation statistics.

 

The financial statements were approved by the Board of Directors on 7 May 2009.

 

2.2   Historical cost convention

    

The financial statements are prepared under the historical cost convention and have not been adjusted to reflect the changes in general price levels in accordance with IAS 29, Financial Reporting in Hyperinflationary Economies except for quoted and other investments, properties, investment properties and financial instruments which are carried at fair value. 

 

2.3    Functional and presentational currency

 

These consolidated financial statements are presented in Zimbabwe dollars, which is the Group's functional and presentation currency. Except as indicated, financial information presented in Zimbabwe dollars (revalued at 1 August 2008 by the removal of ten (10) zeros) has been rounded to the nearest trillion.

 

The debasing of the currency and the presentation of the financial statements in trillions has resulted in all comparative figures for the income statement, balance sheet and cashflow statement being nil. Accordingly, no comparatives are shown in these financial statements.

 

2.4    Use of estimates and judgments

 

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

  NMBZ HOLDINGS LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

2.5    Limitations of financial reporting

 

The uncertainties in the adverse Zimbabwean economic environment during the year have resulted in limitations in financial reporting. These uncertainties include:

• The inflation indices have not been published since July 2008. Subsequent estimates by economists are wide ranging and are in trillions to quadrillions percentage. The use of foreign currency and multiple pricing, also distorts the process of measuring inflation. In these circumstances, inflation adjusted financial statements are not prepared as required by the International Financial Reporting Standard (IAS 29) Financial Reporting in Hyperinflationary Economies as such financial statements are considered inherently unreliable. 

• The measurement of transactions in local currency is dependent on the mode of settlement. As a result, there may be significant variations in the valuations of assets and liabilities. Accordingly, such valuations may be inherently unreliable. 

  The uncertainties have been aggravated by:

• Multiple exchange rates - there are various rates applicable which vary significantly (for instance the market 'cash exchange rate' is less than 1% of the market 'cheque exchange rate' or the United Nations exchange rate). If a transaction occurs at more than one rate and is recorded at its nominal value, this may result in distortions in financial reporting; 

• 'Dollarisation' - the introduction of licensed operators in foreign currency in the country and also the 'basing' of most other transactions in foreign currency for most of the non-licensed operators, has created challenges for the company in determining its functional currency (as between the local currency and a foreign currency) in the last quarter of 2008.

   

As a result of these uncertainties and inherent limitations, the directors advise caution on the use of these financial statements for decision making purposes. 

The Directors have assessed the ability of the company to continue operating as a going concern and believe that the preparation of these financial statements on a going concern basis is still appropriate. However, the Directors believe that under the current economic environment, a continuous assessment of the ability of the company to continue to operate as a going concern will need to be performed to determine the continued appropriateness of the going concern assumption that has been applied in the preparation of these financial statements.

  

NMBZ HOLDINGS LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

3.    ACCOUNTING POLICIES

 

3.1    Inflation accounting

 

The economy of Zimbabwe is considered to be a hyperinflationary economy. In order to comply with IAS 29, Financial Reporting in Hyperinflationary Economies, financial statements need to be expressed in terms of the measuring unit current at the balance sheet date. Accordingly, if inflation figures were available, the accompanying financial statements, including comparatives would have been restated to account for changes in the general purchasing power of the Zimbabwe dollar. The restatement would be based on the Consumer Price Index at the balance sheet date. The indices and conversion factors are derived from the inflation rates which are issued by the Central Statistical Office of Zimbabwe. The Central Statistical Office last published inflation figures for July 2008 and consequently, no inflation adjusted results have been prepared.

 

3.2 Financial instruments

 

3.2.1    Classification

 

Financial assets and liabilities at fair value through profit and loss include financial assets and liabilities held for trading i.e. those that the Group principally holds for the purpose of short-term profit taking as well as those that were, upon initial recognition, are designated by the entity as financial assets or liabilities at fair value through profit and loss. There is no reclassification into or out of this category as per IAS 39.

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those classified as held-for-trading and the Group upon initial recognition designates as at fair value through profit or loss and those the Group upon initial recognition designates as available for sale.

 

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold to maturity.

 

Financial assets available-for-sale are non-derivative financial assts that are designated as available for sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss.  

    3.2.2    Recognition

 

The Group recognises financial assets at fair value through profit and loss and available for sale assets on the date it commits to purchase the assets. From this date any gains and losses arising from changes in fair value of the assets are recognised in the income statement and equity respectively.

 

Held-to-maturity investments and loans and receivables are recognised at cost which is the fair value of the consideration given on the day that they are transferred to the Group.

  NMBZ HOLDINGS LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

3.2.3    Measurement

 

Financial assets and liabilities are measured initially at fair value. Subsequent to initial recognition, financial assets and liabilities at fair value through profit and loss and available for sale financial assets are measured at fair value, except that any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is stated at cost, less impairment losses.

 

Held-to-maturity investments and loans and receivables are measured at amortised cost less impairment losses. Amortised cost is calculated using the effective interest rate method. Premiums and discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument.

3.2.4     Fair value measurement principles

 

The fair value of financial instruments is based on their quoted market price at the balance sheet 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 balance sheet date for an instrument with similar terms and conditions. Where pricing models are used, inputs are based on market related measures at the balance sheet date.

3.3        Investment properties

 

Investment properties are stated at fair value. Gains and losses arising from a change in fair value of investment properties are recognized in the income statement.

 

3.4 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.

3.5    Property and equipment

 

International Accounting Standard 16 (IAS 16) stipulates that the residual value and the useful life of an asset must be reviewed at least each financial year-end. If the residual value of an asset increases by an amount equal to or greater than the asset's carrying amount, then the depreciation of the asset ceases. Depreciation will resume only when the residual value decreases to an amount below the asset's carrying amount.

  

NMBZ HOLDINGS LIMITED

_________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

4.  INTEREST INCOME
			2008
			Z$ trillion
Cash and cash equivalents			5 014 453
Loans and advances to banks			240 094 940
Loans and advances to customers			893 241 514
Investment securities			149 806 887
			1 288 157 794
5.   NON -INTEREST EXPENSE
			2008
			Z$ trillion
Net gains from quoted and other investments			19 915 416 850
Net commission and fee income			12 111 928
Fair value adjustment on investment properties			214 900 000 000
Other net operating income			19 883 736
			234 847 412 514
		2008
6.     OPERATING EXPENDITURE		Z$ trillion
The operating profit is after charging the
following:-
Administration costs		26 196 969 061
Staff costs		12 636 309
		26 209 605 370

7.    taxation

	2008
7.1 Tax Charge	Z$ trillion
Current taxation	2 606 917
Aids levy	1 893
Deferred tax charge	23 777 828 939
	23 780 437 749
Financial institutions levy	866 728 519
Total taxation	24 647 166 268

  NMBZ HOLDINGS LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

8.    IMPAIRMENT LOSSES ON LOANS AND ADVANCES

Impairment losses are applied to write off advances in part or in whole when they are considered partly or wholly irrecoverable. The aggregate impairment losses which are made during the year are dealt with as per paragraph 8.3.

8.1    Specific provisions

 

Specific provisions are made where the repayment of identified advances is in doubt and reflect estimates of the loss. Advances are written off against specific provisions once the probability of recovering any significant amounts becomes remote.

 

8.2    Portfolio provisions

The portfolio provision relates to the inherent risk of losses which, although not separately identified, is known to be present in any loan portfolio.

 

8.3  Regulatory Guidelines and International Financial Reporting Standards Requirements

 

The Banking Regulations 2000 gives guidance on provisioning for doubtful debts and stipulates certain minimum percentages to be applied to the respective categories of the loan book.

 

International Accounting Standard 39, Financial Instruments Recognition and Measurement (IAS 39), prescribes the provisioning for impairment losses based on the actual loan losses incurred in the past applied to the sectoral analysis of book debts and the discounting of expected cash flows on specific problem accounts.

 

The two prescriptions are likely to give different results. The Group has taken the view that where the IAS 39 charge is less than the amount provided for in the Banking Regulations, the difference is charged against equity and where it is more, the full amount will be charged to the income statement.

8.4    Non-performing loans

 

Interest on loans and advances is accrued to income until such time as reasonable doubt exists about its collectability, thereafter and until all or part of the loan is written off, interest continues to accrue on customers' accounts, but is not included in income. Such suspended interest is deducted from loans and advances in the balance sheet. This policy meets the requirements of the Banking Regulations 2000 issued by the RBZ.

  NMBZ HOLDINGS LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

9.    EARNINGS PER SHARE

 

The calculation of earnings per share is based on the following figures:-

 

9.1    Earnings/(losses)

	2008
	Z$ trillion
Basic	125 466 224 688
Headline earnings (note 9.4)	(62 386 108 792)
9.2 Number of shares	2008
Weighted average shares in issue*	1 634 501 409
Diluted number of shares*	1 661 972 293
*excludes own equity instruments amounting to 32 805 shares.

9. 3    Earnings/(losses) per share (Z$ trillion)

	2008
Basic	76.76
Headline	(38.17)
Diluted basic	75.49
Diluted headline	(37.54)

•    Headline earnings/(losses)

	2008
	Z$ trillion
Profit attributable to shareholders	125 466 224 688
Add/(deduct) non-recurring items:
- Fair value on quoted and other investments	(19 915 416 850)
- Fair value adjustment on investment properties	(214 900 000 000)
-  Tax effect thereon	46 963 083 370
	(62 386 108 792)

  

NMBZ HOLDINGS LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

 

10.    SHARE CAPITAL

	GROUP AND COMPANY
	2008	2007	2	2008
10.1 Authorised	Shares	Shares		Z$ trillion
	million	million
Ordinary shares of Z$0.00000000000025      each	2 250	2 250		-
10.2 Issued and fully paid	2008	2007		2008
	Shares	Shares		Z$ trillion
	million	million
At 1 January	1 608	1 569		-
Shares issued - share options	33	39		-
At 31 December	1 641	1 608		-

 

Of the unissued ordinary shares of 608 741 771, options which may be granted in terms of the NMBZ 2005 Employee Share Option Scheme (ESOS) amount to 85 360 962 and out of these 1 670 869 had not been issued. As at 31 December 2008, 19 076 000 share options out of the issued had not been exercised.

 

Subject to the provisions of section 183 of the Companies Act (Chapter 24:03), the unissued shares are under the control of the directors.

 

10.3  Own equity instruments

 

Own equity instruments amounting to 32 805 shares at a cost of Z$10 trillion were held by the Company's subsidiary, Stewart Holdings (Private) Limited.

  NMBZ HOLDINGS LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

11.    DEPOSITS AND OTHER ACCOUNTS

11.1    Deposits and other accounts by type

	2008
	Z$ trillion
Reserve Bank of Zimbabwe Productive Sector Facility	2 338
Deposits from other banks	373 114 393
Other money market deposits	2 086
Current and deposit accounts	104 734 738 474
Total deposits	105 107 857 291
Trade and other creditors	32 844 549 323
	137 952 406 614
Less: Financial liabilities (note 12.1)	(28 347 562)
	137 924 059 052

11.2 Maturity analysis

	2008
	Z$ trillion
Less than one month	105 107 857 291
1 to 3 months	-
3 to 6 months	-
6 months to 1 year	-
1 to 5 years	-
Over 5 years	-
	105 107 857 291

•   Sectoral analysis of deposits

  	2008
  	Z$ trillion	%
  Banks and other financial institutions	371 114 393	-
  Reserve Bank of Zimbabwe	2 338	-
  Transport and telecommunications companies	11 899 181 749	11
  Mining companies	178 760 791	-
  Industrial companies	50 919 761 785	48
  Municipalities and parastatals	145	-
  Individuals	8 431 433 904	8
  Agriculture	2 677 397 920	3
  Other deposits	30 628 204 266	29
  	105 107 857 291	100

NMBZ HOLDINGS LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

12.    FINANCIAL INSTRUMENTS

 

12.1 Financial liabilities

		Fair
	Cost	Value
	2008	2008
	Z$ trillion	Z$ trillion
Fixed term deposits	26 742 236	26 742 236
Negotiable Certificates of Deposits	1 605 326	1 605 326
Total financial liabilities	28 347 562	28 347 562

 

12.2 Financial assets at fair value through profit and loss

		Fair
	Cost	Value
	2008	2008
Government and public sector securities	120 000 056	120 000 056
Treasury bills	120 000 056	120 000 056
Government stock	-	-
Mortgage bonds	-	-
Bills - own acceptances	-	-
Total financial assets at fair value through profit and loss	120 000 056	120 000 056

   

        

	2008
	Z$ trillion
Fair value adjustment to profit and loss	-

12.3 Available-for-sale securities

	2008
	Z$ trillion
Treasury bills (two-year bills)	-
Non-negotiable certificates of deposits	235 269
	235 269

NMBZ HOLDINGS LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

12.4 Financial liabilities

    

	2008
	Z$ trillion
Less than 1 month	26 815 920
1 to 3 months	1 531 642
3 to 6 months	-
6 months to 1 year	-
1 to 5 years	-
Over 5 years	-
	---------------
	28 347 562
	=========

12.5    Financial assets at fair value through profit and loss

	2008
	Z$ trillion
Less than 1 month	-
1 to 3 months	-
3 to 6 months	120 000 056
6 months to 1 year	-
1 to 5 years	-
Over 5 years	-
	120 000 056

12.6  Available-for-sale securities

	2008
	Z$ trillion
Less than 1 month	235 269
1 to 3 months	-
3 to 6 months	-
6 months to 1 year	-
1 to 5 years	-
Over 5 years	-
	235 269

NMBZ HOLDINGS LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

 

13. CASH AND CASH EQUIVALENTS

	2008
	Z$ trillion
Statutory reserve	612 780 755
Current, nostro accounts and cash	46 574 354 635
Total cash and cash equivalents	47 187 135 390

The statutory reserve balance with the Reserve Bank of Zimbabwe is non-interest bearing. The balance is determined on the basis of deposits held and is not available to the Bank for daily use.

 

14.        ADVANCES AND OTHER ACCOUNTS

14.1    Total
	2008
	Z$ trillion
14.1.1    Advances and other accounts
Fixed term loans	122 012 336
Local loans and overdrafts	1 829 606 077
Other accounts	3 935 634 465
	5 887 252 878

14.1.2    Maturity analysis
Less than 1 month	2 403 332 105
1 to 3 months	-
3 to 6 months	-
6 months to 1 year	23 383 664
1 to 5 years	-
Over 5 years	621
Total advances	2 426 716 390
Provision for impairment losses on loans and advances	(475 097 977)
Suspended interest	-
	1 951 618 413
Other accounts	3 935 634 465
Total	5 887 252 878

NMBZ HOLDINGS LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

14.2    Sectoral analysis of utilisations

	2008
	Z$ trillion	%
Industrials	622 689 969	26
Agriculture and horticulture	7 171 223	-
Conglomerates	320 432 946	13
Services	1 067 479 745	44
Mining	343 198	-
Food & Beverages	87 935 395	4
Other	320 663 914	13
	2 426 716 390	100

The material concentration of loans and advances are in the services sector at 44%.

14.3    Provisions for losses on loans and advances

	-------------------- 2008 ----------------
	Specific	Portfolio	Total
	Z$ trillion	Z$ trillion	Z$ trillion
At 1 January	-	-	-
Charge against profits	462 644 403	6 511 904	469 156 307
Charge against retained earning	-	5 941 670	5 941 670
At 31 December	462 644 403	12 453 574	475 097 977

14.4    Non-performing loans and advances

	2008
	Z$ trillion
Total non performing loans and advances	462 644 403
Provision for impairment loss on loans and advances	(462 644 403)
Interest in suspense	-
	-

The residue on these accounts, where applicable, represents recoverable portions covered by realisable security.

  NMBZ HOLDINGS LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

15.    PROPERTY AND EQUIPMENT

	2008
	Z$ trillion
Cash/revalued amount	131 600 000 000
Accumulated depreciation	-
Net book value	131 600 000 000

16.  CAPITAL COMMITMENTS

	2008
	Z$ trillion
Capital expenditure contracted for	-
Capital expenditure authorised but not yet
contracted for	-
	-

17. CONTINGENT LIABILITIES

	2008
	Z$ trillion
Guarantees	-
Commitments to lend	9 299 778 077
	9 299 778 077

18. EXCHANGE RATES

 

In compliance with a directive from the Reserve Bank of Zimbabwe, the following exchange rates have been used to translate the foreign currency balances to Zimbabwe dollars at period end:-

		Mid-rate
		31 Dec 2008
		Z$ trillion
US$	USD1.00	35 000
Pound Sterling	GBP1.00	50 572

  

NMB BANK LIMITED

_________________________________________________________________________________________

HISTORICAL CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2008

Note	2008
	Z$ trillion
Interest income	1 288 157 794
Interest expense	(13 301 230)
Net interest income	1 274 856 564
Net foreign exchange losses	(59 329 922 212)
Non-interest income                       a	224 568 398 271
Net operating income	166 513 332 623
Operating expenditure                       b	(26 209 605 370)
Impairment losses on loans and advances	(469 156 306)
Profit before taxation	139 834 570 947
Taxation	(21 713 790 396)
Financial institutions levy	(866 728 519)
Profit for the year	117 254 052 032
Earnings/(losses) per share (Z$ trillion):
- Basic     c	7 106
- Headline     c	(3 781)

Comparative figures are nil due to the revaluation of the currency on 1 August 2008 and the reporting of figures in trillions.  

NMB BANK LIMITED

_________________________________________________________________________________________

HISTORICAL CONSOLIDATED BALANCE SHEET

As at 31 December 2008

			2008
SHAREHOLDER'S FUNDS	Note		Z$ trillion
Share capital	d		-
Capital reserves			105 280 000 017
Revenue reserves			117 249 946 338
Total shareholder's funds			222 529 946 355
LIABILITIES
Deposits and other accounts			137 882 678 109
Financial liabilities			28 347 562
Provision for current taxation			866 728 519
Deferred taxation			48 031 954 402
			409 339 654 947
ASSETS
Cash and cash equivalents	e		47 187 127 152
Financial assets at fair value through profit and loss			120 000 056
Available-for-sale securities			235 269
Advances and other accounts			5 887 252 878
Quoted and other investments			9 645 039 592
Investment properties	f		214 900 000 000
Property and equipment	g		131 600 000 000
			409 339 654 947

Comparative figures are nil due to the revaluation of the currency on 1 August 2008 and the reporting of figures in trillions.

  

NMB BANK LIMITED

_________________________________________________________________________________________

CONSOLIDATED     HISTORICAL STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2008

		Capital Reserves
	Share	Share	Revaluation	Retained
	Capital	Premium	Reserve	Profit	Total
	Z$ trillion	Z$ trillion	Z$ trillion	Z$ trillion	Z$ trillion
Balances at 1 January 2008	-	-	-	-	-
Net profit for the year	-	-	-	117 254 052 032	117 254 052 032
Additional impairment losses on loans and advances as per RBZ grading	-	-	-	(5 941 670)	(5 941 670)
Deferred tax on impairment losses on loans and advances	-	-	-	1 835 976	1 835 976
Revaluation of properties	-	-	131 600 000 000	-	131 600 000 000
Deferred tax on revaluation of properties	-	-	(26 319 999 983)	-	(26 319 999 983)
	--------------	-----------------	----------------------	--------------------	----------------------
Balances at 31 December 2008	-	-	105 280 000 017	117 249 946 338	222 529 946 355
	========	==========	=============	============	=============

NMB BANK LIMITED

______________________________________________________________________________________________

CONSOLIDATED CASH FLOWS STATEMENT

for the year ended 31 December 2008

	2008
CASH FLOWS FROM OPERATING ACTIVITIES	Z$ trillion
Profit before taxation	139 834 570 947
Non-cash items
Impairment losses on loans and advances	469 156 306
Investment properties fair value adjustment	(214 900 000 000)
Quoted and other investments fair value adjustment	(9 645 039 592)
Operating cash flows before changes in operating
assets and liabilities	(84 241 312 339)
Changes in operating assets and liabilities
Financial liabilities	28 347 562
Deposits and other accounts	137 882 678 109
Financial assets at fair value through profit and loss	(120 000 056)
Available-for-sale securities	(235 269)
Advances and other accounts	(6 362 350 855)
	47 187 127 152
Taxation
Corporate tax paid	-
Net cash inflow from operating activities	47 187 127 152
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	-
Net cash outflow from investing activities	-
Net cash inflow before financing activities	47 187 127 152
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid	-
Net cash (outflow)/inflows from financing activities	-
Net increase in cash and cash equivalents	47 187 127 152
Cash and cash equivalents at beginning of the year	-
Cash and cash equivalents at the end of the year (note e)	47 187 127 152

        Comparative figures are nil due to the revaluation of the currency on 1 August 2008 and the reporting of figures in trillions.  

NMB BANK LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

 NOTES TO THE FINANCIAL STATEMENTS (NMB BANK LIMITED)

 

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 in every material respect.

a.    NON-INTEREST INCOME

		2008
		Z$ trillion
Net gains from quoted and other investments		9 645 039 592
Investment property fair value adjustment		214 900 000 000
Net commission and fee income		3 474 943
Other net operating income		19 883 736
		224 568 398 271

b.    OPERATING EXPENDITURE

The operating profit is after		2008
charging the following:		Z$ trillion
Administration costs		26 196 969 061
Staff costs		12 636 309
Total		26 209 605 370

 

c. EARNINGS PER SHARE

The calculation of earnings per share is based on the following figures:

c.1    Earnings/(losses)

		2008
		Z$ trillion
Basic		117 254 052 032
Headline (note c.4)		(62 381 979 942)

c.2    Number of shares (million)

Weighted average shares in issue		16.5

  

NMB BANK LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

c.3    Earnings/(losses) per share (Z$ trillions)

		2008
Basic		7 106
Headline		(3 781)

c.4    Headline earnings/(losses)

The adjustments are as follows
		2008
		Z$ trillion
Profit attributable to shareholders		117 254 052 032
Add/(deduct) non-recurring items:
- Fair value on quoted and other investments		(9 645 039 592)
-  Fair value adjustment on investment properties		(214 900 000 000)
-  Tax effect thereon		44 909 007 918
		(62 381 979 642)

d.    SHARE CAPITAL

d.1    Authorised

The authorised ordinary share capital at 31 December 2008 is at the historical cost figure of Z$0.000005 (2007- Z$0.000005) comprising 25 million ordinary shares.

d.2    Issued and fully paid

The issued share capital at 31 December 2008 is at the historical cost figure of Z$0.0000033

(2007 - Z$0.0000033) comprising 16.5 million ordinary shares.

  

NMB BANK LIMITED

__________________________________________________________________________________________________

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2008

 

e. CASH AND CASH EQUIVALENTS

		2008
		Z$ trillion
Statutory reserve		612 780 755
Current, Nostro accounts and cash		46 574 346 397
Total cash and cash equivalents		47 187 127 152

f. INVESTMENT PROPERTIES

		2008
		Z$ trillion
Borrowdale Estate Property		122 500 00 000
Borrowdale Road Estate		70 000 000 000
Other		22 400 000 000
		214 900 000 000

 

Rental income amounting to Z$561.3 trillion was received and no operating expenses were incurred from investment properties in the current year.

 

The investment properties comprise three (3) sets of properties namely Borrowdale Road, Borrowdale Estate and various other properties. The Borrowdale Road property is also known as Stand Number 19207 Harare Township of Stand 19206 measures 4.4506 hectares in extent. The property was valued for year end purposes by the directors and the open market value was Z$70 000 000 000 trillion.

 

The remainder of Lot H of Borrowdale Estate is owned by Carey Farm (Pvt) Ltd, a wholly owned subsidiary of the Bank measures 89.2623 hectares (223.16 acres) in extent. The beneficial interest in Carey Farm (Private) Limited arose from shareholding acquired in settlement of a debt owed to the Bank amounting to Z$0.0010008. The acquisition is in compliance with Section 34 of the Banking Act (Chapter 24.20). The land was valued by the directors for year end purposes and the open market value was Z$122 500 000 000 trillion.

 

The other properties comprise residential stands and houses and these were valued by the directors for year end purposes at Z$22 400 000 000 trillion.

 

g. PROPERTY AND EQUIPMENT

		2008
		Z$ trillion
	2
Cost/Revalued amount		131 600 000 000
Accumulated depreciation		-
		131 600 000 000

NMB BANK LIMITED

__________________________________________________________________________________________________

CORPORATE GOVERNANCE AND RISK MANAGEMENT

1.    RESPONSIBILITY

These financial statements are the responsibility of the directors. This responsibility includes the setting up of internal control and risk management processes, which are monitored independently. The information contained in these financial statements has been prepared on the going concern basis and is in accordance with the provisions of the Companies Act (Chapter 24:03) and the Banking Act (Chapter 24:20).

2.    CORPORATE GOVERNANCE

The Group adheres to principles of corporate governance derived from the King II Report, the United Kingdom Combined Code and RBZ corporate governance guidelines. The Group is cognisant of its duty to conduct business with due care and in good faith in order to safeguard all stakeholders' interests.

3.    BOARD OF DIRECTORS

Board appointments are made to ensure a variety of skills and expertise on the Board. Non-executive directors are of such calibre as to provide independence to the Board. The Chairman of the Board is a 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.

4.    RISK MANAGEMENT

In the ordinary course of business the Bank manages risks of all forms. The risks are identified and monitored through various channels and mechanisms. 

 The Board of Directors has overall responsibility for the establishment and oversight of the Bank's risk management framework. The Board has established the Asset and Liability Management Committee (ALCO) and Risk Committee, which are responsible for developing and monitoring Bank risk management policies in their specified areas. The Bank has a Risk Management department, which reports to the Chief Executive Officer and is responsible for the management of the overall risk profile.

   

The Bank's risk management policies are established to identify and analyses the risks faced by the Bank, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered.

The Bank Risk Committee which is responsible for monitoring compliance with the Banks risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Bank, is assisted in these functions by Internal Audit. Internal Audit undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee and the Risk Committee.

The Bank's main objective is to contain the risk inherent within the financial services sector and to ensure that the Bank's various risk profiles are understood and appropriately managed to the benefit of customers, shareholders and other stakeholders.

NMB BANK LIMITED

__________________________________________________________________________________________________

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 Board has put in place sanctioning committees which operate according to the amount requested by an applicant. The Credit Risk Management department reviews all applications. This initial review allows only those applications that do not unduly expose the Bank to credit risk to be considered by the sanctioning committees. 

4.1.1    Management of credit risk

The Board has delegated responsibility for the management of credit risk to its Loans Review Committee. The Credit Risk Management department which also reports to the Loan Review Committee is responsible for oversight of the Bank's credit risk, including:

• Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements

• Establishing the authorization structure for the approval and renewal of credit facilities. Facilities require authorization by Head of Credit Risk, Executive directors, Loans Review Committee or the Board of Directors depending on amount as per set limits.

• The Credit Risk department assesses all Credit exposures in excess of designated limits, prior to facilities being committed to clients by the business unit concerned. Renewals and reviews of facilities are subject to the same review process.

• Limiting concentrations of exposure to counter parties and industry for loans and advances.

• Maintaining and monitoring the risk gradings as per the RBZ requirement in order to categorise exposures according to the degree of risk of financial loss faced and to focus management on the attendant risks. The current risk grading framework consists of five grades reflecting varying degrees of risk of default and the availability of collateral or other credit risk mitigation.

• Reviewing compliance of business units with agreed exposure limits, including those for      selected industries.

• Providing advice, guidance and specialist skills to business units to promote best practice throughout the Bank in the management of credit risk.

4.2    Market risk

This arises from adverse movements in the market place, which occur in the money market (interest rate risk), foreign exchange and equity markets in which the Bank operates. The Bank is currently developing VaR (Value at Risk) model which will be used to manage and monitor the market risk for the trading portfolio.

The Bank has in place an Asset and Liability Management Committee (ALCO), which comprises the departmental heads of Risk, Treasury, Corporate and Retail banking and Finance, in addition to executive directors. The committee monitors these risks and recommends the appropriate levels to which the Bank should be exposed at any time. The approval of all dealing limits ultimately rests with this committee.

The market risk for the non - trading portfolio is managed by monitoring the sensitivity of Bank's financial assets and liabilities to various interest rate scenarios.

4.3 Liquidity risk

Liquidity risk is the risk that operations cannot be funded and financial commitments cannot be met timeously. The risk arises when there is a maturity mismatch between assets and liabilities. The Bank identifies this risk through maturity profiling of assets and liabilities and assessment of excepted cashflows and the availability of collateral which could be used additional funding if required.

NMB BANK LIMITED

__________________________________________________________________________________________________

The Bank maintains a portfolio of marketable assets that can be easily liquidated in the event of an unforeseen interruption of cash flow. The Bank maintains a statutory deposit with the Central Bank at stipulated rates. As at 31 December 2008 these rates were 50% for time and demand liabilities. 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 ALCO.

The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits to customers. The Bank monitors its liquidity ratio in compliance with Banking Regulations to ensure that it is not less than 10% of the liabilities to the public.  Liquid assets consist of cash and cash equivalents, short term bank deposits and liquid investment securities available for immediate sale.  

4.4    Operational risk 

This risk is inherent in all business activities and is the potential for loss arising from ineffective internal controls, poor operational procedures to support these controls, errors and deliberate acts of fraud. The mitigation of the risk and the cost incurred to reduce the risk is critical. The Board has a Risk Committee whose function is to ensure that this risk is minimised. The Risk Committee through the internal audit function and the Risk Management department assesses the adequacy of the internal controls and makes the necessary recommendations to the Board.    

4.5 Legal and compliance risk

Legal risk is risk from uncertainty due to legal actions or uncertainty in the applicability or interpretation of contracts, laws or regulations. Legal risk may entail such issues as contract formation, capacity and contract frustration. Compliance risk is the risk arising from non - compliance with laws and regulations.

To manage this risk the Bank employs a legal practitioner who is responsible for the drafting, monitoring and executing all contracts. Permanent relationships are also maintained with firms of legal practitioners and access to legal advice is readily available to all departments.  The compliance function is responsible for identifying and monitoring legal and compliance risks and ensuring that the Bank remains in compliance with all regulatory requirements.

4.6   Reputational risk

Reputational risk is the risk of loss of business as a result of negative publicity or negative perceptions by the market with regards to the way the Bank conducts its business.

To manage this risk, the Bank strictly monitors customers' complaints, continuously train staff at all levels, conducts market surveys and periodic reviews of business practices through its internal audit department.

The directors are satisfied with the risk management processes in the Bank as these have contributed to the minimisation of losses arising from risky exposures.    

 

NMB BANK LIMITED

__________________________________________________________________________________________________

4.7      Risk Ratings

4.7.1    Camels* Ratings

CAMELS Component	Latest RBS** Ratings 31/01/2008	Previous RBS Ratings 30/06/2007	Previous RBS Ratings 30/06/2006
Capital Adequacy	4	4	3
Asset Quality	2	3	4
Management	3	4	4
Earnings	3	3	4
Liquidity	3	3	4
Sensitivity to Market Risk	3	3	4
Composite Rating	3	4	4

 

*CAMELS is an acronym for Capital Adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to Market Risk. CAMELS rating system uses a rating scale of 1-5, where '1' is Strong, '2' is Satisfactory, '3' is Fair, '4' is Weak and '5' is Critical.

 

**RBS stands for Risk-Based Supervision

 

4.7.2 Summary RAS ratings

RAS Component	Latest RAS*** Ratings 31/01/2008	Previous RBS Ratings 30/06/2007	Previous RBS Ratings 30/06/2006
Overall Inherent Risk	Moderate	High	High
Overall Risk Management Systems	Acceptable	Weak	Weak
Overall Composite Risk	Moderate	High	High
Direction of Overall Composite Risk	Stable	Increasing	Increasing

 

*** RAS stands for Risk Assessment System.

 

4.7.3 Summary risk matrix -31 January 2008 on - site examination

Type of Risk	Level of Inherent Risk	Adequacy of Risk Management Systems	Overall Composite Risk	Direction of Overall Composite Risk
Credit	Moderate	Weak	Moderate	Increasing
Liquidity	Moderate	Acceptable	Moderate	Stable
Interest Rate	Moderate	Acceptable	Moderate	Increasing
Foreign Exchange	High	Weak	Moderate	Stable
Strategic Risk	Moderate	Acceptable	Moderate	Stable
Operational Risk	Moderate	Weak	High	Increasing
Legal & Compliance	High	Acceptable	Moderate	Stable
Reputation	Moderate	Acceptable	Moderate	Increasing
Overall	Moderate	Acceptable	Moderate	Stable

 

  

NMB BANK LIMITED

__________________________________________________________________________________________________

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 recognized 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 organization.

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.

  

NMB BANK LIMITED

__________________________________________________________________________________________________

4.7.4    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                2006        2007        2008

Short-term                    A3        NR        NR

Long term                    BBB-        BBB-*        BB+

* the rating was withdrawn after the discovery of the US$6.4 million forex fraud.

NR - not rated.

 

4.8 Regulatory Compliance 

 

The Group delayed to publish the 2007 financial statements which were supposed to be published within 3 months after year end and hence it was fined Z$0.001 per day after this deadline. The corrective order issued in 2007 relating to the matter covered in Note 5.1 was partially lifted in 2008 as the issue relating to the reimbursement of Foreign Currency Account funds is still outstanding. A corrective order issued in December 2008 relating to managerial restructuring was lifted in February 2009.  The Group remains committed to complying with and adhering to all regulatory requirements.  

 

4.9 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 Bank to maintain a prescribed ratio of total capital to total risk weighted assets.

 

Regulatory capital consists of Tier 1 capital, which comprises share capital, share premium, retained earnings (including current year profit), statutory reserve and other equity reserves.  

 

The other component of regulatory capital is Tier 2 capital, which includes subordinated term debt, revaluation reserves and portfolio provisions.

 

Tier 3 capital relates to an allocation of capital to market and operational risk.  

 

Various limits are applied to elements of the capital base. The core capital (Tier 1) shall compromise not less than 50% of the capital base and portfolio provisions are limited to 1.25% of total risk weighted assets.

  

NMB BANK LIMITED

__________________________________________________________________________________________________

The Bank's regulatory capital position at 31 December 2008 was as follows:

	2008
	Z$  trillion
Share capital	-
Share premium	-
Retained earnings	117 249 946 338
	117 249 946 338
Less: capital allocated for market and operational risk	(24 925 292)
Credit to insiders	-
Tier 1 capital	117 225 021 046
Tier 2 capital	105 292 453 591
Revaluation reserves	105 280 000 017
Subordinated debt	-
General provisions (limited to 1.25% of risk weighted assets)	12 453 574
Total tier 1 & 2 capital	222 517 474 637
Tier 3 capital (sum of market and operational risk capital)	24 925 292
Total capital base	222 542 399 929
Total risk weighted assets	359 934 173 940
Tier 1 ratio	33%
Tier 2 ratio	29%
Tier 3 ratio	-
Total capital adequacy ratio	62%

NMB BANK LIMITED

__________________________________________________________________________________________________

5.    NON - ADJUSTING POST BALANCE SHEET EVENTS

5.1    Fraud

Subsequent to the balance sheet date for the year ended 31 December 2006, a fraud involving about US$6.4 million was uncovered wherein foreign currency was disposed of by a bank official for Zimbabwe dollars at the then ruling official exchange rate, without authority. This subsequently resulted in the revocation of the bank's foreign currency dealership licence by the Reserve Bank of Zimbabwe with effect from 15 May 2007. The revocation did not affect the local currency banking operations. The foreign currency dealership licence was restored with effect from 1 June 2008.

An amount of US$2.6 million of the total funds defrauded belonged to the bank's clients and the balance was the bank's own funds. The fraud had no accounting effect on the financial statements for the year ended 31 December 2006 as value was received at the official exchange rate, the amount at which the asset was carried in the financial statements. It is intended that the US$2.6 million net liability will be met by any recoveries of the misappropriated foreign currency and shareholder injections anticipated from a plan the Board has put in place, the details of which will be made available in separate circular to shareholders.

As at 31 December 2008, for financial reporting purposes, the US$ exchange rate of Z$35 quadrillion was applied in the bank's financial statements. The foreign exchange market was partially liberalised on 2 May 2008 and exchange controls were substantially abolished on 1 March 2009. 

The directors are of the view that with the restoration of the bank's foreign currency dealership licence, the Bank will continue in operational existence for the foreseeable future.  

5.2    Redenomination of the Zimbabwe dollar

    

The Zimbabwe dollar was debased on 1 February 2009 by the removal of twelve (12) zeros from the currency. As this was an event subsequent to year end, the effect has not been adjusted on the 31 December 2008 results.

5.3    Dollarisation

    

The Zimbabwean economy was fully dollarised with effect from February 2009 by allowing the use of multiple foreign currencies in business transactions. The change in the functional currency will affect the opening balances for the 2009 financial year and will be dealt with accordingly.

NMBZ HOLDINGS LIMITED 

_______________________________________________________________________________________

NOTICE TO MEMBERS

Notice is hereby given that the 14th Annual General Meeting of Members of NMBZ Holdings Limited will be held at the Registered Office of the Company at 4th Floor Unity Court, Cnr 1st Street/Kwame Nkrumah Avenue, Harare on Thursday, 25 June 2009 at 14:30 hours for the following purposes:

ORDINARY BUSINESS

 

1.    To receive and adopt the Financial Statements for the year ended 31 December 2008, together with the reports of the Directors and Auditors thereon.

 

2.    To appoint Directors.

 

In accordance with the Articles of Association, Dr G M Mandishona and Mr B Ndachena retire by rotation. Being eligible, both retiring directors offer themselves for re-election.

 

3.    To appoint Auditors for the current year and to approve Messrs Ernst & Young's remuneration for the previous year.

Note: A member of the company entitled to attend and vote at this meeting is entitled to appoint a proxy to attend, speak and on a poll, vote in his stead. A proxy need not be a member of the company. Proxy forms should be forwarded to reach the office of the transfer secretaries at least 48 hours before the commencement of the meeting.

By Order of the Board

B Ndachena

Acting Company Secretary

7 May 2009

Registered Offices 1st Floor Unity Court Cnr 1st Street/Kwame Nkrumah Avenue Harare Zimbabwe		NMB Centre George Silundika Avenue/ Leopold Takawira Street Bulawayo Zimbabwe
Telephone Facsimile	+263 4 759651 +263 4 759648	+263 9 70169 +263 9 68535
Website:	http://www.nmbz.co.zw
Email:	enquiries@nmbz.co.zw
Transfer Secretaries
In Zimbabwe First Transfer Secretaries 4th Floor, Gold Bridge North Eastgate Building Cnr. Robert Mugabe/Second Street P O Box 11 Harare Zimbabwe		In UK Computershare Services PLC 36 St Andrew Square Edinburgh EH2 2YB UK

ENDACSEAKSEAEANEFE