ZB Financial Holdings Limited HY 2014 financial

UNAUDITED GROUP FINANCIAL RESULTS

FOR THE HALF YEAR ENDED 30 JUNE 2014

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CHAIRMAN’S STATEMENT

Introduction

I have great pleasure in sharing this report as Chairman of the Board since my elevation to that

position on the 24th of July, 2014.

Operating environment

While the implementation of the Zimbabwe Agenda for Sustainable Socio-Economic Transformation

(ZIMASSET) has started in earnest, the operating conditions in the six months to 30 June 2014

remained very challenging for the private sector. The Government had to reduce its baseline

projection for real Gross Domestic Product (GDP) growth for 2014 from an initial 6.1% to 3.1%,

reflecting, among other factors, continuing low business and investment confidence, scarce liquidity,

and subdued international prices for major exports.

The economy also remained in a deflationary zone as inflation averaged negative 0.25% during the

period under review, compared to 2.47% in the corresponding period in 2013. The slide in consumer

prices was largely attributable to weak aggregate demand, occasioned by low disposable incomes,

the weakening South African Rand, as well as a general price correction in the domestic economy.

While deflation benefited consumers, it had an adverse impact on industry as capacity utilization

declined, and margins were further reduced.

Limited new funds flowed into the capital market during the period under review. Foreign investors

were the main players as they sought bargains, while the participation of local investors was confined

to mostly portfolio switches as the tight liquidity conditions constrained active participation.

In the outlook period, the mining and Information Communication and Technology (ICT) sectors

are expected to record modest growth. The informal economy is, however, expected to continue

expanding as job losses in industry increase. The direct injection of capital into the economy will be

critical for unlocking the growth potential that the country has.

Group Results

Operating in a very difficult environment, the Group experienced a 22% reduction in total earnings

for the six month period to 30 June 2014 compared to the comparative period in 2013.

Resultantly, the Group posted a loss for the first half in 2014, an outturn burdened by fair value

losses on the equity portfolio as well as non-recurring provisions for the restructuring of the Group’s

operations.

The outturn is discussed in more detail in the Group Chief Executive’s report.

Capitalisation and future business outlook

Regulatory approvals for the amalgamation of the Group’s banking operations are at an advanced

stage. As previously highlighted, this transaction will enhance the underwriting capacity for banking

transactions whilst eliminating unnecessary duplication.

The Group continues to be on the lookout for other capital opportunities.

Material disclosures

The matter in which Transnational Holdings Limited is challenging the acquisition of Intermarket

Holdings Limited by ZB Financial Holdings Limited remains to be determined at the Supreme Court.

Additionally, revocation of the Group’s listing as a Specially Designated National (SDN) by the Office

of Foreign Assets Control (OFAC) of the United States of America’s Treasury Department still remains

outstanding.

Board and Senior Management

On behalf of the Board, management and staff, I would like to thank and recognize the invaluable

contribution made by Mr. B.P. Nyajeka and Dr. C.U. Hokonya who left the Group to pursue other

business interests. Mr. B.P. Nyajeka, the former chairman of the Group, had served the Group for 11

continuous years of which 5 of those years were as chairman of the Holding Company’s Board. Dr.

C.U. Hokonya sat on the boards of the Holding Company and of the Group’s flagship operation, ZB

Bank Limited.

I wish them all success in their future endeavours.

Mr. G. Nheweyembwa joined the Group on the 1st of May, 2014 as the Managing Director of ZB Bank

Limited. The Group welcomes him and looks forward to his contribution.

T.P.B Mpofu

Chairman

28 August, 2014

Harare

ZB FINANCIAL HOLDINGS LIMITEDUNAUDITED FINANCIAL STATEMENTS30 JUNE 2014

GROUP CHIEF EXECUTIVE’S REPORT

Background

A deflationary price outturn during the first half had a negative impact on general industrial

capacity utilization. This compounded credit risk as margins in the real sector shrunk whilst credit

absorption capacity at the obtaining interest rates also reduced.

Consequently, the Group adopted a very conservative approach to credit expansion, limiting the

growth of the credit book in the period under review to only 4%, whilst deploying increased effort

to the administration of existing facilities.

Despite a rally in prices towards the end of the period, mixed trading saw the Industrial Index

closing the period down 7.7% from the December 2013 index. This also contributed negatively

to the Group’s outturn.

Group Results

On the back of a depressed revenue outturn, the Group posted a loss of $2.6 million for the half

year ended 30 June 2014 (2013: restated profit of $2.2 million).

Total income decreased by 22% from $34.6 million in the comparative period in 2013 to $26.9

million for the period to June 2014.

Net income from lending activities reduced from $10.5 million to $7.9 million with $3.3 million

worth of interest on distressed accounts having been posted to the interest reservation account;

some of this income will be posted into the income statement in future periods upon recovery

of balances.

An increase from $158 thousand to $1.7 million in the charge to the statement of profit or loss

for loan impairments was recognized in sympathy with the credit risk profile of the loan book.

The net insurance income increased marginally by 2% and contributed 15% (2013: 11%) to

total income. The life assurance operations contributed 11% and the re-insurance operations

contributed 9% to the net outturn, after recognising an impairment charge of $392.7 thousand

on premium debtors at the re-insurance business.

Fees, commission based charges and other income, at $17.3 million reduced by 7% from the

comparative period. The reduction is a result of limited off-take on credit creation commissions

as a result of the deliberate suppression of lending activities in preference of higher quality assets.

A fair value loss on the trading portfolio amounting to $2.2 million was recognized, compared to

a fair value gain of $1.6 million in the comparative period in 2013.

Operating expenses, at $28.9 million, were managed within 99% of the June 2013 outturn. Further

measures to curtail expenditure are at various levels of implementation.

Total assets increased by 4% from $332.0 million as at 31 December 2013 to close at $344.3

million as at 30 June, 2014.

This was on the back of a 6% growth in total deposits which increased from $218.6 million to

$231.3 million over the same period. The deposits remained transient and restricted in their

ability to support long term assets.

A generally illiquid market with limited interbank trading saw the Group exercising extreme caution

in the management of liquidity. Consequently, the Loans to Deposits (L/D) ratio was maintained

at a conservative level of 59% (2013: 61%) whilst liquidity ratios for banking operations were

maintained above the regulated minimum liquidity ratio of 30%.

Operations review

A review of the Group’s business model has been undertaken. Implementation of the revised

model has seen the discontinuation of the asset management and stock-broking businesses.

Inclusive of provisions for winding down activities, the discontinued operations contributed a net

loss of $1.3 million to the financial outturn.

Channel optimization remained a core area of focus within banking operations with 2 branches

(Harare Exhibition Park and Private Bank Branch) having been closed. A comprehensive agency

banking model is currently being rolled out.

The Bank became a distribution partner for prepaid electricity vouchers and has so far transacted

significant volumes.

The Group values the feedback that it gets from its customers. In this spirit, a conversion option

from a level term option (death cover over a defined period) to an endowment plan (a combination

of a life and investment plan) was granted on one of its life products, “The Seed”. The benefit is

available to existing and new clients.

Regional penetration within the re-insurance business has been escalated with a contract having

been concluded in Mozambique.

Outlook

A value driven and growth oriented leadership culture adopted by the Group is expected to

stimulate the expansion of revenue opportunities which is anchored on increased operational

efficiencies.

Further costs will be incurred in the re-alignment of Group resources up to year end in order to

pave way for future sustainability.

R. Mutandagayi

Group Chief Executive

28 August, 2014

Harare

UNAUDITED STATEMENT OF FINANCIAL POSITION

As at 30 June 2014

UNAUDITED AUDITED

30 June 2014 31 Dec 2013

US$ US$

ASSETS

Cash and cash equivalents 73 645 187 69 160 246

Money market investments 16 781 952 15 605 190

Mortgages and other advances 137 172 238 131 739 306

Premium debtors 2 030 833 2 065 822

Investment securities 22 206 690 23 963 517

Investment in associates 14 324 551 14 171 551

Inventories, trade and other receivables 6 632 552 3 663 858

Investment properties 16 283 934 16 633 934

Property and equipment 45 216 090 44 378 989

Intangible assets 7 361 927 8 734 237

Deferred tax asset 1 747 744 1 914 252

Non current assets held for sale 915 530 -

TOTAL ASSETS 344 319 228 332 030 902

LIABILITIES

Deposits and other accounts 231 325 496 218 615 988

Amounts due to other banks 126 260 168 059

Short-term borrowings 5 758 444 3 750 000

Trade and other payables 13 324 919 13 262 913

Current tax liabilities 267 437 470 646

Life assurance funds 24 014 286 24 467 521

Deferred tax liabilities 3 854 682 4 004 025

Non current liabilities held for sale 1 042 192 -

Total liabilities 279 713 716 264 739 152

EQUITY

Share capital 1 751 906 1 751 906

Share premium 27 081 696 27 081 696

Other components of equity 15 965 112 16 306 395

Retained income 9 883 005 11 814 783

54 681 719 56 954 780

Non-controlling interests 9 923 793 10 336 970

Total equity 64 605 512 67 291 750

Total equity and liabilities 344 319 228 332 030 902

UNAUDITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the half year ended 30 June 2014

RESTATED

UNAUDITED UNAUDITED

30 June 2014 30 June 2013

US$ US$

Interest income 16 564 606 17 730 735

Interest expense (6 971 145 ) (7 114 727 )

Net interest income 9 593 461 10 616 008

Allowance for loans impairment (1 699 490 ) (157 739 )

Net income from lending activities 7 893 971 10 458 269

Gross insurance premium income 17 846 732 16 849 857

Insurance expenses (13 931 707 ) (12 999 480 )

Net insurance income 3 915 025 3 850 377

Other operating income 17 291 252 18 650 566

Fair value adjustments (2 242 285 ) 1 638 222

Total income 26 857 963 34 597 434

Operating expenses (28 930 229 ) (29 326 053 )

Operating income (2 072 266 ) 5 271 381

Transfer from / (to) life assurance funds 453 235 (1 905 127 )

Share of associate companies’ profit, net of tax 153 000 275 435

(Loss) / profit before taxation (1 466 031 ) 3 641 689

Income tax credit / (expense) 91 540 (1 329 652 )

(Loss) / profit from continuing operations (1 374 491 ) 2 312 037

Discontinued operations

(Loss) from discontinued operations, net of tax (1 253 131 ) (102 605)

(Loss) / profit for the period (2 627 622 ) 2 209 432

Other comprehensive income:

Items that will not be reclassified to profit or loss

Share of associate companies revaluation reserve, net of tax - (550 234 )

Other comprehensive income for the period, net of tax - (550 234 )

Total comprehensive income for the period (2 627 622 ) 1 659 198

(Loss)/profit attributable to:

Owners of parent from continuing operations (1 019 930 ) 1 846 093

Owners of parent from discontinued operations (1 253 131 ) (102 605 )

Non-controlling interests (354 561 ) 465 944

(Loss) / profit for the period (2 627 622 ) 2 209 432

Total comprehensive income attributable to:

Owners of parent from continuing operations (1 019 930 ) 1 295 859

Owners of parent from discontinued operations (1 253 131 ) (102 605 )

Non-controlling interests (354 561 ) 465 944

(2 627 622 ) 1 659 198

Earnings per share

Basic and fully diluted per earnings per share (dollars)

from continuing operations (0.01 ) 0.01

Basic and fully diluted per earnings per share (dollars)

from discontinued operations (0.01 ) 0.00

Basic and fully diluted per earnings per share (dollars) (0.01 ) 0.01

01

FINANCIAL HIGHLIGHTS

2014 2013 PERCENTAGE 30 June 30 June CHANGE STATEMENT OF FINANCIAL POSITIONTotal assets 344 319 228 332 030 902 4%

Total capital and reserves 64 605 512 67 291 750 (4% )

Return on equity (2.22% ) 1.29% (272% )

Total capital to total assets ratio (Group) 18.76% 20.27% (7% )

Loan loss provision ratio (Group) 3.36% 3.09% 9%

Liquidity ratio (Group) 39.83% 38.77% 3%

STATEMENT OF PROFIT OR LOSSTotal income 26 857 963 34 597 434 (22% )

Transfer from/(to) life fund 453 235 (1 905 127 ) 124%

Profit/(loss) after taxation (2 627 622 ) 2 209 432 (219% )

Basic earnings/(loss) per share (dollars) (0.01 ) 0.01 (200% )

Cost efficiency ratio** 107.72% 84.79% (27% )

**Total expenses / Total income



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UNAUDITED STATEMENT OF CHANGES IN EQUITY


Attributable

Properties Retained to equity Non-

Ordinary Share General revaluation income/ holders of controlling

shares premium reserve reserve (loss) parent interests Total

US$ US$ US$ US$ US$ US$ US$ US$

Restated balance 1 751 906 27 204 178 2 824 790 13 743 090 11 272 600 56 796 564 10 100 845 66 897 409

Changes in equity for 2013

Profit or loss

Profit for the period - - - - 320 863 320 863 547 242 868 105

Other comprehensive

income net of tax

Revaluation of property - - - 189 004 - 189 004 (21 660 ) 167 344

Transactions with owners

of the parent:

Distributions

Treasury shares acquired - (122 482 ) - - - (122 482 ) - (122 482 )

Dividends paid - - - - (461 439 ) (461 439 ) (57 187 ) (518 626 )

Other movements

Regulatory reserve in

respect of doubtful debts - - (132 739 ) - 182 759 50 020 (50 020 ) -

Transfer from retained income - - (317 750 ) - 500 000 182 250 (182 250 ) -

Balance at 1 January 2014 1 751 906 27 081 696 2 374 301 13 932 094 11 814 783 56 954 780 10 336 970 67 291 750

Changes in equity for 2014

Profit or loss

Loss for the period - - - - (2 273 061) (2 273 061) (354 561) (2 627 622 )

Transactions with

owners of the parent:

Distributions

Dividends paid - - - - - - (58 616 ) (58 616 )

Other movements

Regulatory reserve

in respect of doubtful debts - - (341 283 ) - 341 283 - - -

Balance at 30 June 2014 1 751 906 27 081 696 2 033 018 13 932 094 9 883 005 54 681 719 9 923 793 64 605 512

UNAUDITED STATEMENT OF CASH FLOWSFor the half year ended 30 June 2014 RESTATED UNAUDITED UNAUDITED 30 June 2014 30 June 2013 US$ US$

Cash flows from operating activities (2 541 998 ) 135 720

Interest received 16 564 606 17 730 735

Dividends received 127 797 -

Interest paid (6 971 145 ) (7 114 727 )

Income taxes paid (94 505 ) (998 113 )

Net cash generated from operating activities 7 084 755 9 753 615

Cash flows used in investing activities

Purchaseof investment property - (19 866 )

Purchase of intangable assets (264 459 ) (500 279 )

Purchase of property and equipment (1 490 245 ) (2 182 393 )

Proceeds on disposal of property and equipment 61 661 64 382

Purchase of investment securities (2 990 548 ) (1 048 494 )

Proceeds on disposal of investment securities 2 474 196 858 622

Net cash used in investing activities (2 209 395 ) (2 828 028 )

Cash flows used in financing activities Purchase of treasury shares - (58 797 )

Dividends paid (58 616 ) (461 440 )

Net cash used in financing activities (58 616 ) (520 237 )

Net increase in cash and cash equivalents 4 816 744 6 405 350

Cash and cash equivalents at beginning of period 69 160 246 69 726 565

Effects of exchange rates fluctuating on

cash and cash equivalents (331 803 ) (83 777 )

Cash and cash equivalents at end of period 73 645 187 76 048 138

Cash and cash equivalents comprise:

Cash 52 754 022 55 248 452

Local bank accounts 12 299 759 11 793 483

Foreign bank accounts 8 591 406 9 006 203

73 645 187 76 048 138

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the period ended 30 June 2014

1 BASIS OF PREPARATION

1.1 Reporting currency

The financial statements of the Group are presented in United States dollars (US$), which is the

Group’s functional currency. All information presented has been rounded to the nearest dollar.

1.2 Statement of compliance

The financial statements are based on accounting records maintained under the historical

cost convention as modified by the revaluation of property and equipment and certain financial

instruments, and have been prepared in accordance with International Financial Reporting

Standards (IFRSs), promulgated by the International Accounting Standards Board (IASB) which

includes standards and interpretations approved by IASB, the International Financial Reporting

Interpretations Committee (IFRIC) interpretations, and in the manner required by the Companies Act

(Chapter 24:03), the Banking Act (Chapter 24:20), the Asset Management Act (Chapter 24:26), the

Building Society Act (Chapter 24:02), the Insurance Act (Chapter 24:07) and the relevant regulations

made thereunder.

1.3 Basis of consolidation

The Group financial results incorporate the financial results of the Company, its subsidiaries and

associate companies. Subsidiaries are entities controlled by Group. The Group controls an entity

when it is exposed to, or has rights to variable returns from its involvement with the entity and has

the ability to affect those returns through its power over the entity. The results of subsidiaries are

included in the consolidated financial statements from the date on which control commences until

the date on which control ceases. Control exists when the Group has the power, directly or indirectly,

to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The financial results of the subsidiaries are prepared for the same reporting period as the parent

company, using consistent accounting policies. All intra-group balances, transactions, income and

expenses; profits and losses resulting from intra-group transactions that are recognised in assets

and liabilities are eliminated in full. Non-controlling interests represent the portion of profit and net

assets that is not held by the Group and are presented separately in the consolidated statement of

profit or loss and other comprehensive income and within equity in the consolidated statement of

financial position, separately from parent shareholders’ equity.

2 SEGMENT INFORMATION

Other operations incl. consolidation Reinsurance assurance Banking and life adjustments Total

30 June 2014

External revenue

Net interest income 7 319 447 563 086 11 438 7 893 971

Net fee and commission income 15 366 535 3 915 026 170 534 19 452 095

Net income from other

financial instruments at fair value

through profit or loss 10 996 (4 358 806 ) 2 105 525 (2 242 285 )

Other revenue 2 295 495 379 503 (920 816 ) 1 754 182

Total segment revenue 24 992 473 498 809 1 366 681 26 857 963

Other material non-cash items:

Depreciation 1 059 423 71 051 103 096 1 235 702

Armotisation of intangible assets 933 991 59 985 2 003 995 979

Reportable segment profit / (loss)

before taxation (327 296 ) (2 615 196 ) 1 476 461 (1 466 031 )

Reportable segment assets as at 30 June 2014 337 322 459 41 268 935 (34 272 166 ) 344 319 228

Reportable segment liabilities as at 30 June 2014 275 025 744 30 911 946 (26 223 974 ) 279 713 716

Other operations incl. consolidation Reinsurance assurance Banking and life adjustments Total

30 June 2013

External revenue

External revenue

Net interest income 10 097 416 348 039 12 814 10 458 269

Net fee and commission income 15 254 049 3 850 376 680 523 19 784 948

Net trading income - - 121 979 121 979

Net income from other financial

instruments at fair value

through profit or loss 24 570 1 659 536 (45 884 ) 1 638 222

Other revenue 1 314 558 769 171 510 287 2 594 016

Total segment revenue 26 690 593 6 627 122 1 279 719 34 597 434

Other material non-cash items:

Depreciation 1 087 980 144 879 74 151 1 307 010

Armotisation of intangible assets 965 471 59 971 8 825 1 034 267

Reportable segment profit /(loss)

before taxation 3 331 120 1 253 926 (943 357 ) 3 641 689

Reportable segment assets as at

31 December 2013 307 317 246 44 896 864 (20 183 208 ) 332 030 902

Reportable segment liabilities as at

31 December 2013 244 645 029 31 772 499 (11 678 376 ) 264 739 152

3. LIFE ASSURANCE FUNDS

Life assurance funds are due to contributing policyholders at the Life Company as determined by

the terms and conditions or practices applicable to each policy. Policy contracts issued by the Life

Company transfer insurance or financial risk, or, in some instances, both, from one party to another.

Insurance contracts result in the Group accepting significant insurance risk from the policyholder

by agreeing to compensate the policyholder if a specified uncertain future event (the insured event)

adversely affects the policyholder.

Investment contracts, on the other hand, are those that transfer financial risk with no significant

insurance risk. Financial risk is the risk of possible future change in one or more of a specified

interest rate, financial instrument price, commodity price, index of prices or rates, credit rating or

any other variable.

Insurance contracts are valued in terms of the Financial Soundness Valuation (FSV) basis, on a gross

premium valuation methodology and the liability is reflected in the statement of financial position.

The liability is based on assumptions of the best estimate of future experience, plus compulsory

margins for prudent liabilities, plus additional discretionary margins. Such valuation is carried out

annually by independent actuaries. Valuation at half year end was subjected to a high level review by

an independent actuary.

Life fund liabilities are supported by the following net assets:

UNAUDITED AUDITED 30 June 2014 31 Dec 2013 US$ US$

Listed equities 7 775 969 9 771 756

Unlisted equities 3 633 287 3 570 794

Gold fund 441 441 406 497

Agro-bills 94 000 -

Government and public utilities stock 325 496 268 567

Investment properties 2 780 736 2 780 736

Trade and other receivables 58 800 -

Funds on deposit 9 406 775 8 397 825

Gross assets 24 516 504 25 196 175

Less: Deferred tax liabilities (261 987 ) (342 872 )

Trade and other payables (254 491 ) (389 934 )

Income tax asset 14 260 4 152

Net assets 24 014 286 24 467 521

The assets and liabilities indicated above are included under appropriate sections in the consolidated

statement of financial position.

4 CONTINGENT LIABILITIES

4.1 Contingent liabilities


In respect of guarantees 23 526 812 23 832 413

In respect of treasury bills held in trust for customers 6 110 310 -

5. DISCONTINUED OPERATIONS

The Board of Directors of ZB Financial Holdings Limited has reviewed the Group’s business portfolio

in an effort to reduce losses that have been incurred by subsidiaries that were not performing

to expectations. ZB Asset Management Company and ZB Securities (Private) Limited were not

significant players in their sectors and the identified for disposal in an effort to ensure that the

scarce resources of the Group were directed to areas where the Group has critical mass. ZB Asset

and ZB Securities were not a discontinued operations or classified as held for sale at 30 June 2013

and the comparative consolidated statement of comprehensive income has been re-presented to

show the discontinued operations separately from continuing operations.

UNAUDITED UNAUDITED 30 June 2014 30 June 2013 US$ US$

Results of discontinued operation

Revenue 396 038 495 261

Expenses (680 798 ) (693 787 )

Results from operating activities (284 760 ) (198 526 )

Income tax expense (423 447 ) 95 921

Results from operating activities, net of tax (708 207 ) (102 605 )

Winding down expenses (544 924 ) -

Profit (loss) for the period (1 253 131 ) (102 605)

Basic and diluted earnings (loss) per share (0.01 ) 0.00

The loss from discontinued operation of US$1 253 131 (2013: loss of US$102 605) is attributable

entirely to the owners of the Company. Of the loss from continuing operations of US$1 374 491 (2013:

profit of US$2 312 037), an amount of US$1 019 930 is attributable to the owners of the Company

(2013: US$1 846 093).

UNAUDITED

30 June 2014 US$

Cash flows from (used in)

discontinued operation

Net cash used in operating activities (124 931 )

Net cash from investing activities 272 985

Net cash from financing activities -

Net cash flows for the period 148 054

UNAUDITED

30 June 2014 US$

Effect of disposal on the

financial position of the Group

Property plant and equipment 27 426

Investment properties 350 000

Investment securities 54 272

Trade and other receivables 115 864

Money market investments 102 200

Cash and cash equivalents 265 769

Trade and other payables (1 042 192 )

Net assets and liabilities (126 661 )

Cash and cash equivalents disposed of (367 969 )

Projected cash outflow (494 630 )

6. RISK MANAGEMENT

6.1 Capital risk management

The Group’s capital consists of equity attributable to the shareholders of the parent Company,

comprising the issued share capital, reserves and retained income and debt, which includes direct

loans plus the residual funding from deposit taking activities after deducting the associated liquid or

near-liquid assets.

The Group’s operating target is to maintain operating assets at a level that is lower than the available

operating funds at all times in order to restrict recourse on shareholders’ equity for operational

funding. This objective was met at all times during the course of the year under review.

Consequently, gearing was maintained at nil throughout the year.

The banking, asset management and insurance operations in the Group are subject to prescribed

minimum regulatory capital requirements and minimum capital adequacy and solvency ratios as

prescribed from time to time.

Management of the Group monitors the level of capital adequacy on a continual basis, employing

techniques adopted from the guidelines developed by the Basel Committee and contained in the

Basel II capital accord as implemented by the supervisory authorities for each of the affected

entities. For the life assurance business, regular actuarial reviews are undertaken to establish the

solvency of the business

6.2 Financial risk management

The Group maintains active trading positions in a variety of non-derivative financial instruments in

anticipation of customer demand. The Group manages its trading activities by type of risk involved

and on the basis of the categories of trading instruments held. Regular feedback on risk related

matters is provided to the Board through the Board Risk Committee.

The Group defines financial risk collectively to include liquidity risk, market risk and credit risk.

6.2.1 Liquidity risk

Definition

Liquidity risk arises in the general funding of the Group’s activities and in the management of

positions. It includes the risk of being unable to fund liabilities at appropriate maturities and rates

and the risk of being unable to liquidate an asset at a reasonable price and in an appropriate time

frame.

Identification techniques

This risk is identified through gap and maturity analysis.

Measurement methods

Liquidity risk is measured using the gap analysis techniques and the term structure of assets and

liabilities.



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Impact evaluation

Liquidity risk is considered moderate for the Group due to the pervasive mismatch of assets and

liabilities in all time brackets and a generally illiquid market out turn which makes the mobilization of

funds difficult in the event of adverse systemic events occurring on the market.

Notwithstanding the above, the Group maintained a level of liquid resources at above 30% of

available deposits in order to cater for customer transactional demands.

Strategies for management/mitigation

The Group has access to a diverse funding base and can raise funds using a broad range of

instruments including deposits, liabilities evidenced by paper and share capital. The Group has

funding flexibility and this limits dependence on any one source of funding.

Liquidity risk is managed by Group Treasury in consultation with the Assets and Liabilities Committee

(ALCO).

Monitoring and controlling mechanisms

The funding gap is monitored through a number of management reports including maturity profiles.

The Group continually assesses risk by identifying and monitoring changes in funding required

to meet business objectives and targets set in terms of the overall Group strategy. Other tools

used are the imposition of dealer limits, reporting on facility utilizations and excesses that require

management attention.

Adequacy and effectiveness of risk management systems

The liquidity risk management and control mechanisms in place are adequate, effective and are

adhered to by all staff members.


Total liquid assets 94 486 646 84 765 436

Total liabilities to the public 233 671 733 218 615 988

Liquidity ratio at end of period 40% 38.77%

Minimum statutory liquidity ratio 30% 30%

6.2.2 Market risk

Market risk arises from adverse movements in the market place which cause interest rate, foreign

exchange rate and equity price fluctuations in the markets in which the Group operates.

6.2.2.1Interest rate risk

Definition

The Group’s operations are subject to the risk of interest rate fluctuations to the extent that interest-

earning assets and interest bearing liabilities mature or reprice at different times or in differing

amounts. Risk management activities are aimed at optimising net interest income, given market

interest rate levels consistent with the Group’s business strategies.interest rate levels consistent

with the Group’s business strategies.


Interest rate risk is identified using the term structure of assets and liabilities.

Measurement methods

Rate sensitive assets and liabilities are analyzed and a maturity profile established.

Impact evaluation

The Group has evaluated this risk as low. Adequate systems are in place to ameliorate the risk.

Strategies for management / mitigation

The Assets and Liabilities Committee (ALCO) reviews the gap analysis and appropriate action is taken

to keep risk within acceptable limits. In the main, lending is linked to the Group’s prime rate and is

funded through short-term borrowings thus narrowing the gap.


ALCO meets regularly to discuss the future direction of interest rates after the economic

fundamentals have been analyzed. Decisions are then taken on rate sensitive assets and liabilities.

If economic fundamentals turn out differently, ad-hoc ALCO meetings are convened to discuss the

said issues and chart a way forward.


The interest rate risk management systems noted above are adequate and effective in dealing with

the interest rate risk.

Sensitivity analysis

A 2% change in the rate sensitive assets would result in the reported profits being increased or

decreased by US$24 203 and the total assets in the statement of financial position being increased

or decreased by US$3.3 million using an average margin of 1.00% per annum.

A 2% change in the rate sensitive liabilities would result in the reported profits being increased

or decreased by US$35 607 and the total liabilities in the statement of financial position being

increased or decreased by US$4.8 million using an average margin of 1.00% per annum.

6.2.2.2 Foreign exchange risk

Definition

Foreign exchange risk is the risk that arises from adverse changes in foreign exchange rates and

emanates from a mismatch between foreign currency inflows and outflows.


The risk is identified through the analysis of the Group’s open foreign exchange positions.

Measurement methods

The risk is measured through the Group’s open foreign exchange positions.

Impact evaluation

The Group has evaluated this risk as low in view of the low volumes traded and the multi-currency

environment.


The risk is managed through ALCO directives, compliance with the requirements of the Reserve Bank

of Zimbabwe and market analysis techniques.


The risk is controlled through the use of dealer limits placed on the overall foreign exchange

position.

Adequacy and effectiveness of risk management system

Management is confident that the foreign exchange risk management systems in place are adequate,

effective and are complied with in all material respects by all staff members.

Foreign currency position

The carrying amount of the Group’s non United States dollar monetary assets and liabilities as at 30

June 2014 were as follows:


Total assets 6 607 461 8 042 289

Total liabilities (3 738 526 ) (4 252 146 )

Net foreign currency position 2 868 935 3 790 143

The Group’s main exposure to foreign currency risk arises from the commitments for licence and

support fees for information technology platforms that were sourced from foreign suppliers.


A 10% change in exchange rates would result in the reported profit being reduced or increased

by US$213 018 [2013: US$281 418] and equity being reduced or increased by US$286 893 [2013:

US$379 014].

6.2.2.3 Equity price risk

Definition

Equity price risk is the possibility that equity prices will fluctuate affecting the fair value of equity

investments that derive their value from a particular equity investment or index of equity prices.


The Group tracks the performance of all its equity investments using the price lists issued by

members of the Zimbabwe Stock Exchange.

Measurement methods

Based on the price lists from the members of the Zimbabwe Stock Exchange, the Group quantifies

the risk.

Impact evaluation

Equity price risk is assessed as moderate due to a significant concentration in a few counters which

are strategic to the Group’s operations.


The Group manages its exposure to equity price risk by maintaining a diversified portfolio.

Adequacy and effectiveness of risk management system

The risk management system has proved adequate and effective in managing equity price risk.


A 10% increase / decrease in the value of listed shares as at 30 June 2014 would result in an increase

/ decrease of US$2.4 million to the reported Group’s profit and an increase / decrease of US$2.4

million in equity.

6.2.3 Credit risk

Definition

Credit risk is the risk that a counter party will not honour its obligations to the Group as and when

they become due.


Prior to granting facilities, the Group conducts an assessment proposal through a credit scoring

system which classifies as good or bad depending on points scored. Thereafter facilities extended

to clients are reviewed on a regular basis and classified accordingly.

Measurement methods

The risk is measured through assessing the risk of default using a credit risk-rating matrix.

Impact evaluation

Credit risk is rated moderate due to increased market wide company failures as well as apparently

increased debt burden on individuals due to a proliferation of credit facilities.


The Group has a credit risk management process which operates through a hierarchy of exposure

discretions. All exposures above a certain level require the approval of the Board Credit Committee’s

which comprises executive and non-executive directors. Exposures below the Board Credit

Committee’s discretion are approved according to a system of tiered exposure discretions consisting

of Divisional and Group Credit Committees.

A substantial portion of the Group’s individual and corporate borrowings is insured for non-

performance whilst security of various other forms is obtained for large exposures.


Regular credit audits and reviews are conducted and problem accounts are highlighted and

management action is taken as appropriate.


The credit risk management and control techniques alluded to above are adequate and effective and

all staff members are required to adhere to them.

The table below shows the credit exposure by client quality classification:


Classification Good 140 870 795 141 536 522

Sub-standard 1 285 829 298 582

Doubtful 2 989 305 6 077 435

Loss 35 448 188 22 127 145

Total 180 594 117 170 039 684

Balances includes guarantees which are reported as off balance sheet exposures.

loans and advances to customers Investment securities 30 June 2014 31 Dec 2013 30 June 2014 31 Dec 2013 US$ US$ US$ US$

Carrying amount 137 172 238 131 739 306 7 474 517 6 783 507

Assets at amortised costIndividually impaired:

Grade 6: Impaired 1 297 584 1 213 552 - -

Grade 7: Impaired 1 331 826 6 766 736 - -

Grade 8: Impaired 287 708 298 582 - -

Grade 9: Impaired 2 989 305 5 518 332 - -

Grade 10: Impaired 35 448 188 23 075 325 - -

Gross amount 41 354 611 36 872 527 - -

Allowance for:

Impairment (3 851 998 ) (2 224 438 ) - -

Interest reserve (11 643 731 ) (8 094 776 ) - -

Carrying amount 25 858 882 26 553 313 - -

Collectively impaired:

Grades 1-4: Low– fair risk 107 507 059 100 865 982 - -

Grade 5: Watch list 5 505 787 4 477 750 - -

Gross amount 113 012 846 105 343 732 - -

Allowance for:

Impairment (1 699 490 ) (157 739 ) - -

Carrying amount 137 172 238 131 739 306 - -

Neither past due

no impaired:

Grades 1-4: low– fair risk - - 5 830 618 5 536 856

Carrying amount - - 5 830 618 5 536 856

Total carrying amount-

amortised cost 137 172 238 131 739 306 5 830 618 5 536 856

Asset at fair value through

profit and loss:

Neither past dueno impaired:Grades 1-4: low–fair risk - - 1 643 899 1 246 651

Carrying amount – fair value - - 1 643 899 1 246 651

Total carrying amount 137 172 238 131 739 306 7 474 517 6 783 507

Strategies for management / mitigation:

The Group has a credit risk management process, which operates through a hierarchy of exposure

discretions. All exposures above a certain level require the approval of the Board Credit Committee

which comprises executive and non-executive directors. Exposures below the Board Credit

Committee’s discretion are approved according to a system of tiered exposure discretions delegated

to management committees.

A substantial portion of the Group’s individual and corporate borrowings is insured for non-

performance whilst security of various other forms is obtained for large exposures.

Monitoring and controlling mechanisms:

Regular credit audits and reviews are conducted and problem accounts are highlighted and

management action is taken as appropriate.

Adequacy and effectiveness of risk management systems:

The credit risk management and control techniques alluded to above are adequate and effective and

all staff members are required to adhere to them.

The Group has issued financial guarantees in respect of clients graded 1 to 4, and for which the

maximum amount payable by the Group, assuming all guarantees are called on, is $23 526 812

(2013:$23 832 413).


A 10% change in the assets classified as good to marginal category to a “loss” classification would

result in the reported profit being reduced by US$7 946 299 and the total assets in the statement of

financial position reducing by US$11 499 711.

6.3 Other business risks

6.3.1Operational risk

Definition

Operational risk is inherent in all business activities and this is the potential of loss arising from

deficiencies in internal control systems, poor operational standards, errors and deliberate acts of

fraud and collusion to override internal control systems.


The Board Audit Committee, through the medium of the internal audit function, assesses the efficacy

of the internal accounting controls and makes recommendations for improvement to the Board of

Directors.

Measurement methods

The risk is measured by the extent of loss due to system failure reported during the period.

Impact evaluation

The Group has assessed this risk category as medium based on the adequate internal control

system.


The Group manages the risk through staff training and development, segregation of duties,

reviewing the work performed and regular internal and independent audits. Further, the Group has

administration manuals to guide staff in the execution of their duties and these manuals are reviewed

regularly.

In addition, the Group has comprehensive insurance arrangements in place to mitigate the impact of

any loss events.


Any losses incurred as a result of this risk are reported through the line to the Board Audit Committee

and lessons learnt from each incident are used as case studies in training staff, improving the control

procedures and the control environment.


Management is confident that the operational risk management systems noted above are adequate,

effective and are adhered to in all material respects by all staff members.



ZBFH

631

04


6.3.2 Legal, reputational and compliance risks

Definition

Legal risk is the risk that the Group can be involved in litigation resulting in loss of money and/

or impaired reputation. Compliance risk refers to the risk of failure to comply with material rules,

regulations and laws.


All agreements entered into by the Group are reviewed by the Legal Department to make sure that

they are consistent with normal market practices.

Measurement methods

The Group has a Compliance Department which monitors and ensures that the Group is complying

with all the rules, regulations and laws of the country in all material respects. The Group Compliance

Officer reports to the Board Audit Committee on a quarterly basis on all compliance related issues.

Impact evaluation

The Group considers this risk as low in the view of the adequate systems of internal controls.

Strategies for management through mitigation The Group manages this risk through staff training and development, regular and independent

audits.

Monitoring and controlling mechanisms Any losses incurred are reported to the Board Audit, Board Risk and Board Executive Committees.

Lessons learnt are used in staff training to avoid recurrences.

Adequacy and effectiveness of the risk management system The management system for legal, reputational and compliance risks is adequate and effective and

all staff members adhere to the system.

6.3.3 Technological risk

Definition This includes innovation, or the lack thereof, obsolescence, explosions and dependability of the

technological platform.

Identification techniques An Information Technology Committee which reviews developments and proposes enhancements

to the technological platform is in place. The Group also has Business Continuity Plans (BCP) and

Disaster Recovery Plans (DRP) and these are tested and maintained up to date. Access to computer

systems is restricted to authorized personnel through a hierarchy of authority levels.

Impact evaluation The Group considers this risk as moderate in view of the stability of the current technology platform,

the in-house expertise that has been gained over the years and the strong support available from

the vendor of the platform.

Measurement methods The Group measures the risk through setting and monitoring the maximum tolerances for system

downtimes, ensuring that the reports are available at the appropriate times and generally that

operational efficiency is being achieved.

Strategies for management/mitigation The Group manages this risk through staff training and development, regular and independent audits.

Issues are also escalated to the vendor as appropriate and these are always resolved expeditiously.

Further, the Group updates BCPs and DRPs regularly and also conducts business continuity and

disaster recovery tests twice per year.

Monitoring and controlling mechanisms The deadlines for the production of all reports are monitored strictly. Any system breakdowns are

attended to and reported promptly to ensure that appropriate corrective action is instituted. The

Group constantly reviews new technologies and adopts them where appropriate. All computer rooms

are temperature controlled and well ventilated. Access is restricted to authorized persons only.

There are various levels of access to the system based on the seniority of the officers concerned.

Adequacy and effectiveness of risk management systems The management system for identifying, monitoring and controlling technological risk is adequate

and effective and all staff members adhere to the system.

6.3.4 Solvency risk

Definition Solvency risk is the risk that the Group may incur liabilities that are far in excess of its ability to pay

leading to financial distress.

Identification techniques The Group strictly monitors the assets and liabilities and has set limits to the liabilities that can be

incurred and the placements arising therefrom. The loan/deposit ratio is monitored regularly and

corrective action instituted where appropriate.

Impact evaluation The Group considers this risk as low as there are adequate systems of identifying, monitoring and

controlling solvency risk.

Measurement methods The Group measures this risk through setting maximum levels for loan/deposit ratios and reviewing

the relationship between liabilities and assets through maturity profiles and term structures.

Strategies for management/mitigation The Group manages the risks through setting limits for the loan/deposit ratio and ensuring that these

limits are not exceeded.

Adequacy and effectiveness of risk management systems The management system for identifying, monitoring and controlling solvency risk is adequate and

effective and all staff members adhere to the system.

6.3.5 Underwriting risk

Definition Underwriting risk in reinsurance business is the probability of losses incurred in a given reinsurance

period exceeding premium in the corresponding period. On the other hand in life assurance business

underwriting risk is the risk that the actual exposure to mortality and disability risks will exceed the

best estimate of the statutory valuator, thereby causing financial loss.

Impact evaluation The underwriting risk in reinsurance business would only materialize in the case of a catastrophe.

The risk in case of a catastrophe has been reinsured and is limited to US$75 000 (2013: US$75 000)

and concentration of insurance risk is in fire and motor classes, as management consider these

classes to be profitable. There is no concentration of risk in terms of exposure to single customers.

Measurement methods In life assurance business, all applications for life and disability cover are assessed using sound

underwriting techniques and methods, including HIV testing, where necessary. Mortality and disability

investigations are periodically carried out and actuarial assumptions are adjusted accordingly.

Strategies for management/mitigation In reinsurance business, this is normally mitigated by the purchase of reinsurance from the London

insurance market annually. All mortality and disability risks above periodically determined retention

levels are reassured with professional reassurance firms.

ZB Reinsurance Company Board

Total Meetings 2

Name Meetings Attended

R Mutandagayi (Chairman) 2

B Shumba 2

F B Chirimuuta 1

D T Machingaidze* 2

P Murambinda 2

C Nyachowe 2

*Resigned on 14 May 2014

UNAUDITED STATEMENT OF FINANCIAL POSITION

As at 30 June 2014

UNAUDITED AUDITED

30 June 2014 31 Dec 2013

Notes US$ US$

ASSETS

Cash and cash equivalents 1 77 140 410 67 705 012

Treasury bills 15 000 000 5 000 000

Advances and other accounts 2 134 002 997 132 198 843

Investment securities 3 6 495 556 6 475 056

Inventories, trade and other receivables 4 10 843 239 6 948 922

Investment in subsidiary company 5 21 577 648 21 359 724

Current tax asset 678 486 611 522

Intangible assets 7 290 274 8 600 597

Property and equipment 9 011 381 8 156 149

Deferred tax asset 596 103 320 737

Total assets 282 636 094 257 376 562

LIABILITIES

Deposits from customers 6 234 985 022 199 301 261

Deposits from banks - 11 810 141

Short term borrowing 2 008 444 -

Offshore borrowings 3 750 000 3 750 000

Trade and other payables 7 6 286 856 6 380 331


EQUITY

Share capital 8 1 610 402 1 610 402

Share premium 19 651 941 19 651 941

Revaluation reserves 1 185 058 1 185 058

General reserves 1 440 699 1 781 982

Retained income 11 717 672 11 905 446

Total equity 35 605 772 36 134 829


UNAUDITED STATEMENT OF PROFIT OR LOSS


UNAUDITED UNAUDITED

30 June 2014 30 June 2013

Notes US$ US$

Interest income 9 14 919 654 16 153 373

Interest expense 9 (7 278 957 ) (6 976 835 )


Allowance for loan impairment (1 586 171 ) (389 300 )


Other income 10 14 307 943 13 966 820

Fair value adjustments 11 218 665 (358 371 )

Total income 20 581 134 22 395 687

Operating expenses 12 (21 385 558 ) (20 305 556 )

(Loss)/profit before taxation (804 424 ) 2 090 131

Income tax credit/(expense) 13 275 367 (719 017 )

(Loss)/profit for the period (529 057 ) 1 371 114

Details of underwriting risk in reinsurance business are as follows:


Total insurance risk before retrocession 6 000 000 6 000 000

Retroceded risk (5 000 000 ) (5 000 000 )

Insurance risk after reinsurance 1 000 000 1 000 000

6.4 Risk rating

6.4.1 Regulatory risk rating

The Reserve Bank of Zimbabwe conducts regular offsite and onsite examinations of the institutions

that it regulates. The last on-site examination of the Group was concluded on the 21st of October,

2009, using data as at 30 September 2009.

The results are now aged and have not been included in these financial statements. A review is

planned for the second half of the year.

Being a Bank Holding Group (BHC), the condition of ZB Financial Holdings Limited was assessed e

6.4.2 External credit ratings

Some of the Group’s significant trading companies subscribe to an internationally recognised rating agency, Global Credit Rating Group (GCR)3, and the ratings for the last three (3) years were as follows:

Long-term debt rating scale:

Entity 2014 2013 2012 ZB Bank Limited BBB+ BBB+ BBB+ ZB Building Society BBB- BBB- BBB- ZB Reinsurance Company BBB+ BBB+ BBB+

All ratings above fall within the “Investment Grade”. The current ratings expire on 30 November 2014. 7. COMPLIANCE WITH REGULATIONS

In 2011 the Insurance Act (Chapter 24:07) required Life Assurance entities to maintain at least 30% of their investments in prescribed assets for long term insurance and 35% at market value. The minimum percentage was not maintained throughout the period ended 30 June 2014, although the Group complied with the transitional requirements which provide that all insurance companies and pension funds should apply 40% of their net monthly cash flows to purchase prescribed assets as stipulated in Circular 4/2005, issued by the Insurance and Pensions Commissioner.

The provisions were revised in 2012 to require that at least 7.5% of non-pension fund investments and at least 10% of pension fund investments be held as prescribed assets. The Group intends to ensure full compliance with the revised provisions subject to the availability of appropriate investment in instruments.

Commercial banks and building societies in Zimbabwe were required to maintain a minimum capital level of US$25 million and US$20 million respectively as at 31 December 2012. Intermarket Banking Corporation Limited (IBCL) and ZB Building Society (ZBBS) did not meet these requirements during the year under review. The Group has adopted a strategic position to merge IBCL, ZBBS and ZB Bank which obviates the need for a further capital injection. This will require the approval of the Reserve Bank of Zimbabwe.

The directors are not aware of any other material cases of non-compliance with regulations governing the operations of all companies within the Group.

DIRECTORS RECORD OF ATTENDANCE AT BOARD MEETINGS FOR MAJOR BUSINESS UNITS DURING THE HALF YEAR ENDED 30 JUNE 2014

ZB Financial Holdings Limited (ZBFH) Board

Total Meetings 7 Name Meetings attended

T P B Mpofu (Chairman) 6

R Mutandagayi 7

E Hamandishe 6

Dr C U Hokonya** 2

T Mafunda 7

B P Nyajeka* 6

F Kapanje 7

E Munemo 6

T I Chirisa (Ms) 7

*Resigned on 1st July 2014

** Resigned on 6 May 2014

ZB Life Assurance Board Total Meetings 2 Name Meetings attended

R Mutandagayi (Chairman) 2

C Makoni 2

A G Chinembiri 2

E T Z Chidzonga 2

L Mawire 2

M Mkushi 2

ZB Bank Board Total meetings 4 Name Meetings attended

S A Sibanda (Chairman) 3

G Chikomo 4

**Z R Churu 2

*Dr C U Hokonya 2

G N Mahlangu 0

C Mandizvidza 4

P M Matupire 3

R Mutandagayi 3

C Nyachowe 3

V B Sibanba 3

* Dr C U Hokonya resigned from the Board on 6 May 2014

** Mr Z R Churu resigned from the Board on 24 April 2014

ZB Building Society Board

Total Meetings 2

Name Meetings attended

T P B Mpofu (Chairman) 2

E Mungoni 2

S K Chiganze 2

C Makoni 2

E Munemo 2

R Mutandagayi 2

M T Sachak 2

C Sandura 2

S A Sibanda 2

ZB BANK LIMITED(Registered Commercial Bank)

UNAUDITED FINANCIAL STATEMENTS30 JUNE 2014



ZBFH

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UNAUDITED STATEMENT OF CHANGES IN EQUITYFor the half year ended 30 June 2014

Share Share Revaluation General Retained

capital premium reserve reserve income Total

US$ US$ US$ US$ US$ US$

Balance at 1

January 2013 1 610 402 19 651 941 1 185 058 1 964 741 12 767 901 37 180 043

Profit or loss

Profit for the year - - - - 807 247 807 247

Transactions with

owners of the Bank

Distributions

Dividend to

equity holders - - - - (1 852 461 ) (1 852 461)

Other movements

Regulatory reserve

in respect of

doubtful debts - - - (182 759 ) 182 759 -

Balance as at 1

January 2014 1 610 402 19 651 941 1 185 058 1 781 982 11 905 446 36 134 829

Profit or loss

Loss for the period - - - - (529 057 ) (529 057)

Other movements

Regulatory reserve

in respect of

doubtful debts - - - (341 283 ) 341 283 -

1 610 402 19 651 941 1 185 058 1 440 699 11 717 672 35 605 772

UNAUDITED STATEMENT OF CASH FLOWSFor the half year ended 30 June 2014


Net cash generated from operating activities 10 730 149 12 879 302

Cash flows from investing activities Proceeds on disposal of property and equipment 42 114 37 689

Purchase of property and equipment (1 188 365 ) (1 695 731 )

Purchase of intangible assets (264 459 ) (500 279 )

Net cash used in investing activities (1 410 710 ) (2 158 321 )

Cash flows from financing activities

Dividend paid - (1 160 275 )

Net cash used in financing activities - (1 160 275 )

Net increase in cash and cash equivalents 9 319 439 9 560 706

Cash and cash equivalents at 30 June 67 705 012 68 334 530

Effect of exchange rate fluctuations on

cash and cash equivalents held 115 959 (313 048 )

Cash and cash equivalents at 30 June 2014 77 140 410 77 582 188

Cash and cash equivalents comprise:- Cash on hand 25 163 098 22 575 696

- Local bank accounts 46 113 352 46 319 821

- Foreign bank accounts 5 863 960 8 686 671

77 140 410 77 582 188

EXTRACT OF MATERIAL NOTES TO THE UNAUDITED FINANCIAL STATEMENTSFor the half year ended 30 June 2014


1. CASH AND CASH EQUIVALENTS

Balances with the Reserve Bank of Zimbabwe 32 513 352 17 437 287

Balances with other banks and cash 44 627 058 50 267 725

77 140 410 67 705 012

2. ADVANCES AND OTHER ACCOUNTS

2.1

Loans, overdrafts and other accounts at ammortised cost 112 298 790 103 723 666

Finance leases 4 703 846 5 328 964

Bills Discounted 32 694 039 33 954 747

Gross Advances 149 696 675 143 007 377

Less: Allowance for loan impairement (4 299 929 ) (2 713 758 )

Less: Interest reserved (11 393 749 ) (8 094 776 )

Net Advances 134 002 997 132 198 843

2.2 Contingent assets


Gross Loan book 173 223 487 166 839 790

2.3 Maturity analysis

- On demand 46 508 959 40 597 062

- Within 1 month 23 748 430 39 036 725

- Between 1 and 6 months 34 266 517 18 893 837

- Between 6 and 12 months 15 941 915 23 246 855

- After 12 months 13 537 176 10 424 364

134 002 997 132 198 843

2.4 Non-performing debt

Non-performing loans and advances 40 232 542 28 892 239



Value to be received from security held 24 538 864 18 083 705

For the secured non-performing loans, security exists in the form of liens registered over funded

accounts, bonds registered over landed property and guarantees in various forms. The Bank

discounts the value of the security at hand using internal thresholds for prudential purposes.

Generally no security value is placed on ordinary guarantees. The internally discounted value of the

security held in respect of the non-performing book amounted to $26 748 496 as at 30 June 2014

(Dec 2013: $18 737 376).


2. ADVANCES AND OTHER ACCOUNTS (continued)2.5 Sectoral analysis of advances

Private 32 267 849 28 125 738

Agriculture 20 572 258 18 808 191

Mining 30 872 236 28 549 575

Manufacturing 17 515 438 19 197 042

Distribution 11 470 525 10 794 624

Construction 1 413 131 3 428 509

Transport 2 006 782 2 656 832

Services 16 740 625 2 167 631

Financial 15 989 512 13 833 775

Communications 848 319 15 445 460

149 696 675 143 007 377



134 002 997 132 198 843

2.6 Finance lease receivable

Gross investment in finance leases:

Less than 1 year 2 726 743 1 400 552

Between 1 and 5 years 3 003 437 5 089 843

Gross investment in finance leases 5 730 180 6 490 395

Unearned finance charges (1 026 334 ) (1 161 431 )

Net investment in finance leases 4 703 846 5 328 964

Less than 1 year 2 456 798 1 259 042

Between 1 and 5 years 2 247 048 4 069 922

4 703 846 5 328 964

2.7 Allowance for loan impairement

Balance at beginning of year 2 713 758 4 890 274

Reversals against provision - (3 467 203 )

Charge to profit or loss 1 586 171 1 290 687

Balance at 30 June 2014 4 299 929 2 713 758

Comprising:

- Specific 3 832 033 2 224 438

- Portfolio 467 896 489 320

4 299 929 2 713 758

3. INVESTMENT SECURITIES

At fair value through profit and loss equity investments Unlisted securities

Credit Insurance Company Limited 655 203 659 664

Zimswitch Technologies (Private) Limited 283 737 278 535

938 940 938 199

Held at amortised cost Bank balances 5 533 888 5 534 098

Debentures 20 000 -

Swift shares 2 728 2 759

6 495 556 6 475 056

4. INVENTORIES, TRADE AND OTHER RECEIVABLES Inventories 282 731 414 252

Accrued interest 186 018 92 706

Remittances in transit 5 335 898 4 528 201

Advance payments and sundry assets 4 917 892 1 876 275

Amounts clearing from other banks 120 700 37 488

10 843 239 6 948 922

5. INVESTMENT IN SUBSIDIARY COMPANY Investment in Barcelona Investments Limited Opening net asset value 21 359 724 21 373 848

Fair value gain/(loss) to profit or loss 217 924 (14 124 )

Carrying net asset value 21 577 648 21 359 724

6. DEPOSITS FROM CUSTOMERS Deposits by type Current accounts 27 936 609 21 367 657

Savings and call accounts 80 688 918 68 870 259

Term deposits 126 237 737 109 050 640

Other 121 758 12 705

234 985 022 199 301 261

Maturity analysis of customer deposits On demand 108 625 560 90 250 062

Within 1 month 63 037 138 70 357 890

Between 1 and 6 months 63 313 324 38 693 309

Between 6 and 12 months 9 000 -

234 985 022 199 301 261

Deposit concentration Private 37 298 972 32 748 973

Agriculture 8 151 039 7 040 086

Mining 1 685 938 1 778 338

Manufacturing 25 564 449 7 579 056

Distribution 6 119 943 6 006 253

Construction 1 780 859 2 086 962

Transport 1 825 268 1 803 316

Services 54 543 828 37 379 626

Financial 76 804 820 79 602 988

Communication 21 209 906 23 275 663

234 985 022 199 301 261


7. TRADE AND OTHER PAYABLES

Interest accrued on deposits 1 238 600 1 457 179

Items in transit 571 630 237 835

Accruals and sundries 4 350 366 4 517 258

Amounts clearing to other banks 126 260 168 059

6 286 856 6 380 331

8 CAPITAL

8.1 Share capital

Authorised; 300 000 000 (2013: 300 000 000)

ordinary shares of US$0.01 each 3 000 000 3 000 000

Issued and fully paid;

161 040 160 ordinary shares of US$0.01 each

(2013: 161 040 160) 1 610 402 1 610 402

8.2 Capital adequacy

Ordinary share capital 1 610 402 1 610 402

Share premium 19 651 941 19 651 941

Reserves 13 499 656 13 870 189

Loans to group entities and directors (1 270 743 ) (2 482 503 )

Tier 1 capital 33 491 256 32 650 029

General provisions (341 283 ) (182 759 )

Revaluation reserves 1 185 058 1 185 058

Tier 2 capital 843 775 1 002 299

Total capital base 34 335 031 33 652 328

Credit risk weighted assets 183 544 925 176 823 738

Operational risk equivalent assets 70 728 711 69 328 463

Market risk equivalent assets 2 867 465 3 768 738

Total risk weighted assets 257 141 101 249 920 939

Tier 1 capital ratio 13.02% 13.06%

Tier 2 capital ratio 0.33% 0.40%

Capital adequacy ratio 13.35% 13.47%


9. NET INTEREST INCOME

Interest income Advances 11 305 623 13 057 802

Overdrafts 2 759 630 2 345 620

Placement with other banks 428 895 467 851

Treasury bills 267 578 5 596

Other interest receivable categories 157 928 276 504

Total interest income 14 919 654 16 153 373

Interest expense Retail deposits 6 705 500 6 239 861

Placements from other banks 378 646 372 722

Other interest payable categories 194 811 364 252

Total interest expense 7 278 957 6 976 835


10. TRADING AND OTHER INCOME

Commission and fees 12 832 663 12 803 343

Exchange income 329 897 (44 697 )

Dividends from other investments 36 147 709 890

Recovery of shared costs 848 682 298 468

Rent received 29 898 21 407

Profit/(loss) on sale of property and equipment 17 609 (13 785 )

Sundry income 213 047 192 194

14 307 943 13 966 820


11. UNREALISED FAIR VALUE ADJUSTMENTS

Arising from FVTPL instruments

Investment securities 741 (2 057 )

Investment in subsidiary company 217 924 (356 314 )

218 665 (358 371 )

12. OPERATING EXPENSES

Staff expenses 9 021 713 8 867 023

Communication expenses 429 098 478 804

Computer and information technology 1 577 928 1 607 996

Occupation expenses 2 311 008 2 220 421

Transport expenses 254 010 241 646

Travelling expenses 260 156 254 302

Administration expenses 7 531 645 6 635 364

21 385 558 20 305 556

Included in administration expenses are the following: Audit fees 94 472 32 575

Depreciation charges on property and equipment 949 415 926 327

Amortisation of intangible assets 933 991 965 471

Impairment loss on investments 240 192

13. TAXATION

Current income tax - 98 295

Deferred taxation (275 367 ) 620 722

(275 367 ) 719 017


14. CONTINGENT LIABILITIES


In respect of treasury bills held in trust

on behalf of customers 6 110 310 -



ZBFH

631

06



15 RISK MANAGEMENT

Up to 1 2 to 6 7 to 12 Above 12 Carrying

month months months months amount

US$ US$ US$ US$ US$

Interest rate gap analysis

As at 30 June 2014

ASSETS

Cash and cash equivalents 5 863 960 53 512 - - 5 917 472

Treasury bills - 15 000 000 - - 15 000 000

Advances and other accounts 70 257 389 34 266 517 15 941 915 13 537 176 134 002 997

76 121 349 49 320 029 15 941 915 13 537 176 154 920 469

LIABILITIES

Deposits from customers 171 662 698 63 313 324 2 000 7 000 234 985 022

Offshore borrowings - 1 750 000 - 2 000 000 3 750 000

171 662 698 65 063 324 2 000 2 007 000 238 735 022

Period gap (95 541 349 ) (15 743 295 ) 15 939 915 11 530 176 (83 814 553)

Cumulative gap (95 541 349 ) (111 284 644 ) (95 344 729 ) (83 814 553 ) -

The table below sets out the remaining contractual maturities of the Bank’s financial assets and financial

liabilities.

Up to 1 2 to 6 7 to 12 Above 12 Gross nominal Carrying

month months months months inflow/(outflow) amount


Liquidity gap analysis

As at 30 June 2014

ASSETS

Cash and cash equivalents 76 662 206 478 204 - - 77 140 410 77 140 410

Treasury bills - 15 098 128 - - 15 098 128 15 000 000

Advances and other accounts 70 342 652 34 847 153 15 942 841 15 390 111 136 522 757 134 002 997

Investment securities - - - 6 495 556 6 495 556 6 495 556

147 004 858 50 423 485 15 942 841 21 885 667 235 256 851 232 638 963

LIABILITIES

Deposits from customers 172 102 366 63 755 766 2 014 7 049 235 867 195 234 985 022

Offshore borrowings - 1 916 344 - 2 190 107 4 106 451 3 750 000

Short term borrowing - - 2 008 444 - 2 008 444 2 008 444

172 102 366 65 672 110 2 010 458 2 197 156 241 982 090 240 743 466

Period gap (25 097 508 ) (15 248 625 ) 13 932 383 19 688 511 (6 725 239 ) (8 104 503)

Cumulative gap (25 097 508 ) (40 346 133 ) (26 413 750 ) (6 725 239 ) - -


15.1 Liquidity ratios


Total liabilities to the public 234 985 022 199 301 261

Liquidity ratio at 30 June 2014 39% 36%

Average for the period 41% 38%

Maximum for the period 45% 43%

Minimum for the period 37% 32%

Minimum statutory liquidity ratio 30% 30%

16. EXTERNAL CREDIT RATE The Bank subscribes to an internationally recognised rating agency, Global Credit Company, and the

ratings for the last 3 years were as follows:

Long term date 2014 2013 2012 Rating BBB+ BBB+ BBB+

The current rating expires on 30 November 2014 and falls within the investment grade.

17. COMPLIANCE WITH BANKING REGULATIONS The directors are not aware of any non compliance with the Banking Act (Chapter 24:20) and the

Banking Regulations 2000 contained in the Statutory Instrument 205 of 2000.

UNAUDITED STATEMENT OF FINANCIAL POSITIONAs at 30 June 2014

UNAUDITED AUDITED 30 June 2014 31 Dec 2013 Notes US$ US$

AssetsCash and cash equivalents 1 3 710 798 2 029 362Money market placements 2 8 000 000 8 500 000Loans and advances 3 16 766 637 12 651 218 Inventories, trade and other receivables 4 1 076 914 1 464 623 Investment securities 17 666 17 342Investment properties 5 3 485 000 3 485 000Investment in subsidiaries 4 502 950 4 468 464Property and equipment 4 130 859 4 163 638 Total assets 41 690 824 36 779 647 Equity and liabilities

Deposits from customers 6 22 676 417 18 395 691Trade and other payables 7 1 634 353 1 247 627 Deferred tax liabilities 8 575 141 573 923 Total liabilities 24 885 911 20 217 241 Ordinary share capital 9 954 814 954 814 Share premium 8 896 953 8 896 953Reserves 6 953 146 6 710 639 Total equity 16 804 913 16 562 406


ZB BUILDING SOCIETYUNAUDITED FINANCIAL STATEMENTS30 JUNE 2014

UNAUDITED STATEMENT OF PROFIT OR LOSSFor the half year ended 30 June 2014

UNAUDITED UNAUDITED 30 June 2014 30 June 2013 Notes US$ US$

Interest income 10.1 1 555 046 1 287 904Interest expense 10.2 (281 047 ) (346 559 ) Net interest income 10 1 273 999 941 345Allowances for impairment (113 184 ) 245 202


Other income 11 2 499 544 2 544 975 Fair value adjustments 12 34 809 98 285 Total income 3 695 168 3 829 807

Operating expenses 13 (3 451 443 ) (2 834 102 ) Profit before taxation 243 725 995 705

Taxation 14 (1 218 ) (4 410 ) Profit for the period 242 507 991 295 Profit attributable to:Equity holders of the parent 242 507 991 295 242 507 991 295 Earnings per shareBasic and diluted earningsper share (cents) 0.01 0.02

UNAUDITED STATEMENT OF CHANGES IN EQUITYFor the half year ended 30 June 2014

Share Share Revaluation Retained

capital premium reserve income Total

US$ US$ US$ US$ US$

Balance at 01 January 2013 954 814 8 896 953 - 5 219 006 15 070 773

Profit or loss

Profit for the year - - - 1 950 899 1 950 899

Other comprehensive

income, net of tax

Revaluation of property - - 43 062 - 43 062

Transactions with owners

of the Bank

Dividend paid - - - (502 328 ) (502 328)

Balance at 01 January 2014 954 814 8 896 953 43 062 6 667 577 16 562 406

Profit or loss

Profit for the period - - - 242 507 242 507

Balance at 30 June 2014 954 814 8 896 953 43 062 6 910 084 16 804 913

UNAUDITED STATEMENT OF CASH FLOWSFor the half year ended 30 June 2014


Net cash inflow/(outflow) from operating activities 1 221 224 (1 617 231 )

Cash flows from investing activitiesPurchase of equipment (42 385 ) (163 766 )

Purchase of money market instruments (55 500 000 ) (37 100 000 )

Proceeds on disposal of money market instruments 56 000 000 34 800 000

Proceeds on disposal of property and equipment 2 597 22 429

Net increase/(decrease) in cash and cash equivalents 1 681 436 (4 058 568 )

Cash and cash equivalents at beginning of period 2 029 362 7 715 277

Cash and cash equivalents at end of period 3 710 798 3 656 709

Cash and cash equivalents comprise of:

Cash on hand 1 204 568 775 254


3 710 798 3 656 709

NOTES TO THE UNAUDITED FINANCIAL STATEMENTSFor the half year ended 30 June 2014


1. CASH AND CASH EQUIVALENTS

Cash on hand 1 204 568 748 084


3 710 798 2 029 362

2. MONEY MARKET PLACEMENTS At amortised cost

Fixed deposits 8 000 000 8 500 000

8 000 000 8 500 000

3. LOANS AND ADVANCES Categories of loans and advances

Home loans 12 079 106 8 641 996

Commercial mortgages - 739 430

Mortgage loans 12 079 106 9 381 426

Consumer loans 4 868 440 3 104 569

Overdrafts - 232 948

Other loans and advances 4 868 440 3 337 517

Gross loans and advances 16 947 546 12 718 943

Less: Allowance for loans impairement (180 909 ) (67 725 )

16 766 637 12 651 218

Maturity analysis Within 1 month 257 359 248 609

Between 1 and 6 months 897 761 1 095 158

Between 6 and 12 months 2 835 598 1 784 158

After 12 Months 12 956 828 9 591 018

16 947 546 12 718 943


Sectoral analysis Individuals 16 033 919 12 633 581

Agriculture - 194

Services 913 627 85 168

16 947 546 12 718 943

Allowances for impairment

Balance at beginning of period 67 725 394 183

Charge to statement of profit or loss 113 184 (326 458 )

Balance at end of period 180 909 67 725

Comprising:

Portfolio provisions 46 746 15 372

Specific 134 163 52 353

180 909 67 725

4. INVENTORIES, TRADE AND OTHER RECEIVABLES

Interest receivable 91 918 172 397

Sundry debtors and other accounts 268 178 242 833

Inventories 270 000 392 575

Intercompany balances 446 818 656 818

1 076 914 1 464 623

5. INVESTMENT PROPERTIES

Fair value at beginning of period 3 485 000 3 450 000

Fair value gain - 35 000

Balance at end of period 3 485 000 3 485 000

6. DEPOSITS FROM CUSTOMERS

Savings accounts 10 812 760 9 927 051

Fixed deposits 9 278 192 6 629 464

Term deposits 2 585 465 1 839 176

22 676 417 18 395 691

7. TRADE AND OTHER PAYABLES

Interest payable 218 861 169 009

Creditors and other accounts 377 674 220 333

Deferred Income 799 669 558 908

Group management fees 104 123 163 493

Intercompany balances 80 217 80 217

Leave pay provision 53 809 55 667

1 634 353 1 247 627

8. DEFERRED TAX LIABILITIES

8.1 Fair value adjustments on financial assets 225 147 223 423

Fair valuation of investment properties 174 250 174 250

Fair valuation of property and equipment 175 744 176 250

575 141 573 923

8.2 Deferred tax movement Balance at beginning of period 573 923 564 307

Arising from fair value adjustment on property

and equipment - 2 266

Other income and expense items 1 218 7 350

Balance at end of period 575 141 573 923

9 EQUITY AND RESERVES

9.1 Share capital Authorised;

100 000 000 ordinary shares of US$0.01 each 1 000 000 1 000 000

Issued and fully paid;

95 481 425 ordinary shares of US$0.01 each 954 814 954 814

9.2 Capital adequacy ratio Share capital 954 814 954 814

Share premium 8 896 953 8 896 953

Retained income 6 910 084 6 667 577

16 761 851 16 519 344

Related party exposure (446 818 ) (672 114 )

Operational risk allocations (422 102 ) (515 415 )

Tier 1 Capital 15 892 931 15 331 815

Revaluation reserves 43 062 43 062

Tier 2 Capital 43 062 43 062

Operational Risk 422 102 515 415

Tier 3 Capital 422 102 515 415

Total capital base 16 358 095 15 890 292

Credit risk weighted assets 32 460 143 30 319 351

Operational risk equivalent assets 5 276 278 6 442 686

Total risk weighted assets 37 736 421 36 762 037

Tier 1 capital ratio 42% 42%



Capital Adequacy Ratio 43% 43%



ZBFH

631

07


10. NET INTEREST INCOME

10.1 Interest income

Mortgage advances 564 778 243 656

Overdrafts 78 819 9 030

Consumer loans 505 513 613 904

Short term funds and securities 405 936 421 314

1 555 046 1 287 904

10.2 Interest expense

Fixed deposits 150 978 71 980

Savings accounts 20 749 18 426

Short term funds 107 774 247 990

Other liabilities 1 546 8 163

281 047 346 559

Net interest income 1 273 999 941 345

11. OTHER INCOME Commissions and fees 2 149 901 2 118 319

Operating lease rental income 171 778 180 686

Other 177 865 245 970

2 499 544 2 544 975

12. FAIR VALUE ADJUSTMENTS Financial assets designated at fair value

through profit or loss

Fair value adjustments on subsidiary companies 34 486 98 285

Fair value adjustments on investment securities 323 -

34 809 98 285

13. OPERATING EXPENSES Operating expenses comprise the following expenses:

Staff costs 808 566 754 783

Communication expenses 65 949 31 042

Computer and information technology 204 395 201 610

Occupation expenses 180 258 191 760

Commission and fees 1 399 746 752 647

Administration expenses 792 529 902 260

3 451 443 2 834 102

Included in administration expenses are the following:

Audit fees 46 145 10 900

Depreciation on property and equipment 74 485 119 429

14. TAXATION Deferred tax 1 218 4 410

Total tax expense 1 218 4 410

15 RISK MANAGEMENT15.1 Interest rate gap analysis

Up to 1 2 to 6 7 months to Over Carrying

month months 1 year 1 year amount

US$ US$ US$ US$ US$

As at 30 June 2014

Financial assets by type

Cash and cash equivalents 2 506 230 - - - 2 506 230

Money market placements 6 800 000 1 200 000 - - 8 000 000

Loans and advances 293 611 1 012 975 2 325 514 13 134 537 16 766 637

9 599 841 2 212 975 2 325 514 13 134 537 27 272 867

Financial liability by type

Deposits from customers 7 082 684 1 746 495 1 186 259 11 188 193 21 203 631

Short term borrowings 1 472 786 - - - 1 472 786

8 555 470 1 746 495 1 186 259 11 188 193 22 676 417

Period Gap 1 044 371 466 480 1 139 255 1 946 344 4 596 450

Cumulative gap 1 044 371 1 510 851 2 650 106 4 596 450 -

15 RISK MANAGEMENT15.2 Liquidity gap analysis

Up to 1 2 to 6 7 months to Above Gross nominal Carrying

month months 1 year 1 year inflow/outflow amount


As at 30 June 2014

Financial assets by type

Cash and cash equivalents 3 710 798 - - - 3 710 798 3 710 798

Money market placements 6 843 875 1 206 625 - - 8 050 500 8 000 000

Loans and advances 386 108 1 026 653 2 339 192 13 259 209 17 011 162 16 766 637

Investment Securities - - - 17 342 17 342 17 342

10 940 781 2 233 278 2 339 192 13 276 551 28 789 802 28 494 777

Financial liability by type

Deposits from customers 7 099 301 1 870 851 1 222 008 11 223 943 21 416 103 21 203 631

Short term borrowings 1 472 786 - - - 1 472 786 1 472 786

8 572 087 1 870 851 1 222 008 11 223 943 22 888 889 22 676 417

Period Gap 2 368 694 362 427 1 117 184 2 052 608 5 900 913 5 818 360

Cumulative gap 2 368 694 2 731 121 3 848 305 5 900 913 - -

The table above sets out the remaining contractual maturities of the Society’s financial assets and liabilities.

15.2.1 Liquidity Ratios




Liquidity ratio 52% 60%

Minimum statutory level 30% 30%

16. EXTERNAL CREDIT RATING

The Society subscribes to an internationally recognised rating agency Global Credit Rating Group

(GCR), and the ratings for the last three years were as follows:-

2014 2013 2012

Long term debt rating BBB- BBB- BBB-

The current rating expires in November 2014 and has been placed on a watch list.

ZB BUILDING SOCIETYUNAUDITED FINANCIAL STATEMENTS30 JUNE 2014

GROUP CORPORATE INFORMATION

Investor Relations

ZB Financial Holdings Limited HY 2014 financial