NMBZ HOLDINGS LIMITED CONDENSED AUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2022
FINANCIAL SUMMARY
Inflation Adjusted | Historical Cost | |||
2022 | 2021 | 2022 | 2021 | |
ZWL '000 | ZWL '000 | ZWL '000 | ZWL '000 | |
Operating profit before impairment charge and loss on net | ||||
monetary position | 22 927 602 | 11 860 115 | 30 169 029 | 4 102 729 |
Total comprehensive income | 12 539 883 | 7 729 056 | 31 302 191 | 3 790 756 |
Basic earnings per share (cents) | 3 014 | 1 592 | 6 396 | 728 |
Diluted earnings per share (cents) | 2 939 | 1 574 | 6 237 | 720 |
Deposits from customers | 53 215 217 | 35 840 230 | 53 215 217 | 10 425 947 |
Total gross loans and advances | 46 285 257 | 32 948 046 | 46 285 257 | 9 584 609 |
Total shareholders' funds and shareholders' liabilities | 43 589 169 | 31 026 146 | 39 155 091 | 7 297 154 |
CHAIRMAN'S STATEMENT | ||||
INTRODUCTION |
The year 2022 started with the relaxation of Covid 19 restrictions and the opening up of borders and air spaces, resulting in steady recovery of the local economy. Despite the drought experienced in 2021, the local economy was estimated to grow by 4% in 2022 on the back of improved performance in agriculture and mining sectors. The global economy experienced sharper than expected slowdown as inflation, tightening financial conditions in most developed regions, the Russia Ukraine Conflict and the lingering Covid-19 effects weighed heavily on the outlook.
Operating Environment
The economy continued to show signs of resilience and recovery in spite of the challenges experienced especially during the first half of the year which saw month-on-month inflation reach a peak of 30.7%. However, timely intervention by the authorities through the mid-term Monetary Policy Statement in July, resulted in an improved macroeconomic environment. The measures included the hiking of interest rates to curtail speculative borrowing and issuance of gold coins as an investment option which both resulted in inflation dissipating as well as general stability in prices and the exchange rate. Following the implementation of various measures, month-on-month inflation significantly dropped to 2.4% and exchange rate premiums averaged 20% as of December 2022
Notwithstanding the economic headwinds, foreign currency receipts reached a record high of USD 11.6 billion as of December 2022 compared to USD 9.8 billion recorded the previous year. Exports accounted for 64% of foreign currency receipts with international remittances contributing 25%, loans 9%, income receipts 1% and foreign direct investments (FDI) 1%.
Global Economic Developments
The global economy is projected to grow by 2.3% in 2023, compared to 3.3% in 2022, weighed down by elevated inflationary pressures, high cost of capital, ongoing geopolitical tensions in Europe coupled with the resurgence of the Covid 19 pandemic in Asia. The slowdown in economic activities in Asia and Europe will have profound implications for emerging and developing economies.
GROUP RESULTS
Financial Performance
The Group delivered strong operational and financial performance in 2022, driven by the implementation of our growth strategy.
Operating income increased from ZWL 23.9 billion to ZWL 41.9 billion for the year ended 31 December 2022, largely driven by continued growth in transaction volumes and values during the period under review. Comprehensive income for the period amounted to ZWL 12.5 billion (Dec 2021 ZWL 7.7 billion).
The Group achieved profit after tax amounting to ZWL 12 billion compared to ZWL 6.4 billion for the previous year representing a growth of 69%. Basic earnings per share amounted to 3014 cents (Dec 2021 -1592 cents).
Inflation pressures as well as the deteriorating exchange rate continued to pause a challenge on operating costs. This led to an increase in costs by 57% from ZWL 12.1 billion for the year ended 31 December 2021 to ZWL 19 billion for the current period. The Group continues to focus on revamping its process to increase efficiencies with the use of robotic process automation being key among other various initiatives.
Financial Position
The Group closed the year with total assets of ZWL 135.3 billion, up 34% from ZWL 100.9 billion as at 31 December 2021, funded by strong growth in customer deposits and new credit lines signed during the year. Customer deposits increased by 48% reflecting the banking subsidiary's efforts in deepening existing liability relationships while acquiring new relationships.
The Group's investment property portfolio was valued at ZWL 22.6 billion as at 31 December 2022 while property and equipment stood at ZWL 17.6 billion. The revaluation gains largely reflect the changes in the macro-economic environment and a deliberate strategy by the bank to preserve value for shareholders.
Loans and advances stood at ZWL 46.3 billion as at 31 December 2022. The banking subsidiary maintained a high-quality loan book, closing the year with an NPL ratio of 1.09%
The Bank maintained a sound liquidity position with a liquidity ratio of 50% and this was above the statutory minimum of 30%.
Capital
The capital adequacy ratio of the banking subsidiary remained strong at 25.29% compared to a regulatory minimum of 12%. The subsidiary maintained adequate capital levels to cover all risks and was compliant with the minimum capital of the equivalent of USD 30 million.
DIVIDEND AND SHARE BUYBACK
An interim dividend of 45 cents a share was declared as at 30 June 2022 and paid out subsequent to that. For the second half of 2022, the company is declaring a final dividend of 284 cents per share to bring the total dividend for the year 2022 to ZWL 1.33 billion.
During the year, the Bank successfully completed a ZWL 206 million off-market share buy-back following approval by shareholders in May 2022. Overall, we have returned above ZWL 1.5 billion to our shareholders over the past 12 months through buy-backs and dividends. A separate detailed notice to shareholders will be issued in this regard.
BLOCKED FUNDS
The banking subsidiary owed USD 13,840,412 to various line of credit providers as at 31 December 2022. In line with section 52 of the Finance Act no 7 of 2021, the Bank received Government-backed zero-coupon Treasury Bills amounting to USD 9,644,148 by 31 December 2022. The rest of Treasury Bills amounting to USD 4,196,264 were received subsequent to year end.
DIRECTORATE
Mr. Charles Chikaura and Ms. Sabinah Chitewe retired as directors of the Company effective 24 June 2022. I thank them for their sterling work during their tenure. The two outgoing directors were ably replaced by Mrs. Emilia Chisango who was appointed to the Board on 26 May 2022 and Mr. Dzingira Matenga who was appointed to the Board on 19 July 2022. We look forward to their contribution.
OUTLOOK
The Group will focus on disciplined execution of its strategy which is anchored on broadening the Group structure and diversifying sources of income. The Group will leverage on technology to deliver robust digital platforms and effectively deliver convenient financial solutions to its customers. Raising of credit lines remains a key focus area as we continue to fund export oriented productive sectors of the economy as part of our drive to support the growth of the Zimbabwean economy.
APPRECIATION
I thank our valued clients, depositors, shareholders, regulatory authorities and other key stakeholders for their continued support. To my fellow board members, management and staff, I extend my heartfelt gratitude for their continued diligence, dedication and relentless efforts which have culminated in the achievement of these commendable results.
MR. B. A. CHIKWANHA CHAIRMAN
CHIEF EXECUTIVE OFFICER'S STATEMENT
INTRODUCTION
In my first year in office, we rolled out a bold growth strategy with Group diversification taking centre stage. The Bank, which was the only functional subsidiary, is now complemented by other operations namely a Property Development Company and Microfinance Division. A broadened group structure, gives us a vantage position to participate in multiple sectors and maximize on pockets of opportunities that exist in the different spaces. The Bank continued to pursue a digital bank model with a number of innovation and enhancements on our platforms. We complimented our Digital thrust by launching an Agency Network after partnering with Zimpost. This means NMB Bank services can now be accessed in over 100 of Zimpost branches. The bank's growth trajectory was recognised in the market with NMB being awarded the Overall Best Performing Bank in the year 2022.
During the first half of the year, the macro-economic environment was characterized by increasing inflation and a deteriorating exchange rate. These were however reigned in after the authorities put in place a raft of measures to contain money supply and curb speculative behavior in the economy. Consequently, year-on-year inflation closed the year on 243.7%, while month-on-month inflation averaged 2.4%. The exchange rate ended the year at USD /ZWL 684.3339.
PERFORMANCE REVIEW
The year 2022 presented great opportunities which the Group took advantage of to deliver strong operational and financial performance. The Group achieved total comprehensive income of ZWL 12.5 billion, which was a 62% increase compared to ZWL 7.7 billion for the previous year. There continues to be pressure on operating costs which have increased by 57% from ZWL 12.1 billion for the year ended 31 December 2021 to ZWL 19 billion for the current year.
The banking subsidiary had two new off shore funding opportunities in which it signed two credit lines during the year, European Investment Bank EUR12.5 million and Trade and Development Bank line of USD 10 million. This saw the Bank's loan book increasing by 40% to end the year at ZWL 46.3 billion compared to ZWL 42.5 billion in 2021.
BUSINESS REVIEW
The banking subsidiary continued to make inroads into new markets and cement relationships with existing clients through the following main business units.
Digital Banking
NMB Bank Limited continues to focus on extending its leadership in technology and innovation, building trusted relationships, and developing differentiated products and services to create more value for customers. Our entire customer journey is fully digitized, from account opening, transacting and even cash operations.
Our digitized banking process have enabled us to offer unparalleled convenience to our customers. In 2022, we handled transactions worth over ZWL 400 billion, compared to ZWL 170 billion the previous year. Our mobile banking platform saw 216% growth in volumes from 4.6 million transactions in 2021 to 14.7 million transactions in 2022. The Digital banking division continues to be seized with developing solutions to address customer pain points. The division contributed gross income amounting to ZWL 7.3 billion in 2022.
Consumer Banking
Through the Consumer Banking and Value-Added Services (CBVAS) unit, the Bank continues to focus on delighting and serving our customers by providing simple, convenient and affordable banking, insurance and payments services. CBVAS also includes the digital banking services offered through the use of our USSD (*241#) and NMBConnect platform, to enable our personal and Excellence customers to help them manage their everyday banking needs. CBVAS contributed gross income amounting to ZWL 9.6 billion for the year ended 31 December 2022.
Geographical Representation
To complement our physical reach through our branches, the bank entered into an agency banking relationship with Zimpost. This has seen the bank increase its geographical reach to have one of the most expansive networks in the country, from 13 branches to 119 branches and agencies. We believe such partnerships are key for us to deliver services that require a physical touch point. The agency arrangement has also assisted in decongesting our branches, complemented by our efficient digital service delivery platforms.
Business Banking
Our Business Banking division continued to be strongly focused on supporting exports growth, agricultural production, infrastructure development and productive sector operations. We delivered several highs as we saw impressive contributions on deposits and loans from new business underwritten. The exporters' book continues to grow through various partnerships created during the financial period in particular the foreign credit lines. We deployed part of our lines of credit funding to support the horticulture sector. We are also leveraging the strength in Food and Agriculture of one of our indirect shareholders, Rabobank (part of Arise B V) to support our farming and agriculture customers. Our lending growth was above set targets and our focus on responsible practices ensures that both the Bank and its customers achieve sustainable growth.
STRATEGIC PRIORITIES
In pursuit of our exponential growth aspiration, the Group's diversification thrust gathered momentum. The Group now has a new subsidiary to add to the bank, namely the Property Development Company. The banking division also diversified its operations as we setup a Microfinance division with the aim of providing more focused services to individuals and micro businesses. A Technology Services division was also set up and is in various discussions with a number of banks in the region where we will become their technology partner to drive their digital transformation agendas. This will be an additional source of foreign currency earnings for the Group. The new subsidiary and divisions have opened up new markets for the Group and have a clear vision on how to establish themselves as formidable players in their domains. Capital allocation was key and the new businesses were capitalised organically. All the Group's subsidiaries are adequately capitalised and capacitated to pursue their strategic goals.
Strengthening our core banking business, geographical representation were some the areas that received due attention. The banking business continued to leverage on technology to deliver service more efficiently as we on-boarded more billers, introduced payment services like airtime/ data purchase and rolled out an agency banking system. The innovation on agency banking enabled us to seamlessly on-board the Zimpost agency partnership. The banking subsidiary also increased it digital workforce as we deployed more robots largely in the accounts reconciliation space via our Robotic process Automation section. The banking subsidiary is now focused on ensuring a comprehensive package of products is offered through the agency network for the convenience of customers.
The main drivers for setting up these particular subsidiaries are income diversification, maximum utilisation of skills and capacity within the Group, efficient use of capital and value preservation. All the subsidiaries will leverage the Group's digital capabilities and superior customer services.
CORPORATE SOCIAL INVESTMENTS AND SUSTAINABILITY
The Corporate Social Investment thrust of NMB Bank Limited during the period under review was directed towards the development of children, women in business and vulnerable members of society. In 2022, the Bank introduced the Skills for Success program that aims to bridge the soft skills gap and better prepare the country's future workforce. The program partners local high schools and institutions dealing with the betterment of children and youth to offer relevant career guidance.
The bank's support for KidsCan Zimbabwe continued this year. Further, a luncheon was held for vulnerable children in conjunction with Friends of Dzikwa Trust where various items were donated. Friends of Dzikwa Society (FODS) is a sister organization to Dzikwa Trust Fund and is responsible for fundraising for Dzikwa Trust activities. The Trust Fund supports gifted orphans and vulnerable children in Dzivarasekwa and also feeds the vulnerable with their kitchen serving up to 650 mouths on average per day.
OUTLOOK AND STRATEGY
The operating environment is expected to remain challenging but also with some pockets of growth opportunities. Running an efficient and cost effective business will be key in this environment and agility to move and close in on the opportunities remains key. The Group has capabilities to take advantage of the opportunities presented by the environment and manage the attendant risks. The Bank was successful in raising lines of credit in the previous year and we are looking forward to draw on more lines. The Group diversification drive will gather momentum in the coming year as we fully operationalize the new subsidiaries.
APPRECIATION
I thank the NMB Bank team, Board and shareholders for their immense support during my first year in office. I am sincerely grateful to our valued clients, funding partners, shareholders, stakeholders and regulatory authorities for their various contributions in our pursuit of delivering on our vision.
MR. G. GORE CEO
22 March 2023
22 March 2023
DIRECTORS' REPORT EXTRACT
1.
RESPONSIBILITY
The Directors of the Group are mandated by the Companies and Other Business Entities Act (Chapter 24:31) 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 and Other Business Entities Act (Chapter 24:31) 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 and Other Business Entities Act (Chapter 24:31) of Zimbabwe and the Banking Act (Chapter 24:20) of Zimbabwe. The detailed impact of this adoption is disclosed in note 3.12 (Changes in accounting policy).
The Directors have been able to achieve full compliance with IFRSs in previous reporting periods up to 31 December 2017. However, the 31 December 2021 and the comparative periods dating back to the year ending 31 December 2018 financial reporting period 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 2.4.5, "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 USD 1: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; consequently, the Group could not fully apply the requirements of IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors".
This, in our opinion resulted in non-compliance with IAS 21 and IAS 8 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.
The consolidated and separate financial statements were approved by the Board of Directors on 22 March 2023.
AUDITOR'S STATEMENT
The Group's consolidated inflation adjusted financial statements from which these abridged financial statements have been extracted, have been audited by the Group's external auditors Ernst & Young Chartered Accountants (Zimbabwe) ,who have issued a qualified audit opinion as a result of the following matters: non-compliance with International Accounting Standard (IAS) 21, "The Effects of Changes in Foreign Exchange Rates", International Accounting Standard (IAS) 8, "Accounting Policies, Changes in Accounting Estimates and Errors", IFRS 13, "Fair value measurement" ,IFRS 9, "Financial instruments" and the consequential impact of applying IAS29 "Financial Reporting in Hyperinflationary Economies" on the use of an incorrect base due to inappropriate valuation of investment property, freehold buildings and land in prior year and the inappropriate accounting of blocked funds and treasury bills. The audit report also includes key audit matters in respect of impairment of loans and advances, suspense accounts and presumed risk on revenue recognition. The auditor's opinion on the Group's consolidated inflation adjusted financial results is available for inspection at the Holding Company's registered office. The Audit Partner for this engagement is Mr Walter Mupanguri (PAAB Practicing Number 0367)
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022
* The Historical Cost information has been shown as supplementary information for the benefit of users. These are not required in terms of International Accounting Standard (IAS) 29 "Financial Reporting in Hyperinflationary Economies". The Auditors have not expressed an opinion on the Historical Cost information.
** The revaluation gains on land and buildings will not be recycled into profit or loss in the subsequent reporting period. It will however be recycled through equity.
STATEMENT OF FINANCIAL POSITION
SHAREHOLDER'S FUNDS
Share capital
Share Premium
Treasury shares reserve
Functional currency translation reserve
Revaluation reserve
Share Option Reserve
Retained earnings
Total equity
Redeemable ordinary shares
Subordinated term loan
Total shareholders' funds and shareholders' liabilities
NOTE
10
10.2.2
12
LIABILITIES
Deposits 13
Other liabilities
Borrowings 14
Current tax liabilities
Deferred tax liabilities
Total liabilitiesTotal shareholder's funds and liabilities
ASSETS
Cash and cash equivalents 15
Investment securities 16.1
Loans and advances 16.3
Other assets 17
Assets held for sale 21
Trade and other investments
Current tax assets
Investment properties 20
Intangible assets 18
Property and equipment 19
31-Dec 2021 ZWL '000
Total assets
84 19 122
( 7)
11 620
1 915 997
27 768
5 085 120
7 059 704
14 335 223 115
7 297 154
10 425 947
2 750 917
5 914 585
236 049
741 544
20 069 042
27 366 196
4 872 262
4 010 434
9 584 609
2 265 354
-
36 500
-
3 518 134
13 409
3 065 495
27 366 196
* The Historical Cost information has been shown as supplementary information for the benefit of users. These are not required in terms of International Accounting" Standard (IAS) 29 "Financial Reporting in Hyperinflationary Economies.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2022
Balance as at 1 January 2021
Profit for the yearRevaluation of land and buildings, net of tax
Acquisition of treasury sharesEmployee share schemes - value of employee services
Balance at 31 December 2021
Profit for the yearRevaluation of land and buildings, net of tax
Share options exercised
Share buy back
Scrip dividends paid
Dividend paid
Redeemable ordinary shares
Employee share schemes - value of employee services
INFLATION ADJUSTED
Share Capital
19 752
19 752
0
-----
4 180 167
4 180 167
Share Premium
8 992
-----
Treasury
Shares
(
(
- - 397)
29)
29)
-----
Currency TranslationFunctional
1 588 744
1 588 744
Reserve
- - - - - -
----
Share Option
Reserve
( 2 349)
113 606
113 606
-
----
Revaluation
Reserve
3 691 761
1 296 513
4 988 274
537 534
-
- - - - -
--
Retained | |
Earnings | |
12 886 831 | |
6 432 543 | |
- | |
- | 113 606 |
19 319 374 | 30 209 888 |
12 002 349 | 12 002 349 |
- | 537 534 |
- | 6 644 |
Total
22 367 255
6 432 543
1 296 513
(
29)
46
2
-
-
139 024
22 465
-
-
-(
- - -
-
-
145 985
- - - -
-
( |
( |
210 923) | 211 320) | |
139 027) | - | |
( | 50 744) | 50 744) |
- | 22 511 | |
- | 145 985 |
(
(
19 800
4 350 648
(
426)
1 588 744
257 242
5 525 808
30 921 029
42 662 846
HISTORICAL COST*Share Capital
Share PremiumTreasury shares
Functional
Currency Translation
ReserveShare Option
ReserveRevaluation
ReserveRetained EarningsTotal
84
19 122
-
11 620
-
1 067 266
2 143 096
3 241 188
-
-
-
-
-
-
2 942 025
2 942 025
- -
- -
- 7)
-
-
848 731
-
848 731
(
(
7)
-
-
-
-
27 768
-
-
27 768
84
19 122
(
7)
11 620
27 768
1 915 997
5 085 121
7 059 705
-
-
-
-
-
-
25 468 506
25 468 506
0
-
5 727
-
- - 387)
- - - - - -
( 1 496)
-
5 833 685
- - - - -
- -
5 833 685
4 231
29
2
-
-
-
133 341
14 306
-
-
-(
- - -
-
-
103 297
- - - -
-
( |
( |
205 933) | 206 320) | |
133 343) | - | |
( | 48 670) | 48 670) |
- | 14 335 | |
- | 103 297 |
(
(
MR. B. A. CHIKWANHA CHAIRMAN
MR. G. GORE CEO
Balance at 31 December 2022
115
172 496
(
394)
11 620
129 569
7 749 682
30 165 681
38 228 768
* The Historical Cost information has been shown as supplementary information for the benefit of users. These are not required in terms of International Accounting" Standard (IAS) 29 "Financial Reporting in Hyperinflationary Economies.
22 March 2023
22 March 2023
STATEMENT OF CASH FLOWS
GROUP | |||
Historical Cost* | |||
31-Dec | 31-Dec | 31-Dec | |
2021 | 2022 | 2021 | |
ZWL '000 | ZWL '000 | ZWL '000 | |
9 507 131 | 28 977 636 | 3 854 622 | |
1 500 092 | - | - | |
290 370 | 222 437 | 65 922 | |
170 109 | 71 926 | 38 606 | |
12 711 | 4 395 | 2 865 | BASIS OF PREPARATION |
The consolidated financial statements including comparatives, have been prepared under the inflation adjusted accounting basis to | |||
852 892 | 1 191 393 | 248 107 | account for changes in the general purchasing power of the ZWL . The restatement is based on the Consumer Price Index at the statement |
- | ( 1 189 691) | - | of financial position date. The indices are derived from the monthly inflation rates which are issued by the Zimbabwe National Statistics |
Agency (ZIMSTAT). The indices used are shown below. These condensed consolidated financial statements are reported in Zimbabwean | |||
( 2 864 068) | ( 16 380 731) | ( 1 843 565) | dollars and rounded to the nearest dollar. |
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.
* The Historical Cost information has been shown as supplementary information for the benefit of users. These are not required in terms of International Accounting" Standard (IAS) 29 "Financial Reporting in Hyperinflationary Economies.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1.
GENERAL INFORMATION
The NMBZ Holdings Limited Group (the Group) comprises the company (NMBZ Holdings Limited) and the wholly owned banking subsidiary, NMB Bank Limited (the Bank).
The Bank was established in 1993 as a merchant bank incorporated under the Companies and Other Business Entities Act (Chapter 24:31) of Zimbabwe and is now registered as a commercial bank in terms of the Banking Act (Chapter 24:20) of Zimbabwe. It operates through a branch and agency v mainly in Harare, Bulawayo, Masvingo, Kwekwe, Mutare, Gweru, Bindura and Chinhoyi. Other agent locations are spread throughout the country for the convenience of users.
2.
2.1.
SUMMARY SIGNIFICANT ACCOUNTING POLICIES
Dates | Indices | Conversion factor |
31-Dec-18 | 88.81 | 153.9569 |
31-Dec-19 | 551.63 | 24.7864 |
31-Dec-20 | 2474.52 | 5.5255 |
31-Dec-21 | 3977.46 | 3.4376 |
31-Dec-22 | 13672.91 | 1.0000 |
The indices have been applied to the historical costs of transactions and balances as follows:
• All comparative figures as of and for the periods ended 31 December 2018, 31 December 2019, 31 December 2020 and 31 December 2021 have been restated by applying the change in the index to 31 December 2022;
• Income statement transactions have been restated by applying the change in the index from the approximate date of the transactions to 31 December 2022;
• Gains and losses arising from the monetary assets or liability positions have been included in the income statement;
• Non-monetary assets and liabilities have been restated by applying the change in the index from the date of the transaction to 31 December 2022;
• Property and equipment and accumulated depreciation have been restated by applying the change in the index from the date of their purchase or re-assessment to 31 December 2022;
• Equity has been restated by applying the change in index from the date of issue to 31 December 2022;
The net impact of applying the procedures above is shown in the statement of comprehensive income as the gain or loss on net monetary position.
IAS 29 discourages the publication of historical results as a supplement to the inflation adjusted results. However, historical results have been published as additional information for the users of the Group's financial statements. The Auditors have not expressed an opinion on the historical results.
Functional and presentation currency
For the purposes of the condensed consolidated financial statements, the results and financial position of the Group are expressed in Zimbabwe dollars (ZWL ) which is the functional currency of the Group, and the presentation currency for the consolidated financial statements.
Comparative financial information
The interim financial statements comprise the consolidated and separate statements of financial position, comprehensive income, changes in equity and cash flows. The comparative information covers a period of six months to 30 June 2021.
2.2. BASIS OF CONSOLIDATION
The consolidated and separate financial statements comprise of the financial statements of the Group and company. All companies in the Group have a December year end. Inter-group transactions, balances, income and expenses are eliminated on consolidation.
2.2.1. BUSINESS COMBINATIONS
Business combinations are accounted for using the acquisition method as at the acquisition date - i.e. when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired.
Subsidiaries
Subsidiaries are those investees controlled by the Group. The Group controls an investee if it is exposed to, or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the subsidiary. The financial statements of subsidiaries are included in the consolidated financial statements, using the acquisition method, from the date that control effectively commences until the date that control effectively ceases.
In the holding company's separate financial statements, investment in subsidiaries are accounted for at cost.
Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if they are related to the issue of debt or equity securities.
Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.
Loss of control
When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related non-controlling interests (NCI) and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
2.3.
FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are translated into Zimbabwe Dollars (ZWL ), which is the respective functional currency of Group entities at the spot exchange rates at the date of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the spot exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between the amortised cost in the functional currency at the beginning of the year, adjusted . for effective interest and payments during the year, and the amortised cost in the foreign currency translated at the spot exchange rate at the end of the year.
Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the spot exchange rate at the date on which the fair value is determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated using the spot exchange rate at the date of the transaction.
Foreign currency differences arising on translation are generally recognised in profit or loss.
2.4. TAXATION
Income tax
Income tax expenses comprise current, capital gains and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income.
Current tax
Current tax comprises expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. It is measured using rates enacted or substantively enacted at the reporting date in the country where the Group operates and generates taxable income and any adjustment to tax payable in respect of previous years. Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities.
Deferred tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:
• temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
• temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future; and
• taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. For this purpose, the carrying amount of investment property measured at fair value is presumed to be recovered through sale, and the Group has not rebutted this presumption.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
Additional taxes that arise from the distribution of dividends by the Bank are recognised at the same time as the liability to pay the related dividend is recognised. These amounts are generally recognised in profit or loss because they generally relate to income arising from transactions that were originally recognised in profit or loss.
2.5. FINANCIAL INSTRUMENTS
Measurement Methods
Amortised 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 calculatedby 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.
Financial Assets
(i) Classification and subsequent measurement
From 1 January 2018, the Group has applied IFRS 9 and classifies its financial assets in the 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 taking. These securities are classified in the 'other' business model and measured at FVPL. 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.
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 Effective Interest Rate (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 in other liabilities. 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 in other liabilities.
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.
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NMBZ Holdings Ltd. published this content on 31 March 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 31 March 2023 08:23:06 UTC.
