We have extracted a Chairman’s Statement from the 2019 half year interim report for NMB Holdings Limited (NMB.zw), listed in the Zimbabwe Stock Exchange:
The operating environment in 2019 was characterised by a multiplicity of monetary and economic reforms which significantly impacted the economic environment in which the Group operated in. The challenges experienced in 2018 persisted into the first half of 2019 largely characterised by a contraction of business operations throughout the economy, inflationary pressures and foreign currency shortages. On 22 February 2019, the Monetary Authorities introduced the interbank foreign exchange trading. The initial trades were at US$/RTGS$ 1:2.5 and subsequently, the interbank foreign exchange trading has been going through further refinements which have seen the interbank market being liberalized with more leeway being given to banks in the determination of the trading margin. As a result of these changes, the interbank trading has recorded significant increases in the volume of foreign currency traded and the rate has moved in tandem with these volumes ending at USD/ZWL 1:7 on 30 June 2019.
The underlying financial results (headline earnings) were largely driven by the banking subsidiary’s continued expansion into the broader market segment, a revision of lending interest rates and fees, a reduction in non-performing loans and cost containment measures. There were however, a number of fair value and translation adjustments which further improved the reported results: properties fair value adjustments and gains arising from the translation of foreign currency balances due to the change in functional currency from USD to ZWL. It must be noted that whilst all other foreign currency assets and liabilities were translated at the rate of USD/ZWL1:7 at 30 June 2019, legacy debts of USD18 049 918 due to various line of credit providers, suppliers and service providers were translated at a rate of USD/ZWL1:1. These legacy debts which are in arrears have been registered with the Central Bank and the ZWL equivalent will be remitted by the due date of 31 August 2019. We are guided by the Central Bank who have indicated that they will make the foreign currency available at USD/ZWL 1:1 to settle these obligations. We continue to accrue the applicable current interest on these foreign credit lines.
The profit before taxation was ZWL74 452 137 (June 2018 – ZWL 11 757 594) during the period under review and this gave rise to total comprehensive income of ZWL61 425 194 (June 2018 – ZWL 9 086 483). The Group achieved a basic earnings per share of 14.55 cents (June 2018 – 2.34 cents) and this translated into the headline earnings per share rising to 3.59 cents (June 2018 – 2.25 cents). The significant differential between the basic and headline earnings per share is largely due to investment properties fair value adjustments and gains arising from the translation of foreign currency balances due to the change in functional and reporting currency from USD to the new local currency (ZWL).
Operating expenses amounted to ZWL23 929 991 and these were up 42% from ZWL16 820 851 recorded during the six months ended 30 June 2018. The increased costs, which were contained below the general inflation rate of 176% for 30 June 2019, were due to higher transaction processing and operational costs arising from the bank’s digital drive and continued expansion into the broader market segments as well as general inflationary pressures.
The Group recorded an expected credit loss reversal on financial assets measured at amortised cost amounting to ZWL943 144 compared to an impairment charge of ZWL1 421 078 during the six months ended 30 June 2018 due to increased collection efforts on the banking subsidiary’s non-performing loans.
The Bank has continued with its drive to reduce non-performing loans (NPLs) and this saw the NPL ratio reduce from 7.43% as at 31 December 2018 to 3.38% as at 30 June 2019. The drop in the NPL ratio is largely due to aggressive collections and stricter credit underwriting standards.
The Group’s total assets increased by 31% from ZWL527 067 596 as at 31 December 2018 to ZWL691 641 122 as at 30 June 2019 mainly due to a 182% increase in property and equipment, a 228% increase in investment properties and a 68% increase in cash and cash equivalents.
Investment properties increased from ZWL20 950 606 as at 31 December 2018 to ZWL68 619 531 as at 30 June 2019 whilst property and equipment increased from ZWL17 844 069 at 31 December 2018 to ZWL50 265 775 as at 30 June 2019 mainly due to the significant increase in property values in ZWL terms in line with market changes, coupled with the initial recognition of Right-of-Use Assets arising from the adoption of IFRS 16, Leases, on 1 January 2019.
Gross loans and advances increased by 0.4% from ZWL262 335 026 as at 31 December 2018 to ZWL263 435 295 as at 30 June 2019 mainly due to a slowdown in advances during the period under review in view of the prevailing economic conditions.
Cash and cash equivalents increased from ZWL112 440 912 as at 31 December 2018 to ZWL189 429 195 at 30 June 2019 mainly due to the conversion to ZWL of the Group’s foreign denominated liquid assets.
Total deposits increased by 10% from ZWL434 957 949 at 31 December 2018 to ZWL480 292 497 as at 30 June 2019 as a result of deposit mobilisation strategies and the translation of foreign denominated deposits to the local currency.
The Bank maintained a sound liquidity position with a liquidity ratio of 34.11% and this was above the statutory minimum of 30%.
The banking subsidiary maintained adequate capital levels to cover all risks as reflected by a capital adequacy ratio of 32.11% as at 30 June 2019 (31 December 2018 – 23.25%). The ratio was well above the regulatory minimum of 12%.
The Group’s shareholders’ funds and shareholders’ liabilities increased by 113% from ZWL79 962 313 as at 31 December 2018 to ZWL170 548 579 as at 30 June 2019 as a result of the current period’s total comprehensive income, as well as the Functional Currency Translation Reserve (FCTR) which arose due to the change in the Group’s functional currency on 22 February 2019.
The Bank’s regulatory capital as at 30 June 2019 was ZWL101 178 738 and was above the minimum regulatory capital of ZWL25 million. The Bank has already achieved the revised capital level required by 2020 of ZWL100 million.
The Board has resolved not to declare an interim dividend in order to fund the growth initiatives being pursued by the Group as well as buttress the regulatory capital position of the Group’s banking subsidiary.
Mr Erik Sanderson (non-executive director) resigned from both NMBZ Holdings Limited and NMB Bank Limited boards with effect from 24 January 2019. I wish to thank him for his invaluable contributions to the Group during his tenure as a Director and wish him well in his future endeavours. Mr Erik Sanderson was replaced by Ms Christine Glover, who was appointed to the NMBZ Holdings Limited and NMB Bank Limited boards on 26 June 2019 and she brings in a wealth of experience and diversity to the Group attained over an illustrious career spanning over 30 years in the South African financial services sector. I would like to welcome Ms Glover to the boards and wish her a fruitful tenure.
The other directors of both NMBZ Holdings Limited and NMB Bank Limited boards remain as follows: Mr Benedict A. Chikwanha (Board Chairman), Mr Benefit P. Washaya (Chief Executive Officer), Mr Benson Ndachena (Chief Finance Officer), Mr Charles Chikaura (Independent Non-Executive Director), Mr James de la Fargue (Non-Executive Director), Ms Jean Maguranyanga (Independent Non Executive Director), Mr Julius Tichelaar (Non Executive Director) and Ms Sabinah Chitehwe (Independent Non-Executive Director).
Further to my announcement in the Group’s financial statements for the year ended 31 December 2018, we continued to closely monitor the developments in the economic and monetary landscape. On 22 February 2019, the Reserve Bank of Zimbabwe (RBZ) issued an Exchange Control Directive, RU 28 of 2019 which established an Interbank foreign exchange market to formalize the buying and selling of foreign currency through the Banks and Bureaux de change. To operationalize this, the RBZ denominated the existing RTGS balances as RTGS dollars and initial trades between the RTGS dollar and the US$ were pegged at USD/RTGS$1:2.5. On the same date, Statutory Instrument 33 (SI 33) of 2019 was also issued and it specified that all assets and liabilities that were in USD immediately before 22 February 2019 were deemed to have been valued in RTGS$ at a rate of USD/RTGS$1:1.
On 24 June 2019, through Statutory Instrument 142 (SI 142) of 2019, the Government of Zimbabwe discontinued the multicurrency regime which had been in place since February 2009 and also introduced the Zimbabwe Dollar (ZWL), which was designated as the country’s sole legal tender to be used for all local transactions and other purposes.
The Directors, having assessed all these developments, concluded that the Group’s functional currency changed from USD to RTGS dollars on 22 February 2019, which subsequently changed to Zimbabwe Dollars (ZWL) following the issuance of SI 142 of 2019 on 24 June 2019.
The opening balances at 1 January 2019 are carried at USD/RTGS$1:1 in compliance with Statutory Instrument 33 (SI 33) of 2019. The Group used this fixed exchange rate at 1 January 2019 and thus did not comply with the requirements of International Accounting Standard 21 (IAS 21), “The Effects of Changes in Foreign Exchange Rates”, as doing so would have been in contravention of SI 33 of 2019. The financial statements were restated using the interbank mid-rate on 22 February 2019 of USD/RTGS$1:2.5, giving rise to the Functional Currency Translation Reserve of ZWL30 176 593.
The banking subsidiary owed USD18 049 918 to various line of credit providers, suppliers and service providers at 30 June 2019. The Bank registered these foreign debts with the Reserve Bank of Zimbabwe (RBZ) as required by the regulatory directives. Subsequent to period end, the Bank transferred to the RBZ the ZWL equivalent of the foreign debts at a rate of USD/ZWL1:1. The Group used this parity rate of the USD and the ZWL dollar to account for the foreign debts at 30 June 2019 as doing otherwise would be in contravention of the Exchange Control Directives on the matter. This treatment is not in compliance with IAS21. If the closing exchange rate of USD/ZWL1:7 had been used to translate the legacy debts at 30 June 2019, a net monetary loss of ZWL80 412 385 would be booked, being a gross ZWL108 299 508 being accounted for under “net foreign exchange losses” and a deferred tax credit of ZWL27 887 123 under the “taxation” charge.
In light of the adverse opinion on the 2018 financial statements and the failure to fully comply with the requirements of IAS 21 in the current period, the Group’s independent auditors, Ernst & Young, have issued an adverse review conclusion on the financial statements for the half year ended 30 June 2019.
CORPORATE SOCIAL INVESTMENTS
The social investment thrust of the Group during the period under review was directed towards education, environmental and conservation causes as well as the support of disadvantaged and vulnerable groups.
The Group donated food stuffs, blankets and clothes to the Manicaland and Masvingo Provinces following the Cyclone Idai disaster which occurred in March 2019. Donations were also made to KidzCan for the treatment of children living with cancer, Emerald Hill School for the Deaf fish farming project and Emerald Hill Children’s home.
The Group also invested in the promotion of sports and extra curriculum activities in schools through donations in support of career fairs, Inter School Derby and quizzes. We also partnered during the period with Friends of Hwange Trust, an organization that raises awareness of conservation of the environment and wildlife in Hwange National Park.
The Bank continued with its financial inclusion drive and this has seen the opening of a number of low cost accounts via our NMBLite product. We continued to invest in digital channels to support a cashless society and in this regard, we have intensified our drive to roll out our low-cost Point of Sale devices, KaGwenya, aimed at supporting SMEs and sole traders.
The Bank is developing a branch in the resort town of Victoria Falls for the convenience of the tourist town’s residents and visitors. The new branch is envisaged to open its doors to the public in the third quarter of 2019. The construction of our new Head Office along Borrowdale Road is progressing well and the new building should be ready for occupation in the last quarter of 2019.
OUTLOOK AND STRATEGY
The Bank will continue to accelerate the deployment of POS machines throughout the country and enhance all the e-channels for the convenience of our transacting customers. The Group will also continue to broaden its target market by widening its catchment area to include segments of the mass market previously not catered for, thereby contributing to the financial inclusion agenda.
We remain cognisant of the forecast that the remainder of the year will likely be challenging in view of the high month-on-month inflation, currency fluctuations, electricity deficits, fuel shortages and shortages of foreign currency and all these will adversely impact the Group’s revenues and operating costs. We will continue to work with the Reserve Bank of Zimbabwe on our foreign currency denominated legacy debts.
I remain sincerely grateful to our valued clients, depositors, shareholders, stakeholders and regulatory authorities who have stood by the Group in the midst of a myriad of challenges experienced in the difficult operating environment. 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.
B. A. CHIKWANHA
21 August 2019